NOTE

— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Continuance of Operations

Predictive Oncology Inc., (the “Company” or “Predictive”) was originally incorporated on

April 23, 2002

in Minnesota as BioDrain Medical, Inc. Effective

August 6, 2013,

the Company changed its name to Skyline Medical Inc. Pursuant to an Agreement and Plan of Merger effective

December 16, 2013,

the Company merged with and into a Delaware corporation with the same name that was its wholly-owned subsidiary, with such Delaware corporation as the surviving corporation of the merger. On

August 31, 2015,

the Company completed a successful offering and concurrent uplisting to the NASDAQ Capital Market. On

February 1, 2018,

the Company filed with the Secretary of State of Delaware a Certificate of Amendment to its Certificate of Incorporation to change the corporate name from Skyline Medical Inc. to Precision Therapeutics Inc., effective

February 1, 2018.

Because of this change, the Company’s common stock traded under the ticker symbol “AIPT,” effective

February 2, 2018.

June 10, 2019,

the Company filed with the Secretary of State of Delaware a Certificate of Amendment to its Certificate of Incorporation to change the corporate name from Precision Therapeutics Inc. to Predictive Oncology Inc., trading under the new ticker symbol “POAI,” effective

June 13, 2019.

Skyline Medical Inc. remains as an incorporated division of Predictive Oncology Inc. On

October 28, 2019,

the Company completed a

one

-for-

ten

reverse stock split that was effective for trading purposes on

October 29, 2019.

All numbers of shares and per-share amounts have been adjusted to reflect the reverse stock split.

The Company is a healthcare company that provides personalized medicine solution and medical devices in

two

main areas: (

) precision medicine, which aims to apply artificial intelligence (“AI “) to personalized medicine and drug discovery; and (

) an environmentally safe system for the collection and disposal of infectious fluids that result from surgical procedures and post-operative care. The Company also makes ongoing sales of proprietary cleaning fluid and filters to users of its systems.

In addition, the Company’s wholly-owned subsidiary, TumorGenesis Inc. (“TumorGenesis”), is developing the next generation, patient-derived tumor models for precision cancer therapy and drug development. TumorGenesis Inc., formed during the

first

quarter of

2018,

is presented as part of the consolidated financial statements (“financial statements”) and is included in corporate in the Company’s segment reporting.

During the

first

quarter of

2018,

the Company acquired

25%

of the capital stock of Helomics Holding Corporation (“Helomics”). On

April 4, 2019,

the Company completed a forward triangular merger with Helomics Acquisition Inc., a wholly-owned subsidiary of the Company and Helomics, acquiring the remaining

75%

of the capital stock of Helomics (“Helomics Acquisition”).

The Company has incurred recurring losses from operations and has an accumulated deficit of

$82,498,711.

The Company does

not

expect to generate sufficient operating revenue to sustain its operations in the near-term. During fiscal year

2019,

the Company incurred negative cash flows from operations. Although the Company has attempted to curtail expenses, there is

guarantee that the Company will be able to reduce these expenses significantly, and expenses

may

need to be higher to prepare product lines for broader sales in order to generate sustainable revenues. These conditions raise substantial doubts about the Company’s ability to continue as a going concern. The Company had cash and cash equivalents of

$150,831

as of

December 31, 2019

and needs to raise significant additional capital to meet its operating needs and pay debt obligations coming due. Outstanding debt, including accrued interest and penalties, totaled

$6,213,507

as of

December 31, 2019,

all of which is due within

six

months. Debt is secured by all assets of the Company and its subsidiaries. The Company intends to raise these funds through equity or debt financing that

may

include public offerings, private placements, alternative offerings, or other means. In

October 2019,

the Company entered into a purchase agreement for an equity line under which it can raise up to

$15,000,000

over a

three

-year period, subject to market conditions including trading volume and stock price. Given the limitations in place there is

guarantee that the Company will be able to raise the full amount available under the equity line over the course of the

three

-year period. During

2019,

the Company issued

122,356

shares of its common stock valued at

$319,196

pursuant to the equity line. In

2020,

the Company completed various debt and equity financings and raised net proceeds of

$6,159,906,

that is net of repayments. See Note

– Subsequent Events for more information. Despite these sources of funding, it is

not

probable the Company will be able to obtain additional financing in order to fund operations. Therefore there is substantial doubt about the Company’s ability to continue as a going concern for

one

year after the date that the financial statements are issued. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do

not

include any adjustments that might result from the outcome of this uncertainty.

The Company has

commitments or contingencies.

Recently Adopted Accounting Standards

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2016

02,

“

Leases (Topic

842

)

” (“ASU

2016

02”

), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The standard states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for fiscal years and interim periods within those fiscal years beginning after

December 15, 2018.

The Company adopted ASU

2016

January 1, 2019,

using the transition relief to the modified retrospective approach, presenting prior year information based on the previous standard. Upon adoption, the Company recognized

$353,007

of lease right-of-use (ROU) assets and liabilities for operating leases on its consolidated balance sheet, of which,

$79,252

were classified as current liabilities. The adoption of ASU

2016

did

not

have a material impact on the Company’s consolidated results of operations or cash flows.

The Company leases facilities under long-term operating leases that are non-cancelable and expire on various dates. At the lease commencement date, lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term, which includes all fixed obligations arising from the lease contract. If an interest rate is

not

explicit in a lease, the Company utilizes its incremental borrowing rate for a period that closely matches the lease term. See Note

– Leases.

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 and Cash Equivalents

Cash and cash equivalents consist of cash on hand. The company has

cash equivalents during the years ended

December 31, 2018

and

December 31, 2019.

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 current status of individual accounts. During

2019,

the Company recorded a valuation allowance of

$1,037,524

related to the notes receivable balance. See Note

– Notes Receivable.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a

first

-in,

first

-out basis. Inventory balances consist of the following:

	December 31, 2019		December 31, 2018

Finished goods	$	91,410	$	58,701
Raw materials		69,821		127,003
Work-In-Process		28,925		55,362
Total	$	190,156	$	241,066

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 consolidated balance sheets. Estimated useful life by asset classification is as follows:

(

)

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

The Company’s fixed assets consist of the following:

	December 31, 2019		December 31, 2018
Computers and office equipment	$	508,143	$	204,903
Leasehold improvements		188,014		140,114
Manufacturing tooling		1,510,165		108,955
Demo equipment		73,051		85,246
Total		2,279,373		539,218
Less: Accumulated depreciation		771,574		358,765
Total fixed assets, net	$	1,507,799	$	180,453

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.

Depreciation expense was

$414,331

and

$84,995

2019

and

2018,

respectively.

Intangible Assets

Finite-lived intangible assets consist of patents and trademarks, licensing fees, developed technology, and customer relationships, and are amortized over their estimated useful life. The tradename is an indefinite-lived intangible asset and is

not

amortized. Amortization expense was

$290,552

and

$62,633

2019

and

2018,

respectively. Accumulated amortization is included in intangibles, net in the accompanying consolidated balance sheets. The Company reviews finite-lived identifiable intangible assets for impairment in accordance with ASC

360

—

Property, Plant and Equipment

, whenever events or changes in circumstances indicate the carrying amount

may

not

be recoverable. Events or changes in circumstances that indicate the carrying amount

may

not

be recoverable include, but are

not

limited to, a significant change in the medical device marketplace and a significant adverse change in the business climate in which the Company operates. The Company reviews its other intangible assets in accordance with ASC

350—

Intangibles—Goodwill and Other

. Under this topic, intangible assets determined to have an indefinite useful life are

not

amortized but are tested for impairment annually or more often if an event or circumstances indicate that an impairment loss has been incurred.

As of

December 31, 2019,

there were

$3,649,412

in net intangibles, representing a large fluctuation due to the Helomics acquisition as compared to

$964,495

in net intangibles as of

December 31, 2018.

The components of intangible assets were as follows:

	December 31, 2019							December 31, 2018
	Gross Carrying Costs		Accumulated Amortization			Net Carrying Amount		Gross Carrying Costs		Accumulated Amortization			Net Carrying Amount
Patents & Trademarks	$	339,023	$	(195,286	)	$	143,737	$	318,304	$	(182,559	)	$	135,745
Licensing Fees		-		-			-		877,500		(48,750	)		828,750
Developed Technology		2,882,000		(108,075	)		2,773,925		-		-			-
Customer Relationships		445,000		(111,250	)		333,750		-		-			-
Tradename		398,000		-			398,000		-		-			-
Total	$	4,064,023	$	(414,611	)	$	3,649,412	$	1,195,804	$	(231,309	)	$	964,495

The following table outlines the estimated future amortization expense related to intangible assets held as of

December 31, 2019:

Year ending December 31,	Expense
2020	$	305,785
2021		305,785
2022		194,535
2023		157,452
2024		157,452
Thereafter		2,130,403
Total	$	3,251,412

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment and intangible assets with estimable useful lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of such an asset

may

not

be recoverable.

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 exceeded its estimated undiscounted future cash flows, the Company recorded 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 by utilizing discounted cash flow techniques.

During

2019,

the Company recognized

$58,500

of amortization expense related to license fees. The Company also determined that due to lower than anticipated revenues from the Company’s TumorGenesis subsidiary, the licensing fee intangible asset

may

not

be recoverable. The Company incurred impairment charges of

$770,250

related to the full remaining value of the TumorGenesis licensing fees asset, which was included in corporate in the Company’s segment reporting.

impairment charges were incurred during

2018.

Goodwill

In accordance with ASC

350

–

Intangibles – Goodwill and Other

, goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination. Goodwill is an indefinite-lived asset and is

not

amortized. Goodwill is tested for impairment annually at the reporting unit level, or whenever events or circumstances present an indication of impairment.

In the Helomics acquisition, the Company recorded goodwill of

$23,790,290.

The goodwill was recorded to the Helomics segment which represents a single reporting unit. As a part of the annual impairment testing, the Company had the option to assess qualitative factors to determine if it was more likely than

not

that the carrying value of a reporting unit exceeded its estimated fair value. The Company believed a qualitative testing approach was

not

appropriate and, therefore, proceeded to the quantitative testing. When performing quantitative testing, the Company

first

estimated the fair value of the Helomics reporting unit using discounted cash flows. To determine fair values, the Company was required to make assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysis included 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 for the Helomics reporting unit. Comparative market multiples were also used to corroborate the results of the discounted cash flow test. These assumptions required significant judgment and actual results

may

differ from assumed and estimated amounts.

In testing goodwill for impairment as of

December 31, 2019,

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

December 31, 2019.

Pursuant to ASU

2017

–

Simplifying the Test for Goodwill Impairment

, the single step is to determine the estimated fair value of the reporting unit and compare it to the carrying value of the reporting unit, including goodwill. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment. The Company’s annual impairment test as of

December 31, 2019

resulted in

$8,100,000

of impairment expense related to goodwill. There was

impairment expense recorded in the

twelve

months ended

December 31, 2018.

Goodwill balance at December 31, 2018	$	-
Acquired		23,790,290
Impairment		(8,100,000	)
Goodwill balance at December 31, 2019	$	15,690,290

When evaluating the fair value of Helomics reporting unit the Company used a discounted cash flow model. Key assumptions used to determine the estimated fair value included: (a) expected cash flow for the

-year period following the testing date (including net revenues, costs of revenues, and operating expenses as well as estimated working capital needs and capital expenditures); (b) an estimated terminal value using a terminal year growth rate of

3.0%

determined based on the growth prospects of the reporting unit; and (c) a discount rate of

18.3%

based on management’s best estimate of the after-tax weighted average cost of capital. The discount rate included a company specific risk premium of

for risks related to the term of the forecasts.

The majority of the inputs used in the discounted cash flow model are unobservable and thus are considered to be Level

inputs.

The Company will continue to monitor its reporting units to determine whether events and circumstances warrant further interim impairment testing. Goodwill is

not

expected to be deductible for tax purposes.

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

– Observable inputs such as quoted prices in active markets;

Level

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

Level

– Unobservable inputs where there is little or

market data, which requires the reporting entity to develop its own assumptions.

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

The fair value of the Company’s investment securities, which consist of cash and cash equivalents, was determined based on Level

inputs. The fair value of the Company’s derivative liabilities related to the bridge loan and the note payable agreement with the Company’s CEO was determined based on Level

inputs.

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. See Note

– Revenue Recognition.

Income Taxes

The Company accounts for income taxes in accordance with ASC

740

Income Taxes

(“ASC

740”

). Under ASC

740,

deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

There is

income tax provision in the accompanying consolidated statements of net loss due to the cumulative operating losses that indicate a

100%

valuation allowance for the deferred tax assets and state income taxes is appropriate.

The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than

not

that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified

income tax uncertainties.

Under Internal Revenue Code Section

382,

certain stock transactions which significantly change ownership could limit the amount of net operating carryforwards that

may

be utilized on an annual basis to offset taxable income in future periods. The Company has

not

yet performed an analysis of the annual net operating loss carryforwards and limitations that are available to be used against taxable income. Consequently, the limitation, if any, could result in the expiration of the Company’s loss carryforwards before they can be utilized. The Company has

not

analyzed net operating loss carryforwards under Section

382

to date. As a result of the Helomics acquisition, there

may

be significant limitation to the net operating loss. The Company intends to complete a Section

382

analysis in

2020.

Tax years subsequent to

2015

remain open to examination by federal and state tax authorities.

Advertising

Advertising costs are expensed as incurred. Advertising expenses were

$21,166

2019

and

$43,548

2018.

Research and Development

Research and development costs are charged to operations as incurred. Research and development costs were

$422,964

and

$526,257

during

2019

and

2018,

respectively.

Offering Costs

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

2019,

the Company capitalized offering costs of

$324,459

that were deemed to be significant.

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

credit risk concentration for cash amounts held in a single institution that are in excess of amounts issued by the Federal Deposit Insurance Corporation.

Product Warranty Costs

2019

and in

2018,

the Company incurred

$15,717

and

$10,682,

respectively in product warranty costs.

Other Expense

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

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.

During the

fourth

quarter of

2019,

the CODM made changes to the internal organization of the Company which resulted in a change in the Company’s operating segments. The CODM determined that clinical testing revenue, CRO revenue and D-CHIP should be consolidated into

one

operating segment, Helomics. The Company concluded the change in operating segments did

not

require restatement of prior period amounts as in

2018,

substantially all of the Company’s revenues and expenses were located or derived from operations within the Domestic operating segment. The Company has

three

operating segments: domestic, international, and Helomics. See Note

– Revenue Recognition 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, 2019

are included in the table below. All revenues are earned from external customers. All interest income and interest expense are recognized under corporate. There are significant changes in the Company’s assets relating to the Helomics acquisition specifically for intangibles, tangible fixed assets, and goodwill; see Note

– Helomics Acquisition for further discussion. Expenditures for long-lived assets exclusive of the Helomics acquisition were

not

significant.

				Year Ended December 31, 2019
	Domestic			International			Helomics			Corporate			Total
Revenue	$	1,275,048		$	88,070		$	48,447			-		$	1,411,565
Depreciation and Amortization		(43,728	)		(4,692	)		(556,538	)		(99,925	)		(704,883	)
Impairment expense		-			-			(8,100,000	)		(770,250	)		(8,870,250	)
Loss on equity method investment		-			-			-			(439,637	)		(439,637	)
Segment Loss	$	(2,783,531	)	$	(351,759	)	$	(12,354,108	)	$	(3,901,368	)	$	(19,390,766	)

			December 31, 2019
	Domestic		International		Helomics		Corporate		Total
Assets	$	670,841	$	298,952	$	21,275,306	$	130,411	$	22,375,510

2018,

substantially all the Company revenues and expenses were located or derived from operations in the United States and recorded under the domestic segment.

			December 31, 2018
	Domestic		International		Helomics		Corporate		Total
Assets	$	932,367	$	41,377		-	$	2,735,255	$	3,708,999

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.

Computers and office equipment

Leasehold improvements
(1)

Manufacturing and laboratory equipment

Demonstration equipment

Laboratory equipment