UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended
Commission
File Number
(Exact name of registrant as specified in the charter)
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) |
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The Nasdaq Stock Market LLC |
Indicate
by check mark 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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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.
Large accelerated filer ☐ Accelerated filer ☐
Emerging
growth company
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards 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 ☐
There were shares of common stock, par value $0.0001 of Vyant Bio, Inc. issued and outstanding as of May 10, 2021.
Vyant Bio, Inc. and Subsidiaries
INDEX
Page No. | ||
Part I | Financial Information | 3 |
3 | ||
Item 1: | Financial Statements (unaudited) | |
Consolidated Balance Sheets | 3 | |
Consolidated Statements of Operations | 4 | |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | 5 | |
Consolidated Statements of Cash Flows | 6 | |
Notes to Interim Consolidated Financial Statements | 7 | |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 |
Item 3: | Quantitative and Qualitative Disclosures about Market Risk | 40 |
Item 4: | Controls and Procedures | 41 |
Part II | Other Information | 41 |
Item 1: | Legal Proceedings | 41 |
Item 1A: | Risk Factors | 41 |
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 78 |
Item 3: | Defaults Upon Senior Securities | 78 |
Item 4: | Mine Safety Disclosures | 79 |
Item 5: | Other Information | 79 |
Item 6: | Exhibits | 79 |
Signatures | 81 |
2 |
Part I Financial Information
Item 1 Financial Statements
Vyant Bio, Inc.
(Formerly Known as Cancer Genetics, Inc.)
Consolidated Balance Sheets
(unaudited)
(Shares and USD in Thousands)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Trade accounts and other receivables | ||||||||
Inventory | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Non-current assets | ||||||||
Goodwill | - | |||||||
Intangible assets, net | - | |||||||
Fixed assets, net | ||||||||
Right-to-use assets, net | ||||||||
Long-term prepaid expenses and other assets | ||||||||
Total non-current assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities, Temporary Equity and Stockholders’ Equity (Deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Deferred revenue | ||||||||
Income taxes payable | - | |||||||
Obligations under operating leases, current portion | ||||||||
Obligations under finance leases, current portion | - | |||||||
Other current liabilities | ||||||||
Other current liabilities - discontinued operations | - | |||||||
Total current liabilities | ||||||||
Obligations under operating leases, less current portion | ||||||||
Obligations under finance leases, less current portion | - | |||||||
Share-settlement obligation derivative | - | |||||||
Accrued interest | - | |||||||
Long-term debt | ||||||||
Total liabilities | $ | $ | ||||||
Commitments and contingencies | ||||||||
Temporary equity: | ||||||||
Series
A Convertible Preferred stock, $par value; shares authorized, and shares issued and outstanding as of March
31, 2021 and December 31, 2020, respectively (liquidation value of $ | ||||||||
Series
B Convertible Preferred stock, $par value; shares authorized, and shares issued and outstanding, as of March 31,
2021 and December 31, 2020, respectively (liquidation value of $ | ||||||||
Series
C Convertible Preferred stock, $
par value;
shares authorized,
shares issued and outstanding as of March
31, 2021 and December 31, 2020 (liquidation value of $ | ||||||||
Total temporary equity | - | |||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, authorized shares $ par value, issued | - | - | ||||||
Common stock, authorized shares, $ par value, and shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | - | |||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ equity (deficit) | ( | ) | ||||||
Total liabilities and Stockholders’ equity | $ | $ |
See Notes to Unaudited Consolidated Financial Statements.
3 |
Vyant Bio, Inc.
(Formerly Known as Cancer Genetics, Inc.)
Consolidated Statements of Operations
(Shares and USD in Thousands)
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenues: | ||||||||
Service | $ | $ | ||||||
Product | ||||||||
Total revenues | ||||||||
Operating costs and expenses: | ||||||||
Cost of goods sold – service | ||||||||
Cost of goods sold – product | ||||||||
Research and development | ||||||||
Selling, general and administrative | ||||||||
Merger related costs | ||||||||
Total operating costs and expenses | ||||||||
Loss from operations | ( | ) | ( | ) | ||||
Other (expense) income: | ||||||||
Change in fair value of warrant liability | ||||||||
Change in fair value of share-settlement obligation derivative | ( | ) | ||||||
Loss on debt conversions | ( | ) | ||||||
Interest expense | ( | ) | ( | ) | ||||
Total other (expense) income | ( | ) | ( | ) | ||||
Loss before income taxes | ( | ) | ( | ) | ||||
Income tax expense (benefit) | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Net loss per common share: | ||||||||
Net loss per share attributable to common stock - Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
Weighted average shares outstanding: | ||||||||
Weighted average common shares outstanding - Basic and Diluted |
See Notes to Unaudited Consolidated Financial Statements.
4 |
Vyant Bio, Inc.
(Formerly Known as Cancer Genetics, Inc.)
Consolidated Statements of Temporary Equity Common Stockholders’ Equity (Deficit)
(unaudited)
(Shares and USD in Thousands)
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Total Temporary | Common Stock | Additional Paid In | Accumulated | Total Common Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Equity | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2021 | $ | $ | - | $ | - | $ | ($ | ) | ($ | ) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance
of Series C Convertible Preferred shares, net of issuance costs of $ | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock for acquisition consideration | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Issuance of Incremental shares to StemoniX shareholders upon Merger | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Conversion of Preferred Stock to Common Stock upon Merger | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||
Conversion of 2020 Notes to Common Stock upon Merger | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Preferred stock warrant settled for Common Stock upon Merger | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
Warrant liability reclassified to equity upon Merger | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Balance as of March 31, 2021 | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2020 | $ | $ | - | $ | - | $ | ($ | ) | ($ | ) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
Issuance of shares for services | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Issuance
of Series B Convertible Preferred shares, net of issuance costs of $ | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
Balance as of March 31, 2020 | - | - | ( | ) | ( | ) |
5 |
Vyant Bio, Inc.
(Formerly Known as Cancer Genetics, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
(USD in Thousands)
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Reconciliation of net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | ||||||||
Amortization of operating lease right-of-use assets | ||||||||
Depreciation and amortization expense | ||||||||
Change in fair value of share-settlement obligation derivative | - | |||||||
Change in fair value of warrant liability | ( | ) | - | |||||
Change in fair value of 2020 Convertible Note with fair value election | - | |||||||
Accretion of debt discount | - | |||||||
Loss on conversion of debt | - | |||||||
Changes in operating assets and liabilities net of impacts of business combination: | ||||||||
Trade accounts and other receivables | ( | ) | ||||||
Inventory | ( | ) | ||||||
Prepaid expenses and other current assets | ( | ) | ||||||
Accounts payable | ( | ) | ||||||
Obligations under operating leases | ( | ) | ( | ) | ||||
Accrued expenses and other current liabilities | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Equipment purchases | ( | ) | - | |||||
Cash acquired from acquisition | - | |||||||
Net cash provided by investing activities | - | |||||||
Cash Flows from Financing Activities: | ||||||||
Issuance of common stock | ||||||||
Issuance of Series B Preferred stock, net of issuance costs | - | |||||||
Issuance of Series C Preferred Stock, net of issuance costs | - | |||||||
Convertible note proceeds | - | |||||||
Principal payments on long-term debt | ( | ) | - | |||||
Proceeds from related party note | - | |||||||
Principal payments on obligations under finance leases | - | ( | ) | |||||
Net cash provided by financing activities | ||||||||
Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
Cash and cash equivalents, and restricted cash beginning of the period | ||||||||
Cash and cash equivalents, and restricted cash end of the period | $ | $ | ||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | - | |||||||
Total cash and cash equivalents and restricted cash | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | $ | ||||||
Non-cash investing activities: | ||||||||
Fair value of non-Cash merger consideration | $ | $ | ||||||
Non-cash financing activities: | ||||||||
Conversion of Preferred Stock to Common Stock upon Merger | $ | $ | ||||||
Conversion of 2020 Convertible Notes and Accrued Interest to Common Stock upon Merger | $ | $ | ||||||
Reclass warrant liability to equity upon Merger | $ | $ |
See Notes to Unaudited Consolidated Financial Statements.
6 |
Vyant Bio, Inc.
(formerly known as Cancer Genetics, Inc.)
Notes to Condensed Consolidated Financial Statements
Period Ended March 31, 2021
(Unaudited)
Note 1. Organization and Description of Business
Vyant Bio, Inc. (“Vyant” or “the Company”) is an innovative biotechnology company focused on partnering with pharmaceutical and other biotechnology companies to identify novel and repurposed therapeutics through the integration of human-derived biology with data science technologies and Investigational New Drug (“IND”) expertise.
The Company has two wholly-owned operating subsidiaries StemoniX, Inc. (“StemoniX”) and vivoPharm Pty Ltd (“vivoPharm”). StemoniX develops and manufactures high-density, at-scale human induced pluripotent stem cell (“iPSC”) derived neural and cardiac screening platforms for drug discovery and development. vivoPharm has an extensive set of anti-tumor referenced data based on predictive xenograft and syngeneic tumor models to provide discovery services such as contract research services, focused primarily on unique specialized studies to guide drug discovery. By combining the two companies, Vyant intends to build on the historic businesses and empower the discovery of new medicines and biomarkers through the convergence of its novel human biology and software technologies.
In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited financial statements of StemoniX, Inc. for the year ended December 31, 2020, and notes thereto included in the Company’s April 5, 2021 Form 8-K report as filed with the SEC.
In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting solely of those which are of a normal recurring nature, necessary to present fairly its financial position as of March 31, 2021 and the results of its operations, cash flows and changes in stockholders’ equity for the three months ended March 31, 2021 and 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the entire 2021 year.
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. Many of the Company’s customers worldwide were impacted by COVID-19 and temporarily closed their facilities which impacted revenues in the first half of 2020 for StemoniX. Revenues continued in the first half of 2020 for the historical Vyant Bio, Inc. (formerly known as Cancer Genetics, Inc. (“CGI”)) business as signed contracts were already in place. Revenues at historical Vyant Bio, began to slow in the second half of 2020 as fewer contracts were signed due to COVID 19 and the studies related to contracts signed pre COVID-19 were completed. While the impact of the pandemic on our business has lessened, the global outbreak of COVID-19 continues with new variants and is impacting the way we operate our business as well as in certain circumstances limiting the availability of lab supplies. The extent to which the COVID-19 pandemic may impact the Company’s future business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the availability and effectiveness of vaccines, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
7 |
The Company is actively monitoring the impact of the COVID-19 pandemic on its business, results of operations and financial condition. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition in the future is unknown at this time and will depend on future developments that are highly unpredictable.
Dollar amounts in tables are stated in thousands of US dollars.
Note 2. Cancer Genetics, Inc. Merger
The
Company formerly known as Cancer Genetics, Inc. (“CGI”), StemoniX and CGI Acquisition, Inc. (“Merger
Sub”) entered into a merger agreement on August 21, 2020, which was amended on February 8, 2021 and February 26, 2021(as
amended, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub was merged
(the “Merger”) with and into StemoniX on March 30, 2021, with StemoniX surviving the Merger as a wholly owned
subsidiary of the Company. For U.S. federal income tax purposes, the Merger qualified as a tax-free “reorganization”.
Concurrent with the Merger closing, the Company changed its name to Vyant Bio, Inc. Under the terms of the Merger Agreement, upon
consummation of the Merger, the Company issued (i) an aggregate of shares of VYNT common stock, par value
$per share (the “Common Stock”)
to the holders of StemoniX capital stock (after giving effect to the conversion of all StemoniX preferred shares and StemoniX
2020 Convertible Notes) and StemoniX warrants (which does not include a certain warrant (the “Investor Warrant”) issued
to a certain StemoniX convertible note holder (the “Major Investor”)), (ii) options to purchase an aggregate of shares of Common Stock to the holders
of StemoniX options with exercise prices ranging from $to $per share and a weighted average exercise
price of $per share, and (iii) a warrant (the “Major
Investor Warrant”) to the Major Investor, expiring
The
Merger was accounted for as a reverse acquisition with StemoniX being the accounting acquirer of CGI using the acquisition method of
accounting. Under acquisition accounting, the assets and liabilities (including executory contracts, commitments and other obligations)
of CGI, as of March 30, 2021, the effective time of the Merger were recorded at their respective fair values and added to those of StemoniX.
Any excess of purchase price consideration over the fair values of the identifiable net assets is recorded as goodwill. Total consideration
paid by StemoniX in the Merger amounted to $
StemoniX
and CGI incurred $
The following details the preliminary allocation of the purchase price consideration:
Assets acquired: | ||||
Cash and equivalents | $ | |||
Accounts receivable | ||||
Other current assets | ||||
Intangible assets | ||||
Fixed assets | ||||
Goodwill | ||||
Long-term prepaid expenses and other assets | ||||
Total assets acquired | $ | |||
Liabilities assumed: | ||||
Accounts payable and accrued expenses | $ | |||
Obligation under operating lease | ||||
Obligation under finance lease | ||||
Deferred revenue | ||||
Income taxes payable | ||||
Total liabilities assumed | $ | |||
Net assets acquired: | $ |
8 |
We have completed preliminary valuation analyses necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. These fair values were based on management’s estimates and assumptions; however, the amounts shown above are preliminary in nature and are subject to adjustment, including income tax related amounts, as additional information is obtained about the facts and circumstances that existed as of the acquisition date. Accordingly, there may be adjustments to the assigned values of acquired assets and liabilities, including, but not limited to, intangible assets and property and equipment and their respective estimated useful lives, that may also give rise to material increases or decreases in the amounts of depreciation and amortization expense. The final determination of the fair values and related income tax impacts will be completed as soon as practicable, and within the measurement period of up to one year from the acquisition date. Any adjustments to provisional amounts that are identified during the measurement period will be recorded in the reporting period in which the adjustment is determined. The Company has also not yet completed its fair value analysis for a number of items including the vivoPharm cell bank, deferred revenue and discontinued operations liabilities. Of the amount of goodwill acquired in the Merger, no portion is deductible for tax purposes.
The Company recognized intangible assets related to the Merger, which consist
of the tradename valued at $
These intangible assets are classified as Level 3 measurements within the fair value hierarchy.
The following presents the unaudited pro forma combined financial information as if the Merger had occurred as of January 1, 2020:
For the three months ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Total revenues: | $ | $ | ||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Pro forma loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
Pro forma weighted average number of common shares outstanding, basic and diluted |
The pro forma combined results of operations are not necessarily indicative of the results of operations that actually would have occurred had the Merger been completed as of January 1, 2020, nor are they necessarily indicative of future consolidated results.
9 |
Note 3. Significant Accounting Policies
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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include estimated transaction price, including variable consideration, of the Company’s revenue contracts; the value of intangible assets arising from the Merger, the useful lives of fixed assets; the valuation of derivatives and one 2020 Convertible Note accounted for under the fair-value election; deferred tax assets, inventory, right-of-use assets and lease liabilities, stock-based compensation, income tax uncertainties, and other contingencies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Vyant Bio, Inc. and its wholly-owned subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation.
Reclassification
As
a result of the Merger, the Company has reclassified $
Foreign currency
The Company translates the financial statements of its foreign subsidiaries, which have a functional currency in the respective country’s local currency, to U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Gains and losses resulting from foreign currency transactions that are denominated in currencies other than the entity’s functional currency are included within the consolidated statements of operations and Other Comprehensive Loss. For the quarters ended March 31, 2021 and 2020 there were no foreign currency translation or transaction gains or losses as the Merger, which includes significant foreign operations, occurred on March 30, 2021.
Segment Reporting
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 in making decisions regarding resource allocation and assessing performance. Substantially all of the Company’s assets are maintained in the United States and, effective with the Merger, Australia. The Company views its operations and has managed its business as one segment.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition, government regulation and rapid technological change. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory, and other risks, including the potential risk of business failure.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Included in cash and cash equivalents at March 31, 2021 is $
10 |
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to consider current market conditions and the Company’s customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts monthly. No allowance was recorded as of March 31, 2021 or December 31, 2020. Write-offs for the three months ended March 31, 2021 and 2020 were not significant. The Company does not have any off-balance-sheet credit exposure related to its customers.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and
trade receivables. The Company places cash and cash equivalents in various financial institutions with high credit rating and limits
the amount of credit exposure to any one financial institution. Trade receivables are primarily from clients in the pharmaceutical and
biotechnology industries, as well as academic and government institutions. Concentrations of credit risk with respect to trade receivables,
which are typically unsecured, are limited due to the wide variety of customers using the Company’s products and services as well
as their dispersion across many geographic areas. As of March 31, 2021 and December 31, 2020, two and three customers, respectively,
represented 10% or more of the Company’s total trade accounts receivable. In the aggregate, these customers represented
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost being determined on a first-in first-out basis. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventory. Costs associated with the underutilization of capacity are expensed to Cost of goods sold - products as incurred. Inventory is adjusted for excess and obsolete amounts. Evaluation of excess inventory includes items such as inventory levels, anticipated usage, and customer demand, among others.
Prepaid Assets and Other Assets
The
Company was contractually liable for Directors and Officers tail insurance policies as of March 31, 2021 in the amount of $
Revenue Recognition
The Company recognizes revenue when it satisfies performance obligations under the terms of its contracts, and transfers control of the product to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products. This process involves identifying the customer contract, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it (a) provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and (b) is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a product to a customer, which is generally upon shipment as the customer has the ability to direct the use and obtain the benefit of the product.
Prior to the Merger, the Company’s primary sources of revenue are product sales from the sale of microOrgan® plates and the performance of preclinical drug testing services using the microOrgan technology. Subsequent to the Merger, the Company’s revenues will include vivoPharm’s discovery services, consisting primarily of contract research services focused primarily on unique specialized studies to guide drug discovery. The Company does not act as an agent in any of its revenue arrangements.
For product contracts, revenue is recognized at a point-in-time upon delivery to the customer. Product contracts with customers generally state the terms of the sale, including the quantity and price of each product purchased. Payment terms and conditions may vary by contract, although terms generally include a requirement of payment within a range of 30 to 90 days after the performance obligation has been satisfied. As a result, the contracts do not include a significant financing component. In addition, contacts typically do not contain variable consideration as the contracts include stated prices. The Company provides assurance-type warranties on all of its products, which are not separate performance obligations.
11 |
For service contracts, revenue is recognized over time and is generally defined pursuant to an enforceable right to payment for performance completed on service projects for which the Company has no alternative use as customer furnished compounds are added to Company plates for testing. The Company does not obtain control of the customer furnished compounds as the Company does not have the ability to direct the use. Revenue is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials and overhead.
Some contracts offer price discounts after a specified volume has been purchased. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and deferred; subsequently the revenue is recognized when those future goods or services are transferred, or when the option expires.
Contract assets primarily represent revenue earnings over time that are not yet billable based on the terms of the contracts. Contract liabilities consist of fees invoiced or paid by the Company’s customers for which the associated performance obligations have not been satisfied and revenue has not been recognized based on the Company’s revenue recognition criteria described above.
The Company records all amounts collected for shipping as revenue. Amounts collected from customers for sales tax are recorded in sales net of amounts paid to related taxing authorities.
Contract
assets were $
Derivative Instruments
The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in the Company’s financial statements. The result of this accounting treatment is that the fair value of the embedded derivative is revalued as of each reporting date and recorded as a liability, and the change in fair value during the reporting period is recorded in other income (expense) in the statements of operations. In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within twelve months of the consolidated balance sheet date.
Warrants
Except as noted in the next paragraph, the Company accounts for its preferred stock warrants issued to non-employees in equity as issuance costs, as the warrants were issued as vested share-based payment compensation to nonemployees.
The Company issued a warrant during first quarter of 2021 that contained an indexation feature not indexed to the Company’s stock resulting in this warrant being accounted for as a derivative. Derivative warrants are recorded as liabilities in the accompanying consolidated balance sheets. These common stock purchase warrants do not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using the Black-Scholes valuation pricing model with the assumptions as follows: the risk-free interest rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve. The expected life of the warrants is based upon the contractual life of the warrants. The Company uses the historical volatility of its common stock and the closing price of its shares on the NASDAQ Capital Market. As further described in Note 10 to the consolidated financial statements, as a result of the Merger, the terms of this warrant were finalized through the conversion to a Vyant warrant resulting in the Vyant warrant being equity classified.
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Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted-average number of shares of common shares outstanding during the period increased to include the number of additional common shares that would have been outstanding if the potentially dilutive securities had been issued, using the treasury-stock method. As the Company incurred losses for all periods presented, potentially dilutive securities have been excluded from fully diluted loss per share as their impact is anti-dilutive and would reduce the loss per share.
Convertible Notes
The Company accounts for convertible notes using an amortized cost model. Debt issuance costs and the initial fair value of bifurcated compound derivatives reduce the initial carrying amount of the convertible notes. The carrying value is accreted to the stated principal amount at contractual maturity using the effective-interest method with a corresponding charge to interest expense. Debt discounts are presented on the consolidated balance sheets as a direct deduction from the carrying amount of that related debt.
Fair Value Option
The Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument-by-instrument basis, with changes in fair value reported in earnings. The Company elected to account for the convertible note issued to the Major Investor in the three-month period ended March 31, 2021 under the fair value option. See Note 10 to the consolidated financial statements.
Intangible Assets
Intangible
assets consist of Vyant’s customer relationships and tradename, which will be amortized using the straight-line method
over the estimated useful lives of the assets of
Fixed Assets
The Company’s purchased fixed assets are stated at cost. Fixed assets under finance leases are stated at the present value of minimum lease payments.
Depreciation
is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful life of equipment is
Long-lived assets, such as fixed assets subject to depreciation, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. As of March 31, 2021 and December 31, 2020, the Company determined that there were no indicators of impairment and did not recognize any fixed asset impairment. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and appraisals, as considered necessary.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in a business combination. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value. No impairment losses were recognized during the quarters ended March 31, 2021 and 2020.
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Leases
The Company leases office space, laboratory facilities, and equipment. The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right-of-use (ROU) asset and a lease liability at the lease commencement date.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases and is subsequently measured at amortized cost using the effective-interest method. The Company has elected the practical expedient to account for lease and non-lease components as a single lease component. Therefore, the lease payments used to measure the lease liability includes all of the fixed consideration in the contract.
Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments. The Company discounts its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because the Company does not generally borrow on a collateralized basis, it uses the interest rate it pays on its non-collateralized borrowings as an input to deriving an appropriate incremental borrowing rate, adjusted for the lease payments, the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.
The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Research and Development and Advertising Costs
Research
and development as well as advertising costs are expensed as incurred. Research and development costs primarily consist of personnel
costs, including salaries and benefits, lab materials and supplies, and overhead allocation consisting of various support and
facility related costs. Research and development costs amounted to $
Stock Option Plan
The Company recognizes all employee stock-based compensation as a cost in the financial statements. Equity-classified awards are measured at the grant date fair value of the award. The Company estimates grant date fair value using the Black-Scholes-Merton option-pricing model and accounts for forfeitures as they occur. Excess tax benefits of awards related to stock option exercises are recognized as an income tax benefit in the consolidated statements of operations and reflected in operating activities in the consolidated statements of cash flows.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred
Fair Value Measurements
The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
●
|
Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
● | Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
● | Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. |
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The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Discontinued Operations
Prior to the Merger, CGI entered into asset purchases agreements whereby CGI sold all assets related to its BioPharma and Clinical businesses. CGI classified the disposals as discontinuing operations. As of the date of the Merger, $588 thousand of liabilities relating to these businesses are classified as other current liabilities – discontinued operations on the Company’s consolidated balance sheets.
Valuation of Business Combination
The Company allocates the consideration of a business acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates to goodwill any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs associated with a business combination are expensed as incurred and recorded as merger related costs.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amended guidance also clarifies and simplifies other aspects of the accounting for income taxes under ASC Topic 740, Income Taxes. The Company adopted this guidance effective January 1, 2021, prospectively, and the adoption of this standard did not have a material impact to the consolidated financial statements and related disclosures.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarified that before applying or upon discontinuing the equity method of accounting for an investment in equity securities, an entity should consider observable transactions that require it to apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The amended guidance will become effective for the Company on January 1, 2022. Early adoption is permitted. The Company does not believe this standard will have a material impact on its financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden of accounting for reference rate reform due to the cessation of the London Interbank Offered Rate, commonly referred to as “LIBOR.” The temporary guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, relationships, and transactions affected by reference rate reform if certain criteria are met. The provisions of the temporary optional guidance are only available until December 31, 2022, when the reference rate reform activity is expected to be substantially complete. When adopted, entities may apply the provisions as of the beginning of the reporting period when the election is made. The Company does not believe this standard will have a material impact on its financial statements and has yet to elect an adoption date.
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Note 4. Inventory
The Company’s inventory consists of the following:
March 31, 2021 | December 31, 2020 | |||||||
Finished goods | $ | $ | ||||||
Work in process | ||||||||
Raw materials | ||||||||
Total inventory | $ | $ |
Note 5. Fixed assets
Presented in the table below are the major classes of fixed assets by category:
March 31, 2021 | December 31, 2020 | |||||||
Equipment | $ | $ | ||||||
Furniture and fixtures | $ | $ | ||||||
Leasehold improvements | ||||||||
Less accumulated depreciation | ||||||||
$ | $ |
Depreciation
expense recognized during the three months ended March 31, 2021 and 2020 was $
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Note 6. Leases
The
Company leases its laboratory, research and administrative office space under various operating leases. In March 2021, the Company recorded
$
The components of operating and finance lease expense for the three-month periods ended March 31, are as follows:
2021 | 2020 | |||||||
Operating lease cost | $ | $ | ||||||
Finance lease cost: | ||||||||
Depreciation of ROU assets | - | |||||||
Interest on lease liabilities | - | |||||||
Total finance lease cost | - | |||||||
Variable lease costs | - | - | ||||||
Short-term lease costs | - | - | ||||||
Total lease cost | $ | $ |
Amounts reported in the consolidated balance sheet as of March 31, 2021 and December 31, 2020 are as follows:
2021 | 2020 | |||||||
Operating leases: | ||||||||
Operating lease ROU assets, net | $ | $ | ||||||
Operating lease current liabilities | ||||||||
Operating lease long-term liabilities | ||||||||
Total operating lease liabilities | ||||||||
Finance Leases: | ||||||||
Equipment | ||||||||
Accumulated depreciation | - | |||||||
Finance leases, net | - | |||||||
Current installment obligations under finance leases | - | |||||||
Long-term portion of obligations under finance leases | - | |||||||
Total finance lease liabilities | $ | $ |
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Other information related to leases for the three-month periods ended March 31, are as follows:
2021 | 2020 | |||||||
Supplemental cash flow information: | ||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flow from operating leases | $ | $ | ||||||
Financing cash flow from finance leases | ||||||||
ROU assets obtained in exchange for lease obligations: | ||||||||
Operating leases | $ | $ | ||||||
Finance leases | ||||||||
Weighted average remaining lease term: | ||||||||
Operating leases | ||||||||
Finance leases | ||||||||
Weighted average discount rate: | ||||||||
Operating leases | ||||||||
Finance leases |
Annual payments of lease liabilities under noncancelable leases as of March 31, 2021 are as follows:
Operating leases | |||||
Remainder of 2021 | $ | ||||
2022 | |||||
2023 | |||||
2024 | |||||
2025 | |||||
Thereafter | |||||
Total undiscounted lease payments | |||||
Less: Imputed interest | |||||
Total lease liabilities | $ |
Note 7. Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets include, among others, capitalized research and development costs, net operating loss carryforwards and research and development tax credit carryforwards. Deferred tax assets are partially offset by deferred tax liabilities arising from intangibles, fixed assets and lease assets. Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain based on the Company’s history of losses. Accordingly, the Company’s net deferred tax assets have been fully offset by a valuation allowance. Utilization of net operating loss and credit carryforwards may be subject to substantial annual limitation due to ownership change provisions of Section 382 of the Internal Revenue Code, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
As
of both March 31, 2021 and December 31, 2020, the Company’s liability for gross unrecognized tax benefits (excluding interest and
penalties) totaled $
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Note 8. Long-Term Debt
Long-term debt consists of the following:
March 31, 2021 | December 31, 2020 | |||||||
Department of Employment and Economic Development loan | $ | $ | ||||||
Economic Injury Disaster Loan | ||||||||
8% 2020 Convertible Notes, $7,651 face amount, due July 2022 | ||||||||
Total long-term debt before debt issuance costs and debt discount | ||||||||
Less: current portion of long-term debt | ||||||||
Less: debt discount (net of accretion of $0 and $235, respectively) | ( | ) | ||||||
Total long-term debt | $ | $ |
Future annual principal repayments due on the long-term debt as of March 31, 2021 are as follows:
Year ending December 31st, | Amount | |||
Remainder of 2021 | $ | |||
2022 | - | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
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2020 Convertible Notes
Effective
February 8, 2021 the Company’s shareholders and 2020 Convertible Note holders approved amendments to the 2020 Convertible
Notes to allow for the issuance of up to $
Payroll Protection Plan Loan
In
April 2020, the Company applied for and received a $
Economic Injury Disaster Loan
The
Company applied for and received a $
Note 9. Stockholders’ Equity
Common Stock
Holders of common stock are entitled to one vote per share, to receive dividends if and when declared, and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of the Company.
Preferred Stock
Series A and B Preferred Stock
As of December 31, 2020, the Company had shares of Series A Preferred Stock (the “Series A Preferred”) shares of Series B Preferred Stock (the “Series B”) issued and outstanding (collectively the “Preferred Stock”). The Company had classified the Preferred Stock as temporary equity in the consolidated balance sheets as the Preferred Shareholders control a Deemed Liquidation Event, as defined below, under the terms of the Series A and Series B Preferred Stock as described below. Effective with the Merger, all the Series A Preferred and the Series B Preferred shares were exchanged for and shares of common stock, respectively, and the related carrying value was reclassified to common stock and additional paid-in capital.
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During
the first quarter of 2020, the Company sold
Series C Preferred Stock
Effective
March 15, 2021, the Company’s shareholders approved the Merger with Cancer Genetics and the authorization of $
Warrants
Common Stock Warrant
The
Company issued the Investor Warrant on February 23, 2021. Effective with the Merger, the Investor Warrant was exchanged for a warrant
to purchase
In
connection with the Merger, the Company assumed
Exercise Price | Outstanding Warrants | Expiration
Dates | ||||||||
2020 Convertible Note | $ | |||||||||
2021 Offering | $ |