Notes
to Condensed Consolidated Financial Statements
Period
Ended September 30, 2021
(Unaudited)
Note
1. Organization and Description of Business
Vyant
Bio, Inc. (“Vyant Bio” or “the Company”) is an innovative biotechnology company focused on partnering
with pharmaceutical and other biotechnology companies to identify novel biological targets and 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 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 Bio 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 United States (“U.S.”) Securities and Exchange Commission (“SEC”),
the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the Company’s audited
consolidated financial statements. 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 September 30, 2021 and the results of its operations, cash flows and changes in stockholders’ equity (deficit) for the three
and nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 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. 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 duration of the outbreak, travel restrictions and social distancing in the U.S. and other countries, business closures or
business disruptions, and the effectiveness of actions taken in the U.S. and other countries to contain and treat the disease.
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 U.S. dollars.
Note
2. Cancer Genetics, Inc. Merger
The
Company formerly known as Cancer Genetics, Inc. (“CGI”), StemoniX and CGI Acquisition, Inc. (“Merger Sub”) entered
into a merger agreement on August 21, 2020, which was amended on February 8, 2021 and February 26, 2021(as amended, the “Merger
Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub was merged (the “Merger”) with and into StemoniX
on March 30, 2021, with StemoniX surviving the Merger as a wholly owned subsidiary of the Company. For U.S. federal income tax purposes,
the Merger qualified as a tax-free “reorganization”. Concurrent with the Merger closing, the Company changed its name to
Vyant Bio, Inc. Under the terms of the Merger Agreement, upon consummation of the Merger, the Company issued (i) an aggregate of 17,977,544
shares of VYNT common stock, par value $0.0001
per share (the “Common Stock”) to
the holders of StemoniX capital stock (after giving effect to the conversion of all StemoniX preferred shares and StemoniX 2020 Convertible
Notes) and StemoniX warrants (which does not include a certain warrant (the “Investor Warrant”) issued to a certain StemoniX
convertible note holder (the “Major Investor”)), (ii) options to purchase an aggregate of 891,780
shares of Common Stock to the holders of StemoniX
options with exercise prices ranging from $0.66
to $4.61
per share and a weighted average exercise price
of $1.46
per share, and (iii) a warrant (the “Major
Investor Warrant”) to the Major Investor, expiring February 23, 2026 to purchase 143,890
shares of Common Stock at a price of $5.9059
per share in exchange 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 closing date of the Merger, were recorded at their respective fair values and added to those
of StemoniX. Any excess of purchase price consideration over the fair values of the identifiable net assets is recorded as goodwill.
The total consideration paid by StemoniX in the Merger amounted to $59.9
million, which represents the fair value of CGI’s
11,007,186
shares of Common Stock or $50.74
million, 2,157,686
Common Stock warrants or $9.04
million and 55,907
Common Stock options outstanding on the closing
date of the Merger with a fair value of $139
thousand. In addition, at the effective
time of the Merger, existing StemoniX shareholders received an additional 804,711
incremental shares in accordance with
the conversion ratio set forth in the Merger Agreement.
StemoniX
and CGI incurred $0
thousand and $2.3
million of costs associated with the Merger that
have been reported on the consolidated statements of operations as Merger related costs for the three and nine months ended September
30, 2021, respectively. There were $1
million of Merger related costs on StemoniX’s
statements of operations for the three and nine months ended September 30, 2020. As of September 30, 2021 and December 31, 2020, accounts
payable includes $0
thousand and $1.0
million of Merger related costs.
The
following details the preliminary allocation of the purchase price consideration recorded on March 31, 2021, with adjustments recorded
in the second and third quarters of 2021, and balances as of September 30, 2021.
Schedule
of Preliminary Allocation of the Purchase Price Consideration
|
|
March
31,
2021
|
|
|
Adjustments
|
|
|
September
30,
2021
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
30,163
|
|
|
$
|
-
|
|
|
$
|
30,163
|
|
Accounts receivable
|
|
|
705
|
|
|
|
-
|
|
|
|
705
|
|
Other current assets
|
|
|
806
|
|
|
|
193
|
|
|
|
999
|
|
Intangible assets
|
|
|
9,500
|
|
|
|
-
|
|
|
|
9,500
|
|
Fixed assets
|
|
|
416
|
|
|
|
(256
|
)
|
|
|
160
|
|
Goodwill
|
|
|
22,164
|
|
|
|
(79
|
)
|
|
|
22,085
|
|
Long-term prepaid expenses
and other assets
|
|
|
1,381
|
|
|
|
-
|
|
|
|
1,381
|
|
Total
assets acquired
|
|
$
|
65,135
|
|
|
$
|
(142
|
)
|
|
$
|
64,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,670
|
|
|
$
|
476
|
|
|
$
|
3,146
|
|
Current liabilities of discontinued operations
|
|
|
588
|
|
|
|
(144
|
)
|
|
|
444
|
|
Obligations under operating leases
|
|
|
198
|
|
|
|
-
|
|
|
|
198
|
|
Obligations under finance leases
|
|
|
106
|
|
|
|
-
|
|
|
|
106
|
|
Deferred revenue
|
|
|
1,293
|
|
|
|
(114
|
)
|
|
|
1,179
|
|
Income taxes payable
|
|
|
360
|
|
|
|
(360
|
)
|
|
|
-
|
|
Total
liabilities assumed
|
|
$
|
5,215
|
|
|
$
|
(142
|
)
|
|
$
|
5,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets acquired:
|
|
$
|
59,920
|
|
|
$
|
-
|
|
|
$
|
59,920
|
|
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 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, income taxes 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:
Schedule
of Proforma Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
September, 30
|
|
|
Nine
months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Total revenues
|
|
$
|
1,506
|
|
|
$
|
1,903
|
|
|
$
|
5,294
|
|
|
$
|
5,042
|
|
Net loss
|
|
|
(4,461
|
)
|
|
|
(2,429
|
)
|
|
|
(10,777
|
)
|
|
|
(8,663
|
)
|
Pro forma loss per common share, basic and
diluted
|
|
|
(0.15
|
)
|
|
|
(0.08
|
)
|
|
|
(0.37
|
)
|
|
|
(0.30
|
)
|
Pro forma weighted average number of common shares basic and diluted
|
|
|
28,985,924
|
|
|
|
28,891,329
|
|
|
|
28,977,601
|
|
|
|
28,848,369
|
|
The
pro forma combined results of operations are not necessarily indicative of the results of operations that actually would have occurred
had the Merger been completed as of January 1, 2020, nor are they necessarily indicative of future consolidated results.
Note
3. Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. 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 (“ROU”) 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 comprehensive income as a component of stockholders’ equity.
For the three and nine months ended September 30, 2021 there were foreign currency translation gains of $17
thousand and $16
thousand, respectively. 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. There were no
foreign currency translation or transaction gains
or losses for the three and nine months ended September 30, 2020 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 U.S. 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 December 31, 2020 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. The cash and cash equivalents balance as of September 30, 2021 includes
$12 million
invested in a U.S. government money market fund.
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 allowances
were recorded as of September 30, 2021 or December 31, 2020. Write-offs for the three and nine months ended September 30, 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 September 30, 2021 and December 31, 2020, one and three customers, respectively,
represented 10% or more of the Company’s total trade accounts receivable, and in the aggregate, these customers represented 28%
and 73%
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 - product 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
In
connection with the Merger on March 30, 2021 a number of Director and Officer insurance contracts were in place, including
tail policies accounted for as acquired assets in connection with the Merger. Aggregate premiums of $2.65
million are being expensed over the term of each
respective policy. As of September 30, 2021, $1.1
million
has been classified in the consolidated balance sheet as non-current
prepaid assets related to amounts that will be expensed more than one year after September 30, 2021.
For
certain cells used by the Company in the vivoPharm services business, the Company acquires cells and then creates an inventory
of cells for future use (the “Cell Bank”). This process produces larger batches of established products than current sales
requirements due to economies of scale through a highly controlled manufacturing process. Accordingly, the manufacturing process for
these products has and will continue to produce quantities in excess of forecasted usage. The Company forecasts usage for its products
based on several factors including historical demand, current market dynamics, and technological advances. The Company forecasts product
usage on an individual product level for a period that is consistent with our ability to reasonably forecast inventory usage for that
product. There have been no material changes to the Company’s estimates of the net realizable value for excess and obsolete inventory
or other types of inventory reserves and inventory cost adjustments since the Merger. Additionally, current and historical reserves recorded
to reduce the cost of inventory to its net realizable value become part of the new cost basis for the inventory. Given the long-term
utilization period of the frozen Cell Bank, this asset is included in the consolidated balance sheets as non-current other assets. The
carrying value of the Cell Bank was $376
thousand
as of September 30, 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 include
vivoPharm’s discovery services, consisting of contract research services focused primarily on unique specialized studies
to guide the determination of efficacy and safety in 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.
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
their 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.
Contracts
are often modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification
either creates new, or changes existing, enforceable rights and obligations. Generally, when contract modifications create new performance
obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications
change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation
to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative
catch-up basis.
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.
The
Company may include subcontractor or third-party vendors in certain integrated services arrangements. In these arrangements, revenue
from sales of third-party vendor services is generally recorded gross as revenues and cost of goods sold – service, as the Company
is the principal for the transaction. When the Company is acting as an agent between a customer and the vendor services, the Company
does not record revenue and vendor costs are recorded net within cost of goods sold - service. To determine whether the
Company is an agent or principal, the Company considers whether it obtains control of services before they are transferred to
the customer. In making this evaluation, several factors are considered, most notably whether the Company has primary responsibility
for fulfillment to the client, as well as fiscal risk and pricing discretion.
Contract
assets were $84
thousand and $32
thousand as of September 30, 2021 and December
31, 2020, respectively. Contract liabilities related to unfulfilled performance obligations were
$1.5 million
and $92
thousand as of September 30, 2021 and December
31, 2020, respectively, and are recorded in deferred revenue. Remaining performance obligations
as of September 30, 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 consolidated 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 consolidated 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 non-employees.
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 Bio warrant resulting in the Vyant Bio
warrant being equity classified.
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 February 2021 under the fair value option. See Note 11 to the consolidated financial statements.
Intangible
Assets
Intangible
assets consist of Vyant Bio’s customer relationships and tradename that were acquired in the Merger, which are being
amortized using the straight-line method over the estimated useful lives of the assets of ten years.
Amortization expense for these intangible assets aggregated $238 thousand
and $475 thousand
for the three and nine months ended September 30, 2021.
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
two
to 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 September 30, 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
three and nine months ended September 30, 2021 and 2020.
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 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
Research
and development 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 were $1.2
million and $2.9
million for the three and nine months ended September
30, 2021, respectively. Research and development costs were $867
thousand and $2.5
million for the three and nine months ended September
30, 2020, respectively.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs were $16
thousand and
$33 thousand
for the three and nine months ended September 30, 2021.
Advertising costs were $15 thousand
and $31 thousand
for the three and nine months ended September 30, 2020, respectively.
Stock-Based
Compensation
The
Company recognizes all employee stock-based compensation as a cost in the consolidated 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.
|
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, Cancer Genetics, Inc. (“CGI”) entered into asset purchase agreements whereby CGI sold all assets related to
its BioPharma and Clinical businesses. CGI classified the disposals as discontinuing operations. As of September 30, 2021,
$444
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 acquired and liabilities assumed 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.
Note
4. Inventory
The
Company’s inventory consists of the following:
Schedule
of Inventory
|
|
|
|
|
|
|
|
|
|
|
September
30, 2021
|
|
|
December
31,
2020
|
|
Finished goods
|
|
$
|
20
|
|
|
$
|
40
|
|
Work in process
|
|
|
126
|
|
|
|
121
|
|
Raw materials
|
|
|
334
|
|
|
|
254
|
|
Total
inventory
|
|
$
|
480
|
|
|
$
|
415
|
|
Note
5. Fixed Assets
Presented
in the table below are the major classes of fixed assets by category:
Schedule
of Fixed Assets
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
Equipment
|
|
$
|
2,875
|
|
|
$
|
2,212
|
|
Furniture and fixtures
|
|
|
6
|
|
|
|
-
|
|
Leasehold improvements
|
|
|
240
|
|
|
|
240
|
|
Fixed assets, gross
|
|
|
3,121
|
|
|
|
2,452
|
|
Less accumulated depreciation
|
|
|
1,852
|
|
|
|
1,421
|
|
Fixed assets, net
|
|
$
|
1,269
|
|
|
$
|
1,031
|
|
Depreciation
expense recognized during the three months ended September 30, 2021 and 2020 was $124
thousand and $142
thousand, respectively, and for the nine months
ended September 30, 2021 and 2020, was $437
thousand and $428
thousand, respectively.
Note
6. Intangible Assets
Intangible
assets consisted of the following at September 30, 2021:
Schedule
of Intangible Assets
|
|
2021
|
|
Intangible Assets:
|
|
|
|
|
Customer relationships
|
|
$
|
8,000
|
|
Trade
name
|
|
|
1,500
|
|
Intangible assets gross
|
|
|
9,500
|
|
Less
accumulated amortization
|
|
|
(475
|
)
|
Intangible
assets, net
|
|
$
|
9,025
|
|
Amortization
expense for intangible assets aggregated $238
thousand and $475
thousand for the three and nine months ended
September 30, 2021.
Schedule
of Future Amortization Expenses of Intangible Assets
|
|
|
|
|
Remainder of 2021
|
|
$
|
238
|
|
2022
|
|
|
950
|
|
2023
|
|
|
950
|
|
2024
|
|
|
950
|
|
2025
|
|
|
950
|
|
2026
|
|
|
950
|
|
Thereafter
|
|
|
4,037
|
|
Total amortization
expense
|
|
$
|
9,025
|
|
Note
7. Leases
The
Company leases its laboratory, research and administrative office spaces under various operating leases. In March 2021, the Company recorded
$198
thousand of ROU assets and liabilities upon consummation
of the Merger. As of April 1, 2021 the Company commenced a new lease for its corporate headquarters. The Company recorded a ROU asset
and operating lease obligation of $83
thousand related to this lease.
Amounts
reported in the consolidated balance sheet as of September 30, 2021 and December 31, 2020 are as follows:
Schedule
of Amounts Reported in the Consolidated Balance Sheet
|
|
2021
|
|
|
2020
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating lease
ROU assets, net
|
|
$
|
888
|
|
|
$
|
1,095
|
|
Operating lease current
liabilities
|
|
$
|
335
|
|
|
$
|
486
|
|
Operating lease long-term
liabilities
|
|
|
523
|
|
|
|
627
|
|
Total operating lease liabilities
|
|
$
|
858
|
|
|
$
|
1,113
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
171
|
|
|
$
|
289
|
|
Accumulated depreciation
|
|
|
36
|
|
|
|
289
|
|
Finance leases, net
|
|
$
|
135
|
|
|
$
|
-
|
|
Current installment obligations under finance
leases
|
|
$
|
30
|
|
|
$
|
-
|
|
Long-term portion of obligations under finance
leases
|
|
|
55
|
|
|
|
-
|
|
Total finance lease liabilities
|
|
$
|
85
|
|
|
$
|
-
|
|
Equipment
subject to finance leases are classified within fixed assets, net, on the accompanying consolidated balance sheets.
Annual
payments of lease liabilities under noncancelable leases as of September 30, 2021 are as follows:
Schedule
of Annual Payments of Lease Liabilities Under Noncancelable Leases
|
|
Operating
leases
|
|
Remainder of 2021
|
|
$
|
213
|
|
2022
|
|
|
259
|
|
2023
|
|
|
158
|
|
2024
|
|
|
136
|
|
2025
|
|
|
131
|
|
2026
|
|
|
134
|
|
Thereafter
|
|
|
79
|
|
Total undiscounted lease
payments
|
|
|
1,110
|
|
Less:
Imputed interest
|
|
|
252
|
|
Total
lease liabilities
|
|
$
|
858
|
|
Note
8. 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 September 30, 2021 and December 31, 2020, the Company’s liability for gross unrecognized tax benefits (excluding interest
and penalties) totaled $0 thousand
and $0 thousand,
respectively. The Company had accrued interest and penalties relating to unrecognized tax benefits of $0
thousand and $0
thousand on a gross basis as of September 30,
2021 and December 31, 2020, respectively. The Company does not currently expect significant changes in the amount of unrecognized tax
benefits during the next twelve months.
Note
9. Long-Term Debt
Long-term
debt consists of the following:
Schedule
of Long-term Debt
|
|
September
30,
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 September 30, 2021 are as follows:
Schedule
of Future Annual Principal Repayments Due on Long-term Debt
|
|
Amount
|
|
Remainder of 2021
|
|
$
|
-
|
|
2022
|
|
|
-
|
|
2023
|
|
|
1
|
|
2024
|
|
|
1
|
|
2025
|
|
|
1
|
|
2026
|
|
|
1
|
|
Thereafter
|
|
|
53
|
|
Total
|
|
$
|
57
|
|
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 nine-month period ended September 30, 2021 was 18.22%.
Paycheck
Protection Program Loan
In
April 2020, the Company applied for and received a $730
thousand loan under the Paycheck Protection Program
(“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 PPP 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 December 31, 2020. In April 2021 the SBA fully forgave the PPP loan.
Economic
Injury Disaster Loan
In
2020 the Company 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
10. 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 Preferred”) 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.
During
the three months ended March 31, 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 September 30, 2021 is as follows:
Summary
of All Common Stock Warrants Outstanding
Issuance
Related to:
|
|
Exercise
Price
|
|
|
Outstanding
Warrants
|
|
|
Expiration
Dates
|
|
2020 Convertible
Note
|
|
$
|
5.91
|
|
|
|
143,890
|
|
|
|
Feb
23, 2026
|
|
2021 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
|
|
$
|
450.00
|
|
|
|
9,185
|
|
|
|
Oct
17, 2022 - Dec 7, 2022
|
|
Debt
|
|
$
|
300.00
|
|
|
|
8,112
|
|
|
|
Oct
17, 2022
|
|
Total
|
|
|
|
|
|
|
2,301,576
|
|
|
|
|
|
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. In accordance with the Preferred Warrants’ terms, upon the consummation of the Merger, the Preferred
Warrants were converted and settled for a total of 43,107
shares of the Company’s common stock.
Note
11. 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. Therefore, there were no level 3 fair value instruments outstanding as of September 30, 2021.
The
following tables present changes in fair value of level 3 valued instruments for the nine months ended September 30, 2021:
Schedule
of Changes in Fair Value of Level 3 Valued Instruments
|
|
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
– September 30, 2021
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following tables present changes in fair value of level 3 valued instruments for the nine months ended September 30, 2020:
|
|
Embedded
Derivative
|
|
Balance – January 1,
2020
|
|
$
|
-
|
|
Additions
|
|
|
1,120
|
|
Measurement adjustments
|
|
|
220
|
|
Settlement
|
|
|
-
|
|
Balance
– September 30, 2020
|
|
$
|
1,340
|
|
Note
12. Loss Per Share
Basic
loss per share is computed by dividing the net loss after tax attributable to common stockholders by the weighted average shares outstanding
during the period. Diluted loss per share is computed by including potentially dilutive securities outstanding during the period in the
calculation of weighted average shares outstanding. The Company did not have any dilutive securities during the periods presented; therefore,
diluted loss per share is equal to basic loss per share.
Presented
in the table below is a reconciliation of the numerator and denominator for the basic and diluted loss per share calculations for the
three and nine months ended September 30, 2021 and 2020:
Schedule
of Reconciliation of Numerator and Denominator for Basic and Diluted Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net Loss
|
|
$
|
(4,461
|
)
|
|
$
|
(2,990
|
)
|
|
$
|
(16,013
|
)
|
|
$
|
(6,296
|
)
|
Basic and diluted weighted average shares outstanding
|
|
|
28,985,814
|
|
|
|
2,500,124
|
|
|
|
20,465,978
|
|
|
|
2,476,296
|
|
Net loss per shares attributable to common
stockholder, basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(2.54
|
)
|
The
following securities were not included in the computation of diluted shares outstanding for the three and nine months ended September
30, 2021 and 2020 because the effect would be anti-dilutive:
Schedule
of Computation of Diluted Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Series A Preferred
Stock
|
|
|
-
|
|
|
|
4,611,587
|
|
|
|
-
|
|
|
|
4,611,587
|
|
Series B Preferred Stock
|
|
|
-
|
|
|
|
3,504,027
|
|
|
|
-
|
|
|
|
3,504,027
|
|
Series A Warrants
|
|
|
-
|
|
|
|
48,714
|
|
|
|
-
|
|
|
|
48,714
|
|
Series B Warrants
|
|
|
-
|
|
|
|
9,943
|
|
|
|
-
|
|
|
|
9,943
|
|
Common Stock Warrants
|
|
|
2,301,576
|
|
|
|
-
|
|
|
|
2,301,576
|
|
|
|
-
|
|
Common
Stock Options
|
|
|
2,161,514
|
|
|
|
766,124
|
|
|
|
2,161,514
|
|
|
|
766,124
|
|
2020
Convertible Notes
|
|
|
-
|
|
|
|
2,018,433
|
|
|
|
-
|
|
|
|
2,018,433
|
|
Total
|
|
|
4,463,090
|
|
|
|
10,958,828
|
|
|
|
4,463,090
|
|
|
|
10,958,828
|
|
Note
13. 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. The number of Common Stock
options issued under the 2015 plan were adjusted for the Merger exchange ratio resulting in an incremental 191,880
options
outstanding.
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.
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. For common stock options granted at the time of the Merger, the Company used Vyant Bio’s historical volatility
to determine the expected volatility of post-Merger option grants. Subsequently, the Company used a comparable public company group
to estimate the anticipated volatility of the Company’s stock. 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 September 30, 2021, there were 3,289,734
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. The assumptions for stock option grants during the nine months ended September
30, 2021 are provided in the following table.
Schedule
of Assumptions for Stock Option Grants
|
|
2021
|
|
Valuation assumptions
|
|
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
70.0%
– 123.0
|
%
|
Expected term (years) – simplified method
|
|
|
5.5
–
6.1
|
|
Risk-free interest rate
|
|
|
0.95%
– 1.16
|
%
|
Stock
option activity during the nine-month periods ended September, 2021 and 2020 is as follows:
Schedule
of Share Option Activity
|
|
Number
of Options
|
|
|
Weighted
average exercise price
|
|
|
Weighted
average remaining contractual term
|
|
Balance as of January 1, 2020
|
|
|
509,173
|
|
|
$
|
1.30
|
|
|
|
7.4
|
|
Granted
|
|
|
505,726
|
|
|
|
2.01
|
|
|
|
|
|
Exercised
|
|
|
(59,909
|
)
|
|
|
2.00
|
|
|
|
|
|
Forfeited
|
|
|
(33,756
|
)
|
|
|
2.00
|
|
|
|
|
|
Expired
|
|
|
(155,110
|
)
|
|
|
1.04
|
|
|
|
|
|
Balance as of September 30, 2020
|
|
|
766,124
|
|
|
$
|
1.77
|
|
|
|
7.8
|
|
Exercisable as of September 30, 2020
|
|
|
345,421
|
|
|
$
|
1.22
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2021
|
|
|
756,383
|
|
|
$
|
1.82
|
|
|
|
8.7
|
|
Granted
|
|
|
1,280,939
|
|
|
|
4.54
|
|
|
|
|
|
Additional options to StemoniX
option holders
|
|
|
191,880
|
|
|
|
4.61
|
|
|
|
|
|
Options assumed in Merger
|
|
|
55,840
|
|
|
|
45.95
|
|
|
|
|
|
Exercised
|
|
|
(29,916
|
)
|
|
|
1.24
|
|
|
|
|
|
Forfeited
|
|
|
(91,084
|
)
|
|
|
3.82
|
|
|
|
|
|
Expired
|
|
|
(11,204
|
)
|
|
|
1.45
|
|
|
|
|
|
Balance as of September 30, 2021
|
|
|
2,152,838
|
|
|
$
|
4.76
|
|
|
|
8.8
|
|
Exercisable as of September 30, 2021
|
|
|
612,132
|
|
|
$
|
5.73
|
|
|
|
7.5
|
|
The
weighted average grant-date fair value of options granted during the three and nine months ended September, 2021 was $1.56
and $3.89,
respectively.
The
Company recognized stock-based compensation related to different instruments for the three and nine months ended September 30 as follows:
Schedule
of Share Based Compensation Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
|
Nine
months ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Stock Options
|
|
$
|
287
|
|
|
$
|
73
|
|
|
$
|
1,005
|
|
|
$
|
170
|
|
Shares
issued for services
|
|
|
10
|
|
|
|
34
|
|
|
|
20
|
|
|
|
156
|
|
Total
|
|
$
|
297
|
|
|
$
|
107
|
|
|
$
|
1,025
|
|
|
$
|
326
|
|
As
of September 30, 2021, there was $4.0
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 3.4
years.
14.
Segment Information
The
Company reports segment information based on how the Company’s chief operating decision maker (“CODM”) regularly reviews
operating results, allocates resources and makes decisions regarding business operations. For segment reporting purposes, the Company’s
business structure is comprised of one operating and reportable segment.
During
the three and nine months ended September 30, 2021, three customers accounted for approximately 51%
and
49%,
respectively, of the consolidated
revenues. During the three and nine months ended September 30, 2020 three customers accounted for approximately 81%
and
60%
of
the respective consolidated revenues.
During
the three and nine months ended September 30, 2021, approximately, 54%
and
48%
respectively,
of the Company’s consolidated revenues were earned outside of the U.S.
Customers
representing 10% or more of the Company’s total revenues for the three and nine months ended September 30, 2021 and 2020 are presented
in the table below:
Schedule
of Customers Representing Total Revenues
|
|
Three
months ended September 30
|
|
|
Nine
months ended September 30
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Customer A
|
|
|
28
|
%
|
|
|
n/a
|
|
|
|
19
|
%
|
|
|
n/a
|
|
Customer B
|
|
|
10
|
%
|
|
|
n/a
|
|
|
|
12
|
%
|
|
|
n/a
|
|
Customer C
|
|
|
13
|
%
|
|
|
n/a
|
|
|
|
18
|
%
|
|
|
n/a
|
|
Customer D
|
|
|
n/a
|
|
|
|
31
|
%
|
|
|
n/a
|
|
|
|
25
|
%
|
Customer E
|
|
|
n/a
|
|
|
|
27
|
%
|
|
|
n/a
|
|
|
|
15
|
%
|
Customer F
|
|
|
n/a
|
|
|
|
24
|
%
|
|
|
n/a
|
|
|
|
19
|
%
|
Note
15. Related Party Transactions
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
the quarter ended June 30, 2020, a Company officer who was also a Board member, loaned the Company $55
thousand.
On July 10,
2020, the loan matured and it was rolled over into a new $55 thousand loan. On August 12, 2020, principal and accrued interest owed to
the executive were converted into the 2020 Convertible Notes at the same terms of other third-party investors.
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 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 September
30, 2021 and 2020, the executives had deferred compensation of $0
thousand
and $60 thousand
respectively, of their compensation. The $60
thousand
was paid in April 2021 pursuant to the terms of the employment agreements.
Note
16. Contingencies
On
November 13, 2020, a purported stockholder of the Company filed a complaint against Cancer Genetics, Inc. (“CGI”), the chief
executive officer of CGI and the directors of CGI in the U.S. District Court for the Southern District of New York, entitled, Scott Sawin
v. Cancer Genetics, Inc. et al. The complaint (the “Sawin Complaint”) alleged that CGI’s Registration Statement on
Form S-4, as filed with the SEC on October 16, 2020 related to the merger (the “Merger”) of CGI and StemoniX, Inc., omitted
to disclose certain material information allegedly necessary to make statements made in the 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 and Rule 14a-9 promulgated
thereunder, and alleged breach of fiduciary duty of candor/disclosure. The complaint sought injunctive relief, enjoining the Merger until
the defendants disclosed the alleged omitted material information, and costs, among other remedies. Subsequently, eight other complaints
were filed against CGI and the directors of CGI in the U.S. District Courts for the Southern District of New York, the District of Delaware,
and 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, and subsequently all of the other eight complaints have also been voluntarily
dismissed or dismissed by the court for lack of prosecution.
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 $164
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. The parties settled this matter during the quarter ended September
30, 2021. This settlement had been fully accrued in the quarter ended June 30, 2021.
Note
17. Subsequent events
On
October 1, 2021, the Company signed a $1.5 million lease line of credit to finance equipment purchases through June 30, 2022.
On October 26, 2021, the Company completed a sales-leaseback
of $492
thousand related to equipment purchases in
2021. The
sales-leaseback requires thirty-six monthly payments of $15 thousand.
On
November 1, 2021, the Company issued a stock option to acquire 250,000
shares of the Company’s
Common stock to its newly-appointment Chief Scientific Officer. This
ten-year stock option was granted with an exercise price of $2.55 per share and vests 25% one year from the grant date and thereafter
equally over the next 36 months.