Organization, Description of Business, Reverse Stock Split, Business Disposals, Offerings and Merger
|12 Months Ended|
Dec. 31, 2020
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Organization, Description of Business, Reverse Stock Split, Business Disposals, Offerings and Merger||Organization, Description of Business, Reverse Stock Split, Business Disposals, Offerings and Merger
Cancer Genetics, Inc. (the "Company" or "CGI") supports the efforts of the biotechnology and pharmaceutical industries to develop innovative new drug therapies. Currently, the Company 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 and development programs in the oncology and immuno-oncology fields.
The Company was incorporated in the State of Delaware on April 8, 1999 and has laboratories in Pennsylvania and Australia. The Company’s corporate headquarters are in Rutherford, New Jersey. The Company offers preclinical services such as predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models in its Hershey PA facility, and is a leader in the field of immuno-oncology preclinical services in the United States. This service is supplemented with GLP toxicology and extended bioanalytical services in its Australian-based facilities in Clayton, Victoria. Beginning in February 2020, the Company also has an animal testing facility and laboratory in Gilles Plains, South Australia, Australia.
On August 24, 2020, the Company announced the entry into an Agreement and Plan of Merger and Reorganization originally dated August 21, 2020, as amended on February 8, 2021 and on February 26, 2021 (“Merger Agreement”) between the Company, StemoniX, Inc., a Minnesota corporation (“StemoniX”), and CGI Acquisition, Inc., a Minnesota corporation and wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub will merge with and into StemoniX, with StemoniX surviving the merger and becoming a direct, wholly-owned subsidiary of the Company (the “Merger”). The transaction is structured as a reverse merger with StemoniX as the acquirer for accounting purposes.
Pursuant to, and subject to the conditions of, the Merger Agreement, each share of common stock of StemoniX (other than Dissenting Shares (as defined in the Merger Agreement)), issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) shall be automatically converted into the right to receive an amount of shares of common stock, par value $0.0001 per share, of the Company (“CGI Common Stock”) equal to the Exchange Ratio (as defined in the Merger Agreement). All options to purchase shares of StemoniX Common Stock (“StemoniX Options”) outstanding immediately prior to the Effective Time, whether vested or unvested, will be converted into a stock option to purchase shares of CGI Common Stock, proportionately adjusted based on the Exchange Ratio. All warrants (“StemoniX Warrants”) to purchase shares of StemoniX capital stock, excluding certain warrants that are anticipated to be issued to investors purchasing at least a minimum amount of additional StemoniX Convertible Notes (the “Convertible Note Warrants”) outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive the same consideration such warrantholder would have received had they exercised the StemoniX Warrants immediately prior to the merger, based on the Exchange Ratio, net of the exercise price. All Convertible Note Warrants will be exchanged for warrants (the “Convertible Note Exchange Warrants”) to purchase a number of shares of CGI Common Stock equal to 20% of the principal amount of Convertible Notes purchased divided by the weighted average share price of CGI Common Stock over the five trading days prior to the closing of the merger (the “5-Day VWAP”), with an exercise price equal to the 5-Day VWAP. In addition, each share of StemoniX Series C Preferred Stock (the “Series C Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive a number of shares of CGI Common Stock (the “Series C Conversion Shares”) equal to the price per share paid for the Series C Preferred Stock divided by a conversion price, subject to a valuation cap set forth in the Merger Agreement, equal to 85% of the 5-Day VWAP.
Pursuant to the Merger Agreement, CGI and StemoniX have agreed that their respective equity holders’ ownership in the post-merger company would be at the 22%/78% ratio described below, but that securities issued by each party in certain private placement transactions after the date of the original Merger Agreement would not be included in determining that ratio and would instead dilute the ownership of all holders proportionately. Those transactions are (a) the private offering by StemoniX of Series C Preferred Stock (the “Series C Financing”) which closed on March 15, 2021, in which an aggregate of up to $2 million was raised, (b) the private offering by CGI of CGI Common Stock and warrants that closed on February 1, 2021 (the “CGI PIPE”) and (c) the registered direct offering by CGI of CGI Common Stock and placement agent warrants that closed on February 16, 2021 (the “CGI RD Financing”, and collectively with the Series C Financing and CGI PIPE, the “Private Placement”).
As a result, immediately following the Effective Time, but excluding the proportionate dilution resulting from the Private Placement, (A) the former StemoniX equity holders (excluding the effect of those purchasing Series C Preferred Stock in the Private Placement (the “Series C Investors”)) will hold approximately 78% of the “Deemed Outstanding Shares” of CGI Common Stock (defined below), and (B) the pre-merger outstanding (i) shares of CGI Common Stock (including underlying CGI options and CGI warrants on a net exercise basis but excluding the CGI securities issued in the CGI PIPE and CGI RD Financing) and (ii) November PA Warrants (as defined below) will represent approximately 22% of the Deemed Outstanding Shares (as defined below), with such percentages subject to certain closing adjustments based on the Net Cash (as defined in the Merger Agreement) held by each company before closing (such adjustment, the “Net Cash Adjustment”).
The “Deemed Outstanding Shares” of CGI Common Stock means:
i.the shares of CGI Common Stock outstanding, plus
ii.any shares of CGI Common Stock issuable on a net exercise basis with respect to any in-the-money CGI options or in-the-money CGI warrants (excluding warrants issued in the CGI PIPE and CGI RD Financing and warrants to purchase an aggregate of 94,092 shares of CGI Common Stock (the “November PA Warrants”) issued to CGI’s placement agent in connection with a public offering on November 2, 2020), plus
iii.any shares of CGI Common Stock issuable on a net exercise basis with respect to any in-the-money StemoniX Options and in-the-money StemoniX Warrants, plus
iv.the amount of shares of CGI Common Stock issuable upon cash exercise of the November PA Warrants and Convertible Note Exchange Warrants, reduced by
v.the shares of CGI Common Stock issued in the CGI PIPE and CGI RD Financing and the Series C Conversion Shares.
The exact number of shares of CGI Common Stock that will be issued to StemoniX shareholders other than the Series C Investors will be fixed immediately prior to the Effective Time to reflect the capitalization of CGI as of immediately prior to such time as well as the Net Cash Adjustment, and the exact number of shares of CGI Common Stock that will be issued to the Series C Investors will be fixed immediately prior to the Effective Time based on the 5-Day VWAP.
At December 31, 2020, the Company's history of losses required management to assess its ability to continue operating as a going concern, according to ASC 205-40, Going Concern. During the year ended December 31, 2020, the Company incurred a net loss of $8.0 million, including impairment charges of $2.2 million and $539 thousand of merger-related expenses. As of December 31, 2020, the Company’s accumulated deficit was $172.4 million. Cash used in operating activities for the year ended December 31, 2020 was $5.4 million. As of December 31, 2020, the Company had $2.4 million of available cash to fund ongoing operating activities. As discussed in Note 20, the Company raised $29.5 million subsequent to December 31, 2020. Therefore, the Company believes that with the cash available after the equity raises that the Company has sufficient cash to support its operations for at least one year from issuance of these financial statements and therefore substantial doubt as to the Company's ability to continue as a going concern has been alleviated.
The Company's ability to continue as a going concern is dependent on reduced losses and improved future cash flows. Alternatively, the Company may be required to raise additional equity or debt capital, or consummate other strategic transactions. The Company can provide no assurance that these actions will be successful or that additional sources of financing will be available on favorable terms, if at all.
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. In addition, as the Company is located in New Jersey, the Company is currently under a shelter-in-place mandate and many of its customers worldwide are similarly impacted. The global outbreak of COVID-19 continues to rapidly evolve, and the extent to which COVID-19 may impact the Company's business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, 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. As a healthcare provider, the Company is still providing Discovery Services and has yet to experience a slowdown in its project work, however, the future of many projects may be delayed. The Company continues to vigilantly monitor the situation with its primary focus on the health and safety of its employees and clients.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef