Business context and reporting period
The supplied filing is Predictive Oncology Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022; it does not identify Axe Compute Inc. The company reports four segments: Helomics, zPREDICTA, Soluble and Skyline. Its businesses span oncology testing and research, tumor-specific models, biopharmaceutical contract services, and STREAMWAY medical fluid-waste systems.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $371,591 | $686,159 | $350,207 Q2; $630,524 six months |
| Gross profit | $237,516 | $442,641 | $207,330 Q2; $389,889 six months |
| Gross margin | Approximately 64% | Approximately 65% | Approximately 59% Q2; 62% six months |
| Net loss | $10,391,324 | $13,762,039 | $2,573,932 Q2; $6,462,645 six months |
| Basic and diluted loss per share | $0.15 | $0.20 | $0.05 Q2; $0.15 six months |
| Cash used in operating activities | Not stated for quarter | $6,427,806 | $5,526,978 six months |
At June 30, cash and cash equivalents were $28.25 million, total current assets $29.82 million, current liabilities $2.83 million, total liabilities $2.96 million, and stockholders’ equity $33.54 million. The company reported no outstanding debt. Cash increased by $46,837 in the first half, after $6.74 million of financing inflows largely from equity issuance offset operating and investing cash outflows.
Changes versus prior comparable periods
- Revenue increased 6% in Q2 and 9% for the first half. Skyline remained the largest reported revenue contributor; zPREDICTA contributed $90,283 in first-half revenue.
- Net loss widened substantially, principally because of a $7.23 million non-cash goodwill impairment charge for zPREDICTA. Operating expenses also rose in operations and sales and marketing, while first-half general and administrative expense declined.
- First-half operating cash use increased by about $0.90 million year over year. Management attributed the increase primarily to working-capital needs and higher operating costs following the zPREDICTA acquisition.
- Common shares outstanding increased from 65.6 million at December 31, 2021 to 78.2 million at June 30, 2022. A May offering issued 12 million shares at $0.60 per share and generated $6.51 million net proceeds, according to the equity statement.
Outlook, risks and unusual items
- Management stated existing capital resources should support the operating plan for the next twelve months and beyond. This is an estimate, not a quantified earnings or revenue forecast. The company may seek additional financing; availability and terms are uncertain.
- The company has incurred recurring losses and negative operating cash flow. It reported an accumulated deficit of $141.8 million at June 30, 2022.
- The May financing also included warrants and amendments that lowered exercise prices on certain existing warrants to $0.70 and extended their terms. The filing reports 36.4 million warrants outstanding at June 30, creating potential dilution. The equity line had $8.88 million remaining but could not be accessed for one year after May 18, 2022; further issuance under it would be dilutive.
- The company concluded zPREDICTA goodwill was fully impaired, reducing its balance to zero. It also corrected an acquisition-accounting error by increasing deferred revenue liabilities and acquisition goodwill by $373,303, which it determined was not material to the periods identified.
- COVID-19-related supplier relocation, delayed parts and production, reduced on-site staffing, weaker sales access, slower receivable collections, and supplier deposit demands were cited as continuing risks. The filing also identifies financing, commercialization, competition, regulatory, acquisition, and profitability risks.
- Disclosure controls and procedures were deemed ineffective at June 30 because of a material weakness: insufficient accounting resources and expertise for complex U.S. GAAP matters. Management said it had begun seeking additional qualified accounting staff. No legal proceedings were reported.
Key facts for investors to verify
- Confirm the filing issuer: the provided document is for Predictive Oncology Inc. (POAI), not Axe Compute Inc.
- Reconcile the impairment amount: the financial statements and goodwill note state $7,231,093, while MD&A elsewhere states $7,231,903.
- Review the assumptions underlying the zPREDICTA valuation, including the stated 65% discount rate, and the rationale for the full goodwill write-off.
- Assess cash burn and the basis for management’s twelve-month-and-beyond liquidity conclusion, including the equity line’s access restriction and potential financing needs.
- Evaluate potential dilution from the May share issuance, amended and newly issued warrants, and other outstanding equity awards.
- Track remediation of the material weakness in financial reporting controls and any subsequent accounting or disclosure updates.