Axe Compute Inc 8-K/A, filed Feb 10, 2022
Axe Compute Inc. (AGPU)
About this 8-K/A
Axe Compute Inc filed this 8-K/A on February 10, 2022, reporting on events of November 24, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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EXPLANATORY NOTE
Item 9.01 Financial Statement and Exhibits
(a) Financial Statements of Businesses
Acquired
The audited financial statements of zPredicta as of and for the years ended December 31, 2020 and 2019 are attached hereto as Exhibit 99.1. The unaudited financial statements of zPredicta as of September 30, 2021 and for the periods ended September 30, 2021 and 2020 are attached hereto as Exhibit 99.2.
(b) Pro Forma Financial Information
Certain pro forma combined financial information of the Company as of and for the period ended September 30, 2021, giving effect to the merger of zPredicta with and into Merger Sub pursuant to the Merger Agreement, is attached hereto as Exhibit 99.1.
(d) Exhibits
| Exhibit No. | Description |
| 23.1 | Consent of Independent Auditors — Baker Tilly US, LLP |
| 99.1 | Audited Financial Statements of zPredicta, Inc. – As of and for the years ended December 31, 2020 and 2019 |
| 99.2 | Unaudited Financial Statements of zPredicta, Inc. – As of September 30, 2021 and for the periods ended September 30, 2021 and 2020 |
| 99.3 | Pro Forma Condensed Combined Financial Information of Predictive |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
(Signature page follows)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| PREDICTIVE ONCOLOGY inc. | ||
| By: | /s/ Bob Myers | |
|
Name: Bob Myers Title: Chief Financial Officer | ||
Date: February 10, 2022
INDEX TO EXHIBITS
| Exhibit No. | Description |
| 23.1 | Consent of Independent Auditors — Baker Tilly US, LLP |
| 99.1 | Audited Financial Statements of zPredicta, Inc. – As of and for the years ended December 31, 2020 and 2019 |
| 99.2 | Unaudited Financial Statements of zPredicta, Inc. – As of September 30, 2021 and for the periods ended September 30, 2021 and 2020 |
| 99.3 | Pro Forma Condensed Combined Financial Information of Predictive |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-1 (File No. 333-239207, 333-252584, and 333-252585) Form S-3 (File No. 333-221966, 333-228908, 333-235441, 333-237581, 333-239851, 333-254309 and 333-255582), Form S-4 (File No. 333-228031) and Form S-8 (File No. 333-169556, 333-175565, 333-186464, 333-188510, 333-198378, 333-213742, 333-216711, 333-230704, 333-250149, and 333-259264) of Predictive Oncology Inc. (the “Company”) of our report dated January 14, 2022, relating to the audited financial statements of zPredicta, Inc. as of and for the years ended December 31, 2020 and 2019 filed with the Form 8-K/A report of the Company filed on February 10, 2022.
| /s/ Baker Tilly US, LLP | |
| Minneapolis, Minnesota | |
| February 10, 2022 |
Exhibit 99.1
Independent Auditors' Report
To the Stockholders and Board of Directors of
zPredicta, Inc.
Opinion
We have audited the financial statements of zPredicta, Inc. (the Company), which comprise the balance sheets as of December 31, 2020 and 2019, and the related statements of operations, stockholders' equity and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America (GAAP).
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 10 of the financial statements, the Company entered into a letter of intent with Predictive Oncology Inc. for control of the Company to be acquired in a proposed transaction. The transaction closed on November 24, 2021 and the Company is now a wholly-owned subsidiary of Predictive Oncology Inc. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with GAAP, and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
1
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Baker Tilly US, LLP
Minneapolis, Minnesota
January 14, 2022
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zPREDICTA, INC.
BALANCE SHEETS
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 170,141 | $ | 201,230 | ||||
| Accounts Receivable | 51,961 | - | ||||||
| Prepaid Expense and Other Assets | 25,630 | 20,726 | ||||||
| Total Current Assets | 247,732 | 221,956 | ||||||
| Fixed Assets, net | - | 6,735 | ||||||
| Total Assets | $ | 247,732 | $ | 228,691 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable | $ | 16,199 | $ | 9,072 | ||||
| Accrued Expenses and Other Liabilities | 29,085 | 20,390 | ||||||
| SAFE and KISS Liabilities (See Note 4) | 548,994 | 546,332 | ||||||
| Deferred Revenue | 151,333 | 248,333 | ||||||
| Total Current Liabilities | 745,611 | 824,127 | ||||||
| Notes Payable | 42,000 | 42,000 | ||||||
| Other Long-Term Liabilities | 37,387 | - | ||||||
| Total Liabilities | 824,998 | 866,127 | ||||||
| Stockholders’ Deficit: | ||||||||
| Common Stock, $.01 par value, 10,000,000 authorized, 7,040,487 and 7,011,288 outstanding | 704 | 701 | ||||||
| Additional Paid-in Capital | 54,994 | 24,501 | ||||||
| Accumulated Deficit | (632,964 | ) | (662,638 | ) | ||||
| Total Stockholders' Deficit | (577,266 | ) | (637,436 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 247,732 | $ | 228,691 | ||||
See Notes to Financial Statements
3
zPREDICTA, INC.
STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 563,288 | $ | 333,879 | ||||
| Operating expenses: | ||||||||
| General and administrative expense | 185,537 | 159,109 | ||||||
| Operations expense | 331,316 | 197,891 | ||||||
| Sales and marketing expense | 14,159 | 12,449 | ||||||
| Total operating income (loss) | 32,276 | (35,570 | ) | |||||
| Other income | 60 | 32 | ||||||
| Loss on derivative instruments | (2,662 | ) | (8,456 | ) | ||||
| Net income (loss) | $ | 29,674 | $ | (43,994 | ) | |||
See Notes to Financial Statements
4
zPREDICTA, INC.
STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flow from operating activities: | ||||||||
| Net income (loss) | $ | 29,674 | $ | (43,994 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 6,735 | 8,642 | ||||||
| Vesting expense | 30,496 | 4,888 | ||||||
| Loss on valuation of equity-linked instruments | 2,662 | 8,456 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (51,961 | ) | 31,456 | |||||
| Prepaid expense and other assets | (4,904 | ) | (7,062 | ) | ||||
| Accounts payable | 7,127 | 8,237 | ||||||
| Accrued expenses | 8,695 | (9,936 | ) | |||||
| Deferred revenue | (97,000 | ) | 126,186 | |||||
| Net cash provided by (used in) operating activities: | (68,476 | ) | 126,873 | |||||
| Cash flow from financing activities: | ||||||||
| Proceeds from long-term debt borrowings | 37,387 | 15,000 | ||||||
| Other liabilities | - | - | ||||||
| Net cash provided by financing activities | 37,387 | 15,000 | ||||||
| Net increase (decrease) in cash | (31,089 | ) | 141,873 | |||||
| Cash at beginning of year | 201,230 | 59,357 | ||||||
| Cash at end of year | $ | 170,141 | $ | 201,230 | ||||
See Notes to Financial Statements
5
zPREDICTA, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at 12/31/2018 | 6,977,425 | $ | 698 | $ | 19,615 | $ | (618,644 | ) | $ | (598,331 | ) | |||||||||
| Shares issued pursuant to exercise of option agreement | 33,863 | 3 | (3 | ) | - | |||||||||||||||
| Vesting expense | 4,889 | 4,889 | ||||||||||||||||||
| Net loss | (43,994 | ) | (43,994 | ) | ||||||||||||||||
| Balance at 12/31/2019 | 7,011,288 | $ | 701 | $ | 24,501 | $ | (662,638 | ) | $ | (637,436 | ) | |||||||||
| Shares issued pursuant to exercise of option agreement | 29,199 | 3 | (3 | ) | - | |||||||||||||||
| Vesting expense | 30,496 | 30,496 | ||||||||||||||||||
| Net income (loss) | 29,674 | 29,674 | ||||||||||||||||||
| Balance at 12/31/2020 | 7,040,487 | $ | 704 | $ | 54,994 | $ | (632,964 | ) | $ | (577,266 | ) | |||||||||
See Notes to Financial Statements
6
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Continuance of Operations
zPREDICTA, Inc., (the “Company” or “zPREDICTA” or “we”) was originally incorporated on April 11, 2016 in San Jose, California. Pursuant to an Agreement and Plan of Merger effective May 9, 2016, Ixchel Scientific, a California corporation, merged with and into a Delaware corporation with the name of zPREDICTA, Inc., with such Delaware corporation as the surviving corporation of the merger. zPREDICTA develops tumor-specific in vitro models for oncology drug discovery and research. The Company’s mission is to accelerate the drug development process for its clients and partners by leveraging our team’s expertise in carcinogenesis, metastasis and the tumor microenvironment. The Company develops complex in vitro models that recapitulate the physiological environment of human tissue.
From target discovery and lead optimization to preclinical evaluation of efficacy and toxicity, zPREDICTA’s goal is to develop the tools necessary to accurately identify compounds that will have the highest probability of improving human health. The Company offers preclinical testing services based on its proprietary models directly to clients in the biopharmaceutical industry and through its partnership with LabCorp. The tumor-specific models are used by many leading biopharmaceutical companies to evaluate the efficacy and toxicity of their therapeutic pipelines.
On September 30, 2021, the Company entered into a letter of intent with Predictive Oncology Inc. for the Company to be acquired in a proposed transaction. The transaction closed November 24, 2021 and the Company is now a wholly-owned subsidiary of Predictive Oncology Inc.
Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 financial statements and during the reporting period. Actual results could materially differ from those estimates.
Cash
The Company has no cash equivalents as of December 31, 2020 and December 31, 2019.
Accounts Receivable
Accounts receivable 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 current status of individual accounts.
Amounts recorded in accounts receivable on the 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 December 31, 2020 and 2019.
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zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
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, was determined based on Level 1 inputs. The fair value of the Company’s SAFE liabilities and debt were determined based on Level 3 inputs. 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 SAFE liabilities on a recurring basis. See Note 4 – SAFE Liabilities.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful asset life of laboratory equipment is five years.
Upon retirement or sale of fixed assets, the cost and related accumulated depreciation or amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations expense as incurred.
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 Screening Services and Custom Model Development
zPREDICTA provides services for screening anti-cancer therapeutic agents. Contract revenues are generally derived from studies conducted with biopharmaceutical and pharmaceutical companies. The specific methodology for revenue recognition is determined on a contract-by-contract basis according to the facts and circumstances applicable to a given 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. 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. zPREDICTA’s payments terms vary by the agreements reached with customers. The Company’s performance obligations are satisfied at one point in time when data and reports are delivered.
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zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
Variable Consideration
The Company records revenue from 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.
Contract Balances
The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of December 31, 2020 accounts receivable totaled $51,961. As of December 31, 2019 there were no outstanding accounts receivables.
The Company’s deferred revenues related primarily to advance payments related to services for screening anti-cancer therapeutic agents and totaled $151,333 and $248,333 as of December 31, 2020 and 2019, respectively.
Valuation and accounting for stock options
The Company determines the grant date fair value of options using 409A 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 most recent 409A option valuation model with the following assumptions:
| For the Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Stock Options | ||||||||
| Expected dividend yield | 0.0 | % | 0.0 | % | ||||
| Expected stock price volatility | 75 | % | 59 | % | ||||
| Risk-free interest rate | 0.14 | % | 2.069 | % | ||||
| Expected life (in years) | 10 | 10 | ||||||
Research and Development
Research and development costs are charged to operations as incurred. Research and development costs were $6,714 and $9,529 for the years ended 2020 and 2019, respectively, and are included in operations expense in the statements of operations.
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. 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.
There is no income tax provision in the accompanying statements of operations due to the cumulative operating losses that indicate a 100% valuation allowance for the deferred tax assets and state income taxes is appropriate.
9
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
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.
All tax returns remain open to examination by federal and state tax authorities due to the Company’s net loss position.
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 no credit risk on 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 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 as applicable.
The Company has evaluated all of its activities and concluded that no other subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements, except as described above and in Note 11 – Subsequent Events.
NOTE 2 – STOCKHOLDERS’ EQUITY AND STOCK OPTIONS
Authorized Shares
Per the certificate of incorporation of the Company the number of authorized shares of common stock from 10,000,000 shares of common stock, $0.0001 par value.
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 fair market value price on the date of issuance. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to four years. Options outstanding under this plan have a contractual life of ten years.
Options
ASC 718, Compensation – Stock Compensation, (“ASC 718”) requires that a company that issues equity as compensation needs to record compensation expense on its statements of operations that corresponds to the estimated fair value of those equity grants. ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model or other acceptable means.
10
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
The Company determines the grant date fair value of options using a 409A option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility and estimated term. See Note 1 – Summary of Significant Accounting Policies – Accounting Policies and Estimates.
The following summarizes transactions for stock options for the periods indicated:
| Stock Options | ||||||||
| Number of Shares | Average Exercise Price | |||||||
| Outstanding at December 31, 2018 | 69,318 | $ | 0.01 | |||||
| Issued | 1,559,595 | 0.09 | ||||||
| Forfeited | (210,093 | ) | 0.01 | |||||
| Exercised | (33,864 | ) | 0.01 | |||||
| Outstanding at December 31, 2019 | 1,384,956 | $ | 0.09 | |||||
| Issued | 77,848 | 0.09 | ||||||
| Forfeited | (52,268 | ) | 0.01 | |||||
| Exercised | (29,200 | ) | 0.01 | |||||
| Outstanding at December 31, 2020 | 1,381,336 | $ | 0.09 | |||||
At December 31, 2020, 421,463 stock options are fully vested and currently exercisable with a weighted average exercise price of $.09 and a weighted average remaining term of 9.5 years. At December 31, 2019, 79,015 stock options are fully vested and currently exercisable with a weighted average exercise price of $0.08 and a weighted average remaining term of 8.77 years. Stock-based compensation expense recognized in 2020 and 2019 was $30,497 and $4,889, respectively. The Company has $88,161 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over the next 39 months.
Stock options expire on various dates from October 4, 2029 to September 28, 2030.
NOTE 3 – NOTES PAYABLE
The balances of notes payable were as follows:
December 31, 2020 | December 31, 2019 | |||||||
| 2015 Shareholder Note | $ | 27,000 | $ | 27,000 | ||||
| 2019 Investor Note | $ | 15,000 | $ | 15,000 | ||||
Both the 2015 Shareholder Note and the 2019 Investor Note are unsecured.
Shareholder Note
On March 20, 2015, the Company issued a promissory note with a principal amount of $27,000 (the “Shareholder Note”) to Julia Kirshner, in exchange for cash proceeds of $27,000. The Shareholder Note was issued without interest payable on the unpaid principal and is prepayable without penalty by the Company at any time (provided the Company is not in default under the Note).
The maturity of the Shareholder Note was conditional upon a Financing or a Change of Control each defined within the Shareholder Note. The Notes were issued as legal form debt and are subject to the guidance of ASC 470. The Company intended to refinance the obligation on a long-term basis by delaying the repayment until mutually agreed by the parties. The Shareholder Note does not have a fixed or determinable maturity date and will be classified as long-term debt. The Shareholder Note was repaid in full in September 2021.
11
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
Investor Note
On October 4, 2019, the Company issued a promissory note with a principal amount of $15,000 (the “Investor Note”) to Tom Kelly, in exchange for cash proceeds of $15,000. The Investor Note was issued without interest payable on the unpaid principal and is prepayable without penalty by the Company at any time (provided the Company is not in default under the Note).
The maturity of the Investor Note was conditional upon a Financing or a Change of Control each defined within the Investor Note. The Notes were issued as legal form debt and are subject to the guidance of ASC 470. The Company intended to refinance the obligation on a long-term basis by delaying the repayment until mutually agreed by the parties. The Investor Note does not have a fixed or determinable maturity date and will be classified as long-term debt. The Investor Note was repaid in full in September 2021.
2020 Paycheck Protection Program
During 2020, the Company entered into a promissory note with JPMorgan Chase Bank, N.A., which provides for an unsecured loan of $37,387 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 for covered use of funds.
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 has used all proceeds for qualifying expenses. The Company received forgiveness for the loan under the Paycheck Protection Program and recognized a gain in other income for the full amount of the loan during the first quarter of 2021.
The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.
NOTE 4 – SAFE AND KISS LIABILITIES
The Company concluded the Simple Agreements for Future Equity (“SAFE”) - and Keep It Simple Security (“KISS”) Liabilities contains a conversion feature as defined in the agreement and are classified as a liability under ASC 480 and determined the fair value to record within the SAFE liability on the balance sheet. At inception, the fair value of the SAFE liabilities was $537,876. During the year ended December 31, 2020, the Company recognized a loss of $2,662 on the change in the fair value of the SAFE liabilities. As of December 31, 2020, the fair value of the derivative liability was $548,994. During the year ended December 31, 2019, the Company recognized a loss of $8,456 on the change in the fair value of the SAFE liabilities. As of December 31, 2019, the fair value of the derivative liability was $546,332. The fair value of the derivative liability and conversion feature are level 3 fair value measurements and were valued using a Monte Carlo valuation methodology.
The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.
| SAFE liabilities balance at December 31, 2018 | $ | 537,876 | ||
| Loss recognized to revalue SAFE instrument at fair value | (8,456 | ) | ||
| SAFE liabilities balance at December 31, 2019 | $ | 546,332 | ||
| Loss recognized to revalue SAFE instrument at fair value | (2,662 | ) | ||
| SAFE liabilities balance at December 31, 2020 | $ | 548,994 |
12
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
All of the SAFE and KISS notes were liquidated and cash payments were distributed to the holders on November 24, 2021 when the Company was acquired by Predictive Oncology Inc. See Note 1.
NOTE 5 – INCOME TAXES
The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
There is no federal or state income tax provision in the accompanying statements of net loss due to the cumulative operating losses incurred and 100% valuation allowance for the deferred tax assets.
Actual income tax benefit differs from statutory federal income tax benefit as follows:
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Statutory federal income tax benefit | $ | 6,000 | $ | (9,000 | ) | |||
| State tax benefit, net of federal taxes | 2,000 | (3,000 | ) | |||||
| Nondeductible/nontaxable items | 9,000 | 4,000 | ||||||
| Valuation allowance increase (decrease) | (13,000 | ) | 9,000 | |||||
| Other | (4,000 | ) | (1,000 | ) | ||||
| Total income tax benefit | $ | - | $ | - | ||||
Deferred taxes consist of the following:
| December 31, 2020 | December 31, 2019 | |||||||
| Deferred tax assets: | ||||||||
| Noncurrent: | ||||||||
| Depreciation | $ | 4,000 | $ | 4,000 | ||||
| Accruals and reserves | 5,000 | 6,000 | ||||||
| Deferred revenue | 42,000 | 99,000 | ||||||
| NOL and credits | 120,000 | 75,000 | ||||||
| Total deferred tax assets | 171,000 | 184,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Noncurrent: | ||||||||
| Depreciation | - | (1,000 | ) | |||||
| Prepaid assets | (1,000 | ) | - | |||||
| Total deferred tax liabilities | (1,000 | ) | (1,000 | ) | ||||
| Net deferred tax assets | 170,000 | 183,000 | ||||||
| Less: valuation allowance | (170,000 | ) | (183,000 | ) | ||||
| Total | $ | - | $ | - | ||||
The Company has determined, based upon its history, that it is probable that future taxable income may be insufficient to fully realize the benefits of the net operating loss (“NOL”) carryforwards and other deferred tax assets. As such, the Company has determined that a full valuation allowance is warranted. Future events and changes in circumstances could cause this valuation allowance to change.
13
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
At December 31, 2019, the Company had approximately $256,000 of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2020. The federal NOL’s of $145,000 expire beginning in 2036 if unused and $111,000 will carryforward indefinitely. The Company also had approximately $250,000 of gross NOLs and credits to reduce future state taxable income at December 31, 2019. The state NOL’s will expire beginning in 2036 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2019, the valuation allowance was $183,000.
At December 31, 2020, the Company has approximately $394,000 of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2021. The federal NOL’s of $145,000 expire beginning in 2036 if unused and $249,000 will carryforward indefinitely. The Company also has approximately $388,000 of gross NOLs and credits to reduce future state taxable income at December 31, 2020. The state NOL’s will expire beginning in 2036 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2020, the valuation allowance was $170,000.
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.
The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. At December 31, 2020 and 2019, the Company recorded no accrued interest or penalties related to uncertain tax positions.
NOTE 6 – LEASES
Our corporate offices are located in San Jose, California. The lease as amended has a 90-day perpetual term renewable on a month-to-month. Our leased space includes space used for office space and laboratory space. The lease was amended August 17, 2020.
Lease expense under operating lease arrangements was $61,546 and $44,390 for 2020 and 2019, respectively.
NOTE 7 – FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Accumulated depreciation is included in fixed assets, net on the accompanying balance sheets. Estimated useful life of our laboratory assets is 5 years.
The Company’s fixed assets consist of the following:
| December 31, 2020 | December 31, 2019 | |||||||
| Laboratory equipment | $ | 43,212 | $ | 43,212 | ||||
| Less: Accumulated depreciation | (43,212 | ) | (36,477 | ) | ||||
| Total fixed assets, net | $ | - | $ | 6,735 | ||||
Maintenance and repairs are expensed as incurred. Depreciation expense was $6,735 and $8,642 in 2020 and 2019, respectively.
14
zPREDICTA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 – RELATED PARTY TRANSACTIONS
Shareholder Note
On March 20, 2015, the Company issued the Shareholder Note with a principal amount of $27,000 to Julia Kirshner, in exchange for cash proceeds of $27,000. See Note 3 – Notes Payable.
Investor Note
On October 4, 2019, the Company issued the Investor Note with a principal amount of $15,000 to Tom Kelly, in exchange for cash proceeds of $15,000. See Note 3 – Notes Payable.
NOTE 9 – RETIREMENT SAVINGS PLANS
The Company has a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers employees meeting certain eligibility requirements. During 2019 and 2018, the Company provided a 3% nonelective contribution. The employer contribution was $4,234 and $553 in 2020 and 2019, respectively. There were no discretionary contributions to the plan in 2020 and 2019.
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events occurring through January 14, 2022, the date that the financial statements were available to be issued, for events requiring recording or disclosure in the Company’s financial statements. On September 30, 2021, the Company entered into a letter of intent with Predictive Oncology Inc. for control of the Company to be acquired in a proposed transaction. The transaction closed on November 24, 2021 and the Company is now a wholly-owned subsidiary of Predictive Oncology Inc.
15
Exhibit 99.2
zPREDICTA, Inc.
BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 440,161 | $ | 170,141 | ||||
| Accounts Receivable | 76,189 | 51,961 | ||||||
| Prepaid Expense and Other Assets | 31,267 | 25,630 | ||||||
| Total Current Assets | 547,617 | 247,732 | ||||||
| Total Assets | $ | 547,617 | $ | 247,732 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable | $ | 2,877 | $ | 16,199 | ||||
| Accrued Expenses and Other Liabilities | 18,106 | 29,085 | ||||||
| SAFE Liabilities (See Note 4) | 712,228 | 548,994 | ||||||
| Deferred Revenue | 130,833 | 151,333 | ||||||
| Total Current Liabilities | 864,044 | 745,611 | ||||||
| Notes Payable | - | 42,000 | ||||||
| Other Long-Term Liabilities | - | 37,387 | ||||||
| Total Liabilities | 864,044 | 824,998 | ||||||
| Stockholders’ Deficit: | ||||||||
| Common Stock, $.01 par value, 10,000,000 authorized, 7,067,896 and 7,040,487 outstanding | 707 | 704 | ||||||
| Additional Paid-in Capital | 80,623 | 54,994 | ||||||
| Accumulated Deficit | (397,757 | ) | (632,964 | ) | ||||
| Total Stockholders' Deficit | (316,427 | ) | (577,266 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 547,617 | $ | 247,732 | ||||
See Notes to Financial Statements
| 1 |
zPREDICTA, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 509,386 | $ | 46,421 | $ | 878,939 | $ | 60,328 | ||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expense | 36,303 | 55,503 | 155,757 | 126,491 | ||||||||||||
| Operations expense | 127,349 | 83,556 | 352,092 | 231,480 | ||||||||||||
| Sales and marketing expense | 1,519 | 160 | 2,971 | 13,588 | ||||||||||||
| Total operating income (loss) | 344,215 | (92,798 | ) | 368,119 | (311,231 | ) | ||||||||||
| Other income | (7,942 | ) | 7 | 30,322 | 55 | |||||||||||
| Loss on derivative instruments | (163,234 | ) | (5,486 | ) | (163,234 | ) | (5,486 | ) | ||||||||
| Net income (loss) | $ | 173,038 | $ | (98,277 | ) | $ | 235,207 | $ | (316,662 | ) | ||||||
See Notes to Financial Statements
| 2 |
zPREDICTA, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flow from operating activities: | ||||||||
| Net income (loss) | $ | 235,207 | $ | (316,662 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | - | 6,735 | ||||||
| Vesting expense | 23,166 | 22,775 | ||||||
| Loss on valuation of derivative instruments | 163,234 | 5,486 | ||||||
| Gain on debt foregiveness | (37,387 | ) | - | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (24,228 | ) | - | |||||
| Prepaid expense and other assets | (5,637 | ) | 6,119 | |||||
| Accounts payable | (13,322 | ) | (5,691 | ) | ||||
| Accrued expenses | (10,979 | ) | (3,176 | ) | ||||
| Deferred revenue | (20,500 | ) | 191,645 | |||||
| Net cash provided by (used in) operating activities: | 309,554 | (92,768 | ) | |||||
| Cash flow from financing activities: | ||||||||
| Proceeds from long-term debt borrowings | - | 37,387 | ||||||
| Proceeds from exercise of options into common stock | 2,466 | - | ||||||
| Repayment of debt | (42,000 | ) | - | |||||
| Net cash (used in) provided by financing activities | (39,534 | ) | 37,387 | |||||
| Net increase (decrease) in cash | 270,020 | (55,381 | ) | |||||
| Cash at beginning of period | 170,141 | 201,230 | ||||||
| Cash at end of period | $ | 440,161 | $ | 145,849 | ||||
See Notes to Financial Statements
| 3 |
zPREDICTA, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020
(unaudited)
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at 06/30/2020 | 7,040,487 | $ | 704 | $ | 39,551 | $ | (881,697 | ) | $ | (841,442 | ) | |||||||||
| Vesting expense | 7,722 | 7,722 | ||||||||||||||||||
| Net loss | (98,277 | ) | (98,277 | ) | ||||||||||||||||
| Balance at 09/30/2020 | 7,040,487 | $ | 704 | $ | 47,273 | $ | (979,974 | ) | $ | (931,997 | ) | |||||||||
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at 12/31/2019 | 7,011,288 | $ | 701 | $ | 24,501 | $ | (662,638 | ) | $ | (637,436 | ) | |||||||||
| Shares issued pursuant to exercise of option agreement | 29,199 | 3 | (3 | ) | - | |||||||||||||||
| Vesting expense | 22,775 | 22,775 | ||||||||||||||||||
| Net loss | (316,662 | ) | (316,662 | ) | ||||||||||||||||
| Balance at 09/30/2020 | 7,040,487 | $ | 704 | $ | 47,273 | $ | (979,300 | ) | $ | (931,323 | ) | |||||||||
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at 06/30/2021 | 7,040,487 | $ | 704 | $ | 70,438 | $ | (570,795 | ) | $ | (499,653 | ) | |||||||||
| Shares issued pursuant to exercise of option agreement | 27,409 | 3 | 2,463 | 2,466 | ||||||||||||||||
| Vesting expense | 7,722 | 7,722 | ||||||||||||||||||
| Net income | 173,038 | 173,038 | ||||||||||||||||||
| Balance at 09/30/2021 | 7,067,896 | $ | 707 | $ | 80,623 | $ | (397,757 | ) | $ | (316,427 | ) | |||||||||
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at 12/31/2020 | 7,040,487 | $ | 704 | $ | 54,994 | $ | (632,964 | ) | $ | (577,266 | ) | |||||||||
| Shares issued pursuant to exercise of option agreement | 27,409 | 3 | 2,463 | 2,466 | ||||||||||||||||
| Vesting expense | 23,166 | 23,166 | ||||||||||||||||||
| Net income | 235,207 | 235,207 | ||||||||||||||||||
| Balance at 09/30/2021 | 7,067,896 | $ | 707 | $ | 80,623 | $ | (397,757 | ) | $ | (316,427 | ) | |||||||||
See Notes to Financial Statements
| 4 |
zPREDICTA, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Continuance of Operations
zPREDICTA, Inc., (the “Company” or “zPREDICTA” or “we”) was originally incorporated on April 11, 2016 in San Jose, California. Pursuant to an Agreement and Plan of Merger effective May 9, 2016, Ixchel Scientific, a California corporation, merged with and into a Delaware corporation with the name of zPREDICTA, Inc., with such Delaware corporation as the surviving corporation of the merger. zPREDICTA develops tumor-specific in vitro models for oncology drug discovery and research. The Company’s mission is to accelerate the drug development process for its clients and partners by leveraging our team’s expertise in carcinogenesis, metastasis and the tumor microenvironment. The Company develops complex in vitro models that recapitulate the physiological environment of human tissue and thus provide a more clinically relevant testing platform than commonly-used alternatives.
From target discovery and lead optimization to preclinical evaluation of efficacy and toxicity, zPREDICTA’s goal is to develop the tools necessary to accurately identify compounds that will have the highest probability of improving human health. The Company offers preclinical testing services based on its proprietary models directly to clients in the biopharmaceutical industry and through its partnership with LabCorp. The tumor-specific models are used by many leading biopharmaceutical companies to evaluate the efficacy and toxicity of their therapeutic pipelines.
On September 30, 2021, the Company entered into a letter of intent with Predictive Oncology Inc. for the Company to be acquired in a proposed transaction. The transaction closed November 24, 2021 and the Company is now a wholly-owned subsidiary of Predictive Oncology Inc.
Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 financial statements and during the reporting period. Actual results could materially differ from those estimates.
Cash
The Company has no cash equivalents as of ended September 30, 2021 and December 31, 2020.
Accounts Receivable
Accounts Receivable 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 current status of individual accounts.
Amounts recorded in accounts receivable on the 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.
| 5 |
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, was determined based on Level 1 inputs. The fair value of the Company’s SAFE liabilities and debt were determined based on Level 3 inputs. In addition, the Company uses the Monte Carlo method when valuing the conversion feature and other embedded features classified as SAFE liabilities on a recurring basis. See Note 8 – SAFE Liabilities.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful asset life of laboratory equipment is five years.
Upon retirement or sale of fixed assets, the cost and related accumulated depreciation or amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations expense as incurred.
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 Screening Services and Custom Model Development
zPREDICTA provides services for screening anti-cancer therapeutic agents. Contract revenues are generally derived from studies conducted with biopharmaceutical and pharmaceutical companies. The specific methodology for revenue recognition is determined on a contract-by-contract basis according to the facts and circumstances applicable to a given 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. 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. zPREDICTA’s payments terms vary by the agreements reached with customers. The Company’s performance obligations are satisfied at one point in time when data and reports are delivered.
| 6 |
Variable Consideration
The Company records revenue from 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.
Contract Balances
The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of September 30, 2021 and December 31, 2020, accounts receivable totaled $76,189 and $51,961, respectively.
The Company’s deferred revenues related primarily to advance payments related to services for screening anti-cancer therapeutic agents and totaled $130,833 and $151,333 as of September 30, 2021 and as of December 31, 2020, respectively.
Valuation and accounting for stock options
The Company determines the grant date fair value of options using 409A option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility and estimated term.
The fair value of each option grant is estimated on the grant date using the most recent 409A 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 | 75 | % | 75 | % | ||||
| Risk-free interest rate | 0.14 | % | 0.14 | % | ||||
| Expected life | 10 years | 10 years | ||||||
Research and Development
Research and development costs were $5,383 and $442 for the three months ended September 30, 2021 and 2020, respectively. Research and development costs are charged to operations as incurred. Research and development costs were $45,265 and $5,299 for the nine months ended September 30, 2021 and 2020, respectively, and are included in operations expense in the statements of operations.
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. 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.
There is no income tax provision in the accompanying statements of operations due to the cumulative operating losses that indicate a 100% valuation allowance for the deferred tax assets and state income taxes is appropriate.
| 7 |
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.
All tax returns remain open to examination by federal and state tax authorities due to the Company’s net loss position.
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 no credit risk on 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 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 as applicable.
The Company has evaluated all of its activities and concluded that no other subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements, except as described above and in Note 8 – Subsequent Events.
NOTE 2 – STOCKHOLDERS’ EQUITY AND STOCK OPTIONS
Authorized Shares
Per the certificate of incorporation of the Company the number of authorized shares of common stock from 10,000,000 shares of common stock, $0.0001 par value.
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 market price on the date of issuance. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to four years. Options outstanding under this plan have a contractual life of ten years.
Options
ASC 718, Compensation – Stock Compensation, (“ASC 718”) requires that a company that issues equity as compensation needs to record compensation expense on its statements of net loss that corresponds to the estimated fair value of those equity grants. ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model or other acceptable means.
The Company determines the grant date fair value of options using a 409A option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility and estimated term. See Note 1 – Summary of Significant Accounting Policies – Accounting Policies and Estimates.
| 8 |
The following summarizes transactions for stock options for the periods indicated:
| Stock Options | ||||||||
| Number of Shares | Average Exercise Price | |||||||
| Outstanding at December 31, 2020 | 1,381,336 | $ | 0.09 | |||||
| Issued | - | 0.09 | ||||||
| Forfeited | (41,837 | ) | 0.09 | |||||
| Exercised | (27,409 | ) | 0.09 | |||||
| Outstanding at September 30, 2021 | 1,312,090 | $ | 0.09 | |||||
At September 30, 2021, 626,739 stock options are fully vested and currently exercisable with a weighted average exercise price of $.09 and a weighted average remaining term of 8.46 years. Stock-based compensation recognized was $7,722 for each of the three months ended September 30, 2021 and 2020. Stock-based compensation recognized was $23,166 for the nine months ended September 30, 2021 and $22,775 for the nine months ended September 30, 2020.
Stock options expire on various dates from October 4, 2029 to September 28, 2030.
NOTE 3 – NOTES PAYABLE
The balances of notes payable were as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| 2015 Shareholder note | $ | - | $ | 27,000 | ||||
| 2019 Investor note | $ | - | $ | 15,000 | ||||
Shareholder Note
On March 20, 2015, the Company issued a promissory note with a principal amount of $27,000 (the “Shareholder Note”) to Julia Kirshner, in exchange for cash proceeds of $27,000. The Shareholder Note was issued without interest payable on the unpaid principal and is prepayable without penalty by the Company at any time (provided the Company is not in default under the Note).
The maturity of the Shareholder Note was conditional upon a Financing or a Change of Control each defined within the Shareholder Note. The Notes were issued as legal form debt and are subject to the guidance of ASC 470. The Company intended to refinance the obligation on a long-term basis by delaying the repayment until mutually agreed by the parties. The Shareholder Note does not have a fixed or determinable maturity date and will be classified as long-term debt. The note was paid in full during the nine months ended September 30, 2021.
Investor Note
On October 4, 2019, the Company issued a promissory note with a principal amount of $15,000 (the “Investor Note”) to Tom Kelly, in exchange for cash proceeds of $15,000. The Investor Note was issued without interest payable on the unpaid principal and is prepayable without penalty by the Company at any time (provided the Company is not in default under the Note).
The maturity of the Investor Note was conditional upon a Financing or a Change of Control each defined within the Investor Note. The Notes were issued as legal form debt and are subject to the guidance of ASC 470. The Company intended to refinance the obligation on a long-term basis by delaying the repayment until mutually agreed by the parties. The Investor Note does not have a fixed or determinable maturity date and will be classified as long-term debt. The note was paid in full during the nine months ended September 30, 2021.
| 9 |
2020 Paycheck Protection Program
During 2020, the Company entered into a promissory note with JPMorgan Chase Bank, N.A., which provides for an unsecured loan of $37,387 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 for covered use of funds.
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 has used all proceeds for qualifying expenses. The Company received forgiveness for the loan under the Paycheck Protection Program and recognized a gain in other income for the full amount of the loan during the first quarter of 2021.
The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.
NOTE 4 – SAFE AND KISS LIABILITIES
The Company concluded the SAFE and KISS Liabilities contains a conversion feature as defined in the agreement and are classified as a liability under ASC 480 and determined the fair value to record within the SAFE liability on the balance sheet. At inception, the fair value of the SAFE liabilities was $537,876. The Company recognized a loss of $163,234 and $5,486 on the change in the fair value of the SAFE liabilities during the nine months ended September 30, 2021 and 2020, respectively. During the year ended December 31, 2020, the Company recognized a loss of $2,662 on the change in the fair value of the SAFE liabilities. As of September 30, 2021, the fair value of the derivative liability was $712,228. As of December 31, 2020, the fair value of the derivative liability was $548,994.
The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.
| SAFE liabilities balance at December 31, 2019 | $ | 546,332 | ||
| Loss recognized to revalue SAFE instrument at fair value | (2,662 | ) | ||
| SAFE liabilities balance at December 31, 2020 | $ | 548,994 | ||
| Loss recognized to revalue SAFE instrument at fair value | (163,234 | ) | ||
| SAFE liabilities balance at September 30, 2021 | $ | 712,228 |
All of the SAFE and KISS notes were liquidated and cash payments were distributed to the holders on November 24, 2021 when the Company was acquired by Predictive Oncology Inc. See - Note 1.
NOTE 5 – LEASES
Our corporate offices are located in San Jose, California. The lease as amended has a 90-day perpetual term renewable on a month-to-month. Our leased space includes space used for office space and laboratory space. The lease was amended August 17, 2020.
Lease expense under operating lease arrangements with a term less than 12 months was $19,794 and $27,665 for the three months ended September 30, 2021 and 2020, respectively and $57,658 and $41,744 for the nine months ended September 30, 2021 and 2020, respectively.
NOTE 6 – FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of the respective assets. Accumulated depreciation is included in fixed assets, net on the accompanying balance sheets. Estimated useful life of our laboratory assets is five years.
| 10 |
The Company’s fixed assets consist of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Laboratory equipment | $ | 43,212 | $ | 43,212 | ||||
| Less: Accumulated depreciation | (43,212 | ) | (43,212 | ) | ||||
| Total fixed assets, net | $ | - | $ | - | ||||
Upon retirement or sale or fixed assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations expense. Maintenance and repairs are expensed as incurred.
Maintenance and repairs are expensed as incurred. Depreciation expense was $0 and $6,735 during the nine months ended September 30, 2021 and 2020, respectively, and $0 and $2,080 during the three months ended September 30, 2021 and 2020, respectively.
NOTE 7 – RELATED PARTY TRANSACTIONS
Shareholder Note
On March 20, 2015, the Company issued the Shareholder Note with a principal amount of $27,000 to Julia Kirshner, in exchange for cash proceeds of $27,000. See Note 3 – Notes Payable.
Investor Note
On October 4, 2019, the Company issued the Investor Note with a principal amount of $15,000 to Tom Kelly, in exchange for cash proceeds of $15,000. See Note 3 – Notes Payable.
NOTE 8 – INCOME TAXES
The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
There is no federal or state income tax provision in the accompanying statements of net loss due to the cumulative operating losses incurred and 100% valuation allowance for the deferred tax assets.
Actual income tax benefit differs from statutory federal income tax benefit as follows:
| Nine months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Statutory federal income taxes | $ | 67,000 | $ | (63,000 | ) | |||
| State tax benefit, net of federal taxes | 22,000 | (19,000 | ) | |||||
| Nondeductible/nontaxable items | 7,000 | - | ||||||
| Valuation allowance increase (decrease) | (96,000 | ) | 82,000 | |||||
| Total income tax benefit | $ | - | $ | - | ||||
| 11 |
Deferred taxes consist of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Deferred tax assets: | ||||||||
| Noncurrent: | ||||||||
| Depreciation | $ | 4,000 | $ | 4,000 | ||||
| Accruals and reserves | 6,000 | 5,000 | ||||||
| Deferred revenue and loss on derivative instruments | 67,000 | 42,000 | ||||||
| NOL and credits | 11,000 | 120,000 | ||||||
| Total deferred tax assets | 88,000 | 171,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Noncurrent: | ||||||||
| Prepaid assets | (1,000 | ) | (1,000 | ) | ||||
| Total deferred tax liabilities | (1,000 | ) | (1,000 | ) | ||||
| Net deferred tax assets | 87,000 | 170,000 | ||||||
| Less: valuation allowance | (87,000 | ) | (170,000 | ) | ||||
| Total | $ | - | $ | - | ||||
The Company has determined, based upon its history, that it is probable that future taxable income may be insufficient to fully realize the benefits of the net operating loss (“NOL”) carryforwards and other deferred tax assets. As such, the Company has determined that a full valuation allowance is warranted. Future events and changes in circumstances could cause this valuation allowance to change.
At December 31, 2020, the Company has approximately $394,000 of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2021. The federal NOL’s of $145,000 expire beginning in 2036 if unused and $249,000 will carryforward indefinitely. The Company also has approximately $388,000 of gross NOLs and credits to reduce future state taxable income at December 31, 2020. The state NOL’s will expire beginning in 2036 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2020, the valuation allowance was $170,000.
At September 30, 2021, the Company has approximately $0 of gross NOLs to reduce future federal taxable income. The Company's net deferred tax assets are subject to a full valuation allowance. At September 30, 2021, the valuation allowance was $87,000.
The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. At September 30, 2021 and December 31, 2020, the Company recorded no accrued interest or penalties related to uncertain tax positions.
NOTE 9 – SUBSEQUENT EVENTS
On September 30, 2021, the Company entered into a letter of intent with Predictive Oncology Inc. for control of the Company to be acquired in a proposed transaction. The transaction closed on November 24, 2021 and the Company is now a wholly-owned subsidiary of Predictive Oncology Inc.
12
Exhibit 99.3
PREDICTIVE ONCOLOGY INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2021
(Unaudited)
| Predictive Oncology | zPREDICTA | Pro Forma Adjustments | Note Ref | Pro Forma | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current Assets: | ||||||||||||||||||
| Cash and Cash Equivalents | $ | 41,771,515 | $ | 440,161 | (10,015,941 | ) | a | $ | 32,195,735 | |||||||||
| Accounts Receivable | 275,860 | 76,189 | - | 351,382 | ||||||||||||||
| Inventories | 397,976 | - | - | 397,188 | ||||||||||||||
| Prepaid Expense and Other Assets | 595,224 | 31,267 | - | 626,491 | ||||||||||||||
| Total Current Assets | 43,039,908 | 547,617 | (10,015,941 | ) | 33,571,584 | |||||||||||||
| Fixed Assets, net | 3,810,240 | - | - | 3,810,640 | ||||||||||||||
| Intangibles, net | 3,199,047 | - | 6,300,000 | b | 9,499,047 | |||||||||||||
| Lease Right-of-Use Assets | 961,419 | - | - | 961,419 | ||||||||||||||
| Other Long-Term Assets | 179,096 | - | - | 179,096 | ||||||||||||||
| Goodwill | - | - | 3,711,471 | c | 3,711,471 | |||||||||||||
| Total Assets | $ | 51,190,110 | $ | 547,617 | $ | (4,470 | ) | $ | 51,733,257 | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||
| Accounts Payable | $ | 1,029,545 | $ | 2,877 | $ | - | $ | 1,032,422 | ||||||||||
| Accrued Expenses and other liabilities | 940,892 | 18,106 | 1,286,628 | d | 2,245,626 | |||||||||||||
| SAFE Liabilities | - | 712,228 | (712,228 | ) | e | - | ||||||||||||
| Derivative Liability | 225,498 | - | - | 225,498 | ||||||||||||||
| Deferred Revenue | 152,546 | 130,833 | - | 283,379 | ||||||||||||||
| Lease Liability – Net of Long-Term Portion | 637,352 | - | - | 637,352 | ||||||||||||||
| Total Current Liabilities | 2,985,833 | 864,044 | 574,400 | 4,424,277 | ||||||||||||||
| Other Long-Term Liabilities | 30,898 | - | - | 30,898 | ||||||||||||||
| Lease Liability, long-term portion | 388,473 | - | - | 412,272 | ||||||||||||||
| Total Liabilities | 3,405,204 | 864,044 | 547,400 | 4,843,648 | ||||||||||||||
| Stockholders’ Equity: | ||||||||||||||||||
| Series B Convertible Preferred Stock | 792 | - | - | 792 | ||||||||||||||
| Common Stock | 654,575 | 707 | (707 | ) | f | 654,574 | ||||||||||||
| Additional Paid-in Capital | 167,413,309 | 80,623 | (80,623 | ) | g | 167,413,309 | ||||||||||||
| Accumulated Deficit | (120,283,770 | ) | (397,757 | ) | (497,540 | ) | h,i | (121,179,067 | ) | |||||||||
| Total Stockholders' Equity | 47,784,906 | (316,427 | ) | (578,870 | ) | 46,889,609 | ||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 51,190,110 | $ | 547,617 | $ | (4,470 | ) | $ | 51,733,257 | |||||||||
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
| 1 |
PREDICTIVE ONCOLOGY INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF NET LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Predictive Oncology | zPREDICTA | Pro Forma Adjustments | Ref Note | Pro Forma | ||||||||||||||
| Revenue | $ | 944,187 | $ | 878,939 | $ | - | $ | 1,823,126 | ||||||||||
| Cost of goods sold | 350,800 | - | - | 350,800 | ||||||||||||||
| Gross profit | 593,387 | 878,939 | - | 1,472,326 | ||||||||||||||
| General and administrative expense | 7,410,208 | 155,757 | 452,500 | j | 8,018,465 | |||||||||||||
| Operations expense | 1,791,543 | 352,092 | 112,370 | k | 2,256,005 | |||||||||||||
| Sales and marketing expense | 447,298 | 2,971 | - | 450,269 | ||||||||||||||
| Loss on goodwill impairment | 2,813,792 | - | - | 2,813,792 | ||||||||||||||
| Total operating loss | (11,869,454 | ) | 368,119 | (564,870 | ) | (12,066,205 | ) | |||||||||||
| Other income | 144,122 | 30,322 | - | 174,444 | ||||||||||||||
| Other expense | (244,214 | ) | - | - | (244,214 | ) | ||||||||||||
| Gain on derivative instruments | 68,884 | (163,234 | ) | 163,234 | l | 68,884 | ||||||||||||
| Gain on notes receivables associated with asset purchase | - | - | - | - | ||||||||||||||
| Net loss attributable to common shareholders | $ | (11,900,662 | ) | $ | 235,207 | $ | (401,636 | ) | $ | (12,067,091 | ) | |||||||
| Loss per common share basic and diluted | $ | (0.23 | ) | $ | $ | $ | (0.24 | ) | ||||||||||
| Weighted average shared used in computation - basic | 51,272,960 |
N/A |
N/A | 51,272,960 | ||||||||||||||
PREDICTIVE ONCOLOGY INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF NET LOSS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2020
(Unaudited)
| Predictive Oncology | zPREDICTA | Pro Forma Adjustments | Ref Note | Pro Forma | ||||||||||||||
| Revenue | $ | 1,252,272 | $ | 563,288 | $ | - | $ | 1,815,560 | ||||||||||
| Cost of goods sold | 447,192 | - | - | 447,192 | ||||||||||||||
| Gross profit | 805,080 | 563,288 | - | 1,368,368 | ||||||||||||||
| General and administrative expense | 10,351,973 | 185,537 | 603,333 | m | 11,140,843 | |||||||||||||
| Operations expense | 2,351,709 | 331,316 | 150,216 | n | 2,833,241 | |||||||||||||
| Sales and marketing expense | 584,937 | 14,159 | - | 599,096 | ||||||||||||||
| Loss on goodwill impairment | 12,876,498 | - | - | 12,876,498 | ||||||||||||||
| Total operating loss | (25,360,037 | ) | 32,276 | (753,549 | ) | (26,081,310 | ) | |||||||||||
| Other income | 843,440 | 60 | - | 843,500 | ||||||||||||||
| Other expense | (2,427,026 | ) | - | - | (2,427,026 | ) | ||||||||||||
| Loss on early extinguishment of debt | (1,996,681 | ) | - | - | (1,996,681 | ) | ||||||||||||
| Gain (loss) on derivative instruments | 1,765,907 | (2,662 | ) | 68,884 | o | 1,765,907 | ||||||||||||
| Gain on notes receivables associated with asset purchase | 1,290,000 | - | - | 1,290,000 | ||||||||||||||
| Net loss | $ | (25,884,397 | ) | $ | 29,674 | $ | (750,887 | ) | $ | (26,605,610 | ) | |||||||
| Deemed dividend | 554,287 | - | - | 554,287 | ||||||||||||||
| Net loss attributable to common shareholders | $ | (26,438,684 | ) | $ | 29,674 | $ | (750,887 | ) | $ | (27,159,897 | ) | |||||||
| Loss per common share basic and diluted | $ | (2.21 | ) | $ | N/A | $ | N/A | $ | (2.27 | ) | ||||||||
| Weighted average shared used in computation - basic | 11,950,154 | N/A | N/A | 11,950,154 | ||||||||||||||
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
| 2 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 - Description of the Transaction
On November 24, 2021, Predictive Oncology Inc. (the “Company” or “Predictive”) entered into an Agreement and Plan of Merger (the “Agreement”) among the Company, a wholly owned subsidiary of the Company (the “Merger Sub”), zPREDICTA, Inc. (“zPREDICTA”), and a representative for certain parties who held interests in zPREDICTA. Also on November 24, 2021, the Company acquired zPREDICTA through the merger of Merger Sub with and into zPREDICTA, with zPREDICTA surviving as a wholly-owned subsidiary of the Company.
As consideration for the transaction, the stockholders and certain holders of interests in zPREDICTA as of immediately prior to the transaction collectively received consideration of approximately $10.0 million in cash, subject to adjustment for working capital. The Agreement contains customary and negotiated representations, warranties, and indemnity provisions. On the closing date, Julia Kirshner, the CEO of zPREDICTA, executed an employment agreement with the Company and became the President of the Company’s zPREDICTA division.
zPREDICTA, which is now a division of the Company, was founded in 2014 and develops tumor-specific in vitro models for oncology drug discovery and research. zPREDICTA’s mission is to accelerate the drug development process for its clients and partners by leveraging its team’s expertise in carcinogenesis, metastasis and the tumor microenvironment. zPREDICTA develops complex in vitro models that recapitulate the physiological environment of human tissue and thus provide a more clinically relevant testing platform than commonly-used alternatives.
Note 2 - Basis of Pro Forma presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with GAAP and pursuant to the rules and regulations of SEC Regulation S-X and present the pro forma financial position and results of operations of the combined companies based upon the historical data of Predictive and zPREDICTA. For the purposes of the unaudited pro forma combined financial information, the accounting policies of the Company and zPREDICTA are aligned with no significant differences.
Note 3 - Preliminary Purchase Price Allocations
| Fair value of the consideration | $ | 10,015,941 | (2) | ||
| Assets acquired: | |||||
| Cash & cash equivalents | 440,161 | ||||
| Accounts receivable | 76,189 | ||||
| Prepaid expenses | 31,267 | ||||
| Intangible assets | 6,300,000 | ||||
| Liabilities assumed: | |||||
| Accrued expenses | (412,314 | ) | |||
| Deferred revenue | (130,833 | ) | |||
| Goodwill | $ | 3,711,471 | (1) |
| 3 |
The purchase price allocation has been derived from estimates. The Company’s judgements used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed can materially affect the results of operations of the Combined Company. The total purchase price has been allocation on a preliminary basis to identifiable assets acquired and liabilities assumed based upon preliminary valuation studies and procedures performed to date. The estimated fair value and useful life for the intangible assets are (a) tradename $180,000 b) developed technology $4,880,000 and c) customer relationships $1,240,000 with useful lives of 6 years, 15 years and 5 years, respectively all using a straight-line method. As of the date of this filing, the valuation studies and procedures required to determine the fair value of the assets acquired, liabilities assumed, and the related allocations of purchase price are not complete. The final determination of the fair value of identifiable tangible and intangible assets acquired, and liabilities assumed may differ from the amounts reflected in the preliminary pro forma purchase price allocation and any differences could be material. Furthermore, the carrying values and, accordingly, fair values of zPREDICTA’s working capital accounts may differ as of the transaction date, as compared to the amounts reported as of September 30, 2021. The Company will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the transaction date.
(1) To reflect the goodwill recognized as a result of the transaction.
(2) The fair value of the consideration transferred in the transaction has two components totaling $10,015,941:
| (i) | Upon the transaction, all outstanding shares of zPREDICTA stock was purchased for cash. | ||
| (iii) | The Company repaid SAFE and KISS liabilities owed by zPREDICTA for cash of $630,456. |
Note 4 – Adjustments to Unaudited ProForma Condensed Combined Balance Sheet and Condensed Combined Statements of Net Loss
| a. | Adjustment records the cash purchase consideration paid to consummate the transaction including $1 million escrow funded. |
| b. | Adjustment to recognize the fair value of intangible assets acquired in the transaction at their fair values. Such intangibles are inclusive of trademark, customer relationships, and developed technology. |
| c. | Adjustment recorded to reflect the preliminary amount of goodwill resulting from the excess of purchase consideration paid over the fair value of the net assets acquired, as if the transaction occurred as of September 30, 2021. Refer to Note 3 for details regarding the allocation of purchase consideration and the calculation of Goodwill resulting from the transaction. The amount of Goodwill ultimately recognized in purchase price accounting as of November 24, 2021 transaction closing date will differ from amounts shown in the unaudited pro forma combined financial statements due to changes to certain of zPREDICTA’s reported current asset and liability balances subsequent to the date of the unaudited pro forma combined balance sheet. |
| d. | Adjustment to record liabilities for zPREDICTA’s transaction costs and other liabilities that were not incurred by zPREDICTA prior to September 30, 2021. These costs were not settled as of the transaction closing date. Also reflects the reclassification of a certain SAFE liability that was not settled as a part of the transaction. |
| e. | Adjustment represents the elimination of the liability related to SAFE and KISS notes for cash as a part of the transaction. |
| f. | Adjustment represents the removal of zPREDICTA’s historical share capital in connection with purchase accounting. |
| g. | Adjustment represents the removal of zPREDICTA’s historical additional paid in capital in connection with purchase accounting. |
| h. | Adjustments to give effect to the removal of zPREDICTA’s accumulated deficit of $397,757 |
| i. | Adjustments to give effect to additional transaction costs incurred by Predictive of $895,297. |
| j. | Adjustment to give effect to the amortization of intangibles acquired in the transaction for the nine months ended September 30, 2021. |
| k. | Adjustment to give effect to the employment contract entered into for Julia Kirshner as a part of the transaction for the nine months ended September 30, 2021. |
| l. | Adjustment to eliminate the fair value adjustment of the SAFE Liabilities for the nine months ended September 30, 2021. |
| m. | Adjustment to give effect to the amortization of intangibles acquired in the transaction for the twelve months ended December 31, 2021. |
| n. | Adjustment to give effect to the employment contract entered into for Julia Kirshner as a part of the transaction for the twelve months ended December 31, 2021. |
| o. | Adjustment to eliminate the fair value adjustment of the SAFE Liabilities for the twelve months ended December 31, 2021. |
4