Notes
to Condensed Consolidated Financial Statements
Period
Ended March 31, 2021
(Unaudited)
Note
1. Organization and Description of Business
Vyant
Bio, Inc. (the “Company”, “Vyant Bio”, “VYNT” or “we”),
is an innovative biotechnology company reinventing drug discovery for complex neurodevelopmental and neurodegenerative disorders.
Our central nervous system (“CNS”) drug discovery platform combines human-derived organoid models of brain disease, scaled
biology, and machine learning. Our platform is designed to: 1) elucidate disease pathophysiology; 2) formulate key therapeutic hypotheses;
3) identify and validate drug targets, cellular assays, and biomarkers to guide candidate molecule selection; and 4) guide clinical trial
patient selection and trial design. Our current programs are focused on identifying repurposed and novel small molecule clinical candidates
for rare CNS genetic disorders including Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders (“CDD”) and familial
Parkinson’s Disease (“PD”). The Company’s management believes that drug discovery needs to progressively shift
as the widely used preclinical models for predicting safe and effective drugs have under-performed, as evidenced by the time and cost
of bringing novel drugs to market. As a result, Vyant Bio is focused on combining sophisticated data science capabilities with highly
functional human cell derived disease models. We leverage our ability to identify validated targets and molecular-based biomarkers to
screen and test thousands of small molecule compounds in human diseased 3D brain organoids in order to create a unique approach to assimilating
biological data that supports decision making iteratively throughout the discovery phase of drug development to identify both novel and
repurposed drug candidates.
As
further described in Note 3, in December 2021, the Company’s Board of Directors approved
a plan to sell the vivoPharm Pty Ltd and related subsidiaries (“vivoPharm”) business to focus the Company
on the development of neurological developmental and degenerative disease therapeutics. The Company engaged an investment banker
in December 2021 to sell the vivoPharm business during 2022.
The
accompanying unaudited condensed consolidated financial statements include all accounts and wholly-owned subsidiaries and have been prepared
in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been
eliminated. 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.
No
new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s condensed
consolidated financial statements.
These
unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for
the year ended December 31, 2021, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC. The preparation
of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates.
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected
for the entire 2022 year.
Dollar
amounts in tables are stated in thousands of U.S. 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 17,977,544
shares of VYNT common stock, par value $0.0001 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 891,780 shares of Common Stock to the holders of StemoniX options with exercise
prices ranging from $0.66 to $4.61 per share and a weighted average exercise price of $1.46 per share, and (iii) a warrant (the “Major
Investor Warrant”) to the Major Investor, expiring February 23, 2026 to purchase 143,890 shares of Common Stock at a price of $5.9059
per share in exchange for the Investor Warrant.
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 closing date 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. The total consideration
paid by StemoniX in the Merger amounted to $59.9 million, which represents the fair value of CGI’s 11,007,186 shares of Common
Stock or $50.74 million, 2,157,686 Common Stock warrants or $9.04 million and 55,907 Common Stock options outstanding on the closing
date of the Merger with a fair value of $139 thousand. In addition, at the effective time of the Merger, existing StemoniX shareholders
received an additional 804,711 incremental shares in accordance with the conversion ratio set forth in the Merger Agreement.
The
Company incurred $2.145 million of costs associated with the Merger that have been reported on the condensed consolidated statement of
operations as Merger related costs for the three-months ended March 31, 2021. As of March 31, 2021 accounts payable includes $63 thousand
of Merger-related costs.
The
following details the allocation of the preliminary purchase price consideration recorded on March 30, 2021, the acquisition date, with
adjustments recorded through March 30, 2022, the end of the period for which purchase accounting adjustments can be recorded, and the
final purchase price allocation.
Schedule of Preliminary Allocation of the Purchase Price Consideration
| |
Preliminary | | |
Adjustments | | |
Final | |
Assets acquired: | |
| | | |
| | | |
| | |
Cash and equivalents | |
$ | 30,163 | | |
$ | - | | |
$ | 30,163 | |
Accounts receivable | |
| 705 | | |
| - | | |
| 705 | |
Other current assets | |
| 806 | | |
| 227 | | |
| 1,033 | |
Intangible assets | |
| 9,500 | | |
| - | | |
| 9,500 | |
Fixed assets | |
| 416 | | |
| (256 | ) | |
| 160 | |
Goodwill | |
| 22,164 | | |
| 216 | | |
| 22,380 | |
Long-term prepaid expenses and other assets | |
| 1,381 | | |
| - | | |
| 1,381 | |
Total assets acquired | |
$ | 65,135 | | |
$ | 187 | | |
$ | 65,322 | |
| |
| | | |
| | | |
| | |
Liabilities assumed: | |
| | | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 2,670 | | |
$ | 437 | | |
$ | 3,107 | |
Current liabilities of discontinuing operations | |
| 588 | | |
| (141 | ) | |
| 447 | |
Obligations under operating leases | |
| 198 | | |
| - | | |
| 198 | |
Obligations under finance leases | |
| 106 | | |
| - | | |
| 106 | |
Deferred revenue | |
| 1,293 | | |
| (114 | ) | |
| 1,179 | |
Payroll and income taxes payable | |
| 360 | | |
| 5 | | |
| 365 | |
Total liabilities assumed | |
$ | 5,215 | | |
$ | 187 | | |
$ | 5,402 | |
| |
| | | |
| | | |
| | |
Net assets acquired: | |
$ | 59,920 | | |
$ | - | | |
$ | 59,920 | |
The
Company has completed 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. Fair values were based on management’s estimates
and assumptions. The Company recognized intangible assets related to the Merger, which consist of the tradename valued at $1.5
million with an estimated useful life of ten
years and customer relationships valued at $8.0
million with an estimated useful life of ten
years. The initial measurement of these intangible assets were classified as Level 3 measurements within the fair value hierarchy.
The value of the vivoPharm tradename was determined using the relief from royalty method based on analysis of profitability
and review of market royalty rates. The Company determined that a 1.0%
royalty rate was appropriate given the business-to-business nature of the vivoPharm operations. The value of the vivoPharm
customer relationships was determined using an excess earnings method based on projected discounted cash flows and historic customer
data. Key assumptions in this analysis included
an estimated 10% annual customer attrition rate based on historical vivoPharm operations, a blended U.S. federal, state and Australian
income tax rate of 27.1%, a present value factor of 8.5% as well as revenue, cost of revenue and operating expense assumptions regarding
the future growth, operating expenses, including corporate overhead charges, and required capital investments.
The
following presents the unaudited pro forma combined financial information as if the Merger had occurred as of January 1, 2020:
Schedule of Proforma Financial Information
| |
March
31, 2021 | |
Total revenue | |
$ | 1,841 | |
Net loss | |
$ | (6,495 | ) |
Pro forma loss per common share, basic and diluted | |
$ | (.21 | ) |
Pro forma weighted average number of common shares outstanding, basic and diluted | |
| 28,985 | |
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.
Note
3. Discontinuing Operations
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm Pty Ltd and related subsidiaries
(“vivoPharm”) business to focus the Company on the development of neurological developmental and degenerative
disease therapeutics. In December 2021, the Company engaged an investment bank to sell the vivoPharm business which is expected
to be completed 2022.
The
Company classified the vivoPharm business as held for sale as of December 31, 2021, and, given the significance of the change
in the Company’s strategy, classified this business as discontinuing operations in these condensed consolidated financial statements.
Therefore, the results for the three months ended March 31, 2021 have been retroactively restated to reflect the vivoPharm business
as discontinuing operations. In connection with the reclassification of the vivoPharm business as held for sale in the fourth
quarter of 2021, the Company completed a valuation of the net carrying value of this business and recorded a goodwill impairment charge
of $20.2 million.
The Company valued the vivoPharm business as of December 31, 2021 equally weighting public company revenue multiples as of December
31, 2021 and comparable transaction revenue multiples, which are classified as Level 3 measurements within the fair value hierarchy.
The Company updated the valuation of the vivoPharm business as of March 31, 2022 based on equally weighting public company revenue
multiples as of March 31, 2022 and comparable transaction revenue multiples. As a result of this analysis, the Company recorded an additional
impairment charge of $4.3
million during the quarter ended March 31, 2022 consisting
of the write-off of the remaining $2.2
million goodwill balance and reducing the cost
basis of customer relationships and tradenames by $1.8
million and $0.3
million, respectively.
Also
included in discontinuing operations are pre-Merger-related payables related to Cancer Genetic’s sale of its BioPharma and Clinical
businesses (“Pre-Merger discontinuing operations”). As of March 31, 2022 and December 31, 2021, $409 thousand of liabilities
relating to these businesses are classified as other current liabilities – discontinuing operations on the Company’s condensed
consolidated balance sheets.
The
following tables reflect the vivoPharm business operations for the three months ended March 31, 2022 and as of March 31, 2022
and December 31, 2021. As the vivoPharm business was acquired on March 30, 2021, the results of discontinuing operations for this
business for the three-months ended March 31, 2021 were not significant.
Results
of discontinuing operations were as follows for the three months ended March 31, 2022:
Schedule of Discontinuing Operations from
Income Statement and Balance Sheet
| |
| | |
Revenue | |
$ | 1,353 | |
Cost of goods sold | |
| 775 | |
General and administrative | |
| 1,045 | |
Impairment of goodwill and intangible assets | |
| 4,290 | |
Total operating costs and expenses | |
| 6,110 | |
Loss from discontinuing operations | |
| (4,757 | ) |
Total other income | |
| - | |
Loss from discontinuing operations before income taxes | |
| (4,757 | ) |
Income tax benefit | |
| - | |
Net loss from discontinuing operations | |
$ | (4,757 | ) |
Asset and liabilities of discontinuing operations were as follows as of March 31, 2022 and December 31, 2021:
| |
March
31, 2022 | | |
December
31, 2021 | |
Accounts receivable | |
$ | 542 | | |
$ | 457 | |
Other current assets | |
| 459 | | |
| 345 | |
Assets of discontinuing operations - current | |
| 1,001 | | |
| 802 | |
| |
| | | |
| | |
Fixed assets, net of accumulated depreciation | |
| 191 | | |
| 163 | |
Operating lease right-of-use assets | |
| 941 | | |
| 30 | |
Intangible assets, net | |
| 6,634 | | |
| 8,787 | |
Goodwill | |
| - | | |
| 2,164 | |
Other assets | |
| 362 | | |
| 364 | |
Assets of discontinuing operations - non-current | |
| 8,128 | | |
| 11,508 | |
| |
| | | |
| | |
Accounts payable | |
$ | 442 | | |
$ | 358 | |
Accrued expense | |
| 417 | | |
| 418 | |
Obligation under operating lease, current | |
| 151 | | |
| 29 | |
Obligation under finance lease, current | |
| 34 | | |
| 32 | |
Deferred revenue | |
| 1,942 | | |
| 1,911 | |
Taxes payable | |
| 365 | | |
| 365 | |
Other current liabilities | |
| 409 | | |
| 409 | |
Liabilities of discontinued operations - current | |
| 3,760 | | |
| 3,522 | |
| |
| | | |
| | |
Obligations under operating leases, less current | |
| 794 | | |
| 2 | |
Obligations under finance leases, less current | |
| 40 | | |
| 47 | |
Liabilities of discontinued operations - non-current | |
| 834 | | |
| 49 | |
During the three months ended March 31, 2022,
the vivoPharm business signed an extension to its Hershey, Pennsylvania facility lease and a new lease in South Australia resulting in
an increase of $1.0 million of right-of-use (“ROU”) assets and related liability within discontinuing operations.
Intangible
assets consisted of the following as of March 31, 2022 and December 31, 2021:
Schedule of Intangible Assets
| |
March
31,
2022 | | |
December 31, 2021 | |
Customer relationships | |
$ | 6,187 | | |
$ | 8,000 | |
Trade name | |
| 1,160 | | |
| 1,500 | |
Intangible assets, net | |
| 7,347 | | |
| 9,500 | |
Less accumulated amortization | |
| (713 | ) | |
| (713 | ) |
Intangible assets, net | |
$ | 6,634 | | |
$ | 8,787 | |
Goodwill
arising from the Merger was solely attributed to the vivoPharm business. The following is a roll forward of goodwill as of and
for the three months ended March 31, 2022:
Schedule of Goodwill Rollforward
| |
2022 | |
| |
| |
Beginning balance, January 1 | |
$ | 2,164 | |
Purchase price adjustments | |
| - | |
Impairment charge | |
| (2,164 | ) |
Ending balance, March 31 | |
$ | - | |
Note
4.
The
Company’s inventory consists of the following:
Schedule
of Inventory
| |
March 31, 2022 | | |
December 31, 2021 | |
Finished goods | |
$ | 56 | | |
$ | 23 | |
Work in process | |
| 51 | | |
| 138 | |
Raw materials | |
| 390 | | |
| 314 | |
Total inventory | |
$ | 497 | | |
$ | 475 | |
Note
5. Fixed Assets
Presented
in the table below are the major classes of fixed assets by category:
Schedule of Fixed Assets
| |
March 31, 2022 | | |
December 31, 2021 | |
Equipment | |
$ | 2,752 | | |
$ | 2,733 | |
Furniture and fixtures | |
| 6 | | |
| 6 | |
Leasehold improvements | |
| 261 | | |
| 251 | |
Fixed assets, gross | |
| 3,019 | | |
| 2,990 | |
Less accumulated depreciation | |
| (2,111 | ) | |
| (1,970 | |
Total | |
$ | 908 | | |
$ | 1,020 | |
Depreciation
expense from continuing operations recognized during the three months ended March 31, 2022 and 2021 was $142 thousand and $126 thousand,
respectively.
Note
6. Leases
The
Company leases its laboratory, research and administrative office space under various operating leases. In January 2022, the Company
recorded a $1.2 million of ROU asset and related liability upon the signing of a new 5-year lease in San
Diego, California.
The
components of operating and finance lease expenses for the three-month periods ended March 31, are as follows:
Components of Lease Expense and Supplemental Information
| |
2022 | | |
2021 | |
Operating lease costs | |
$ | 98 | | |
$ | 107 | |
Finance lease costs: | |
| | | |
| | |
Depreciation of ROU assets | |
| 40 | | |
| - | |
Interest on lease liabilities | |
| 7 | | |
| - | |
Total finance lease cost | |
| 47 | | |
| - | |
Variable lease costs | |
| - | | |
| - | |
Short-term lease costs | |
| - | | |
| - | |
Total lease cost | |
$ | 145 | | |
$ | 107 | |
Amounts
reported in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 are as follows:
Schedule of Amounts Reported in the Consolidated Balance Sheet
| |
2022 | | |
2021 | |
Operating leases: | |
| | | |
| | |
Operating lease ROU assets, net | |
$ | 1,764 | | |
$ | 673 | |
Operating lease current liabilities | |
| 241 | | |
| 174 | |
Operating lease long-term liabilities | |
| 1,540 | | |
| 516 | |
Total operating lease liabilities | |
| 1,781 | | |
| 690 | |
Finance leases: | |
| | | |
| | |
Equipment | |
| 477 | | |
| 477 | |
Accumulated depreciation | |
| (79 | ) | |
| (63 | ) |
Finance leases, net | |
| 398 | | |
| 414 | |
Current installment obligations under finance leases | |
| 158 | | |
| 157 | |
Long-term portion of obligations under finance leases | |
| 258 | | |
| 293 | |
Total finance lease liabilities | |
$ | 416 | | |
$ | 450 | |
Annual
payments of lease liabilities under noncancelable leases from continuing operations as of March 31, 2022 are as follows:
Schedule of Annual Payments of Lease Liabilities Under Noncancelable Leases
| |
Operating leases | |
|
Finance
leases |
|
Remainder of 2022 | |
$ | 303 | |
|
$ |
136 |
|
2023 | |
| 433 | |
|
|
181 |
|
2024 | |
| 423 | |
|
|
136 |
|
2025 | |
| 427 | |
|
|
- |
|
2026 | |
| 441 | |
|
|
- |
|
2027 | |
| 200 | |
|
|
- |
|
Thereafter | |
| - | |
|
|
- |
|
Total undiscounted lease payments | |
| 2,227 | |
|
|
452 |
|
Less: Imputed interest | |
| (446 | ) |
|
|
(36 |
) |
Total lease liabilities | |
$ | 1,781 | |
|
$ |
416 |
|
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, 2022 and December 31, 2021, the Company’s liability for gross unrecognized tax benefits (excluding interest and
penalties) totaled $0 thousand and $0, respectively in continuing operations. The Company had accrued interest and penalties relating
to unrecognized tax benefits of $0 and $0 on a gross basis as of March 31, 2022 and December 31, 2021, respectively in continuing operations.
The change in the liability for gross unrecognized tax benefits reflects an increase in reserves established for foreign uncertain tax
positions arising from the Merger. The Company does not currently expect significant changes in the amount of unrecognized tax benefits
during the next twelve months.
Note
8. Long-Term Debt
Long-term
debt as of March 31, 2022 and December 31, 2021 consists of a $57 thousand Economic Injury Disaster Loan with annual principal payments
of approximately $1 thousand per year.
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 $10.0 million in 2020 Convertible Notes for cash (plus up to approximately $3.9 million of 2020 Convertible
Notes in exchange for the cancellation of Series B Preferred stock) as well as modifications to the financing’s terms for any 2020
Convertible Noteholder that invested at least $3.0 million of cash since May 4, 2020 in the offering (a “Major Investor”).
As of March 12, 2021, the Company completed the $10.0 million 2020 Convertible Note offering. The Company raised approximately $5.0 million
from the sale of 2020 Convertible Notes from January 1, 2021 through March 12, 2021 of which approximately $3.9 million were to related
parties, including former StemoniX Board members as well as a more than 5% owner of Series B Preferred stock. For any Major Investor,
the modified terms provide for a fixed conversion discount on the 2020 Convertible Notes of 20% and a common stock warrant equal to 20%
of the amount invested in all 2020 Convertible Notes by such Major Investor divided by the weighted average share price of the Common
Stock over the five trading days prior to the closing of the Merger. One 2020 Convertible Note holder that had previously invested $1.25
million in the offering invested an additional $3.0 million on February 23, 2021 and upon the Merger received a warrant to purchase 143,890
shares of the Company’s common stock at an exercise price of $5.9059 per share (the “Major Investor Warrant”). At the
time of the Merger, the outstanding principal of the 2020 Convertible Notes of approximately $12.7 million plus accrued interest of $468
thousand were exchanged for 3,338,944 shares of the Company’s common stock. In connection with this exchange, the Company recorded
a debt extinguishment loss of $2.5 million in the first quarter of 2021. The weighted average interest rate on the 2020 notes during
the three-month period ended March 31, 2021 was 18.22%.
Payroll
Protection Plan Loan
In
April 2020, the Company applied for and received a $730
thousand loan under the Payroll Protection Plan
(“PPP”) as part of the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”). Under the PPP,
the Company was able to receive funds for two and a half months of payroll, rent, utilities, and interest cost. In April 2021 the
SBA fully forgave the PPP loan. The $730
thousand of PPP loan forgiveness was recorded
as a reduction of operating costs during 2020.
Economic
Injury Disaster Loan
The
Company applied for and received a $57 thousand Economic Injury Disaster Loan (“EIDL”) loan and a $10 thousand grant from
the Small Business Administration in connection with the COVID-19 impact on the Company’s business. This loan bears interest at
3.75% and is repayable in monthly installments starting in June 2022 with a final balance due on June 21, 2050.
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.
Lincoln
Park Capital Fund, LLC Agreement
On
March 28, 2022, the Company entered into a purchase agreement, or Purchase Agreement, with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), which, subject to the terms and conditions, provides that the Company has the right to sell to Lincoln Park and Lincoln
Park is obligated to purchase up to $15.0
million of its common shares. Additionally, on
March 28, 2022, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with Lincoln
Park, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”),
covering the resale of shares of common stock issued to Lincoln Park under the Purchase Agreement. In addition, under the Purchase Agreement,
the Company agreed to issue a commitment fee of 405,953
common shares, or the Commitment Shares, as consideration
for Lincoln Park entering into the Purchase Agreement. Under
the Purchase Agreement, the Company may from time to time for 30 months following May 9, 2022 (the “Commencement Date”),
at its discretion, direct Lincoln Park to purchase on any single business day, or a Regular Purchase, up to (i) 50,000 common shares,
(ii) 75,000 common shares if the closing sale price of its common shares is not below $1.50 per share on Nasdaq or (iii) 100,000 common
shares if the closing sale price of its common shares is not below $2.50 per share on Nasdaq. In
addition to Regular Purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional
accelerated purchases on the terms and subject to the conditions set forth in the Purchase Agreement. In any case, Lincoln Park’s
commitment in any single Regular Purchase may not exceed $1.0 million absent a mutual agreement to increase such amount. The purchase
price per share for each Regular Purchase will be based on prevailing market prices of the Common Stock immediately preceding the time
of sale as computed in accordance with the terms set forth in the Purchase Agreement. There are no upper limits on the price per share
that Lincoln Park must pay for shares of Common Stock under the Purchase Agreement. The Purchase Agreement may be terminated by the Company
at any time after the Commencement Date, at its sole discretion, without any cost or penalty, by giving one business day notice to Lincoln
Park to terminate the Purchase Agreement.
For
the quarter ended March 31, 2022, the Company incurred $101
thousand of issuance costs related to Lincoln
Park and Canaccord Genuity LLC At The Market (“ATM”) (see Note 16. Subsequent Events) arrangements which were
recorded as issuance costs in the Condensed Consolidated Statements of Stockholders’ Equity.
Preferred
Stock
Series
A and B Preferred Stock
As
of December 31, 2020, the Company had 4,611,587
shares of Series A Preferred Stock (the “Series
A Preferred”) 3,489,470
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 condensed consolidated balance sheets as the Preferred Shareholders controlled 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 5,973,509
and 4,524,171
shares of common stock, respectively, and the
related carrying value was reclassified to common stock and additional paid-in capital.
Series
C Preferred Stock
Effective
March 15, 2021, StemoniX’s shareholders approved the Merger with Cancer Genetics and the authorization of $2.0
million of StemoniX’s Series C Preferred
Stock (“Series C Preferred”). Effective with the Merger on March 30, 2021, the Series C Preferred shares were exchanged for
699,395
shares of Vyant Bio common stock and the
related carrying value was reclassified to common stock and additional paid-in capital.
Warrants
Common
Stock Warrants
The
Company issued the Investor Warrant on February 23, 2021. Effective with the Merger, the Investor Warrant was exchanged for a warrant
to purchase 143,890
shares of the Company’s common stock at
an exercise price of $5.9059.
Prior to this exchange, the Investor Warrant was classified as a liability and the Company recognized a $214
thousand gain in the first quarter of 2021 related
to fair value adjustments. The fair value of the Investor Warrant was $421
thousand at the time of the Merger and reclassified
to additional paid in capital.
In
connection with the Merger, the Company assumed 2,157,686 common stock warrants issued in
prior financings of which 2,149,106 remain outstanding as of March 31, 2022. A summary of all common stock warrants outstanding as of
March 31, 2022 is as follows:
Summary
of All Common Stock Warrants Outstanding
Issuance Related to: | |
Exercise Price | | |
Outstanding Warrants | | |
Expiration Dates |
2020 Convertible Note | |
$ | 5.91 | | |
| 143,890 | | |
Feb 23, 2026 |
2021 offerings | |
$ | 3.50 | | |
| 1,624,140 | | |
Feb 10, 2026 - Aug 3, 2026 |
Advisory fees | |
$ | 2.42 - $7.59 | | |
| 492,894 | | |
Jan 9, 2024 - Oct 28, 2025 |
Debt | |
$ | 27.60 | | |
| 14,775 | | |
Mar 22, 2024 |
Debt | |
$ | 450.00 | | |
| 9,185 | | |
Oct 17, 2022 - Dec 7, 2022 |
Debt | |
$ | 300.00 | | |
| 8,112 | | |
Oct 17, 2022 |
Total | |
| | | |
| 2,292,996 | | |
|
Preferred
Stock Warrants
In
connection with the issuance of the Series A Convertible Preferred and Series B Convertible Preferred, the Company issued warrants (the
“Series A Warrants” and “Series B Warrants”, respectively, and collectively, the “Preferred Warrants”)
as compensation to non-employee placement agents. The Series A Warrants and Series B Warrants were issued on April 28, 2017 and May 18,
2019, respectively. The Company determined the Preferred Warrants should be classified as equity as they were issued as vested share-based
payment compensation to nonemployees. The Preferred Warrants were recorded in stockholders’ equity at fair value upon issuance
with no subsequent remeasurement. As part of the Merger, the Preferred Warrants were converted and settled for a total of 43,107 shares
of the Company’s common stock.
Note
10. Fair Value Measurements
During
the first quarter of 2021, the Company elected to account for the $3.0 million investment in the 2020 Convertible Notes issued to the
Major Investor using the fair value method. Further, the Major Investor Warrant was deemed to be a liability classified instrument due
its variable settlement features. Both of these instruments were classified as Level 3 measurements within the fair value hierarchy.
The
fair value of the Company’s 2020 Convertible Note issued to the Major Investor is measured as the sum of the instrument’s
parts, being the underlying debt instrument and the conversion feature. The conversion feature was valued using the probability weighted
conversion price discount. The
instrument provided the holder the right to convert the instrument into shares of Series B Preferred Stock at a 20% discount.
Given the timing of the issuance of the instrument near the Merger date, management determined that there was a 99.5% probability of
the holders converting the instrument to Company shares at a 20% discount.
The
Company valued the warrants issued with the 2020 Convertible Notes using a Black-Scholes-Merton model using the value of the underlying
stock and exercise price of $2.01, along with a risk-free interest rate of 0.59% and volatility of 86%. The Company estimated the term
of the warrant to be 5 years.
The
Company’s 2020 Convertible Notes contain a share settled redemption feature (“Embedded Derivative”) that requires conversion
at the lesser of specified discounts from qualified financing price per share or the fair value of the common stock at the time of conversion.
The discount changes based on the passage of time between issuance of the convertible note and the conversion event. This feature is
considered a derivative that requires bifurcation because it provides a specified premium to the holder of the note upon conversion.
The Company measures the share-settlement obligation derivative at fair value based on significant inputs that are not observable in
the market. This results in the liability classified as a Level 3 measurement within the fair value hierarchy.
Upon
the Merger, all of the Level 3 instruments were exchanged for Vyant Bio equity classified instruments. Prior to their exchange, all of
these instruments were marked to their fair market values with corresponding changes recorded in the statement of operations in
the first quarter of 2021.
In
the fourth quarter of 2021, the Company classified the vivoPharm business as discontinuing operations and applied held for
sale accounting. The Company valued the vivoPharm business as of December 31, 2021 equally weighting public company revenue
multiples as of December 31, 2021 and comparable transaction revenue multiples, which are classified as Level 3 measurements within
the fair value hierarchy. The Company updated the valuation of the vivoPharm business as of March 31, 2022 based on equally
weighting public company revenue multiples as of March 31, 2022 and comparable transaction revenue multiples, which resulted in a
$4.5 million decrease to the fair value of vivoPharm. The fair value of the vivoPharm business was estimated to be
$11.0 million
and $6.5 million
as of December 31, 2021 and March 31, 2022, respectively. The Company recognized an impairment charge of $4.3 million during the
quarter ended March 31, 2022, which decreased vivoPharm’s net carrying value, net of estimated disposal costs from
$9.2 million
as of December 31, 2021 to $4.9 million
as of March 31, 2022.
The
following tables present changes in fair value of level 3 valued instruments as of and for the three months ended March 31, 2022 and
2021:
Schedule
of Changes in Fair Value of Level 3 Valued Instruments
| |
vivoPharm
Business | |
Balance – January 1, 2022 | |
$ | 11,000 | |
Additions | |
| - | |
Measurement adjustments | |
| (4,500 | ) |
Settlement | |
| - | |
Balance – March 31, 2022 | |
$ | 6,500 | |
| |
2020 Convertible Note | | |
Warrant | | |
Embedded Derivative | |
Balance – January 1, 2021 | |
$ | - | | |
$ | - | | |
$ | 1,690 | |
Additions | |
| 3,746 | | |
| 635 | | |
| 325 | |
Measurement adjustments | |
| 4 | | |
| (214 | ) | |
| 250 | |
Settlement | |
| (3,750 | ) | |
| (421 | ) | |
| (2,265 | ) |
Balance – March 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | |
Note
11. Loss Per Share
Basic
loss per share is computed by dividing the net loss after tax attributable to common stockholders by the weighted average shares outstanding
during the period. Diluted loss per share is computed by including potentially dilutive securities outstanding during the period in the
calculation of weighted average shares outstanding. The Company did not have any dilutive securities during the periods presented; therefore,
diluted loss per share is equal to basic loss per share.
Presented
in the table below is a reconciliation of the numerator and denominator for the basic and diluted loss per share calculations for the
three months ended March 31, 2022 and 2021:
Schedule
of Reconciliation of Numerator and Denominator for Basic and Diluted Loss Per Share
| |
2022 | | |
2021 | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Net loss from continuing operations | |
$ | (4,406 | ) | |
$ | (7,358 | ) |
Net loss from discontinuing operations | |
| (4,757 | ) | |
| (8 | ) |
Net loss | |
$ | (9,163 | ) | |
$ | (7,366 | ) |
Basic and diluted weighted average shares outstanding | |
| 29,012,536 | | |
| 3,184,106 | |
Basic and diluted net loss per share: | |
| | | |
| | |
Continuing operations | |
$ | (0.15 | ) | |
$ | (2.31 | ) |
Discontinuing operations | |
| (0.17 | ) | |
| - | |
Net loss | |
$ | (0.32 | ) | |
$ | (2.31 | ) |
The
following securities were not included in the computation of diluted shares outstanding for the for the three months ended March 31,
2022 and 2021 because the effect would be anti-dilutive:
Schedule
of Computation of Diluted Shares Outstanding
| |
2022 | | |
2021 | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Common stock warrants | |
| 2,292,996 | | |
| 2,301,576 | |
Common stock options | |
| 2,766,616 | | |
| 2,268,543 | |
Total | |
| 5,059,612 | | |
| 4,570,119 | |
Note
12. Stock-Based Compensation
The
Company has two pre-Merger legacy equity incentive plans: the Cancer Genetics Inc. 2011 Equity Incentive Plan (the “2011
Plan”), and the StemoniX Inc. 2015 Stock Option Plan (the “2015 Plan”, and collectively, the “ Frozen Stock
Option Plans”). The Frozen Stock Option Plans as well as the 2021 Plan (as defined below) are meant to provide additional
incentive to officers, employees and consultants to remain in the Company’s employment. Options granted are generally
exercisable for up to 10
years. Effective with the Merger, the Company is no
longer able to issue options from the Frozen Stock Option Plans. Effective with the
Merger, the Vyant Bio 2021 Equity Incentive Plan (the “2021 Plan”) came into effect, pursuant to which the
Company’s Board of Directors may grant up to 4,500,000
of equity-based instruments to officers, key employees, and non-employee consultants.
As
StemoniX was the acquirer for accounting purposes, the pre-Merger vested stock options granted by CGI under the 2008 and 2011 Plans are
deemed to have been exchanged for equity awards of the Company. The exchange of StemoniX stock options for options to purchase Company
common stock was accounted for as a modification of the StemoniX stock options; however, the modification did not result in any incremental
compensation expense as the modification did not increase the fair value of the stock options.
For
StemoniX stock options issued prior to the Merger, the expected volatility was estimated based on the average historical volatility of
similar entities with publicly traded shares as StemoniX’s shares historically were not publicly traded and its shares rarely traded
privately. After the Merger, the Company used Vyant’s historical volatility to determine the expected volatility of post-Merger
option grants. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.
The
Company uses a simplified method to determine the expected term for the valuation of employee options. This method effectively assumes
that exercise occurs over the period from vesting until expiration, and therefore the expected term is the midpoint between the service
period and the contractual term of the award. The simplified method is applicable to options with service conditions. For options granted
to nonemployees, the contractual term is used for the valuation of the options.
On
March 30, 2021, the Company granted 1,151,500 stock options to officers and other employees, 78,090 stock options to independent Board
members and a restricted stock unit (“RSU”) of 8,676 shares to the Company’s Board chair. The options granted to officers
and employees vest 25% one year from the grant date and thereafter equally over the next 36 months. The options granted to Board members
vested upon grant. The Board chair RSU vests one year from the grant date.
During
the three-month period ended March 31, 2022, the Company granted 725,301
stock options to officers and other employees,
350,896
restricted stock units (“RSUs”)
to the Company’s Board of Directors. The options granted to officers and employees vest over various terms based on the underlying
agreement as 606,720
contain performance vesting criteria. The RSUs
granted to Board members vests one year from the grant date.
As
of March 31, 2022, there were 2,228,537 additional shares available for the Company to grant under the 2021 Plan. The grant-date fair
value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The assumptions for
stock option grants during the quarters ended March 31, 2022 and 2021 are provided in the following table.
Schedule of Assumptions for Stock Option Grants
| |
2022 | | |
2021 | |
Valuation assumptions | |
| | | |
| | |
Expected dividend yield | |
| 0.0 | % | |
| 0.0 | % |
Expected volatility | |
| 56.3% –69.8 | % | |
| 119-123 | % |
Expected term (years) – simplified method | |
| 3.0 – 6.1 | | |
| 5.5
– 6.0 | |
Risk-free interest rate | |
| 1.74% – 2.13 | % | |
| 0.98% – 1.12 | % |
Stock
option activity during the for the three-month periods ended March 31, 2022 and 2021 is as follows:
Schedule
of Share Option Activity
| |
Number of Options | | |
Weighted average exercise price | | |
Weighted average remaining contractual term | |
Balance as of January 1, 2021 | |
| 756,383 | | |
$ | 1.82 | | |
| 8.7 | |
Granted | |
| 1,229,590 | | |
| 4.61 | | |
| | |
Additional options grant StemoniX holders | |
| 292,995 | | |
| 4.61 | | |
| | |
Options assumed in Merger | |
| 55,840 | | |
| 45.95 | | |
| | |
Exercised | |
| (29,916 | ) | |
| 1.24 | | |
| | |
Forfeited | |
| (29,349 | ) | |
| 2.00 | | |
| | |
Expired | |
| (7,000 | ) | |
| 1.39 | | |
| | |
Balance as of March 31, 2021 | |
| 2,268,543 | | |
$ | 4.79 | | |
| 8.1 | |
| |
| | | |
| | | |
| | |
Balance as of January 1, 2022 | |
| 2,320,097 | | |
| 4.19 | | |
| 7.4 | |
Granted | |
| 725,301 | | |
| 1.01 | | |
| | |
Exercised | |
| (5,174 | ) | |
| 0.96 | | |
| | |
Forfeited | |
| (255,766 | ) | |
| 4.22 | | |
| | |
Expired | |
| (17,842 | ) | |
| 57.24 | | |
| | |
Balance as of March 31, 2022 | |
| 2,766,616 | | |
$ | 3.01 | | |
| 8.7 | |
| |
| | | |
| | | |
| | |
Exercisable as of March 31, 2022 | |
| 1,011,626 | | |
$ | 3.72 | | |
| 7.6 | |
The
weighted average grant-date fair value of options granted during the three-month periods ended March 31, 2022 and 2021 was $0.54 and
$3.89, respectively. The aggregate intrinsic value of options outstanding as of March 31, 2022 was $0.1 million. The intrinsic value
of options exercisable was $0.1 million as of March 31, 2022. The total intrinsic value of options exercised was $1 thousand and $23
thousand for the three-month period ended March 31, 2022 and 2021, respectively.
The
Company recognized stock-based compensation in continuing operations related to different instruments for the three-month periods ended
March 31 as follows:
Schedule
of Share Based Compensation Activity
| |
2022 | | |
2021 | |
Stock options | |
$ | 258 | | |
$ | 366 | |
Shares issued for services | |
| 20 | | |
| - | |
Total | |
$ | 278 | | |
$ | 366 | |
As
of March 31, 2022, there was $3.5 million of total unrecognized compensation cost related to unvested stock options granted under the
Plan. That cost is expected to be recognized over a weighted average period of 2.75 years.
Note
13. Segment Information
The
Company reports segment information based on how the Company’s chief operating decision maker (“CODM”), regularly reviews
operating results, allocates resources and makes decisions regarding business operations. For segment reporting purposes, the Company’s
business structure is comprised of one operating and reportable segment.
During
the three-months ended March 31, 2022 and 2021, four customers and three customers accounted for approximately 76%
and 69%, respectively, of the consolidated revenue from continuing operations.
During
the three-months ended March 31, 2022 and 2021, approximately 33%
and 38%,
respectively, of the Company’s consolidated revenue from continuing operations were earned outside of the U.S.
Customers
representing 10% or more of the Company’s total revenue from continuing operations for the three-month periods ended March
31, 2022 and 2021 are presented in the table below:
Schedule
of Customers Representing Revenues
| |
2022 | | |
2021 | |
Customer A | |
| 27 | % | |
| 24 | % |
Customer B | |
| 24 | % | |
| 28 | % |
Customer C | |
| 14 | % | |
| n/a | |
Customer D | |
| 11 | % | |
| n/a | |
Customer E | |
| n/a | | |
| 17 | % |
Note
14. Related Party Transactions
The
Company raised approximately $3.9 million from the sale of 2020 Convertible Notes from January 1, 2021 through March 12, 2021 from related
parties, including former StemoniX Board members as well as one shareholder who owned more than 5% of Series B Preferred stock. This
Series B preferred stock shareholder was also a Major Investor and received an Investor Warrant on February 23, 2021. Effective with
the Merger, the Investor Warrant was exchanged for a warrant to purchase 143,890 shares of the Company’s common stock at an exercise
price of $5.9059 per share.
During
the first quarter of 2022, the Company paid a third-party collaboration partner $39 thousand as a reimbursement of third-party costs
incurred by the collaborator in connection with the collaboration arrangement. In September 2021, an executive’s family member
became an employee of this collaborator. The arrangements with this third-party collaborator had arms-length terms.
Note
15. Contingencies
We
are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings
arising in the ordinary course of our business.
Note
16. Subsequent Event
At
The Market Financing
On
April 8, 2022, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with Canaccord Genuity LLC
(the “Agent”), pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an
aggregate offering price of up to $20,000,000 (the “Shares”), depending on market demand, with the Agent acting as an agent
for sales. Sales of the Shares may be made by any method permitted by law deemed to be an “at the market offering” as defined
in Rule 415(a)(4) of the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales
made directly on or through the NASDAQ Capital Market. The Agent will use its commercially reasonable efforts to sell the Shares requested
by the Company to be sold on its behalf, consistent with the Agent’s normal trading and sales practices, under the terms and subject
to the conditions set forth in the Sales Agreement. The Company has no obligation to sell any of the Shares. The Company may instruct
the Agent not to sell the Shares if the sales cannot be effected at or above the price designated by the Company from time to time and
the Company may at any time suspend sales pursuant to the Sales Agreement. The Company will pay the Agent a commission of up to 3.0%
of the gross proceeds from the sale of Shares by the Agent under the Sales Agreement. The Company has also agreed to reimburse the Agent
for its reasonable documented out-of-pocket expenses, including fees and disbursements of its counsel, in the amount of $75,000. In addition,
the Company has agreed to provide customary indemnification rights to the Agent. The Offering will terminate upon the earlier of (i)
the issuance and sale of all Shares subject to the Sales Agreement, or (ii) the termination of the Sales Agreement as permitted therein,
including by either party at any time without liability of any party.