Predictive Oncology Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. The filing identifies the registrant as Predictive Oncology Inc. (Nasdaq: POAI), not Axe Compute Inc.; verify the company and filing match the intended request.
Business context
The company operates in precision medicine and drug discovery through Helomics and Soluble, and sells the STREAMWAY medical-fluid disposal system through Skyline. Management said it would focus resources on Helomics and precision medicine. Soluble and Quantitative Medicine assets were acquired in 2020.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $480,757 | $522,696 | $958,484 | $1,064,088 |
| Gross margin | $305,551 (about 64%) | $314,600 (about 60%) | $605,360 (about 63%) | $663,886 (about 62%) |
| Net loss | $6,307,726 | $4,008,512 | $14,414,421 | $5,836,592 |
| Net loss attributable to common shareholders | $6,862,013 | $4,134,313 | $14,968,708 | $5,982,791 |
| Loss per common share | $0.46 | $1.31 | $1.51 | $2.32 |
- Cash was $2.47 million at September 30, 2020, versus $150,831 at December 31, 2019. Current assets were $3.46 million and current liabilities $11.61 million.
- Operating cash use was $9.95 million for the first nine months, compared with $5.94 million in 2019. Financing provided $12.30 million; investing used $26,192.
- Notes payable, net of discounts, were $5.75 million. The company separately reported outstanding debt, including accrued interest and penalties, of $7.87 million and estimated $8.19 million payable March 31, 2021, including assumed interest and premiums. Debt is secured by company and subsidiary assets.
- Total assets were $25.16 million; total liabilities $12.92 million; stockholders’ equity $12.24 million. Goodwill fell to $12.69 million after a $3.00 million impairment charge.
Changes and unusual items
- Revenue decreased 8% in Q3 and 10% for the nine-month period year over year. Skyline sold 15 STREAMWAY units in Q3 versus 19, and 21 in the nine-month period versus 33. Helomics revenue was $33,879 for the nine months; Soluble reported no revenue.
- Operating losses included the $2.997 million goodwill impairment. Q3 other expense rose to $2.15 million, primarily reflecting interest, penalties, debt-discount amortization and debt-extinguishment costs. Gains on derivative instruments partly offset expenses.
- Nine-month results also included a $1.29 million gain related to the Soluble/BioDtech asset purchase and settlement of an otherwise uncollectible note. Comparisons with 2019 are affected by prior-year gains on revaluation of an equity-method investment and other items.
- Financing included equity offerings, warrant exercises, equity-line share sales and debt issuance. Common shares outstanding increased from 4.06 million at year-end 2019 to 16.59 million at September 30, 2020; 17.68 million were reported outstanding November 11.
- The company recorded a $554,287 deemed dividend from repricing Helomics-acquisition warrants, increasing the loss attributable to common shareholders.
Outlook, risks and contingencies
- Management reported recurring losses, negative operating cash flow and substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the statements. It said significant additional capital is needed and that obtaining it is not considered probable. No specific revenue or earnings guidance was provided.
- The $15 million equity line had $10.45 million remaining at September 30, subject to trading volume, share price and other limitations; the company cautioned it might not be able to access the full amount. Further financing may be dilutive or unavailable on acceptable terms.
- COVID-19 disrupted a STREAMWAY contract manufacturer, delayed production and sales visits, slowed receivables and led suppliers to request pre-delivery deposits. The company said adverse effects could continue.
- The $541,867 Paycheck Protection Program loan remained outstanding; forgiveness had been requested, but was not assured. Management also cited risks from debt repayment, acquisitions, further impairments, regulation, competition and execution.
- Disclosure controls were deemed ineffective due to a material weakness: insufficient accounting resources with expertise in complex U.S. GAAP transactions. Remediation efforts were underway; management stated the financial statements fairly presented the periods reported.
Key facts for investors to verify
- Confirm that this Predictive Oncology filing, rather than an Axe Compute filing, is the intended document.
- Assess near-term liquidity against the March 31, 2021 debt obligations, cash burn and the conditional equity-line availability.
- Review the potential dilution from outstanding warrants, variable-price convertible notes, equity-line sales and subsequent share issuances.
- Examine assumptions underlying the Helomics goodwill valuation and the risk of additional impairment.
- Track STREAMWAY sales, Helomics and Soluble revenue generation, COVID-related operating impacts, PPP forgiveness, and remediation of the material weakness.