Axe Compute Inc. annual report, FY2020

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Predictive Oncology Inc. — FY2020 Form 10-K

Entity and period: The filing is for Predictive Oncology Inc. (NASDAQ: POAI), not Axe Compute Inc. It reports the fiscal year ended December 31, 2020; it is an annual report, not a standalone Q4 report. Comparative figures are for FY2019.

Business context

The company operates Helomics, its AI-enabled precision medicine and contract research business; Skyline, which sells the FDA-cleared STREAMWAY medical-fluid disposal system and related products; and Soluble, which provides protein formulation and stability services. Management said it would concentrate resources on Helomics and AI-driven precision medicine and drug discovery. Skyline generated most FY2020 revenue; Helomics revenue remained limited.

Financial performance and liquidity

  • Revenue: $1.252 million, down from $1.412 million in FY2019 (about 11%). Skyline revenue was $1.185 million; Helomics, $64,188; Soluble, $2,870. STREAMWAY unit sales declined to 25 from 41.
  • Gross profit and margin: $805,080 and 64%, versus $879,755 and 62% in FY2019. Lower maintenance-support costs contributed to the margin improvement.
  • Net loss: $25.884 million, compared with $19.391 million in FY2019. Basic and diluted loss per share was $2.21 versus $6.86; weighted-average shares increased substantially, so per-share comparisons are affected by dilution.
  • Operating costs and unusual items: General and administrative expense was $10.352 million; operations expense, $2.352 million; and sales and marketing expense, $585,000. The company recorded $12.876 million of goodwill impairment, primarily related to Helomics, and $1.997 million of debt-extinguishment losses. Other income included $541,867 from forgiveness of its PPP loan.
  • Cash flow: Operating cash use was $12.258 million, up from $8.732 million in FY2019. Investing cash use was $167,000; financing provided $12.953 million. Year-end cash was $678,332.
  • Balance sheet and debt: Total assets were $13.060 million, total liabilities $10.418 million, and stockholders’ equity $2.643 million. Current assets of $1.514 million compared with current liabilities of $9.337 million. Notes payable, net, were $4.432 million; operating lease liabilities totaled approximately $1.443 million. Accumulated deficit was $108.383 million.
  • Research and development: $373,000, down from $423,000 in FY2019.

Material changes and outlook

  • The company acquired Soluble and BioDtech assets in May 2020 and Quantitative Medicine assets, including its CoRE platform, in July 2020. It also reorganized reportable segments during the year.
  • In January and February 2021, five equity offerings produced $31.077 million in net proceeds; warrant exercises through February 25 generated another $4.270 million. On March 1, 2021, the company used $5.907 million to repay the remaining principal, interest, and premiums on three investor notes.
  • Management said the 2021 financings alleviated substantial doubt about continued operations and expected available resources to support its operating plan through at least March 31, 2022. It also said the company anticipated continued net losses at least through the remainder of 2021 and might seek additional financing.
  • No specific revenue or earnings guidance is provided. Commercialization of Helomics’ AI models depends on further development, validation, customer relationships, and revenue-generating projects.
  • COVID-19 disrupted STREAMWAY parts supply and production, restricted hospital sales visits, slowed collections, and led suppliers to request deposits. Management said the effects could continue, with duration and financial impact uncertain.

Risks, contingencies, and controls

  • The company has a short operating history in precision medicine and limited revenue from Helomics; it has not achieved profitability and has relied on external financing.
  • Management reported ineffective disclosure controls and internal control over financial reporting as of December 31, 2020, due to a material weakness involving insufficient accounting resources and expertise in complex U.S. GAAP matters. Remediation steps were underway, but management had not concluded the weakness was fully remediated.
  • Goodwill impairment was significant in both years: $12.876 million in FY2020 and $8.100 million in FY2019. Remaining goodwill was $2.814 million. The valuation depends on forecasts and other assumptions; the auditor identified goodwill impairment testing as a critical audit matter.
  • Other principal risks include dilution from equity and warrant financings, competition, regulatory and laboratory-licensing requirements, dependence on certain suppliers and key personnel, intellectual-property protection, and potential further impairments. The filing reports no material legal proceedings and no off-balance-sheet transactions.

Most important facts for investors to verify

  • Confirm the issuer identity: this filing is Predictive Oncology Inc. (POAI), not Axe Compute Inc.
  • Review the full audited financial statements and notes, including the cash-flow outlook, debt and lease obligations, and the 2021 financing and debt repayment details.
  • Track actual Helomics and Soluble customer contracts and revenue against the company’s stated AI commercialization strategy; FY2020 Helomics revenue was only $64,188.
  • Assess the dilution and potential warrant overhang from the 2021 offerings, warrant exercises, and outstanding securities.
  • Monitor whether the material weakness in internal controls is remediated and whether further goodwill impairment or additional financing is required.