Quarterly Report (10-q)

Date : 11/14/2019 @ 8:59PM
Source : Edgar (US Regulatory)
Stock : Predictive Technology Group, Inc. (PC) (PRED)
Quote : 0.9804  0.0304 (3.20%) @ 9:03PM

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

[X]

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2019

 

 

 

Or

 

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period _______ to _______

 

Commission file number 000-56008

 

[PRED11132019FORM10QSEPT20001.JPG]

 

PREDICTIVE TECHNOLOGY GROUP, INC.

(Exact name of registrant as specified in its charter)

 

     

Nevada

 

90-1139372

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. employer identification number)

 

 

 

2735 Parleys Way, Suite 205, Salt Lake City, Utah

 

84109

(Address of principal executive offices)

 

(Zip Code)

 

 

+1 (888) 407-9761

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(g) of the Exchange Act:


Title of each class

Common Stock, $.001 Par Value Per Share


-i-


Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X ] No [ ] 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

   

Larger Accelerated Filer [  ]

Accelerated Filer [  ]

Non-Accelerated Filer [  ] (Do not check if a smaller reporting company)

Smaller Reporting Company [X]

Emerging growth company [  ]

 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

The number of shares of Predictive common stock outstanding as of November 14, 2019 was 282,988,933.

-ii-


PREDICTIVE TECHNOLOGY GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2019

 

INDEX

 

     

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and June 30, 2019

2

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2019 and 2018

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2019 and 2018

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2019 and 2018

6

 

 

 

 

Unaudited Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

PART II - OTHER INFORMATION

42

 

 

 

Item 1.

Legal Proceedings

43

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 3.

Defaults Upon Senior Securities

43

 

 

 

Item 4.

Mine Safety Disclosures

43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

44

-1-

 

PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

PREDICTIVE TECHNOLOGY GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

     
   

As of

   

September 30,

   

June 30,

   

2019

   

2019

ASSETS

 

 

 

 

 

Current assets:

 

   

 

 

 

Cash

$

841,843

 

$

1,618,244

 

Accounts receivable, net of allowance for doubtful accounts

of $724,215 and $687,064

 

355,068

   

1,250,476

 

Due from equity method investee

 

-

   

184,443

 

Inventory

 

6,362,229

   

5,775,185

 

Other current assets

 

192,696

   

103,080

Total current assets

 

7,751,836

   

8,931,428

Fixed assets, net of depreciation

 

6,485,678

   

6,974,441

Operating lease right of use assets

 

489,520

   

-

License agreements, net of amortization

 

17,562,918

   

18,062,315

Patents, net of amortization

 

6,659,314

   

6,850,490

Trade secrets, net of amortization

 

43,821,752

   

45,336,335

Other intangible assets, net of amortization

 

360,728

   

383,931

Equity method investments

 

51,578,419

   

51,717,719

Goodwill

 

5,254,451

   

5,254,451

Other long-term assets

 

31,120

   

67,075

Total assets

$

139,995,736

 

$

143,578,185

LIABILITIES AND STOCKHOLDERS' EQUITY

 

   

 

 

Current liabilities:

 

   

 

 

Accounts payable

$

3,295,029

 

$

4,943,178

Accrued liabilities

 

1,905,734

   

1,857,771

Deferred revenue

 

529,870

   

469,376

Operating lease liability, current portion

 

387,819

   

-

Finance lease liability, current portion

 

643,235

   

504,488

Subscription payable, current portion

 

1,800,000

   

6,300,000

       Total current liabilities

 

8,561,687

   

14,074,813

Operating lease liability

 

103,748

   

-

Finance lease liability

 

1,347,945

   

1,511,554

Subscription payable

 

8,056,610

   

4,040,610

Notes payable

 

6,500,000

   

400,000

Deferred tax liabilities

 

5,791,224

   

11,014,745

Total liabilities

 

30,361,214

   

31,041,722

 

 

   

 

 

Stockholders' equity:

 

   

 

 

Common stock, par value $0.001, 282,985,560 and 273,761,955  

         

shares issued and outstanding at September 30, 2019 and

         

June 30, 2019; 900,000,000 shares authorized

 

282,986

   

273,762

Additional paid-in capital

 

158,590,206

   

153,604,830

Accumulated deficit

 

(48,967,456)

   

(41,102,849)

Total controlling interest

 

109,905,736

   

112,775,743

Non-controlling interest

 

(271,214)

   

(239,280)

Total stockholders' equity

 

109,634,522

   

112,536,463

Total liabilities and stockholders' equity

$

139,995,736

 

$

143,578,185

 See accompanying notes 

-2-


PREDICTIVE TECHNOLOGY GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

 

 

Three months ended September 30,

 

2019

 

2018

Revenue

$

8,259,257

$

8,063,802

Cost of goods sold, exclusive of depreciation & amortization shown below:

 

7,181,991

3,048,556

 

Operating expenses:

 

     Selling and marketing

 

3,151,971

2,407,436

     General and administrative

6,378,877

2,666,147

     Research and development

 

1,828,350

606,085

     Depreciation and amortization

 

2,610,245

1,665,722

Total operating expenses

 

13,969,443

7,345,390

 

 

     Operating loss

 

(12,892,177)

(2,330,144)

 

 

Total other loss

(212,782)

(314,359)

 

 

Loss before income taxes

 

(13,104,959)

(2,644,503)

 

 

     Benefit from income taxes

 

5,208,418

612,452

 

 

Net loss & comprehensive loss

$

(7,896,541)

$

(2,032,051)

 

 

     Net loss non-controlling interest

 

(31,934)

(27,669)

 

Net loss attributable to common shareholders

$

(7,864,607)

$

(2,004,382)

 

Weighted average common shares outstanding, basic & diluted

 

281,027,491

254,067,547

 

 

Basic & diluted loss per share attributable to common shareholders

$

(0.03)

$

(0.01)


See accompanying notes

-3-


PREDICTIVE TECHNOLOGY GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  

 

Three months ended September 30,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(7,896,541)

$

(2,032,051)

Adjustments to reconcile net loss to net cash provided (used) in operating activities:

 

Depreciation and amortization

2,610,245

1,664,730

Provision for bad debts

37,154

-

Share based compensation

4,994,600

960,080

Deferred income taxes

(5,223,521)

(612,452)

Non-cash lease expense

91,054

-

Losses on equity method investment

139,300

314,782

Changes in operating assets and liabilities:

 

Accounts receivable

858,700

(834,767)

Inventory

(587,044)

407,719

Prepaid expenses

(89,616)

(80,200)

Other assets

35,955

(24,500)

Accounts payable

(1,240,467)

1,176,451

Accrued liabilities

47,960

(330,315)

Operating lease liability

(89,456)

-

Deferred revenue

60,494

-

Net cash provided by (used in) operating activities

 

(6,251,183)

609,477

 

 

Cash flows from investing activities:

 

Purchases of property and equipment

(300,805)

(526,507)

   Cash acquired from acquisitions, net

-

799,980

   Cash payments on equity method investee stock subscription

(300,000)

(1,216,634)

   Capitalization of patent acquisition costs

-

(140,675)

Net cash used in investing activities

 

(600,805)

(1,083,836)

 

 

Cash flows from financing activities:

 

Cash proceeds from stock subscriptions

-

325,000

Proceeds from issuance of promissory notes

6,100,000

-

Principal payments on finance leases

(24,413)

-

Net cash provided by financing activities

 

6,075,587

325,000

 

 

Net decrease in cash and cash equivalents

 

(776,401)

(149,359)

Cash and cash equivalents at the beginning of the period

 $

1,618,244

$

1,206,139

Cash and cash equivalents at the end of the period

$

841,843

$

1,056,780


See accompanying notes

-4-


PREDICTIVE TECHNOLOGY GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

The following is a summary of supplemental cash flow activities:

 

 

 

Three months ended September 30,

 

 

2019

 

2018

Warrants issued for trade secrets

$

-

$

13,860,000

Common stock issued for the acquisition of InceptionDX, LLC

 

-

14,260,000

Right-of-use assets obtained in exchange for new operating lease liabilities

 

580,574

-


See accompanying notes

 

 

 

 

-5-

 

 


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Additional

Paid in Capital

 

Subscription

Receivable

 

Non-Controlling

Interest

 

Accumulated

Deficit

 

Stockholders’

Equity

BALANCES AT JUNE 30, 2018

247,624,069

  $

247,624

  $

108,049,300

  $

(1,025,000)

  $

(120,152)

  $

(25,813,957)

  $

81,337,815

Common stock issued for acquisition of InceptionDX, LLC

15,500,000

 

15,500

 

14,244,500

-
-
-

14,260,000

Common stock issued for services

50,000

50

43,450

-
-
-

43,500

Common stock cancelled

(1,200,000)

(1,200)

1,200

-
-
-

-

Warrants issued for trade secrets

-
-

13,860,000

-
-
-

13,860,000

Cash received from common stock subscriptions

-
-

325,000

-
-

325,000

Share based compensation

-
-

928,846

-
-
-

928,846

Net loss

-
-
-

(27,669)

(2,004,382)

(2,032,051)

BALANCES AT SEPTEMBER 30, 2018

261,974,069

  $

261,974

  $

137,127,296

  $

(700,000)

  $

(147,821)

  $

(27,818,339)

  $

108,723,110

 
 

Common Stock

 

 

 

 

 

Shares

Amount

Additional

Paid in Capital

Subscription

Receivable

Non-Controlling

Interest

Accumulated

Deficit

Stockholders

Equity

BALANCES AT JUNE 30, 2019

273,761,955

$

273,762

$

153,604,830

$

-

$

(239,280)

$

(41,102,849)

$

112,536,463

Share based compensation

-
-

4,994,600

-

-
-

4,994,600

Cashless exercise of warrants

9,223,605

9,224

(9,224)

-

-
-

-

Net loss

-
-
-

-

(31,934)

(7,864,607)

(7,896,541)

BALANCES AT SEPTEMBER 30, 2019

282,985,560

$

282,986

$

158,590,206

$

-

$

(271,214)

$

(48,967,456)

$

109,634,522


See accompanying notes

-6-


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1- BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS DESCRIPTION:

Predictive Technology Group, Inc., together with its subsidiaries (collectively, “PTG” or the “Company”), develops and commercializes discoveries and technologies involved in novel molecular diagnostic, therapeutic, and Human Cellular and Tissue-Based Products (“HCT/Ps”). The Company uses this information as the cornerstone in the development of new diagnostics that assess a person’s risk of disease and develop pharmaceutical therapeutics and HCT/Ps for use by healthcare professionals to improve outcomes in their patients.  The Company’s corporate headquarters are located in Salt Lake City, Utah.

SEGMENT INFORMATION:

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker (CODM) in making decisions regarding resource allocation and assessing performance.  The Company operates in two reportable segments, which are differentiated by product.  The HCT/P segment offers minimally manipulated tissue products intended for homologous use, prepared utilizing proprietary extraction methods that reduce the loss of important scaffolding, growth factors and cytokines.  The Company’s Diagnostics and Therapeutics segment uses data analytics for disease identification and subsequent therapeutic intervention through novel gene-based diagnostics, and companion therapeutics. Lastly, the “Unallocated Corporate” column in the table below represents those headquarters activities that do not qualify as operating segments and which are not allocated to operating segments in information provided to the CODM. We currently sell our products exclusively in the United States.

During the fourth quarter of 2019, we realigned our segment reporting to separately present headquarters costs in information available to the CODM.  The presentation of the comparative information has been recast to conform to the 2019 presentation.


-7-


Segment revenue and operating income (loss) were as follows during the periods presented:

 

 

HCT/Ps

Diagnostics & Therapeutics

 

Unallocated Corporate

Total

Three months ended September 30, 2019

 

 

 

 

 

   

 

 

Revenues

 

$

8,184,631

$

74,626

$

-

$

8,259,257

Depreciation and amortization

 

 

898,944

 

1,631,308

 

79,993

 

2,610,245

Share based compensation

   

1,671,456

 

450,101

 

2,873,043

 

4,994,600

Segment operating loss

 

 

(6,543,985)

 

(3,228,651)

 

(3,119,541)

 

(12,892,177)

Three months ended September 30, 2018

 

 

 

 

     

 

 

Revenues

 

$

8,063,802

$

-

$

-

$

8,063,802

Depreciation and amortization

 

 

741,468

 

831,523

 

92,731

 

1,665,722

Share based compensation

   

77,649

 

-

 

882,431

 

960,080

Segment operating loss

 

 

(330,842)

 

(966,542)

 

(1,032,760)

 

(2,330,144)

 

 

 

 

Three months ended

 

 

 

September 30,

 

 

2019

 

2018

Total operating loss for reportable segments

 

$

(9,772,636)

 

$

(1,297,384)

Unallocated amounts:

 

 

   

 

 

Unallocated Corporate

   

(3,119,541)

   

(1,032,760)

Other loss

 

 

(212,782)

 

 

(314,359)

Loss before income taxes

 

$

(13,104,959)

 

$

(2,644,503)

         


 

As of September

 

 As of June 30,

Total Assets

 

30, 2019

 

2019

HCT/Ps

$

14,781,848

$

21,052,082

Diagnostics and therapeutics

 

118,743,502

 

120,665,445

Unallocated corporate

 

6,470,386

 

1,860,658

Total Assets

$

139,995,736

$

143,578,185


-8-

BASIS OF PRESENTATION:

The accompanying consolidated financial statements have been prepared by Predictive Technology Group, Inc. (the “Company” or “Predictive”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.   All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements in accordance with U.S. GAAP.  

The condensed consolidated financial statements herein should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2019, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. Operating results for the three months ended September 30, 2019 may not necessarily be indicative of results to be expected for any other interim period or for the full fiscal year.

Fiscal Year End

The Company operates on a fiscal year basis with the fiscal year ending on June 30.

Consolidation

These consolidated financial statements include the financial statements of Predictive Technology Group, Inc. and its wholly owned subsidiaries.  All inter-company accounts and transactions have been eliminated in consolidation.  

Cash Equivalents

The Company considers all highly-liquid investments with a maturity of three months or less, when purchased, to be cash equivalents.  The Company places its temporary cash investments with high-quality financial institutions.  

Going Concern

The accompanying financial statements have been prepared under the assumption that the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from any inability of the Company to continue as a going concern.

The Company believes that its existing cash and cash equivalents of $841,843 at September 30, 2019, expected revenues and borrowings under our Revolving Loan Agreement are sufficient to fund operations as currently planned through at least one year from the date of the issuance of these financial statements. However, the Company cannot predict, with certainty, the outcome of its actions to grow revenues. The Company has based this belief on assumptions and estimates that may prove to be incorrect, and the Company could spend its available financial resources less or more rapidly than currently expected. The Company may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, general capital expenditures and satisfaction of debt obligations. Management may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. Should the Company seek additional financing from outside sources, the Company may not be able to raise such financing on terms acceptable to the Company or at all. If the Company is unable to raise additional capital when required or on acceptable terms, this could have a material adverse effect on liquidity and could raise substantial doubt about the Company’s ability to continue as a going concern. In such a case, the Company may be required to scale back or to discontinue the promotion of currently available products, scale back or discontinue the advancement of product candidates, reduce headcount, file for bankruptcy, reorganize, merge with another entity, or cease operations.


-9-

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are primarily comprised of amounts due from sales of the Company’s HCT/P products and are recorded at the invoiced amount. The allowance for doubtful accounts is based on the Company’s best estimate of the amount of probable losses in the Company’s existing accounts receivable, which is based on historical write-off experience, customer creditworthiness, facts and circumstances specific to outstanding balances, and payment terms. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers and does not require collateral.

Inventories

Inventories consist primarily of HCT/Ps produced by Predictive Biotech and laboratory supplies used in genetic testing performed by Predictive Labs.  We value inventory at the lower of cost or net realizable value. We determine the cost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method.  All other costs, including administrative costs, are expensed as incurred.   

We analyze our inventory levels at least annually and write down inventory that has a cost basis in excess of its expected net realizable value, or that is considered in excess of normal operating levels, as determined by management.  We also reserve for the quantity of quarantined (WIP) inventory that is not expected to pass quality control based on historical averages. The related costs are recognized as cost of goods sold in the consolidated statements of operations.

Stock Subscriptions Receivable

Stock subscriptions are recorded as contra-equity on the day the subscription agreement is signed and accepted by the Company.  As of September 30, 2019 and June 30, 2019, all stock subscribed has been fully paid.  

Prepaid Expenses

Amounts paid in advance for expenses are accounted for as prepaid expenses and classified as current assets if such amounts are to be recognized as expense within one year from the balance sheet date.

Property, Plant and Equipment

Lab equipment, furniture and computer equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the lesser of estimated useful lives of the related assets or the underlying lease term. Lab equipment items have depreciable lives of 5 years, furniture items have depreciable lives of 5 to 7 years, and computer equipment items have depreciable lives of 3 years. Repair and maintenance costs are charged to expense as incurred. Amortization of assets recorded under finance leases is included in depreciation expense.

The Company reviews property and equipment for impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value.


-10-

Leases

We have entered into operating and finance lease agreements primarily for office and laboratory facilities and laboratory equipment located in Salt Lake City, Utah with lease periods expiring between 2020 and 2022.

We determine if an arrangement is a lease at inception. For all classes of underlying assets, we elect not to recognize right of use assets or lease liabilities when a lease has a lease term of 12 months or less at the commencement date and does not include an option to purchase the underlying asset that we are reasonably certain to exercise. Operating lease assets and liabilities are included on our consolidated balance sheet beginning July 1, 2019. Finance lease assets are included in property and equipment, net.

Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in most of our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable, lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.

Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. We combine fixed payments for non-lease components with our lease payments and account for them together as a single lease component which increases the amount of our lease assets and liabilities.

Intangible Assets and Other Long-Lived Assets

Intangible and other long-lived assets are comprised of acquired patents, licenses, trade secrets and other intellectual property.  Acquired intangible assets are recorded at fair value and amortized over the shorter of the contractual life or the estimated useful life.

The Company reviews definite-lived intangible assets for impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value.

Indefinite-lived intangible assets not subject to amortization are reviewed for impairment annually, typically at the beginning of the fourth fiscal quarter, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  Such events and circumstances may include sweeping regulatory changes, shifts in market demand that would negatively impact revenue, overall industry deterioration, dramatic increase in the number of competitors, rapidly increasing costs related to production inputs, significant changes in Company management or Company strategy, or significant litigation.  The Company first assesses qualitative factors above to determine whether it is necessary to perform the quantitative impairment test to identify any impairment loss.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated future undiscounted net cash flows, or fair value, of the related asset or group of assets over their remaining lives.  

Certain of the Company’s patents are currently subject to litigation (see Note 14) to determine whether the seller of the patents had satisfactory title to the patents that were then sold to the Company. These patents have a carrying value of $6,659,314 on our consolidated balance sheet as of September 30, 2019. While the litigation is in its early stages and may reach a broad range of possible outcomes, we have determined that it is at least reasonably possible that the patents may become impaired in the near term depending on the information gained during the legal discovery process and the outcome of the litigation.


-11-

Revenue Recognition

 

We derive our revenue primarily from sales of HCT/P products to clinicians. The majority of our contracts with customers have a single performance obligation, and all of our contracts with customers have a duration of less than one year. Revenue is recognized when control of the product passes to the customer, typically upon confirmation of delivery of the product to the customer. As our products must remain frozen during transit, we typically ship our products overnight. Revenue is recognized in an amount that reflects the expected consideration to be received in exchange for such goods or services. As such, customer orders are recorded as deferred revenue prior to delivery of products or services ordered.

 

Generally, we require authorization from a credit card or verification of receipt of payment before we ship products to customers. From time to time we grant credit to our customers with normal credit terms (typically 30 days). We do not recognize assets associated with costs to obtain or fulfill a contract with a customer, as the amortization period for any such costs if capitalized would be one year or less.

 

Shipping and handling is considered a fulfillment activity, as it takes place prior to the customer obtaining control of the product, and fees charged to customers are included in net revenue upon completion of our performance obligation. Shipping and handling expenses are included in cost of sales. We present revenue net of sales taxes, discounts, and expected returns.

 

Deferred Revenue

 

We recognize a contract liability when customer payment precedes the completion of our performance obligations.

 

The following table provides information about deferred revenue from contracts with customers, including significant changes in deferred revenue balances during the period (in thousands).

 

 

 

Amount

Deferred revenue at June 30, 2019

$

469,376

Increase due to deferral of revenue at period end

 

529,870

Decrease due to beginning contract liabilities recognized as revenue

 

(469,376)

Deferred revenue at September 30, 2019

$

529,870


-12-

Research and Product Development Costs

The Company expenses research and product development costs as incurred.

Product Liability and Warranty Costs

The Company maintains product liability insurance and has not experienced any related claims from its product offerings. The Company also offers a warranty to customers providing that its products will be delivered free of any material defects.  There have been no material costs incurred since inception based on estimated return rates.  The Company reviews the adequacy of its accrual on a quarterly basis.

Income Taxes

In order to determine the Company’s quarterly provision for income taxes, the Company uses an estimated annual effective tax rate that is based on expected annual income and applicable federal and state tax rates.  Deferred tax assets and liabilities are recorded to reflect the future tax consequences attributable to the effects of differences between the carrying amounts of existing assets and liabilities for financial reporting and for income tax purposes. Deferred taxes are calculated by applying enacted statutory tax rates and tax laws to future years in which temporary differences are expected to reverse. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted.  

Other Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss is equal to net loss for the three months ended September 30, 2019 and 2018.

Measurement of Fair Value

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values.  Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

During the three months ended September 30, 2019 and 2018, we did not have any remeasurements of non-financial assets measured at fair value on a non-recurring basis subsequent to their initial recognition.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods.  Key estimates in the accompanying unaudited condensed consolidated financial statements include, among others, revenue recognition, allowances for doubtful accounts and product returns, provisions for obsolete inventory, valuation of long-lived assets, and deferred income tax asset valuation allowances.  Actual results could differ materially from these estimates.


-13-

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. For trade receivables, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Early application of the guidance is permitted for all entities for fiscal years beginning after December 15, 2018, including the interim periods within those fiscal years. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this update on the consolidated financial statements.

Recently Adopted Accounting Standards

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was effective for us on July 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We used the effective date as our date of initial application. Consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods before July 1, 2019.

The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We elected all of the new standard’s available transition practical expedients that are applicable.

The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for all of our leases, other than for leases of real estate.


-14-

NOTE 2 CORRECTION OF PREVIOUSLY-ISSUED UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the issuance of the Company's condensed consolidated financial statements for the three months ended September 30, 2018, the Company discovered (i) an error in the Company's accounting for income taxes, primarily with regard to the impact of income taxes on the Company's accounting for business combinations and asset acquisitions, and (ii) a clerical error in the calculation of volatility used as an input to the Black-Scholes model used to value the warrants issued as consideration for the acquisition of certain intellectual property.  As a result, the Company has corrected the accompanying condensed consolidated statement of operations and comprehensive loss and the statement of stockholders' equity for the three months ended September 30, 2018 from amounts previously reported to (i) record a benefit from income taxes of $612,452, (ii) record $273,900 in share based compensation expense , and (iii) reduce amortization expense related to intangible assets by $6,708.

Additionally, the Company identified the following errors in the calculation of weighted average shares outstanding underlying the calculation of earnings per share for the three months ended September 30, 2018.  Common shares in the amount of 23,127,666 issued prior to the 2017 fiscal year were thought to have been cancelled, when in fact they remain legally outstanding.  The weighted average shares outstanding used to calculate earnings per share were also calculated incorrectly, such that the total corrected weighted average shares outstanding increased by 30,813,446. The error did not affect reported earnings per share in any period.

The condensed consolidated statement of cash flows for the three months ended September 30, 2018 has also been corrected for the adjustments to the condensed consolidated statement of operations discussed above, to have reported net loss agree to the net loss shown in operating cash flows, and to correct the presentation of certain investing and financing activities as follows. First, amounts related to the acquisition of InceptionDX, LLC improperly included noncash activity, and have been corrected in investing activities to show only the cash received as a result of the acquisition.  Non-cash consideration paid for InceptionDX, LLC has been separately disclosed in the corrected table of supplemental cash flow disclosures. Second, $1,216,634 of cash paid under our subscription payable previously incorrectly included in financing activities has been reclassified to investing activities.

In addition to the impact of the corrections described above, the condensed consolidated statement of operations for the three months ended September 30, 2018 includes certain insignificant corrections in presentation that were made to conform to the fiscal 2019 annual financial statements.

The following tables present the effects of the corrections to the condensed consolidated statements of operations and comprehensive loss and the statement of cash flows for the three months ended September 30, 2018.

 

-15-

Unaudited consolidated statement of operations

 

 

 

 

 Three months ended September 30,

 

 

 

 

2018

       

(As reported)

 

(Adjustment)

 

(Restated)

Revenue from operations (net)

 $    8,063,800

 

 $   2

 

$    8,063,802

Cost of goods sold, exclusive of depreciation & amortization shown below

         2,866,734

 

181,822

 

3,048,556

 

 

 

 

 

 

 

   

Selling and marketing

2,422,718

 

(15,282)

 

2,407,436

General and administrative

2,563,440

 

102,707

 

2,666,147

Research and development

605,390

 

695

 

606,085

Depreciation and amortization

1,672,430

 

(6,708)

 

1,665,722

 

Total operating expense

7,263,978

 

81,412

 

7,345,390

Loss from operations

     (2,066,912)

 

(263,232)

 

(2,330,144)

 

 

 

 

 

 

 

   

     Other loss

(314,359) 

 

-

 

(314,359)

Loss before income taxes

(2,381,271)

 

(263,232)

 


(2,644,503)

Benefit from income taxes

-

 

612,452

 

612,452

Net loss

   (2,381,271)

 

349,220

 

  (2,032,051)

 

Net loss non-controlling interest

(27,669)

-


(27,669)

Net loss controlling interest

 $  (2,353,602)

 

 $  349,220

 

 $  (2,004,382)

 

 

 

 

 

 

 

   

Loss per common share

 

   

Basic and diluted

$           (0.01)

 

$              -

 

 $           (0.01)

 

 

 

 

 

 

 

   

Average common shares (in thousands)

 

 

 

   

Basic and diluted

            223,254,101

 

30,813,446

 

254,067,547

 

 

 

 

 

 

 

   

-16-

Unaudited consolidated statement of cash flows

 

Three months ended September 30, 2018

 

 

(As reported)

 

(Adjustment)

 

(Restated)

Cash flows from operating activities:

           

Net loss

$

 (2,389,580)

 

$        357,529

 

$       (2,032,051)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation and amortization

 

   1,671,438

         (6,708)

 1,664,730

Share based compensation

 

       698,449

       261,631

    960,080

Deferred income taxes

 

                  - 

     (612,452)

  (612,452)

Losses on equity method investment

 

       314,782

                  - 

    314,782

Changes in operating assets and liabilities:

 

Accounts receivable

 

     (834,767)

                  - 

  (834,767)

Inventory

 

407,719

                  -

    407,719

Prepaid expenses

 

       (80,200)

                  - 

     (80,200)

Other assets

 

       (24,500)

                  - 

     (24,500)

Accounts payable

 

   1,176,451

                  - 

 1,176,451

Accrued liabilities

 

     (330,315)

                  - 

   (330,315)

Net cash provided by

operating activities

 

       609,477

 

                  - 

 

    609,477

   

Cash flows from investing activities:

 

Purchases of property and equipment

 

 (1,226,507)

       700,000

  (526,507)

   Cash acquired from acquisitions, net

 

                  -  

       799,980

    799,980

   Common stock issued for acquisition

 

 14,260,000

(14,260,000)

                 -

   Acquisition of InceptionDX, LLC

 

(12,320,020)

  12,320,020

                 -

   Acquisition of Minority Interests

 

     (440,000)

       440,000

                 -

   Cash payments on stock subscription

 

                  -  

  (1,216,634)

(1,216,634)

   Capitalization of patent acquisition costs

 

     (140,675)

                  -  

  (140,675)

Net cash provided by (used in) investing activities

 

       132,798

 

  (1,216,634)

 

(1,083,836)

   

Cash flows from financing activities:

 

Cash proceeds from stock subscriptions

 

       325,000

                  - 

    325,000

   Cash payments on stock subscription

 

 (1,216,634)

    1,216,634

                 -

Net cash provided by (used in) financing activities

 

     (891,634)

 

    1,216,634

 

     325,000

   

Net decrease in cash and cash equivalents

 

     (149,359)

                  -

  (149,359)

Cash and cash equivalents at the beginning of the period

 $

     1,206,139

                    -

 

$           1,206,139

Cash and cash equivalents at the end of the period

$

     1,056,780

 

$                            -

 

$           1,056,780


-17-

NOTE 3 BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Inception DX, LLC

On August 22, 2018, the Company entered into an agreement captioned “Securities Purchase Agreement” with the members of Inception DX, LLC (“Inception”), a Utah limited liability company. Under the terms of the agreement, the Company acquired Inception for 15,500,000 shares of common stock. Inception owns laboratory equipment, partial interest in database records for over 31,900,000 individuals for use in genetics research, 400,000 units in Juneau Biosciences, LLC, initial CLIA registration, CLIA lab protocols, and other assets. Once the CLIA registration is completed, Inception will be used as a CLIA-certified laboratory by Predictive Technology Group, Inc. and its affiliates.

The stock issued was for cash, laboratory equipment, membership units in Juneau Biosciences, LLC (“Juneau units”), and trade secrets related to the DNA database and protocols related to a future use as a CLIA laboratory.  The Juneau units were valued based on the value assigned when the Company entered into a subscription to purchase units of Juneau ($1.10 per unit).  The equipment will be depreciated over 5 years.  The proprietary data, DNA library, protocols, research and methods are classified as trade secrets in our industry.  The Company will amortize the trade secrets over an estimated useful life of 15 years.   

The stock price on August 22, 2018 was $0.92 per share, indicating a purchase price of $14,260,000 requiring allocation:

Assets:

 

Amount

Cash

$

 799,980

Lab equipment

 

1,177,750

Investment in non-controlling interest

 

440,000

Trade secrets

 

11,842,270

Total purchase price

$

14,260,000

Taueret Laboratories, LLC Asset Purchase

On August 22, 2018, the Company entered into an agreement captioned “Asset Purchase Agreement” (the “Purchase Agreement”) with Taueret Laboratories, LLC and its members. Under the terms of the Purchase Agreement, the Company issued warrants exercisable for 16,500,000 shares of the Company’s common stock. The warrants were exercisable at fair market value of the Company’s common stock on the closing date. In consideration for the warrants, the Company acquired (i) approximately 1,000 degenerative disc disease related DNA samples, related family records, relevant clinical records (including approximately 600 affected probands) and 800 ancestry matched control samples, (ii) whole exome sequencing data on approximately 300 degenerative disc disease samples, over 800 local controls, and published reference populations, together with initial analysis of the markers, (iii) project plan, study paperwork, promotional study and materials used in the research study, (iv) exclusive use of a DNA biobank that has a collection of over 300,000 samples for multiple diseases that the Company may target, (v) the remaining interest in database records for over 31,900,000 individuals for use in genetics research, and (vi) other assets.


-18-

The warrants issued are for proprietary data and methods that are otherwise a trade secret in our industry.  Therefore, the Company determined to classify the assets purchased as trade secrets with a 15-year life.  The Company used a Black Scholes calculation to determine valuation of the warrants of $13,860,000. As the purchase of the trade secrets with common stock warrants resulted in a difference between book and tax basis in the trade secrets, the carrying amount of the trade secrets was increased to $18,480,000 to reflect the deferred tax liability of $4,620,000 assumed in the transaction.

The fair value of the warrants was determined using the following inputs to the Black Scholes model:

Risk-free interest rate

 

2.7%

Expected dividend yield

 

0%

Expected life (in years)

 

 5.0

Expected volatility

 

150%

 

Expected volatility was calculated from the historical volatility of the Company’s common stock.

Regenerative Medical Technologies, Inc.

On December 19, 2018 the Company executed a merger with the shareholders of Regenerative Medical Technologies, Inc. (“RMT”), a Utah corporation. The Company acquired RMT for 10,000,000 shares of common stock. RMT holds various assets including (i) models, methods and protocols for collection of birthing tissue and DNA samples, (ii) patient registry models, methods and protocols to collect clinical outcomes and electronic medical records, and (iii) designs and methodologies relating to many initiatives that are complementary to anticipated product offerings and ongoing research, and (iv) other assets.

The fair value of consideration paid was determined based on our stock price of $0.92 on the date of acquisition. In addition, the Company recognized a deferred tax liability of $3,066,667 related to the differences between book and tax basis arising from the acquisition, resulting in a total purchase price of $12,266,667. The Company determined that the assets acquired qualify for treatment as trade secrets within industry.  The trade secrets will be amortized over an estimated useful life of 10 years.  

Taueret Laboratories, LLC Acquisition

On March 22, 2019, the Company completed the acquisition of Taueret Laboratories, LLC (“Taueret”) pursuant to the Securities Purchase Agreement (as amended, the “Purchase Agreement”), dated January 1, 2019. Pursuant to the terms of the Purchase Agreement, the Company acquired all of the outstanding units of Taueret. The Company and its affiliates plan to use Taueret’s CLIA-certified laboratory to perform diagnostic testing services.

The Purchase Agreement also specifies that the Company may, at its sole discretion, put certain patents related to the diagnosis and treatment of Preeclampsia (the “Preeclampsia IP”) back to the members of Taueret at any time prior to December 31, 2020 (the “Preeclampsia Option”). On December 31, 2020, an additional payment of $8,547,000 in cash will become due if the Company has not exercised the Preeclampsia Option. After considering the relevant accounting guidance, we determined that the Preeclampsia Option was not part of the business combination with Taueret, because the Preeclampsia Option was included in the Purchase Agreement primarily to benefit the acquirer.

The Company acquired Taueret and the Preeclampsia Option for total consideration of $931,817, net of cash acquired of $85,964. The consideration was paid as 552,995 shares of the Company’s common stock. The common stock was valued at the closing price on the date of the closing of the merger, adjusted for a 20% discount for lack of marketability related to a contractually stipulated lockup provision with a period of one year. The consideration was allocated between the business combination and the Preeclampsia Option on a relative fair value basis with $917,511 allocated to the business combination and $100,000 allocated to the Preeclampsia Option. The Preeclampsia Option was recorded in intangible assets and will be amortized on a straight-line basis over the period the option is exercisable.

Total consideration transferred was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.  


-19-

Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants.  These amounts are provisional and may be adjusted during the measurement period, which expires no later than one year from the acquisition date, if new information is obtained that, if known, would have affected the amounts recognized as of the acquisition date.

 

Assets:

Fair Value

Current assets

$

663,262

Laboratory equipment

190,397

Software

239,000

Intangible Assets

311,000

Total assets acquired

1,403,659

Liabilities:

 

Accrued liabilities

(68,181)

Capital lease obligation

(54,291)

Total liabilities assumed

(122,472)

Bargain purchase gain

(363,676)

Total fair value of purchase price

$

917,511

Consideration allocated to Preeclampsia Option

 

100,000

Total consideration

$

1,017,511

Less: Cash acquired

 

(85,694)

Total consideration transferred

$

931,817

 Identifiable intangible assets

The Company acquired intangible assets that consisted of an internally developed laboratory information management system which had an estimated fair value of $239,000, CLIA regulatory licenses with a fair value of $295,000, and customer relationships with a fair value of $16,000. The fair value of the software was determined using the replacement cost method.  The fair value of the CLIA licenses were estimated using the excess earnings method. The estimated net cash flows were discounted using a discount rate of 22%, which is based on the estimated internal rate of return for the acquisition and represents the rate that market participants might use to value the intangible assets. The projected cash flows were based on key assumptions such as estimates of revenues and operating profits. The Company will amortize the intangible assets on a straight-line basis over their estimated useful lives of 15 years for the CLIA license and 5 years for the software and customer relationships. This amortization is deductible for income tax purposes.  


-20-

Bargain purchase gain

Any excess of fair value of acquired net assets over the purchase price (negative goodwill) has been recognized as a gain in the period the acquisition was completed. We have reassessed whether all acquired assets and assumed liabilities have been identified and recognized and performed remeasurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued. The remaining excess has been recognized as a gain in other income and expense in the consolidated statement of operations. The bargain purchase gain partly resulted from the allocation of the total consideration between the business combination and the Preeclampsia Option. We also believe we were able to negotiate a bargain price due to the desire of the sellers to induce the Company to purchase the Preeclampsia Option contemporaneously with the business combination.

NOTE 4 INVENTORIES

The composition of inventories is as follows:

 

 


As of

 

As of

 

 

September 30,

 

June 30,

 

 

2019

 

2019

Finished goods

 $

1,401,177

 $

918,199

Work-in-process

 

4,551,264

 

4,485,349

Raw materials and supplies

 

409,788

 

371,637

Total inventory on hand

 $

6,362,229

 $

5,775,185

NOTE 5 PROPERTY, PLANT AND EQUIPMENT, NET

The composition of property, plant, and equipment is as follows:

 

 

As of

 

As of

 

 

September 30,

 

June 30,

 

 

2019

 

2019

Computer equipment

631,508

 $

530,815

Furniture

 

224,324

 

224,324

Lab equipment

 

2,210,695

 

2,469,652

Software

 

923,369

 

923,369

Leasehold improvements

 

901,684

 

870,098

Other fixed assets in progress

 

89,687

 

69,886

Lab equipment subject to finance lease

 

2,774,907

 

2,774,907

 Total property, plant, and equipment

 

7,756,174

 

7,863,051

 

 

 

 

 

Accumulated depreciation

 

(1,154,578)

 

(862,851)

Accumulated depreciation – leased assets

 

(115,918)

 

(25,759)

 

 

 

 

 

Property, plant and equipment, net

 $

6,485,678

 $

6,974,441

 

Depreciation expense for the three-month periods ended September 30, 2019 and 2018 was $381,886 and $83,133, respectively.


-21-

NOTE 6 GOODWILL & INTANGIBLE ASSETS

Intangible assets primarily consist of amortizable purchased licenses, patents, and trade secrets.  The following summarizes the amounts reported as intangible assets:

 

 

 

Carrying Amount

 

Accumulated Amortization

   

Net

 

Weighted Average Remaining Amortization Period (Years)

At September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

Licenses

 

$

21,337,981

 

$

(3,775,063)

 

$

17,562,918

 

8.8

Patents

 

 

9,750,000

 

 

(3,090,686)

 

 

6,659,314

 

8.8

Trade Secrets

 

 

56,675,936

 

 

(12,854,184)

 

 

43,821,752

 

8.7

Other

   

411,000

   

(50,272)

   

360,728

 

10.7

Goodwill

   

5,254,451

   

N/A

   

5,254,451

 

N/A

Total intangible assets

 

$

93,429,368

 

$

(19,770,205)

 

$

73,659,163

 

8.7

 

 

 

Carrying Amount

 

Accumulated Amortization

   

Net

 

Weighted Average Remaining Amortization Period (Years)

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

Licenses

 

$

21,337,981

 

$

(3,275,666)

 

$

18,062,315

 

9.0 

Patents

 

 

9,750,000

 

 

(2,899,510)

 

 

6,850,490

 

9.0 

Trade Secrets

 

 

56,675,936

 

 

(11,339,601)

 

 

45,336,335

 

8.9 

Other

   

411,000

   

(27,069)

   

383,931

 

11.0

Goodwill

   

5,254,451

   

N/A

   

5,254,451

 

N/A

Total intangible assets

 

$

93,429,368

 

$

(17,541,846)

 

$

75,887,522

 

9.0 


-22-

Estimated future amortization expense related to intangible assets consists of the following as of September 30, 2019:

 

Year Ending June 30

   

Amount

2020

 

$

6,680,408

2021

   

8,514,306

2022

   

6,022,890

2023

   

6,022,890

2024

   

6,022,890

Thereafter

   

35,141,328

Total amortization expense for the three months ended September 30, 2019 and 2018 was $2,228,359 and $1,582,589 respectively.

Endometriosis license

On December 28, 2016, Predictive Therapeutics and Juneau amended and restated the license agreement dated July 9, 2015.  

An additional license fee of $2,000,000 is due and payable once the Company has received profits of $25,000,000 related to the intellectual property licensed under the agreement.

Upon first commercial sale of the licensed assay, the Company will issue to Juneau common shares with a market value of $2,500,000.  Juneau is entitled to a royalty equal to 50% of net sales, adjusted to exclude certain costs and fees, and subject to certain minimums.

In March of 2018, the Company’s licenses with Juneau were amended to reduce the royalty rate and expand the scope of the licenses to include the entire field of endometriosis and pelvic pain. The Company issued 1,000,000 shares of common stock and 14,000,000 warrants with an exercise price of $0.80 per share as consideration.

In December of 2018 the Company and Juneau agreed to renegotiate the price paid for the license.  The warrants issued initially for this license agreement were cancelled, and new warrants were issued with an increased exercise price of $0.90 per share, resulting in a decrease in the value assigned to the license agreement of $4,449,211. The replacement of the warrants resulted in an additional deferred tax liability of $290,263, resulting in a net decrease in the carrying value of the licenses of $4,158,948.  There was an associated adjustment to amortization expense. The fair value of the replacement warrants were determined using the following inputs to the Black Scholes model:

 

Risk-free interest rate

 

2.7%

 

Expected dividend yield

 

0%

 

Expected life (in years)

 

 5.0

 

Expected volatility

 

150%

 

Companion diagnostic license

In addition to the license for the commercialization of assays and related services for the prognosis and monitoring of endometriosis in the infertility market, the Company entered into a license agreement with Juneau to use the assay as a companion diagnostic test in conjunction with endometriosis therapeutics that may be developed from intellectual property owned by the Company and Juneau.  Once FDA approval is granted on any companion diagnostic test, a final milestone payment of $250,000 is due.

The agreement requires a 2% royalty to be paid to Juneau on the sale of patented therapeutic products specifically covered by the agreement.

The Company amortizes the licenses over the life of the underlying patents.


-23-

NOTE 7 EQUITY METHOD INVESTMENT

Juneau Biosciences, LLC

The Company’s investment in Juneau is accounted for under the equity method. The following table summarizes the investment:

           

 

As of

September 30, 
2019

 

As of

June 30,
2019

 

 

 

 

 

 

Carrying amount

$

51,578,419

 

$

51,717,719

 

 

 

 

 

 

Ownership percentage

 

48.3%

 

 

48.4%

 

In December 2017, the Company and Juneau reached verbal agreement on a stock subscription arrangement. The Company agreed to purchase 15,681,818 Class A Units of Juneau at a price of $1.10 per unit. In early 2018, the terms were finalized and memorialized in a subscription agreement executed by the Company and Juneau. Under the terms of the agreement (as amended), the subscription is to be paid in installments through September 30, 2021. The Company has the option to cancel the subscription.  If this option is exercised, any units of Juneau issued to the Company but not paid will be cancelled. The agreement includes certain restrictions on the use of funds provided under the subscription agreement and grants the Company the right to appoint a minority of Juneau’s Board of Managers.  Should the Company elect not to fund the entire subscription, Juneau’s obligations to the Company that are not related to the license agreements (see Note 6) will terminate.

On September 25, 2019, the Company and Juneau executed an amendment to the subscription agreement. The amendment changed the schedule of payments due under the subscription agreement to purchase units of Juneau. In addition, a receivable due from Juneau in the amount of $184,443 was applied to the subscription payable balance.  The schedule of payments as of September 30, 2019 under the amended agreement is as follows:

 

Year Ending June 30

Amount

2020

$            1,500,000

2021

1,800,000

2022

       5,300,000

2023

                1,256,610

 

$            9,856,610


-24-

Summarized financial information for the Company’s equity method investee as of and for its fiscal year end is presented in the following tables:

Juneau Biosciences, LLC

 


Year ended December 31, 2018

 

Year ended December 31, 2017

 

 

 

Audited

 

Audited

Revenue (related party)

$

2,554,037

$

2,443,677

Gross profit

 

2,554,037

 

2,443,677

Loss from operations

 

(2,419,890)

 

(45,744)

Net loss

 

(2,419,824)

 

(45,398)

Net loss attributable to Predictive Technology Group, Inc.

 

(1,200,238)

 

(22,054)

 

NOTE 8 ACCRUED LIABILITIES

 

         

 

 

As of

 

As of

 

 

September 30,

 

June 30,

 

 

2019

 

2019

Employee compensation and benefits

 $

670,685

816,451

Other

 

1,235,049

 

         1,041,320

Total accrued liabilities

 $

1,905,734

 $

1,857,771


-25-

NOTE 9 DEBT

From June to September 2019, the Company issued unsecured promissory notes to an accredited investor in the total amount of $2,900,000. The promissory notes bear 12% simple interest and mature on the two year anniversary of each note. The notes may be repaid at any time.

In September 2019, the Company and the accredited investor entered into a Revolving Loan Agreement whereby the accredited investor agreed to lend the Company up to an additional $3,000,000. Amounts drawn under the revolving loan will be charged interest at a rate of 12% and may be repaid at any time. There was no balance drawn under the Revolving Loan Agreement as of September 30, 2019. All amounts outstanding under the revolving loan are due upon the expiration of the revolving loan facility on September 30, 2021.  

In September 2019, the Company issued unsecured promissory notes to a second accredited investor in the amount of $3,600,000. The promissory notes bear 12% simple interest and mature on the two year anniversary of the notes. The notes may be repaid at any time.

Promissory notes with a face value of $400,000 mature during the fiscal year ended June 30, 2021. Promissory notes with a face value of $6,100,000 mature during the fiscal year ended June 30, 2022.

The fair value of the Company’s outstanding debt obligations as of September 30, 2019 was $6,500,000 which was determined based on a discounted cash flow model using an estimated market rate of interest of 12%, which is classified as Level 2 within the fair value hierarchy.

NOTE 10 INCOME TAXES

In order to determine the Company’s quarterly provision for income taxes, the Company used an estimated annual effective tax rate that is based on expected annual income and applicable federal and state tax rates.  The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21% in the fiscal year ended June 30, 2019.  Section 15 of the Internal Revenue Code Stipulates that the Company’s fiscal year ended June 30, 2019, had a blended corporate tax rate of 28%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the year. For the fiscal years ending after June 30, 2019, the Company’s federal corporate tax rate is 21%.  Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rate from quarter to quarter.

The Company recognized income tax benefits of $5,208,418 and $612,452 for the three-month periods ended September 30, 2019 and 2018, respectively. The Company’s recognized effective tax rate differs from the U.S. federal statutory rate for the three months ended September 30, 2019 primarily due to state income taxes, share based compensation and excess tax benefits arising from the exercise of commons stock warrants during the period.  The Company’s recognized effective tax rate differs from the U.S. federal statutory rate for the three months ended September 30, 2018 primarily due to state income taxes and share based compensation.

NOTE 11 STOCKHOLDER’S EQUITY

The Company has issued various warrants exercisable for our common stock outside of the 2015 Stock Option Plan (see Note 13). The warrants were issued to raise capital, as compensation for acquisitions of intellectual property, and as compensation for services.


-26-

In September 2019, the Company entered into an agreement with a consultant for research and development services. In consideration for these services, the Company granted options to the consultant exercisable for 1,250,000 shares of the Company’s common stock with a strike price equal to the closing price of the Company’s common stock on the date of grant. Options to acquire 625,000 shares vested upon issuance. Of the remaining options, 375,000 vest on March 1, 2020 and 225,000 vest on September 1, 2020.  The warrants expire ten years from the date of issuance.

On July 16, 2019 and August 1, 2019, a total of 11,000,000 common stock warrants issued to FlagshipSailsRx, LLC, our former sales and marketing contractor, were exercised pursuant to a cashless exercise feature. The cashless exercise resulted in the issuance of 9,172,157 shares of common stock and the cancellation of 1,827,843 warrants as consideration for the exercise price.

The following is a summary of warrant activity from June 30, 2019 through September 30, 2019:

 

 

 

 

Number of Warrants

 

Weighted Average Exercise Price

 

Weighted Average

Remaining Contractual Life

(Years)

Warrant:

 

 

 

 

 

 

 

 

Outstanding June 30, 2019

68,253,520

$

0.78

 

3.6

 

Granted

 

1,250,000

 

1.73

 

10.0

 

Exercised

 

(9,223,605)

 

0.50

 

3.0

 

Forfeited/ Cancelled

 

(1,836,395)

 

0.50

 

2.9

Outstanding September 30, 2019

58,443,520

$

0.85

 

3.6

The Company recognizes expense for warrants issued for services that are subject to graded vesting on a straight-line basis. As Share based compensation expense related to warrants issued for services for the three months ended September 30, 2019 and 2018 was $1,890,213 and $586,444, respectively.

As of September 30, 2019, unrecognized compensation cost related to warrants issued for services was $5,371,927 and is expected to be recognized over a weighted average period of 1.51 years.


-27-

NOTE 12 EARNINGS PER COMMON SHARE (EPS)

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the following periods consisted of the following:

           

 

 

 

Weighted

 

 

 

Net

 

Average Shares

 

Per Share

 

Loss

 

Outstanding

 

Amount

Three months ended September 30, 2019

 

 

 

 

Basic and diluted EPS attributable to common shareholders

$(7,864,607)

 

281,027,491

 

$(0.03)

Three months ended September 30, 2018

 

 

 

 

Basic and diluted EPS attributable to common shareholders

$(2,004,382)

 

254,067,547

 

$(0.01)

Potentially dilutive securities that would be excluded from the calculation of diluted net loss per common share because to include them would be anti-dilutive are as follows:

 

       

 

 

As of September 30,

 

 

2019

2018

Warrants for common stock

 

58,443,520

63,603,520

Options for common stock

 

25,012,750

4,828,250

 

 

 83,456,270

68,431,770


-28-

NOTE 13 STOCK OPTION PLAN

 In 2015, a Stock Option Plan was adopted to advance the interests of the Company and its shareholders by helping the Company obtain and retain the services of employees, officers, consultants, independent contractors and directors, upon whose judgment, initiative and efforts the Company is substantially dependent, and to provide those persons with further incentives to advance the interests of the Company. Eligible participants include employees, officers, certain consultants, or directors of the Company or its subsidiaries.  

The number of shares, terms, and vesting periods are determined by the Company’s Board of Directors or a committee thereof on an award-by-award basis. Awards provided under the Plan generally vest in three equal annual installments. The maximum term of options issued under the plan is 10 years from the date of grant. The aggregate number of shares of Option Stock that may be issued pursuant to the exercise of Options granted under this Plan will not exceed fifteen percent (15%) of the total outstanding shares of the Company's common stock. The Company settles exercises of stock option awards by issuing new shares. Forfeitures are recognized as they occur.

A summary of option activity is as follows for the three months ended September 30, 2019:

 

 

Number of shares

 

Weighted average exercise price

Options outstanding at June 30, 2019

24,407,750

 $

1.74

Options granted

605,000

 

2.10

Less:

 

 

 

 

Options exercised

-

-

 

Options canceled or expired

-

-

Options outstanding at end of period

       25,012,750

 $

1.75

 

Share based compensation expense related to options issued under the 2015 Plan for the three months ended September 30, 2019 and 2018 was $3,104,387 and $380,742, respectively.

The Company recognizes expense for awards subject to graded vesting on a straight-line basis. As of September 30, 2019, there was $28,671,765 of total unrecognized share-based compensation expense related to stock options issued under the 2015 Stock Option Plan that will be recognized over a weighted-average period of 2.64 years.


-29-

NOTE 14 COMMITMENTS AND CONTINGENCIES

Licenses

The Company has commitments under license agreements which are described in Note 5.

Leases

Operating leases primarily relate to the Company’s leases of laboratory and office space expiring in December 2020. The Company also has short term “month to month” leases of office space.

In March 2019, the Company entered into finance leases of laboratory equipment.  The validation process for the leased equipment was completed and payments commenced in October 2019.  The lease expires in September 2022, at which time the Company has the option to purchase the leased equipment for one dollar.  

The table below presents the future minimum lease payments under operating and finance leases:

 

Year Ending June 30,

 

Operating

 

Finance

 

Total

2020

$

313,213

$

589,635

$

902,848

2021

 

210,855

 

748,361

 

959,216

2022

 

       -

 

740,797

 

740,797

2023

 

                -   

 

 167,719

 

167,719

2024

 

                -   

 

-

 

-

Total cash payments

 

524,068

 

2,246,512

 

2,770,580

Less: Imputed interest

 

(32,501)

 

(255,332)

 

(287,833)

Total lease liability

$

491,567

$

1,991,180

$

2,482,747


-30-

Lease information for the three months ended September 30, 2019 is as follows:

     

Three months ended September 30, 2019

Lease cost

   

Finance lease cost

   
 

Amortization of right of use assets

$

24,413

 

Interest on lease liabilities

 

     4,413

Operating lease cost

 

104,404

Short-term lease cost

 

64,337 

Total lease cost

$

197,567

       

Cash paid for amounts included in the measurement of

   

lease liabilities

   
 

Operating cash flows from finance leases

$

          4,413

 

Operating cash flows from operating leases

 

102,357

 

Financing cash flows from finance leases

 

24,413

       

Weighted average remaining lease term — finance leases (Years)

 

 2.94

Weighted average remaining lease term — operating leases (Years)

 

     1.25

Weighted average discount rate — finance leases

 

8.11%

Weighted average discount rate — operating leases

 

9.69%

Lease expense under operating leases was $51,777 for the three months ended September 30, 2018.


-31-

Purchase commitments

In March 2019, in connection with the lease of laboratory equipment described above, the Company agreed to purchase a fixed quantity of the consumables used by the equipment for a total of $1,386,710. The Company is obligated to pay for the consumables in twelve fixed monthly installments beginning in October 2019. At September 30, 2019, the Company had taken delivery of consumables worth $500,502. The amount due for goods that have been delivered is included in accrued liabilities on the consolidated balance sheet. Remaining payments due under the purchase commitment total $1,040,233 during the year ending June 30, 2020 and $346,477 during the year ending June 30, 2021.

Legal proceedings

On or about July 13, 2018, RTJ, LLC and two of its principals filed a lawsuit against Predictive Therapeutics LLC, Predictive Biotech, Inc., both subsidiaries of Predictive Technology Group, Inc., and Jack Turner, Jr., an employee of Predictive Biotech, Inc. The plaintiffs had acted in a distributor capacity. The relationship was terminated. Plaintiffs are alleging breach of contract, promissory estoppel, unjust enrichment, fraud, breach of fiduciary duty, defamation, false light, and tortious interference. Based on the information available to us, we do not believe any of the RTJ proceedings will have a material adverse effect on our business, results of operations, financial position or liquidity. Further, we deny the allegations in the complaint, have not discovered any evidence of wrongdoing with respect to the allegations and will vigorously defend against these allegations.

 

On or about May 1, 2019, Surgenex, LLC and one of its principals filed a lawsuit against Predictive Therapeutics LLC, Predictive Biotech, Inc., both subsidiaries of Predictive Technology Group, Inc., and Doug Schmid, an employee of Predictive Biotech, Inc. In 2014 Surgenex contracted with Utah Cord Bank, Inc., a former employer of Doug Schmid, to assist Surgenex in the doing work relating to allograft tissue. Schmid was later hired by Predictive Biotech, Inc. In connection with Schmid’s employment with Predictive Biotech, Surgenex has filed a lawsuit alleging unjust enrichment, conspiracy, conversion, tortious interference with contractual and business relations, violations of trade secrets act, and other claims. Based on the information available to us, we do not believe the Surgenex proceedings will have a material adverse effect on our business, results of operations, financial position or liquidity. Further, we deny the allegations in the complaint, have not discovered any evidence of wrongdoing with respect to the allegations and will vigorously defend against these allegations.

On or about July 12, 2019, Predictive Technology Group, Inc. and Predictive Therapeutics, LLC, a subsidiary of Predictive Technology Group, Inc. filed a lawsuit against Michael Schramm. Schramm had previously acted as our patent agent. While acting as our patent agent, Schramm entered into an agreement to sell us certain patents and patent applications in consideration for equity securities. Schramm represented that he owned all right, title and interest in and to the intellectual property. We were subsequently advised by the patent counsel who replaced Schramm that Schramm’s representation was false. The Company raised these concerns with Schramm, who did not provide satisfactory evidence addressing the concerns of our current patent counsel. We sued Schramm for breach of contract, conversion and on other legal theories and are seeking, among other things, rescission of the purchase and sale transaction. Schramm filed a counterclaim against us and Bradley C. Robinson, our Chief Executive Officer and Transfer Online, Inc., our transfer agent. Schramm is alleging he did not make any false representations. He is alleging, among other things, that various parties involved in the transaction committed breach of contract, conversion, violations of Nevada state law for failure to transfer securities, breach of fiduciary duty, tortious interference, and civil conspiracy.  Based on the information available to us, we do not believe the Schramm proceedings will have a material adverse effect on our business, results of operations, financial position or liquidity. Further, we deny the allegations in the counterclaim, have not discovered any evidence of wrongdoing with respect to the allegations in the counterclaim and will vigorously prosecute our claims against Schramm.

As of September 30, 2019, we did not record a liability related to these matters as it was determined that an unfavorable resolution is either not currently probable or that an amount or relevant range is not reasonably estimable, or both. However, litigation is inherently unpredictable and it is possible that losses may occur. Any unfavorable resolution of any of these matters could materially affect our consolidated financial position, cash flows, or results of operations. All legal costs associated with litigation are expensed as incurred.


-32-

NOTE 15 SUBSEQUENT EVENTS

Management has evaluated subsequent events through November 14, 2019, the date on which the financial statements were available to be issued.

On October 10, 2019, substantially all of the Company’s operating leases of office and laboratory space were amended to extend the expiration dates of the leases to September 30, 2021. The Company also leased an additional 6,711 square feet of office and storage space that is expected to commence on November 1, 2019 and expire on September 30, 2021. Minimum payments due under the amended lease agreements are presented in the table below.


Year Ending June 30,

 

Amount

2020

$

717,397

2021

 

979,534

2022

 

       246,888

2023

 

                -   

2024

 

                -   

Total cash payments

$

1,943,819

 

In October and November 2019, the Company borrowed $220,000 pursuant to the Revolving Loan Agreement (see Note 9).  

In October and November 2019, the Company issued additional unsecured promissory notes to accredited investors in the amount of $2,050,000. The promissory notes bear 12% simple interest and mature on the two year anniversary of the notes. The Notes may be repaid at any time.


-33-

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended June 30, 2019.  Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company.

General

Predictive Technology Group, Inc., a Salt Lake City, UT life sciences company, is a leader in the use of data analytics for disease identification and subsequent therapeutic intervention through unique novel gene-based diagnostics, biotechnology treatments and companion therapeutics. Through its’ wholly-owned subsidiaries, Predictive Biotech, Predictive Laboratories, and Predictive Therapeutics, the company focuses on clinical categories such as: Endometriosis, Degenerative Disc Disease and Human Cell and Tissue Products (“HCT/P”). In addition to Predictive Biotech’s efforts to advance regenerative medicine, Predictive Laboratories is committed to assisting women in overcoming the devastating consequences of endometriosis via appropriate early-stage diagnosis and subsequent treatment. During the three months ended September 30, 2019 we reported total revenues of $8,259,257 and net loss of $7,864,607 resulting in a $0.03 loss per share. During the three months ended September 30, 2018 we reported total revenues of $8,063,802 and net loss of $2,004,382 resulting in a $0.01 loss per share.

Our business units have been aligned with how the Chief Operating Decision Maker reviews performance and makes decisions in managing the Company.  The business units have been aggregated into two reportable segments:  Human Cell and Tissues Products (HCT/Ps) and diagnostics and therapeutics. Predictive Biotech’s HCT/Ps are processed in our FDA registered lab. Our minimally manipulated tissue products are prepared utilizing proprietary extraction methods that reduce the loss of important scaffolding, growth factor and general cytokines and are intended for homologous use.  Predictive Laboratory’s diagnostics and therapeutics uses data analytics for disease identification and subsequent therapeutic intervention through unique novel gene-based diagnostics, biotechnology treatments and companion therapeutics.

Business Highlights

On October 16, 2019, Kenneth Ward, M.D., Chief executive officer of Juneau Biosciences; Rakesh Chettier M.S., director of biostatistics of Predictive Laboratories; and Hans Albertsen, Ph.D., chief scientific officer of Juneau Biosciences, received the 2019 Endometriosis Special Interest Group (EndoSIG) Prize Paper in the “Best in Clinical/Population Science” category at the American Society for Reproductive Medicine (ASRM) 2019 Scientific Congress & Expo in Philadelphia. The scientific breakthroughs reported in these award-winning discoveries provide us with insights into new non-hormonal therapies. The team’s research is based on the genetic markers of endometriosis discovered by Juneau and Predictive scientists in recent years, and uncovers molecular pathways involved in the pathogenesis of endometriosis-induced lesions in women at risk for the disease.  Dr. Ward, a board-certified physician in obstetrics and gynecology, perinatology, clinical genetics and molecular genetics, presented two scientific papers at the Annual ASRM meeting:  a poster entitled, “Endometriosis risk allele in WNT4 may interact with rare mutations in HDAC2 gene” and an oral abstract entitled, “Somatic cancer driver mutations in endometriosis lesions contribute to secondary cancer risk.”

-34-


On October 14, 2019, we launched the full U.S. market availability of ARTguide™ to evaluate the risk for endometriosis and other genetic causes of infertility in women. Endometriosis can be a debilitating disease for many women as it can cause severe pelvic pain, inflammation, adhesions to the fallopian tubes and uterus, and often, infertility. ARTguide can predict a patient’s risk of endometriosis early on so that women have a better understanding of their barriers to conception, and therefore their physician can create a more personalized infertility treatment plan. ARTguide is appropriate for all women considering use of ART to overcome difficulty conceiving or carrying a pregnancy.

On October 15, 2019, we entered into an agreement with CLSA Capital Markets Limited, a CITIC Securities Company, to provide introductions to potential strategic partners and regulatory guidance to support the launch of our proprietary genetic-based products into China’s (PRC) rapidly growing markets for women’s health and fertility. We anticipate introducing ARTguide™ among other fertility diagnostics to the Chinese market. In 2016 the National Health and Family Planning Commission of the PRC reported that 40 million Chinese couples were experiencing fertility issues.  Similarly, the American Society for Reproductive Medicine (ASRM) reported in 2017 that an estimated 25% of Chinese women of childbearing age struggled with infertility issues.  In 2018 the European Society of Human Reproduction and Embryology estimated that approximately 800,000 assisted reproductive technology (ART) cycles, such as in vitro fertilization (IVF), were being performed in China annually.  Chinese women are driving the fertility markets both in China and medical tourism industries overseas.  The global IVF market is expected to grow at an annual rate of 10.2% and to reach $36.2 billion by 2026.  The U.S. Center for Disease Control reported that of the patients who sought fertility care in 2017, 284,385 ART cycles were performed resulting in 78,052 live born infants with ART accounting for 1.7% of all infants born in the U.S. annually.

In October 2019, we launched FertilityDX™, a comprehensive genetic testing service that identifies barriers to healthy pregnancy and birth, allowing doctors to tailor fertility treatments. The objective of FertilityDX™ is to provide couples considering assisted reproductive technologies (ART) with an understanding of the genetic and medical obstacles that may be affecting their fertility and provide doctors with genetically relevant information to help their patients have a healthy baby. FertilityDX™ provides information by evaluating three key areas: contributors to (or causes of) infertility, risks of pregnancy complications, and risks for serious genetic conditions in offspring. The test will be launched in select fertility clinics across the United States.

In August 2019, we collected over 2,500 DNA samples along with comprehensive medical records since acquiring our CLIA operations in March 2019. We broadened our research initiatives by acquiring new sample collections in chronic pain, pregnancy complications, autism, and both female and male infertility. Personalized medicine and the development of new therapeutics are expected to play a critical role in human health. Access to high-quality biospecimens from our biobank will be important for furthering our biomedical and translational research, and ultimately its development of personalized molecular diagnostics and clinical therapies. Current sample collection efforts are designed to strategically augment our existing library of over 300,000 DNA samples that we believe will produce valuable insights into future research and development projects.

On August 9, 2019, we launched PGxPLUS+™, a pharmacogenomic test panel being marketed to pain clinics for patients with chronic pain.  PGxPLUS+™ evaluates genetic factors that play a major role in an individual’s response to medications.  In parallel, we reached a milestone of enrolling 350 patients with chronic pain into an Investigational Review Board-approved clinical study aimed at providing additional insight into the mechanisms of chronic pain and responses to pain therapies. We are approaching chronic pain and the opioid crisis on multiple fronts. We have developed and in-licensed important prognostic DNA tests and novel treatments for osteoarthritis, lumbar disc disease, endometriosis, and other conditions causing chronic pain.  In 2016, the Institute of Medicine estimated that up to one-third of the U.S. population lives with ongoing pain.  Chronic pain is often triggered by one of these common conditions, and over time can develop into a chronic pain syndrome, which is a disease itself. The PGxPLUS+™ test evaluates 112 genetic variants across 38 genes that affect the metabolism of over 150 common medications, including pain medications.  More than 90% of the population has one or more gene variants that affect the efficacy or safety of prescription drugs.  Variation in drug metabolism is largely determined by an individual’s genetic profile, blood levels of a drug may vary up to 1,000-fold in similar patients taking identical doses of the same drug.  Pharmacogenomics is the study of the role of our genome in drug responses.

-35-


On August 6, 2019, we appointed E. Robert Wassman, M.D. as Co-Laboratory Director of Predictive Laboratories. Dr. Wassman has been pioneering the introduction of genetic testing and personalized medicine for over 35 years. Throughout his career, he has focused on the translation and delivery of cutting-edge diagnostic technology to clinical services in the areas of reproductive medicine, rare cell/non-invasive diagnostics, and next-generation DNA sequencing. He brings expertise in reproductive genetics, cancer and companion diagnostics, and neurodevelopmental disabilities including autism. Dr. Wassman is a graduate of Yale University and Albany Medical College and he is Board Certified in Pediatrics and Medical Genetics.

On July 29, 2019, we entered into an agreement with the Preeclampsia Foundation to expand the study of genetic factors associated with preeclampsia. The study will advance the Preeclampsia Foundation’s database of collected preeclampsia medical information and will be utilized by Predictive Laboratories to develop a proprietary test for the early detection of women at risk for preeclampsia. Preeclampsia affects 5-8%, or approximately 300,000, pregnancies every year in the United States, sometimes causing severe adverse maternal and fetal outcomes, including organ failure, massive blood loss, permanent disability or even death. Globally, preeclampsia is a leading cause of pregnancy complications, preterm births and related disabilities. The deaths of approximately 76,000 mothers and 500,000 babies annually are attributable to preeclampsia. Healthcare providers, even in medically advanced countries, are hampered by imprecise diagnostic tools. The Preeclampsia Registry, a key program of the Preeclampsia Foundation’s research mission, is a patient registry that collects paired medical information and biological samples. Using established Institutional Review Board-approved protocols, we and the Preeclampsia Foundation will request samples from more than 2,500 existing and new registry participants for sequencing analysis. We have been granted a period of exclusive access to research data resulting from these new samples enrolled in the Preeclampsia Registry, after which samples and sequencing data will be available to other investigators for future research. This collaboration complements and extends our ongoing preeclampsia research initiatives. Over 20,000 DNA samples from our biorepository relating to preeclampsia and associated obstetric syndromes are being analyzed.

Results of Operations for the Three months Ended September 30, 2019 and 2018 

Revenue

 

 

Three months ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

Revenue

 

$

8,259,257

 

 

$

8,063,802

 

 

$

195,455

 

The increase in revenue for the three months ended September 30, 2019 is primarily due to growth in sales volume of HCT/P products compared to the three months ended September 30, 2018.

 

Revenues in our diagnostics and therapeutics segment were not material for the periods shown.

-36-


Cost of goods sold (Exclusive of Depreciation & Amortization)

 

 

Three months ended

 

 

 

 

 

 

September 30,

 

 

 

 

   

2019

 

 

2018

 

 

Change

Cost of goods sold

 

$

7,181,991

 

 

$

3,048,556

 

 

$

4,133,435

Cost of goods sold as a % of saless

 

 

87.0

%

 

 

37.8

%

 

 

 

 

Cost of goods sold for the three months ended September 30, 2019 increased to $7.2 million from $3.0 million for the three months ended September 30, 2018. The increase is primarily due to $1.8 million in scrap expense and $1.2 million in increased inventory reserves related to HCT/P product that did not pass quality control, or that is not expected to pass quality control. The increase in quality control failure rates above normal levels was primarily due to a component supplied by a specific vendor. The remaining increase is due to increased share-based compensation cost of $0.4 million, increased personnel costs of $0.5 million, and increased facility costs of $0.2 million.

Cost of sales in our diagnostics and therapeutics segment was not material for the periods shown.

Selling and marketing expenses

 

 

 

Three months ended

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

 

Selling and marketing expense

 

 

$

3,151,971

 

 

$

2,407,436

 

 

$

744,535

 

Selling and marketing expense as a % of sales

 

 

 

38.2

%

 

 

29.9

%

 

 

 

 

 

Selling and marketing expenses for the three months ended September 30, 2019 increased to $3.2 million from $2.4 million for the three months ended September 30, 2018. The increase is due to increases in personnel costs of $0.8 million and share-based compensation expense of $0.3 million, offset by a decrease in commissions expense of $0.5 million.

 

Substantially all of our selling and marketing expenses were incurred in the HCT/P segment.

-37-


General and Administrative Expenses

 

 

 

Three months ended

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Change

General and administrative expense

 

 

$

6,378,877

 

 

$

2,666,147

 

 

$

3,712,730

General and administrative expense as a % of sales

 

 

 

77.2

%

 

 

33.1

%

 

 

 

 

General and administrative expenses for the three months ended September 30, 2019 increased to $6.4 million from $2.7 million for the three months ended September 30, 2018. Approximately $2.3 million of the increase is due to increased share-based compensation expenses. Personnel costs increased by $0.6 million. Legal, consulting, and investor relations increased by $0.9 million, primarily due to filing of the Company’s registration statement on Form 10 and subsequently increased compliance costs.  

Research and Development Expenses

 

Three months ended

 

 

 

 

September 30,

 

 

 

 

2019

 

 

2018

 

 

Change

Research and development expense

$

2,265,750

 

 

$

606,085

 

 

1,659,665

Research and development expense as a % of sales

 

27.4

%

 

 

7.5

%

 

 

 

Research and development expenses for the three months ended September 30, 2019 increased to $2.3 million from $0.6 million for the three months ended September 30, 2018. The increase was primarily driven by an increase of $1.0 million in share based compensation expense, with the remainder primarily due to increased materials usage.

Depreciation and amortization expense

 

 

 

Three months ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

Change

Depreciation and amortization expense

 

 

$

2,610,245

 

 

$

1,665,722

 

$

944,523

Depreciation and amortization expense as a % of sales

 

 

 

31.6%

 

 

 

20.7%

 

 

 

 

Depreciation and amortization expense increased compared to the same period in the prior fiscal year primarily due to an increase in our intangible asset portfolio arising from the business combinations and asset acquisitions described in Note 3 to the accompanying consolidated financial statements. Capital expenditures to acquire property, plant, and equipment in connection with our laboratory expansion also contributed to the increase.   

 

-38-


Other loss

 

 

Three months ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

Change

 

Other loss

 

$

212,782

 

 

$

314,359

 

$

(101,577)

 

 

Other loss for the three months ended September 30, 2019 decreased to $0.2 million from $0.3 million for the three months ended September 30, 2018. The decrease was primarily driven by decreased loss on equity method investment of $0.2 million, offset by an increase in interest expense of $0.1 million.

 

Liquidity and Capital Resources

We believe that our existing capital resources, including borrowings under our revolving loan agreement, and the cash to be generated from future sales will be sufficient to meet our projected operating requirements for the foreseeable future. However, our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise additional financing. We may not be able to secure such financing in a timely manner or on favorable terms, if at all.  Without additional funds, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations and potentially delay development of our diagnostic tests or other products in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.

Our capital deployment strategy focuses on use of resources in two key areas: research and development, and the commercialization of our HCT/Ps and diagnostic products. We believe that research and development provides the best return on invested capital.  We also allocate capital for acquisitions that support our business strategy.

The following table represents the condensed consolidated cash flow statement:

 

Three months ended

 

 

 

 

September 30,

 

 

 

 

2019

 

2018

 

Change

Cash provided by (used in) operating activities

$

(6,251,183)

 

$

628,810

 

$

(6,879,993)

Cash used in investing activities

 

(600,805)

 

 

(1,103,169)

 

 

502,364

Cash provided by financing activities

 

6,075,587

 

 

325,000

 

 

5,750,587

Net decrease in cash and cash equivalents

 

(776,401)

 

 

(149,359)

     

Cash and cash equivalents at the beginning of the Three months

 

1,618,244

 

 

1,206,139

     

Cash and cash equivalents at the end of the period

$

841,843

 

$

1,056,780

     

 

-39-


Cash Flows from Operating Activities

The increase in cash used in operating activities for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily due to a $5.9 million increase in net loss.

Cash Flows from Investing Activities

The decrease in cash used in investing activities for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily due to a decrease in cash paid on our subscription payable of $0.9 million and a decrease in capital expenditures of $0.2 million. These changes were partly offset by a decrease of $0.8 million in cash received from the acquisition of InceptionDX, LLC, which was completed during the three months ended September 30, 2018.

Cash Flows from Financing Activities

The increase in cash provided by financing activities for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily due to the receipt of $6.1 million in proceeds from the issuance of promissory notes.  

 

Effects of Inflation

We do not believe that inflation has had a material impact on our business, sales, or operating results during the periods presented.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements or financing activities with special-purpose entities.

Critical Accounting Policies

Critical accounting policies are those policies which are both important to the presentation of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  There have been no recent significant changes to our accounting policies during the three months ended September 30, 2019, other than the adoption of ASU 2016-02 discussed in detail in Footnote 1 to the accompanying unaudited condensed consolidated financial statements.  For a further discussion of our critical accounting policies, see our Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

Certain Factors That May Affect Future Results of Operations

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are based upon reasonable assumptions at the time made, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct. Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements. Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not anticipate, including, without limitation, product recalls and product liability claims; infringement of our technology or assertion that our technology infringes the rights of other parties; termination of supplier relationships, or failure of suppliers to perform; inability to successfully manage growth; delays in obtaining regulatory approvals or the failure to maintain such approvals; concentration of our revenue among a few customers, products or procedures; development of new products and technology that could render our products obsolete; market acceptance of new products; introduction of products in a timely fashion; price and product competition, availability of labor and materials, cost increases, and fluctuations in and obsolescence of inventory; volatility of the market price of our common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; integration of business acquisitions; and other factors referred to in our reports filed with the SEC, including our Registration Statement on Form 10. All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are discussed in Item 1A “Risk Factors” in our Registration Statement on Form 10. In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

-40-


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.  Controls and Procedures

1. Disclosure Controls and Procedures

We maintain disclosure controls and procedures (Disclosure Controls) within the meaning of Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our Disclosure Controls are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our Disclosure Controls, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applied its judgment in evaluating and implementing possible controls and procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated the effectiveness of the design and operation of our Disclosure Controls, which was done under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on the evaluation of our Disclosure Controls, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2019, our Disclosure Controls were not effective due to a material weakness in the Company’s internal control over financial reporting as disclosed below.

2. Internal Control Over Financial Reporting

Based on our prior assessment as of June 30, 2019, management concluded that our internal control over financial reporting was not effective due to a material weakness related to insufficient controls over the accounting for the income tax effects of business combinations and asset acquisitions. A “material weakness” is a deficiency, or a combination of deficiencies, in Internal Control over Financial Reporting ("ICFR"), such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  Such material weakness has not yet been remediated as of September 30, 2019.

3. Plan to Remediate Material Weakness

We plan to enhance existing controls by improving their design and to design and implement new controls applicable to our income tax accounting, to ensure that our income tax balances are accurately calculated and appropriately reflected in our financial statements on a timely basis. Specifically, we will add incremental controls to determine the income tax effects of unique transactions. We have engaged third party income tax experts to assist in the preparation of our income tax provisions. We believe that improving the design of existing controls, adding incremental controls to determine the tax effects of unique transactions, and engaging third party tax specialists  will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting; however, there can be no guarantee that such remediation will be sufficient. We will continue to monitor the effectiveness of our controls and will make any further changes management determines appropriate.

4. Change in Internal Control over Financial Reporting

Except as described above, there were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

-41-


PART II - Other Information

Item 1.  Legal Proceedings

On or about July 13, 2018, RTJ, LLC and two of its principals filed a lawsuit against Predictive Therapeutics LLC, Predictive Biotech, Inc., both subsidiaries of Predictive Technology Group, Inc., and Jack Turner, Jr., an employee of Predictive Biotech, Inc. The plaintiffs had acted in a distributor capacity. The relationship was terminated. Plaintiffs are alleging breach of contract, promissory estoppel, unjust enrichment, fraud, breach of fiduciary duty, defamation, false light, and tortious interference. Based on the information available to us, we do not believe any of the RTJ proceedings will have a material adverse effect on our business, results of operations, financial position or liquidity. Further, we deny the allegations in the complaint, have not discovered any evidence of wrongdoing with respect to the allegations and will vigorously defend against these allegations.

On or about May 1, 2019, Surgenex, LLC and one of its principals filed a lawsuit against Predictive Therapeutics LLC, Predictive Biotech, Inc., both subsidiaries of Predictive Technology Group, Inc., and Doug Schmid, an employee of Predictive Biotech, Inc. In 2014, Surgenex contracted with Utah Cord Bank, Inc., a former employer of Doug Schmid, to assist Surgenex in the doing work relating to allograft tissue. Schmid was later hired by Predictive Biotech, Inc. In connection with Schmid’s employment with Predictive Biotech, Surgenex has filed a lawsuit alleging unjust enrichment, conspiracy, conversion, tortious interference with contractual and business relations, violations of trade secrets act, and other claims. Based on the information available to us, we do not believe the Surgenex proceedings will have a material adverse effect on our business, results of operations, financial position or liquidity. Further, we deny the allegations in the complaint, have not discovered any evidence of wrongdoing with respect to the allegations and will vigorously defend against these allegations.

On or about July 12, 2019, Predictive Technology Group, Inc. and Predictive Therapeutics, LLC, a subsidiary of Predictive Technology Group, Inc. filed a lawsuit against Michael Schramm. Schramm had previously acted as our patent agent. While acting as our patent agent, Schramm entered into an agreement to sell us certain patents and patent applications in consideration for equity securities. Schramm represented that he owned all right, title and interest in and to the intellectual property. We were subsequently advised by the patent counsel who replaced Schramm that Schramm’s representation was false. The Company raised these concerns with Schramm, who did not provide satisfactory evidence addressing the concerns of our current patent counsel. We sued Schramm for breach of contract, conversion and on other legal theories and are seeking, among other things, rescission of the purchase and sale transaction. Schramm filed a counterclaim against us and Bradley C. Robinson, our Chief Executive Officer and Transfer Online, Inc., our transfer agent. Schramm is alleging he did not make any false representations. He is alleging, among other things, that various parties involved in the transaction committed breach of contract, conversion, violations of Nevada state law for failure to transfer securities, breach of fiduciary duty, tortious interference, and civil conspiracy. Based on the information available to us, we do not believe the Schramm proceedings will have a material adverse effect on our business, results of operations, financial position or liquidity. Further, we deny the allegations in the counterclaim, have not discovered any evidence of wrongdoing with respect to the allegations in the counterclaim and will vigorously prosecute our claims against Schramm.

As of September 30, 2019, we did not record a liability related to these matters as it was determined that an unfavorable resolution is either not currently probable or that an amount or relevant range is not reasonably estimable, or both. However, litigation is inherently unpredictable and it is possible that losses may occur. Any unfavorable resolution of any of these matters could materially affect our consolidated financial position, cash flows, or results of operations. All legal costs associated with litigation are expensed as incurred.

-42-


Item 1A. Risk Factors

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. 

 

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

 

During the three months ended September 30, 2019, the Company issued (or is obligated to issue) the following shares:

1) In September 2019, the Company entered into an agreement with a consultant for research and development services. In consideration for these services, the Company granted options to the consultant exercisable for 1,250,000 shares of the Company’s common stock with a strike price equal to the closing price of the Company’s common stock on the date of grant. Options to acquire 625,000 shares vested upon issuance. Of the remaining options, 375,000 vest on March 1, 2020 and 225,000 vest on September 1, 2020.  The warrants expire ten years from the date of issuance.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

Item 5. Other Information

 

None.

-43-


Item 6. EXHIBITS

   

Exhibit No.

Identification of Exhibit

 

31.1

Section 302 Certification of Chief Executive Officer (filed herewith)

31.2

Section 302 Certification of Principal Financial Officer (filed herewith)

32.1

Section 906 Certification of Chief Executive Officer (filed herewith)

32.2

Section 906 Certification of Principal Financial Officer (filed herewith)

101

XBRL Interactive Data Tags

 

SIGNATURES

 

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

 

     

 

Predictive Technology Group, Inc.,

(Registrant)

 

 

 

 

By:

/s/ Bradley C. Robinson

November 14, 2019

 

Bradley C. Robinson

Chief Executive Officer and Director

(Principal Executive Officer)

 

 

 

 

By:

/s/ Simon Brewer

November 14, 2019

 

Simon Brewer

Chief Accounting Officer

(Principal Accounting and Principal Financial Officer)



-44-


EXHIBIT 31.1

CERTIFICATION

I, Bradley C. Robinson, certify that:

       

1.

I have reviewed this quarterly report of Predictive Technology Group, Inc. (“the registrant”) on Form 10-Q;

2.

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

3.

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

4.

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

 

a)

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

 

b)

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

 

c)

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

 

d)

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

 5.

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

 

a)

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

 

b)

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

 

 

By:

/s/ Bradley C. Robinson

November 14, 2019

 

Bradley C. Robinson

Chief Executive Officer

(Principal Executive Officer)

-45-


EXHIBIT 31.2

CERTIFICATION

I, Simon Brewer, certify that:

 

1.

I have reviewed this quarterly report of Predictive Technology Group, Inc. (“the registrant”) on Form 10-Q;

2.

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

3.

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

4.

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

 

a)

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

 

b)

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

 

c)

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

 

d)

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

 5.

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

 

a)

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

 

b)

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

 

 

By:

/s/ Simon Brewer

November 14, 2019

 

Simon Brewer

Chief Accounting Officer

(Principal Accounting and Principal Financial Officer)

-46-


EXHIBIT 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, Bradley C. Robinson, certify, to my best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Predictive Technology Group, Inc., on Form 10-Q for the quarter ended September 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Predictive Technology Group, Inc.

 

     

 

By:

/s/ Bradley C. Robinson

November 14, 2019

 

Bradley C. Robinson

Chief Executive Officer

(Principal Executive Officer)



-47-


 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

I, Simon Brewer, certify, to my best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Predictive Technology Group, Inc. on Form 10-Q for the quarter ended September 30, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Predictive Technology Group, Inc.

 

     

 

By:

/s/ Simon Brewer

November 14, 2019

 

Simon Brewer

Chief Accounting Officer

(Principal Accounting and Principal Financial Officer)

 

 

 

 

-48-

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