Predictive Oncology (POAI) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements The company's financial statements show a net loss of $17.8 million and reduced assets due to a goodwill impairment Condensed Consolidated Balance Sheets Total assets decreased to $33.2 million, driven by a full goodwill impairment and a decline in cash reserves Key Balance Sheet Items | Balance Sheet Items | September 30, 2022 (unaudited) | December 31, 2021 (audited) | | :--- | :--- | :--- | | Cash and Cash Equivalents | $25,393,738 | $28,202,615 | | Total Current Assets | $26,857,321 | $29,458,273 | | Goodwill | $0 | $6,857,790 | | Total Assets | $33,166,209 | $43,771,271 | | Total Current Liabilities | $3,468,078 | $3,240,508 | | Total Liabilities | $3,573,331 | $3,505,587 | | Total Stockholders' Equity | $29,592,878 | $40,265,684 | - Goodwill was fully impaired, decreasing from $6.9 million at the end of 2021 to zero as of September 30, 2022[10] Condensed Consolidated Statements of Net Loss The nine-month net loss widened to $17.8 million, primarily due to a $7.2 million goodwill impairment charge Key P&L Metrics | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $455,827 | $313,663 | $1,141,986 | $944,187 | | Gross Profit | $347,676 | $203,498 | $790,317 | $593,387 | | Loss on goodwill impairment | $0 | $2,813,792 | $7,231,093 | $2,813,792 | | Net Loss | $(4,059,484) | $(5,438,017) | $(17,821,524) | $(11,900,662) | | Loss per share (basic and diluted) | $(0.05) | $(0.08) | $(0.25) | $(0.23) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased by $10.7 million to $29.6 million, driven by a net loss partially offset by capital raising - Total stockholders' equity declined by $10.7 million during the first nine months of 2022, from $40.3 million to $29.6 million[13] - The company's accumulated deficit increased by $17.8 million, from $(128.0) million to $(145.9) million, due to the net loss incurred during the period[13] - In May 2022, the company issued 12,000,000 shares and warrants in a private offering, increasing additional paid-in capital by approximately $6.4 million[13] Condensed Consolidated Statements of Cash Flows Net cash decreased by $2.8 million, with operating cash burn partially offset by $6.7 million from financing activities Key Cash Flow Activities | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,135,812) | $(8,464,821) | | Net cash used in investing activities | $(412,096) | $(820,233) | | Net cash provided by financing activities | $6,739,031 | $50,378,237 | | Net increase (decrease) in cash | $(2,808,877) | $41,093,183 | | Cash at end of period | $25,393,738 | $41,771,515 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, business segments, goodwill impairment, and management's view on capital sufficiency - The company operates in four primary business areas: drug response prediction (Helomics), in vitro models for oncology (zPREDICTA), contract research for solubility (Soluble Biotech), and medical fluid waste disposal systems (Skyline)[19] - Management believes existing capital resources of $25.4 million will be sufficient to support the operating plan for the next twelve months and beyond[20] - A goodwill impairment charge of $7,231,093 related to the zPREDICTA reporting unit was recorded, reducing its goodwill balance to zero as of June 30, 2022[85][86] - On September 15, 2022, CEO J. Melville Engle announced his retirement, and the company recorded a liability of $741,505 for severance and other benefits[112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses increased revenue, a wider net loss due to goodwill impairment, and its strategic focus on key segments - The company will focus its resources on the Helomics (AI-powered drug response prediction) and zPREDICTA (3D cell culture models) segments[119] - The company believes its existing capital of $25.4 million will be sufficient to support its operating plan for the next twelve months and beyond, but may seek additional capital[144] - In May 2022, the company raised capital through two offerings, selling an aggregate of 12 million shares of common stock at $0.60 per share and issuing warrants[89][90][147] Results of Operations Revenue increased due to the zPREDICTA acquisition, while expenses rose from G&A costs and a significant goodwill impairment Nine-Month Operational Performance Comparison | Expense/Income (Nine Months Ended Sep 30) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $1,141,986 | $944,187 | $197,799 | | General and administrative expense | $8,063,265 | $7,410,208 | $(653,057) | | Operations expense | $2,657,314 | $1,791,543 | $865,771 | | Sales and marketing expense | $908,867 | $447,298 | $461,569 | | Loss on goodwill impairment | $7,231,093 | $2,813,792 | $4,417,301 | - The increase in revenue for the nine-month period was primarily driven by $261,099 from the zPREDICTA division[125] - The increase in G&A expenses for the nine-month period was mainly due to costs from the CEO's retirement and increased headcount from the zPREDICTA acquisition, offset by lower professional fees[130] Liquidity and Capital Resources The company holds $25.4 million in cash, with an $8.9 million equity line restricted until May 2023 - The company had $25.4 million in cash as of September 30, 2022, after incurring a net loss of $17.8 million for the nine-month period[143] - Net cash provided by financing activities was $6.7 million for the nine months ended September 30, 2022, compared to $50.4 million in the prior-year period[142] - The company has an equity line with an available balance of $8,877,820, but agreed not to access it until May 18, 2023, as part of the May 2022 offerings[143][155] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this disclosure is not required - Disclosure is not required for this item[158] Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in accounting expertise for complex transactions - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2022[160] - A material weakness was identified: the company has not maintained adequate accounting resources with sufficient understanding of U.S. GAAP for complex technical accounting transactions[161] - To remediate the weakness, the company has hired additional accounting resources with the required experience[162] PART II. OTHER INFORMATION Legal Proceedings The company reported no material legal proceedings - None[165] Risk Factors Readers are referred to the company's 2021 Annual Report on Form 10-K for detailed risk factors - Readers are referred to the risk factors detailed in the Annual Report on Form 10-K for the year ended December 31, 2021[165] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 29,346 unregistered shares for professional services under a Securities Act exemption - In the first nine months of 2022, the company issued 29,346 unregistered shares of common stock in exchange for $25,000 worth of professional research services[166] - The sale was exempt from registration under Section 4(a)(2) of the Securities Act[167] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[168] Mine Safety Disclosures This item is not applicable to the company - Not applicable[169] Other Information This item is not applicable - Not applicable[170]