Business context and reporting period
This is Predictive Oncology Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020, filed June 8, 2020. The request metadata names Axe Compute Inc., but the filing identifies Predictive Oncology Inc. (Nasdaq: POAI) as the registrant.
The company operates in precision medicine and drug discovery, including Helomics clinical testing and contract research, and sells the STREAMWAY medical-fluid disposal system and related supplies. Management said it planned to focus resources on Helomics and precision medicine while continuing to pursue strategic opportunities for the Skyline Medical business.
Financial results and liquidity
- Revenue: $294,943, up $39,702 (about 16%) from $255,241 in Q1 2019. Q1 2020 included $15,130 of Helomics revenue; the company sold 5 STREAMWAY units versus 7 a year earlier.
- Gross profit and margin: $202,286, with a reported gross margin of about 69%, versus $181,524 and 71% in Q1 2019. Management attributed the lower consolidated margin primarily to Helomics costs exceeding its revenue; STREAMWAY gross margin was 77%.
- Operating results: Operating loss was $3.44 million versus $2.34 million. Net loss was $4.53 million versus $3.29 million. Basic and diluted loss per share was reported as $0.93 versus $2.09; weighted-average share counts are inconsistent within the filing and should be verified.
- Expense and other items: General and administrative expense rose $1.33 million to $2.83 million, primarily due to Helomics-related costs. Sales and marketing expense fell $290,000 to $264,000 as the company reduced Skyline spending. Other expense increased to $1.12 million from $570,000, mainly from interest, penalties, debt-discount amortization and a $300,000 debt-extinguishment loss.
- Cash flow: Operating cash use was $2.97 million, versus $2.05 million in Q1 2019; investing cash use was $33,000 versus $625,000. Financing provided $5.91 million versus $3.64 million. Quarter-end cash was $3.06 million, up from $151,000 at year-end.
- Balance sheet and debt: Total assets were $25.05 million and total liabilities $14.69 million. Notes payable, net of discounts, were $5.93 million, including $2.12 million classified as long-term; the filing separately says debt including accrued interest and penalties totaled $7.79 million and was due within six months at quarter-end. Current liabilities were $12.37 million, against current assets of $3.74 million.
- Equity and dilution: The company raised financing through debt, a March private placement and its equity line; 943,000 shares were issued under the equity line during the quarter. Common shares outstanding were 5,852,718 at March 31, compared with 4,056,652 at year-end.
Material changes versus the prior comparable period
Revenue increased modestly, but operating and net losses widened as operating costs—particularly G&A—grew following the Helomics acquisition. Cash used in operations also increased. Financing receipts supported a higher quarter-end cash balance, but debt obligations and accumulated losses remained substantial. The 2019 comparison included a $440,000 loss on an equity-method investment in Helomics before the company acquired the remaining interest in April 2019.
Outlook, risks and unusual items
- Going concern: Management reported recurring losses, an accumulated deficit of $87.03 million and substantial doubt about the company’s ability to continue as a going concern for one year after the financial statements were issued. It said additional capital was needed and that financing was not probable at the time of the filing. Management anticipated continued net losses at least through the remainder of 2020; no revenue or earnings guidance was provided.
- Debt maturities and financing: The filing identifies substantial repayments due from June through September 2020 and says extensions or restructuring may be needed, without assurance of success. The $15 million equity line was subject to market and other limitations and could be dilutive. Subsequent to quarter-end, the company reported a $541,867 PPP loan and a May offering that generated $1.93 million net proceeds; these do not change the March 31 balance sheet.
- COVID-19: Management cited delayed STREAMWAY parts, reduced on-site staffing and production efficiency, limits on hospital sales visits, slower receivable collections, and suppliers demanding deposits. It warned that the pandemic could materially adversely affect operations, liquidity and results. PPP loan forgiveness was not assured.
- Other transactions: After quarter-end, the CEO exchanged $2.19 million of principal and accrued interest for 1,533,481 shares. The company also reported completing a May asset purchase involving Soluble Therapeutics and BioDtech in exchange for waiver of the CytoBioscience receivable and 125,000 shares. A proposed Quantitative Medicine acquisition was described as subject to definitive agreements; the filing text does not provide a clear completion status.
- Controls and contingencies: Management concluded disclosure controls were ineffective because of a material weakness in accounting resources and technical GAAP expertise, and described remediation efforts. The filing reported no legal proceedings. Goodwill and intangible-asset impairment charges of $8.10 million and $770,250, respectively, had been recorded in 2019; management found no further impairment at March 31, 2020.
Important facts for investors to verify
- Confirm the registrant identity: the supplied metadata says Axe Compute Inc., while the filing is for Predictive Oncology Inc.
- Assess the going-concern warning against available cash, operating cash burn, debt maturities and the company’s ability to secure further financing.
- Review the terms, repayment dates, security interests, conversion features, penalties and potential dilution from debt, warrants, private placements and the equity line.
- Reconcile the share-count and weighted-average-share discrepancies: the income statement reports 4,866,328 weighted-average shares, while Note 8 reports 4,886,328.
- Track COVID-19 effects, PPP forgiveness, the status of the Quantitative Medicine proposal, and the expected benefits and costs of the post-quarter asset acquisition.
- Monitor remediation of the disclosed material weakness and any further impairment testing of goodwill and intangible assets.