Predictive Oncology Inc

NOTE 1–** SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Nature of Operations

Predictive Oncology Inc. (“Predictive Oncology”) is a knowledge and science-driven company that applies artificial intelligence (“AI”) to support the discovery and development of optimal cancer therapies, which can ultimately lead to more effective treatments and improved patient outcomes. The Company uses AI and a proprietary biobank of 150,000+ tumor samples, categorized by patient type, to provide actionable insights about drug compounds to improve the drug discovery process and increase the probability of drug compound success. The Company offers a suite of solutions for oncology drug development from early discovery to clinical trials.

Predictive Oncology’s mission is to change the landscape of oncology drug discovery and enable the development of more effective therapies for the treatment of cancer. By harnessing the power of machine learning and scientific rigor, the Company believes that it can improve the probability of success of advancing pharmaceutical and biological drug candidates with a higher degree of confidence.

The Company operates inthree business areas. In its first area, the Company provides optimized, high-confidence drug-response predictions through the application of AI using its proprietary biobank of tumor samples to enable a more informed selection of drug/tumor combinations and increase the probability of success during drug development. The Company also creates and develops tumor-specific 3D cell culture models mimicking the physiological environment of human tissue enabling better-informed decision-making during development. In its second business area, the Company provides services and research using a proprietary self-contained and automated system that conducts high-throughput, self-interaction chromatography screens using additives and excipients commonly included in protein formulations resulting in soluble and physically stable formulations of biologics. The Company’s third business area produces the United States Food and Drug Administration (“FDA”)-cleared STREAMWAY® System and associated products for automated medical fluid waste management and patient-to-drain medical fluid disposal. As of January 1, 2023, the Company changed its reportable segments to align with these business areas.

The Company has three reportable segments, which have been delineated by location and business area, as further described inNote 14–* Segments*:

Going Concern

The Company has incurred significant and recurring losses from operations for the past several years and, as of December 31, 2023, had an accumulated deficit of $167,761,883. The Company had cash and cash equivalents of $8,728,660 as of December 31, 2023 and needs to raise significant additional capital to meet its operating needs. The Company’s short-term obligations as of December 31, 2023 were $3,951,031, consisting primarily of aggregate accounts payable and accrued expenses of $2,973,729 and operating lease obligations of $517,427. As of December 31, 2023, the Company also had a short-term note payable of $150,408 that bears interest at an annual percentage rate of 9.25% and long-term operating lease obligations of $2,188,979 with a weighted average remaining lease term of 3.99 years. The Company does not expect to generate sufficient operating revenue to sustain its operations in the near term. During the year ended December 31, 2023, the Company incurred negative cash flows from operations of $13,189,390. Although the Company has attempted to improve its operating margin by bolstering revenues and curtailing expenses and continues to seek ways to generate revenue through business development activities, there is no guarantee that the Company will be able to improve its operating margin sufficiently or achieve profitability in the near term. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The Company is evaluating alternatives to obtain the required additional funding to maintain future operations. These alternatives may include, but are not limited to, equity financing, issuing debt, entering into other financing arrangements, or monetizing operating businesses or assets. These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s existing stockholders or that result in the Company’s existing stockholders losing part or all of their investment. Despite these potential sources of funding, the Company may be unable to access financing or obtain additional liquidity when needed or under acceptable terms, if at all. If such financing or adequate funds from operations are not available, the Company would be forced to limit our business activities and the Company could default on existing payment obligations, which would have a material adverse effect on its financial condition and results of operations, and may ultimately be required to cease its operations and liquidate its business. The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Reverse Stock Split

On April 19, 2023, the Company completed a one-for-twenty reverse stock split that was effective for trading purposes on April 24, 2023. All numbers of shares and per-share amounts in this report have been adjusted to reflect the reverse stock split (“Reverse Split”).

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.

Principles of Consolidation

The Company has two wholly owned subsidiaries, Helomics Corporation and Skyline Medical, Inc., as of and for the year ended December 31, 2023. The Company had multiple wholly owned subsidiaries for the year ended December 31, 2022. The consolidated financial statements include the accounts of the Company and these wholly owned subsidiaries after elimination of intercompany transactions and balances as of and for the years ended December 31, 2023, and 2022.

Reclassifications

Certain reclassifications have been made to the prior year’s 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.

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 consolidated financial statements of the Company.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU updates reportable segment disclosures by expanding the frequency and extent of segment disclosures. This ASU will become effective for the Company’s fiscal year beginning January 1, 2024, and for the Company’s interim periods beginning in the Company’s fiscal year 2025. Early adoption is permitted and requires the retrospective adoption method. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.

Recently Adopted Accounting Standards

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. The Company adopted the provisions of ASU 2016-13 on January 1, 2023, using the modified-retrospective approach, and its adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. As a smaller reporting company pursuant to Rule12b-2 of the Securities Exchange Act of1934, as amended, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those annual periods. Early adoption is permitted, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company early adopted ASU 2020-06 on January 1, 2023, and its adoption did not have a material impact on the Company’s financial statements.

In September 2022, the FASB issued ASU 2022-04, “Liabilities – Supplier Finance Programs” (“ASU 2022-04”). ASU 2022-04 was issued to enhance the transparency of supplier finance programs used by an entity in connection with the purchase of goods and services. The standard requires entities that use supplier finance programs to disclose the key terms, including a description of payment terms, the confirmed amount outstanding under the program at the end of each reporting period, a description of where those obligations are presented on the balance sheet, and an annual rollforward, including the amount of obligations confirmed and the amount paid during the period. The guidance does not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the required rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2022-04 on January 1, 2023, using the retrospective approach, and its adoption did not have a material impact on the Company’s financial statements.

Cash

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 consolidated balance sheets include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. An allowance is maintained to provide for the estimated amount of receivables that will not be collected. The Company determines the allowance based on historical experience as well as external business factors expected to impact collectability such as economic factors. The Company reviews customers’ credit history before extending unsecured credit and establishes an allowance 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 accounts receivable balance was $0 as of both December 31, 2023, and 2022.

Fair Value Measurements

As outlined in 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 in making fair value measurements, when available. Fair value measurements are classified according to the lowest level input that is significant to the valuation.

The fair values of the Company’s derivative liabilities 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. SeeNote 2–* Fair Value Measurementsand Note 8*–* Derivatives*.

When comparing the carrying amount of an asset group to its fair value as part of a long-lived asset impairment analysis, the Company estimates the fair value of the asset group by making assumptions about the long-lived assets comprising the asset group. The majority of the inputs used by the Company to estimate the fair value of the long-lived assets are unobservable and thus are considered to be Level 3 inputs. SeeNote 4–* Property and Equipment* andNote 5–* Intangible Assets*.

When performing quantitative testing related to goodwill impairment analysis, the Company 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. The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. SeeNote 5–* Intangible Assets*.

Inventories

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

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment 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:

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

Finite-lived Intangible Assets

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

Long-lived Assets

The Company reviews long-lived 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 recoverability of an asset to be held and used is determined by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, the Company records an impairment charge in the amount by which the carrying amount of the asset exceeds its fair value, which is determined by either a quoted market price, if any, or a value determined utilizing discounted cash flow techniques.

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, the Company performs a multi-step impairment test, either on an annual basis, or more frequently if needed. 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 ASC 350, 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 fair value, 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. SeeNote 5–* Intangible Assets*.

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 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 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. Variable lease payments generally represent the Company’s share of the landlord’s expenses and are recorded when incurred. 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.

Collaboration Arrangements

The Company enters into collaboration arrangements with oncology drug development partners, under which the Company utilizes its active learning technology, proprietary biobank, and know-how to provide predictive models of tumor responses to various drug compounds and treatments of partners. Consideration under these contracts may include an upfront payment, development and regulatory milestones and other contingent payments, expense reimbursements, royalties based on net sales of approved drugs, and commercial sales milestone payments.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808,Collaborative Arrangements, which includes determining whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. To the extent that the arrangement falls within the scope of ASC 808, the Company assesses whether the payments between the Company and its collaboration partner fall within the scope of other accounting literature. If the Company concludes that payments from the collaboration partner to the Company would represent consideration from a customer, the Company accounts for those payments within the scope of Accounting Standards Codification (“ASC”) 606,Revenue from Contracts with Customers. However, if the Company concludes that its collaboration partner is not a customer for certain activities and associated payments, the Company presents such payments as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense.

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. The Company recognizes revenue in accordance with the five-step process outlined in ASC 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Sales taxes are imposed on the Company’s sales to nonexempt customers. The Company collects the taxes from the customers and remits the entire amount to the governmental authorities. Sales taxes are excluded from revenue and expenses. Advertising costs incurred in the Company’s efforts to obtain new customers are expensed as incurred.

Revenues from Services

The Company generates revenues from Contract Research Organization (“CRO”) services related to the development of 3D tumor-specific in vitro models for oncology drug discovery and research. The organ-specific disease models provide 3D reconstruction of human tissues accurately representing each disease state and mimicking drug response. Revenue from development of 3D models is reported under the Pittsburgh reportable segment.

The Company also generates revenues from CRO services related to development of protein formulations and performance of protein stability analyses. Using the Company’s proprietary High Throughput Self-Interaction Chromatography (“HSC”) platform, the Company conducts screens on excipients previously approved by the FDA to develop protein formulations with increased solubility and physical stability. The Company also provides comprehensive protein stability analyses via time-dependent shelf-life studies and forced degradation studies designed to quickly determine which of the additives previously approved by the FDA will improve the solubility and stability of proteins in solutions. Revenues from development of protein formulations and performance of protein stability analyses are reported under the Birmingham reportable segment.

The specific pattern of revenue recognition for CRO services is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. The Company may execute a master service agreement with a customer that provides terms and conditions for the relationship between the Company and the customer. Detailed Statements of Work (SOWs) are then prepared to outline the specific services to be provided. The SOW and master service agreement, if applicable, form the contract with the customer under ASC 606. The Company evaluates each product or service promised in a contract to determine whether it represents a distinct performance obligation. Determining whether services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Contracts for CRO services generally contain one performance obligation to perform research and deliver appropriate data or reporting. The Company typically requires partial payment for CRO services prior to performance of the research service with the remainder of the transaction price due 30 days after delivery of data or reporting. Revenues from CRO services are generally recognized at the point in time when data and reports are provided to customers.

The Company also generates revenues from services provided under maintenance plans related to the Company’s STREAMWAY System. Customers may purchase maintenance plans, which require the Company to service the customer’s STREAMWAY System for a period of one year. Payment due under the maintenance plan is typically due at the start of the service period. The maintenance plan is considered a separate performance obligation from the sale of the STREAMWAY System, 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 toward complete satisfaction of the performance obligation 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. Revenues from maintenance plans related to the Company’s STREAMWAY System are reported under the Eagan reportable segment.

Revenues from Product Sales

The Company generates revenues from the sale of medical device products consisting primarily of sales of the STREAMWAY System (i.e., hardware), as well as sales of the proprietary cleaning fluid and filters for use with the STREAMWAY System (i.e., disposables). Currently, the Company sells its medical device products directly to hospitals and other medical facilities using employed sales representatives. 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 sales agreement is a dually executed agreement providing explicit terms and conditions supporting the sale of the STREAMWAY System and related products and services. The Company considers the combination of a purchase order and sales agreement providing its terms and conditions to form the contract with the customer in all cases.

Product sales for medical devices consist of a single performance obligation that the Company satisfies at a point in time following the transfer of control of such products to the customer. Transfer of control may occur when products are shipped from the Company’s facilities (“FOB origin”, which is the Company’s standard shipping terms) or upon delivery at the customer’s facilities (“FOB Destination”), dependent on the shipping terms specified in the contract with the customer. Transfer of control may also occur prior to shipment under bill and hold arrangements. In such arrangements, the Company recognizes revenue when the bill-and-hold arrangement has a substantive reason, the product is identified separately as belonging to the customer, the product is ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer. The Company’s standard payment terms for its customers purchasing medical devices 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. 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. Revenues from the sale of medical device products are reported under the Eagan reportable segment.

Royalty Revenue and Variable Consideration

The Company has a collaboration arrangement that includes sales-based royalties, under which our collaboration partner is obligated to pay revenue sharing fees that are based on the net sales of the collaboration partner’s commercialized drugs. The Company would recognize royalty revenue when the underlying sales occur based on its best estimate of sales of the drugs. To date, the Company has not recognized revenues related to revenue sharing fees pursuant to its collaboration arrangement. SeeNote 11–* Collaboration Agreement*.

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. As of December 31, 2023, and 2022, accounts receivable totaled $333,697 and $331,196, respectively. As of December 31, 2021, accounts receivable totaled $354,196.

Advance payments received in excess of revenues recognized are classified as contract liabilities until such time as the revenue recognition criteria have been met. The Company’s contract liabilities related primarily to 3D services and maintenance plans were $313,550 and $602,073 as of December 31, 2023, and 2022, respectively. The Company’s long-term contract liabilities are reported in Other long-term liabilities in the consolidated balance sheets. The Company's contract liabilities as of December 31, 2023 primarily represent its remaining performance obligations. The Company recognized revenue of $277,767 primarily related to 3D services earned during the year ended December 31, 2023, that was included in contract liabilities as of December 31, 2022. As of December 31, 2021, contract liabilities totaled $186,951.

Practical Expedients

The Company has elected not to determine whether contracts with customers contain significant financing components as contracts are generally for less than one year. The Company immediately expenses contract costs that would otherwise be capitalized and amortized over a period of less than one year. The Company recognizes shipping and handling costs at point of sale.

Stock-Based Compensation

The Company accounts for stock-based compensation expense in accordance with ASC 718,Compensation—Stock Compensation, which requires the Company to measure and recognize compensation expense in the financial statements based on the fair value at the date of grant for stock-based awards. The Company recognizes compensation expense for service-based equity-classified awards over their requisite service period and adjusts for forfeitures as they occur.

ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model which requires the input of significant assumptions including an estimate of the average period of time employees and directors will retain vested stock options before exercising them, the estimated volatility of the Company’s common stock price over the expected term, and the risk-free interest rate.

When an option or warrant is granted in place of cash compensation for services, the Company deems the value of the service rendered to be the value of the option or warrant. In most cases, however, an option or warrant is granted in addition to other forms of compensation and its separate value is difficult to determine without utilizing an option pricing model. For that reason the Company also uses the Black-Scholes option-pricing model to value options and warrants granted to non-employees, which requires the input of significant assumptions including an estimate of the average period that investors or consultants will retain vested stock options and warrants before exercising them, the estimated volatility of the Company’s common stock price over the expected term, and the risk-free interest rate. In the case of options granted to employees, the Company estimates the life to be the legal term.

The Company also has certain awards which vest upon a combination of the satisfaction of service-based and performance-based conditions. The performance-based conditions generally are satisfied upon achieving specified performance targets, such as financial or operating metrics, and/or market performance of the Company’s common stock. For performance-based awards, the Company generally recognizes expense over the requisite service period unless there is a compelling reason to make it shorter and when performance-based conditions are considered probable to be satisfied. For market-based awards, the Company determines the grant-date fair value utilizing a Monte Carlo valuation model, which incorporates various assumptions including stock price volatility, expected term and risk-free interest rates.

Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognizes that. The Company’s common stock has been traded on the NASDAQ Capital Market exchange since 2015 and the Company has experienced significant volatility in its stock price. The assumptions used in calculating the fair value of stock-based payment awards represent the Company’s best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future.

On January 1, 2023, the Company adopted a sequencing policy under ASC 815-40-35 (“ASC 815”) that will apply if reclassification of contracts from equity to liabilities is necessary. If the Company is unable to demonstrate it has sufficient authorized shares, shares will be allocated based on the earliest issuance date of potentially dilutive financial instruments, with the earliest financial instruments receiving the first allocation of shares. Pursuant to ASC 815, stock-based awards issued to the Company’s employees are not subject to the sequencing policy.

Research and Development

Research and development costs are charged to operations as incurred. Research and development costs, included within operations expense in the accompanying consolidated statements of net loss were $188,305 and $320,320 for the years ended December 31, 2023, and 2022, respectively.

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.

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 identifiedno income tax uncertainties.

Under Internal Revenue Code Section 382, certain stock transactions that 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. Consequently, the Company performed a Section 382 analysis at December 31, 2023, which resulted in the limitation and expiration of a substantial portion of the Company’s loss carryforwards. In addition, the current net operating loss (“NOL”) carryforwards might be further limited by future issuances of our common stock. SeeNote 10–* Income Taxes*.

Tax years after 2003 remain open to examination by federal and state tax authorities due to unexpired net operating loss carryforwards.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with financial institutions and, by policy, generally limits the amount of credit exposure to any one financial institution. As of December 31, 2023, the Company had $142,118 of credit risk for cash amounts held in a single institution that are in excess of amounts insured 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.

The Company is also subject to general economic and geopolitical uncertainties caused by inflation, rising interest rates, supply chain disruptions, tight labor markets, wage inflation, pricing volatility for certain goods and services, banking and financial sector disruptions, instability and volatility in the global markets, disruptions from a global pandemic, and geopolitical conflict. The impacts of economic and other global events could have a material adverse effect on our business, results of operations, liquidity or financial condition and heighten or exacerbate risks related to the Company.

The Company has evaluated all its activities and concluded that no other subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as described above and inNote 15–* Subsequent Events*.

NOTE 2–** FAIR VALUE MEASUREMENTS**

The following table summarizes the Company’s fair value hierarchy for its liabilities measured at fair value on a recurring basis:

NOTE 3–** INVENTORIES**

Inventory balances consist of the following:

NOTE 4–** PROPERTY AND EQUIPMENT**

The Company’s property and equipment consist of the following:

In the second quarter of 2023, the Company identified a change in future projected cash flows related to its Birmingham asset group. The Company prepared an undiscounted cash flow for its Birmingham asset group as of June 30, 2023, as required under ASC 360 and determined the carrying amount of the asset group exceeded its estimated undiscounted future cash flows. The Company determined the fair value of the Birmingham asset group using replacement cost and market approaches based on the in-exchange value. The Company recognized an impairment loss of $162,905 of its property and equipment in the Birmingham operating segment during the second quarter of 2023.

In the fourth quarter of 2022, the Company identified a change in its future projected cash flows related to certain of its asset groups. The Company prepared an undiscounted cash flow for the asset groups as of December 31, 2022, as required under ASC 360 and determined the carrying amounts exceeded the estimated undiscounted future cash flows for those asset groups. The Company determined the fair value of the asset groups and recognized an impairment loss of $185,469 of its property and equipment in the Birmingham and Corporate asset groups during the fourth quarter of 2022. The Company also concluded that the finite-lived intangible assets of its former zPREDICTA asset group, which is now reported within the Pittsburgh operating segment, were fully impaired as of December 31, 2022, and recognized an impairment loss on those finite-lived intangible assets during the fourth quarter of 2022. SeeNote 5–Intangible Assets.

Depreciation expense was $711,890 and $898,369 in 2023 and 2022, respectively.

NOTE 5–** INTANGIBLE ASSETS**

Finite-lived Intangible Assets

Finite-lived intangible assets consist of patents and trademarks, developed technology, customer relationships, and tradenames, and are amortized over their estimated useful life. Amortization expense was $27,426 and $414,706 in 2023 and 2022, respectively. Accumulated amortization is included in intangibles, net in the accompanying consolidated balance sheets. The Company reviews finite-lived intangible assets for impairment in accordance with ASC 360, 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.

As of December 31, 2023, there were $252,457 in net intangibles as compared to $253,865 in net intangibles as of December 31, 2022.

The components of intangible assets were as follows:

The following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2023:

No impairment charges related to finite-lived intangible assets were incurred during the year ended December 31, 2023.

In the fourth quarter of 2022, the Company identified a change in its future projected cash flows related to certain of its asset groups. The Company prepared an undiscounted cash flow for these asset groups as of December 31, 2022 as required under ASC 360 and determined the carrying amounts exceeded the estimated undiscounted future cash flows for those asset groups. The Company determined the fair value of the asset groups and concluded that the finite-lived intangible assets of its former zPREDICTA asset group, which is now reported within the Pittsburgh operating segment, were fully impaired as of December 31, 2022, and recognized an impairment loss of $3,349,375 on those finite-lived intangible assets during the fourth quarter of 2022. The Company also recognized an impairment loss on its property and equipment in the Soluble and Corporate asset groups during the fourth quarter of 2022. SeeNote 4–* Property and Equipment*.

Goodwill

Goodwill of $7,231,093 was recognized in the zPREDICTA acquisition in 2021 and represented the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed. During the second quarter of 2022, 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 June 30, 2022, the Company performed a quantitative impairment test, including computing the fair value of the former zPREDICTA 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 fully impaired as of June 30, 2022. When evaluating the fair value of the former zPREDICTA 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) and (b) an estimated terminal value using a terminal year growth rate of 4.0% determined based on the growth prospects of the reporting unit. The Company further used a probability weighting of various forecasts to address forecast risk. The Company used an estimated discount rate of 65% based on management’s best estimate and considering the Company’s current market capitalization. The majority of the inputs used in the discounted cash flow model were unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization calculation were considered Level 1 inputs. zPREDICTA Inc. was merged with Predictive Oncology Inc. at the end of 2022 and is now reported as part of the Pittsburgh operating segment.

The following tables present changes in the carrying value of goodwill on our consolidated balance sheet:

NOTE 6–** LEASES**

The Company’s corporate offices and other offices are in Pittsburgh, Pennsylvania. Upon expiration of previous leases for office space and laboratory operations, the Company entered two new leases for office space and laboratory operations on January 4, 2023. The leases each have an approximate five-year term ending February 29, 2028, and the Company recorded corresponding right of use (“ROU”) assets and liabilities of $2,922,365.

The Company has an additional office in Birmingham, Alabama, which is used for office space and laboratory operations. The lease is effective through August 31, 2025.

The Company has an office in Eagan, Minnesota, which is used for office space and manufacturing. Since July 31, 2022, the lease was month-to-month tenancy. On June 1, 2023, the lease was amended fortwo additional years until May 31, 2025 and the Company recorded a corresponding ROU asset and liability of $74,816.

Lease expense under operating lease arrangements was $892,993 and $746,590 for 2023 and 2022, respectively.

The following table summarizes other information related to the Company’s operating leases:

The Company’s operating lease obligation as of December 31, 2023, which includes expected lease extensions that are reasonably certain of renewal, are as follows:

NOTE 7–** NOTE PAYABLE**

In June 2023, the Company purchased Directors and Officers insurance policies with a policy period ending June 2024. In July 2023, the Company financed $364,721 of its total premium by entering into a note payable with a finance provider that requires ten monthly installment payments through April 2024. The note is secured by a first priority lien on the financed policies. The short-term note bears interest at an annual percentage rate of 9.25% over the life of the note. As of December 31, 2023, the outstanding balance of the note was $150,408 including interest.

NOTE 8–** DERIVATIVES**

Certain warrants issued to placement agents were determined to be a derivative liability due to certain features of the warrants which could, in certain circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants were classified as a liability.

The fair value of the placement agent warrants issued in connection with the March 2020 private placement was determined to be $135 and $3,355 as of December 31, 2023, and December 31, 2022, respectively. The Company recorded gains on the change in fair value of the placement agent warrants of $3,220 and $37,981 during the year ended December 31, 2023, and December 31, 2022, respectively. The placement agent warrants expire in March 2025.

The fair value of the placement agent warrants issued in connection with the May 2020 offering of securities was determined to be $333 and $4,479 as of December 31, 2023, and December 31, 2022, respectively. The Company recorded gains on the change in fair value of the placement agent warrants of $4,146 and $38,167 during the year ended December 31, 2023, and December 31, 2022, respectively. The placement agent warrants expire in May 2025.

The placement agent warrants issued in connection with the June 2020 warrant exercise and issuance had a fair value of $908 and $5,999 as of December 31, 2023, and December 31, 2022, respectively. The Company recorded gains on the change in fair value of the placement agent warrants of $5,091 and $39,499 during the year ended December 31, 2023, and December 31, 2022, respectively. The placement agent warrants expire in June 2025.

The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.

NOTE 9–** STOCKHOLDERS**’** EQUITY, STOCK OPTIONS AND WARRANTS**

Series F Preferred Stock Dividend and Reverse Stock Split

On March 16, 2023, the Board of Directors of the Company authorized the issuance of 80,000 shares of Series F Preferred Stock, par value $0.01 per share.

On March 16, 2023, the Board of Directors of the Company declared a dividend ofone one-thousandth of a share of Series F Preferred Stock, par value $0.01 per share, for each outstanding share of the Company’s common stock held on record as of March 27, 2023.79,404 shares of Series F Preferred Stock were issued pursuant to the stock dividend. Each share of Series F Preferred Stock entitled the holder thereof to 1,000,000 votes per share to vote together with the outstanding shares of common stock of the Company as a single class to adopt an amendment to the Company’s Certificate of Incorporation to affect a reverse stock split.

On April 19, 2023, the Company completed a one-for-twenty reverse stock split that was effective for trading purposes on April 24, 2023. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would otherwise have resulted from the reverse stock split were rounded up to the next whole number. The number of authorized shares of common stock under the Company’s certificate of incorporation, as amended, remained unchanged at 200,000,000 shares. All numbers of shares and per-share amounts in this report have been adjusted to reflect the reverse split. Proportionate reductions were made to the number of shares of common stock reserved for future issuance under our 2012 Equity Incentive Plan and the number of shares of common stock that may be issued upon exercise or vesting of outstanding equity incentive awards and warrants, and proportionate increases were made to the exercise price or share-based performance criteria, if any, applicable to such awards and warrants.

Redemption of Series F Preferred Stock

On April 17, 2023, the Company convened a special meeting of stockholders, which was adjourned due to the lack of a quorum and reconvened on April 19, 2023 (the “Special Meeting”), at which the Company’s stockholders approved a proposal to amend the Company’s certificate of incorporation to effect a reverse stock split of the Company’s common stock at a ratio in the range of 1-for-2 to 1-for-25, with such ratio to be determined by the Company’s Board of Directors (the “Reverse Split Proposal”). All shares of Series F Preferred Stock that were not present in person or by proxy at the Special Meeting as of immediately prior to the opening of the polls (the “Initial Redemption Time”) were automatically redeemed (the “Initial Redemption”). All outstanding shares of Series F Preferred Stock that were not redeemed pursuant to the Initial Redemption were redeemed automatically upon the approval by the Company’s stockholders of the Reverse Split Proposal (the “Subsequent Redemption” and, together with the Initial Redemption, the “Redemption”). Both the Initial Redemption and the Subsequent Redemption occurred on April 19, 2023. As a result, no shares of Series F Preferred Stock remain outstanding.

May 2022 Offerings

On May 16, 2022, the Company issued and sold an aggregate of 191,864 shares of its common stock, at a purchase price of $12.00 per share to several institutional and accredited investors in a registered direct offering (the “First Offering”). Pursuant to the securities purchase agreement, the Company also agreed to issue to these purchasers unregistered warrants to purchase up to an aggregate of 191,864 shares of common stock (the “Warrants”) in a concurrent private placement. The Warrants have an exercise price equal to $14.00 per share, will become exercisable six months from the date of issuance, and will expire five and one-half years from the date of issuance.

In addition, in a concurrent registered direct offering (the “Second Offering”), on May 16, 2022, the Company issued and sold to several institutional and accredited investors an aggregate of 408,136 shares of its common stock, at a purchase price of $12.00 per share. The Company also entered into a warrant amendment agreement (the “Warrant Amendment”) with each of the purchasers in the Second Offering. Under the Warrant Amendment, the Company agreed to amend certain existing warrants to purchase up to 816,272 shares of common stock that were previously issued in 2020 and 2021 to those purchasers, with exercise prices ranging from $20.00 to $40.00 per share (the “Existing Warrants”), were amended to: (i) lower the exercise price of the Existing Warrants to $14.00 per share, (ii) provide that the Existing Warrants, as amended, will not be exercisable until six months following the closing date of the Second Offering, and (iii) extend the original expiration date of the Existing Warrants byfive and one-half years following the close of the Second Offering.

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 provided the placement agent expense allowance of $65,000 for non-accountable and other 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, or $15.00 per share, with a term of five years (the “Agent Warrants”). The Agent Warrants become exercisable six months after issuance.

Equity Line

On October 24, 2019, the Company entered into an equity purchase agreement with an investor, providing for an equity financing facility. According to the terms and subject to the conditions in the purchase agreement, the investor was 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 5,233 commitment shares at a fair market value of $450,000 for entering into the agreement. From time to time during thethree-year commitment period, provided that the closing conditions were satisfied, the Company could 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. During the year ended December 31, 2022, the Company issued 15,750 shares of its common stock valued at $236,009 pursuant to the equity line. In connection with the May 2022 offerings, the Company agreed not to access the remaining balance for a period of one year after the closing date, or May 18, 2022. The equity line expired on October 23, 2022.

Series B Convertible Preferred Stock

As of December 31, 2023, and December 31, 2022, there were 79,246 shares of Series B Convertible Preferred Stock outstanding. The conversion rate of Series B Convertible Preferred Stock to Common Stock is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations, or similar events. The 79,246 shares of Series B Convertible Preferred Stock outstanding at December 31, 2023 were convertible to 16 shares of common stock. In addition, the Series B Convertible Preferred Stock will automatically convert into shares of common stock upon the occurrence of a fundamental transaction, as described in the certificate of designations for the Series B Convertible Preferred Stock including mergers, sales of the company’s assets, changes in control and similar transactions. The Series B Convertible Preferred Stock is not convertible by the holder of such preferred stock to the extent (and only to the extent) that the holder or any of its affiliates would beneficially own in excess of 4.99% of the common stock of the Company. The Series B Convertible Preferred Stock has no voting rights, except for the right to approve certain amendments to the certificate of designations or similar actions. With respect to payment of dividends and distribution of assets upon liquidation or dissolution or winding up of the Company, the Series B Convertible Preferred Stock shall rank equal to the common stock of the Company. No sinking fund has been established for the retirement or redemption of the Series B Convertible Preferred Stock.

Equity Incentive Plan

The Company’s Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) allows for the issuance of incentive and non-qualified stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units (“RSUs”) and performance awards 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 tothree years. Options outstanding under this plan have a contractual life often years.

On December 1, 2022, during the 2022 annual meeting of stockholders (the “Annual Meeting”), the stockholders approved a proposal to increase the reserve shares of common stock authorized for issuance under the Amended and Restated 2012 Stock Incentive Plan by 162,500 to 287,500 reserve shares.

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 cost 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.

During the year ended December 31, 2021, the Company issued 22,500 RSUs under the plan which had market, performance, and service vesting conditions through January 1, 2024.16,667 RSUs became vested during the year ended December 31, 2022. At December 31, 2022, there were 4,167 RSUs outstanding under the plan. At December 31, 2023, there wereno RSUs outstanding under the plan.

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. SeeNote 1–* Summary of Significant Accounting Policies*.

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:

Stock Options and Warrants Granted by the Company

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

At December 31, 2023,46,814 stock options were fully vested and currently exercisable with a weighted average exercise price of $83.61 and a weighted average remaining term of 5.56 years. At December 31, 2023, there were 1,806,589 warrants that were fully vested and currently exercisable.

At December 31, 2022,47,682 stock options were fully vested and exercisable with a weighted average exercise price of $93.80 and a weighted average remaining term of 6.54 years. At December 31, 2022, there were 1,816,437 warrants that were fully vested and currently exercisable.

Stock-based compensation recognized in 2023 and 2022 was $2,038 and $108,596, respectively. The Company has $1,644 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over the next 16 months.

The following summarizes the status of options and warrants outstanding at December 31, 2023:

Stock options and warrants expire on various dates from February 2024 to July 2033.

The following table is the listing of outstanding stock options and warrants as of December 31, 2023 by year of grant:

Stock Options:

Warrants:

NOTE 10–** 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.

The Company incurred zero income tax expense during the years ended December 31, 2023, and December 31, 2022, due to losses in both years.

Actual income tax benefit differs from statutory federal income tax benefit as follows:

Deferred taxes consist of the following:

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 NOL carryforwards and other deferred tax assets. As such, the Company has determined that it is more likely than not that it will not realize its deferred tax assets.

Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

During the year-ended December 31, 2023, the Company completed an assessment of the available NOL and tax credit carryforwards under Section 382 and 383 and determined that the Company underwent several ownership changes during the period from 2008 to 2022. The Company has adjusted its NOL and tax credit carryforwards to reflect the limitations resulting from the identified ownership changes. The Company reduced its available gross federal and state NOL carryforwards by $237,816,096 and $178,311,455, respectively, and recorded a reduction of $49,941,380 and $7,344,800, respectively, to the federal and state deferred tax asset, each of which related to losses generated for the years ended December 31, 2022, and prior. Accordingly, the NOL and tax credit carryforwards presented above for the year ended December 31, 2023, were reduced by $57,446,259, with a corresponding reduction to the valuation allowance. The Company has recorded the adjustments noted above in 2023 as an out-of-period adjustment and concluded that the adjustments were not material to the 2022 consolidated financial statements and evaluated the recording of this prior year item in the current period and concluded that the net accounting impact is not material to the 2023 consolidated financial statements.

As of December 31, 2023, the Company had $86,840,808 of NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2024, subject to the Section 382 limitation described above. The federal NOLs of $43,354,286 begin to expire in 2024 if unused and $43,486,522 will carry forward indefinitely. The Company also had $59,425,348 of NOLs to reduce future state taxable income as of December 31, 2023. The state NOLs will begin to expire in 2024 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. As of December 31, 2023, the federal and state valuation allowances were $20,558,729 and $3,979,630, respectively.

As of December 31, 2022, prior to the Section 382 analysis, the Company had $316,548,085 of NOLs to reduce future federal taxable income, the majority of which were expected to be available for use in 2023. The federal NOLs of $254,897,407 were to begin to expire in 2023 if unused and $60,829,929 were to carry forward indefinitely. Prior to the Section 382 state analysis, the Company also had $232,097,127 of NOLs to reduce future state taxable income at December 31, 2022. As of December 31, 2022, the federal and state valuation allowances were $66,733,005 and $14,190,055, respectively.

Tax years after 2003 remain open to examination by federal and state tax authorities due to unexpired NOL carryforwards.

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 identifiedno income tax uncertainties. Due to the existence of the valuation allowance, changes in the Company’s unrecognized tax benefits are not expected to impact the Company’s effective tax rate.

The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. As of December 31, 2023, and 2022, the Company recorded no accrued interest or penalties related to uncertain tax positions.

NOTE 11–** COLLABORATIVE AGREEMENT**

Collaborative Agreement with Cancer Research Horizons

On March 16, 2023, the Company entered into a Collaboration Agreement (the “CRH Agreement”) with Cancer Research Horizons (“CRH”), pursuant to which the Company will use its PEDAL technology to evaluate CRH pre-clinical drug inhibitors of Glutaminase to determine which cancer types and patient populations are most likely to respond to treatment with these compounds (the “Project”). Under the CRH Agreement, both parties will retain rights to their respective background intellectual property. Rights to reports, findings, supporting data, and materials (“Project Intellectual Property”) that are generated by the Company pursuant to its performance under the CRH Agreement vest exclusively in CRH. Each party funds its own participation in the Project. Costs incurred to participate in the CRH Agreement are recorded in Cost of Sales in the Company’s consolidated Statements of Net Loss.

Pursuant to the CRH Agreement, the Company shall receive a percentage of net revenue, as defined in the agreement, received by CRH for the commercialization of the CRH Candidates and any CRH Derivatives. The percentage of net revenue varies depending on the stage of development. The revenue sharing fees represent variable consideration, which is measured using the expected value method under ASC 606 based on the actual net revenues earned by CRH under Relevant Transfer Agreements relating to the CRH Candidates and CRH Derivatives. Due to the uncertainty associated with the timing and amount of revenue sharing fees, the Company concluded that the revenue sharing fees should be fully constrained until such time that Relevant Transfer Agreements have been entered and net revenues have been earned. These estimates will be reassessed at each reporting period. During the year ended December 31, 2023, the Company recognized no revenue under the CRH Agreement.

NOTE 12–** 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 2023 and 2022, the Company matched 100% of the employee’s contribution up to 4.0% of their earnings. Employer contributions were $192,499 and $99,924 in 2023 and 2022, respectively. There wereno discretionary contributions to the plan in 2023 and 2022.

NOTE 13–** LOSS PER SHARE**

The following table presents the shares used in the basic and diluted loss per common share computations:

(1) The following is a summary of the number of underlying shares outstanding at the end of the respective periods that have been excluded from the diluted calculations because the effect on loss per common share would have been anti-dilutive:

NOTE 14–** SEGMENTS**

The Company has determined its operating segments in accordance with ASC 280 – Segment Reporting. Factors used to determine the Company’s reportable segments include the availability of separate financial statements, the existence of locally based leadership across geographic regions, the economic factors affecting each segment, and the evaluation of operating results at the segment level. The Chief Operating Decision Maker (“CODM”) allocates the Company’s resources for each of the operating segments and evaluates their relative performance. Each operating segment listed below has separate financial statements and locally based leadership that are evaluated based on the results of their respective segments. It should be noted that the operating segments below have different products and services. The financial information is consolidated and evaluated regularly by the CODM in assessing performance and allocating resources. As of January 1, 2023, the Company changed its reportable segments to align with its business areas. The Company has retrospectively revised the reported segment information for all periods presented for consistency.

The Company hasthree reportable segments, which have been delineated by location and business area:

See discussion of revenue recognition inNote 1–* Summary of Significant Accounting Policies* for a description of the products and services recognized in each segment. The segment revenues and segment net losses for the year ended December 31, 2023, and 2022 are included in the table below. All revenues are earned from external customers.

The tables below summarize the Company’s segment reporting as of and for years ended December 31, 2023, and 2022.

In each of the years ended December 31, 2023, and 2022, substantially all the Company revenues were located or derived from operations in the United States. As of December 31, 2023, all the Company’s long-lived assets were located within the United States. During the year ended December 31, 2023, revenues of $489,921 reported in the Company’s Pittsburgh segment were attributable to a single customer. As of December 31, 2023, accounts receivable due from this customer was $52,072.

NOTE 15–** SUBSEQUENT EVENTS**

Departure of Chief Business Officer

On February 2, 2024, the Company and Pamela Bush, Ph.D., MBA, the Company’s Chief Business Officer, agreed that Dr. Bush would leave the Company effective February 15, 2024. In accordance with her Employment Agreement, the Company and Ms. Bush entered into a Separation Agreement and Mutual Release whereby the Company agreed to pay a separation benefit of $410,000 over the subsequent twelve months.