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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 June 30, 2021

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 August 6, 2021, the registrant had 65,402,845 shares of common stock, par value $0.01 per share outstanding. 

 

 

 

 

 

PREDICTIVE ONCOLOGY INC.

 

TABLE OF CONTENTS

 

 

Page
No.

PART I. FINANCIAL INFORMATION

 
   

Item 1. Unaudited Condensed Consolidated Financial Statements

3

   

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

   

Condensed Consolidated Statements of Net Loss for the three and six months ended June 30, 2021 and June 30, 2020

4

   

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and June 30, 2020

5

   

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and June 30, 2020

7

   

Notes to Condensed Consolidated Financial Statements

8

   

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

24

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

   

Item 4. Controls and Procedures

34

   

PART II. OTHER INFORMATION

 
   

Item 1. Legal Proceedings

34

   

Item 1A. Risk Factors

35

   

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

35

   

Item 3. Defaults Upon Senior Securities

35

   

Item 4. Mine Safety Disclosures

35

   

Item 5. Other Information

35

   

Item 6. Exhibits

35

   

Signatures

36

   

Exhibit Index

37

 

 

 

 

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

  

June 30, 2021

  

December 31, 2020

 
  

(unaudited)

  

(audited)

 

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $44,881,034  $678,332 

Accounts Receivable

  196,520   256,878 

Inventories

  317,826   289,535 

Prepaid Expense and Other Assets

  241,799   289,490 

Total Current Assets

  45,637,179   1,514,235 
         

Fixed Assets, net

  3,950,613   3,822,700 

Intangibles, net

  3,254,838   3,398,101 

Lease Right-of-Use Assets

  1,131,795   1,395,351 

Other Long-Term Assets

  124,096   116,257 

Goodwill

  2,813,792   2,813,792 

Total Assets

 $56,912,313   13,060,436 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current Liabilities:

        

Accounts Payable

 $941,960  $1,372,070 

Notes Payable – Net of Discounts of $0 and $244,830

  -   4,431,925 

Accrued Expenses and other liabilities

  1,256,087   2,588,047 

Derivative Liability

  229,620   294,382 

Deferred Revenue

  154,345   53,028 

Lease Liability

  640,353   597,469 

Total Current Liabilities

  3,222,365   9,336,921 
         

Lease Liability – Net of current portion

  554,716   845,129 

Other long-term liabilities

  47,146   235,705 

Total Liabilities

  3,824,227   10,417,755 
         

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 and 79,246 shares outstanding

  792   792 

Common Stock, $.01 par value, 100,000,000 shares authorized, 65,335,159 and 19,804,787 outstanding

  653,352   198,048 

Additional paid-in capital

  167,279,695   110,826,949 

Accumulated Deficit

  (114,845,753)  (108,383,108

)

         

Total Stockholders’ Equity

  53,088,086   2,642,681 
         

Total Liabilities and Stockholders’ Equity

 $56,912,313  $13,060,436 

 

See Notes to Condensed Consolidated Financial Statements

 

3

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS

(Unaudited)

 

  Three Months Ended June 30,  Six Months Ended June 30, 
  

2021

  

2020

  

2021

  

2020

 

Revenue

 $350,207  $182,784  $630,524  $477,727 

Cost of goods sold

  142,877   85,261   240,635   177,918 

Gross profit

  207,330   97,523   389,889   299,809 
                 

General and administrative expense

  2,077,973   3,211,817   5,348,750   6,040,293 

Operations expense

  567,796   521,116   1,142,608   1,069,869 

Sales and marketing expense

  159,788   133,015   274,429   397,424 

Total operating loss

  (2,598,227)  (3,768,425)  (6,375,898)  (7,207,777)

Other income

  57,033   52,965   85,292   52,968 

Other expense

  (1,829)  (729,837)  (236,801)  (1,846,912)

Gain (loss) on derivative instruments

  (30,909)  (422,081)  64,762   (394,974)

Gain on notes receivables associated with asset purchase

  -   1,290,000   -   1,290,000 

Net loss

 $(2,573,932) $(3,577,378) $(6,462,645) $(8,106,695)

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

 $(2,573,932) $(3,577,378) $(6,462,645) $(8,106,695)
                 

Loss per common share basic

 $(0.05) $(0.36) $(0.15) $(1.10)

Loss per common share diluted

  (0.05)  (0.36)  (0.15)  (1.10)
                 

Weighted average shared used in computation - basic

  51,581,762   9,838,152   44,089,157   7,362,240 

Weighted average shared used in computation - diluted

  51,581,762   9,838,152   44,089,157   7,362,240 

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

4

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE AND SIX MONTHS ENDED

JUNE 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 

 

 

 

 

5

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2020

(Unaudited)

 

  

Series B Preferred

  

Series D Preferred

  

Series E Preferred

  

Common Stock

  

Additional Paid-In

  

Accumulated

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Total

 

Balance at 12/31/2019

  79,246  $792   3,500,000  $35,000   258  $3   4,056,652  $40,567  $93,653,667  $(82,498,711) $11,231,318 

Shares issued pursuant to CEO exchange agreement

                    50,000   500   129,500      130,000 

Inducement shares issued pursuant to promissory note extension

                    30,000   300   40,950      41,250 

Issuance of shares and prefunded warrants pursuant to March 2020 private placement

                    260,000   2,600   455,223      457,823 

Inducement shares issued pursuant to 2020 convertible debt and warrants

                    46,875   468   119,532      120,000 

Warrants issued pursuant to 2020 convertible debt

                              116,951      116,951 

Shares issued pursuant to note conversions - bridge loan

                    170,000   1,700   265,628      267,328 

Shares issued pursuant to series E preferred stock conversions

              (50)  (1)  141,191   1,412   (1,411)     - 

Shares issued pursuant to Equity Line

                    943,000   9,430   1,860,469      1,869,899 

Shares issued to consultant and other

                    155,000   1,550   360,750      362,300 

Vesting expense

                              287,838      287,838 

Net loss

                                 (4,529,317)  (4,529,317)

Balance at 03/31/2020

  79,246  $792   3,500,000  $35,000   208  $2   5,852,718  $58,527  $97,289,097  $(87,028,028) $10,355,390 

Warrants issued pursuant to 2020 convertible debt

                          62,373      62,373 

Shares issued pursuant to CEO note conversion and accrued interest and exchange agreement

                    1,533,481   15,335   2,177,543      2,192,878 

Shares issued pursuant to series E preferred stock conversions

              (208)  (2)  1,257,416   12,574   (12,572)     - 

Shares issued pursuant to series D preferred stock conversions

        (3,500,000)  (35,000)        350,004   3,500   31,500      - 

Issuance of shares from prefunded warrant exercises

                    1,390,166   13,902   (13,148)     754 

Issuance of shares pursuant to May 2020 offering, net

                    1,396,826   13,968   591,949      605,917 

Shares issued in connection with Asset Purchase Agreement

                    115,000   1,150   185,150      186,300 

Exercise of warrants and issuance of new warrants June 2020, net

                    1,274,826   12,748   1,682,237      1,694,985 

Director compensation

                    20,350   204   34,796      35,000 

Vesting expense

                              134,939      134,939 

Net Loss

                                 (3,577,378)  (3,577,378)

Balance at 06/30/20

  79,246  $792   -  $-   -  $-   13,190,787  $131,908  $102,163,864  $(90,605,406) $11,691,158 

 

 

See Notes to Condensed Consolidated Financial Statements

 

6

 

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Six Months Ended
June 30,

 
  

2021

  

2020

 

Cash flow from operating activities:

        

Net loss

 $(6,462,645) $(8,106,695

)

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

        

Depreciation and amortization

  649,126   402,738 

Vesting expense

  598,325   422,777 

Amortization of debt discount

  244,830   858,353 

(Gain) loss on valuation of equity-linked instruments and derivative liability

  (64,762)  394,974 

Debt extinguishment costs

  -   300,000 

Equity instruments issued in connection with 2020 convertible debt

  -   20,695 

Equity instruments issued for management, consultant, and other

  52,471   397,300 

Gain on note receivable in connection with asset purchase

  -   (1,290,000)

Loss on fixed asset disposal

  -   118,472 

Changes in assets and liabilities:

        

Accounts receivable

  60,358   113,769 

Inventories

  (28,291)  (45,212)

Prepaid expense and other assets

  39,852   (197,182)

Accounts payable

  (430,110)  (614,651)

Accrued expenses

  (198,890)  505,380 

Deferred revenue

  101,317   (1,802)

Other long-term liabilities

  (88,559)  - 

Net cash used in operating activities:

  (5,526,978)  (6,721,084

)

         

Cash flow from investing activities:

        

Purchase of fixed assets

  (610,906)  - 

Proceeds from asset sales

  -   133,850 

Acquisition of intangibles

  (22,870)  (43,874)

Net cash provided by (used in) investing activities:

  (633,776)  89,976 
         

Cash flow from financing activities:

        

Proceeds from issuance of common stock and warrants, net

  50,515,810   - 

Proceeds from debt issuance

  -   2,761,867 

Proceeds from exercise of warrants into common stock

  4,495,270   1,866,554 

Repayment of debt

  (4,162,744)  (1,459,973)

Proceeds from issuance of common stock pursuant to equity line

  588,590   1,869,899 

Issuance of common stock, A, B and prefunded warrants, net

  -   5,057,919 

Payment penalties

  (1,073,470)  (247,327)

Other financing (security deposit)

  -   25,416 

Net cash provided by financing activities

  50,363,456   9,874,355 
         

Net increase in cash and cash equivalents

  44,202,702   3,243,247 

Cash and cash equivalents at beginning of period

  678,332   150,831 

Cash and cash equivalents at end of period

 $44,881,034  $3,394,078 

Non-cash transactions:

        

Bridge loan conversion into common stock

 $-  $267,328 

Shares issued pursuant to former CEO note conversion and accrued interest and exchange agreement

  -   2,322,878 

Shares issued to former CEO per agreement related to accrued interest

  143,573   - 

Put and conversion derivative from debt issuance

  -   141,463 

Series E preferred stock conversions

  -   3 

Series D preferred stock conversions

  -   35,000 

Inducement shares issued pursuant to convertible debt

  514,011   99,305 

Inducement shares issued for debt extension

  -   41,250 

Increase to operating lease right of use asset and lease liability due to lease modification

  -   995,571 

Warrants issued pursuant to debt issuance

  -   179,324 

Asset purchase acquired for notes receivable and common stock

  -   1,492,500 

Cash paid during period for:

        

Interest paid on debt

  694,435   - 

 

See Notes to Condensed Consolidated Financial Statements

 

7

 

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”) was originally incorporated on April 23, 2002 in Minnesota as BioDrain Medical, Inc. Effective August 6, 2013, the Company changed its name to Skyline Medical Inc. Pursuant to an Agreement and Plan of Merger effective December 16, 2013, the Company merged with and into a Delaware corporation with the same name that was its wholly owned subsidiary, with such Delaware corporation as the surviving corporation of the merger. On August 31, 2015, the Company completed a successful offering and concurrent uplisting to the NASDAQ Capital Market. On February 1, 2018, the Company filed with the Secretary of State of Delaware a Certificate of Amendment to its Certificate of Incorporation to change the corporate name from Skyline Medical Inc. to Precision Therapeutics Inc., effective February 1, 2018. Because of this change, the Company’s common stock traded under the ticker symbol “AIPT,” effective February 2, 2018. On June 10, 2019, the Company filed with the Secretary of State of Delaware a Certificate of Amendment to its Certificate of Incorporation to change the corporate name from Precision Therapeutics Inc. to Predictive Oncology Inc., trading under the new ticker symbol “POAI,” effective June 13, 2019. Skyline Medical (“Skyline”) remains as an incorporated division of Predictive Oncology Inc.

 

The Company operates in three primary business areas: first, application of artificial intelligence (“AI”) in our precision medicine business, to provide AI-driven predictive models of tumor drug response to improve clinical outcomes for patients and to assist pharmaceutical, diagnostic, and biotech industries in the development of new personalized drugs and diagnostics primarily through its wholly owned subsidiary Helomics Holding Corporation (“Helomics”); second, production of the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY® System for automated, direct-to-drain medical fluid disposal and associated products through its incorporated division Skyline and; third, contract services and research focused on solubility improvements, stability studies, and protein production, primarily with our Soluble Biotech subsidiary.

 

In addition, the Company’s wholly owned subsidiary, TumorGenesis Inc. (“TumorGenesis”), is developing the next generation, patient-derived tumor models for precision cancer therapy and drug development. TumorGenesis is presented as part of the condensed consolidated financial statements and is included in corporate in the Company’s segment reporting.

 

During the first quarter of 2018, the Company acquired 25% of the capital stock of Helomics Holding Corporation (“Helomics”). On April 4, 2019, the Company completed a forward triangular merger with Helomics Acquisition Inc., a wholly owned subsidiary of the Company and Helomics, acquiring the remaining 75% of the capital stock of Helomics.

 

The Company had cash and cash equivalents of $44,881,034 as of June 30, 2021. As of June 30, 2021, there was no outstanding debt. In October 2019, the Company entered into a purchase agreement for an equity line under which it can raise up to $15,000,000 over a three-year period, subject to market conditions including trading volume and stock price. As of June 30, 2021, there was $9,200,829 remaining in available balance under the equity line which requires additional shareholder approval under rule Nasdaq Listing Rule 5635(d) prior to use. Additional needs to access this line will be dilutive. See – Recent Developments below for additional discussion.

 

In June 2021, the Company completed a direct offering under its shelf registration statement of 15,520,911 shares of common stock and warrants to purchase up to 15,520,911 shares of common stock at a combined offering price of $1.375 per share, for gross proceeds of $21,341,253. The net proceeds have been or will be used for working capital. See Note 6 Stockholders Equity, Stock Options and Warrants.

 

In January and February 2021, the Company received aggregate net proceeds of $31,077,231 in a series of registered direct offerings and a private placement of equity securities. On March 1, 2021, the Company used $5,906,802 of the net proceeds from the private placement to pay the remaining principal and interest on the loans originally issued in September 2018, September 2019, and February 2020 and to pay premium due upon such repayment. The remaining net proceeds of the 2021 transactions have been or will be used for working capital. See Note 6 Stockholders Equity, Stock Options and Warrants.

 

8

 

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, over the next twelve months and beyond, and expects such sources to be sufficient to fund its requirements over that time.

 

Coronavirus Outbreak

 

In March 2020, the World Health Organization declared the recent spread of COVID-19 to be a global pandemic. 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 adversely impacted the global economy, disrupted global supply chains, and had created significant volatility and disruption of financial markets. While it is not currently possible to estimate the duration and severity of the COVID-19 pandemic or the adverse economic impact resulting therefrom, 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. We have also reduced on-site staff at several of our facilities, resulting in delayed production, less efficiency, and our sales staff is unable to visit with hospital administrators who are our customers and potential customers. In addition, COVID-19 has impacted the Company’s capital and financial resources, including our overall liquidity position during 2020 and may impact us in the future. For instance, our accounts receivable has slowed while our suppliers continue to ask for pre-delivery deposits. We received a Paycheck Protection Program (“PPP”) Loan pursuant to the CARES Act which helped fund some payroll costs in 2020. During the fourth quarter of 2020, we received forgiveness of the amounts outstanding from the PPP. If COVID-19 continues to spread or the response to contain the virus is unsuccessful, we may continue to experience a material adverse effect on our business, financial condition, results of operations, cash flows and stock price.

 

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 15, 2021. 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 accounting principles generally accepted in the 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.

 

9

 

Reclassifications

 

Certain reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year presentation. The reclassifications had no effect on previously reported results of operations, cash flows or stockholders’ equity.

 

Cash and cash equivalents

 

The Company considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. The Company places its cash with high quality financial institutions and believes its risk of loss is limited to amounts in excess of that which is insured 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. The allowance for doubtful accounts balance was $0 as of both June 30, 2021 and December 31, 2020.

 

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.

 

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 7 Derivatives.

 

Inventories

 

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

 

10

 

Fixed Assets

 

Fixed assets are stated at cost less accumulated depreciation. 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

-

6

Demo equipment

 

3

 

 

 

(1)

Leasehold improvements are amortized over the shorter of the 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.

 

The Company concluded there was no impairment of its intangible assets as of December 31, 2020. As a part of the Company’s review of the tradename intangible asset associated with its Helomics reportable segment, the Company determined the asset is a finite-lived asset beginning September 30, 2020.

 

The Company concluded there was no impairment of its finite-lived assets as of December 31, 2020. 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. As of June 30, 2021, there were no qualitative or quantitative factors indicating an impairment of its finite-lived assets.

 

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.

 

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 values 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 including the rate of future revenue growth, capital requirements, and income taxes), 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 judgement. 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.

 

11

 

The Company recognized loss on impairment goodwill during the year ended December 31, 2020 of $12,876,498. As of June 30, 2021, there were no qualitative or quantitative factors indicating it was more likely than not that the carrying value of a reporting unit exceeds its estimated fair value.

 

The Company will continue to monitor its reporting units to determine whether events and circumstances warrant further interim impairment testing. Impairment of goodwill is not expected to be deductible for tax purposes. The Company can make no assurances that its goodwill will not be impaired in the future.

 

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 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 terms). As a result, the Company determined that the customer can 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 clinic 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 using 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 deferred revenue 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 segment.

 

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 $196,520 and $256,878 as of June 30, 2021 and December 31, 2020, respectively.

 

The Company’s deferred revenues related primarily to maintenance plans of $154,345 and $53,028 as of June 30, 2021 and December 31, 2020, 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.

 

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 six months ended June 30,

 
 

2021

2020

 
 

Stock Options

Expected dividend yield

 0.0%  0.0% 

Expected stock price volatility

84.8%-89.6%82.6%-86.8%

Risk-free interest rate

0.93%-1.45%0.62%-1.78%

Expected life (in years)

 10  10 
 

Warrants

Expected dividend yield

 0.0%  0.0% 

Expected stock price volatility

84.8%-89.6%82.6%-86.8%

Risk-free interest rate

0.42%-1.04%0.33%-0.79%

Expected life (in years)

3-5.5

2

-5.5

 

14

 

Research and Development

 

Research and development costs are charged to operations as incurred. Research and development costs were $143,322 and $191,223 for the six months ended June 30, 2021 and 2020, respectively.

 

Other Expense

 

Other expense consisted primarily of interest expense, payment premium, amortization of original issue discounts, and loss on debt extinguishment associated to 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 2017 remain open to examination by federal and state tax authorities.

 

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 $119,857 for cash amounts held in a single institution that are in excess of amounts issued by the Federal Deposit Insurance Corporation.

 

15

 

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.

 

Subsequent Events

 

The Company has evaluated all of its activities and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements.

 

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 either were 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.

 

Recent Developments

 

The Company held a Special Meeting of Stockholders (the “Special Meeting”) on August 10, 2021 to consider and vote upon the following proposals:

 

 

To approve an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Company common stock from 100,000,000, to 200,000,000;

 

 

To approve an amendment to the Amended and Restated 2012 Stock Incentive Plan to increase the reserve of shares of common stock authorized for issuance thereunder by 1,500,000, to 3,250,000;

 

 

To approve, pursuant to Nasdaq Listing Rule 5635(d), the issuance of additional shares of common stock of the Company pursuant to a previously approved equity line of credit arrangement;

 

 

To ratify the appointment of Baker Tilly US, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021; and

 

 

To approve a proposal to adjourn the Special Meeting, if necessary, to solicit additional proxies for any of the above proposals, in the event that there are not sufficient votes at the time of the Special Meeting to approve any such proposal.

 

On March 19, 2021, the Company appointed J. Melville Engle, age 71, as its Chief Executive Officer, effective immediately. In addition to being named CEO, Mr. Engle retained his role of Chairman of the Board. Mr. Engle joined POAI’s Board of Directors in October 2016 and was appointed Chairman of the Board in January 2020.

 

Dr. Carl Schwartz retired through his resignation as the Chief Executive Officer of the Company effective on March 19, 2021. In connection with the resignation, Dr. Schwartz and the Company simultaneously entered into a Transition and Separation Agreement pursuant to which, among other things, Dr. Schwartz agreed to retire from his employment and resign as a member of the board of directors and to provide certain transition services to the Company in exchange for the issuance to Dr. Schwartz of 100,000 shares of the Company’s common stock on April 1, 2021. In addition, the Company agreed to provide Dr. Schwartz with certain separation benefits and the vesting of 300,000 restricted stock units previously granted to Dr. Schwartz.

 

16

 

Effective April 21, 2021, the Board of Directors (“Board”) the Company elected Dr. Christina Jenkins, M.D., to the Board, as well as to the Board’s Merger & Acquisition Committee. She was chosen to fill the vacancy created by the retirement of Dr. Carl I. Schwartz. As a Class III Director, Dr. Jenkins’ term will expire at the 2021 annual meeting of the Company’s stockholders. In recognition of the services Dr. Jenkins will provide to the Company as a member of the Board, she was issued 5,000 shares of common stock from the Company’s Amended and Restated 2012 Stock Incentive Plan simultaneously with her election.

 

 

NOTE 2 INVENTORIES

 

Inventory balances are as follows:

 

  

As of
June 30,

2021

  

As of
December 31,

2020

 
         

Finished goods

 $197,212  $95,898 

Raw materials

  86,284   151,366 

Work-In-Process

  34,330   42,271 

Total

 $317,826  $289,535 

 

 

NOTE 3 FIXED ASSETS

 

The Company’s fixed assets consist of the following:

 

  

As of
June 30,

2021

  

As of

December
31, 2020

 

Computers, software, and office equipment

 $1,949,468  $1,862,669 

Leasehold improvements

  315,297   315,297 

Laboratory equipment

  3,335,119   2,811,012 

Manufacturing tooling

  108,955   108,955 

Demo equipment

  56,614   56,614 

Total

  5,765,453   5,154,547 

Less: Accumulated depreciation

  (1,814,840

)

  (1,331,847)

Total Fixed Assets, Net

 $3,950,613  $3,822,700 

 

Depreciation expense was $482,993 and $249,049 during the six months ended June 30, 2021 and 2020, respectively and $244,062 and $118,974 during the three months ended June 30, 2021 and 2020, respectively.

 

 

NOTE 4 INTANGIBLE ASSETS

 

The components of intangible assets were as follows:

 

  

As of June 30, 2021

  

As of December 31, 2020

 
  

Gross

Carrying

Costs

  

Accumulated

Amortization

  

Net

Carrying

Amount

  

Gross

Carrying

Costs

  

Accumulated

Amortization

  

Net

Carrying

Amount

 

Patents & Trademarks

 $424,291  $(220,122) $204,169  $401,421  $(211,110) $190,311 

Developed Technology

  2,882,000   (324,225)  2,557,775   2,882,000   (252,175)  2,629,825 

Customer Relationships

  445,000   (333,750)  111,250   445,000   (259,583)  185,417 

Tradename

  398,000   (16,356)  381,644   398,000   (5,452)  392,548 

Total

 $4,149,291  $(894,453) $3,254,838  $4,126,421  $(728,320) $3,398,101 

 

17

 

Amortization expense was $166,133 and $153,689 during the six months ended June 30, 2021 and 2020, respectively and $83,086 and $77,184 during the three months ended June 30, 2021 and 2020, respectively.

 

The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2021:

 

Year ending December 31,

 

Expense

 

2021

 $249,182 

2022

  220,993 

2023

  183,910 

2024

  183,910 

2025

  183,910 

Thereafter

  2,232,933 

Total

 $3,254,838 

 

 

 

NOTE 5 NOTES PAYABLE

 

The balances of notes payable were as follows:

 

 

Due Date

 

As of

June 30, 2021

  

As of

December 31, 2020

 

Promissory note 2019

March 31, 2021

 $-  $1,490,833 

Promissory note 2020

March 31, 2021

  -   1,464,146 

2018 Investor Loan

March 31, 2021

  -   1,721,776 

Total Notes Payable, gross

  -   4,676,755 

Less: Unamortized discount

  -   (244,830)

Total Notes Payable, net

 $-  $4,431,925 

 

Promissory Note Conversions

 

Each investor received the right to convert all or any part of its 2018 Investor loan into shares of the Company’s common stock at a conversion factor that is the lesser of a discounted price. The number of conversion shares that may be issued was limited. As of March 31, 2020, the maximum number of conversion shares had been issued, no additional shares were available to be issued related to this conversion option. During the first three months of 2020, the investors converted $267,328 of the principal balance and received 170,000 shares of the Company’s common stock.

 

Also, the investor in the 2019 and 2020 promissory notes converted $514,011 of the principal balance and received 1,107,544 shares of the Company’s common stock during the first quarter of 2021 through February 15, 2021.

 

Promissory Note Repayment

 

On March 1, 2021, the Company used $5,906,802 of the proceeds of the private placement on February 23, 2021, to repay in full the outstanding principal and interest and applicable premium amounts under the 2018 Investor Loan, the 2019 Promissory Note and the 2020 Promissory Note.

 

18

 

 

 

NOTE 6 STOCKHOLDERS EQUITY, STOCK OPTIONS AND WARRANTS

 

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 June 30, 2021, there was $9,200,829 of remaining available balance under the equity line, subject to shareholder approval required for additional purchases, as well as requirements for market conditions including trading volume and stock price, and subject to other limitations. During the second quarter of 2021, the Company issued 572,504 shares of its common stock valued at $588,590 pursuant to the equity line.

 

2021 Offerings

 

In June 2021, the Company completed a direct offering under its shelf registration statement of 15,520,911 shares of common stock and warrants to purchase up to 15,520,911 shares of common stock at a combined offering price of $1.375 per share, for gross proceeds of $21,341,253 and net proceeds of $19,446,296. The offering was priced at-the-market under applicable NASDAQ rules. The warrants have an exercise price equal to $1.25 per share, are exercisable on the effective date of an increase in the number of shares of the Company’s authorized common stock and will expire three years after the initial exercise date. The purchase agreement contained customary representations and warranties and agreements of the Company and the purchasers and customary indemnification rights and obligations of the parties. The Company agreed to hold a special meeting of shareholders on or prior to August 15, 2021 for the purpose of obtaining the approval to increase the number of authorized shares.   

 

The Company paid to the placement agent a fee equal to 7.5% of the gross proceeds received by the Company in the offering and a management fee equal to 1% of the gross proceeds received by the Company in the offering and reimbursed the placement agent for $65,000 of non-accountable and out-of-pocket expenses. The Company also agreed to pay the placement agent $15,950 for clearing fees. Also, in connection with the Offering, the Company agreed to grant the placement agent, or its designees warrants to purchase an aggregate of up to of 1,164,068 shares of its common stock (which represents 7.5% of the shares sold to investors in the Offering) at an exercise price equal to 125% of the offering price of the shares in the offering, or $1.71875. These agent warrants are exercisable on the date of the increase to the authorized shares discussed above (the “Authorized Share Increase Date”) and will expire on the earlier of (i) the date that is the 3-year anniversary of the Authorized Share Increase Date and (ii) June 14, 2026. The investor warrants and the agent warrants can be exercised by the holder paying cash or pursuant to a cashless exercise as defined in the warrant agreement.

 

19

 

In January and February 2021, the Company completed a series of five offerings, all of which were priced at-the-market under applicable NASDAQ rules. The first four offerings were registered direct offerings of common stock under its shelf registration statement, and in each such case, in a concurrent private placement, the Company also issued such investors one warrant to purchase common stock for each two shares purchased in the transaction. Following those four offerings, the Company completed a private placement of common stock, with each investor receiving one warrant to purchase common stock for each two shares purchased in the transaction. In each case, each such investor warrant is exercisable immediately upon issuance and will expire five and one-half years from the issue date. 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 reimbursed the placement agent for certain non-accountable and 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, with a term of five years for the registered direct offerings or five and one-half years for the private placement. These offerings were as follows:

 

Offering Closing Date

 

Shares

  

Sale Price

per Share*

  

Investor

Warrants

  

Exercise Price

per Share

Investor

Warrants

  

Placement

Agent

Warrants

  

Exercise Price

per Share

Placement

Agent

Warrants

  

Gross

Proceeds

of Offering

  

Net

Proceeds

of Offering

 

January 12, 2021 (registered direct)

  3,650,840  $0.842   1,825,420  $0.80   273,813  $1.0525  $3,074,007  $2,731,766 

January 21, 2021 (registered direct)

  2,200,000  $1.00   1,100,000  $1.00   165,000  $1.25  $2,200,000  $1,932,050 

January 26, 2021 (registered direct)

  3,414,970  $1.20   1,707,485  $1.37   256,123  $1.50  $4,097,964  $3,668,687 

February 16, 2021 (registered direct)

  4,222,288  $1.75   2,111,144  $2.00   316,672  $2.1875  $7,389,004  $6,679,989 

February 23, 2021 (private placement)

  9,043,766  $1.95   4,521,883  $2.00   678,282  $2.4375  $17,635,344  $16,064,739 

Total

  22,531,864       11,265,932       1,689,890      $34,396,319  $31,077,231 

* Sale price includes one share and a warrant to purchase one-half share.

 

2021 Warrant Exercises

 

During the six months ended June 30, 2021, the holders of outstanding investor warrants have exercised such warrants for the total purchase of 5,247,059 shares at a weighted average exercise price of $0.86 per share, for total proceeds of $4,495,270.

 

Equity Incentive Plan

 

The Company has an equity incentive plan, which allows issuance of 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, 2019

  766,424  $11.34   2,171,610  $15.26 
                 

Issued

  319,851   1.03   8,097,468   1.547 

Forfeited

  (72,728

)

  10.58   (128,710

)

  95.11 

Exercised

  -   -   (2,786,992

)

  0.79 
                 

Outstanding at December 31, 2020

  1,013,547  $5.41   7,353,376  $3.76 
                 

Issued

  60,680   1.08   29,640,801   1.44 

Forfeited

  (60,447)  8.39   -   - 

Exercised

  -   -   (5,247,059)  0.86 
                 

Outstanding at June 30, 2021

  1,013,780  $5.07   31,747,118  $2.077 

 

Under the equity incentive plan, the Company is also authorized to issue restricted stock, restricted stock units (“RSUs”) and other awards specified under the plan. During the six months ended June 30, 2021, the Company issued 450,000 RSUs under the plan which have market, performance and service vesting conditions through January 1, 2024. During the six months ended June 30, 2021, 300,000 RSUs became vested, resulting in the issuance of the same number of shares of common stock. At June 30, 2021, there were 550,000 RSUs outstanding under the plan.

 

Stock-based compensation expense recognized for three months ended June 30, 2021 and June 30, 2020 was $33,243 and $134,939, respectively. Stock-based compensation expense recognized for six months ended June 30, 2021 and June 30, 2020 was $598,325 and $422,777, respectively. The Company has $41,402 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over the next 23 months and $174,027 of unrecognized compensation expense related to non-vested restricted stock units that are expected to be recognized over the next 30 months.