Business context and reporting period
Precision Therapeutics Inc. (Nasdaq: AIPT) filed this unaudited Form 10-Q for the quarter ended March 31, 2019. The filing identifies Precision Therapeutics—not Axe Compute Inc.—as the registrant. Its businesses include STREAMWAY infectious-fluid management products, precision oncology/CRO services, and TumorGenesis research. Helomics was still an equity-method investment during the quarter; the company acquired the remaining 75% on April 4, 2019.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 or prior date |
|---|---|---|
| Revenue | $255,241 | $411,593 |
| Gross profit / margin | $181,524 / approximately 71% | $294,250 / approximately 71% |
| Operating loss | $2,337,203 | $1,785,839 |
| Net loss attributable to common shareholders | $3,293,184 | $1,760,022 |
| Loss per share, basic and diluted | $0.21 | $0.15 |
| Net cash used in operating activities | $2,048,653 | $1,694,318 |
| Cash and cash equivalents | $1,124,730 at March 31 | $162,152 at December 31, 2018 |
| Total assets / liabilities | $5,086,961 / $5,016,956 | $3,708,999 / $3,655,527 at December 31, 2018 |
Revenue declined 38%; STREAMWAY unit sales were 7 (3 domestic, 4 international), versus 16 a year earlier. Gross margin percentage was broadly stable. Higher general and administrative and operations costs, plus $439,637 of equity-method loss from Helomics and $569,776 of other expense, contributed to the wider net loss. Financing activities provided $3,635,882, including public-offering proceeds and debt issuance; investing activities used $624,651, primarily for advances to Helomics.
At March 31, current liabilities were $4,761,831 against current assets of $3,654,259. Balance-sheet notes payable, net of discounts, totaled approximately $3.08 million; management separately stated that approximately $4.08 million of debt principal was due between September 2019 and February 2020. The company reported only $70,005 of stockholders’ equity. It adopted lease accounting in January 2019 and recorded lease right-of-use assets and liabilities.
Material changes and notable transactions
- Two March registered direct offerings generated approximately $2.43 million gross proceeds in total. Common shares outstanding rose from 14,091,748 at December 31 to 17,360,144 at March 31; the filing reports 30,680,570 shares outstanding as of May 14.
- CEO Carl Schwartz provided loans and investments, including a $1.62 million promissory note balance described in the filing, and received warrants. A further $75,000 CEO loan was advanced on May 9, bearing 8% interest and due in 60 days.
- Bridge-loan forbearance terms increased the institutional investors’ aggregate principal to $2,642,387 and included 166,667 inducement shares. The company reported that specified defaults were cured, but warned that further defaults could trigger acceleration and penalties.
- The April 4 Helomics acquisition was accounted for as a business combination. Consideration for the remaining interest was approximately $7.82 million, including common and preferred shares and extinguishment of a Helomics note. Precision also issued 8,637,323 common shares to extinguish Helomics notes and issued warrants to noteholders. Purchase-accounting values were not yet available in this filing.
Outlook, risks and contingencies
Management said the company expects continued losses at least through the remainder of 2019, needs substantial additional capital, and does not expect near-term operating revenue to sustain operations. The filing states there is substantial doubt about the company’s ability to continue as a going concern for one year after issuance. Management cited a shelf registration that had raised approximately $2.1 million net in early 2019 and potential capacity for up to approximately $5.0 million in additional gross proceeds after the Helomics acquisition; neither assures future funding.
Risks include ongoing cash burn and near-term debt maturities; potentially dilutive or unavailable financing; Helomics’ losses, limited revenue, reimbursement and regulatory exposure, and integration needs; STREAMWAY sales adoption and competition; and possible Nasdaq delisting. The company said it had not regained the $1.00 minimum bid-price requirement by May 15, 2019, and had notified Nasdaq of its intention to cure, potentially through a reverse split. The filing reported no legal proceedings and no material change in internal control over financial reporting; management concluded disclosure controls were effective as of March 31.
Investor verification priorities
- Confirm post-quarter financing, cash runway, and ability to meet the stated debt maturities and Helomics funding needs.
- Review the final Helomics purchase-price allocation, acquired liabilities, integration costs, and subsequent consolidated operating results.
- Assess the fully diluted share count, including Series D preferred conversion, warrants, options, and merger-related issuances.
- Verify Nasdaq listing status and any cure or reverse-split action after May 15, 2019.
- Reconcile cash-flow disclosures: the cash-flow statement shows operating cash use rising by about $354,000 year over year, while MD&A describes an increase of $794,000.