10-Q 1 poai20220930_10q.htm FORM 10-Q poai20220930_10q.htm
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________________ to _________________________

 

Commission File Number: 001-36790

 

Predictive Oncology Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

33-1007393

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

   

2915 Commers Drive, Suite 900

 

Eagan, Minnesota 55121

(Address of principal executive offices)

 

(Zip Code)

 

651-389-4800

(Registrant’s telephone number, including area code)

 

   

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value

POAI

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes   ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

 

Yes   ☐ No

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes   ☒ No

 

As of November 4, 2022, the registrant had 78,753,475 shares of common stock, par value $0.01 per share outstanding. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

PREDICTIVE ONCOLOGY INC.

 

TABLE OF CONTENTS

 

 

Page
No.

   

PART I. FINANCIAL INFORMATION

4
   

Item 1. Unaudited Condensed Consolidated Financial Statements

4

   

Condensed Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021

4

   

Condensed Consolidated Statements of Net Loss for the three and nine months ended September 30, 2022, and September 30, 2021

5

   

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022, and September 30, 2021

6

   

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022, and September 30, 2021

8

   

Notes to Condensed Consolidated Financial Statements

9

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

31

   

Item 4. Controls and Procedures

31

   

PART II. OTHER INFORMATION

31
   

Item 1. Legal Proceedings

32

   

Item 1A. Risk Factors

32

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

32

   

Item 3. Defaults Upon Senior Securities

32

   

Item 4. Mine Safety Disclosures

32

   

Item 5. Other Information

32

   

Item 6. Exhibits

32

   

Signatures

33

   

Exhibit Index

34

 

 

 

  

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 
  

September 30,

2022

  

December 31,

2021

 
  

(unaudited)

  

(audited)

 

ASSETS

        

Current Assets:

        

Cash and Cash Equivalents

 $25,393,738  $28,202,615 

Accounts Receivable

  324,708   354,196 

Inventories

  493,722   387,684 

Prepaid Expense and Other Assets

  645,153   513,778 

Total Current Assets

  26,857,321   29,458,273 
         

Fixed Assets, net

  2,202,102   2,511,571 

Intangibles, net

  3,701,603   3,962,118 

Lease Right-of-Use Assets

  329,565   814,454 

Other Long-Term Assets

  75,618   167,065 

Goodwill

  -   6,857,790 

Total Assets

 $33,166,209   43,771,271 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current Liabilities:

        

Accounts Payable

 $917,271  $1,021,774 

Accrued Expenses and other liabilities

  1,813,580   1,262,641 

Derivative Liability

  22,099   129,480 

Contract Liabilities

  495,365   186,951 

Lease Liability

  219,763   639,662 

Total Current Liabilities

  3,468,078   3,240,508 
         

Lease Liability – Net of current portion

  5,483   239,664 

Other long-term liabilities

  99,770   25,415 

Total Liabilities

  3,573,331   3,505,587 
         

Stockholders’ Equity:

        

Preferred Stock, 20,000,000 authorized inclusive of designated below

        

Series B Convertible Preferred Stock, $.01 par value, 2,300,000 shares authorized, 79,246 shares outstanding

  792   792 

Common Stock, $.01 par value, 200,000,000 shares authorized, 78,407,473 and 65,614,597 outstanding

  784,074   656,146 

Additional paid-in capital

  174,669,817   167,649,028 

Accumulated Deficit

  (145,861,805)  (128,040,282

)

Total Stockholders’ Equity

  29,592,878   40,265,684 
         

Total Liabilities and Stockholders’ Equity

 $33,166,209  $43,771,271 

 

See Notes to Condensed Consolidated Financial Statements

 

 

4

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS

(Unaudited)

 

 
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue

 $455,827  $313,663  $1,141,986  $944,187 

Cost of goods sold

  108,151   110,165   351,669   350,800 

Gross profit

  347,676   203,498   790,317   593,387 
                 

General and administrative expense

  3,287,918   2,061,458   8,063,265   7,410,208 

Operations expense

  857,130   648,935   2,657,314   1,791,543 

Sales and marketing expense

  333,377   172,869   908,867   447,298 

Loss on goodwill impairment

  -   2,813,792   7,231,093   2,813,792 

Total operating loss

  (4,130,749)  (5,493,556)  (18,070,222)  (11,869,454)

Other income

  63,047   58,830   146,524   144,122 

Other expense

  (2,001)  (7,413)  (5,207)  (244,214)

Gain on derivative instruments

  10,219   4,122   107,381   68,884 

Net loss

 $(4,059,484) $(5,438,017) $(17,821,524) $(11,900,662)

Net loss attributable to common shareholders per common shares-basic and diluted

 $(4,059,484) $(5,438,017) $(17,821,524) $(11,900,662)
                 

Loss per common share basic and diluted

 $(0.05) $(0.08) $(0.25) $(0.23)
                 

Weighted average shared used in computation – basic and diluted

  78,383,878   65,406,312   71,084,454   51,272,960 

 

See Notes to Condensed Consolidated Financial Statements

 

 

 

5

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2022

(Unaudited)

 

 
  

Series B Preferred

  

Common Stock

  

Additional Paid-In

  

Accumulated

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Total

 

Balance at 12/31/2021

  79,246  $792   65,614,597  $656,146  $167,649,028  $(128,040,282) $40,265,684 

Shares issued pursuant to equity line

        120,000   1,200   85,685      86,885 

Shares issued to consultant & other

        171,868   1,719   160,403      162,122 

Vesting expense

                36,518      36,518 

Net loss

                   (3,370,715)  (3,370,715)

Balance at 03/31/2022

  79,246  $792   65,906,465  $659,065  $167,931,634  $(131,410,997) $37,180,494 

Issuance of shares and warrants pursuant to May 2022 Private Offering

        12,000,000   120,000   6,387,050      6,507,050 

Shares issued pursuant to equity line

        195,000   1,950   147,174      149,124 

Shares issued to consultant & other

        53,662   536   50,134      50,670 

Vesting expense

                39,383      39,383 

Net loss

                   (10,391,324)  (10,391,324)

Balance at 06/30/2022

  79,246  $792   78,155,127  $781,551  $174,555,375  $(141,802,321) $33,535,397 

Shares issued to consultant & other

        229,212   2,292   91,708      94,000 

Vesting expense

        23,134   231   22,734      22,965 

Net loss

                   (4,059,484)  (4,059,484)

Balance at 09/30/2022

  79,246  $792   78,407,473  $784,074  $174,669,817  $(145,861,805) $29,592,878 

 

See Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

6

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2021

(Unaudited)

 

   

Series B Preferred

   

Common Stock

   

Additional Paid-In

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balance at 12/31/2020

    79,246     $ 792       19,804,787     $ 198,048     $ 110,826,949     $ (108,383,108 )   $ 2,642,681  

Shares issued pursuant to agreement with former CEO related to accrued interest

                100,401       1,004       142,569             143,573  

Issuance of shares and warrants pursuant to Shelf offerings, net

                13,488,098       134,881       14,877,611             15,012,492  

Issuance of shares and warrants pursuant to February 2021 private placement, net

                9,043,766       90,438       15,974,301             16,064,739  

Exercise of warrants

                    5,247,059       52,471       4,442,799               4,495,270  

Shares issued pursuant to convertible debt

                1,107,544       11,075       502,936             514,011  

Shares issued to consultant & other

                2,665       27       (4,075 )           (4,048 )

Vesting expense

                                565,082             565,082  

Net loss

                                      (3,888,713 )     (3,888,713 )

Balance at 03/31/2021

    79,246     $ 792       48,794,320     $ 487,944     $ 147,328,172     $ (112,271,821 )   $ 35,545,087  

Issuance of shares and warrants pursuant to June 2021 direct placement, net

                15,520,911       155,209       19,291,087             19,446,296  

Shares issued pursuant to transition agreement with former CEO

                400,000       4,000       (4,000 )           -  

Shares issued pursuant to Equity Line

                572,504       5,725       582,865             588,590  

Shares issued to consultant & other

                47,424       474       48,238             48,802  

Vesting expense

                                33,243             33,243  

Net loss

                                      (2,573,932 )     (2,573,932 )

Balance at 06/30/2021

    79,246     $ 792       65,335,159     $ 653,352     $ 167,279,695     $ (114,845,753 )   $ 53,088,086  

Exercise of warrants

                22,000       220       18,370             18,590  

Shares issued to consultant & other

                77,191       772       97,997             98,769  

Vesting expense

                23,134       231       17,247             17,478  

Net loss

                                      (5,438,017 )     (5,438,017 )

Balance at 09/30/2021

    79,246     $ 792       65,457,484     $ 654,575     $ 167,413,309     $ (120,283,770 )   $ 47,784,906  

 

See Notes to Condensed Consolidated Financial Statements

 

 

 

7

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 
   

Nine Months Ended
September 30,

 
   

2022

   

2021

 

Cash flow from operating activities:

               

Net loss

  $ (17,821,524

)

  $ (11,900,662

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    980,381       970,488  

Vesting expense

    102,894       627,329  

Amortization of debt discount

    -       244,830  

Gain on valuation of equity-linked instruments and derivative liability

    (107,381

)

    (68,884

)

Equity instruments issued consultant, and other

    306,792       143,523  

Loss on fixed asset disposal

    1,700       5,858  

Loss on goodwill impairment

    7,231,093       2,813,792  
                 

Changes in assets and liabilities:

               

Accounts receivable

    29,488       (18,315 )

Inventories

    (106,038

)

    (108,441

)

Prepaid expense and other assets

    (39,928

)

    (313,573 )

Accounts payable

    (104,503

)

    (342,525

)

Accrued expenses and other liabilities

    476,035       (412,952

)

Contract liabilities

    (64,889

)

    99,518  

Other long-term liabilities

    (19,932

)

    (204,807

)

Net cash used in operating activities:

    (9,135,812

)

    (8,464,821

)

                 

Cash flow from investing activities:

               

Purchase of fixed assets

    (361,916

)

    (714,534

)

Loan activities

          (55,000

)

Acquisition of intangibles

    (50,180

)

    (50,699

)

Net cash used in investing activities

    (412,096

)

    (820,233

)

                 

Cash flow from financing activities:

               

Proceeds from issuance of common stock and warrants, net

    6,507,050       50,523,527  

Proceeds from exercise of warrants into common stock

    -       4,513,860  

Repayment of debt

    -       (4,162,744

)

Payment penalties

    -       (1,073,470

)

Proceeds from issuance of common stock pursuant to equity line

    236,009       588,590  

Repurchase of common stock upon vesting of restricted stock units

    (4,028

)

    (11,526

)

Net cash provided by financing activities

    6,739,031       50,378,237  
                 

Net increase (decrease) in cash and cash equivalents

    (2,808,877

)

    41,093,183  

Cash and cash equivalents at beginning of period

    28,202,615       678,332  

Cash and cash equivalents at end of period

  $ 25,393,738     $ 41,771,515  

Non-cash transactions:

               

Shares issued to CEO per agreement related to accrued interest

  $ -     $ 143,573  

Shares issued pursuant to convertible debt

    -       514,011  

Cash paid during period for:

               

Interest paid on debt

    3,754       695,989  

 

See Notes to Condensed Consolidated Financial Statements

 

8

 

 

PREDICTIVE ONCOLOGY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations and Continuance of Operations

 

Predictive Oncology Inc.®, (the “Company” or “Predictive” or “we”) filed with the Secretary of State of Delaware a Certificate of Amendment to its Certificate of Incorporation to change the corporate name to Predictive Oncology Inc. on June 10, 2019, trading under the new ticker symbol “POAI,” effective June 13, 2019.

 

The Company operates in four primary business areas. First, we provide drug response prediction services leveraging a unique collection of more than 150,000 tumor samples, categorized by tumor type and powered by artificial intelligence to assist biopharmaceutical companies in the development of new oncology drugs primarily through our wholly owned subsidiary Helomics Holding Corporation® (“Helomics”). Second, we develop tumor-specific in vitro models for oncology drug discovery and research through our newly-acquired wholly-owned subsidiary, zPREDICTA, Inc.®. Third, we offer contract services and research focused on solubility improvements, stability studies, and protein production, primarily with our Soluble Biotech Inc.®, subsidiary. Fourth, we sell and produce the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY System® for automated, direct-to-drain medical fluid waste disposal and associated products through our incorporated division Skyline Medical Inc.® (“Skyline”).

 

The Company had cash and cash equivalents of $25,393,738 as of September 30, 2022 and there was no outstanding debt. The Company believes that its existing capital resources will be sufficient to support its operating plan for the next twelve months and beyond. However, the Company may also seek to raise additional capital to support its growth through additional debt, equity or other alternatives or a combination thereof. The Company currently expects to use cash on hand to fund capital and equipment investments, research and development, potential acquisitions and its operations. The Company believes such sources to be sufficient to fund its requirements over that time.

 

Coronavirus Outbreak

 

The current COVID-19 worldwide pandemic has presented substantial public health challenges. In response to the crisis, emergency measures have been imposed by governments worldwide, including mandatory social distancing and the shutdown of non-essential businesses. These measures have adversely impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Our business and operations have been and will likely continue to be materially and adversely affected. For example, our contract manufacturer for the STREAMWAY System has been forced to change locations, thereby delaying our order fulfillment for parts. In addition, COVID-19 has impacted the Company’s capital and financial resources, including our overall liquidity position and outlook. For instance, our accounts receivable has slowed while our suppliers continue to ask for pre-delivery deposits. Ultimately, the extent of the impact of the COVID-19 pandemic on our future operational and financial performance will depend on, among other matters, the duration and intensity of the pandemic; the level of success of global vaccination efforts; governmental and private sector responses to the pandemic and the impact of such responses on us; and the impact of the pandemic on our employees, customers, suppliers, operations and sales, all of which are uncertain and cannot be predicted. These factors may remain prevalent for a significant period of time even after the pandemic subsides, including due to a continued or prolonged recession in the U.S. or other major economies. Even in areas where "stay-at-home" restrictions, masking and social distancing measures have been lifted and the number of COVID-19 cases have declined, some jurisdictions may re-impose these measures as and if variant strains emerge or cases rise. The impact of the COVID-19 pandemic, as with any adverse public health developments, could have a material adverse effect on our business, results of operations, liquidity or financial condition and heighten or exacerbate risks described in our Annual Report on Form 10-K filed with the SEC on March 31, 2022.

 

 

9

 

Interim Financial Statements

 

The Company has prepared the condensed consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim condensed consolidated financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which in the opinion of management, are necessary to present fairly the Company’s position, the results of its operations, and its cash flows for the interim periods. These interim condensed consolidated financial statements reflect all intercompany eliminations. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto contained in the Annual Report on Form 10-K filed with the SEC on March 31, 2022. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

 

Accounting Policies and Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and during the reporting period. Actual results could materially differ from those estimates.

 

Cash and cash equivalents

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions and, by policy, generally limits the amount of credit exposure to any one financial institution. The Company has a credit risk of $6,514,611 for cash amounts held in a single institution that are in excess of amounts issued by the Federal Deposit Insurance Corporation. 

 

Receivables

 

Receivables are reported at the amount the Company expects to collect on balances outstanding. The Company provides for probable uncollectible amounts through charges to earnings and credits to the valuation allowance based on management’s assessment of the status of individual accounts.

 

Amounts recorded in accounts receivable on the condensed consolidated balance sheet include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. An allowance for doubtful accounts is maintained to provide for the estimated amount of receivables that will not be collected. The Company reviews customers’ credit history before extending unsecured credit and establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Invoices are generally due 30 days after presentation. Accounts receivable over 30 days is generally considered past due. The Company does not accrue interest on past due accounts receivables. Receivables are written off once all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. There was no allowance for doubtful accounts as of both September 30, 2022 and December 31, 2021.

 

Fair Value Measurements

 

As outlined in Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standards ASC 820 establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

 

Level 1 – Observable inputs such as quoted prices in active markets;

 

Level 2 – Inputs other than quoted prices in active markets, that are observable either directly or indirectly; and

 

Level 3 – Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

 

10

 

The Company uses observable market data, when available, in making fair value measurements. Fair value measurements are classified according to the lowest level input that is significant to the valuation.

 

The fair value of the Company’s investment securities, which consist of cash and cash equivalents, was determined based on Level 1 inputs. The fair value of the Company’s derivative liabilities and debt were determined based on Level 3 inputs. The Company generally uses the Black Scholes method for determining the fair value of warrants classified as liabilities on a recurring basis. In addition, the Company uses the Monte Carlo method and other acceptable valuation methodologies when valuing the conversion feature and other embedded features classified as derivatives on a recurring basis. See Note 6 Derivatives.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.

 

Fixed Assets

 

Fixed assets are stated at cost less accumulated depreciation and amortization. Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful asset life by classification is as follows: 

 

  

Years

Computers, software, and office equipment

 

3

-

10

Leasehold improvements (1)

 

2

-

5

Manufacturing tooling

 

3

-

7

Laboratory equipment

 

4

-

10

Demo equipment

  

3

 

 

 

(1)

Leasehold improvements are amortized over the shorter of their useful life or the remaining lease term.

 

Upon retirement or sale of fixed assets, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations expense as incurred.

 

Long-lived Assets

 

Finite-lived intangible assets consist of patents and trademarks, licensing fees, developed technology, and customer relationships, and are amortized over their estimated useful life. Accumulated amortization is included in intangibles, net in the accompanying condensed consolidated balance sheets.

 

The Company reviews finite-lived identifiable intangible assets for impairment in accordance with ASC 360, Property, Plant and Equipment, whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant change in the medical device marketplace and a significant adverse change in the business climate in which the Company operates.

 

Goodwill

 

In accordance with ASC 350, Intangibles Goodwill and Other, goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination. Goodwill is not amortized, but is tested on an annual basis for impairment at the reporting unit level as of December 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

 

11

 

To determine whether goodwill is impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. The Company first has the option to assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, the Company first estimates the fair value of its reporting units using discounted cash flows. To determine fair values, the Company is required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations, such as the rate of future revenue growth, capital requirements, and income taxes), and long-term growth rates for determining terminal value and discount rates. Comparative market multiples are used to corroborate the results of the discounted cash flow test. These assumptions require significant judgment. Pursuant to ASU 2017-04, Simplifying the Test for Goodwill Impairment, the single step is to determine the estimated fair value of the reporting unit and compare it to the carrying value of the reporting unit, including goodwill. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment. The Company also completes a reconciliation between the implied equity valuation prepared and the Company’s market capitalization. The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. See Note 4 Intangible Assets and Goodwill.

 

Leases At inception of a contract, a determination is made whether an arrangement meets the definition of a lease. A contract contains a lease if there is an identified asset, and the Company has the right to control the asset. Operating leases are recorded as right-of-use (“ROU”) assets with corresponding current and noncurrent operating lease liabilities on our condensed consolidated balance sheets. Financing leases are included within fixed assets with corresponding current within other current liabilities and noncurrent within other long-term liabilities on our condensed consolidated balance sheets.

 

ROU assets represent our right to use an underlying asset for the duration of the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Recognition on the commencement date is based on the present value of lease payments over the lease term using an incremental borrowing rate. Leases with a term of 12 months or less at the commencement date are not recognized on the condensed consolidated balance sheet and are expensed as incurred.

 

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Leases are accounted for at a portfolio level when similar in nature with identical or nearly identical provisions and with similar effective dates and lease terms.

 

Revenue Recognition

 

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are imposed on the Company’s sales to nonexempt customers. The Company collects the taxes from the customers and remits the entire amounts to the governmental authorities. Sales taxes are excluded from revenue and expenses.

 

Revenue from Product Sales

 

The Company has medical device revenue consisting primarily of sales of the STREAMWAY System, as well as sales of the proprietary cleaning fluid and filters for use with the STREAMWAY System. This revenue stream is reported within the Skyline segment. The Company sells its medical device products directly to hospitals and other medical facilities using employed sales representatives and independent contractors. Purchase orders, which are governed by sales agreements in all cases, state the final terms for unit price, quantity, shipping, and payment terms. The unit price is considered the observable stand-alone selling price for the arrangements. The Company sales agreement, and Terms and Conditions, is a dually executed contract providing explicit criteria supporting the sale of the STREAMWAY System. The Company considers the combination of a purchase order and acceptance of its Terms and Conditions to be a customer’s contract in all cases.

 

 

12

 

Product sales for medical devices consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue when the following events have occurred: (1) the Company has transferred physical possession of the products, (2) the Company has a present right to payment, (3) the customer has legal title to the products, and (4) the customer bears significant risks and rewards of ownership of the products. Based on the shipping terms specified in the sales agreements and purchase orders, these criteria are generally met when the products are shipped from the Company’s facilities (“FOB origin,” which is the Company’s standard shipping term). As a result, the Company determined that the customer could direct the use of, and obtain substantially all of the benefits from, the products at the time the products are shipped. The Company may, at its discretion, negotiate different shipping terms with customers which may affect the timing of revenue recognition. The Company’s standard payment terms for its customers are generally 30 to 60 days after the Company transfers control of the product to its customer. The Company allows returns of defective disposable merchandise if the customer requests a return merchandise authorization from the Company.

 

Customers may also purchase a maintenance plan for the medical devices from the Company, which requires the Company to service the STREAMWAY System for a period of one year after the one-year anniversary date of the original STREAMWAY System invoice. The maintenance plan is considered a separate performance obligation from the product sale, is charged separately from the product sale, and is recognized over time (ratably over the one-year period) as maintenance services are provided. A time-elapsed output method is used to measure progress because the Company transfers control evenly by providing a stand-ready service. The Company has determined that this method provides a faithful depiction of the transfer of services to its customers.

 

All amounts billed to a customer in a sales transaction for medical devices related to shipping and handling, if any, represent revenues earned for the goods provided, and these amounts have been included in revenue. Costs related to such shipping and handling billing are classified as cost of goods sold. This revenue stream is reported under the Skyline reportable segment.

 

Revenue from Clinical Testing

 

The Precision Oncology Insights are clinical diagnostic testing, comprised of the Company’s Tumor Drug Response Testing (formerly ChemoFx) and Genomic Profiling (formerly BioSpeciFx) tests. The Tumor Drug Response test determines how a patient’s tumor specimen reacts to a panel of various chemotherapy drugs, while the Genomic Profiling test evaluates the expression of a particular gene related to a patient’s tumor specimen. Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The estimated uncollectible amounts are generally considered implicit price concessions that are a reduction in revenue. Helomics’ payment terms vary by the agreements reached with insurance carriers and Medicare. The Company’s performance obligations are satisfied at one point in time when test reports are delivered.

 

For service revenues, the Company estimates the transaction price which is the amount of consideration it expects to be entitled to receive in exchange for providing services based on its historical collection experience. The Company uses a portfolio approach as a practical expedient to account for patient contracts as collective groups rather than individually. The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect less consideration than it originally estimated for a contract with a patient, it will account for the change as a decrease to the estimate of the transaction price, provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized.

 

The Company recognizes revenue from these patients when contracts as defined in ASC 606, Revenue from Contracts with Customers, are established at the amount of consideration to which it expects to be entitled or when the Company receives substantially all the consideration subsequent to the performance obligations being satisfied. The Company’s standard payment terms for hospital and patient direct bill are 30 days after invoice date. This revenue stream is reported under the Helomics segment.

 

 

13

 

CRO Revenue

 

Contract revenues are generally derived from studies conducted with biopharmaceutical and pharmaceutical companies. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. The Company typically uses an input method that recognizes revenue based on the Company’s efforts to satisfy the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation on the basis of the standalone-selling price of each distinct good or service in the contract. Advance payments received in excess of revenues recognized are classified as contract liabilities until such time as the revenue recognition criteria have been met. Payment terms are net 30 from the invoice date, which is sent to the customer as the Company satisfies the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. This revenue stream is reported under the Helomics and zPREDICTA segments.

 

Variable Consideration

 

The Company records revenue from distributors and direct end customers in an amount that reflects the transaction price it expects to be entitled to after transferring control of those goods or services. The Company’s current contracts do not contain any features that create variability in the amount or timing of revenue to be earned.

 

Warranty

 

The Company generally provides one-year warranties against defects in materials and workmanship on product sales and will either repair the products or provide replacements at no charge to customers. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are based on a specific assessment of the products sold with warranties where a customer asserts a claim for warranty or a product defect. 

 

Contract Balances

 

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. Accounts receivable totaled $324,708 and $354,196 as of September 30, 2022 and December 31, 2021, respectively.

 

The Company’s contract liabilities relate to CRO services agreements and maintenance plans and as of September 30, 2022 and December 31, 2021 were $495,365 and $186,951, respectively.

 

Practical Expedients

 

The Company has elected the practical expedient not to determine whether contracts with customers contain significant financing components as well as the practical expedient to recognize shipping and handling costs at point of sale.

 

Valuation and accounting for stock options and warrants

 

The Company determines the grant date fair value of options and warrants using a Black-Scholes option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility, and estimated term. 

 

 

14

 

The fair value of each option and warrant grant is estimated on the grant date using the Black-Scholes option valuation model with the following assumptions:

 

 

For the nine months ended September 30,

 

2022

 

2021

 

Stock Options

Expected dividend yield

0.0%

 

0.0%

Expected stock price volatility

86.5% - 92.2%

 

84.8% - 89.6%

Risk-free interest rate

1.83% - 3.43%

 

0.93% - 1.45%

Expected life (years)

10

 

10

 

Warrants

Expected dividend yield

0.0%

 

0.0%

Expected stock price volatility

92.2%

 

84.8% - 89.6%

Risk-free interest rate

2.96% - 2.97%

 

0.42% - 1.04%

Expected life (years)

55.5

 

5 - 5.5

 

Research and Development

 

Research and development costs are charged to operations expense as incurred. Research and development costs were $116,763 and $234,357 for the nine months ended September 30, 2022 and 2021, respectively.

 

Other Expense

 

Other expense for the three and nine months ended September 30, 2021 consisted primarily of interest expense, payment premium, amortization of original issue discounts, and loss on debt extinguishment associated with the Company’s notes payable.

 

Offering Costs

 

Costs incurred which are direct and incremental to an offering of the Company’s securities are deferred and charged against the proceeds of the offering unless such costs are deemed to be insignificant in which case they are expensed as incurred.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

 

There is no income tax provision in the accompanying condensed consolidated statements of net loss due to the cumulative operating losses that indicate a 100% valuation allowance for the deferred tax assets is appropriate.

 

The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified no income tax uncertainties.

 

Under Internal Revenue Code Section 382, certain stock transactions which significantly change ownership could limit the amount of net operating carryforwards that may be utilized on an annual basis to offset taxable income in future periods. The Company has not yet performed an analysis of the annual net operating loss carryforwards and limitations that are available to be used against taxable income. Consequently, the limitation, if any, could result in the expiration of the Company’s loss carryforwards before they can be utilized. The Company has not analyzed net operating loss carryforwards under Section 382 to date. As a result of the Helomics acquisition, there may be significant limitations to the net operating loss. In addition, the current NOL carryforwards might be further limited by future issuances of our common stock.

 

Tax years subsequent to 2018 remain open to examination by federal and state tax authorities.

 

 

15

 

Credit Risk

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions and, by policy, generally limits the amount of credit exposure to any one financial institution. The Company has a credit risk of $6,514,611 for cash amounts held in a single institution that are in excess of amounts issued by the Federal Deposit Insurance Corporation. 

 

Risks and Uncertainties

 

The Company is subject to risks common to companies in the medical device and biopharmaceutical industries, including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with regulations of the Food and Drug Administration, Clinical Laboratory Improvement Amendments, and other governmental agencies.

 

Recent Accounting Pronouncements

 

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). Recently issued ASUs not listed below were either assessed and determined to be not applicable or are currently expected to have no impact on the condensed consolidated financial statements of the Company.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the condensed consolidated financial statements of the Company.

 

 

NOTE 2 INVENTORIES

 

Inventory balances are as follows:

 

  

As of

September 30,

2022

  

As of
December 31,

2021

 
         

Finished goods

 $333,334  $193,287 

Raw materials

  160,388   183,410 

Work-In-Process

  -   10,987 

Total

 $493,722  $387,684 

 

 

16

  
 

NOTE 3 FIXED ASSETS

 

The Company’s fixed assets consist of the following:

 

  

As of
September 30,

2022

  

As of

December 31,

2021

 

Computers, software, and office equipment

 

$

539,036

  

$

517,488

 

Leasehold improvements

  

537,696

   

428,596

 

Laboratory equipment

  

3,685,560

   

3,456,091

 

Manufacturing tooling

  

121,120

   

121,120

 

Demo equipment

  

31,555

   

56,614

 

Total

  

4,914,967

   

4,579,909

 

Less: Accumulated depreciation and amortization

  

(2,712,865)

   

(2,068,338

)

Total Fixed Assets, Net

 

$

2,202,102

  

$

2,511,571

 

 

Depreciation expense was $227,135 and $237,742 for the three months ended September 30, 2022 and 2021, respectively and $669,686 and $720,736 for the nine months ended September 30, 2022 and 2021, respectively.

 

 

NOTE 4 INTANGIBLE ASSETS AND GOODWILL

 

The components of intangible assets were as follows:

 

  

As of September 30, 2022

  

As of December 31, 2021

 
  

Gross Carrying Costs

  

Accumulated Amortization

  

Net Carrying Amount

  

Gross Carrying Costs

  

Accumulated Amortization

  

Impairment

  

Net Carrying Amount

 

Patents & Trademarks

 $503,495  $(248,768) $254,727  $453,314  $(230,572

)

 $-  $222,742 

Developed Technology

  3,500,000   (298,958)  3,201,042   6,382,000   (432,733

)

  (2,485,725

)

  3,463,542 

Customer Relationships

  200,000   (17,083)  182,917   645,000   (410,000

)

  (37,083

)

  197,917 

Tradename

  80,000   (17,083)  62,917   478,000   (29,343

)

  (370,740

)

  77,917 

Total

 $4,283,495  $(581,892) $3,701,603  $7,958,314  $(1,102,648

)

 $(2,893,548

)

 $3,962,118 

 

The impairment loss recognized during the year ended December 31, 2021 adjusted the carrying amount of a long-lived asset. As a result, the gross carrying cost shown as of September 30, 2022 reflects the new cost basis per ASC 360-10-35-20. Amortization expense was $103,805 and $83,619 during the three months ended September 30, 2022 and 2021, respectively and $310,695 and $249,752 during the nine months ended September 30, 2022 and 2021, respectively

 

The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2020:

 

Year ending December 31,

 

Expense

 

2022

 $207,442 

2023

  415,194 

2024

  415,194 

2025

  413,111 

2026

  395,194 

Thereafter

  1,855,468 

Total

 $3,701,603 

 

The Company concluded there was no impairment of its finite-lived assets as of September 30, 2022. The Company prepared the undiscounted cash flows per ASC 360. The Company concluded that the undiscounted cash flows of the long-lived assets exceeded the carrying values.

 

 

17

 

Goodwill

 

Goodwill for our zPREDICTA operating segment was zero as of September 30, 2022 and $6,857,790 as of December 31, 2021. The change in value of goodwill from December 31, 2021 and September 30, 2022 was the result of identification of an immaterial error in the fair value of the acquired contract liabilities. The Company identified this error during the second quarter of 2022 and recorded an adjustment to increase the acquired goodwill and increase the contract liability by $373,303.

 

During the three months ended June 30, 2022, the Company identified an out-of-period error related to the application of ASC 606 with respect to the recognition of revenue associated with zPREDICTA customer contracts. As a result, the Company has recorded an adjustment to the purchase price allocation of zPREDICTA and the associated acquisition date fair values of assets acquired, and liabilities assumed. The Company has determined that $373,303 of additional contract liabilities should have been recorded which results in an increase to the fair value of goodwill acquired by the same amount to a value of $7,231,093. The Company corrected the error in the financial statements during the three months ending June 30, 2022 by increasing each contract liability and goodwill by $373,303.

 

The Company evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements in Current Year Financial Statements, and determined the effect of these corrections was not material to the consolidated financial statements as of and for the year ended December 31, 2021 nor for the quarterly period ended June 30, 2022.

 

The Company had previously disclosed the acquisition date fair values of assets acquired and liabilities assumed, and the consideration transferred, the following table reflects the adjustment discussed above:

 

Cash consideration

 $10,015,941 
     

Assets acquired:

    

Cash

  425,727 

Accounts receivable

  76,549 

Prepaid expenses

  25,733 

Intangible assets

  3,780,000 
     

Liabilities assumed:

    

Accrued expenses

  (408,825

)

Deferred tax liability

  (661,658

)

Contract liabilities

  (452,678

)

     

Goodwill

 $7,231,093 

 

Pro Forma

 

The following pro forma information presents the combined results of operations of the Company and zPREDICTA as if the acquisition of zPREDICTA had been completed on January 1, 2020, with adjustments to give effect to pro forma events that are directly attributable to the acquisition and reflects the correction of application of ASC 606 as discussed above.

 

 

18

 
  

Twelve months ended

December 31,

2021

  

Twelve months ended

December 31,

2020

 
  

Unaudited

  

Unaudited

 

Revenue

 $2,056,484  $1,815,560 

Net loss attributable to common shareholders

 $(19,251,734) $(26,946,564)

 

Helomics reporting unit

 

The goodwill for our Helomics operating segment was zero as of both September 30, 2022 and December 31, 2021, and the cumulative impairment losses are $23,790,290.

 

zPREDICTA reporting unit

 

As of September 30, 2022, the cumulative impairment recorded was $7,231,093.

 

Goodwill balance at December 31, 2021

 $6,857,790 

Adjustment to fair value

  373,303 

Impairment

  (7,231,093

)

Goodwill balance at June 30, 2022

 $- 

Impairment

  - 

Goodwill balance at September 30, 2022

 $- 

 

When evaluating the fair value of the zPREDICTA reporting unit, the Company used a discounted cash flow model and market comparisons. Key assumptions used to determine the estimated fair value included: (a) expected cash flow for the 10-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures) and (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit. The Company further used a probability weighting of various forecasts to address forecast risk  The Company used an estimated discount rate of 65% based on management’s best estimate and considering the Company’s current market capitalization.

 

The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation are considered Level 1 inputs. Goodwill is not expected to be deductible for tax purposes.

 

 

NOTE 5 STOCKHOLDERS EQUITY, STOCK OPTIONS AND WARRANTS

 

May 2022 Offerings

 

On May 16, 2022, the Company, issued and sold to several institutional and accredited investors in a registered direct offering (the “First Offering”) an aggregate of 3,837,280 shares of its common stock, at a purchase price of $0.60 per share. Pursuant to the securities purchase agreement, in a concurrent private placement, the Company also agreed to issue to these purchasers unregistered warrants to purchase up to an aggregate of 3,837,280 shares of common stock (the “Warrants”). The Warrants have an exercise price equal to $0.70 per share, will become exercisable six months from the date of issuance, and will expire five and one-half years from the date of issuance.

 

In addition, in a concurrent registered direct offering (the “Second Offering”), on May 16, 2022, the Company issued and sold to several institutional and accredited investors an aggregate of 8,162,720 shares of its common stock, at a purchase price of $0.60 per share. The Company also entered into a warrant amendment agreement (the “Warrant Amendment”) with each of the purchasers in the Second Offering. Under the Warrant Amendment, the Company agreed to amend certain existing warrants to purchase up to 16,325,433 shares of common stock that were previously issued in 2020 and 2021 to those purchasers, with exercise prices ranging from $1.00 to $2.00 per share (the “Existing Warrants”), were amended to: (i) lower the exercise price of the Existing Warrants to $0.70 per share, (ii) provide that the Existing Warrants, as amended, will not be exercisable until six months following the closing date of the Second Offering, and (iii) extend the original expiration date of the Existing Warrants by five and one-half years following the close of the Second Offering.

 

 

19

 

In each case, the Company paid to the placement agent an aggregate fee equal to 7.5% of the aggregate gross proceeds received by the Company in the offering and a management fee equal to 1% of the aggregate gross proceeds received by the Company in the offering and provided the placement agent expense allowance of $65,000 for non-accountable and other out-of-pocket expenses. In addition, the Company granted to the placement agent or its assigns warrants to purchase 7.5% of the shares sold to investors in the offering at an exercise price equal to 125% of the price of the shares in the transaction, or $0.75 per share, with a term of five years (the “Agent Warrants”). The Agent Warrants become exercisable six months after issuance.

 

Equity Line

 

On October 24, 2019, the Company entered into an equity purchase agreement with an investor, providing for an equity financing facility. Upon the terms and subject to the conditions in the purchase agreement, the investor is committed to purchase shares having an aggregate value of up to $15,000,000 of the Company’s common stock for a period of up to three years. The Company issued to the investor 104,651 commitment shares at a fair market value of $450,000 for entering into the agreement. From time to time during the three-year commitment period, provided that the closing conditions are satisfied, the Company may provide the investor with put notices to purchase a specified number of shares subject to certain limitations and conditions and at specified prices, which generally represent discounts to the market price of the common stock. As of September 30, 2022, there was $8,877,820 remaining in available balance under the equity line. In connection with the May 2022 offerings, the Company agreed not to access the remaining balance for a period of one year after the closing date, or May 18, 2022. Additional issuances under this line will be dilutive. During the nine months ended September 30,2022, the Company issued 315,000 shares of its common stock valued at $236,009 pursuant to the equity line.

 

Equity Incentive Plan

 

The Company has an equity incentive plan, which allows the Company to issue incentive and non-qualified stock options to employees, directors, and consultants of the Company, where permitted under the plan. The exercise price for each stock option is determined by the Board of Directors. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to three years. Options under this plan have terms ranging from three to ten years.

 

 

 

 

 

 

 

 

 

20

 

The following summarizes transactions for stock options and warrants for the periods indicated:

 

  

Stock Options

  

Warrants

 
  

Number of
Shares

  

Average
Exercise
Price

  

Number of
Shares

  

Average
Exercise
Price

 

Outstanding at December 31, 2020

  1,013,547  $5.41   7,353,376  $1.99 
                 

Issued

  147,230   1.06   29,640,801   1.44 

Forfeited

  (92,593

)

  8.64   -   - 

Expired

  -   -   (25,233

)

  10.00 

Exercised

  (5,313

)

  0.74   (5,269,059

)

  0.86 

Outstanding at December 31, 2021

  1,062,871  $4.83   31,699,885  $1.66 
                 

Issued

  16,410   0.49   21,062,714   0.70 

Expired

  (45,760

)

  16.06   (47,744

)

  23.82 

Forfeited

  (11,897

)

  1.09   -   - 

Modified

  -   -   (16,325,433

)

  1.51 

Outstanding at September 30, 2022

  1,021,624  $4.45   36,389,422  $0.74 

 

Stock-based compensation expense recognized for the three months ended September 30, 2022 and 2021 was $26,993 and $29,004, respectively. Stock-based compensation expense recognized for nine months ended September 30, 2022 and 2021 was $102,894 and $627,329, respectively The Company has $17,033 of unrecognized compensation expense related to non-vested stock options that is expected to be recognized over the next 20 months and $42,070 of unrecognized compensation expense related to non-vested restricted stock units that is expected to be recognized over the next 15 months. At September 30, 2022, there were 483,333 RSUs outstanding under the plan.

 

 

NOTE 6 DERIVATIVES

 

Certain warrants issued to placement agents were determined to be a derivative liability due to specific features of the warrants which could, in particular circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants were classified as a liability.

 

The fair value of the agent warrants issued in connection with the March 2020 private placement was determined to be $41,336 as of December 31, 2021. The Company recorded a gain on the change in fair value of the placement agent warrants of $35,474 during the nine months ended September 30, 2022 and a loss on the change in fair value of the placement agent warrants of $41,326 during the nine months ended September 30, 2021. As of September 30, 2022, the fair value of the placement agent warrants was $5,862.

 

The fair value of the agent warrants issued in connection with the May 2020 registered offering were determined to be $7,225 and $42,646 as of September 30, 2022 and December 31, 2021, respectively. The Company recorded a gain on the change in fair value of the placement agent warrants of $35,421 during the nine months ended September 30, 2022 and a loss on the change in fair value of the agent warrants of $39,946 during the nine months ended September 30, 2021.

 

The placement agent warrants issued in connection with the June 2020 warrant exercise and issuance had a fair value of $9,012 and $45,498 as of September 30, 2022 and December 31, 2021, respectively. The Company recorded a recorded a gain on the change in fair value of the placement agent warrants of $36,486 during the nine months ended September 30, 2022 and loss on the change in fair value of the agent warrants of $44,051 during the nine months ended September 30, 2021.

 

21

 

The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.

 

Derivative liability balance at December 31, 2020

 $294,382 

Gain recognized to revalue derivative instrument at fair value

  (95,671

)

Derivative liability balance at March 31, 2021

 $198,711 

Gain recognized to revalue derivative instrument at fair value

  30,909 

Derivative liability balance at June 30, 2021

 $229,620 

 

Derivative liability balance at December 31, 2021

 $129,480 

Gain recognized to revalue derivative instrument at fair value

  (1,908

)

Derivative liability balance at March 31, 2022

 $127,572 

Gain recognized to revalue derivative instrument at fair value

  (95,254

)

Derivative liability balance at June 30, 2022

 $32,318 

Gain recognized to revenue derivative instrument at fair value

  (10,219

)

Derivative liability balance at September 30, 2022

 $22,099 

 

 

NOTE 7 - LOSS PER SHARE

 

The following table presents the shares used in the basic and diluted loss per common share computations:

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Numerator:

                

Net loss attributable to common shareholders per common share: basic and diluted calculation

 $(4,059,484) $(5,438,017) $(17,821,524) $(11,900,662)
                 

Denominator:

                

Weighted average common shares outstanding-basic (1)

  78,383,878   65,406,312   71,084,454   51,272,960 

Effect of diluted stock options, warrants, and preferred stock (2)

  -   -   -   - 

Weighted average common shares outstanding - diluted

  78,383,878   65,406,312   71,084,454   51,272,960 

Loss per common share-basic

 $(0.05) $(0.08) $(0.25) $(0.23)

Loss per common share- diluted

 $(0.05) $(0.08) $(0.25) $(0.23)

 

 

(1)

The following is a summary of the number of underlying shares outstanding at the end of the respective periods that have been excluded from the diluted calculations because the effect on loss per common share would have been anti-dilutive:

 

  

Nine Months ended September 30,

 
  

2022

  

2021

 

Options

  1,021,624   1,012,760 

RSU

  483,333   516,666 

Warrants

  36,389,422   31,725,118 

Preferred stock: series B

  79,246   79,246 

 

 

22

  
 

NOTE 8 SEGMENTS

 

The Company has determined its operating segments in accordance with ASC 280 Segment Reporting. Factors used to determine the Company’s reportable segments include the availability of separate financial statements, the existence of locally based leadership across geographic regions, the economic factors affecting each segment, and the evaluation of operating results at the segment level. The Chief Operating Decision Maker (“CODM”) allocates the Company’s resources for each of the operating segments and evaluates their relative performance. Each operating segment listed below has separate financial statements and locally based leadership that are evaluated based on the results of their respective segments. It should be noted that the operating segments below have different products and services. The financial information is condensed consolidated and evaluated regularly by the CODM in assessing performance and allocating resources.

 

The Company has four reportable segments: Helomics, zPREDICTA, Soluble and Skyline. See discussion of revenue recognition in Note 1 – Summary of Significant Accounting Policies for a description of the products and services recognized in each segment. The segment revenues and segment net losses for the three and nine months ended September 30, 2022 and 2021 are included in the table below. All revenues are earned from external customers.

 

Revenue

 

  

Three Months Ended

September 30,

  

Nine Months Ended,

September 30,

 
  2022  2021  2022  2021 

Helomics

 $1,821  $2,164  $5,543  $11,314 

Soluble

  29,439   27,653   64,580   76,639 

zPREDICTA

  170,816   -   261,099    

Skyline

  253,751   282,675   809,875   853,063 

Corporate

  -   1,171   889   3,171 

Total

 $455,827  $313,663  $1,141,986  $944,187 

 

Segment Gain (Loss)

 

  

Three Months Ended

September 30,

  

Nine Months Ended,

September 30,

 
  2022  2021  2022  2021 

Helomics

 $(916,113) $(3,739,275) $(2,902,182) $(6,024,129)

Soluble

  (407,622)  (352,324)  (1,206,550)  (840,790)

zPREDICTA

  (160,395)  -   (7,989,585)  - 

Skyline

  (109,408)  (102,850)  (259,444)  (378,490)

Corporate

  (2,465,946)  (1,243,568)  (5,463,763)  (4,657,253)

Total

 $(4,059,484) $(5,438,017) $(17,821,524) $(11,900,662)

 

Assets

 

  

As of

September 30,

  

As of

December 31,

 
  

2022

  

2021

 

Helomics

 $1,061,545  $1,802,792 

Soluble

  1,559,917   1,742,445 

zPREDICTA

  3,815,513   10,782,568 

Skyline

  15,046,253   906,977 

Corporate

  11,682,981   28,536,489 

Total

 $33,166,209  $43,771,271 

 

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NOTE 9 RELATED PARTY TRANSACTIONS

 

The Audit Committee has the responsibility to review and approve all transactions to which a related party and the Company may be a party prior to their implementation, to assess whether such transactions meet applicable legal requirements. There are no material related party transactions during the three and nine months ended September 30, 2022.

 

One of the Company’s former directors, Richard L. Gabriel, is the Chief Operating Officer of GLG Pharma (“GLG”) and serves as a director of that firm. The Company and GLG have a partnership agreement for the purpose of bringing together their proprietary technologies to build out personalized medicine platform for the diagnosis and treatment of women’s cancer. There has been no revenue or expenses generated by this partnership to date.

 

Richard L. Gabriel was also contracted as the Chief Operating Officer for TumorGenesis. Through April 1, 2019, Mr. Gabriel received $12,000 per month pursuant to a renewable six-month contract. On May 1, 2019, Mr. Gabriel executed a one-year contract with renewable three-month periods to continue as the Chief Operating Officer for TumorGenesis, receiving $13,500 in monthly cash payments.

 

Effective May 1, 2021, Richard Gabriel resigned as a member of the Company’s Board of Directors. Mr. Gabriel’s resignation is in connection with his assuming a management position with the Company, and not due to any disagreements with the Company on any of our operations, policies or practices.

 

 

NOTE 10 RETIREMENT OF CHIEF EXECUTIVE OFFICER

 

On September 15, 2022, J. Melville Engle announced that he will retire as the Chief Executive Officer of the Company and as Chairman and a member of the Company’s board of directors, effective October 31, 2022.  To ensure an orderly transition of his responsibilities, the Company and Mr. Engle entered into a Transition and Separation Agreement dated September 15, 2022 (the “Transition Agreement”) pursuant to which Mr. Engle will continue to serve as Chief Executive Officer until October 31, 2022.  The Transition Agreement provides for, among other things, the payment of certain separation benefits to Mr. Engle following termination of his employment, contingent upon Mr. Engle signing, delivering and not rescinding or revoking a general release of claims in favor of the Company, including $524,400 in severance pay, which amount is equal to one year of Mr. Engle’s base salary, a pro-rata bonus for 2022 in the amount of $139,000, and accelerated vesting of 300,000 restricted stock units previously granted to Mr. Engle as part of the Company’s 2021 Long-Term Incentive Plan. As of September 30, 2022. $741,505 is included within Accrued expenses and other liabilities in the Company’s balance sheet for this liability.

 

 

ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 

 

The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes thereto set forth in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2021.

 

This Form 10-Q contains “forward-looking statements” that indicate certain risks and uncertainties, many of which are beyond our control. Actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this report. Important factors that may cause actual results to differ from projections include:

 

 

Our history of operating losses;

 

Current negative operating cash flows;

 

Our capital needs to accomplish our goals, , and the adequacy of available funds, including our ability to access the capital markets, our ability to obtain additional equity funding from current or new stockholders to fund our business operations and/or future growth plans, and the dilutive effect that raising equity capital would have on the relative equity ownership of our existing investors;

 

Risks related to recent and future acquisitions, including the possibility of further impairment of goodwill and risks related to the benefits and costs of acquisition;

 

Risks related to our partnerships with other companies, including the need to negotiate the definitive agreements; possible failure to realize anticipated benefits of these partnerships; and costs of providing funding to our partner companies, which may never be repaid or provide anticipated returns;

 

Risk that we will be unable to protect our intellectual property or claims that we are infringing on others’ intellectual property;

 

The impact of competition;

 

Acquisition and maintenance of any necessary regulatory clearances applicable to applications of our technology;

 

Inability to attract or retain qualified senior management personnel, including sales and marketing personnel;

 

Risk that we never become profitable if our product and services are not accepted by potential customers;

 

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Possible impact of government regulation and scrutiny;

 

Unexpected costs and operating deficits, and lower than expected sales and revenues, if any;

 

Adverse results of any legal proceedings;

 

The volatility of our operating results and financial condition;

 

Management of growth;

 

Risk that our business and operations will continue to be materially and adversely affected by the COVID-19 pandemic, which has impacted a significant supplier; has resulted in delayed production and less efficiency; and has impacted on our sales efforts, accounts receivable, and terms demanded by suppliers; and may impact financing transactions; and

 

Other specific risks that may be alluded to in this report.

 

All statements, other than statements of historical facts, included in this report regarding our growth strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans, and objectives of management are forward-looking statements. When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to update any forward-looking statements or other information contained herein. Potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause actual results to differ materially from expectations in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021 and in item 1A of Part II below. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and we cannot assure potential investors of the accuracy or completeness of the data included in this report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue, and market acceptance of products and services. We have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements.

 

Overview

 

We operate in four primary business areas. First, we provide drug response prediction services leveraging a unique collection of more than 150,000 tumor samples, categorized by tumor type and powered by artificial intelligence to assist biopharmaceutical companies in the development of new oncology drugs primarily through our wholly owned subsidiary Helomics Holding Corporation® (“Helomics”). Second, we develop tumor-specific in vitro models for oncology drug discovery and research through our newly acquired wholly-owned subsidiary, zPREDICTA, Inc.®. Third, we offer contract services and research focused on solubility improvements, stability studies, and protein production, primarily with our Soluble Biotech Inc.®, subsidiary. Fourth, we sell and produce the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY System® for automated, direct-to-drain medical fluid waste disposal and associated products through our incorporated division Skyline Medical Inc. (“Skyine”).

 

We have four reportable segments: Helomics, zPREDICTA, Soluble and Skyline. The Helomics segment includes clinical testing and contract research services that include the application of AI. Our zPREDICTA segment specializes in organ-specific disease models that provide 3D reconstruction of human tissues accurately representing each disease state and mimicking drug response enabling accurate testing of anticancer agents. Our Soluble segment provides services using a self-contained, automated system that conducts high-throughput, self-interaction chromatography screens, using additives and excipients commonly included in protein formulations resulting in soluble and physically stable formulations for biologics. Our Skyline segment consists of the STREAMWAY System product sales, and our TumorGenesis subsidiary is included within corporate. Going forward, we have determined that we will focus our resources on the Helomics and zPREDICTA segments and our primary mission statements to accelerate patient-centric drug discovery to improve patient outcomes in cancer treatment, harnessing the power of AI, and to develop tumor-specific 3D cell culture models that provide accurate 3D reconstruction of human tissues representing each cancer disease state.

 

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Capital Requirements

 

Since inception, we have been unprofitable. We incurred net losses of $4,059,484 and $5,438,017 for the three months ended September 30, 2022, and September 30, 2021, respectively. As of September 30, 2022, and December 31, 2021, we had an accumulated deficit of $145,861,805 and $128,040,282, respectively.

 

We have never generated sufficient revenues to fund our capital requirements. Since 2017, we have diversified our business by investing in ventures, including making significant loans and investments in early-stage companies. These activities led to the acquisition of Helomics in April 2019, the purchase of the assets of three businesses in 2020 and the acquisition of zPREDICTA in November 2021, each of which have accelerated our capital needs. We have funded our operations through a variety of debt and equity instruments. See “Liquidity and Capital Resources – Liquidity and Plan of Financing” and “Liquidity and Capital Resources – Financing Transactions” below.

 

Our future cash requirements and the adequacy of available funds depend on our ability to generate revenues from our Helomics, Soluble and zPREDICTA segments; our ability to continue to sell our Skyline Medical products and to reach profitability in the Skyline Medical business and the availability of future financing to fulfill our business plans. See “Liquidity and Capital Resources – Liquidity and Plan of Financing” below.

 

Our limited history of operations, especially in our precision medicine business, and our change in the emphasis of our business, starting in 2017, makes prediction of future operating results difficult. We believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.

 

Results of Operations

 

Comparison of three and nine months ended September 30, 2022 and September 30, 2021

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

Difference

   

2022

   

2021

   

Difference

 

Revenue

  $ 455,827     $ 313,663     $ 142,164     $ 1,141,986     $ 944,187     $ 197,799  

Cost of goods sold

    108,151       110,165       2,014       351,669       350,800       (869 )

General and administrative expense

    3,287,918       2,061,458       (1,226,460 )     8,063,265       7,410,208       (653,057  

Operations expense

    857,130       648,935       (208,195 )     2,657,314       1,791,543       865,771  

Sales and marketing expense

    333,377       172,869       (160,508 )     908,867       447,298       461,569  

 

Revenue. We recorded revenue of $455,827 and $313,663 in the three months ended September 30, 2022 and 2021, respectively. We sold a net of 2 and 3 STREAMWAY System units during the three months ended September 30, 2022 and 2021, respectively.

 

We recorded revenue of $1,141,986 and $944,187 in the nine months ended September 30, 2022 and 2021, respectively. Revenue was primarily derived from the Skyline business. The nine months ended September 30, 2022 also included $261,099 from our zPREDICTA division. The Soluble reportable segment recorded $64,580 and $76,639 during the nine months ended September 30, 2022 and 2021 and there was an additional $5,543 and $11,314 from our Helomics reportable segment during the nine months ended September 30, 2022 and 2021, respectively. There were 7 and 10 sales of STREAMWAY units in the nine months ended September 30, 2022 and 2021 respectively.

 

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Cost of goods sold. Cost of sales was $108,151 and $351,669 in the three and nine months ended September 30, 2022 and $110,165 and $350,800 in the three and nine months ended September 30, 2021, respectively. The gross profit margin was approximately 76% and 69% in the three and nine months ended September 30, 2022 compared to 65% in both of the prior year periods. Our margins increased in the three months ended September 30, 2022 due to a larger portion of revenue being generated from our CRO services from our zPREDICTA subsidiary. Our margins decreased in the nine-month period in the current year as costs were higher, specifically related to disposables.

 

General and administrative expense. General and administrative (“G&A”) expense primarily consists of management salaries, professional fees, consulting fees, travel expense, administrative fees, and general office expenses.

 

G&A expense increased by $1,226,460 for the three months ended September 30, 2022 compared to 2021. The increase was primarily due to higher employee related expenses due to acquisition of the zPREDICTA reportable segment, costs associated with the consolidation of our TumorGenesis division to Pittsburgh and the retirement of our CEO, offset by other costs due to changes in headcount. Other increases were driven by higher professional and outside services.

 

G&A expenses increased by $653,057 for the nine months ended September 30, 2022 compared to 2021. The increase was primarily due to expenses associated with the retirement of our CEO, offset by lower professional fees for legal and investor relations services, offset by increased corporate insurance expenses and employee related expenses due to increased headcount including the acquisition of the zPREDICTA reportable segment.

 

Operations expense. Operations expense primarily consists of expenses related to product development and prototyping and testing.

 

Operations expense increased by $208,195 to $857,130 in the three months ended September 30, 2022 compared to 2021 and increased by $865,771 to $2,657,314 in the nine months ended September 30, 2022 compared to 2021. The increase was primarily due to higher staff related expenses including the increased headcount at our zPREDICTA reportable segment, partially offset by lower research and development expenses.

 

Sales and marketing expense. Sales and marketing expense consisted of expenses required to sell products through independent reps, attendance at trade shows, product literature and other sales and marketing activities.

 

Sales and marketing expense increased by $160,508 to $333,377 in the three months ended September 30, 2022 compared to $172,869 in the comparable period in 2021. Such expenses in 2021 related almost entirely to our corporate marketing and business development staffing and sales support for our Skyline business. The increase in 2022 was a direct result of the increases in marketing and business development staff in 2022. Sales and Marketing increased by $461,569 to $908,867 in the nine months ended September 30, 2022 compared to 2021. The increase was driven by increased staff related expenses and other advertising and marketing expenses.

 

Loss in Goodwill Impairment. We recognized no goodwill impairment charge for the three months ended September 30, 2022 compared to a goodwill impairment charge of $2,813,792 for the comparable period in 2021. We recognized a goodwill impairment charge of $7,231,093 related to the zPREDICTA segment during the nine months ended September 30, 2022 compared to goodwill impairment charge of $2,813,792 related to the Helomics segment during the comparable period in 2021.

 

Other income. We earned other income of $63,047 in the three months ended September 30, 2022 compared to $58,830 in the comparable period in 2021 and earned other income of $146,524 in the nine months ended September 30, 2022, compared to $144,122 in the comparable in 2021. Other income included interest and dividend income.

 

Other expense. We incurred other expense of $2,001 in the three months ended September 30, 2022 compared to $7,413 in the comparable period in 2021 and other expense of $5,207 in the nine months ended September 30, 2022 compared to $244,214 in the comparable period in 2021. Other expense in 2022 consisted primarily of net interest expense. Net interest expense was significantly lower in the nine-month period due to the repayment of our remaining debt in the first quarter of 2021.

 

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Gain on derivative instruments. We recorded a gain of $10,219 in the three months ended September 30, 2022 compared to a gain of $4,122 in the comparable period in 2021 and incurred gains of $107,381 in the nine months ended September 30, 2022, compared to gains of $68,884 in the comparable period in 2021 related to the changes in fair market value on derivatives.

 

Liquidity and Capital Resources

 

Cash Flows

 

Net cash used in operating activities was $9,135,812 and $8,464,821 for the nine months ended September 30, 2022 and September 30, 2021, respectively. Cash used in operating activities increased in the 2022 period primarily because of the increase in cash used for working capital and higher operating costs.

 

Cash flows used in investing activities was $412,096 and $820,233 for the nine months ended September 30, 2022 and September 30, 2021, respectively. Cash used in these periods was from the acquisition of fixed assets and cash used to maintain our intangible assets.

 

Net cash provided by financing activities was $6,739,031 and $50,378,237 for the nine months ended September 30, 2022 and September 30, 2021, respectively. The cash provided in the nine months ended September 30, 2022 was primarily due to proceeds from the issuance of common stock and warrants in connection with the May 2022 offering and the issuance of common stock pursuant to the equity line agreement. The cash provided in the nine months ended September 30, 2021 was primarily due to proceeds from issuance of common stock and warrants in six financing transactions and the exercise of warrants by investors, in addition to proceeds from the issuance of common stock pursuant to the equity line agreement, offset by the repayment of outstanding debt.

 

Liquidity and Plan of Financing

 

We have incurred a net loss in each of our annual periods since our inception. We incurred a net loss of $17,821,524 for the nine months ended September 30, 2022. On September 30, 2022, we had $25,393,738 in cash. In addition to our cash, we also have access to additional capital through our $15,000,000 equity line with a remaining available balance of $8,877,820, subject to requirements for market conditions including trading volume and stock price, and subject to other limitations. In connection with the May 2022 offerings, we agreed not to access the remaining balance under the equity line for a period of one year after the closing date, or May 18, 2023.

 

Since our inception, we have received net proceeds from the sale of our common stock (through our initial public offering and subsequent public offerings, including at-the-market offerings) which have funded our operations. We believe that our existing capital resources will be sufficient to support our operating plan for the next twelve months and beyond. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital. We may also seek to raise additional capital to support our growth through the incurrence of additional debt, the sale of equity or other alternatives (including asset sales) or a combination thereof. Such additional capital may not be available on terms acceptable to us or at all. If we raise funds by issuing equity or equity-linked securities, the ownership of some or all of our stockholders will be diluted, and the holders of new equity securities may have priority rights over our existing stockholders. If adequate funds are not available, we may be required to curtail operations significantly or obtain funds by entering into agreements on unattractive terms. Our inability to raise capital could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the recent decline in economic activity caused by events such as the armed conflict between Russia and Ukraine and by the COVID pandemic, together with the deterioration and/or volatility of the credit and capital markets, could have an adverse impact on potential sources of future financing.

 

28

 

Financing Transactions

 

We have funded our operations through a combination of debt and equity instruments including short-term borrowings, and a variety of debt and equity offerings.

 

May 2022 Offerings

 

On May 16, 2022, the Company, issued and sold to several institutional and accredited investors pursuant in a registered direct offering (the “First Offering”) an aggregate of 3,837,280 shares of its common stock, at a purchase price of $0.60 per share. Pursuant to the securities purchase agreement, in a concurrent private placement, the Company also issued to these purchasers unregistered warrants to purchase up to an aggregate of 3,837,280 shares of common stock (the “Warrants”). The Warrants have an exercise price equal to $0.70 per share, will become exercisable six months from the date of issuance, and will expire five and one-half years from the date of issuance.

 

In addition, in a concurrent registered direct offering (the “Second Offering”), on May 16, 2022, the Company entered into a securities purchase agreement with several institutional and accredited investors pursuant to which the Company issued and sold to several institutional and accredited investors pursuant an aggregate of 8,162,720 shares of its common stock, at a purchase price of $0.60 per share. The Company also entered into a warrant amendment agreement (the “Warrant Amendment”) with each of the purchasers in the Second Offering. Under the Warrant Amendment, certain existing warrants to purchase up to 16,325,435 shares of common stock that were previously issued in 2020 and 2021 to those purchasers, with exercise prices ranging from $1.00 to $2.00 per share (the “Existing Warrants”), were amended to: (i) lower the exercise price of the Existing Warrants to $0.70 per share, (ii) provide that the Existing Warrants, as amended, will not be exercisable until six months following the closing date of the Second Offering, and (iii) extend the original expiration date of the Existing Warrants by five and one-half years following the close of the Second Offering.