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poai20210930_10q.htm

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, 2021

☐ 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 5, 2021, the registrant had 65,576,334 shares of common stock, par value $0.01 per share outstanding.

PREDICTIVE ONCOLOGY INC.

TABLE OF CONTENTS

	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements	3

Condensed Consolidated Balance Sheets as of September 30, 2021, and December 31, 2020	3

Condensed Consolidated Statements of Net Loss for the three and nine months ended September 30, 2021, and September 30, 2020	4

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021, and September 30, 2020	5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021, and September 30, 2020	8

Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	36

Item 4. Controls and Procedures	37

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	37

Item 1A. Risk Factors	37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3. Defaults Upon Senior Securities	38

Item 4. Mine Safety Disclosures	38

Item 5. Other Information	38

Item 6. Exhibits	38

Signatures	39

Exhibit Index	40

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2021			December 31, 2020
	(unaudited)			(audited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	41,771,515		$	678,332
Accounts Receivable		275,193			256,878
Inventories		397,976			289,535
Prepaid Expense and Other Assets		595,224			289,490
Total Current Assets		43,039,908			1,514,235

Fixed Assets, net		3,810,640			3,822,700
Intangibles, net		3,199,047			3,398,101
Lease Right-of-Use Assets		961,419			1,395,351
Other Long-Term Assets		179,096			116,257
Goodwill		-			2,813,792
Total Assets	$	51,190,110			13,060,436

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	1,029,545		$	1,372,070
Notes Payable – Net of Discounts of $0 and $244,830		-			4,431,925
Accrued Expenses and Other Liabilities		940,892			2,588,047
Derivative Liability		225,498			294,382
Deferred Revenue		152,546			53,028
Lease Liability		637,352			597,469
Total Current Liabilities		2,985,833			9,336,921

Lease Liability – Net of current portion		388,473			845,129
Other Long-term Liabilities		30,898			235,705
Total Liabilities		3,405,204			10,417,755

Stockholders’ Equity:
Preferred Stock, 20,000,000 authorized inclusive of designated below
Series B Convertible Preferred Stock, $.01 par value, 2,300,000 shares authorized, 79,246 shares outstanding		792			792
Common Stock, $.01 par value, 200,000,000 and 100,000,000 shares authorized, 65,457,484 and 19,804,787 outstanding		654,575			198,048
Additional Paid-in Capital		167,413,309			110,826,949
Accumulated Deficit		(120,283,770	)		(108,383,108	)

Total Stockholders’ Equity		47,784,906			2,642,681

Total Liabilities and Stockholders’ Equity	$	51,190,110		$	13,060,436

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,
	2021			2020			2021			2020
Revenue	$	313,663		$	480,757		$	944,187		$	958,484
Cost of goods sold		110,165			175,206			350,800			353,124
Gross profit		203,498			305,551			593,387			605,360

General and administrative expense		2,061,458			2,226,634			7,410,208			8,266,927
Operations expense		648,935			568,766			1,791,543			1,638,635
Sales and marketing expense		172,869			121,514			447,298			518,938
Loss on goodwill impairment		2,813,792			2,997,000			2,813,792			2,997,000
Total operating loss		(5,493,556	)		(5,608,363	)		(11,869,454	)		(12,816,140	)
Other income		58,830			44,926			144,122			97,894
Other expense		(7,413	)		(2,147,057	)		(244,214	)		(3,993,969	)
Gain on derivative instruments		4,122			1,402,768			68,884			1,007,794
Gain on notes receivables associated with asset purchase		-			-			-			1,290,000
Net loss	$	(5,438,017	)	$	(6,307,726	)	$	(11,900,662	)	$	(14,414,421	)
Deemed dividend		-			554,287			-			554,287
Net loss attributable to common shareholders	$	(5,438,017	)	$	(6,862,013	)	$	(11,900,662	)	$	(14,968,708	)
Loss per common share basic and diluted	$	(0.08	)	$	(0.46	)	$	(0.23	)	$	(1.51	)
Weighted average shared used in computation - basic		65,406,312			15,026,789			51,272,960			9,935,738

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, 2021

(Unaudited)

	Series B Preferred				Common Stock				Additional Paid-In			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total
Balance at 12/31/2020		79,246	$	792		19,804,787	$	198,048	$	110,826,949		$	(108,383,108	)	$	2,642,681
Shares issued pursuant to agreement with former CEO related to accrued interest						100,401		1,004		142,569						143,573
Issuance of shares and warrants pursuant to Shelf offerings, net						13,488,098		134,881		14,877,611						15,012,492
Issuance of shares and warrants pursuant to February 2021 private placement, net						9,043,766		90,438		15,974,301						16,064,739
Exercise of warrants						5,247,059		52,471		4,442,799						4,495,270
Shares issued pursuant to convertible debt						1,107,544		11,075		502,936						514,011
Shares issued to consultant & other						2,665		27		(4,075	)					(4,048	)
Vesting expense										565,082						565,082
Net loss													(3,888,713	)		(3,888,713	)
Balance at 03/31/2021		79,246	$	792		48,794,320	$	487,944	$	147,328,172		$	(112,271,821	)	$	35,545,087
Issuance of shares and warrants pursuant to June 2021 direct placement, net						15,520,911		155,209		19,291,087						19,446,296
Shares issued pursuant to transition agreement with former CEO						400,000		4,000		(4,000	)					-
Shares issued pursuant to Equity Line						572,504		5,725		582,865						588,590
Shares issued to consultant & other						47,424		474		48,328						48,802
Vesting expense										33,243						33,243
Net loss													(2,573,932	)		(2,573,932	)
Balance at 06/30/2021		79,246	$	792		65,335,159	$	653,352	$	167,279,695		$	(114,845,753	)	$	53,088,086
Exercise of warrants						22,000		220		18,370						18,590
Shares issued to consultant & other						77,191		772		97,997						98,769
Vesting expense, net of repurchases of common stock upon vesting of restricted stock units						23,134		231		17,247						17,478
Net loss													(5,438,017	)		(5,438,017	)
Balance at 09/30/2021		79,246	$	792		65,457,484	$	654,575	$	167,413,309		$	(120,283,770	)	$	47,784,906

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2020

(Unaudited)

	Series B Preferred				Series D Preferred						Series E Preferred						Common Stock				Additional Paid-In			Accumulated
	Shares		Amount		Shares			Amount			Shares			Amount			Shares		Amount		Capital			Deficit			Total
Balance at 12/31/2019		79,246	$	792		3,500,000		$	35,000			258		$	3			4,056,652	$	40,567	$	93,653,667		$	(82,498,711	)	$	11,231,318
Shares issued pursuant to CEO exchange agreement																		50,000		500		129,500						130,000
Inducement shares issued pursuant to promissory note extension																		30,000		300		40,950						41,250
Issuance of shares and prefunded warrants pursuant to March 2020 private placement																		260,000		2,600		455,223						457,823
Inducement shares issued pursuant to 2020 convertible debt and warrants																		46,875		468		119,532						120,000
Warrants issued pursuant to 2020 convertible debt																						116,951						116,951
Shares issued pursuant to note conversions - bridge loan																		170,000		1,700		265,628						267,328
Shares issued pursuant to series E preferred stock conversions												(50	)		(1	)		141,191		1,412		(1,411	)					-
Shares issued pursuant to Equity Line																		943,000		9,430		1,860,469						1,869,899
Shares issued to consultant and other																		155,000		1,550		360,750						362,300
Vesting expense																						287,838						287,838
Net loss																									(4,529,317	)		(4,529,317	)
Balance at 03/31/2020		79,246	$	792		3,500,000		$	35,000			208		$	2			5,852,718	$	58,527	$	97,289,097		$	(87,028,028	)	$	10,355,390
Warrants issued pursuant to 2020 convertible debt																						62,373						62,373
Shares issued pursuant to CEO note conversion and accrued interest and exchange agreement																		1,533,481		15,335		2,177,543						2,192,878
Shares issued pursuant to series E preferred stock conversions												(208	)		(2	)		1,257,416		12,574		(12,572	)					-
Shares issued pursuant to series D preferred stock conversions						(3,500,000	)		(35,000	)								350,004		3,500		31,500						-
Issuance of shares from prefunded warrant exercises																		1,390,166		13,902		(13,148	)					754
Issuance of shares pursuant to May 2020 offering, net																		1,396,826		13,968		591,949						605,917
Shares issued in connection with asset purchase agreement																		115,000		1,150		185,150						186,300

	Series B Preferred				Series D Preferred				Series E Preferred				Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Total
Exercise of warrants and issuance of new warrants June 2020, net														1,274,826		12,748		1,682,237					1,694,985
Director compensation														20,350		204		34,796					35,000
Vesting expense																		134,939					134,939
Net Loss																				(3,577,378	)		(3,577,378	)
Balance at 06/30/20		79,246	$	792		-	$	-		-	$	-		13,190,787	$	131,908	$	102,163,864	$	(90,605,406	)	$	11,691,158
Shares issued in connection with asset purchase agreement														954,719		9,547		1,460,720					1,470,267
Repricing and Reclassification of warrants issued pursuant to convertible debt																		1,865,953					1,865,953
Repricing and Reclassification of June 2020 warrants																		803,455					803,455
Exercise of warrants														122,000		1,220		190,930					192,150
Share issuance to consultant and other														2,669		26		3,005					3,031
Shares issued pursuant to Equity Line														2,307,000		23,070		2,336,733					2,359,803
Director Compensation														16,108		161		23,839					24,000
Vesting expense and option repricing																		134,675					134,675
Net loss																				(6,307,726	)		(6,307,726	)
Balance at 09/30/20		79,246	$	792		-	$	-		-	$	-		16,593,283	$	165,932	$	108,983,174	$	(96,913,132	)	$	12,236,766

See Notes to Condensed Consolidated Financial Statements

PREDICTIVE ONCOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2021			2020
Cash flow from operating activities:
Net loss	$	(11,900,662	)	$	(14,414,421	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		970,488			716,595
Vesting expense		627,329			557,452
Amortization of debt discount		244,830			996,271
Gain on valuation of equity-linked instruments and derivative liability		(68,884	)		(1,007,794	)
Debt extinguishment costs		-			1,996,681
Equity instruments issued in connection with 2020 convertible debt		-			20,695
Equity instruments issued for management, consultant, and other		143,523			424,331
Gain on note receivable in connection with asset purchase		-			(1,290,000	)
Loss on fixed asset disposal		5,858			120,577
Loss on goodwill impairment		2,813,792			2,997,000
Changes in assets and liabilities:
Accounts receivable		(18,315	)		(122,003	)
Inventories		(108,441	)		(15,752	)
Prepaid expense and other assets		(313,573	)		(109,060	)
Accounts payable		(342,525	)		(1,438,033	)
Accrued expenses		(412,952	)		587,937
Deferred revenue		99,518			25,739
Other long-term liabilities		(204,807	)		-
Net cash provided by operating activities:		(8,464,821	)		(9,953,785	)

Cash flow from investing activities:
Purchase of fixed assets		(714,534	)		(114,180	)
Proceeds from asset sales		-			133,850
Loan activities		(55,000	)		-
Acquisition of intangibles		(50,699	)		(45,862	)
Net cash used in investing activities:		(820,233	)		(26,192	)

Cash flow from financing activities:
Proceeds from issuance of common stock, net		50,523,527			-
Proceeds from debt issuance		-			2,761,867
Proceeds from exercise of warrants into common stock		4,513,860			1,935,854
Repayment of debt		(4,162,744	)		(1,459,973	)
Proceeds from issuance of common stock pursuant to equity line		588,590			4,229,702
Issuance of common stock, A, B and prefunded warrants, net		-			5,057,919
Payment penalties		(1,073,470	)		(247,327	)
Repurchase of common stock upon vesting of restricted stock units		(11,526	)		-
Other financing (security deposit)		-			25,416
Net cash used in financing activities:		50,378,237			12,303,458

Net increase in cash and cash equivalents		41,093,183			2,323,481
Cash and cash equivalents at the beginning of period		678,332			150,831
Cash at the end of period	$	41,771,515		$	2,474,312

Non-cash transactions:
Bridge loan conversion into common stock		-			267,328
Shares issued pursuant to former CEO note conversion and accrued interest and exchange agreement		-			2,322,878
Shares issued pursuant to former CEO per agreement related to accrued interest		143,573			-
Fixed assets sold for accounts receivable		-			89,207
Put and conversion derivative from debt issuance and modifications		-			636,563
Series E preferred stock conversions		-			3
Series D preferred stock conversions		-			35,000
Inducement shares issued pursuant to convertible debt		514,011			140,555
Fixed assets acquired from 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
Warrants issued pursuant to debt issuance		-			179,324
Fixed assets acquired for notes receivable and common stock		-			1,492,500


Cash paid during period for:
Interest paid on debt		695,989			144,791

See Notes to Condensed Consolidated Financial Statements

PREDICTIVE ONCOLOGY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Continuance of Operations

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

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

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

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

The Company had cash and cash equivalents of $41,771,515 as of September 30, 2021. As of September 30, 2021, there was no outstanding debt. In October 2019, the Company entered into a purchase agreement for an equity line under which it can raise up to $15,000,000 over a three-year period, subject to market conditions including trading volume and stock price. As of September 30, 2021, there was $9,200,829 remaining in available balance under the equity line. Additional needs to access this line will be dilutive.

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

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

The Company believes that its existing capital resources will be sufficient to support its operating plan for the next twelve months and beyond. However, the Company may also seek to raise additional capital to support its growth through additional debt, equity or other alternatives or a combination thereof. The Company currently expects to use cash on hand to fund capital and equipment investments, research and development, potential acquisitions and its operations, over the next twelve months and beyond, and expects such sources to be sufficient to fund its requirements over that time.

Coronavirus Outbreak

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

Interim Financial Statements

The Company has prepared the condensed consolidated financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim condensed consolidated financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which in the opinion of management, are necessary to present fairly the Company’s position, the results of its operations, and its cash flows for the interim periods. These interim condensed consolidated financial statements reflect all intercompany eliminations. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto contained in the Annual Report on Form 10-K filed with the SEC on March 15, 2021. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

Accounting Policies and Estimates

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

Reclassifications

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

Cash and cash equivalents

The Company considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents. The Company places its cash with high quality financial institutions and believes its risk of loss is limited to amounts in excess of that which is insured by the Federal Deposit Insurance Corporation.

Receivables

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

Amounts recorded in accounts receivable on the condensed consolidated balance sheet include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. An allowance for doubtful accounts is maintained to provide for the estimated amount of receivables that will not be collected. The Company reviews customers’ credit history before extending unsecured credit and establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Invoices are generally due 30 days after presentation. Accounts receivable over 30 days is generally considered past due. The Company does not accrue interest on past due accounts receivables. Receivables are written off once all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. The allowance for doubtful accounts balance was $0 as of both September 30, 2021 and December 31, 2020.

Fair Value Measurements

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

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

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

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

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

The fair value of the Company’s investment securities, which consist of cash and cash equivalents, was determined based on Level 1 inputs. The fair value of the Company’s derivative liabilities and debt were determined based on Level 3 inputs. The Company generally uses the Black Scholes method for determining the fair value of warrants classified as liabilities on a recurring basis. In addition, the Company uses the Monte Carlo method and other acceptable valuation methodologies when valuing the conversion feature and other embedded features classified as derivatives on a recurring basis. See Note 7 – Derivatives.

Inventories

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

Fixed Assets

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

	Years
Computers, software, and office equipment	3	-	10
Leasehold improvements (1)	2	-	5
Manufacturing tooling	3	-	7
Laboratory equipment	4	-	10
Demo equipment		3

(1)

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

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

Long-lived Assets

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

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

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

The Company concluded there was no impairment of its finite-lived assets as of December 31, 2020. The Company prepared the undiscounted cash flows per ASC 360. The Company concluded that the undiscounted cash flows of the long-lived assets exceeded the carrying values.

The Company concluded there was no impairment of its finite-lived assets as of September 30, 2021. The Company prepared the undiscounted cash flows per ASC 360. The Company concluded that the undiscounted cash flows of the long-lived assets exceeded the carrying values.

Goodwill

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

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

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

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

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

Revenue Recognition

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

Revenue from Product Sales

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

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

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

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

Revenue from Clinical Testing

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

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

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

CRO Revenue

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

Variable Consideration

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

Warranty

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

Contract Balances

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. Accounts receivable totaled $275,193 and $256,878 as of September 30, 2021 and December 31, 2020, respectively.

The Company’s deferred revenues related primarily to maintenance plans of $152,546 and $53,028 as of September 30, 2021 and December 31, 2020, respectively.

Practical Expedients

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

Valuation and accounting for stock options and warrants

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

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

	For the nine months ended September 30,
	2021	2020
	Stock Options
Expected dividend yield	0.0%	0.0%
Expected stock price volatility	84.8% - 89.6%	82.6% - 87%
Risk-free interest rate	0.93% - 1.45%	0.13% - 1.78%
Expected life (in years)	10	10
	*Warrants*
Expected dividend yield	0.0%	0.0%
Expected stock price volatility	84.8% - 89.6%	82.6%-87%
Risk-free interest rate	0.42% - 1.04%	0.135% - 0.79%
Expected life (in years)	3 - 5.5	5 - 5.5

Research and Development

Research and development costs are charged to operations as incurred. Research and development costs were $234,357 and $227,805 for the nine months ended September 30, 2021 and 2020, respectively.

Other Expense

Other expense consisted primarily of interest expense, payment premium, amortization of original issue discounts, and loss on debt extinguishment associated with the Company’s notes payable.

Offering Costs

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

Income Taxes

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

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

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

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

Tax years subsequent to 2017 remain open to examination by federal and state tax authorities.

Credit Risk

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

Risks and Uncertainties

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

Recent Accounting Pronouncements

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

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

NOTE 2 – INVENTORIES

Inventory balances are as follows:

	As of September 30, 2021		As of December 31, 2020

Finished goods	$	222,898	$	95,898
Raw materials		161,910		151,366
Work-In-Process		13,168		42,271
Total	$	397,976	$	289,535

NOTE 3 – FIXED ASSETS

The Company’s fixed assets consist of the following:

	As of September 30, 2021			As of December 31, 2020
Computers, software, and office equipment	$	1,964,329		$	1,862,669
Leasehold improvements		321,796			315,297
Laboratory equipment		3,402,586			2,811,012
Manufacturing tooling		108,955			108,955
Demo equipment		56,614			56,614
Total		5,854,280			5,154,547
Less: Accumulated depreciation and amortization		(2,043,640	)		(1,331,847	)
Total Fixed Assets, Net	$	3,810,640		$	3,822,700

Depreciation expense was $720,736 and $485,648 during the nine months ended September 30, 2021 and 2020, respectively and $237,742 and $236,599 during the three months ended September 30, 2021 and 2020, respectively.

NOTE 4 – INTANGIBLE ASSETS AND GOODWILL

The components of intangible assets were as follows:

	As of September 30, 2021							As of December 31, 2020
	Gross Carrying Costs		Accumulated Amortization			Net Carrying Amount		Gross Carrying Costs		Accumulated Amortization			Net Carrying Amount
Patents & Trademarks	$	452,119	$	(225,182	)	$	226,937	$	401,421	$	(211,110	)	$	190,311
Developed Technology		2,882,000		(360,249	)		2,521,751		2,882,000		(252,175	)		2,629,825
Customer Relationships		445,000		(370,833	)		74,167		445,000		(259,583	)		185,417
Tradename		398,000		(21,808	)		376,192		398,000		(5,452	)		392,548
Total	$	4,177,119	$	(978,072	)	$	3,199,047	$	4,126,421	$	(728,320	)	$	3,398,101

Amortization expense was $249,752 and $230,947 during the nine months ended September 30, 2021 and 2020, respectively and $83,619 and $77,258 during the three months ended September 30, 2021 and 2020, respectively.

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

Year ending December 31,	Expense
2021	$	83,940
2022		224,511
2023		187,428
2024		187,428
2025		187,428
Thereafter		2,328,312
Total	$	3,199,047

Goodwill

In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination. Goodwill is an indefinite-lived asset and is not amortized. Goodwill is tested for impairment annually at the reporting unit level, or whenever events or circumstances present an indication of impairment.

In the Helomics acquisition, the Company recorded goodwill of $23,790,290. The goodwill was recorded to the Helomics segment which represents a single reporting unit. The Company’s annual impairment test as of December 31, 2019 resulted in $8,100,000 of impairment expense related to goodwill.

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 that potential impairment indicators were present and that an impairment assessment was warranted for goodwill.

In testing goodwill for impairment as of September 30, 2020, the Company performed a quantitative impairment test, including computing the fair value of the Helomics reporting unit and comparing that value to its carrying value. Based upon the Company’s quantitative goodwill impairment test, the Company concluded that goodwill was impaired as of September 30, 2020. The quantitative review as of September 30, 2020 resulted in $2,997,000 of impairment expense related to goodwill.

When evaluating the fair value of Helomics reporting unit as of September 30, 2020, the Company used a discounted cash flow model and market comparisons. Key assumptions used to determine the estimated fair value included: (a) expected cash flow for the 20-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures); (b) an estimated terminal value using a terminal year growth rate of 3.0% determined based on the growth prospects of the reporting unit; and (c) a discount rate of 25% based on management’s best estimate of the after-tax weighted average cost of capital. The discount rate included a Company specific risk premium of 10% for risks related to the term of the forecasts.

In testing goodwill for impairment as of December 31, 2020, the Company performed a quantitative impairment test, including computing the fair value of the Helomics reporting unit and comparing that value to its carrying value. Based upon the Company’s annual goodwill impairment test, the Company concluded that goodwill was impaired as of the testing date of December 31, 2020. The Company’s annual impairment test as of December 31, 2020 resulted in $9,879,458 of impairment expense related to goodwill.

When evaluating the fair value of Helomics reporting unit the Company used a discounted cash flow model. Key assumptions used to determine the estimated fair value as of December 31, 2020 included: (a) expected cash flow for the 10-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures); (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit; and (c) a discount rate of 14.0% based on management’s best estimate of the after-tax weighted average cost of capital. The discount rate included a Company specific risk premium of 1.0% for risks related to the term of the forecasts. The Company further used a probability weighting of various forecasts to address forecast risk.

The following tables present changes in the carrying value of goodwill our consolidated balance sheet through December 31, 2020:

Goodwill balance at December 31, 2018	$	-
Acquired		23,790,290
Impairment		(8,100,000	)
Goodwill balance at December 31, 2019	$	15,690,290
Impairment		(12,876,498	)
Goodwill balance at December 31, 2020	$	2,813,792

During the third quarter of 2021, the Company concluded that potential impairment indicators were present and that an impairment assessment was warranted for goodwill.

In testing goodwill for impairment as of September 30, 2021, the Company performed a quantitative impairment test, including computing the fair value of the Helomics reporting unit and comparing that value to its carrying value. Based upon the Company’s quantitative goodwill impairment test, the Company concluded that goodwill was impaired as of September 30, 2021.

The quantitative review as of September 30, 2021 resulted in $2,813,792 of impairment expense related to goodwill. As of September 30, 2021, the cumulative impairment recorded was $23,790,290.

Goodwill balance at December 31, 2020	$	2,813,792
Impairment		(2,813,792	)
Goodwill balance at September 30, 2021	$	-

When evaluating the fair value of Helomics reporting unit the Company used a discounted cash flow model and market comparisons. Key assumptions used to determine the estimated fair value included: (a) expected cash flow for the 10-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures); (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit; and (c) a discount rate of 15% based on management’s best estimate of the after-tax weighted average cost of capital. The Company further used a probability weighting of various forecasts to address forecast risk.

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

NOTE 5 – NOTES PAYABLE

The balances of notes payable were as follows:

	Due Date	As of September 30, 2021		As of December 31, 2020
Promissory note 2019	March 31, 2021	$	-	$	1,490,833
Promissory note 2020	March 31, 2021		-		1,464,146
2018 Investor Loan	March 31, 2021		-		1,721,776
Total Notes Payable, gross			-		4,676,755
Less: Unamortized discount			-		(244,830	)
Total Notes Payable, net		$	-	$	4,431,925

Promissory Note Conversions

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

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

Promissory Note Repayment

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

NOTE 6 – STOCKHOLDERS’ EQUITY, STOCK OPTIONS AND WARRANTS

Equity Line

On October 24, 2019, the Company entered into an equity purchase agreement with an investor, providing for an equity financing facility. Upon the terms and subject to the conditions in the purchase agreement, the investor is committed to purchase shares having an aggregate value of up to $15,000,000 of the Company’s common stock for a period of up to three years. The Company issued to the investor 104,651 commitment shares at a fair market value of $450,000 for entering into the agreement. From time to time during the three-year commitment period, provided that the closing conditions are satisfied, the Company may provide the investor with put notices to purchase a specified number of shares subject to certain limitations and conditions and at specified prices, which generally represent discounts to the market price of the common stock. As of September 30, 2021, there was $9,200,829 remaining in available balance under the equity line. Additional needs to access this line will be dilutive.

During the three months ended September, 30, 2021, the Company did not access the equity line. During the nine months ended September 30, 2021, the Company issued 572,504 shares of its common stock valued at $588,590 pursuant to the equity line.

2021 Offerings

In June 2021, the Company completed a direct offering under its shelf registration statement of 15,520,911 shares of common stock and warrants to purchase up to 15,520,911 shares of common stock at a combined offering price of $1.375 per share, for gross proceeds of $21,341,253 and net proceeds of $19,446,296. The offering was priced at-the-market under applicable NASDAQ rules. The warrants have an exercise price equal to $1.25 per share, became exercisable on the effective date of the charter amendment, August 17, 2021. These warrants will expire on August 17, 2024.

The Company paid to the placement agent a fee equal to 7.5% of the gross proceeds received by the Company in the offering and a management fee equal to 1% of the gross proceeds received by the Company in the offering and reimbursed the placement agent for $65,000 of non-accountable and out-of-pocket expenses. The Company also agreed to pay the placement agent $15,950 for clearing fees. Also, in connection with the offering, the Company agreed to grant the placement agent, or its designees warrants to purchase an aggregate of up to of 1,164,068 shares of its common stock (which represents 7.5% of the shares sold to investors in the offering) at an exercise price equal to 125% of the offering price of the shares in the offering, or $1.71875. These warrants also became exercisable as of August 17, 2021 and will expire on August 17, 2024.

In January and February 2021, the Company completed a series of five offerings, all of which were priced at-the-market under applicable NASDAQ rules. The first four offerings were registered direct offerings of common stock under its shelf registration statement, and in each such case, in a concurrent private placement, the Company also issued such investors one warrant to purchase common stock for each two shares purchased in the transaction. Following those four offerings, the Company completed a private placement of common stock, with each investor receiving one warrant to purchase common stock for each two shares purchased in the transaction. In each case, each such investor warrant is exercisable immediately upon issuance and will expire five and one-half years from the issue date. In each case, the Company paid to the placement agent an aggregate fee equal to 7.5% of the aggregate gross proceeds received by the Company in the offering and a management fee equal to 1% of the aggregate gross proceeds received by the Company in the offering and reimbursed the placement agent for certain non-accountable and out-of-pocket expenses. In addition, the Company granted to the placement agent, or its assigns warrants to purchase 7.5% of the shares sold to investors in the offering at an exercise price equal to 125% of the price of the shares in the transaction, with a term of five years for the registered direct offerings or five and one-half years for the private placement. These offerings were as follows:

Offering Closing Date	Shares		Sale Price per Share*		Investor Warrants		Exercise Price per Share – Investor Warrants		Placement Agent Warrants		Exercise Price per Share – Placement Agent Warrants		Gross Proceeds of Offering		Net Proceeds of Offering
January 12, 2021 (registered direct)		3,650,840	$	0.842		1,825,420	$	0.80		273,813	$	1.0525	$	3,074,007	$	2,731,766
January 21, 2021 (registered direct)		2,200,000	$	1.00		1,100,000	$	1.00		165,000	$	1.25	$	2,200,000	$	1,932,050
January 26, 2021 (registered direct)		3,414,970	$	1.20		1,707,485	$	1.37		256,123	$	1.50	$	4,097,964	$	3,668,687
February 16, 2021 (registered direct)		4,222,288	$	1.75		2,111,144	$	2.00		316,672	$	2.1875	$	7,389,004	$	6,679,989
February 23, 2021 (private placement)		9,043,766	$	1.95		4,521,883	$	2.00		678,282	$	2.4375	$	17,635,344	$	16,064,739
Total		22,531,864				11,265,932				1,689,890			$	34,396,319	$	31,077,231

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

2021 Warrant Exercises

During the period January 1, 2021 through September 30, 2021, the holders of outstanding investor warrants have exercised such warrants for the total purchase of 5,269,059 shares at a weighted average exercise price of $0.86 per share, for total proceeds of $4,513,860.

Equity Incentive Plan

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

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

	Stock Options					Warrants
	Number of Shares			Average Exercise Price		Number of Shares			Average Exercise Price
Outstanding at December 31, 2019		766,424		$	11.34		2,171,610		$	15.26

Issued		319,851			1.03		8,097,468			1.55
Forfeited		(72,728	)		10.58		(128,710	)		95.11