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, 2020

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 11, 2020, the registrant had 17,676,621 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	4
Condensed Consolidated Balance Sheets as of September 30, 2020, and December 31, 2019	4
Condensed Consolidated Statements of Net Loss for the three and nine months ended September 30, 2020 and September 30, 2019	5
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and September 30, 2019	6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and September 30, 2019	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Mine Safety Disclosures	42
Item 5. Other Information	42
Item 6. Exhibits	42
Signatures	43
Exhibit Index	44

  

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2020				December 31, 2019
			(unaudited)				(audited)
ASSETS
Current Assets:
Cash		$	2,474,312			$	150,831
Accounts Receivable			508,265				297,055
Inventories			205,908				190,156
Prepaid Expense and Other Assets			269,282				160,222
Total Current Assets			3,457,767				798,264
Fixed Assets, net			3,755,464				1,507,799
Intangibles, net			3,464,327				3,649,412
Lease Right-of-Use Assets			1,790,130				729,745
Goodwill			12,693,290				15,690,290
Total Assets		$	25,160,978				22,375,510
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable		$	1,628,944			$	3,155,641
Notes Payable – Net of Discounts of $495,100 and $350,426			5,751,876				4,795,800
Accrued Expenses			2,530,385				2,371,633
Derivative Liability			1,052,494				50,989
Deferred Revenue			66,123				40,384
Lease Liability			577,505				459,481
Total Current Liabilities			11,607,327				10,873,928
Lease Liability – Net of current portion			1,221,806				270,264
Other long-term liabilities			95,079				-
Total Liabilities			12,924,212				11,144,192
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
Series D Convertible Preferred Stock, $.01 par value, 3,500,000 shares authorized, 0 and 3,500,000 outstanding			-				35,000
Series E Convertible Preferred Stock, $.01 par value, 350 shares authorized, 0 and 258 outstanding			-				3
Common Stock, $.01 par value, 100,000,000 shares authorized, 16,593,283 and 4,056,652 outstanding			165,932				40,567
Additional paid-in capital			108,983,174				93,653,667
Accumulated Deficit			(96,913,132	)			(82,498,711	)
Total Stockholders' Equity			12,236,766				11,231,318
Total Liabilities and Stockholders' Equity		$	25,160,978			$	22,375,510

 

See Notes to Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS

(Unaudited) 

 

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenue		$	480,757			$	522,696			$	958,484			$	1,064,088
Cost of goods sold			175,206				208,096				353,124				400,202
Gross margin			305,551				314,600				605,360				663,886
General and administrative expense			2,226,634				2,616,991				8,266,927				7,425,305
Operations expense			568,766				707,414				1,638,635				2,445,238
Sales and marketing expense			121,514				434,955				518,938				1,674,200
Loss on goodwill impairment			2,997,000				-				2,997,000				-
Total operating loss			(5,608,363	)			(3,444,760	)			(12,816,140	)			(10,880,857	)
Gain on revaluation of cash advances to Helomics			-				-				-				1,222,244
Other income			44,926				15,084				97,894				65,293
Other expense			(2,147,057	)			(894,811	)			(3,993,969	)			(2,052,522	)
Gain on derivative instruments			1,402,768				315,975				1,007,794				84,627
Gain on notes receivables associated with asset purchase			-				-				1,290,000				-
Loss on equity method investment			-				-				-				439,637
Gain on revaluation of equity method in investment			-				-				-				6,164,260
Net loss		$	(6,307,726	)		$	(4,008,512	)		$	(14,414,421	)		$	(5,836,592	)
Deemed dividend			554,287				125,801				554,287				146,199
Net loss attributable to common shareholders per common shares-basic and diluted		$	(6,862,013	)		$	(4,134,313	)		$	(14,968,708	)		$	(5,982,791	)
Loss per common share basic and diluted		$	(0.46	)		$	(1.31	)		$	(1.51	)		$	(2.32	)
Weighted average shared used in computation – basic and diluted			15,026,789				3,146,609				9,935,738				2,581,014

 

See Notes to Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019

(Unaudited)

 

 

See Notes to Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

See Notes to Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended September 30,
		2020				2019
Cash flow from operating activities:
Net loss		$	(14,414,421	)		$	(5,836,592	)
Adjustments to reconcile net loss to net cash used in operating activities:
Recognition of credit loss on notes receivable			-				787,524
Accrued interest revenue			-				(34,917	)
Loss on equity method investment			-				439,637
Gain on revaluation of equity method investment			-				(6,164,260	)
Gain on note receivable in connection with asset purchase			(1,290,000	)			-
Depreciation and amortization			716,595				483,631
Vesting expense			557,452				2,004,366
Equity instruments issued for management, consultant, and other			424,331				-
Amortization of debt discount			996,271				1,621,181
Loss on valuation of equity-linked instruments and derivative liability			(1,007,794	)			(84,627	)
Gain on revaluation of cash advances to Helomics			-				(1,222,244	)
Debt extinguishment costs			1,996,681				204,750
Equity instruments issued in connection with 2020 convertible debt			20,695				-
Loss on goodwill impairment			2,997,000				-
Loss on fixed asset disposal			120,577				293
Changes in assets and liabilities:
Accounts receivable			(122,003	)			68,252
Inventories			(15,752	)			60,638
Prepaid expense and other assets			(109,060	)			33,834
Accounts payable			(1,438,033	)			942,183
Accrued expenses			587,937				751,975
Deferred revenue			25,739				7,573
Net cash used in operating activities:			(9,953,785	)			(5,936,803	)
Cash flow from investing activities:
Advance on notes receivable			-				(975,000	)
Cash received from notes receivable			-				154,418
Cash received in Helomics Acquisition			-				248,102
Acquisition of fixed assets			(114,180	)			-
Proceeds from asset sales			133,850				(855	)
Acquisition of intangibles			(45,862	)			(18,419	)
Net cash used in investing activities:			(26,192	)			(591,754	)
Cash flow from financing activities:
Proceeds from debt issuance			2,761,867				2,250,000
Proceeds from exercise of warrants into common stock			1,935,854				5,970
Proceeds from issuance of Series E convertible preferred stock			-				2,338,840
Repayment of debt			(1,459,973	)			(609,514	)
Payment penalties			(247,327	)			-
Proceeds from issuance of common stock pursuant to equity line			4,229,702				-
Issuance of common stock, A, B and prefunded warrants, net			5,057,919				2,479,708
Other financing (security deposit)			25,416				-
Net cash provided by financing activities			12,303,458				6,465,004
Net increase (decrease) in cash and cash equivalents			2,323,481				(63,553	)
Cash at beginning of period			150,831				162,152
Cash at end of period		$	2,474,312			$	98,599
Non-cash transactions:
Consideration given for acquisition of Helomics		$	-			$	26,711,791
Forbearance settlement of bridge loan			-				503,009
Bridge loan conversion into common stock			267,328				338,573
Shares issued pursuant to CEO note conversion and accrued interest and exchange agreement			2,322,878				-
Fixed assets acquired for notes receivable and common stock			1,492,500				-
Fixed asset acquired for common stock			1,470,267				-
Increase to operating lease right of use asset and lease liability due to new and modified leases			1,417,076				-
Put and conversion derivative from debt issuance and modification			636,563
Warrants issued pursuant to debt issuance			179,324				180,640
Inducement shares issued pursuant to debt			140,555				-
Series D preferred stock conversions			35,000				-
Additional warrants issued pursuant to CEO note payable			-				47,078
Fixed assets sold for accounts receivable			89,207				-
Series E preferred stock conversion			3				-

 

See Notes to Condensed Consolidated Financial Statements

 

PREDICTIVE ONCOLOGY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

ITEM 2. Management’s 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, 2019.

 

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:

 

	·	We may not be able to continue operating without additional financing;
	·	Current negative operating cash flows;
	·	Our capital needs to accomplish our goals, including any further financing, which may be highly dilutive and may include onerous terms;
	·	Significant debt repayments due in less than one year, which the Company may need to extend or restructure, with no assurance that this will be possible;
	·	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 related to the protection of our intellectual property or any future legal claims relating to 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 is not accepted by potential customers;
	·	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 on 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, 2019 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 two 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; and 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.

 

We have three operating segments: Skyline, Helomics and Soluble. Skyline consist of the STREAMWAY System product sales. The Helomics segment consists of clinical testing and contract research. Soluble segment consists of contract services and research focused on solubility improvements, stability studies, and protein production. Our TumorGenesis subsidiary is included within corporate. Going forward, we have determined that we will focus our resources on the Helomics segment and our primary mission of applying AI to precision medicine and drug discovery.

 

Precision Medicine Business

 

Our precision medicine business, conducted primarily in our Helomics division, is committed to improving the effectiveness of cancer therapy using our proprietary, multi-omic tumor profiling platform, one-of-a-kind database of historical tumor data, and the power of AI to build predictive models of tumor drug response.

Helomics’ mission is to improve clinical outcomes for patients by partnering with pharmaceutical, diagnostic, and academic organizations to bring innovative clinical products and technologies to the marketplace. In addition to our proprietary patient-derived (“PDx”) tumor profiling platform for oncology, Helomics offers: 1) data and AI driven contract research organization (“CRO”) services for clinical and translational research that leverage PDx tumor models, 2) a wide range of multi-omics assays (genomics, proteomics, and biochemical), and 3) AI driven predictive models to drive the discovery of targeted therapies.

 

Contract Research Organization (CRO) and AI-Driven Business

 

We believe leveraging our unique, historical database of the drug responses of over 149,000 patient tumors to build AI and data-driven multi-omic predictive models of tumor drug response and outcome will provide actionable insights critical to both new drug development and individualizing patient treatment. Our large historical database of tumors and related data, plus our ability to obtain the associated patient outcome data is a significant competitive advantage. Cancer treatments require at least 5 years of testing to provide sufficient information on progression-free survival rates. While competitors must wait for this data, we can leverage it today. These AI-driven predictive models, coupled with the PDx platform will create a unique service to drive revenue generating projects with pharma, diagnostic and biotech companies in areas such as biomarker discovery, drug screening, drug repurposing, and clinical trials. The AI-driven models will, once validated, also provide clinical decision support to help oncologists individualize treatment.

 

Our CRO/AI business is committed to improving the process of targeted therapy discovery. Our proprietary, TruTumor multi-omic PDx profiling and AI platform coupled to our vast multi-omic database of biochemical and clinical information on patients with cancer, uses deep learning to understand the association between the mutational profile of a patient’s tumor and the drug response profile of the tumor that is grown in the lab. This approach is used to build an AI-driven predictive model that offers actionable insights of which mutations in the tumor are associated with drugs to which the tumor is sensitive and which will lead to the optimal outcome for the patient.

Our CRO services business applies these AI-driven predictive models coupled with our unique proprietary TruTumor PDx model to address a range of needs from discovery through clinical and translational research, to clinical trials and diagnostic development and validation as noted below:

Research

•

Biomarker discovery

•

Drug discovery

•

Drug-repurposing

Development

•

Patient enrichment & selection for trials

•

Clinical trial optimization

•

Adaptive trials

Clinical Decision Support

•

Patient stratification

•

Treatment selection

 

On July 1, 2020, the Company acquired the assets of Quantitative Medicine LLC including a novel, computational drug discovery platform called CoRE. CoRE which is designed to dramatically reduce the time, cost, and financial risk of discovering new therapeutic drugs by predicting the main effects of drugs on target molecules that mediate disease. By coupling CoRE, with Helomics’ TruTumor™ PDx tumor platform, Helomics multi-omic database of biochemical and clinical information on patients with cancer, and AI-driven predictive models, we will offer a novel, one-of-a-kind capability for discovery of precision therapies that are expected to have considerable value to the industry.

 

Clinical Testing

 

Via our Helomics subsidiary, we offer a group of clinically relevant, cancer-related tumor profiling and biomarker tests for gynecological cancers that determine how likely the patient is to respond to various types of chemotherapy and which therapies might be indicated by relevant tumor biomarkers.

 

Clinical testing is comprised of ChemoFx and BioSpeciFx tests. The ChemoFx test determines how a patient’s tumor specimen responds to a panel of various chemotherapy drugs, while the BioSpeciFx test evaluates the expression of a specific genes, or biomarkers, in the patient’s tumor. Our proprietary TruTumor™ PDx tumor platform provides us with the ability to work with actual live tumor cells to study the unique biology of the patient’s tumor in order to understand how the patient responds to treatment.

 

Soluble Biotech

 

On May 27, 2020, the Company entered into an Asset Purchase Agreement with InventaBioTech, Inc. (“InventaBioTech”) and two of its subsidiaries, Soluble Therapeutics, Inc. (“Soluble”), and BioDtech, Inc. (“BioDtech”), and simultaneously completed the acquisition of substantially all of Soluble’s and BioDtech’s assets. Soluble Biotech provides optimized FDA-approved formulations for vaccines, antibodies and other protein therapeutics in a faster and lower cost basis to its customers. The Company focuses on solubility improvements, stability studies, and protein production. In addition, the Company enables protein degradation studies which is a new and substantial line of business for the company.

 

Our subsidiary, TumorGenesis, is pursuing a new rapid approach to growing tumors in the laboratory, which essentially “fools” the cancer cells into thinking they are still growing inside the patient. We have also announced a proposed joint venture with GLG Pharma focused on using their combined technologies to bring personalized medicines and testing to ovarian and breast cancer patients, especially those who present with ascites fluid (over one-third of patients).

 

Skyline Medical – The STREAMWAY System

 

Sold through our subsidiary, Skyline Medical, Inc (“Skyline Medical”), the STREAMWAY System virtually eliminates staff exposure to blood, irrigation fluid and other potentially infectious fluids found in the healthcare environment. Antiquated manual fluid handling methods that require hand carrying and emptying filled fluid canisters present both an exposure risk and potential liability. Skyline Medical’s STREAMWAY System fully automates the collection, measurement, and disposal of waste fluids and is designed to: 1) reduce overhead costs to hospitals and surgical centers; 2) improve compliance with the Occupational Safety and Health Administration and other regulatory agency safety guidelines; 3) improve efficiency in the operating room and radiology and endoscopy departments, thereby leading to greater profitability; and 4) provide greater environmental stewardship by helping to eliminate the approximately 50 million potentially disease-infected canisters that go into landfills each year in the United States.

 

In December 2019, we announced that we had received indications of interest from several parties for the possible acquisition of our Skyline Medical division, and we reaffirmed that we are focusing our resources on our precision medicine business. We continue to operate the Skyline Medical business with a focus on maximizing our strategic opportunities with respect to this division.

 

STREAMWAY System Product Sales

 

Our domestic and international segments consist primarily of sales of the STREAMWAY System, as well as sales of the proprietary cleaning fluid and filters for use with the STREAMWAY System. We manufacture an environmentally conscious system for the collection and disposal of infectious fluids resulting from surgical and other medical procedures. We have been granted patents for the STREAMWAY System in the United States, Canada, and Europe. We distribute our products to medical facilities where bodily and irrigation fluids produced during medical procedures must be contained, measured, documented, and disposed. Our products minimize the exposure potential to the healthcare workers who handle such fluids. In addition to simplifying the handling of these fluids, our goal is to create products that dramatically reduce staff exposure without significant changes to established operative procedures, historically a major industry stumbling block to innovation and product introduction.

 

We sell our medical device products directly to hospitals and other medical facilities using employed sales representatives, independent contractors and distributors.

 

Capital Requirements

 

Since inception, we have been unprofitable. We incurred net losses of $(6,307,726) and $(14,414,421) for the three and nine months ended September 30, 2020, respectively and incurred net losses of $(4,008,512) and $(5,836,592) for the three and nine months ended September 30, 2019. As of September 30, 2020, and December 31, 2019, we had an accumulated deficit of $96,913,132 and $82,498,711, respectively.

 

We have never generated sufficient revenues to fund our capital requirements. From 2009 through 2018, we built the Skyline Medical business, building a national sales network and international sales. However, the Skyline Medical business has never reached profitability. In 2017, we determined to diversify our business by investing in ventures in the precision medicine business, including making significant loans and investments in early stage companies. These activities led to the acquisition of Helomics in April 2019, which has accelerated our capital needs further. We have funded our operations through a variety of debt and equity instruments. See “Liquidity and Capital Resources – Plan of Financing; Going Concern Qualification” 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 segment; to continue to sell our Skyline Medical products and attempt to reach profitability in the Skyline Medical business and the availability of future financing to fulfill our business plans. See “Plan of Financing; Going Concern Qualification” below.

 

Our limited history of operations, especially in our precision medicine business, and our change in the emphasis of our business, 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, 2020 and September 30, 2019

 

		Three Months Ended September 30,												Nine Months Ended September 30,
		2020				2019				Difference				2020				2019				Difference
Revenue		$	480,757			$	522,696			$	(41,939	)		$	958,484			$	1,064,088			$	(105,604	)
Cost of goods sold			175,206				208,096				(32,890	)			353,124				400,202				(47,078	)
General and administrative expense			2,226,634				2,616,991				(390,357	)			8,266,927				7,425,305				841,622
Operations expense			568,766				707,414				(138,648	)			1,638,635				2,445,238				(806,603	)
Sales and marketing expense			121,514				434,955				(313,441	)			518,938				1,674,200				(1,155,262	)

 

Revenue. We recorded revenue of $480,757 and $522,696 in the three months ended September 30, 2020 and 2019, respectively.  We sold 15 and 19 STREAMWAY System units during the three months ended September 30, 2020 and 2019, respectively.

 

We recorded revenue of $958,484 and $1,064,088 in the nine months ended September 30, 2020 and 2019, respectively. All revenue was derived from the Skyline Medical business except for $33,879 and $52,416 in Helomics revenues during the nine months ended September 30, 2020 and 2019, respectively. There were 21 and 33 sales of STREAMWAY units in the nine months ended September 30, 2020 and 2019, respectively.

 

Cost of goods sold. Cost of sales was $175,206 and $353,124 in the three and nine months ended September 30, 2020 and $208,096 and $400,202 in the three and nine months ended September 30, 2019, respectively. The gross profit margin was approximately 64% and 63% in the three and nine months ended September 30, 2020, respectively, compared to 60% and 62% in the prior year. Our margins increased in the current year as costs were lower, which more than offset the revenue earned in the current period. Exclusive of Helomics, gross profit margin related to the Skyline Medical business was 72% in the nine months ended September 30, 2020 and approximately 71% in the nine months ended September 30, 2019.

 

 

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.

 

General and administrative (G&A) expenses decreased by $390,357 for the three months ended September 30, 2020 compared to 2019. The decrease was primarily due to a decrease of approximately $310,000 in penalties related to short term notes incurred in 2019. Additional decreases in severance related expenses, decreases in audit related expenses and a decrease of $94,185 related to share-based compensation for awards made in 2019, partially offset by increases in salary and related expenses, investor relations expenses and depreciation.

 

General and administrative (G&A) expenses increased by $841,622 for the nine months ended September 30, 2020 compared to 2019. The increase was primarily due to an increase in costs related to salaries and related costs associated with increased headcount as compared to 2019 primarily in the Helomics division and approximately $400,000 increase in severance and related expenses, offset by 53% decline in costs related to share-based compensation for awards made in 2019. Further declines in legal fees, penalties and bad debt expense.

 

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

 

Operations expense decreased by $138,648 to $568,766 in the three months ended September 30, 2020 compared to 2019 and decreased by $806,603 to $1,638,635 in the nine months ended September 30, 2020 compared to 2019. The decrease was primarily due to lower costs related to staff including share-based compensation for awards made in 2019.

 

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 decreased by $313,441 to $121,514 in the three months ended September 30, 2020. Such expenses related almost exclusively to the Skyline Medical business. The decrease in 2020 was a direct result of the strategic decision focus on the precision medicine business and reduce the emphasis on expenditures in the Skyline Medical business. These factors decreased our expenses for public relations and salary and travel costs for sales staff.

 

Loss on goodwill impairment. We incurred an impairment charge of $2,997,000 on goodwill, during the nine months ended September 30, 2020. No impairment charges were incurred during the nine months ended September 30, 2019. The Company performs a goodwill assessment using a qualitative approach to identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of each of our reporting units. The Company’s goodwill relates to the Helomics operating segment and none of the Company’s other operating segments. The Company made its qualitative evaluation considering, among other things, general macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant entity-specific events.

 

During the third quarter of 2020, the Company’s share price experienced a sustained reduction in trading values. This was also reflective of broader difficulties in the general economic conditions due to the COVID pandemic. Based on our examination of these and other qualitative factors at September 30, 2020, the Company concluded that further testing of goodwill was required.

 

 

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired in the Helomics acquisition and represents the future economic benefits that we expect to achieve as a result of the acquisition that are not individually identified and separately recognized. Goodwill is tested for impairment annually at the reporting unit level, or whenever events or circumstances present an indication of impairment. The primary items that generate goodwill include the value of the synergies between the acquired company and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset.

 

Based upon the goodwill impairment test, the Company concluded that goodwill was impaired as of the testing date. Pursuant to Accounting Standards Update No, 2017-04, Simplifying the Test for Goodwill Impairment, the single step is to determine the estimated fair value of our 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 quantitative review resulted in $2,997,000 of impairment charges related to our goodwill. Our goodwill at September 30, 2020 following the impairment was $12,693,290. The Company will continue to monitor our reporting unit in an effort to determine whether events and circumstances warrant further impairment testing which may include interim periods.

 

Other income. We earned other income of $44,926 in the three months ended September 30, 2020 compared to $15,084 in the comparable period in 2019 and earned other income of $97,894 in the nine months ended September 30, 2020 compared to $65,293 in the comparable period in 2019. Other income included interest and dividend income.

 

Other expense. We incurred other expense of $2,147,057 in the three months ended September 30, 2020 compared to $894,811 in the comparable period in 2019 and incurred other expense of $3,993,969 in the nine months ended September 30, 2020 compared to $2,052,522 in the comparable period in 2019. Other expense consisted primarily of net interest expense, payment penalties, amortization of original issue discounts, and loss on debt extinguishment related to our notes payable.

 

Gain (loss) on derivative instruments. We incurred a gain of $1,402,768 in the three months ended September 30, 2020 compared to $315,975 in the comparable period in 2019 and incurred gains of $1,007,794 in the nine months ended September 30, 2020 compared to $84,627 in the comparable period in 2019 related to the changes in fair market value on derivatives.

 

Gain on notes receivable associated with asset purchase. We had a gain on notes receivable associated with the acquisition of assets from Soluble and BioDtech of $1,290,000 in the nine months ended September 30, 2020, with no comparable amounts in 2019.

 

Liquidity and Capital Resources

 

Cash Flows

 

Net cash used in operating activities was $9,953,785 and $5,936,803 for the nine months ended September 30, 2020 and September 30, 2019, respectively. Cash used in operating activities increased in the 2020 period primarily because of the increase in cash used in working capital and the additional costs related to the Helomics business.

 

Cash flows used in investing activities were $26,192 for the nine months ended September 30, 2020 and cash flows used in investing activities was $591,754 for the nine months ended September 30, 2019, respectively. Cash used in the nine months ended September 30, 2020 was from the acquisition of fixed assets and cash used to maintain our intangible assets, partially offset by the sale of certain fixed assets from our Helomics. Cash used in the nine months ended September 30, 2019 was for cash advances made to Helomics prior to the acquisition but was partially offset by cash received from Helomics on the acquisition date.

 

 

Net cash provided by financing activities was $12,303,458 and $6,465,004 for the nine months ended September 30, 2020 and September 30, 2019, respectively. The cash provided in the nine months ended September 30, 2020 were primarily due to proceeds from debt issuance, proceeds from issuance of common stock, prefunded warrants, warrant exercises and issuances related to various transactions, and proceeds from the issuance common stock pursuant to the equity line agreement, each discussed below in “Financing Transactions”.

 

Liquidity, Plan of Financing, and Going Concern Qualification

 

Since our inception, we have incurred significant losses, and our accumulated deficit was $96,913,132 as of September 30, 2020. We have not achieved profitability and anticipate that we will continue to incur net losses at least through the remainder of 2020. Our operations from inception have been funded with private placements of convertible debt securities and equity securities, public offerings, and loan agreements.

 

During the first quarter of 2020, we entered into short-term borrowings with an investor for cash proceeds of $1,020,000. On October 24, 2019, we entered into an equity purchase agreement with an investor, providing for an equity financing facility. From January 1, 2020 through November 11, 2020, we issued an aggregate 3,638,073 shares of common stock valued at $4,887,531. The Company used a portion of the net proceeds to repay $821,916 of the short-term borrowings. In February 2020, we entered into a sale of a secured promissory note to a private investor for $1,450,000 with total net proceeds of $1,200,000. In March 2020, we received gross proceeds of $3,498,612 from the sale of common stock, common stock equivalents, and warrants. In May 2020, we received gross proceeds of $2,200,001 from a registered direct offering of common stock and a concurrent private placement of warrants. The Company used approximately $482,525 of the net proceeds from the offering to repay certain indebtedness to Oasis Capital, LLC and agreed to use the remaining net proceeds from the offering for general corporate purposes. In June 2020, we received gross proceeds of $2,130,701 for the exercise of warrants and the issuance of additional warrants.

 

As a result of the extension of Amendments to and Extensions of Promissory Notes described under “Financing Transactions” below, our secured notes are now due on March 31, 2021, with a total amount payable on that date of $8,192,370 (including current principal and assumed interest and premium payable upon repayment), unless portions of certain notes are converted or unless notes are further extended

 

As a result of our capital needs for operations and debt repayment, we need to raise significant capital. There is no assurance that we will be successful in raising sufficient capital. The terms of any such financing will be dilutive to our stockholders. We may also acquire technologies or companies by issuing stock or other equity securities in addition to payment of cash, which may have the result of diluting the investment of our stockholders.

 

We will attempt to raise these funds through equity or debt financing. We will attempt to raise funds from other sources that may include public offerings, private placements, alternative offerings, or other means. If we are successful in securing adequate funding, we plan to make significant capital or equipment investments, and we will also continue to make human resource additions in Helomics. If such financing or adequate funds from operations are not available, we will be forced to limit our business activities, which will have a material adverse effect on our results of operations and financial condition.

 

As a result of the above factors, we have concluded that there is substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements have been prepared assuming we will continue as a going concern. Furthermore, our former independent registered public accounting firm has indicated in their audit opinion, contained in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, that there is substantial doubt about our ability to continue as a going concern.

 

 

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.

 

February 2020 Convertible Note

 

On February 5, 2020, we entered into a securities purchase agreement with an investor, pursuant to which we issued a convertible promissory note to the investor in the principal amount of $1,450,000 in exchange for cash proceeds of $1,200,000. We granted to the investor a security interest in our assets to secure repayment of the note. The principal amount of the note accrues interest at a rate of 8% per annum (with six months of interest guaranteed). Effective July 15, 2020, the Company entered into amendments to promissory notes under which the maturity of the notes was extended to September 30, 2020. Effective September 30, 2020, the investor and the Company agreed to extend the maturity date of the note to March 31,2021. Unless previously converted, the note will mature and become due and payable on March 31, 2021. We will incur a 20% repayment charge in connection with any repayment of principal under the note. Subject to certain limitations, the outstanding principal amount of the note and interest thereon are convertible at the election of the investor into shares of our common stock at a conversion price equal to $2.589. The conversion price was amended effective September 30, 2020 to a variable price equal to 70% of the lowest VWAP (as defined in the note) of Common Stock during the twenty (20) Trading Day (as defined in the note) period ending on either (i) the last complete Trading Day prior to the conversion date or (ii) the conversion date, as determined by the holder in its sole discretion upon such conversion (subject to adjustment). Advances under the note were made in three tranches. Net proceeds of $400,000 were received for the first, second and third tranches on February 5, 2020, March 5, 2020 and April 5, 2020, respectively. We issued to the investor five-year warrants to purchase 94,631, 92,700 and 92,700 shares of our common stock at the closing of the first, second and third tranches, respectively, and issued warrants to purchase 92,700 shares at the closing of the third tranche. The warrants are exercisable beginning on the sixth month anniversary of the issuance date at an exercise price equal $2.992 per share. As additional consideration for the investment, we issued 46,875 shares of our common stock as inducement shares to the investor at the closing of the first tranche. As of September 30, 2020, the outstanding balance on the note was $1,967,500.

 

March 2020 Private Placement of Common Stock and Warrants

 

On March 19, 2020, we sold and issued (1) 260,000 shares of common stock, at a sale price of $2.121 per share; (2) prefunded warrants to acquire 1,390,166 shares of common stock, sold at $2.12 per share and exercisable at an exercise price of $0.001 per share; (3) warrants to acquire 1,650,166 shares of common stock at $1.88 per share, exercisable immediately and terminating five and one-half years after the date of issuance; and (4) warrants to acquire 1,650,166 shares of common stock at $1.88 per share, exercisable immediately and terminating two years after the date of issuance. The gross proceeds were $3,498,612. In the securities purchase agreement with the investors dated March 13, 2020, until 90 days after the initial registration statement required by the Registration Rights Agreement is declared effective by the SEC, neither us nor any of our subsidiaries will issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents. Notwithstanding the foregoing, if, at any time following 30 days after the effective date of such registration statement, the last closing sale price for the common stock on the Nasdaq Capital Market is at least $6.30 (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the date of the Purchase Agreement) for three consecutive trading days, then these issuance restrictions no longer apply.

 

April 2020 Paycheck Protection Program

 

On April 20, 2020, the Company entered into a promissory note with Park State Bank, which provides for an unsecured loan of $541,867 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”). The promissory note has a term of 2 years with a 1% per annum interest rate. Payments are deferred for 6 months from the date of the promissory note and the Company can apply for forgiveness of all or a portion of the promissory note after 60 days.

 

 

Pursuant to the terms of the PPP, the promissory note, or a portion thereof, may be forgiven if proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, costs used to continue group health care benefits, mortgage interest payments, rent and utilities. The Company intends to use all proceeds for qualifying expenses. The Company has requested forgiveness; however, there is no assurance that we will be able to obtain forgiveness of this loan. The terms of the promissory note, including eligibility and forgiveness, may be subject to further requirements in regulations and guidance adopted by the Small Business Administration.

 

May 2020 Registered Direct Offering of Common Stock and Concurrent Private Placement of Warrants

 

During May 2020, the Company entered into a securities purchase agreement with certain accredited investors for a registered direct offering of 1,396,826 shares of common stock, par value $0.01 per share. The shares were registered pursuant to the Company’s registration statement on Form S-3 (File No. 333-234073) (the “Shelf Registration Statement”) which was declared effective by the SEC on December 20, 2019. In a concurrent private placement, the Company also issued such investors warrants to purchase up to an aggregate of 1,396,826 shares of our common stock. The Warrants were not registered pursuant to the Shelf Registration Statement. The Company filed a registration statement providing for the resale of the shares of common stock issuable upon the exercise of the Warrants, which was declared effective on July 21, 2020. The Shares and the Warrants were sold at a combined offering price of $1.575 per Share and associated Warrant. Each Warrant is exercisable immediately upon issuance at an exercise price of $1.45 per share and will expire five and one-half years from the issue date. The sale of the offering shares and associated warrants resulted in gross proceeds of $2,200,001 and net proceeds of $1,930,101 after deducting the placement agent fees and estimated offering expenses payable by the Company. The Company used approximately $482,525 of the net proceeds from the offering to repay certain indebtedness and agreed to use the remaining net proceeds from the offering for general corporate purposes. The offering closed on May 8, 2020.

 

June 2020 Warrant exercise and issuance

 

During June 2020, the Company entered into an agreement with certain accredited institutional investors to immediately exercise in cash an aggregate of 1,396,826 of the warrants issued in connection with the May 2020 Registered Direct Offering, exercisable immediately at $1.45 per share of common stock at the exercise price of $1.45 per share plus an additional $0.125 for each new warrant to purchase up to a number of shares of common stock equal to 100% of the number of shares issued pursuant to the exercise of the existing warrants. The new warrants are exercisable immediately and have a term of five and one-half years and an exercise price per share equal to $1.80. The Company received $2,130,701 in gross proceeds and net proceeds of $1,865,800 after deducting the placement agent fees and estimated offering expenses payable by the Company. The Company expects to use the net proceeds of these transactions for general corporate and working capital purposes.

 

Amendments to and Extensions of Promissory Notes

 

On March 19, 2020, we entered into a third amendment to the Amended and Restated Senior Secured Promissory Note dated September 28, 2018 and amended and restated as of February 7, 2019 issued to L2 Capital, LLC (as amended by that certain First Amendment dated September 27, 2019 and that certain Second Amendment dated December 12, 2019, the “L2 Note”). Under the third amendment, the maturity date of the L2 Note was extended from March 28, 2020 to June 28, 2020. The Company and the investor further agreed to extend the due date to July 15, 2020 and then in July 2020 agreed to extend to September 30, 2020. Effective September 30, 2020, the investor and the Company agreed to extend to March 31, 2021.

 

On March 19, 2020, we entered into an amendment to the Senior Secured Promissory Note dated September 27, 2019 issued to Oasis Capital, LLC (the “Oasis Note”). Under the amendment, the maturity date of the Oasis Note was extended from March 27, 2020 to June 28, 2020. In exchange for such extension, the outstanding principal amount of the Oasis Note was increased by $300,000, such that, as of the effective date of the amendment, the outstanding principal amount owed under the Oasis Note was $980,833. Under the amendment, through March 26, 2020, the holder waived its rights under the Oasis Note to have the Oasis Note repaid from the proceeds of any financing consummated by us. In exchange for such waiver, we issued 30,000 shares of common stock to the holder. The Company and the investor further agreed to extend the due date to July 15, 2020 and then agreed to extend to September 30, 2020. Effective September 30, 2020, the investor and the Company agreed to extend the due date of the note to March 31, 2021.

 

 

During the three months ended September 30, 2020, the Company entered into two amendments to the Amended and Restated Senior Secured Promissory Note dated September 28, 2018, issued to L2 Capital, LLC. Under the amendments, the maturity date of the note was extended from July 15, 2020 to September 30, 2020 and then again extended the due date of the note to March 31, 2021.

 

During the three months ended September 30, 2020, the Company entered into two amendments to the Senior Secured Promissory Note dated September 27, 2019 issued to Oasis Capital, LLC. Under the amendments, the maturity date of the note was extended from July 15, 2020 to September 30, 2020 and again to March 31, 2021. In exchange for such extensions, the outstanding principal amount of the note was increased by a total of $1,035,000. As of September 30, 2020, the outstanding principal amount owed under the note was $2,015,833. Further, the parties agreed that effective September 30, 2020, the note shall be convertible into shares of the Company’s common stock, at a price equal to 70% of the lowest VWAP (as defined in the note) of the Company’s common stock during the twenty (20) Trading Day (as defined in the note) period ending on either (i) the last complete Trading Day prior to the conversion date or (ii) the conversion date, as determined by the holder in its sole discretion upon such conversion (subject to adjustment).

 

During the three months ended September 30, 2020, the Company entered into two amendments to the Senior Secured Promissory Note dated February 5, 2020 issued to Oasis Capital, LLC. Under the amendments, the maturity date of the note was amended to September 30, 2020 and then extended to March 31, 2021. In exchange for such extensions, the outstanding principal amount of the note was increased by a total of $517,500, such that, as of the effective date of the amendment, the outstanding principal amount owed under the note was $1,967,500. Further, the parties agreed that the note shall be convertible into shares of the Company’s common stock at a price equal to 70% of the lowest VWAP (as defined in the note) of the Company’s common stock during the twenty (20) Trading Day (as defined in the note) period ending on either (i) the last complete Trading Day prior to the conversion date or (ii) the conversion date, as determined by the holder in its sole discretion upon such conversion (subject to adjustment).

 

Off-Balance Sheet Arrangements

 

We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

 

Accounting Standards and Recent Accounting Developments

 

See Note 1 - Summary of Significant Accounting Policies to the unaudited, Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a discussion of recent accounting developments.

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

ITEM 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Based on their evaluation as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of September 30, 2020 for the reasons described below:

 

Management has determined that we have not maintained adequate accounting resources with a sufficient understanding of accounting principles generally accepted in the United States of America (“U.S. GAAP”) to allow us to properly identify and account for new complex transactions. We have determined that this represents a material weakness in our internal control over financial reporting.

 

Notwithstanding the material weakness in our internal control over financial reporting, we have concluded that the condensed consolidated financial statements and other financial information included in our annual and quarterly filings fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented.

 

Material Weakness Remediation Activities

 

To remediate the material weakness in our internal control over financial reporting described above, we have reevaluated our overall staffing levels within the accounting department and during the fourth quarter of 2019 hired additional resources with qualifications that include a high level of experience with complex technical accounting transactions and application of U.S. GAAP. In the first quarter of 2020, we also engaged an external accounting consultant to assist with the assessment of new complex transactions, which has been ongoing to date. We have completed internal control remediation testing utilizing an external consulting company. We have also re-evaluated the training and ongoing professional education that is provided to, and required of, our accounting personnel.

 

Once the above actions and processes have been in operation for a sufficient period of time for our management to conclude that the material weakness has been fully remediated and our internal controls over financial reporting are effective, we will consider this material weakness fully addressed.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the nine months ended September 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

None

 

ITEM 1A. Risk Factors

 

In addition to the other information set forth in the Quarterly Report on Form 10-Q, the reader should carefully consider the risks included in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 before making an investment decision. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The following risk factors modify and update the Company’s risk factors disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 

 

We will require additional financing to finance operating expenses, repay our loan obligations and fulfill our business plan. Such financing, if available, will be dilutive.

 

We have not achieved profitability and anticipate that we will continue to incur net losses at least through the remainder of 2020. We had cash of $2,474,312 as of September 30, 2020 and will need to raise significant additional capital to meet our operating needs, support strategic investments, and pay debt obligations coming due.

As a result of the extension of Amendments to and Extensions of Promissory Notes described under “Financing Transactions” below, our secured notes are now due on March 31, 2021, with a total amount payable on that date of $8,192,370 (including current principal and assumed interest and a premium payable upon repayment), unless portions of certain notes are converted or unless notes are further extended.

 

On October 24, 2019, we entered into an equity purchase agreement with Oasis Capital, LLC (“Oasis”) providing for a $15,000,000 equity line. From time to time during the three-year commitment period, provided that the closing conditions are satisfied, we may provide Oasis 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 our common stock. During the nine months ended September 30, 2020, the Company issued 3,250,000 shares of common stock valued at $4,229,702 pursuant to the equity line. As of September 30, 2020, there was $10,451,105, remaining available balance under the equity line. Additional needs to access this line will be dilutive.

 

During the nine months ended September 30, 2020, the Company completed various debt, equity and other financing activities and raised net proceeds of $12,303,458, net of repayments. We will require additional funding to finance operating expenses, invest in our sales organization and new product development, compete in the international marketplace, and develop the strategic assets of our Helomics businesses. Although we are attempting to curtail our expenses, there is no guarantee that we will be able to reduce these expenses significantly, and expenses for some periods may be higher.

 

We will attempt to raise these funds through equity or debt financing that may include public offerings, private placements, alternative offerings, further draws on the equity line, or other means. If we are successful in securing adequate funding, we plan to make significant capital or equipment investments, as well as human resource additions over the next 12 months. Such additional financing will be dilutive to existing stockholders, and there is no assurance that such financing will be available upon acceptable terms. If such financing or adequate funds from operations are not available, we will be forced to limit our business activities, which will have a material adverse effect on our results of operations and financial condition. Further, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, reduce or eliminate operations, liquidate assets, or seek relief through a filing under the U.S. Bankruptcy Code. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing shareholders or that result in our existing shareholders losing part or all of their investment.

 

As a result of the above factors, we have concluded that there is substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements have been prepared assuming we will continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Furthermore, our former independent registered public accounting firm has indicated in their audit opinion, contained in our consolidated financial statements included in our Annual Report on Form 10-K within Item 8, that there is substantial doubt about our ability to continue as a going concern.

 

Our business and operations have been and will likely continue to be materially and adversely affected by the COVID-19 pandemic.

 

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 have adversely impacted the global economy, disrupted global supply chains and 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 and outlook. For instance, our accounts receivable has slowed while our suppliers continue to ask for pre-delivery deposits. Although we have received a Paycheck Protection Loan pursuant to the CARES Act which has helped fund some payroll costs, we may not be able to access necessary additional capital given the current condition of the financial markets. Further, there is no assurance that we will be able to obtain forgiveness of this loan. Thus, 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.

 

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

 

None.

 

ITEM 3. Defaults Upon Senior Securities

 

None.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable.

 

ITEM 5. Other Information

 

Not applicable.

 

ITEM 6. Exhibits

 

See the attached exhibit index.

 

SIGNATURES:

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	PREDICTIVE ONCOLOGY INC.
Date: November 16, 2020	By:	/s/ Carl Schwartz
		Carl Schwartz
		Chief Executive Officer

 

Date: November 16, 2020	By:	/s/ Bob Myers
		Bob Myers
		Chief Financial Officer

 

 

 

 

EXHIBIT INDEX

 

Exhibit Number		Description
4.1*		Form of Warrant dated April 4, 2019 issued in Exchange Offer with Holders of Securities of Helomics Holding Corporation, as amended on September 14, 2020
4.2		Form of Amendment to Common Stock Purchase Warrant (1) Exhibit 4.2
10.1		Amendment #5 To The Amended And Restated Senior Secured Promissory Note Originally Issued on September 28, 2018, by and between the Company and L2 Capital, LLC (2) Exhibit 10.1
10.2		Amendment #3 To The Senior Secured Promissory Note Originally Issued On September 27, 2019, by and Between the Company and Oasis Capital, LLC (2) Exhibit 10.2
10.3		Amendment #2 to the Senior Secured Promissory Note originally issued on February 5, 2020 by and among the Company and Oasis Capital, LLC investors (2) Exhibit 10.3
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Filed herewith

 

 

(1)        Filed on September 24, 2020 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.

 

(2)        Filed on September 30, 2020 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.

 

 

44

 

 

 

Exhibit 4.1

 

COMMON STOCK PURCHASE WARRANT

PRECISION THERAPEUTICS INC.

 

Warrant Shares: [______________]

Date of Issuance: April 4, 2019

 

Warrant Number: 2019E-[________]

 

This COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, the Holder (as defined below), [NAME OF HOLDER] (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after April 3, 2019 (“Issuance Date”), to purchase from Precision Therapeutics Inc., a Delaware corporation (the “Company”), up to [______________] shares of Common Stock (as defined below) (the “Warrant Shares”) at the Exercise Price (defined below) per share then in effect. This Warrant is one of the Warrants (the “Warrants”) issued pursuant to the Warrant Agency Agreement, dated as of April 3, 2019, by and between the Company and Corporate Stock Transfer, Inc. (the “Warrant Agent”) (the “Warrant Agency Agreement”) in connection with the exchange offer to holders of warrants of Helomics Holding Corporation.

 

This Warrant shall be issuable in book entry form (the “Book-Entry Warrant Certificate”) and shall initially be represented by one or more Book-Entry Warrant Certificates deposited with the Warrant Agent and registered in the name of the Holder, or as otherwise directed by the Warrant Agent. Ownership of beneficial interests in this Warrant shall be shown on, and the transfer of such ownership shall be effected through, records maintained by the Warrant Agent (the “Warrant Register”). The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual written notice to the contrary.

 

For purposes of this Warrant, the term “Exercise Price” per share shall mean $0.845¹, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. Eastern Time on the five-year anniversary thereof.

 

1.                   EXERCISE OF WARRANT.

 

(a)                 Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”) to the Company or the Warrant Agent, of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the first Trading Day following the date on which the Company has received an Exercise Notice, the Company shall transmit by e-mail or facsimile an acknowledgment of confirmation of receipt of such Exercise Notice, in the form attached hereto as Exhibit B, to the Warrant Agent. On or before the third Trading Day (the “Warrant Share Delivery Date”) following the date on which the Company shall have received the Exercise Notice, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise if permitted under the terms of this Warrant, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three business days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.

 

________________________

¹ Exercise price was amended on September 14, 2020.

If the Company fails to cause its transfer agent to transmit to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion.

 

If, at any time during the Exercise Period, there is no effective registration statement of the Company covering either (1) the issuance of the Warrant Shares upon exercise of the Warrant, or (2) the Holder’s immediate resale of the Warrant Shares without any limitations, then the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:

 

X = Y (A-B)

A

 

Where	X =	the number of shares to be issued to Holder.
	Y =	the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation).
	A =	the Market Price (at the date of such calculation).
	B =	Exercise Price (as adjusted to the date of such calculation).

 

(b)                No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay to the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.

 

(c)                 Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to issuance of Warrant Shares upon exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s affiliates, and any other persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation, as defined below. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including without limitation any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph (d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act of 1934, as amended (the “Exchange Act”), it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this paragraph applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.

For purposes of this paragraph, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities Exchange Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the request of a Holder, the Company shall within two Trading Days confirm to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.

 

2.                   ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a)                 Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 2(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(b)                Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

 

(i)                  any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and

 

(ii)                the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).

3.                   FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.

 

4.                   NON-CIRCUMVENTION. The Company covenants and agrees that it will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, three times the number of shares of Common Stock issuable under the Warrant to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).

 

5.                   WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

6.                   REISSUANCE.

 

(a)                 Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

(b)                Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.

 

7.                   TRANSFER.

 

(a)                 Notice of Transfer. The Holder agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company’s counsel. If the proposed transfer may be effected without registration or qualification (under any federal or state securities laws), the Company, as promptly as practicable, shall notify the Holder thereof, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute the Assignment of Warrant attached hereto as Exhibit B and such other documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.

 

(b)                If the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Holder will limit its activities in respect to such transfer or disposition as are permitted by law.

 

8.                   NOTICES.

 

(a)                 All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or e-mail as a PDF, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (A) upon hand delivery or delivery by e-mail at the address designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (B) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.

 

If to the Company, to:

 

PRECISION THERAPEUTICS INC.

2915 Commers Drive, Suite 900

Eagan, Minnesota 55121

Attention: Bob Myers, CFO

E-mail: bmyers@skylinemedical.com

Phone: 651.389.4800

With a copy (which shall not constitute notice) to:

 

Maslon LLP

3300 Wells Fargo Center, 90 S. Seventh Street

Minneapolis, MN 55402

Attention: Martin R. Rosenbaum

E-mail: martin.rosenbaum@maslon.com

 

If to the Warrant Agent, to:

 

Corporate Stock Transfer, Inc.

3200 Cherry Creek Drive South, Suite 430

Denver, Colorado 80209

Attention: Operations Department

 

If to the Holder, to the address set forth on the signature page of this Warrant, or such address as is later provided by Holder in a written notice to the Company as provided above in this Section 8(a).

 

(b)                The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

9.                   AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.

 

10.                GOVERNING LAW. This Warrant shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law.

 

11.                ARBITRATION. Any disputes, claims, or controversies arising out of or relating to this Warrant, or the transactions, contemplated thereby, or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Warrant to arbitrate, shall be referred to and resolved solely and exclusively by binding arbitration to be conducted before the Judicial Arbitration and Mediation Service (“JAMS”), or its successor pursuant the expedited procedures set forth in the JAMS Comprehensive Arbitration Rules and Procedures (the “Rules”), including Rules 16.1 and 16.2 of those Rules. The arbitration shall be held in New York, New York, before a tribunal consisting of three (3) arbitrators each of whom will be selected in accordance with the “strike and rank” methodology set forth in Rule 15. Either party to this Warrant may, without waiving any remedy under this Warrant, seek from any federal or state court sitting in the State of Florida any interim or provisional relief that is necessary to protect the rights or property of that party, pending the establishment of the arbitral tribunal. The costs and expenses of such arbitration shall be paid by and be the sole responsibility of the Company, including but not limited to the Holder’s attorneys’ fees and each arbitrator’s fees. The arbitrators’ decision must set forth a reasoned basis for any award of damages or finding of liability. The arbitrators’ decision and award will be made and delivered as soon as reasonably possible and in any case within sixty (60) days’ following the conclusion of the arbitration hearing and shall be final and binding on the parties and may be entered by any court having jurisdiction thereof.

 

12.                JURY TRIAL WAIVER. THE COMPANY AND THE HOLDER HEREBY WAIVE A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS WARRANT.

 

13.                ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

14.                CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)                 “Nasdaq” means www.Nasdaq.com.

 

(b)                “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Nasdaq, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Nasdaq, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Nasdaq, or (iii) if no last trade price is reported for such security by Nasdaq, the average of the bid and ask prices of any market makers for such security as reported by the OTC Markets. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(c)                 “Common Stock” means the Company’s common stock, par value $0.01 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

(d)                “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

(e)                 “Principal Market” means the primary national securities exchange or marketplace on which the Common Stock is then traded.

 

(f)                  “Market Price” means the highest traded price of the Common Stock during the thirty (30) Trading Days prior to the date of the respective Exercise Notice.

 

(g)                “Trading Day” means (i) any day on which the Common Stock is listed or quoted and traded on its Principal Market, (ii) if the Common Stock is not then listed or quoted and traded on any national securities exchange, then a day on which trading occurs on any over-the-counter markets, or (iii) if trading does not occur on the over-the-counter markets, any business day.

 

* * * * * * *

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.

 

	PRECISION THERAPEUTICS INC.
	By:
	Name:	Bob Myers
	Title:	Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A

 

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)

 

The Undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Precision Therapeutics Inc., a Delaware corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.

Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one):

 

	☐	a cash exercise with respect to _________________ Warrant Shares; or
	☐	by cashless exercise if permitted pursuant to the Warrant.

 

2.

Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

3.

Delivery of Warrant Shares. The Company shall cause the Warrant Agent to deliver to the holder, or its designee or agent as specified below, __________________ Warrant Shares in accordance with the terms of the Warrant. Delivery shall be made to Holder, or for its benefit, to the following address:

 

 

 

 

 

 

 

 

 

EXHIBIT A

 

Date:                 ,
Name of Registered Holder
By:
		Name:
		Title:
		Account Number:
		(if electronic book entry transfer)
		Transaction Code Number:
		(if electronic book entry transfer)

 

 

 

 

EXHIBIT A

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs Corporate Stock Transfer, Inc. to issue the above indicated number of shares of Common Stock.

 

	PRECISION THERAPEUTICS INC.
	By:
		Name:
		Title:

 

 

 

 

 

 

 

EXHIBIT B

 

 

EXHIBIT B

 

ASSIGNMENT OF WARRANT

 

(To be signed only upon authorized transfer of the Warrant)

 

For Value Received , the undersigned hereby sells, assigns, and transfers unto ____________________ the right to purchase _______________ shares of common stock of Precision Therapeutics Inc., to which the within Common Stock Purchase Warrant relates and appoints ____________________, as attorney-in-fact, to transfer said right on the books of Precision Therapeutics Inc. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.

 

 

Date: 

 

 

____________________________________

(Signature) *

 

____________________________________

(Name)

 

____________________________________

(Address)

 

____________________________________

(Social Security or Tax Identification No.)

 

* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.

 

 

 

 

 

 

 

 

Exhibit B-1

 

Exhibit 31.1

CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Carl Schwartz, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Predictive Oncology Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 16, 2020	/s/ Carl Schwartz
	Carl Schwartz
	Chief Executive Officer

 

 

Exhibit 31.2

CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Bob Myers, certify that:

 

1.

I have reviewed the quarterly report on Form 10-Q of Predictive Oncology Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements in light of the circumstances under which some statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report (that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date November 16, 2020	/s/ Bob Myers
	Bob Myers
	Chief Financial Officer

 

Exhibit 32.1

 

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Predictive Oncology Inc. (the “Company”) for the quarter ended September 30, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, Carl Schwartz, Chief Executive Officer (Principal Executive Officer) and, I, Bob Myers, Chief Financial Officer (Principal Financial Officer) of the Company, hereby certify as of the date hereof, solely for purposes of § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that to the best of my knowledge:

 

(1)      The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

 

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

Date: November 16, 2020	/s/ Carl Schwartz
	Carl Schwartz
	Chief Executive Officer

 

Date: November 16, 2020	/s/ Bob Myers
	Bob Myers
	Chief Financial Officer