Axe Compute Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes thereto set forth in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2024.

This Quarterly Report on Form 10-Q contains “forward-looking statements” that are management’s present expectations of future events. Actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those set forth below and elsewhere in this report, many of which are beyond our control. Important factors that may cause actual results to differ from forward-looking statements include:

• Our ability to continue operating beyond twelve months without additional financing;
• Continued negative operating cash flows;
• Our capital needs to accomplish our goals, including any further financing, which may be highly dilutive and may include onerous terms;
• Risks related to recent and future acquisitions, including risks related to the benefits and costs of acquisition;
• Risks related to our partnerships with other companies, including the need to negotiate the definitive agreements; possible failure to realize anticipated benefits of these partnerships; and costs of providing funding to our partner companies, which may never be repaid or provide anticipated returns;
• Risks related to the initiation, formation, or success of our collaboration arrangements, commercialization activities and product sales levels by our collaboration partners and future payments that may come due to us under these arrangements,
• Risk that we will be unable to protect our intellectual property or claims that we are infringing on others’ intellectual property;

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• The impact of competition;
• Acquisition and maintenance of any necessary regulatory clearances applicable to applications of our technology;
• Inability to attract or retain qualified senior management personnel, including sales and marketing personnel;
• Risk that we never become profitable if our products and services are not accepted by potential customers;
• Possible impact of government regulation and scrutiny;
• Unexpected costs and operating deficits, and lower than expected sales and revenues, if any;
• Adverse results of any legal proceedings;
• The volatility of our operating results and financial condition,
• Management of growth;
• Risk that our business and operations could be materially and adversely affected by disruptions caused by economic and geopolitical uncertainties as well as epidemics or pandemics; and
• Other specific risks that may be alluded to in this report.

All statements, other than statements of historical facts, included in this report regarding our growth strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans, and objectives of management are forward-looking statements. When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to update any forward-looking statements or other information contained herein. Potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause actual results to differ materially from expectations in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2024, and in Item 1A of Part II below. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Overview

We are a knowledge-driven company focused on applying artificial intelligence (“AI”) to support the discovery and development of optimal cancer therapies, which can ultimately lead to more effective treatments and improved patient outcomes. We use AI and our proprietary biobank of 150,000+ tumor samples, categorized by tumor type, to provide actionable insights about drug compounds to improve the drug discovery process and increase the probability of drug compound success. We also create and develop tumor-specific 3D cell culture models mimicking the physiological environment of human tissue, enabling better-informed decision-making during drug development. Our suite of solutions supports oncology drug development from early discovery to clinical trials.

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

Recent Developments

On January 1, 2025, we entered into a binding letter of intent (the “LOI”) with Renovaro, Inc. (NASDAQ: RENB) (“Renovaro”) for Predictive Oncology to be acquired by Renovaro (the “Renovaro Merger”). Under the terms of the LOI, Predictive Oncology would be merged into Renovaro in exchange for a newly created series of preferred stock of Renovaro. On February 28, 2025, we entered into an extension agreement with Renovaro (the “Extension Agreement”), pursuant to which the parties amended certain terms of the LOI, including to extend the outside termination date of the LOI from February 28, 2025 to March 31, 2025. No definitive purchase agreement was executed as of March 31, 2025 and the LOI terminated on that date, pursuant to its terms. On April 3, 2025, our Board of Directors notified Renovaro of our decision to discontinue discussions regarding the proposed merger between the two companies. We have no further obligations with respect to the Renovaro Merger, including under the LOI or the Extension Agreement. On May 8, 2025, Renovaro filed a lawsuit in Delaware Chancery Court claiming breaches by our company of the LOI and the Extension Agreement and seeking to compel our company to enter into a merger agreement with Renovaro. We do not believe the lawsuit has merit and plan to contest it vigorously.

On March 14, 2025, we entered into an asset purchase agreement and closed the transactions contemplated therein with DeRoyal Industries, Inc. (“DeRoyal”), to sell and assign to DeRoyal assets and liabilities exclusively related to the business of providing products for automated, direct-to-drain medical fluid disposal, including our STREAMWAY® product line, in exchange for a total purchase price of $625,000, plus the assumption of certain liabilities.

Capital Requirements

Since inception, we have been unprofitable. We incurred losses from continuing operations of $2,285,416 and $3,564,105 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025 and December 31, 2024, we had an accumulated deficit of $182,869,144 and $180,426,271, respectively.

We have never generated sufficient revenues to fund our capital requirements. We have funded our operations through a variety of debt and equity instruments. Since 2017, we have diversified our business by investing in ventures, including making significant loans and investments in early-stage companies. These activities led to the acquisition of Helomics Corporation in April 2019 and the acquisition of zPREDICTA Inc. in November 2021, each of which has accelerated our capital needs. Since 2023, we have monetized certain assets and curtailed expenses to focus on our mission. See “Liquidity and Capital Resources – Liquidity and Plan of Financing; Going Concern” and “Liquidity and Capital Resources – Financing Transactions” below.

Our future cash requirements and the adequacy of available funds depend on our ability to generate revenues from and reach profitability in our oncology business located in Pittsburgh and the availability of future financing to fulfill our business plans. See “Liquidity and Capital Resources – Liquidity and Plan of Financing; Going Concern” below.

Our limited history of operations, especially in our drug discovery business, and our change in the emphasis of our business, starting in 2017, makes prediction of future operating results difficult. We believe that period-to-period comparisons of our operating results should not be relied on as predictive of our future results.

Results of Operations

Comparison of three months ended March 31, 2025, and 2024

In July 2024, our Board of Directors approved a plan to dispose of the assets and discontinue the operations of our Birmingham laboratory. On March 14, 2025, we entered into an asset purchase agreement and closed the transactions contemplated therein with DeRoyal Industries, Inc. (“DeRoyal”), to sell and assign to DeRoyal assets and liabilities exclusively related to the business of providing products for automated, direct-to-drain medical fluid disposal, including the STREAMWAY® product line, in exchange for a total purchase price of $625,000, plus the assumption of certain liabilities.

As a result of these developments, the former Birmingham and Eagan operating segments have been reflected as discontinued operations in the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Additional disclosures regarding discontinued operations, including results from discontinued operations, are provided in Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

The results presented below, and the following discussion, are based on and relate to our continuing operations.

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Revenue. We recorded revenue of $110,310 and $4,858 in the three months ended March 31, 2025, and 2024, respectively. The increase in revenue from the comparative period was primarily due to completion of a tumor-specific 3D model in the three months ended March 31, 2025. No 3D models were completed in the comparable 2024 period.

Cost of sales. Cost of sales was $45,118 and $22,433 in the three months ended March 31, 2025, and 2024, respectively. The increase in cost of sales in the three months ended March 31, 2025 was primarily due to increased direct labor. The improvement in gross profit margin was primarily due to increased sales of 3D models in the three months ended March 31, 2025.

General and administrative expenses. General and administrative (“G&A”) expenses primarily consist of management salaries, professional fees, consulting fees, administrative fees, and general office expenses. G&A expenses decreased by $497,464 to $1,828,200 in the three months ended March 31, 2025, compared to $2,325,664 in the comparable period in 2024. The decrease was primarily due to decreased professional fees, decreased business taxes, and decreased employee compensation, partially offset by increased legal fees. Professional fees decreased due to lower usage of consultants and outside advisors. Business taxes decreased due to timing of payments. Employee compensation decreased due to lower headcount. Legal fees increased due to corporate development transactions pursued during the three months ended March 31, 2025.

Operations, research and development expenses. Operations, research and development expenses primarily consist of expenses related to product development, prototyping, and testing. Operations, research and development expenses decreased by $109,679 to $520,406 in the three months ended March 31, 2025, compared to $630,085 in the comparable period in 2024. The decrease was primarily due to decreased employee compensation resulting from lower headcount and decreased purchases of laboratory supplies.

Sales and marketing expenses. Sales and marketing expenses consist of expenses required to market and sell our products including staff-related expenses for individuals performing this work. Sales and marketing expenses decreased by $605,077 to $3,633 in the three months ended March 31, 2025, compared to $608,710 in the comparable period in 2024. The decrease was primarily due to decreased employee compensation, including severance related to a former executive recorded in 2024 and a reduction in headcount following separation of marketing employees in the third quarter of 2024.

Liquidity and Capital Resources

Cash Flows

On March 31, 2025, we had $3,087,588 in cash and cash equivalents from continuing operations. Cash and cash equivalents increased by $2,368,341 from December 31, 2024, due to the following factors.

Net cash used in operating activities of continuing operations was $985,840 in the three months ended March 31, 2025, compared to $2,709,688 in the three months ended March 31, 2024. Cash used in operating activities of continuing operations decreased in the 2025 period primarily due to lower cash operating losses and decreased cash used in working capital. Changes in cash used in working capital included increases in accounts payable and other current liabilities, offset by a decrease in contract liabilities and operating lease liabilities. The increase in other current liabilities was primarily due to a payment of $964,389 received from Renovaro associated with its request for issuance of additional shares of our common stock, which we rejected due to the failure to meet the conditions for such issuance pursuant to the terms of the Extension Agreement. We returned such payment to Renovaro in April 2025 following our decision to discontinue merger discussions.

No cash was used in investing activities of continuing operations in the three months ended March 31, 2025, while $3,032 was used in investing activities of continuing operations in the three months ended March 31, 2024 to acquire property and equipment.

Net cash provided by financing activities of continuing operations was $2,499,687 in the three months ended March 31, 2025, compared to $112,372 used in financing activities of continuing operations in the three months ended March 31, 2024. Cash provided by financing activities of continuing operations in the 2025 period was primarily related to proceeds from the exercise of warrants into common stock, proceeds from the issuance of common stock pursuant to the Extension Agreement with Renovaro, and proceeds from the issuance of common stock pursuant to a Registered Direct Offering, while the cash used in the 2024 period was primarily repayment of a note payable used to finance insurance premiums over the insured period.

Net cash provided by discontinued operations was $854,494 in the three months ended March 31, 2025, compared to $706,332 used in discontinued operations in the three months ended March 31, 2024. Net cash provided by operating activities of discontinued operations for the three months ended March 31, 2025, was $229,494, while net cash used in operating activities of discontinued operations for the three months ended March 31, 2024, was $706,332. This change primarily relates to increased collections of accounts receivable from customers in the 2025 period. Net cash provided by investing activities of discontinued operations was $625,000 for the three months ended March 31, 2025, which related to proceeds from the sale of Eagan assets pursuant to the asset purchase agreement executed with DeRoyal. No cash was used in investing activities of discontinued operations for the three months ended March 31, 2024.

Liquidity and Plan of Financing; Going Concern

We have incurred significant and recurring losses from operations for the past several years and, as of March 31, 2025, had an accumulated deficit of $182,869,144. We had cash from continuing operations of $3,087,588 as of March 31, 2025, and need to raise significant additional capital to meet our operating needs. We had short-term obligations of $4,609,043 and long-term operating lease obligations of $1,405,004 as of March 31, 2025. We do not expect to generate sufficient operating revenue to sustain our operations in the near term. During the three months ended March 31, 2025, we incurred negative cash flows from continuing operating activities operations of $985,840. Although we have attempted to improve our cash flows from continuing operating activities by bolstering revenues and curtailing expenses and continue to seek ways to generate revenue through business development activities, there is no guarantee that we will be able to improve our cash flows from continuing operating activities sufficiently or achieve profitability in the near term. As a result of these conditions, substantial doubt exists about our ability to continue as a going concern within one year after the date our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued.

We continue to evaluate alternatives to obtain the required additional funding to maintain future operations, but there can be no assurances that such funding will be available under acceptable terms, if at all. Alternatives to obtain additional funding may include, but are not limited to, equity financing, issuing debt, entering into other financing arrangements, or monetizing assets. These possibilities, to the extent available, may be on terms that result in significant dilution to our existing stockholders or that result in our existing stockholders losing part or all of their investment. For example, in February 2025, we issued shares of our common stock in a registered direct offering for gross proceeds of $545,004. Also, in March 2025, pursuant to an extension agreement in connection with the LOI with Renovaro, Renovaro purchased shares of our common stock for an aggregate of $500,000. In March 2025, we entered into an asset purchase agreement pursuant to which we sold and assigned assets and liabilities exclusively related to the business of providing products for automated, direct-to-drain medical fluid disposal, including our STREAMWAY product line, for $625,000, plus assumed liabilities. Despite these sources of funding, we may be unable to access additional financing or obtain additional liquidity when needed or under acceptable terms, if at all. If such financing or adequate funds from operations are not available, we would be forced to limit our business activities and we could default on existing payment obligations, which would have a material adverse effect on our financial condition and results of operations, and may ultimately be required to cease our operations and liquidate our business. The condensed consolidated financial statements as of and for the quarterly period ended March 31, 2025, included in this Quarterly Report on Form 10-Q, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern.

Financing Transactions

We have primarily funded our operations through a combination of debt and equity instruments including short-term borrowings, and a variety of debt and equity offerings. We have no off-balance sheet transactions.

Registered Direct Offering

On February 18, 2025, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with several institutional and accredited investors for the sale by us of 363,336 shares (the “Registered Direct Offering Shares”) of our common stock, par value $0.01 per share, at a purchase price of $1.50 per share, in a registered direct offering. The offering closed on February 19, 2025. Our gross proceeds from the offering were approximately $545,004, before deducting the placement agent’s fees and other offering expenses. We offered and sold the Registered Direct Offering Shares pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2024, and subsequently declared effective on May 21, 2024 (File No. 333-279123), and a related prospectus supplement filed on February 19, 2025.

We agreed to pay Wainwright an aggregate fee equal to 7.0% of the gross proceeds we received from the sale of the securities in the offering as well as a management fee equal to 1.0% of such gross proceeds, and $15,000 for fees and expenses of legal counsel. We also issued to Wainwright, or its designees, warrants to purchase up to 7.0% of the aggregate number of shares of our common stock sold in the transactions, or warrants to purchase up to an aggregate of 25,434 shares of our common stock (the “Registered Direct Offering Placement Agent Warrants”). The Registered Direct Offering Placement Agent Warrants are exercisable for five years from the commencement of sales in the offering and have an exercise price equal to 125% of the purchase price of shares of our common stock sold in the offering, or $1.875 per share. The Registered Direct Offering Placement Agent Warrants and the shares issuable upon exercise of the Registered Direct Offering Placement Agent Warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and in reliance on similar exemptions under applicable state laws.

Renovaro Subscription Agreement

On March 13, 2025, we executed a share subscription agreement with Renovaro, pursuant to the Extension Agreement dated February 28, 2025, that amended the previous LOI between the parties. Pursuant to the share subscription agreement, Renovaro subscribed to purchase and we agreed to sell 467,290 unregistered shares of our common stock at a price of $1.07 per share for a total purchase price of $500,000.

There were no material financing transactions during the three months ended March 31, 2024.

Accounting Standards and Recent Accounting Developments

See Note 1 - Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q for a discussion of recent accounting developments.

Evaluation of Disclosure Controls and Procedures

Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of March 31, 2025. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of March 31, 2025.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025, except as described below.

After the expiration of the letter of intent with Renovaro and our decision not to engage in further discussions with Renovaro regarding a potential merger, Renovaro has filed a lawsuit against us, which could be costly and time-consuming.

As previously disclosed, the letter of intent with Renovaro regarding a proposed merger transaction expired by its terms on March 31, 2025, and on April 3, 2025, our Board of Directors notified Renovaro of our decision to discontinue discussions regarding the proposed merger. On May 8, 2025, Renovaro filed a lawsuit alleging a breach of contract and the implied covenant of good faith and fair dealing. We do not believe Renovaro’s claims have merit and intend to vigorously contest the lawsuit. The results of litigation cannot be predicted with certainty, and regardless of the merits, litigation can be costly and time-consuming for the Company. The diversion of management’s attention, the costs of defense and the possibility of an adverse decision could negatively impact the Company’s results of operations and financial condition.

Our common stock could be delisted from the Nasdaq Capital Market, which delisting could hinder your ability to obtain accurate quotations on the price of our common stock or dispose of our common stock in the secondary market.

In May 2022 and again in September 2024, we received letters from the Listing Qualifications Department of Nasdaq (the “Staff”) informing us that because the closing bid price for our common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, we did not comply with the minimum closing bid price requirement for continued listing under Nasdaq Listing Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”). In both instances, we were able to regain compliance, first by conducting a 20-for-1 reverse stock split, which significantly increased our stock price, and then because since January 3, 2025, our stock price began trading above the minimum requirement, including as a result of our announcement of the proposed merger with Renovaro.

On November 20, 2024, we received a letter from the Staff notifying us that we were not in compliance with the minimum stockholders’ equity requirement for continued listing as set forth in Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Requirement”), because our stockholders’ equity of $1,966,969, as reported in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, was below the required minimum of $2.5 million, and because, as of the date of the notice, we did not meet either of the alternative compliance standards, relating to market value of listed securities of at least $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. Under Nasdaq rules and as specified in the notice, we had until Monday, January 6, 2025 to submit to Nasdaq a plan to regain compliance with the Stockholders’ Equity Requirement. We submitted our plan on January 6, 2025, citing the proposed merger with Renovaro, and after the Company’s decision to discontinue discussions with Renovaro, on April 10, 2025, submitted an update to Nasdaq that summarized fundraising activities during the three months ended March 31, 2025, the discontinuation of discussions with Renovaro, and options being considered by the Company to regain compliance with the Stockholders’ Equity Requirement.

We may not be able to regain compliance. Even if we are able to regain compliance, we may subsequently fail to meet the requirements for continued listing on Nasdaq, and in either case, we may be delisted.

In the event our common stock is delisted from the Nasdaq Capital Market and we are also unable to maintain listing on another alternate exchange, trading in our common stock could thereafter be conducted through one or more over-the-counter markets. In such event, the liquidity of our common stock would likely be impaired, not only in the number of shares which could be bought and sold, but also through delays in the timing of the transactions, and there would likely be a reduction in our coverage by security analysts and the news media, thereby resulting in lower prices for our common stock than might otherwise prevail.

In addition to the foregoing risks, and the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the risks included in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 before making an investment decision. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.