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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2021

 

Commission File Number 001-35817

 

VYANT BIO, INC.

(Exact name of registrant as specified in the charter)

 

Delaware   04-3462475
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)

 

2 Executive Campus

2370 State Route 70, Suite 310

Cherry Hill, NJ 08002

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (201) 479-8126

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 Par Value   VYNT   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. Yes ☒ No ☐.

 

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). Yes ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated Filer ☒ Smaller reporting company

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 ☐ No ☒.

 

There were 28,985,814 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   $ 33,074     $ 792  
Trade accounts and other receivables     924       357  
Inventory     409       415  
Prepaid expenses and other current assets     2,134       223  
Total current assets     36,541       1,787  
Non-current assets                
Goodwill     22,164       -  
Intangible assets, net     9,500       -  
Fixed assets, net     1,347       1,031  
Right-to-use assets, net     1,170       1,095  
Long-term prepaid expenses and other assets     1,633       136  
Total non-current assets     35,814       2,262  
Total assets   $ 72,355     $ 4,049  
                 
Liabilities, Temporary Equity and Stockholders’ Equity (Deficit)                
Current liabilities:                
Accounts payable   $ 1,412     $ 1,300  
Accrued expenses     3,400       162  
Deferred revenue     1,346       92  
Income taxes payable    

360

      -  
Obligations under operating leases, current portion     647       486  
Obligations under finance leases, current portion     31       -  
Other current liabilities     4       9  
Other current liabilities - discontinued operations     588       -  
Total current liabilities     7,788       2,049  
Obligations under operating leases, less current portion     548       627  
Obligations under finance leases, less current portion     74       -  
Share-settlement obligation derivative     -       1,690  
Accrued interest     -       277  
Long-term debt     57       6,839  
Total liabilities   $ 8,467     $ 11,482  
                 
Commitments and contingencies     -           
Temporary equity:                
Series A Convertible Preferred stock, $0.0001 par value; 4,700 shares authorized, 0 and 4,612 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (liquidation value of $0 and $11,732, respectively, as of March 31, 2021 and December 31, 2020)     -       12,356  
Series B Convertible Preferred stock, $0.0001 par value; 4,700 shares authorized, 0 and 3,489 shares issued and outstanding, as of March 31, 2021 and December 31, 2020, respectively (liquidation value of $0 and $15,707, respectively, as of March 31, 2021 and December 31, 2020)     -       16,651  
Series C Convertible Preferred stock, $0.0001 par value; 2,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020 (liquidation value of $0 as of March 31, 2021 and December 31, 2020)     -       -  
Total temporary equity     -       29,007  
                 
Stockholders’ equity (deficit):                
Preferred stock, authorized 9,764 shares $0.0001 par value, none issued     -       -  
Common stock, authorized 100,000 shares, $0.0001 par value, 28,985 and 2,594 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively     3       -  
Additional paid-in capital     109,205       1,514  
Accumulated deficit     (45,320 )     (37,954 )
Total Stockholders’ equity (deficit)     63,888       (36,440 )
Total liabilities and Stockholders’ equity   $ 72,355     $ 4,049  

 

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   $ 116     $ 136  
Product     106       32  
Total revenues     222       168  
                 
Operating costs and expenses:                
Cost of goods sold – service     89       132  
Cost of goods sold – product     396       166  
Research and development     820       1,009  
Selling, general and administrative     1,216       833  
Merger related costs     2,145       -  
Total operating costs and expenses     4,666       2,140  
Loss from operations     (4,444 )     (1,972 )
                 
Other (expense) income:                
Change in fair value of warrant liability     214       -  
Change in fair value of share-settlement obligation derivative     (250 )     -  
Loss on debt conversions     (2,518 )     -  
Interest expense     (368 )     (1 )
Total other (expense) income     (2,922 )     (1 )
Loss before income taxes     (7,366 )     (1,973 )
Income tax expense (benefit)     -       -  
Net loss   $ (7,366 )   $ (1,973 )
                 
Net loss per common share:                
Net loss per share attributable to common stock - Basic and Diluted   $ (2.31 )   $ (0.80 )
Weighted average shares outstanding:                
Weighted average common shares outstanding - Basic and Diluted     3,184       2,460  

 

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)  

 

    Shares     Amount     Shares     Amount     Shares     Amount     Equity     Shares     Amount     Capital     Deficit     (Deficit)  
   

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     4,612     $ 12,356       3,489     $ 16,651       -       -     $ 29,007       2,594       -     $ 1,514     ($ 37,954 )   ($ 36,440 )
Stock-based compensation     -       -       -       -       -       -       -       -       -       366       -       366  
Exercise of stock options     -       -       -       -       -       -       -       -       -       4       -       4  
Issuance of Series C Convertible Preferred shares, net of issuance costs of $214     -       -       -       -       567       1,786       1,786       -       -       -       -       -  
Issuance of Common Stock for acquisition consideration     -       -       -       -       -       -       -       11,007       2       59,918       -       59,920  
Issuance of Incremental shares to StemoniX shareholders upon Merger     -       -                       -                       

805

      -      

-

            -       -  
Conversion of Preferred Stock to Common Stock upon Merger     (4,612 )     (12,356 )     (3,489 )     (16,651 )     (567 )     (1,786 )     (30,793 )     11,197       1       30,792       -       30,793  
Conversion of 2020 Notes to Common Stock upon Merger     -       -       -       -       -       -       -       3,339       -       16,190       -       16,190  
Preferred stock warrant settled for Common Stock upon Merger     -       -       -       -       -       -       -       43       -               -       -  
Warrant liability reclassified to equity upon Merger     -       -       -       -       -       -       -               -       421       -       421  
Net loss     -       -       -       -       -       -       -       -       -       -       (7,366 )     (7,366 )
Balance as of March 31, 2021     -       -       -       -       -       -       -       28,985       3       109,205       (45,320 )     63,888  
                                                                                                 
Balance as of January 1, 2020     4,612     $ 12,356       3,735     $ 18,045       -       -     $ 30,041       2,456       -     $ 1,047     ($ 29,304 )   ($ 28,257 )
                                                                                                 
Stock-based compensation     -       -       -       -       -       -       -       -       -       42       -       42  
Issuance of shares for services     -       -       5       30       -       -       30       -        -               -          
Exercise of stock options     -       -       -       -       -       -       -       12       -       23       -       23  
Issuance of Series B Convertible Preferred shares, net of issuance costs of $41     -       -       236       1,269       -       -       1,269       -       -       -       -       -  
Net loss     -       -       -       -       -       -       -       -       -       -       (1,973 )     (1,973 )
Balance as of March 31, 2020     4,612       12,356       3,976       19,344       -       -       31,700       2,468       -       1,112       (31,277 )     (30,165 )

 

5 

 

 

Vyant Bio, Inc.

(Formerly Known as Cancer Genetics, Inc.)

Consolidated Statements of Cash Flows

(unaudited)

(USD in Thousands)

 

    2021     2020  
    Three months ended March 31,  
    2021     2020  
             
Cash Flows from Operating Activities:                
Net loss   $ (7,366 )   $ (1,973 )
Reconciliation of net loss to net cash used in operating activities:                
Stock-based compensation     366       72  
Amortization of operating lease right-of-use assets     117       120  
Depreciation and amortization expense     126       145  
Change in fair value of share-settlement obligation derivative     250       -  
Change in fair value of warrant liability     (214 )     -  
Change in fair value of 2020 Convertible Note with fair value election     4       -  
Accretion of debt discount     173       -  
Loss on conversion of debt     2,518       -  
Changes in operating assets and liabilities net of impacts of business combination:                
Trade accounts and other receivables     138       (39 )
Inventory     6       (69 )
Prepaid expenses and other current assets     (110 )     201  
Accounts payable     (727 )     247  
Obligations under operating leases     (117 )     (122 )
Accrued expenses and other current liabilities     251       (117 )
Net cash used in operating activities     (4,585 )     (1,535 )
                 
Cash Flows from Investing Activities:                
Equipment purchases     (26 )     -  
Cash acquired from acquisition     30,163       -  
Net cash provided by investing activities     30,137       -  
                 
Cash Flows from Financing Activities:                
Issuance of common stock     4       23  
Issuance of Series B Preferred stock, net of issuance costs     -       1,269  
Issuance of Series C Preferred Stock, net of issuance costs     1,786       -  
Convertible note proceeds     5,022       -  
Principal payments on long-term debt     (82 )     -  
Proceeds from related party note     -       25  
Principal payments on obligations under finance leases     -       (19 )
Net cash provided by financing activities     6,730       1,298  
Net increase (decrease) in cash and cash equivalents     32,282       (237 )
Cash and cash equivalents, and restricted cash beginning of the period     792       315  
Cash and cash equivalents, and restricted cash end of the period   $ 33,074     $ 78  
                 
Cash and cash equivalents   $ 32,337     $ 78  
Restricted cash     737       -  
Total cash and cash equivalents and restricted cash   $ 33,074     $ 78  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ -     $ 2  
Non-cash investing activities:                
Fair value of non-Cash merger consideration   $ 59,920     $ -  
Non-cash financing activities:                
Conversion of Preferred Stock to Common Stock upon Merger   $ 30,793     $ -  
Conversion of 2020 Convertible Notes and Accrued Interest to Common Stock upon Merger   $ 16,190     $ -  
Reclass warrant liability to equity upon Merger   $ 421     $ -  

 

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 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 of 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 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 $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 date of the Merger with a fair value of $139 thousand. In addition at the time of the Merger, existing StemoniX shareholders received an additional 804,711 incremental shares due to the conversion ratio agreed to in the Merger Agreement.

 

StemoniX and CGI incurred $2.145  million of costs associated with the Merger that have been reported on the consolidated statement of operations as Merger related costs for the period ended March 31, 2021. StemoniX’s statement of operations for the year ended December 31, 2020 included $1.44 million of merger related costs incurred in the second half of 2020. As of March 31, 2021 and December 31, 2020, accounts payable includes $63 thousand and $1.0 million of Merger-related costs.

 

The following details the preliminary allocation of the purchase price consideration:

 

   

2021 

 
Assets acquired:      
Cash and equivalents   $ 30,163  
Accounts receivable     705  
Other current assets     806  
Intangible assets     9,500  
Fixed assets     416  
Goodwill     22,164  
Long-term prepaid expenses and other assets     1,381  
Total assets acquired   $ 65,135  
         
Liabilities assumed:        
Accounts payable and accrued expenses   $ 3,258  
Obligation under operating lease     198  
Obligation under finance lease     106  
Deferred revenue     1,293  
Income taxes payable    

360

 
Total liabilities assumed   $ 5,215  
         
Net assets acquired:   $ 59,920  

 

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 $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 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.

 

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:

 

    March 31, 2021     March 31, 2020  
    For the three months ended  
    March 31, 2021     March 31, 2020  
Total revenues:   $ 1,841     $ 1,594  
Net loss   $ (6,495 )   $ (3,152 )
Pro forma loss per common share, basic and diluted   $ (.21 )   $ (.11 )
Pro forma weighted average number of common shares outstanding, basic and diluted    

28,985

     

28,847

 

 

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 $92 thousand of deferred revenue as of December 31, 2020 previously included in the balance sheet caption other current liabilities to deferred revenue to conform to the post-Merger presentation.

 

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 $738 thousand of restricted cash related to the Company’s PPP loan. The Company was required to escrow the PPP loan proceeds plus accrued interest as the Company’s PPP loan forgiveness application had not been processed by the U.S. Small Business Administration at the time of the Merger. This amount was returned to the Company in April 2021 when the PPP loan was fully forgiven.

 

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 56% and 73% and $439 thousand and $131 thousand, respectively, of the Company’s total trade accounts receivable.

 

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 $1.35 million covering a six year period beginning March 30, 2021. As of March 31, 2021, the full amount is included in accrued expenses, the current portion of $225 thousand which will be expensed in the following year is included in prepaid expenses and other current assets, and the non-current portion of $1.1 million is included in long term prepaid assets and other assets on the balance sheet. In addition, the Company also accrued billed Directors and Officers insurance premiums of $1.3 million for the year ended March 30, 2022. In the aggregate as of March 31, 2021, current and long-term prepaid assets and other assets on the Company’s consolidated balance sheets include $1.53 million and $1.12 million, respectively, of Directors and Officers related prepaid insurance premiums and a corresponding liability of $2.65 million in accrued expenses. All premiums were paid in April 2021.

 

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 $85 thousand and $32 thousand as of March 31, 2021 and December 31, 2020, respectively. Contract liabilities were $1.35 million and $92 thousand related to unfulfilled performance obligations as of March 31, 2021 and December 31, 2020, respectively, are recorded in deferred revenue. Remaining performance obligations as of March 31, 2021 are expected to be recognized as revenue in the next twelve months.

 

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.

 

12 

 

 

Net Loss Per Share

 

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 ten years.

 

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 five years. Leasehold improvements are depreciated over the shorter of useful life or the lease term. Repair and maintenance costs are expensed as incurred.

 

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.

 

13 

 

 

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 $820 thousand and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. Advertising costs amounted to $8 thousand and $12 thousand for the three months ended March 31, 2021 and 2020, respectively.

 

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.

 

 

15 

 

 

Note 4. Inventory

 

The Company’s inventory consists of the following:

    March 31, 2021     December 31, 2020  
Finished goods   $ 18     $ 40  
Work in process     146       121  
Raw materials     245       254  
Total inventory   $ 409     $ 415  

 

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   $ 2,647     $ 2,212  
Furniture and fixtures   $ 7     $ -  
Leasehold improvements     240       240  
      2,894       2,452  
Less accumulated depreciation     1,547       1,421  
    $ 1,347     $ 1,031  

 

Depreciation expense recognized during the three months ended March 31, 2021 and 2020 was $126 thousand and $145 thousand, respectively.

 

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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 $198 thousand of ROU assets and liabilities upon the Merger.

 

The components of operating and finance lease expense for the three-month periods ended March 31, are as follows:

 

    2021     2020  
Operating lease cost   $ 107     $ 148  
Finance lease cost:                
Depreciation of ROU assets      -       18  
Interest on lease liabilities     -       2  
Total finance lease cost     -       20  
Variable lease costs     -       -  
Short-term lease costs     -       -  
Total lease cost   $ 107     $ 168  

 

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   $ 1,170     $ 1,095  
Operating lease current liabilities     647       486  
Operating lease long-term liabilities     548       627  
Total operating lease liabilities     1,195       1,113  
Finance Leases:                
Equipment     176      

289

 
Accumulated depreciation     -       289  
Finance leases, net     176       -  
Current installment obligations under finance leases     31       -  
Long-term portion of obligations under finance leases     74       -   
Total finance lease liabilities   $ 105     $ -  

 

17 

 

 

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   $ 117     $ 122  
Financing cash flow from finance leases     -       19  
ROU assets obtained in exchange for lease obligations:                
Operating leases   $ 198     $ -  
Finance leases     176       -  
Weighted average remaining lease term:                
Operating leases     5.65 years       2.18 years  
Finance leases     -       1 year  
Weighted average discount rate:                
Operating leases   9.6%     10%
Finance leases     8.1%       10%

 

Annual payments of lease liabilities under noncancelable leases as of March 31, 2021 are as follows:

 

      2021  
      Operating leases  
Remainder of 2021     $ 610  
2022       229  
2023       130  
2024       128  
2025       131  
Thereafter       213  
Total undiscounted lease payments       1,441  
Less: Imputed interest       246  
Total lease liabilities     $ 1,195  

 

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 $151 thousand and $0, respectively. The Company had accrued interest and penalties relating to unrecognized tax benefits of $0 and $0 on a gross basis as of March 31, 2021 and December 31, 2020, respectively. 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

 

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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   $ -     $ 83  
Economic Injury Disaster Loan     57       57  
8% 2020 Convertible Notes, $7,651 face amount, due July 2022     -       7,651  
Total long-term debt before debt issuance costs and debt discount     57       7,791  
Less: current portion of long-term debt     -       -  
Less: debt discount (net of accretion of $0 and $235, respectively)     -       (952 )
Total long-term debt   $ 57     $ 6,839  

 

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     1  
2024     1  
2025     1  
2026     1  
Thereafter     53  
Total   $ 57  

 

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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 $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. The Company has determined that the entire PPP loan will be forgiven resulting in no repayment, including the $10 thousand EIDL grant. The $730 thousand of PPL loan forgiveness was recorded as a reduction of operating costs during the second and fourth quarters of 2020. Therefore, the PPP loan is not reflected as a liability as of March 31, 2021 and December 31, 2020. In April 2021 the SBA fully forgave the PPP loan.

 

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.

 

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 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 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.

 

20 

 

 

During the first quarter of 2020, the Company sold 235,877 shares of Series B Preferred stock for net proceeds of $1.25 million.

 

Series C Preferred Stock

 

Effective March 15, 2021, the Company’s shareholders approved the Merger with Cancer Genetics and the authorization of $2.0 million of the Company’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 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 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 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. A summary of all common stock warrants outstanding as of March 31, 2021 is as follows: 

 

  Exercise Price     Outstanding Warrants     Expiration
Dates
2020 Convertible Note   $ 5.91       143,890     Feb 23, 2026
2021 Offering   $ 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
Offering   $ 67.50       8,580     Nov 25, 2021 - Mar 14, 2022
Debt   $ 450       9,185     Oct 17, 2022 - Dec 7 2022
Debt   $ 300       8,112     Oct 17, 2022
Total             2,301,546    

 

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.

 

21 

 

 

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 provides 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 markets with corresponding changes recorded in the statement of operations in the first quarter of 2021.

 

The following tables present changes in fair value of level 3 valued instruments as of and for the three months ended March 31, 2021:

 

    2020 Convertible Note     Warrant     Embedded Derivative  
Balance – January 1   $ -     $ -     $ 1,690  
Additions     3,746       635       325  
Measurement adjustments     4       (214 )     250  
Settlement     (3,750 )     (421 )     (2,265 )
Balance – March 31   $ -     $ -     $ -  

 

There were no level 3 fair value instruments outstanding as of and for the three months ended March 31, 2020.

 

22 

 

 

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 quarters ended March 31:

 

    2021     2020  
Net loss   $ (7,366 )   $ (1,974 )
Basic and diluted weighted average shares outstanding     3,184,106       2,460,463  
Net loss per shares attributable to common stockholder, basic and diluted   $ (2.31 )   $ (0.80 )

 

The following securities were not included in the computation of diluted shares outstanding as of March 31, 2021 and 2020 because the effect would be anti-dilutive:

 

    2021     2020  
Series A Preferred Stock     -       4,611,587  
Series B Preferred Stock     -       3,976,364  
Series A Warrants     -       48,714  
Series B Warrants     -       9,943  
Common Stock Warrants     2,301,576       -  
Stock options     2,268,543       478,610  
Total     4,570,119       9,125,218  

 

Note 12. Stock-Based Compensation

 

The Company has three legacy equity incentive plans: the Cancer Genetics, Inc. 2008 Stock Option Plan (the “2008 Plan”) and the Cancer Genetics Inc.2011 Equity Incentive Plan (the “2011 Plan”), and the StemoniX Inc. 2015 Stock Option Plan (the “2015 Plan”, and together with the 2008 Plan, and the 2011 Plan, 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. 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.

 

23 

 

 

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.

 

As of March 31, 2021, there were 3,261,734 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. There were no stock options granted during the quarter ended March 31, 2020. The assumptions for stock option grants during the quarter ended March 31, 2021 are provided in the following table.

 

    2021  
Valuation assumptions        
Expected dividend yield     0.0%
Expected volatility     119.0% 123.0%
Expected term (years) – simplified method     5.5 6.0  
Risk-free interest rate     0.98% 1.12%

 

Stock option activity during the for the three-month periods ended March 31, 2021 and 2020 is as follows:

 

      Number of Options     Weighted average exercise price     Weighted average remaining contractual term  
Balance as of January 1, 2020       509,173     $ 1.30       7.4  
Granted       -       -          
Additional options grant StemoniX holders       -       -          
Options assumed in Merger       -       -          
Exercised       (12,000 )     1.94          
Forfeited       (12,438 )     1.35          
Expired       (6,125 )     1.24          
Balance as of March 31, 2020       478,610     $ 1.28       6.5  

 

Balance as of January 1, 2021     756,383       1.82          
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  
Exercisable as of March 31, 2021     390,109     $ 8.00       7.5  

 

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The weighted average grant-date fair value of options granted during the three-month periods ended March 31, 2021 was $3.89. No options were granted in 2020. The aggregate intrinsic value of options outstanding as of March 31, 2021 was $2.4 million. The intrinsic value of options exercisable was $1.1 million as of March 31, 2021. The total intrinsic value of options exercised was $23 thousand and $1 thousand for the three-month period ended March 31, 2021 and 2020, respectively.

 

The Company recognized stock-based compensation related to different instruments for the three-month periods ended March 31 as follows:

 

    2021     2020  
Stock options   $ 366     $ 42  
Shares issued to nonemployees     -       30  
Total   $ 366     $ 72  

 

As of March 31, 2021, there was $4.7 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 3.95 years.

 

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.

 

Substantially all revenues for the three-month periods ended March 31, 2021 and 2020 were generated from customers located in the United States. During the three months ended March 31, 2021 and 2020, three customers accounted for approximately 69% and 55% of the consolidated revenues, respectively.

 

Customers representing 10% or more of the Company’s total revenues for the three-month periods ended March 31, 2021 and 2020 are presented in the table below:

 

    2021     2020  
Customer A     28%     31%
Customer B     24%     12%
Customer C     17%       12%

 

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Note 14. Related Party Transactions

 

As further described in Note 8, a number of related parties participated in the 2020 Convertible Note offering during the quarter ending March 31, 2021.

 

In January 2020, a Company officer advanced $25 thousand to the Company. On August 12, 2020, to settle debt and accrued interest aggregating $26 thousand owed to the Company officer, the executive used this amount to exercise an existing vested Company stock option and was issued 12,693 shares of common stock.

 

During 2020, related parties including former StemoniX Board members, officers of the Company or their immediate family (“Related Parties”) purchased $44 thousand, or 8,003 shares of Series B-2 Preferred Stock and converted $351 thousand of the 2020 Convertible Notes into 64,000 shares of Series B Preferred Stock. In all instances the terms of these transactions were the same as third-party investors.

 

During 2020, three Company executives deferred a portion of their compensation pursuant to the terms of their employment agreements. As of March 31, 2021 and 2020, the executives had deferred compensation of $60 thousand and $0, respectively, of their compensation. The $60 thousand was paid in April 2021 pursuant to the terms of the employment agreements.

 

Note 15. Contingencies

 

On November 13, 2020, a purported stockholder of CGI filed a complaint against CGI, the chief executive officer of CGI and the directors of CGI in the United States District Court for the Southern District of New York, entitled, Scott Sawin v. Cancer Genetics, Inc. et al. The complaint (the “Sawin Complaint”) alleges that CGI’s Registration Statement on Form S-4, as filed with the SEC on October 16, 2020 related to the merger (the “Prior Registration Statement”), omitted to disclose certain material information allegedly necessary to make statements made in the Prior Registration Statement not misleading and/or false, in violation of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14a-9 promulgated thereunder, and alleges breach of fiduciary duty of candor/disclosure. The complaint seeks injunctive relief, enjoining the merger until the defendants to the applicable lawsuit disclose the alleged omitted material information, and costs, among other remedies. Subsequently, seven other complaints were filed against CGI and the directors of CGI in either the United States District Court for the Southern District of New York or the United States District Court for the District of New Jersey alleging facts and seeking relief substantially similar to the Sawin Complaint.

 

On April 27, 2021, the Sawin Complaint was voluntarily dismissed as moot, and four of the other seven complaints have also been voluntarily dismissed or dismissed by the court for lack of prosecution. Three complaints remain on record, but the Company has not been served in any of those matters.

 

In November 2020, vivoPharm Pty Ltd received a letter from counsel for a customer of vivoPharm alleging entitlement to a refund of prepayments made under a master services agreement in the sum of approximately $306 thousand. Counsel for vivoPharm responded and denied any liability. In February 2021 counsel for the customer repeated its claim and stated its intent to commence litigation if the matter were not resolved. Counsel for vivoPharm responded by repeating its denial of any liability but offering to pay $60 thousand to resolve the matter. No litigation has been commenced to date.

  

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.”

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

 

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

 

    the expected benefits of, and potential value, including synergies, created by, the recently completed Merger transaction between the Company and StemoniX, Inc. (“StemoniX”) for the stockholders of the Company;
  the Company’s ability to adapt its business for future developments in light of the global outbreak of COVID-19, which continues to rapidly evolve;
    the Company’s ability to internally identify and develop new iPSC disease models, drug candidates and intellectual property;
    the Company’s ability to negotiate strategic partnerships, where appropriate, for iPSC disease models or drug candidates;
    the Company’s need for significant additional capital and the Company’s ability to satisfy its capital needs.
  the Company’s ability to complete required clinical trials of its products and obtain approval from the FDA or other regulatory agents in different jurisdictions;
    the Company’s ability to execute on its marketing and sales strategy for its preclinical research services and gain acceptance of its services in the market;
    the Company’s ability to keep pace with rapidly advancing market and scientific developments;
    the Company’s ability to satisfy U.S. (including the Food and Drug Administration (“FDA)) and international regulatory requirements with respect to its services;
    the Company’s ability to maintain its present customer base and obtain new customers;
    the Company’s ability to maintain the Company’s clinical and research collaborations and enter into new collaboration agreements with highly regarded organizations so that, among other things, the Company has access to thought leaders in advanced preclinical and translational science;
    potential product liability or intellectual property infringement claims;
    the Company’s ability to maintain or protect the validity of its patents and other intellectual property;
  the Company’s dependency on third-party manufacturers to supply it with instruments and specialized supplies;
  the Company’s ability to attract and retain a sufficient number of scientists, clinicians, sales personnel and other key personnel with extensive relevant experience , who are in short supply;
  the Company’s ability to effectively manage its international businesses in Australia and Europe, including the expansion of its customer base and volume of new contracts in these markets;
  the Company’s dependency on the intellectual property licensed to the Company or possessed by third parties; and
  the Company’s ability to adequately support future growth.

 

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The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance.

 

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

 

Overview

 

On March 30, 2021, Vyant Bio, Inc. (the “Company” “Vyant” “Vyant Bio” or “VYNT”), formerly known as Cancer Genetics, Inc. (“CGI”), completed its business combination (the “Merger”) with StemoniX, Inc., a Minnesota corporation (“StemoniX”), in accordance with the Agreement and Plan of Merger and Reorganization, dated as of August 21, 2020 (the “ Initial Merger Agreement”) by and among the Company, StemoniX and CGI Acquisition, Inc., a Minnesota corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of February 8, 2021 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of February 26, 2021 (the “Second Amendment”) (the Initial Merger Agreement, as amended by the First Amendment and Second Amendment, the “Merger Agreement”), pursuant to which Merger Sub merged with and into StemoniX, with StemoniX surviving the merger as a wholly-owned subsidiary of the Company (the “Merger”).

 

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 was recorded as goodwill. Total consideration paid in the merger amounted to $59.9 million which represents the fair value of 11,007,186 shares   of CGI common stock and 2,157,686 common share warrants and 55,907 Common Stock Options outstanding on the date of the Merger. As the Merger was consummated at the close of business on March 30, 2021, the Company’s first quarter 2021 consolidated statement of operations includes one day of revenues and costs associated with the historical CGI business. In addition at the time of the Merger, existing StemoniX shareholders received 804,711 thousand incremental shares due to the conversion ratio agreed to in the merger agreement.

 

Vyant Bio 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’s management believes that drug discovery needs to progressively shift as the widely used 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 has refocused its business on bringing together an impactful approach to drug discovery with new technologies with a multi-disciplinary approach.

 

By combining sophisticated data science capabilities with highly functional human cell derived disease models, Vyant Bio seeks to leverage its current ability to screen and test therapeutic candidates, which will allow for creating a unique approach to assimilating data that supports decision making iteratively throughout the discovery phase of drug development to identify both novel and repurposed candidates.

 

Vyant Bio 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. vivoPharm also specializes in planning and conducting unique, specialized studies to guide drug discovery and development programs with a concentration in oncology and immuno-oncology. These studies range from early compound selection to developing comprehensive sets of in vitro and in vivo data, as needed for U.S. Food and Drug Administration (“FDA”) Investigational New Drug (“IND”) applications. 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.

 

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Our current business model is to build on the historical StemoniX and vivoPharm businesses by operating a drug discovery research team with the aim of identifying novel and repurposed compounds and developing disease models from human-derived cells that can be used for drug discovery, and drug discovery services.

 

Drug Discovery

 

Vyant Bio is focused on discovering therapeutic assets through its scientific teams’ use of innovative technologies and then licensing or collaborating with pharmaceutical and other biotechnology companies for the further development of such assets. While the Company has developed expertise in neurology, cardiology, oncology and diseases related to the pancreas, we are first working in rare diseases. The Company’s most mature asset discovery program is in the treatment of Rett Syndrome, in which the Company is investigating a repurposed drug and, along with a partner, the identification of a novel compound. Also, furthered by the long history of scientific excellence of our lead scientists, the Company is working to discover therapies to treat CDKL5 disease, a neuro degenerative disease commonly found in infants.

 

In addition, the Company has commercialized the development, engineering and manufacturing of disease models, built on its iPSC derived neural and cardiac screening platforms, which are used to screen identified compounds and design proteins from sophisticated machine learning systems. The Company’s current list of disease models are at commercial stage, and the Company is focused on licensing tailored disease models to, or otherwise partnering with drug developers from around the world. The most mature disease models are being used to find therapeutic candidates in the central nervous system, driven by a focus on Rett Syndrome and CDKL5 disorders. With the addition of the vivoPharm cancer cell-line assets and scientific expertise in oncology, the Company believes it can also advance models targeting Glioblastoma and Parkinson’s disease. The team has also made progress with its microHeart platform, so we believe there will be continued interest from partners with an eye toward Cardiac Fibrosis and Rett Syndrome.

 

While the revenues from our services with and sales of disease models represent an important component of our business, our long-term strategy is to discover novel and repurposed therapeutic agents for subsequent monetization and build and monetize disease models. Our human-derived models combined with the latest data science and software techniques can identify and rank order repurposed and novel compounds by target. In our current drug discovery efforts, we aim to leverage our iPSC technology to identify drug candidates for licensure or clinical development. We intend to collaborate with leading pharma partners by pooling our expertise in iPSC biology and screening analytics with their medicinal chemistry capabilities. Our goal is to pursue partnered and wholly-owned drug discovery projects that yield high value assets. Currently, our plan is to enter into license or other collaboration arrangements with others for the development of drug candidates beyond identification and initial preclinical testing.

 

The Company is in active discussions with possible licensing partners to offer exclusive access to certain disease models, and expects to enter into license agreements for access to both novel and repurposed therapies. The Company is striving to receive a mixture of upfront payments, licensing fees, milestone-based fees and ongoing royalty payments. There is no assurance that we will be able to enter into these relationships.

 

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Discovery Services

 

Our discovery service business is based on demand for preclinical and discovery services from biotechnology and pharmaceutical companies, academia and the research community. Biotechnology and pharmaceutical companies engaged in designing and running clinical trials to determine the safety and effectiveness of treatments and therapeutics benefit from our services. In particular, our preclinical development of biomarker detection methods, response to immuno-oncology directed novel treatments and early prediction of clinical outcome is supported by our extended portfolio of orthotopic, xenografts and syngeneic tumor test systems as a specialized service offering in the immuno-oncology space, and disease model platforms used to identify promising therapeutics for oncology, cardiology and pancreatic diseases.

 

In our StemoniX discovery services business, we collaborate with pharmaceutical companies to create novel iPSC-based microOrgan drug testing screens using disease models based on our pharmaceutical company partners’ specifications. In addition, we perform Discovery as a Service (“DaaS”) on behalf of our customers. In our disease model effort, we create novel disease models according to our partner’s specifications, then either sell microOrgan disease specific or wild-type (non-disease specific) plates to them, use them for our own internal development or sell them to other partner(s) (depending on if exclusivity was acquired by the original partner).

 

We develop and manufacture high throughput (384 well), high-density human induced pluripotent stem cell (iPSC) derived neural, cardiac and pancreatic screening platforms for use in drug discovery and development. Engineered from human skin and blood cells, iPSCs are made with in-licensed patented processes discovered by 2012 Nobel Prize recipient Dr. Shinya Yamanaka. Our iPSC innovations are made from living human cells and have organ-like, or organoid, characteristics; we refer to them as microOrgans®. We have industrialized these microOrgans® into standard off-the-shelf multi-well plate labware formats that are sufficiently robust and reproducible to enable drug screening and drug candidate selection.

 

We combine our microOrgan platform with software analytics and augmented intelligence, which we refer to as AnalytiX. Our integrated approach provides a compelling value proposition to internal drug discovery and support for pharmaceutical companies and other entities. Prior to human clinical studies, we enable standardized, high-throughput screening of drug candidates on complex human organoids on our microOrgan screens, helping to avoid the inadequacies of testing in clonal cell lines or rodents. We and our customers and collaborators believe that our technologies benefit drug discovery in human disease areas that are difficult to address using current methodologies, accelerate preclinical drug discovery and development, reduce risk of clinical failure, predict with greater degrees of confidence and ultimately, reduce the cost of discovering new therapeutic agents.

 

In our vivoPharm preclinical services business, we have developed industry recognized capabilities in early phase development and discovery, especially in immuno-oncology models, tumor micro-environment studies, and specialized pharmacology services that support basic discovery, preclinical and phase 1 clinical trials. vivoPharm’s studies have been utilized to support over 250 IND submissions to date across a range of therapeutic indications, including lymphomas, leukemia, GI-cancers, liver cancer, pancreatic cancer, non-small cell lung cancer, and other non-cancer rare diseases. vivoPharm is presently serving over 50 biotechnology and pharmaceutical companies across four continents in over 100 studies and trials with highly specialized development, clinical and preclinical research. Over the past 17 years, vivoPharm has also generated an extensive library of human xenograft and syngeneic tumor models, including subcutaneous, orthotopic and metastatic models. vivoPharm offers its analytic services in small and bio-molecules.

 

vivoPharm’s preclinical services, including predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology relevant tumor models are offered from its Hershey, PA facility. This service is supplemented with GLP toxicology and extended bioanalytical services in the Company’s Australian-based facilities in Clayton, Victoria, and Gilles Plains, South Australia.

 

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Strategy

 

The Company’s strategy is to focus on developing innovative new drug discoveries in partnership with pharmaceutical and biotechnology companies and academic and governmental research facilities. The Company’s current discovery services include preclinical anti-tumor efficacy, GLP compliant toxicity studies and small and bio-molecule analytical services, and the Company provides the tools and testing methods for companies and researchers seeking to identify and to develop new compounds and molecular-based biomarkers for diagnostics and therapeutics. Through the Merger, the Company will be able to extend its capabilities to include standardized, high-throughput screening of drug candidates on complex human organoids prior to human clinical studies, to de-risk translational decision making and potentially accelerate the time it takes to identify both novel and repurposed compounds and bring relevant data to investigational new drug applications before regulatory agencies around the globe. By combining StemoniX’s microOrgan platform with software analytics and augmented intelligence, referred to as AnalytiX, StemoniX’s integrated approach provides a compelling value proposition to pharmaceutical companies and for the combined companies own discovery programs.

 

The Company continues to leverage vivoPharm’s international presence to access global market opportunities. vivoPharm’s headquarters in Australia specializes in safety and toxicology studies, including mammalian, genetic and in vitro, along with bioanalytical services including immune-analytical capabilities. The Company operates from multiple locations in Victoria and South Australia. vivoPharm’s U.S.-based laboratory, located at the Hershey Center for Applied Research in Hershey, Pennsylvania, primarily focuses on screening and efficacy testing for a wide range of pharmaceutical and chemical products. The third location, in Munich, Germany, hosts project management and business development personnel.

 

StemoniX develops and manufactures human induced pluripotent stem cell (iPSC) based neural, cardiac and pancreatic screening platforms for drug discovery and development. Engineered from human skin and blood cells, iPSCs are made with in-licensed patented processes discovered by 2012 Nobel Prize recipient Dr. Shinya Yamanaka. StemoniX’s iPSC innovations are made from living human cells and have organ-like, or organoid, characteristics; referred to as microOrgans®. StemoniX has industrialized these microOrgans into standard multi-well plate formats that are sufficiently robust and reproducible to enable drug screening and optimization activities.

 

StemoniX combines its microOrgan platform with software analytics and augmented intelligence, referred to as AnalytiX™. StemoniX’s integrated approach enables standardized, high-throughput screening of drug candidates on complex human organoids prior to human clinical studies, mitigating or in some cases avoiding the inadequacies of testing in clonal cell lines or rodents. StemoniX and its customers and collaborators believe that StemoniX’s technologies will permit drug discovery in human disease areas that are difficult to address using current methodologies, accelerate preclinical drug discovery and development, reduce risk of clinical failure, predict with greater degrees of confidence and ultimately, reduce the cost of discovering new therapeutic agents.

 

StemoniX’s business model combines both collaborations with integrated pharmaceutical companies on the derivation and subsequent supply of iPSC-based disease models and screens, and internal drug discovery efforts to identify drug candidates for licensure or clinical development. In StemoniX’s disease model effort, StemoniX creates novel models per the specifications of its partners, then either sells microOrgan plates to them or performs Discovery as a Service (“DaaS”) on their behalf in its facilities. StemoniX strives to receive a mixture of upfron