UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a)
of
the Securities Exchange Act of 1934 (Amendment No. )
Filed
by the Registrant ☒
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
| ☒ |
Preliminary
Proxy Statement |
| ☐ |
Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☐ |
Definitive
Proxy Statement |
| ☐ |
Definitive
Additional Materials |
| ☐ |
Soliciting
Material under §240.14a-12 |
VYANT
BIO, INC.
(Name
of Registrant as Specified in its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check all boxes that apply):
| ☒ |
No
fee required |
| ☐ |
Fee
paid previously with preliminary materials |
| ☐ |
Fee
computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
PRELIMINARY
COPY—SUBJECT TO COMPLETION
VYANT
BIO, INC.
2
Executive Campus
2370
State Route 70 West, Suite 310
Cherry
Hill, New Jersey 08002
| Dear
Fellow Stockholder, |
,
2023 |
On
behalf of the Board of Directors and management of Vyant Bio, Inc., a Delaware corporation (the “Company”, “Vyant”,
“we”, “us” and “our”), you are invited to attend our Special Meeting of Stockholders (the “Special
Meeting”), which will be held on September 20, 2023 at 9:00 a.m. Eastern Time, as it may be adjourned or postponed from time to
time. The Special Meeting will be conducted virtually via live webcast. You will be able to attend the Special Meeting virtually by registering
at https://www.viewproxy.com/vynt/2023. You will be able to listen to the meeting live, submit questions and vote online by entering
the control number located on your proxy card.
The
attached Notice of Special Meeting of Stockholders and proxy statement contain details of the business to be conducted at the Special
Meeting.
Your
vote is important. Regardless of whether or not you plan to attend the Special Meeting virtually, please read the accompanying proxy
statement and then submit your proxy to vote by Internet, telephone or mail as promptly as possible. Returning your proxy will help
us assure that a quorum will be present at the Special Meeting and avoid the additional expense of duplicate proxy solicitations. Any
stockholder attending the virtual Special Meeting may vote during the virtual meeting, even if he or she has previously submitted a proxy.
Please refer to your proxy card for voting instructions. Submitting your proxy promptly may save us additional expense in soliciting
proxies and will ensure that your shares are represented at the Special Meeting.
Our
Board of Directors has unanimously approved the proposals set forth in the proxy statement and recommends that you vote in favor of each
such proposal.
Sincerely, |
|
| |
|
| |
|
| Andrew
D. C. LaFrence |
|
| President,
Chief Executive Officer and Chief Financial Officer |
|
If
you have any questions or require any assistance in voting your shares, please call:
Alliance
Advisors LLC
200
Broadacres Drive, 3rd Floor, Bloomfield, NJ 07003
866-407-1665
PRELIMINARY
COPY—SUBJECT TO COMPLETION
VYANT
BIO, INC.
NOTICE
OF
SPECIAL
MEETING OF STOCKHOLDERS
| Date
and Time |
September
20, 2023 at 9:00 a.m. Eastern Time. |
| |
|
| Place |
The
special meeting of stockholders (the “Special Meeting”) of Vyant Bio, Inc., a Delaware corporation (the “Company,”
“Vyant,” “we,” “us” and “our”) will be a completely virtual meeting of stockholders,
to be conducted via live webcast. You will be able to attend the Special Meeting virtually, submit questions and vote online during
the meeting by registering at https://www.viewproxy.com/vynt/2023. |
| |
|
|
| Items
of Business |
● |
To
consider and vote upon a proposal to approve the sale of all or substantially all of the
assets of the Company (the “Sale”) pursuant to the Asset Purchase Agreement dated
July 13, 2023, by and between AxoSim, Inc., the Company and StemoniX, Inc. (“StemoniX”),
substantially in the form attached to the accompanying proxy statement as Appendix A (such
agreement, the “Asset Purchase Agreement,” and such proposal the “Sale
Proposal”).
|
| |
● |
To
consider and vote upon a proposal to approve the voluntary liquidation and dissolution of
the Company (the “Dissolution”), pursuant to a Plan of Liquidation and Dissolution
in substantially the form attached to the accompanying proxy statement as Appendix B (such
plan, the “Plan of Dissolution,” and such proposal, the “Dissolution Proposal”).
|
| |
● |
To
consider and vote upon a proposal to approve the grant of discretionary authority to the Board of Directors (the “Board”)
of the Company to adjourn the Special Meeting, from time to time, to a later date or dates, even if a quorum is present, to solicit
additional proxies in the event that there are insufficient shares present in person (including virtually) or by proxy voting in
favor of the any one or more of the foregoing proposals (such proposal, the “Adjournment Proposal”). |
| |
|
|
| |
● |
To
transact such other business as may properly come before the Special Meeting or any adjournments or postponements of the Special
Meeting by or at the direction of the Board. |
| |
|
|
| Adjournments
and Postponements |
Any
action on the items of business described above may be considered at the Special Meeting at the time and on the date specified above
or at any time and date to which the Special Meeting may be properly adjourned or postponed. |
| |
|
| Record
Date |
The
close of business on August 4, 2023 (the “Record Date”). Only stockholders on the Record Date are entitled to receive
notice of, and to vote at, the Special Meeting. |
| |
|
| Meeting
Admission |
You
are invited to virtually attend the Special Meeting if you are a stockholder of record or a beneficial owner of shares of our Common
Stock as of the Record Date. |
| |
|
| Availability
of Proxy Materials |
Our
proxy materials are also available on the internet at: https://www.viewproxy.com/vynt/2023. |
| |
|
| Voting |
If
your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the proxy card. Whether
or not you expect to attend virtually, we urge you to submit your proxy to vote your shares as promptly as possible by following
the instructions on your proxy card so that your shares may be represented and voted at the Special Meeting. Your vote is very important. |
| |
|
| Board
Recommendations |
After
careful consideration of a number of factors, as further described in the accompanying proxy statement, the Board has unanimously
(i) determined that each of the foregoing proposals and other transactions contemplated thereby are advisable and in the best interests
of the Company and its stockholders, (ii) approved in all respects each of the foregoing proposals and other transactions contemplated
thereby, and (iii) recommended a vote “FOR” each of the foregoing proposals, including the: (1) Sale Proposal,
(2) Dissolution Proposal and (3) Adjournment Proposal. |
Important
Notice Regarding the Availability of Proxy Materials for the Special Meeting to Be Held on September 20, 2023 at 9:00 a.m. Eastern Time.
This proxy statement is available on our website at https://www.viewproxy.com/vynt/2023, and it is being mailed to stockholders
on or about , 2023.
| |
By
Order of the Board of Directors, |
| |
|
| |
|
,
2023
Cherry
Hill, New Jersey |
Andrew
D. C. LaFrence
President,
Chief Executive Officer and Chief Financial Officer |
TABLE
OF CONTENTS
PRELIMINARY
COPY—SUBJECT TO COMPLETION
QUESTIONS
AND ANSWERS ABOUT THE MEETING AND THE PROPOSALS
Q.
WHAT PROPOSALS WILL I BE VOTING ON AT THE SPECIAL MEETING?
A.
You are being asked to consider and vote upon the following proposals: (i) a proposal to approve the Sale pursuant to the Asset Purchase
Agreement, dated as of July 13, 2023, by and between AxoSim, Inc. (“AxoSim” or the “Purchaser”), Vyant Bio, Inc.
(the “Company,” “Vyant,” “we,” “us” and “our”) and StemoniX, Inc. (“StemoniX”),
substantially in the form attached to this proxy statement as Appendix A (such agreement, the “Asset Purchase Agreement,”
and such proposal the “Sale Proposal”); (ii) a proposal to approve the voluntary liquidation and dissolution of the Company
(the “Dissolution”), pursuant to a Plan of Liquidation and Dissolution in substantially the form attached to the accompanying
proxy statement as Appendix B (such plan, the “Plan of Dissolution,” and such proposal, the “Dissolution Proposal”);
and (iii) a proposal to approve the grant of discretionary authority to the Board of Directors (the “Board”) of the Company
to adjourn the Special Meeting, from time to time, to a later date or dates, even if a quorum is present, to solicit additional proxies
in the event that there are insufficient shares present in person (including virtually) or by proxy voting in favor of the any one or
more of the foregoing proposals (such proposal, the “Adjournment Proposal”).
Q.
HOW DOES THE BOARD RECOMMEND I VOTE?
A.
The Board recommends a vote “FOR” each of the proposals set forth above.
Q.
WHY IS STOCKHOLDER APPROVAL BEING SOUGHT AT THE SPECIAL MEETING?
A.
Under the General Corporation Law of the State of Delaware (the “DGCL”), the Sale Proposal and the Dissolution Proposal
each require approval by the affirmative (“FOR”) vote of a majority of the outstanding shares of Common Stock entitled
to vote on such proposal at the close of business on August 4, 2023 (the “Record Date”). Accordingly, the Company is submitting
such proposals to a stockholder vote. Shares that are not represented at the Special Meeting, abstentions and broker non-votes, if any,
with respect to the Sale Proposal or the Dissolution Proposal will have the same effect as a vote against such proposal.
Q.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE SPECIAL MEETING?
A.
A quorum is necessary to hold the Special Meeting and conduct business. The presence, either in person or represented by proxy, of the
holders of one-third of the voting power of the shares of capital stock of the Company issued and outstanding as of the Record Date
and entitled to vote thereat is considered a quorum. A stockholder will be counted present at the Special Meeting if:
| |
● |
the
stockholder is present in person at the Special Meeting; or |
| |
● |
the
stockholder has properly submitted a proxy. |
Shares
of Common Stock that are not voted by the broker who is the record holder of the shares because the broker is not instructed to vote
and does not have discretionary authority to vote (i.e., broker non-votes), and shares that are not voted in other circumstances in which
proxy authority is defective or has been withheld, will not be counted for purposes of establishing a quorum.
If
a quorum is not present, the Special Meeting will be adjourned until a quorum is obtained.
In
addition, even if a quorum is present, the Board may hold a vote on the Adjournment Proposal, if in its sole discretion, it determines
that it is necessary or appropriate for any reason to adjourn the Special Meeting to a later date, including seeking more votes in favor
of the Sale Proposal and/or the Dissolution Proposal. See “Proposal 3: Approval of the Adjournment of the Special Meeting in
order to Solicit Additional Proxies.”
Q.
WHO IS ENTITLED TO VOTE?
A.
Only holders of record of Common Stock on the close of business on the Record Date are entitled to receive notice of, and to vote
at, the Special Meeting.
Q.
WHO CAN ATTEND THE SPECIAL MEETING?
A.
All stockholders as of the Record Date, or their duly appointed proxies, may attend the Special Meeting.
Q.
WHEN AND WHERE IS THE SPECIAL MEETING?
A.
The Special Meeting will be held on September 20, 2023 at 9:00 a.m. Eastern Time virtually via live webcast. Attendance at the Special
Meeting shall solely be via the internet at https://www.viewproxy.com/vynt/2023 using the password provided to you after registration.
Stockholders will not be able to attend the Special Meeting at a physical location. Attendees will need to register prior to the meeting
in order to receive access to the meeting.
Q.
WHAT IF I HAVE TROUBLE ACCESSING THE SPECIAL MEETING?
A.
The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome and Safari) and devices (desktops,
laptops, tablets and cell phones) running the most updated version of applicable software and plugins. Participants should ensure that
they have a strong Wi-Fi connection wherever they intend to participate in the meeting. Please be sure to check in by 8:30 a.m. Eastern
Time on September 20, 2023, the day of the Special Meeting, so that Alliance Advisors may address any technical difficulties before the
Special Meeting live audio webcast begins. If you encounter any technical difficulties accessing the virtual meeting platform on the
meeting day, please email virtualmeeting@viewproxy.com or call 1-866-612-8937. Technical support will be available starting at
8:30 a.m. Eastern Time on September 20, 2023.
Q.
IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A.
Your broker will only vote your shares if you have provided them with instructions on how to vote. You should follow the directions provided
by your broker regarding how to instruct your broker to vote your shares. Call your broker today with instructions to execute the proxy.
Q.
HOW DO I VOTE?
A.
Your vote is important. On or about , 2023, we will begin mailing a Notice of Internet Availability of Proxy Materials (the “Notice”)
as well as the full set of proxy materials to all stockholders of record on our books at the close of business on the Record Date and
will post our proxy materials at https://www.viewproxy.com/vynt/2023.
If
you are a record holder, meaning your shares are registered in your name, you may vote or submit a proxy on the Internet, by telephone,
by mail or by attending the Special Meeting and voting electronically (or by ballot if the meeting is held at our offices), all as described
below. The Internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow
you to confirm that your instructions have been properly recorded. If you vote by telephone or on the Internet, you do not need to return
your proxy card or voting instruction card.
1.
Over the Internet – If you are a stockholder of record, you may submit your proxy by going to https://www.viewproxy.com/vynt/2023
and following the instructions provided in the Notice or with your proxy materials and on your proxy card. If your shares are held
with a broker, you will need to go to the website provided on your Notice or voting instruction card. Have your Notice, proxy card or
voting instruction card in hand when you access the voting website. On the Internet voting site, you can confirm that your instructions
have been properly recorded. If you vote on the Internet, you can also request electronic delivery of future proxy materials. Internet
voting facilities will be available 24 hours a day until 11:59 p.m., Eastern Time, on September 19, 2023.
2.
By Telephone – If you are a stockholder of record, you can also vote by telephone by dialing 866-407-1665. If your shares
are held with a broker, you can vote by telephone by dialing the number specified on your voting instruction card. Have your proxy card
or voting instruction card in hand when you call. Telephone voting facilities will be available 24 hours a day until 11:59 p.m., Eastern
Time, on September 19, 2023.
3.
By Email – You may sign, date, scan and email your scanned Proxy Card to VYNT@allianceadvisors.com until 11:59
p.m., Eastern Time, on September 19, 2023.
4.
By Mail – You may choose to vote by mail, by marking your proxy card or voting instruction card, dating and signing it,
and returning it in the postage-paid envelope provided. If the envelope is missing and you are a stockholder of record, please mail your
completed proxy card to Alliance Advisors, Alliance Advisors, Attention: Proxy Logistics 200 Broadacres Drive, 3rd Floor,
Bloomfield, NJ 07003. If the envelope is missing and your shares are held with a broker, please mail your completed voting instruction
card to the address specified therein. Please allow sufficient time for mailing if you decide to vote by mail as it must be received
by 11:59 p.m. on September 19, 2023.
Please
note that you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to vote on the Internet.
5.
In Person at the Special Meeting – You will have the right to vote at the Special Meeting. You will have the right to vote
on the day of, or during, the Special Meeting at https://www.viewproxy.com/vynt/2023, but the site will only record votes from
attending stockholders. To demonstrate proof of stock ownership, you will need to enter the control number received with your Notice,
proxy card or voting instruction form to vote at our Special Meeting.
Even
if you plan to attend our Special Meeting remotely, we recommend that you also submit your proxy as described above so that your vote
will be counted if you later decide not to attend our Special Meeting.
The
shares voted electronically, telephonically, or represented by the proxy cards received, properly marked, dated, signed and not revoked,
will be voted at the Special Meeting.
Q.
MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A.
Yes, you may revoke your proxy at any time before it is exercised by:
| |
● |
filing
with the Secretary of the Company a notice of revocation; |
| |
● |
voting
again by Internet or telephone at a later time; |
| |
● |
sending
in another duly executed proxy bearing a later date; or |
| |
● |
attending
the meeting remotely and casting your vote in the manner set forth above. |
Your
latest vote will be the vote that is counted.
Q.
WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND AS A BENEFICIAL OWNER?
A.
Many of our stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized
below, there are some distinctions between shares held of record and those owned beneficially.
Stockholder
of Record
If
your shares are registered directly in your name with our transfer agent, Continental Stock Transfer & Trust, you are considered,
with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant your voting proxy
directly to us or to vote in person at the Special Meeting.
Beneficial
Owner
If
your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held
in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee which is considered, with respect
to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker as to how to vote and are
also invited to attend the Special Meeting. However, because you are not the stockholder of record, you may not vote these shares remotely
at the Special Meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. If you do not
vote your shares or otherwise provide the stockholder of record with voting instructions, your shares may constitute broker non-votes.
The effect of broker non-votes, if any, is more specifically described in “What Vote is Required to Approve each Proposal?”
below.
Q.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
The
Sale requires approval by the affirmative (“FOR”) vote of a majority of the outstanding shares of Common Stock entitled
to vote on the Sale Proposal at the close of business on August 4, 2023 (the “Record Date”). Accordingly, the Company is
submitting the Sale Proposal to a stockholder vote. Shares that are not represented at the Special Meeting, abstentions and broker non-votes,
if any, with respect to the Sale Proposal will have the same effect as a vote against the Sale Proposal.
The
Dissolution requires approval by the affirmative (“FOR”) vote of a majority of the outstanding shares of Common Stock
entitled to vote on the Dissolution Proposal at the close of business on the Record Date. Accordingly, the Company is submitting the
Dissolution Proposal to a stockholder vote. Shares that are not represented at the Special Meeting, abstentions and broker non-votes,
if any, with respect to the Dissolution Proposal will have the same effect as a vote against the Dissolution Proposal.
The
Adjournment Proposal requires the affirmative (“FOR”) vote of the holders of a majority in voting power of the shares
of stock present in person or represented by proxy and entitled to vote thereon. Abstentions, if any, will have the same effect as a
vote against the Adjournment Proposal. Broker non-votes, if any, with respect to this proposal will not affect the outcome of this proposal.
Q.
WHAT DO I NEED TO DO NOW?
A.
YOUR VOTE IS IMPORTANT. REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING VIRTUALLY, PLEASE READ THE ACCOMPANYING PROXY
STATEMENT AND THEN SUBMIT YOUR PROXY TO VOTE BY INTERNET, TELEPHONE OR MAIL AS PROMPTLY AS POSSIBLE. Because approval by the affirmative
(“FOR”) vote of at least a majority of all outstanding shares of Common Stock entitled to vote there on is required to approve the Sale Proposal and the Dissolution Proposal, respectively, your failure to vote is the same as
if you voted against such proposal. Returning your proxy will help us assure that a quorum will be present at the Special Meeting and
avoid the additional expense of duplicate proxy solicitations. Any stockholder attending the virtual Special Meeting may vote during
the virtual meeting, even if he or she has previously submitted a proxy. Please refer to your proxy card for voting instructions. Submitting
your proxy promptly may save us additional expense in soliciting proxies and will ensure that your shares are represented at the Special
Meeting.
Q.
WHOM SHOULD I CALL IF I HAVE QUESTIONS?
A.
If you have questions about the Sale, the Asset Purchase Agreement, the Dissolution or the Plan of Liquidation and Dissolution, you may
call Alliance Advisors at 866-407-1665 or send an email to VYNT@allianceadvisors.com.
Q.
WHY DID THE COMPANY APPROVE THE SALE PURSUANT TO THE ASSET PURCHASE AGREEMENT?
A.
After considering at length the potential strategic alternatives available to the Company, including an evaluation to identify any available
strategic alternatives and transactions involving the Company as a whole, such as a merger, reverse merger, sale of assets, strategic
partnership or other business combination transaction, that would have a reasonable likelihood of providing value to our stockholders
in excess of the amount, if any, the stockholders would receive in a liquidation, the Board unanimously determined that effecting the
Sale pursuant to the Asset Purchase Agreement is in the best interests of the Company and our stockholders. See “Proposal 1:
Approval of the Sale Pursuant to the Asset Purchase Agreement” for additional information.
Q.
WHEN IS THE CLOSING OF THE SALE EXPECTED TO OCCUR?
A.
If the Sale is approved by stockholders and all conditions to completing the Sale are satisfied or waived, the Sale is expected to occur
as soon as practicable after the Special Meeting but, in no case later than December 31, 2023.
Q.
WHAT WILL HAPPEN IF THE SALE PROPOSAL IS APPROVED BY STOCKHOLDERS?
A.
If the Sale Proposal is approved by our stockholders, among other things as may be completed at such times as the Board or, if applicable,
our officers, in accordance with Delaware law, deems necessary, appropriate or advisable in our best interests and the best interests
of our stockholders, we will consummate the Sale pursuant to the Asset Purchase Agreement. See “Proposal 1: Approval of the
Sale Pursuant to the Asset Purchase Agreement” for further information.
Q.
WHAT WILL HAPPEN IF THE SALE PROPOSAL IS NOT APPROVED BY STOCKHOLDERS?
A.
If the Stockholders vote against the Sale Proposal or fail to vote and the Sale Proposal is not approved, the Sale would be impossible
and could result in our inability to pay off existing debt, liabilities and other obligations, and we may be required to seek the protection
of the bankruptcy courts. See “Proposal 1: Approval of the Sale Pursuant to the Asset Purchase Agreement” and “Risk
Factors Related to the Sale Proposal” for further information.
Q.
WHY DID THE COMPANY APPROVE THE DISSOLUTION PURSUANT TO THE PLAN OF DISSOLUTION?
A.
After considering at length the potential strategic alternatives available to the Company, including an evaluation to identify any remaining
strategic alternatives and transactions (other than the Sale Proposal) involving the Company as a whole, such as a merger, reverse merger,
asset sale, strategic partnership or other business combination transaction, that would have a reasonable likelihood of providing value
to our stockholders in excess of the amount the stockholders would receive in a liquidation, and no such alternatives have been identified,
the Board unanimously determined that effecting the Dissolution pursuant to the Plan of Dissolution is in the best interests of the Company
and our stockholders. See “Proposal 2: Approval of the Dissolution Pursuant to the Plan of Dissolution” for further
information.
Q.
WHAT WILL HAPPEN IF THE DISSOLUTION PROPOSAL IS APPROVED BY STOCKHOLDERS?
A.
If the Dissolution Proposal is approved by our stockholders, upon consummation of the Sale, or even if such Sale is not consummated,
we will effect the Dissolution pursuant to the Plan of Dissolution and file a Certificate of Dissolution with the Delaware Secretary
of State dissolving the Company. Pursuant to Delaware law, we will continue to exist for three years after our dissolution or for such
longer period as the Delaware Court of Chancery shall direct, or as may be required to resolve any pending litigation matters, for the
purpose of prosecuting and defending suits against us and enabling us gradually to close our business, to dispose of our property, to
discharge our liabilities and to distribute any remaining assets to stockholders. See “Proposal 2: Approval of the Dissolution
Pursuant to the Plan of Dissolution” for further information.
Q.
WHAT WILL HAPPEN IF THE DISSOLUTION PROPOSAL IS NOT APPROVED BY STOCKHOLDERS?
A.
If the Stockholders vote against the Dissolution Proposal or fail to vote and the Dissolution Proposal is not approved, the Board will
continue to explore what, if any, alternatives are available for our future in light of its discontinued business activities, including
the possibility of seeking voluntary dissolution at a later time with potentially diminished assets or seeking bankruptcy protection
(should our net assets decline to levels that would require such action), but there would be no assurance that any of these alternatives
would result in greater stockholder value than the proposed liquidation and dissolution of the Company. See Proposal 2: Approval of
the Dissolution Pursuant to the Plan of Dissolution” and “Risk Factors Related to the Dissolution Proposal”
for further information.
Q.
WHAT WILL HAPPEN TO OUR COMMON STOCK IF THE CERTIFICATE OF DISSOLUTION IS FILED WITH THE SECRETARY
OF STATE OF DELAWARE?
A.
If the Certificate of Dissolution is filed with the Secretary of State, from and after the effective time of the dissolution, and subject
to applicable law, each holder of shares of the Company’s Common Stock shall cease to have any rights in respect of that stock,
except the right to receive distributions, if any, pursuant to and in accordance with the Plan of Dissolution and the DGCL. After the
effective time of the dissolution, our stock transfer records shall be closed, and we will not record or recognize any transfer of the
Company’s Common Stock occurring after the effective time of the dissolution, except, in our sole discretion, such transfers occurring
by will, intestate succession or operation of law as to which we have received adequate written notice. Under the DGCL, no stockholder
shall have any appraisal rights in connection with the Dissolution.
We
expect to file the Certificate of Dissolution with the Secretary of State of the State of Delaware and for the Dissolution to
become effective as soon as reasonably practicable after the Dissolution is approved by our stockholders; however, the decision of whether
or not to proceed with the Dissolution will be made by the Board in its sole discretion. We intend to provide advance notice to our stockholders
prior to the closing of our stock transfer records.
Q.
WHAT ARE “ABSTENTIONS” AND “BROKER NON-VOTES”?
A.
All votes will be tabulated by the inspector of election appointed for the Special Meeting, who will separately tabulate affirmative
and negative votes, abstentions and broker non-votes. An abstention is the voluntary act of not voting for or against a particular matter
by a stockholder who is present, virtually, in person or by proxy, at a Special Meeting and entitled to vote. A broker “non-vote”
occurs when a broker nominee holding shares for a beneficial owner submits a proxy to vote on at least one “routine” proposal
but does not vote on a given proposal because the nominee does not have discretionary power for that particular proposal and has not
received voting instructions from the beneficial owner. If you hold your shares in “street name” through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some of the proposals to be acted
upon. If you do not give your broker or nominee specific instructions regarding such proposals, your broker may submit a proxy to vote
on “routine” proposals but not on “non-routine” proposals and such proxy will be deemed a “broker non-vote”
with respect to such “non-routine” proposals.
The
question of whether your broker or nominee may be permitted to exercise voting discretion with respect to a particular matter depends
on whether the New York Stock Exchange (the “NYSE”) deems the particular proposal to be a “routine” matter and
how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and
nominees can use their discretion to vote “uninstructed” shares with respect to proposals that are considered to be “routine,”
but not with respect to “non-routine” proposals. Under the rules and interpretations of the NYSE, “non-routine”
proposals are proposals that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals,
elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation
and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.
The determination of which proposals are deemed “routine” versus “non-routine” may not be made by the NYSE until
after the date on which this proxy statement has been mailed to you. As such, it is important that you provide voting instructions to
your bank, broker or other nominee, if you wish to determine the voting of your shares.
For
any proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either
for or against the proposal in the absence of your instruction. For a proposal that is considered a “non-routine” matter
for which you do not give your broker instructions, the shares will be treated as broker non-votes. “Broker non-votes”
occur when a broker or other nominee submits a proxy to vote on at least one “routine” proposal and indicates that it
does not have, or is not exercising, voting authority on proposals deemed “non-routine.” Broker non-votes will not be
counted as having been voted on the applicable proposal. Therefore, if you are a beneficial owner and want to ensure that shares you
beneficially own are voted in favor or against any or all of the proposals in this proxy statement, the only way you can do so is to
give your broker or nominee specific instructions as to how the shares are to be voted. Under the applicable rules governing
such brokers, we believe that each of the Sale Proposal, Dissolution Proposal and Adjournment Proposal are likely to be considered a
“non-routine” item.
Under
Delaware law and our Amended and Restated Bylaws (our “Bylaws”), abstentions and broker non-votes, if any, with respect
to the Sale Proposal and the Dissolution Proposal will each have the same effect as a vote against such proposals. Abstentions, if
any, with respect to the Adjournment Proposal will have the same effect as a vote against such proposal, and broker non-votes, if
any, with respect to the Adjournment Proposal will not affect the outcome of the Adjournment Proposal if such proposal is
deemed to be “non-routine” as described above. Accordingly, it is particularly important that beneficial owners
instruct their brokers how they wish to vote their shares. Abstention and broker non-votes, if any, will be counted for purposes of
determining whether there is a quorum present at the Special Meeting.
Q.
HOW ARE WE SOLICITING THIS PROXY?
A.
We are soliciting this proxy on behalf of our Board and will pay all expenses associated therewith. Some of our officers and other employees
also may, but without compensation other than their regular compensation, solicit proxies by further mailing or personal conversations,
or by telephone, facsimile or other electronic means.
In
addition, we have engaged Alliance Advisors, LLC to assist in the solicitation of proxies and provide related informational support,
for a services fee, which is not expected to exceed $10,000, plus out-of-pocket fees and expenses.
We
will also, upon request, reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their reasonable
out-of-pocket expenses for forwarding proxy materials to the beneficial owners of the capital stock and to obtain proxies.
SUMMARY
TERM SHEET
The
“Seller” under the Asset Purchase Agreement includes the Company and its wholly-owned subsidiary StemoniX, Inc. (“StemoniX”).
The “Purchaser” is AxoSim, Inc. All capitalized, undefined terms used herein shall have the meanings ascribed to such terms
in the Asset Purchase Agreement, which is included in this proxy statement as Appendix A.
The
following is a summary of the key terms of the Asset Purchase Agreement:
| |
● |
Pursuant
to the Asset Purchase Agreement, Seller will sell and assign substantially all of its operating assets to Purchaser, and Purchaser
shall assume certain liabilities relating to or arising out of the ownership, use, operations or maintenance of such assigned operating
assets from and after the Closing. |
| |
|
|
| |
● |
StemoniX
entered into the Exclusive Distributor Agreement with Purchaser on the date of the Asset Purchase Agreement. Pursuant to the Exclusive
Distributor Agreement, Purchaser is StemoniX’s exclusive distributor of the microBrain products worldwide, as well as any ancillary
services offered in connection therewith; the agreement terminates upon the closing of the Sale. |
| |
|
|
| |
● |
The
total consideration for the purchase and sale of Seller’s assets is $2,250,000 plus the assumption of certain liabilities,
described in the first bullet above, principally real estate lease and equipment lease liabilities estimated to be an aggregate of
approximately $1,100,000 at September 30, 2023. |
| |
|
|
| |
● |
At
Closing, the Seller shall be paid $1,100,000 and the following portions of the purchase price will be held back in an escrow account:
(i) $175,000 to secure the Delivered Plates Escrow Amount (as defined below), (ii) $637,000 to secure the Post-Closing Revenue Escrow
Amount (as defined below), and (iii) $338,000 to cover potential indemnification claims asserted in the first year following the
Closing (the “Indemnification Escrow Amount” and, together with the Delivered Plates Escrow Amount and the Post-Closing
Revenue Escrow Amount, the “Escrow Amount”). |
| |
|
|
| |
● |
Until
the Closing, Seller is prohibited from, directly or indirectly, engaging in any solicitation or similar activities, as set forth
in the Asset Purchase Agreement (the “No-Shop”). During the No-Shop, Seller may, under certain limited circumstances,
consider unsolicited, alternative transaction proposals from third parties that are Superior Proposals. The Company must give Purchaser
an opportunity to revise its proposal so that any other alternative transaction proposals are no longer Superior Proposals. |
| |
|
|
| |
● |
Contemporaneously
with the Closing of the Sale, Purchaser shall assume the lease of the Company’s facility in Maple Grove, Minnesota and a certain
equipment lease. Each party shall pay the Maple Grove landlord $25,000 ($50,000 in total) to consent to the assignment, and Purchaser
shall reimburse the Company $25,000 one year after the Closing. |
| |
|
|
| |
● |
Pursuant
to the Asset Purchase Agreement, Purchaser and Ping Yeh, one of our directors and the co-founder of StemoniX, shall enter into a
Consulting Agreement, pursuant to which Mr. Yeh shall provide ongoing consulting services to Purchaser in connection with the Business
for an hourly fee. |
| |
|
|
| |
● |
For
a period of three years commencing on the Closing, both Seller and Ping Yeh (and their Affiliates) are prohibited from owning, managing,
operating, controlling or participating in the management, ownership or control of any business that is substantially similar to
the Business (as defined below), or that otherwise competes with the Business within the United States, France, Japan, Singapore,
Switzerland, Germany, or the United Kingdom. |
| |
|
|
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● |
As
a condition to Closing, Purchaser shall deliver offers of employment to the four current employees of StemoniX. |
| |
|
|
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● |
If
Seller terminates the Asset Purchase Agreement for an Adverse Recommendation Change following a Superior Proposal, Seller shall pay
Purchaser a Break Fee in an amount equal to (i) $85,000, plus (ii) Purchaser’s fees, costs and expenses incurred in connection
with the evaluation, negotiation and attempted consummation of the transaction, up to a maximum aggregate amount of $140,000. |
The
summary of selected information from this proxy statement regarding the Sale Proposal may not contain all of the information that is
important to you. To understand the Sale Proposal and the Asset Purchase Agreement fully, we encourage you to read carefully this entire
proxy statement, including, but not limited to, the Asset Purchase Agreement which is included in this proxy statement as Appendix A.
VYANT
BIO, INC.
2
Executive Campus
2370
State Route 70 West, Suite 310
Cherry
Hill, New Jersey 08002
PROXY
STATEMENT
This
proxy statement is being furnished in connection with the solicitation of proxies on behalf of the Board of Directors (the “Board”)
of Vyant Bio, Inc., a Delaware corporation (the “Company,” “Vyant,” “we,” “us,” or “our”)
for use at the upcoming Special Meeting of Stockholders including any adjournment or postponement thereof (the “Special Meeting”)
to be held on September 20, 2023 at 9:00 a.m. Eastern Time virtually via live webcast. You will be able to attend the Special Meeting
virtually by registering at https://www.viewproxy.com/vynt/2023, where you will be able to listen to the meeting live, submit
questions and vote online by entering the control number located on your proxy card. The Special Meeting will be hosted via live webcast
only. In order to attend the Special Meeting, you must log in to https://www.viewproxy.com/vynt/2023 using the password provided
to you after registration. Attendees will need to register prior to the meeting in order to receive access to the meeting. In addition,
unless the context otherwise requires, references to “stockholders” are to the holders of our common stock, par value $0.0001
per share (the “Common Stock”).
This
proxy statement and the enclosed proxy card are first being mailed on or about ,
2023 to stockholders entitled to vote as of the close of business on August 4, 2023 (the “Record Date”). These proxy materials
contain instructions on how to access this proxy statement online at: https://www.viewproxy.com/vynt/2023, and how to submit your
proxy to vote via the internet, telephone and/or mail.
Purpose
The
Special Meeting is being held to request that stockholders consider and vote upon the Sale Proposal, the Dissolution Proposal and the
Adjournment Proposal, each as further described in this proxy statement. A copy of the Asset Purchase Agreement and the Plan of Dissolution
are each attached to this proxy statement at Appendix A and Appendix B, respectively, and are each incorporated herein by reference in
its entirety.
Voting
The
Board has specified the close of business on August 4, 2023 as the Record Date for purpose of determining the stockholders who are entitled
to receive notice of and to vote at the Special Meeting. Only stockholders holding shares of Common Stock as of the close of business
on the Record Date are entitled to notice of and to vote at the Special Meeting. As of the Record Date, there were shares of our Common
Stock issued and outstanding and entitled to notice of and to vote at the Special Meeting. Each holder of record of our Common Stock
on the Record Date is entitled to one vote per share of Common Stock on each matter to be acted upon at the Special Meeting.
Quorum
In
order for any business to be conducted at the Special Meeting the holders of one-third of the voting power of the shares of the capital
stock of the Company issued and outstanding and entitled to vote at the Special Meeting must be represented at the Special Meeting, either
in person, by means of remote communication in a manner, if any, authorized by the Board in its sole discretion, or represented by proxy.
If a quorum is not present at the scheduled time of the Special Meeting, the chairman of the meeting or, a majority in voting power held
by the stockholders present or represented at the Special Meeting and entitled to vote thereon, although less than a quorum, may adjourn
the Special Meeting until a quorum is present. The date, time and place and the means of remote communication, if any, of the adjourned
Special Meeting will be announced at the time the adjournment is taken, and no other notice will be given unless the adjournment is for
more than 30 days, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the
Special Meeting. An adjournment will have no effect on the business that may be conducted at the Special Meeting.
Required
Vote for Approval
| No. |
|
Proposal |
| 1. |
|
Approval
of the sale of all or substantially all of the assets of the Company (the “Sale”) pursuant to the Asset Purchase Agreement
dated July 13, 2023, by and between AxoSim, Inc., the Company and StemoniX, Inc. (“StemoniX”), substantially in the form
attached to the accompanying proxy statement as Appendix A (such agreement, the “Asset Purchase Agreement,” and such
proposal the “Sale Proposal”). The Sale Proposal must be approved by the affirmative (“FOR”) vote
of a majority of the outstanding shares of Common Stock entitled to vote on the Sale Proposal. Shares that are not represented at
the Special Meeting, abstentions and broker non-votes, if any, with respect to the Sale Proposal will have the same effect as a vote
against the Sale Proposal. |
| |
|
|
| 2. |
|
Approval
of the voluntary liquidation and dissolution of the Company (the “Dissolution”)
pursuant to a Plan of Liquidation and Dissolution in substantially the form attached to the
accompanying proxy statement as Appendix B (such plan, the “Plan of Liquidation and
Dissolution,” and such proposal, the “Dissolution Proposal”). The Dissolution
Proposal must be approved by the affirmative (“FOR”) vote of a majority
of the outstanding shares of Common Stock entitled to vote on the Dissolution Proposal. Shares
that are not represented at the Special Meeting, abstentions and broker non-votes, if any,
with respect to the Dissolution Proposal will have the same effect as a vote against the
Dissolution Proposal.
|
| 3. |
|
Approval
of the grant of discretionary authority to the Board of Directors (the “Board”) of the Company to adjourn the Special
Meeting, from time to time, to a later date or dates, even if a quorum is present, to solicit additional proxies in the event that
there are insufficient shares present in person (including virtually) or by proxy voting in favor of any one or more of the foregoing
proposals (such proposal, the “Adjournment Proposal”). The Adjournment Proposal requires the affirmative (“FOR”)
vote of the holders of a majority in voting power of the shares of stock present in person or represented by proxy and entitled to
vote thereon. Abstentions, if any, will have the same effect as a vote against the Adjournment Proposal. Broker non-votes, if any,
with respect to this proposal are not entitled to vote and will not affect the outcome of this proposal. |
Abstentions
and Broker Non-Votes
All
votes will be tabulated by the inspector of election appointed for the Special Meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes. An abstention is the voluntary act of not voting for or against a particular matter
by a stockholder who is present, virtually, in person or by proxy, at a Special Meeting and entitled to vote. A broker “non-vote”
occurs when a broker nominee holding shares for a beneficial owner submits a proxy to vote on at least one “routine” proposal
but does not vote on a given proposal because the nominee does not have discretionary power for that particular item and has not received
instructions from the beneficial owner. If you hold your shares in “street name” through a broker or other nominee, your
broker or nominee may not be permitted to exercise voting discretion with respect to some of the proposals to be acted upon. If you do
not give your broker or nominee specific instructions regarding such proposals, your broker may submit a proxy to vote on “routine”
proposals but not on “non-routine” proposals and such proxy will be deemed a “broker non-vote” with respect to
such “non-routine” proposals.
The
question of whether your broker or nominee may be permitted to exercise voting discretion with respect to a particular matter depends
on whether the New York Stock Exchange (the “NYSE”) deems the particular proposal to be a “routine” matter and
how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and
nominees can use their discretion to vote “uninstructed” shares with respect to proposals that are considered to be “routine,”
but not with respect to “non-routine” proposals. Under the rules and interpretations of the NYSE, “non-routine”
proposals are proposals that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals,
elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation
and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.
The determination of which proposals are deemed “routine” versus “non-routine” may not be made by the NYSE until
after the date on which this proxy statement has been mailed to you. As such, it is important that you provide voting instructions to
your bank, broker or other nominee, if you wish to determine the voting of your shares.
For
any proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either
for or against the proposal in the absence of your instruction. For a proposal that is considered a “non-routine” matter
for which you do not give your broker instructions, the shares will be treated as broker non-votes. “Broker non-votes” occur
when a broker or other nominee submits a proxy to vote on at least one “routine” proposal and indicates that it does not
have, or is not exercising, voting authority on proposals deemed “non-routine.” Broker non-votes will not be considered entitled
to vote on proposals deemed “non-routine”. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially
own are voted in favor or against any or all of the proposals in this proxy statement, the only way you can do so is to give your broker
or nominee specific instructions as to how the shares are to be voted. Under the applicable rules governing such brokers, we believe
that each of Proposal 1, Proposal 2 and Proposal 3 are likely to be considered a “non-routine” item.
Under
Delaware law and our Amended and Restated Bylaws (our “Bylaws”), abstentions and, broker non-votes, if any, with respect
to Proposal 1 and Proposal 2 will each have the same effect as a vote against such proposals. Abstentions, if any, with respect to Proposal
3 will have the same effect as a vote against such proposal, and broker non-votes, if any, with respect to Proposal 3 will not affect
the outcome of Proposal 3 if such proposal is deemed to be “non-routine” as described above. Accordingly, it
is particularly important that beneficial owners instruct their brokers how they wish to vote their shares. Abstention and broker non-votes
will be counted for purposes of determining whether there is a quorum present at the Special Meeting.
Voting,
Revocation and Solicitation of Proxies
The
enclosed proxy is solicited by and on behalf of the Board, with the cost of solicitation borne by us. Solicitation may also be made by
our directors and officers without additional compensation for such services. In addition to mailing proxy materials, the directors,
officers and employees may solicit proxies in person, by telephone or otherwise.
We
have engaged Alliance Advisors LLC, to assist in the solicitation of proxies and provide related advice and informational support, for
a services fee not expected to exceed $10,000, plus out-of-pocket fees and expenses. Alliance Advisors LLC will solicit proxies on our
behalf from individuals, brokers, bank nominees and other institutional holders in the same manner described above. We have also agreed
to indemnify Alliance Advisors LLC against certain claims.
If
your proxy is properly returned to us, the shares represented thereby will be voted at the Special Meeting in accordance with the instructions
specified thereon. If you return your proxy without specifying how the shares represented thereby are to be voted, the proxy will be
voted (i) “FOR” the Sale Proposal; (ii) “FOR” the Dissolution Proposal; (iii) “FOR”
the Adjournment Proposal; and (iv) at the discretion of the proxy holders, on any other matter that may properly come before the Special
Meeting or any adjournment or postponement thereof.
If
you have additional questions, need assistance in submitting your proxy or voting your shares of Common Stock, or need additional copies
of the proxy statement or the enclosed proxy card, please contact Alliance Advisors LLC, at:
Alliance
Advisors LLC
200
Broadacres Drive, 3rd Floor
Bloomfield,
NJ 07003
866-407-1665
If
you are a stockholder of record, you may revoke or change your proxy at any time before the Special Meeting by filing, with our Secretary
at Vyant Bio, Inc., Andrew D. C. LaFrence, a notice of revocation or another signed proxy with a later date. If you are a stockholder
of record, you may also revoke your proxy by attending the Special Meeting and voting. Attendance at the Special Meeting alone will not
revoke your proxy.
No
Appraisal Rights
Our
stockholders have no dissenter’s or appraisal rights in connection with any of the proposals described herein.
Solicitation
We
will bear the entire cost of solicitation, including the preparation, assembly, printing and mailing of this proxy statement, as well
as the preparation and posting of this proxy statement, and any additional solicitation materials furnished to the stockholders. Copies
of any solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are
beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse
such persons for their costs in forwarding the solicitation materials to such beneficial owners. The original solicitation of proxies
may be supplemented by a solicitation by telephone, e-mail or other means by our directors, officers or employees. No additional compensation
will be paid to these individuals for any such services. Except as described above with respect to Alliance Advisors LLC, we do not presently
intend to solicit proxies other than by e-mail, telephone and mail.
INTRODUCTORY
SUMMARY
This
summary highlights selected information contained in this proxy statement and may not contain all of the information that is important
to you with respect to Vyant Bio, Inc., a Delaware corporation (the “Company,” “Vyant,” “we,” “us”
and “our”). To understand fully the Sale Proposal and the Dissolution Proposal, and for a more complete description of the
terms of the Sale pursuant to the Asset Purchase Agreement and the Dissolution pursuant to the Plan of Dissolution, you should carefully
read this entire proxy statement.
About
the Company
Historically,
we have been a company that incorporates innovative biology and data science to improve drug discovery for complex neurodevelopmental
and neurodegenerative disorders. Our central nervous system (“CNS”) drug discovery platform combines human-derived organoid
models of brain disease, scaled biology, and machine learning. Our platform is designed to: (i) elucidate disease pathophysiology; (ii)
formulate key therapeutic hypotheses; (iii) identify and validate drug targets, cellular assays, and biomarkers to guide candidate molecule
selection; and (iv) guide clinical trial patient selection and trial design. Our programs focused on identifying repurposed and novel
small molecule clinical candidates for rare CNS genetic disorders including Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders
(“CDD”) and familial Parkinson’s Disease (“PD”). We focused on combining sophisticated data science capabilities
with highly functional human cell derived disease models. We also aimed to leverage our ability to identify validated targets and molecular-based
biomarkers to screen and test thousands of small molecule compounds in human diseased 3D brain organoids in order to create a unique
approach to assimilating biological data that supports decision making iteratively throughout the discovery phase of drug development
to identify both novel and repurposed drug candidates. In January 2023, we ceased substantially all preclinical and clinical development
activities in furtherance of completing our review of strategic alternatives as further discussed below.
Background
The
Company was incorporated with the name “Cancer Genetics, Inc.” in the State of Delaware on April 8, 1999. The Company had
its initial public offering on April 4, 2013 and initial listing on Nasdaq Capital Market on August 13, 2013. On July 16, 2014, the Company
purchased substantially all of the assets of Gentris Corporation (“Gentris”), a laboratory specializing in pharmacogenomics
profiling for therapeutic development, companion diagnostics and clinical trials, including labs in North Carolina and China. On August
18, 2014, the Company entered into two agreements by which the Company acquired BioServe Biotechnologies (India) Pvt. Ltd. (“BioServe”),
a genomics services provider serving both the research and clinical markets in India, and as a result of the acquisition, BioServe became
a subsidiary. On October 9, 2015, the Company acquired substantially all the assets and assumed certain liabilities of Response Genetics,
Inc. (“Response Genetics”) in connection with Response Genetics’ filing of a chapter 11 petition for bankruptcy in
the Delaware Bankruptcy Court. Finally, on August 15, 2017, the Company purchased all of the outstanding stock of vivoPharm, Pty
Ltd. (“vivoPharm”), with its principal place of business in Victoria, Australia, a contract research organization
(“CRO”) that specializes in planning and conducting unique, specialized studies to guide drug discovery and development programs
with a concentration in oncology and immuno-oncology.
Since
inception the Company has faced challenges in its business, including a failure to reach profitability in its business, and the Board
and management have periodically evaluated the Company’s short-term and long-term strategic options. On April 26, 2018, the Company
sold BioServe to Reprocell, Inc. On July 5, 2019, the Company sold to siParadigm, LLC certain assets associated with its clinical laboratory
business. On July 15, 2019, the Company closed a consensual private foreclosure sale by its senior lenders to Interpace Biosciences,
Inc. of all assets relating to its biopharma business, which included laboratory and testing services. On March 30, 2021, the Company
completed its business combination (the “Merger”) with StemoniX, Inc., a Minnesota corporation (“StemoniX”),
a company engaged in developing high-throughput disease-specific human organoid platforms integrated with data science technologies,
with StemoniX surviving the Merger as a wholly-owned subsidiary of the Company. On November 2, 2022, the Company sold the U.S. operations
of its subsidiary, vivoPharm, LLC to Reaction Biology Corporation. On December 30, 2022, the Company sold the entirety of its
remaining vivoPharm business for early discovery services to the Brandt Family Trust.
Throughout
2022, and especially during the fourth quarter thereof, the Company’s board of directors (the “Board”) continued to
evaluate strategic alternatives, recognizing that the costs of maintaining its operations are and would continue to be significant. On
November 17, 2022, the Board asked management to provide additional projections to the finance committee of the Board (the “Committee”),
composed of Messrs. John Fletcher, Geoffrey Harris and Paul Hansen, to evaluate, among other things the possibility of the Company suspending
its Securities and Exchange Commission (“SEC”) reporting obligations and exploring strategic alternatives. On November 28,
2022, the Committee met to discuss the possibility of suspending its SEC reporting obligations and engaging in additional cost savings
measures.
The
Committee met on December 2, 2022 to discuss the engagement of an investment banker to assist in the sale of the Company or other strategic
transaction.
During
the week of December 12, 2022, at the direction of the Board, the Company’s management interviewed five different investment banking
firms to assist in a sale of the Company or other strategic transaction.
On
December 16, 2022, the Board reviewed with management possible strategic options for maximizing stockholder value, potential acquisitions
and operating alternatives, as well as related financial reports. The Board unanimously concluded that it was in the best interests of
the stockholders to explore strategic alternatives, including a sale of the Company or substantially all of its assets.
On
December 20, 2022, the Committee met and discussed the proposals from the investment firms. Mr. Roberts presented a comparison of the
firms’ proposals which addressed fee structure, price, expertise, anticipated timelines, dedication of personnel and staffing,
focus on strategic mergers and acquisitions and relationships within the industry. After discussion, Mr. Roberts recommended LifeSci
Capital LLC (“LifeSci”) based on their industry expertise and relationships, and discussion ensued regarding LifeSci’s
draft engagement letter and anticipated outreach efforts. The Committee discussed and unanimously instructed management to engage LifeSci
as the Company’s investment banker in connection with seeking a sale of the Company, and authorized management to negotiate an
engagement letter with LifeSci.
On
December 23, 2022, the Company engaged LifeSci to act as its investment banker in connection with a sale of the Company or other strategic
transaction.
On
December 26, 2022, the Committee met to discuss the sale process and an anticipated timeline for the process. Among other things, the
Committee expressed concerns regarding the Company’s cash runway.
On
December 27, 2022, management met with LifeSci to discuss the sale process, anticipated timeline and the best ways to maximize value
for stockholders.
On
January 4, 2023, the Company publicly announced that it had engaged LifeSci as its financial advisor to assist in exploring a range of
strategic alternatives focused on enhancing stockholder value.
On
January 7, 2023, the Committee met and discussed updates to the strategic alternatives process, including a preliminary list prepared
by the Company and LifeSci of 20 initial candidates for a potential transaction.
On
January 18, 2023, the Committee met and discussed updates to the strategic alternatives process, including the status of preliminary
outreach to the initial candidates identified for a potential transaction, the results of initial meetings during the JP Morgan conference
over the previous week, and next steps for the candidate outreach process.
On
January 27, 2023, LifeSci reported that it had reached out to 62 companies with interests and capabilities synergistic to the Company’s
technology platform, including companies with an iPSC focus and/or CNS and rare disease interests, and that additional companies were
also included based on previous relationships with the Company or knowledge or potential interest in the Company. However, only two of
the companies contacted had signed a confidentiality agreement. LifeSci concluded there was a very low probability of finalizing a deal
with these companies within the time parameters of the Company’s cash runway.
On
January 31, 2023, after an assessment of the status of the Company’s efforts to seek strategic alternatives and its then current
cash position, the Board approved a plan to preserve the Company’s cash to be able to continue to pursue a satisfactory strategic
alternative for the purpose of maximizing the value of its business while also having sufficient cash to adequately fund an orderly wind
down of its operations in the event the Company was unable to secure a satisfactory strategic alternative (the “Cash Preservation
Plan”), pursuant to which, the Company (i) implemented a reduction in force, resulting in the retention of a small core group of
employees required for the asset purchase transactions described herein and/or to execute an orderly wind down of the Company; and (ii)
deferred pending efforts with respect to its current preclinical and clinical programs. As part of the Cash Preservation Plan, John A.
Roberts, our then President and Chief Executive Officer and Robert T. Fremeau, Jr. Ph.D., our then Chief Scientific Officer, agreed in
principle with the Company to step down from their respective positions, effective as of February 3, 2023.
On
February 9, 2023, LifeSci reported to the Board that 13 companies had responded to LifeSci’s initiatives, all of which had shown
interest in some or all of the Company’s AI, organoids and/or disease pipeline, and reported outreach efforts with respect to potential
reverse merger candidates.
On
February 16, 2023, LifeSci reported to the Board the status of activities noting that approximately 15 companies had responded to LifeSci’s
initiatives, detailing the level of interest in the Company’s AI, organoids and/or disease pipeline.
On
February 23, 2023, LifeSci reported to the Board that it reached out to approximately 70 reverse merger candidates and had been in correspondence
with approximately 15 companies in connection with an asset sale process with five companies specifically interested in AI, organoids
and/or disease pipeline.
On
March 1, 2023 representatives from AxoSim Inc. (“AxoSim”), LifeSci and the Company met via teleconference. The parties negotiated
the terms of a mutual confidentiality agreement over the next two days following this meeting.
On
March 3, 2023, the Company and AxoSim, entered into a mutual confidentiality agreement. AxoSim received data room access and continued
their diligence review.
On
March 7, 2023, LifeSci provided an update to the Board with respect to strategic alternatives and its marketing efforts. One of two candidates
which had previously expressed interest in a reverse merger transaction had declined to participate any further, and the remaining candidate
had made a presentation to certain Board members, during which the candidate’s science, regulatory pathway, management team, indicates
of value and financial potential was discussed, among other matters. LifeSci also noted that one asset sale bidder had put a price on
the desired assets that was less than the Company’s break-even amount, and other potential bidders had either not responded with
any pricing proposal or passed on the opportunity.
On
March 7, 2023, the Company sold substantially all of its equipment and the leasehold improvements in its leased San Diego laboratory
to a third party for $200,000 in consideration.
On
March 9, 2023, the Company terminated its San Diego office and laboratory lease agreement. The effective date of the termination was
March 31, 2023. The landlord retained approximately $45 thousand as an early termination fee. This lease termination resulted in a $1.2
million reduction in future operating lease payments.
On
March 16, 2023, LifeSci reported to the Board that a reverse merger candidate had proposed improved terms, including a more preferable
ownership split (pre-PIPE) for a $12 million PIPE investment. LifeSci also reported that one asset sale candidate had dropped out, but
that AxoSim planned to deliver a term sheet which would include assuming the Company’s leased Maple Grove facility and paying a
purchase price in tranches over time, subject to performance conditions.
On
March 22, 2023, LifeSci provided the Company a term sheet from AxoSim for the StemoniX assets, including assumption the Company’s
leased Maple Grove facility and paying $1,000,000 subject to a 15% hold back amount and performance conditions, and on March 23, 2023
LifeSci requested an improved offer from AxoSim after consultation with the Company’s management and members of the Board.
On
March 23, 2023, LifeSci reported to the Board that it had conducted outreach to 65 asset sale candidates and had ongoing interactions
with 42 of those candidates. LifeSci also reported that it had ongoing interactions with 23 reverse merger candidates.
On
March 27, 2023, LifeSci received three alternative term sheets from AxoSim for the StemoniX assets, each reflecting a different pricing
and milestone structure, with the aggregate purchase prices decreasing if there were greater price certainty.
After
receiving feedback from the Company that the upfront component of any offer needed to be improved, on March 29, 2023, AxoSim replaced
its three alternative term sheets with a single term sheet which constituted a single offer, with an aggregate purchase price of $2.0
million including conditional milestones.
On
March 29, 2023, the Board reviewed AxoSim’s latest proposal and discussed its options with LifeSci. After consideration, the Board
advised management to continue negotiating AxoSim’s proposal.
On
April 5, 2023 following ongoing negotiations between the parties, AxoSim revised its proposal to reflect an increased aggregate purchase
price of $2,250,000, inclusive of two conditional milestone payments.
On
April 10, 2023, we entered into an exclusivity agreement with AxoSim for an asset sale (the “Exclusivity Agreement”). Under
the Exclusivity Agreement, the Company was restricted from negotiating a sale of the StemoniX assets with any other potential purchaser
for a period of forty-five days; however, the Company retained the right to explore a reverse merger transaction with potential
targets.
On
April 18, 2023, LifeSci reported to the Board that it had ongoing interactions with 28 reverse merger targets. However, there was only
one potentially viable reverse merger candidate which had promised LifeSci a term sheet the week prior, but this did not materialize.
As of this day, AxoSim was engaged in due diligence with its counsel and reported that it had begun preparing initial drafts of definitive
agreements in connection with an asset sale transaction.
On
April 18, 2023 the Board unanimously approved going dark and authorized management to file all documents required to de-list its securities
from Nasdaq and to terminate its SEC registrations at the close of business on April 24, 2023, subject to authority of the Finance Committee
to rescind such approval and maintain the Company’s status as a public company if it received a satisfactory proposal from a reverse
merger candidate.
On
April 24, 2023, in light of the lack of any viable reverse merger opportunities, the Company notified The Nasdaq Stock Market LLC of
its intention to voluntarily delist its shares of Common Stock from the Nasdaq Capital Market (“Nasdaq”) and deregister the
Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
On
May 4, 2023, the Company received an initial draft of the Asset Purchase Agreement from AxoSim, at which point the Company began negotiating
the Asset Purchase Agreement with AxoSim.
On
May 4, 2023, the Board met to discuss the status of the transaction with LifeSci. That same day, the Company filed a Form 25 with the
SEC to voluntary delist its securities from Nasdaq, which became effective as of May 15, 2023. The last day of trading of the Common
Stock on Nasdaq was May 12, 2023.
On
May 11, 2023, pursuant to the Company’s Cash Preservation Plan, the Company returned one piece of equipment to the lease counterparty
for the final lease payment of $181,000.
On
May 15, 2023 the Company filed a Form 15 with the SEC to suspend its reporting obligations under the Exchange Act and deregister such
securities under Section 12(b) of the Exchange Act, which the Company expects to become effective 90 days after filing the Form 25 with
the SEC. Beginning on May 15, 2023, the Company’s Common Stock was quoted on the Pink Open Market operated by OTC Markets Group
Inc. (the “OTC”) under the symbol “VYNT.”
During
May and June 2023, the Company and AxoSim negotiated the terms of the Asset Purchase Agreement and related documents, including the Exclusive
Distributor Agreement, pursuant to which AxoSim would be appointed as the exclusive distributor of Purchaser for the microBrain products
and related services for the period from signing to closing of the Asset Purchase Agreement.
On
June 14, 2023, the Board met to discuss the status of the proposed asset sale agreement with AxoSim, and the estimated distribution available
to stockholders following such a deal, as compared with a potential liquidation without a sale. The directors present at the end of such
meeting unanimously approved the Sale pursuant to the Asset Purchase Agreement, subject to stockholder approval.
On
June 30, 2023, the Board unanimously ratified and approved in all respects the Sale pursuant to the Asset Purchase Agreement and other
transactions contemplated thereby, subject to stockholder approval, and unanimously recommended that the Company’s stockholders
approve the Sale Proposal. The Board also unanimously ratified and approved in all respects the Dissolution pursuant to the Plan of Dissolution,
subject to stockholder approval, and unanimously recommended that the Company’s stockholders approve the Dissolution Proposal.
During
June and July 2023, AxoSim and the Company negotiated and reached an agreement with the landlord of the Company’s leased Maple
Grove, Minnesota facility, providing for the assignment by the Company to AxoSim of the lease, certain amendments to the lease and the
payment to the landlord by each of the Company and AxoSim of $25,000 ($50,000 in total) to consent to the assignment, with AxoSim reimbursing
the Company $25,000 one year after the Closing.
On
July 13, 2023, the Company and AxoSim executed the Asset Purchase Agreement and the Exclusive Distributor Agreement, and on July 17,
2023, the Company publicly announced the signing of the Asset Purchase Agreement. As of the date of this Proxy Statement, the Company
has not had any other communication, indication of interest or offer from any other potential purchaser of its business or assets since
it first publicly announced the Asset Purchase Agreement with AxoSim on July 17, 2023.
Engagement
with LifeSci
The
engagement letter between LifeSci and the Company (the “Engagement Letter”) provided for a term of one (1) year commencing
upon execution (the “Term”). Under the Engagement Letter, the Company agreed to pay the following fees to LifeSci as compensation
for its services: (i) a retainer fee in the amount of $50,000 upon execution of the Engagement Letter (which shall be credited towards
the Advisory Fee), (ii) $750,000 in the event of the successful consummation of a transaction during the Term, less the retainer fee
as credit (the “Advisory Fee”), (iii) reimbursement for reasonable fees and expenses incurred in connection with LifeSci’s
advisory services, not to exceed $5,000, and (iv) reimbursement for LifeSci’s reasonable, documented, out of pocket outside legal
counsel fees in connection with preparing a fairness opinion, not to exceed $50,000.
Additionally,
the Company agreed to pay LifeSci a cash fee equal to $250,000 upon delivery of a fairness opinion if one was requested.
For
a period of six months commencing on the earlier of the Engagement Letter’s expiration or termination, LifeSci is entitled to receive
the Advisory Fee in the event that the Company consummates any transaction which was under active consideration or investigation during
the Term.
Under
the Engagement Letter, LifeSci has a right of first refusal to act as the Company’s exclusive placement agent in connection with
any private sale of its securities entered into during the Term.
In
June 2023, LifeSci and the Company agreed to an amendment to the Engagement Letter to reduce LifeSci’s Advisory Fee from $750,000
to $500,000, less the retainer fee as credit, which agreement was formalized on July 2, 2023.
General
At
the Special Meeting, you will be asked to consider and vote upon proposals to (i) approve the sale of all or substantially all of the
assets of the Company (the “Sale”), pursuant to the Asset Purchase Agreement, dated July 13, 2023, by and between AxoSim,
Inc., the Company and StemoniX, Inc. ( “StemoniX”), its wholly-owned subsidiary, substantially in the form attached to this
proxy statement as Appendix A (such agreement, the “Asset Purchase Agreement,” and such proposal, the “Sale Proposal”),
which was unanimously ratified and approved by the Board in all respects on June 30, 2023 subject to stockholder approval; (ii) approve
the voluntary liquidation and dissolution of the Company (the “Dissolution”) pursuant to the Plan of Liquidation and Dissolution
substantially the form attached as Appendix B hereto (such plan, the “Plan of Dissolution,” and such proposal, the “Dissolution
Proposal”), which was unanimously approved and adopted by the Board on June 30, 2023 subject to stockholder approval; (iii) approve
the grant of discretionary authority to the Board to adjourn the Special Meeting, from time to time, to a later date or dates, even if
a quorum is present, to solicit additional proxies in the event that there are insufficient shares present in person (including virtually)
or by proxy voting in favor of any one or more of the foregoing proposals (such proposal, the “Adjournment Proposal”); and
(iv) to transact such other business as may properly come before the Special Meeting or any adjournments or postponements of the Special
Meeting by or at the direction of the Board. The Board also unanimously recommended that our stockholders approve each of the Asset Purchase
Agreement and the Plan of Dissolution.
After
careful consideration of a number of factors, as further described in the proxy statement, the Board has unanimously (i) determined that
each of the foregoing proposals and other transactions contemplated thereby are advisable and in the best interests of the Company and
its stockholders, (ii) approved in all respects each of the foregoing proposals and other transactions contemplated thereby, and (iii)
recommended a vote “FOR” each of the foregoing proposals, including the: (1) Sale Proposal, (2) Dissolution Proposal
and (3) Adjournment Proposal.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The
statements contained or incorporated by reference into this Proxy Statement constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact made in this Proxy Statement
are forward-looking, and words such as “anticipate,” “estimate,” “expect,” “project,”
“intend,” and similar expressions are intended to identify forward-looking statements, but the absence of these words does
not mean that a statement is not forward-looking. In particular, statements regarding our future financial condition, cash flows, financing
plans, business strategy, and operations following the proposed Sale and Dissolution are forward-looking statements. Forward-looking
statements are subject to certain risks and uncertainties, including, but not limited to, the risk that we may incur additional liabilities,
the risk that we may have liabilities about which we are not currently aware, the risk that the cost of settling our liabilities and
contingent obligations could be higher than anticipated, the risk that the Escrow Amounts actually received may be significantly lower
than our estimates due to AxoSim’s failure to achieve milestones, seek indemnification or otherwise, the risk that stockholders
do not approve the Sale or the Dissolution, the risk that the Sale, even if approved, does not close and other risks and uncertainties
detailed in this Proxy Statement and our other filings with the SEC. All of these forward-looking statements are based on estimates and
assumptions made by our Board and management which, although believed to be reasonable by our Board and management, are inherently uncertain.
Stockholders are cautioned that these forward-looking statements are not guarantees of future performance or results and involve risks
and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various
considerations, including those described in this Proxy Statement. We do not intend to update these statements, except as required by
applicable law.
PROPOSAL
1: APPROVAL OF THE SALE PURSUANT TO THE ASSET PURCHASE AGREEMENT
General
As
part of our Cash Preservation Plan, and in an effort to maximize stockholder value, our Board seeks to effect the sale of all or substantially
all of the assets of the Company and its affiliates. In furtherance of these efforts, the Board is presenting the Sale Proposal (as defined
below) for approval by the Company’s stockholders.
At
the Special Meeting, you will be asked to consider and vote upon a proposal to approve the sale of all or substantially all of the assets
of the Company (the “Sale”) pursuant to the Asset Purchase Agreement dated July 13, 2023, by and between AxoSim, Inc. (“AxoSim”),
the Company and StemoniX, Inc. ( “StemoniX”), its wholly-owned subsidiary, substantially in the form attached to the proxy
statement as Appendix A (such agreement, the “Asset Purchase Agreement,” and such proposal the “Sale Proposal”),
which was unanimously ratified and approved by the Board on June 30, 2023, subject to stockholder approval. The Board also unanimously
recommended that our stockholders approve the Asset Purchase Agreement. Delaware law provides that a corporation may sell all or substantially
all of its assets upon the recommendation of its board of directors, followed by the approval of its stockholders. At the Special Meeting,
you will be asked to consider and vote upon the Sale Proposal to approve the Sale pursuant to the Asset Purchase Agreement. We encourage
you to read the Asset Purchase Agreement in its entirety.
The
Asset Purchase Agreement
The
“Seller” under the Asset Purchase Agreement includes the Company and its wholly-owned subsidiary StemoniX, Inc. (“StemoniX”).
The “Purchaser” is AxoSim. All capitalized, undefined terms used herein shall have the meanings ascribed to such terms in
the Asset Purchase Agreement.
Summary
The
following is a summary of the key terms of the Asset Purchase Agreement:
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Pursuant
to the Asset Purchase Agreement, Seller will sell and assign substantially all of its operating assets to Purchaser, and Purchaser
shall assume certain liabilities relating to or arising out of the ownership, use, operation or maintenance of such assigned operating
assets from and after the Closing. |
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StemoniX
entered into the Exclusive Distributor Agreement with Purchaser on the date of the Asset Purchase Agreement. Pursuant to the Exclusive
Distributor Agreement, Purchaser is StemoniX’s exclusive distributor of the microBrain products worldwide, as well as any ancillary
services offered in connection therewith; the agreement terminates upon the closing of the Sale. |
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The
total consideration for the purchase and sale of Seller’s assets is $2,250,000 plus the assumption of certain liabilities,
described in the first bullet above, principally real estate lease and equipment lease liabilities estimated to be an aggregate of
approximately $1,100,000 at September 30, 2023. |
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At
Closing, the Seller shall be paid $1,100,000 and the following portions of the purchase price will be held back in an escrow account:
(i) $175,000 to secure the Delivered Plates Escrow Amount (as defined below), (ii) $637,000 to secure the Post-Closing Revenue Escrow
Amount (as defined below), and (iii) $338,000 to cover potential indemnification claims asserted in the first year following the
Closing (the “Indemnification Escrow Amount” and, together with the Delivered Plates Escrow Amount and the Post-Closing
Revenue Escrow Amount, the “Escrow Amount”). |
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Until
the Closing, Seller is prohibited from, directly or indirectly, engaging in any solicitation or similar activities, as set forth
in the Asset Purchase Agreement (the “No-Shop”). During the No-Shop, Seller may, under certain limited circumstances,
consider unsolicited, alternative transaction proposals from third parties that are Superior Proposals. The Company must give Purchaser
an opportunity to revise its proposal so that any other alternative transaction proposals are no longer Superior Proposals. |
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Contemporaneously
with the Closing of the Sale, Purchaser shall assume the lease of the Company’s facility in Maple Grove, Minnesota and a certain
equipment lease. Each party shall pay the Maple Grove landlord $25,000 ($50,000 in total) to consent to the assignment, and Purchaser
shall reimburse the Company $25,000 one year after the Closing. |
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Pursuant
to the Asset Purchase Agreement, Purchaser and Ping Yeh, one of our directors and the co-founder of StemoniX, shall enter into a
Consulting Agreement, pursuant to which Mr. Yeh shall provide ongoing consulting services to Purchaser in connection with the Business
for an hourly fee. |
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For
a period of three years commencing on the Closing, both Seller and Ping Yeh (and their Affiliates) are prohibited from owning, managing,
operating, controlling or participating in the management, ownership or control of any business that is substantially similar to
the Business (as defined below), or that otherwise competes with the Business within the United States, France, Japan, Singapore,
Switzerland, Germany, or the United Kingdom. |
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As
a condition to Closing, Purchaser shall deliver offers of employment to the four current employees of StemoniX. |
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If
Seller terminates the Asset Purchase Agreement for an Adverse Recommendation Change following a Superior Proposal, Seller shall pay
Purchaser a Break Fee in an amount equal to (i) $85,000, plus (ii) Purchaser’s fees, costs and expenses incurred in connection
with the evaluation, negotiation and attempted consummation of the transaction, up to a maximum aggregate amount of $140,000. |
The
summary of selected information from this proxy statement regarding the Sale Proposal may not contain all of the information that is
important to you. To understand the Sale Proposal and the Asset Purchase Agreement fully, we encourage you to read carefully this entire
proxy statement, including, but not limited to, the Asset Purchase Agreement which is included in this proxy statement as Appendix A.
The
Parties
The
Seller under the Asset Purchase Agreement is the Company, together with its wholly-owned subsidiary, StemoniX. Seller has historically
been engaged in the business of (i) drug discovery and drug screening through the use of organoids including, without limitation, its
microBrain® platform and its microHeart® platform; and (ii) marketing and selling its products and services to drug companies,
research institutions, and academic institutions throughout the United States, France, Japan, Singapore, Switzerland, Germany, and the
United Kingdom (collectively, the “Business”). The Company’s principal executive office is located at 2 Executive
Campus, 2370 State Route 70 West, Suite 310, Cherry Hill, New Jersey 08002, and its website is: https://www.vyantbio.com.
The
Purchaser under the Asset Purchase Agreement is AxoSim, Inc. AxoSim is engaged in the business of (i) drug discovery and drug screening
through the use of neurological organoids including, without limitation, its NerveSim® platform and its BrainSim® platform; and
(ii) marketing and selling its services through fee-for-service and risk-sharing partnerships to drug companies from around the world
and performing those services at its laboratories. AxoSim’s principal executive office is located at 1441 Canal Street, Suite 205,
New Orleans, LA 70112, and its website is: https://www.axosim.com.
Prior
to entering into the Asset Purchase Agreement and the Exclusive Distributor Agreement, there was not any business relationship or material
agreements between AxoSim and the Company or any of its affiliates.
Principal
Terms and Conditions
The
following is a summary of the principal terms and conditions of the Asset Purchase Agreement, which are further described under and qualified
in their entirety by the full text of the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, the parties agreed to,
among other things, the following terms and conditions:
The
Sale
Seller
will sell, convey, transfer, assign and deliver to Purchaser all of Seller’s right, title and interest in and to all of the properties,
rights and assets owned, used or held for use by Seller or its Affiliates in connection with the Business, wherever located and whether
or not reflected on the books of Seller, other than certain retained assets described in the Asset Purchase Agreement (collectively,
the “Transferred Assets”).
Seller
shall retain its rights under all documents entered into in connection with the Sale, including but not limited to the Exclusive Distributor
Agreement (as described below), as well as all cash and cash equivalents, bank accounts, contracts that are not Transferred Assets, employee
benefit plans and plan assets, corporate seals and minute books, notes and accounts receivable for the period prior to Closing, existing
claims and rights of recovery, rights under existing insurance policies, and other items as described in the Asset Purchase Agreement,
Consideration
and Milestones
The
total consideration for the purchase and sale of the assets of the Seller is $2,250,000 and the assumption of certain liabilities relating
to or arising out of the ownership, use, operation or maintenance of the Transferred Assets from and after the Closing, principally real
estate lease and equipment lease liabilities estimated to be an aggregate of approximately $1,100,000 at September 30, 2023.
Following
the Closing, the following amounts will be held back in an escrow account: (i) $175,000 to cover delivered plates (the “Delivered
Plates Escrow Amount”), (ii) $637,000 to cover post-closing revenue (the “Post-Closing Revenue Escrow Amount”), and
(iii) $338,000 to secure potential indemnification claims asserted in the first year following Closing (the “Indemnification Escrow
Amount” and, together with the Delivered Plates Escrow Amount and the Post-Closing Revenue Escrow Amount, the “Escrow
Amount”).
Following
the Closing, promptly following the full recognition of revenue (such event, the “Delivered Plates Milestone”) from either
(a) the first delivery of the Business Products quality controlled, shipped, and delivered from a successful production run started and
finished post-Closing, or (b) services completed and performed on the Business Products from a successful production run started and
finished post-Closing, the Delivered Plates Escrow Amount shall be disbursed to Seller. If neither event (a) nor (b) occurs prior to
the twelve (12) month anniversary of the Closing, then the Delivered Plates Escrow Amount shall be disbursed to Purchaser.
The
Post-Closing Revenue Escrow Amount shall be disbursed to Seller promptly following Purchaser’s recognition of $500,000 in revenue
and receipt of cash payments of invoices from the sale of Business Products and/or services related to the Business Products (such event,
the “Revenue Milestone” and, together with the Delivered Plates Milestone, the “Milestones”). In the event that
Purchaser does not recognize $500,000 in revenue and receipt of cash payments of the invoices from the sale of Business Products and/or
services relating to the Business Products prior to the three-year anniversary of the Closing, the Post-Closing Revenue Escrow Amount
shall be disbursed to Purchaser.
Any
amounts of the Indemnification Escrow Amount remaining in escrow one year after Closing shall be released to Seller, unless there are
pending claims.
Representations
and Warranties of Seller
The
Asset Purchase Agreement contains a number of representations and warranties of Seller to Purchaser relating to, among other things:
organization and qualification; authority and validity; non-contravention; compliance with laws and regulatory matters; permits; financial
statements and indebtedness; absence of changes; no undisclosed liabilities; litigation and claims; transferred assets, and real and
personal property; intellectual property; contracts; employment and labor matters; employee benefit matters; insurance policies; taxes;
environmental matters; customers, vendors and suppliers; accounts payable; affiliate transactions; brokers; Coronavirus pandemic matters;
foreign corrupt practices and international trade sanctions; warranties; product liability and recalls; export control laws; government
contracts; and retention bonuses.
Seller’s
representations relating to organization, qualification, authority and validity, noncontravention, indebtedness, title to transferred
assets, intellectual property, taxes, brokers and retention bonuses constitute the Fundamental Representations.
Representations
and Warranties of Purchaser
The
Asset Purchase Agreement contains a number of representations and warranties of Purchaser to Seller relating to, among other things:
organization, authority and capacity; authority and validity; absence of conflicting agreements or required consents; brokers; claims
and proceedings; adequacy of funds; solvency; and independent investigation.
Seller
Covenants
The
Asset Purchase Agreement contains a number of pre-Closing covenants of Seller to Purchaser relating to, among other things:
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maintaining
the Transferred Assets, Company’s books, accounts and records, and any business permits of the Company in all material respects; |
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preserving
the Company’s operations of the Business until the Closing, including but not limited to its rights, goodwill and relationships; |
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refraining
from taking specific actions, subject to certain exceptions; |
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providing
Purchaser and its representatives reasonable access to Seller’s, personnel and certain information; |
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refraining
from actively soliciting any Takeover Proposals or Superior Proposals, and otherwise adhering to all its obligations under the No-Shop
provision; |
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giving
notice of, convening and holding a special meeting of its stockholders to submit the Sale and the Asset Purchase Agreement to the
Company’s stockholders for approval; |
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providing
further assurance as necessary to take actions for consummating the Sale pursuant to the Asset Purchase Agreement; and |
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providing
notice of certain information to Purchaser in accordance with the Asset Purchase Agreement (including with respect to any Material
Adverse Events, or Legal Proceeding). |
Mutual
Covenants
The
Asset Purchase Agreement contains a number of pre-Closing covenants of Seller and Purchaser to the other party, relating to, among other
things: certain tax matters; transfer taxes; confidentiality; public disclosures; refunds and remittances; use of name and name change
of Seller; employee matters; consents; discharge of retained liabilities; restrictive covenants; employee reimbursement amounts; covenants
not to challenge; distributions; and access.
No-Shop
As
of the signing of the Asset Purchase Agreement and until the Closing Date, Seller must not directly or indirectly, solicit, initiate,
or take any action to facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably
be expected to lead to any Takeover Proposal, or: (i) conduct or engage in any discussions or negotiations with, disclose any non-public
information relating to Seller or any of its Affiliates to, afford access to the Business, properties, assets, books, or records of Seller
or any of its Affiliates to, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party (or its potential
sources of financing) that is seeking to make, or has made, any Takeover Proposal; (ii) (A) except where the Board makes a good faith
determination after consultation with its financial and legal advisors that the failure to do so would violate its fiduciary duties,
amend or grant any waiver or release under, or terminate, any standstill or similar agreement or obligation with respect to any class
of equity securities of Seller or any of its Affiliates or (B) approve any transaction under, or any third party becoming an “interested
stockholder” under, Section 203 of the DGCL; or (iii) enter into any agreement in principle, letter of
intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other
Contract, in each case relating to any Takeover Proposal.
Notwithstanding
the No-Shop provisions of the Asset Purchase Agreement described in the immediately preceding paragraph, during the period commencing
on the date of the Asset Purchase and ending on the date of receipt of the approval of the Sale by the Stockholders, under the Asset
Purchase Agreement, the Company may, under certain limited circumstances, participate in discussions or negotiations with any third party
that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal that the Board believes constitutes a Superior Proposal.
If
the Board determines to pursue a Superior Proposal in accordance with the Asset Purchase Agreement, Seller must, among other things,
provide Purchaser prior notice of such determination, along with supporting documentation and information pertaining to such Superior
Proposal, as well as an opportunity to propose revisions to the Asset Purchase Agreement such that the Superior Proposal would no longer
constitute a Superior Proposal.
Closing
Conditions
The
obligations of Purchaser and Seller to consummate the Sale pursuant to the Asset Purchase Agreement and other transactions contemplated
thereby, are subject to the satisfaction of the following conditions:
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obtaining
the requisite stockholder approval on or prior to the Closing; |
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on
or prior to the Closing, no Legal Proceeding or provision of any applicable Law shall prohibit or make illegal the consummation of
the Closing; |
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on
or prior to the Closing, no Order shall have been issued by any Governmental Authority prohibiting the consummation of the Sale and
the other transactions contemplated by the Asset Purchase Agreement, nor shall there be any legal proceeding pending by any Governmental
Authority for the purpose of obtaining any such Order; |
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the
representations and warranties of each party in the Asset Purchase Agreement being true and correct as of the Closing (subject to
applicable materiality thresholds); |
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performance
in all material respects all of the covenants and agreements required to be performed by each party prior to the Closing, including
adherence to certain restrictive covenants for Seller and Ping Yeh (as described below) and the No-Shop provision; |
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no
occurrence of any Material Adverse Effect since the Effective Date; |
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delivery
by Seller of the Consulting Agreement executed by Ping Yeh (as described below); and |
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delivery
of certificates, documents and items required by each party under the Asset Purchase Agreement on or prior to the Closing. |
Non-Competition
Additionally,
for a period of time commencing on the Effective Date and ending on the third anniversary of the Closing Date, Seller, Ping Yeh and their
Affiliates shall be prohibited from directly or indirectly owning, managing, operating, controlling or participating in the ownership,
management, operation or control of any business that is substantially similar to the Business or that otherwise competes with the Business
within the United States, France, Japan, Singapore, Switzerland, Germany or the United Kingdom.
During
this period, Seller, Mr. Yeh and their Affiliates are also prohibited from soliciting Purchaser’s employees or independent contractors
involved in the Business, providing services that compete with the Business, and disparaging or otherwise demeaning the Business, Purchaser
or Purchaser’s Affiliates, among other things.
Violation
of the above-described restrictive covenants by Seller, Mr. Yeh or their Affiliates will result in an extension of the initial three
(3) year restricted period by a period of time equal in length to the period during which the subject violation(s) occurred, among other
potential consequences.
Yeh
Consulting Agreement
Contemporaneously
with or prior to the Closing, Mr. Yeh shall enter into a Consulting Agreement with Purchaser pursuant to which he will provide ongoing
advisory and consulting services to Purchaser on matters pertaining to the Business until the three-year anniversary of the Closing Date,
unless terminated earlier. Either party may terminate the Consulting Agreement at any time upon thirty (30) days prior written notice
to the other, provided that Purchaser may require Mr. Yeh to complete any projects in process. Further, Purchaser may terminate the Consulting
Agreement immediately upon Mr. Yeh’s breach of any of the restrictive covenants outlined in the Asset Purchase Agreement.
Under
the Consulting Agreement, Mr. Yeh shall receive an hourly rate of $250 as compensation for his consulting services, and will be reimbursed
for all reasonable travel-related expenses for required travel outside the metropolitan area of his residence.
Termination
Events and Break Fee
The
Asset Purchase Agreement may be terminated at any time prior to the Closing by:
| |
● |
mutual
written consent of Purchaser and Seller; |
| |
● |
Purchaser
or Seller for the other party’s misrepresentation, or breach of warranty or covenant in its representations and warranties
or covenants in the Asset Purchase Agreement and such breach remains uncured for thirty (30) days after written notice thereof, provided
that a party in material breach shall not be entitled to terminate the Asset Purchase Agreement; |
| |
● |
Purchaser
or Seller for the other party’s failure to satisfy certain Closing conditions by December 31, 2023; and |
| |
● |
Purchaser
or Seller upon written notice to Purchaser of an Adverse Recommendation Change by the Board of the Company, provided that Seller
shall only be able to terminate if it has complied with the No-Shop provision in all material respects. |
In
the event that Seller terminates the Asset Purchase Agreement for an Adverse Recommendation Change, Seller shall pay Purchaser a Break
Fee in an amount equal to (i) $85,000, plus (ii) Purchaser’s fees, costs and expenses incurred in connection with the evaluation,
negotiation and attempted consummation of the transaction, up to a maximum aggregate amount of $140,000.
Survival;
Indemnification Obligations
The
representations and warranties of the Company and the right of Purchaser to indemnification under the Asset Purchase Agreement generally
shall survive for one (1) year from the Closing Date.
However,
any claim with respect to an inaccuracy of any representation or warranty in respect of which indemnity may be sought under the Asset
Purchase Agreement shall survive for the time at which the applicable representation or warranty would otherwise terminate if notice
of the inaccuracy of such representation or warranty giving rise to such right of indemnity shall have been given to the party against
whom such indemnity may be sought, in accordance with the applicable terms of the Asset Purchase Agreement.
All
agreements and covenants contained in the Asset Purchase Agreement shall survive indefinitely, or, if shorter, for the period provided
in the applicable agreement or covenant.
Except
in the event of breaches of Fundamental Representations, the aggregate amount of Seller’s liabilities for breaches of representations
and warranties in the Asset Purchase Agreement or the other transaction documents shall not exceed $338,000. The amount of all losses
arising out of or relates to breaches of any Fundamental Representations shall not exceed $2,250,000.
Reasons
for the Sale Proposal
The
Board has unanimously determined that effecting the Sale pursuant to the Asset Purchase Agreement is in the best interests of the Company
and our stockholders. In developing the Cash Preservation Plan and as part of ongoing discussions with LifeSci, the Board considered
at length potential strategic alternatives available to us, including an evaluation to identify any available strategic alternatives
and transactions involving the Company as a whole, such as a merger, reverse merger, sale of assets, strategic partnership or other business
combination transaction, that would have a reasonable likelihood of providing value to our stockholders in excess of the amount, if any,
the stockholders would receive in a liquidation.
In
reaching its decision to approve the Asset Purchase Agreement and to recommend that stockholders vote to approve the Sale, including
the fairness of the consideration to be received in the Sale, the Board, in consultation with our advisors and management, considered
a number of factors, including, but not limited to, the risk factors described elsewhere in this Proxy Statement or referred to herein,
as well as the following factors:
| |
● |
our
limited capital resources and our recent difficulty in raising capital without substantial dilution to our shareholders given the
current capital markets for microcap biotech and pharma companies, thus limiting our ability to attempt to further innovate and develop
our business on our own; |
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|
|
| |
● |
our
history of operating losses and the Board’s understanding of, and discussions with management regarding, our future performance;
|
| |
|
|
| |
● |
the
value of the consideration (including the liabilities and obligations to be assumed by the Purchaser) to be received by the Company
pursuant to the Asset Purchase Agreement; |
| |
|
|
| |
● |
the
ability to return value to our stockholders and the Board’s concern that if we cannot consummate the Sale to AxoSim, we may
be required to seek the protection of the bankruptcy courts; |
| |
|
|
| |
● |
the
Sale is the result of an active, lengthy and thorough evaluation of strategic alternatives reasonably available to the Company conducted
with the help of LifeSci that did not result in any alternative actionable proposals; |
| |
|
|
| |
● |
the
Board’s understanding of and familiarity with, and discussions with our management regarding, the business, operations, management,
financial condition, operating losses and future business prospects for the Company (as well as the risks and costs involved in pursuing
those prospects); |
| |
|
|
| |
● |
our
inability in the past to pursue acquisitions, and our unsuccessful efforts prior to our negotiations with AxoSim to advance discussions
with prospective acquisition or merger candidates to develop substantive terms and conditions of a transaction; |
| |
|
|
| |
● |
AxoSim’s
obligation to consummate the Sale is not conditioned on it obtaining financing; |
| |
|
|
| |
● |
AxoSim’s
willingness to put the contingent portion of the consideration ($1.15 million) in escrow at Closing to alleviate any credit risk
if the Milestones are achieved; |
| |
|
|
| |
● |
Purchaser’s
agreement to limit the survival period applicable to the representations and warranties to 12 months, and to limit indemnification
liability, other than for Fundamental Representations, to the Indemnification Escrow Amount; |
| |
|
|
| |
● |
the
ability of our Board, pursuant to the terms of the Asset Purchase Agreement, to evaluate any unsolicited or unencouraged alternative
acquisition proposals that we may receive at any time prior to our receipt of stockholder approval, and our ability to change our
recommendation and/or terminate the Asset Purchase Agreement (and pay the Break Fee under certain circumstances) if the Board determines
that such action is consistent with the Board’s fiduciary obligations; |
| |
|
|
| |
● |
the
likelihood that the Sale will be completed, including the reasonableness of the conditions to the Sale, the fact that certain consents,
including the consent of our landlord to the assignment of our lease and the terms of employment of our employees who will become
employees of AxoSim, have been negotiated in advance, and the likelihood that the contract and stockholder approvals necessary to
complete the Sale will be obtained; |
| |
|
|
| |
● |
the
fact that if our stockholders do not approve the Sale, there may not be any other offers from potential acquirers; and |
| |
|
|
| |
● |
that
the Sale is subject to approval of holders of at least a majority of the outstanding shares of our Common Stock, which ensures that
the Board will not be taking action without the support of a significant portion of our stockholders. |
Our
Board also considered potential drawbacks or risks relating to the Sale, including the following risks and potentially negative factors,
but determined that these potential risks and factors were outweighed by the expected benefits of the Sale:
| ● | the
risks and contingencies relating to the announcement and pendency of the Sale; |
| | | |
| ● | the
incurrence of significant costs and expenses in connection with attempting to complete the
Sale, including legal, accounting and other costs; |
| | | |
| ● | the
fact that the assets being sold to Purchaser include virtually all of our non-cash assets; |
| | | |
| ● | the
fact that there are limited third-party contract consents that must be obtained as a condition
to closing the Sale and the uncertainties associated with obtaining those consents, which
could result in the failure of the Sale to be consummated; |
| | | |
| ● | the
fact that the Sale must be completed by December 31, 2023; |
| | | |
| ● | that
the Asset Purchase Agreement obligates us to indemnify Purchaser and certain of its related
parties against certain damages; |
| | | |
| ● | the
terms of the Asset Purchase Agreement that place restrictions on our ability to consider
an Alternative Proposal and to terminate the Asset Purchase Agreement and accept a Superior
Proposal; |
| | | |
| ● | the
fact that under the terms of the Asset Purchase Agreement we have to pay Purchaser a termination
fee of up to $225,000 if we pursue a Superior Proposal; |
| | | |
| ● | one
or more third parties could assert claims against us, either before or after the closing,
and seek damages or other remedies. We might be required to spend substantial time and resources
defending any such claims, and any amounts paid to any such third parties would reduce the
net amount received from the transaction; |
| | | |
| ● | the
fact that we expect that our stockholders will not receive any of the proceeds from the Sale
for at least a year from the Closing when we anticipate, but cannot guarantee, that we would
be able commence making distributions if funds are then deemed available and no claims are
pending; |
| | | |
| ● | the
fact that following the filing of a Certificate of Dissolution, our stockholders’ ability
to sell their stock will be limited; |
| | | |
| ● | that,
under Delaware law, appraisal rights are not provided to stockholders in connection with
the Sale; and |
| | | |
| ● | that
certain of our officers and directors may have interests with respect to the Sale in addition
to their interests as stockholders generally. |
The
foregoing discussion of the factors considered by the Board is not intended to be exhaustive, but rather includes material factors considered
by the directors. The Board also considered other factors, including those described in the section entitled “Risk Factors Regarding
Sale” beginning on page 25 of this proxy statement, in deciding to approve, and unanimously recommending that our stockholders
authorize, the Sale. In reaching its decision and recommendation to our stockholders, the Board did not quantify or assign any relative
weights to the factors considered and individual directors may have given different weights to different factors. In addition, the Board
did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was
favorable or unfavorable to its ultimate determination, but rather conducted an overall analysis of the factors described above.
Risk
Factors Related to the Sale Proposal
This
proxy statement contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of factors both in and out of our control, including the risks faced
described below and elsewhere in this proxy statement. See the section of this proxy statement captioned, “Special Note Regarding
Forward-Looking Statements” for more information. Additionally, there are many risks and uncertainties that stockholders should
consider when deciding whether to vote to approve the Sale Proposal, including, but not limited to, the risk factors included in the
“Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the
SEC on March 31, 2023, and the risk factors included in this section captioned, “Risk Factors Related to the Sale Proposal”
as set forth below. You should carefully consider the following risk factors, together with all of the other information included
in this proxy statement, before you decide whether to vote or instruct your vote to be cast to approve the Sale pursuant to the Asset
Purchase Agreement, as described in this proxy statement.
| ● | Stockholders
could vote against the Sale Proposal or fail to vote, thereby making the Sale impossible
and adding great uncertainty as to our ability to continue operations. |
| | | |
| | ● | The
Sale, even if approved by the Stockholders, may not be completed. |
| | | |
| ● | Any
delay in the closing of the transactions under the Asset Purchase Agreement could result
in our inability to pay off existing debt, liabilities and other obligations, which could
adversely impact our ability to continue operations. |
| | | |
| ● | The
occurrence of certain events, changes or other circumstance could give rise to the termination
of the Asset Purchase Agreement, which would result in the Sale not being consummated in
accordance with the Sale Proposal. |
| | | |
| ● | The
Board did not seek or obtain a fairness opinion from an investment bank or other firm that
the consideration to be paid for the Transferred Assets is fair from a financial point of
view to Company stockholders. |
| | | |
| | ● | A
significant portion of the Purchase Price is contingent on AxoSim’s satisfaction of
Milestones that may never be achieved. |
| | | |
| ● | The
additional risk factors in the section captioned, “Risk Factors related to the Dissolution
Proposal.” |
Our
Conduct Following Approval of the Sale Proposal
If
the Sale Proposal is approved by the requisite vote of our stockholders, among other things as may be completed at such times as the
Board or, if applicable, our officers, in accordance with Delaware law, deems necessary, appropriate or advisable in our best interests
and the best interests of our stockholders, we will consummate the Sale pursuant to the Asset Purchase Agreement, and assuming the Dissolution
Proposal is approved by the requisite vote of our stockholders, we will effect the Dissolution pursuant to the Plan of Dissolution, and
file a certificate of dissolution with the Secretary of State of Delaware dissolving the Company, as further described below. See the
section of this proxy statement captioned “Our Conduct Following the Approval of the Dissolution Proposal.”
Exclusive
Distributor Agreement
In
connection with the execution of the Asset Purchase Agreement, StemoniX and Purchaser entered into the Exclusive Distributor Agreement.
Pursuant to the Exclusive Distributor Agreement, StemoniX authorized Purchaser to be the exclusive distributor of its microBrain®
products, and any ancillary services offered in connection therewith, on a worldwide basis. The Exclusive Distributor Agreement commenced
on the Effective Date and continues until the Closing Date of the Asset Purchase Agreement, unless terminated earlier.
Upon
request of Purchaser, StemoniX shall perform such services on Purchaser’s behalf as an authorized subcontractor of Purchaser.
Purchaser
shall be primarily responsible for the promotion of all products and services, as well as customer service. StemoniX shall provide Purchaser
with marketing and technical assistance concerning the products and services, and shall assist Purchaser and its customers as reasonably
requested to support the resolution of any technical problems relating to the microBrain® products and services.
During
the term of the Exclusive Distributor Agreement. Purchaser shall have the right to indicate to the public that it is an authorized distributor
of StemoniX’s products and services, and may advertise accordingly worldwide using the trademarks, service marks, and trade names
that StemoniX may adopt from time to time.
StemoniX
or Purchaser may terminate the Exclusive Distributor Agreement at any time with or without cause and without penalty of any kind by giving
thirty (30) days’ prior written notice of termination to the other. Additionally, a non-breaching party may terminate if one party
defaults on any material obligation and such default is not cured within thirty (30) days’ notice to the breaching party of such
breach.
StemoniX
and Purchaser are subject to mutual confidentiality and standard indemnification obligations. Neither party may assign the Exclusive
Distributor Agreement without receiving prior written consent from the other party, except in the event of an assignment to an affiliated
company or in connection with a merger, consolidation, spin-off, corporate reorganization, acquisition, or sale of all or substantially
all the assigning party’s assets.
Interests
of Certain Persons in the Sale
The
Sale will not constitute a change of control pursuant to certain outstanding employment agreements and our outstanding equity incentive
plan. Accordingly, none of the Company’s officers, directors or employees have any interest in, or will receive any special benefit
from, the Sale, other than Mr. Yeh, with respect to his consulting agreement, described above.
Certain
Material U.S. Federal Income Tax Consequences of the Sale Proposal
The
following discussion is a general summary of certain material anticipated U.S. federal income tax consequences of the Sale. This summary
is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, currently applicable
and proposed Treasury regulations under the Code (the “Treasury Regulations”) and published rulings and decisions, all as
currently in effect as of the date of this proxy statement, and all of which are subject to differing interpretations or change, possibly
with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any U.S.
federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position.
The following summary has no binding effect on the IRS or the courts. In addition, tax considerations under state, local, and non-U.S.
laws, or federal laws other than those pertaining to income tax are not addressed in this summary. The proposed Sale by us is entirely
a corporate action. Our stockholders will not realize any gain or loss for U.S. federal income tax purposes as a result of the Sale.
The
proposed Sale will be treated as a sale of corporate assets in exchange for cash, the rights with respect to the escrow amounts and the
assumption of certain liabilities. The amount of gain or loss we recognize with respect to the sale of a particular asset will be measured
by the difference between the amount realized by us on the sale of that asset and our tax basis in that asset. The determination of whether
we will recognize gain or loss will be made with respect to each of the assets to be sold. Accordingly, we may recognize gain on the
sale of certain assets and loss on the sale of certain others, depending on the amount of consideration allocated to an asset as compared
to the tax basis of that asset. Further, the sale of certain assets may result in ordinary income or loss, depending on the nature of
the asset. We anticipate that our tax attributes, including any available U.S. federal net operating loss carry forwards (“NOLs”),
will be available to reduce our U.S. federal income tax liability resulting from any gain realized by us as a result of the proposed
Sale.
However,
our ability to use our tax attributes to offset such gain may be subject to certain limitations. For example, our deduction for NOLs
arising in taxable years beginning after December 31, 2017 is limited to 80% of current year taxable income, although our ability to
use NOLs arising in taxable years beginning prior to January 1, 2018 is not so limited. In addition, in general, under Section 382 of
the Code, a corporation that undergoes an “ownership change” is subject to annual limitations on its ability to use its pre-ownership
change NOLs or other tax attributes to reduce future taxable income or reduce taxes. Our past issuances of stock and other changes in
our stock ownership may have resulted in an ownership change within the meaning of Section 382 of the Code; accordingly, use of our pre-ownership
change NOLs may be subject to limitation under Section 382.
The
determination of whether the amount of gain or loss we will recognize on the Sale and whether and to what extent our tax attributes will
be available to reduce the gain is highly complex and is based in part upon facts that will not be known until the completion of the
Sale. It is possible that we will incur a U.S. federal income tax liability as a result of the proposed Sale.
STOCKHOLDERS
ARE URGED TO CAREFULLY REVIEW THIS DESCRIPTION AND TO CONSULT THEIR OWN TAX ADVISORS AS TO DETERMINE ANY SPECIFIC TAX CONSEQUENCES TO
THE STOCKHOLDER IN CONNECTION WITH THE SALE PROPOSAL, INCLUDING, ANY U.S. FEDERAL INCOME TAX CONSEQUENCES AND/OR ANY FEDERAL NON-INCOME,
STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES RELAVANT TO SUCH STOCKHOLDER AS A RESULT OF THE SALE PURSUANT TO THE ASSET PURCHASE AGREEMENT.
Accounting
Treatment of the Asset Sale
The
Asset Sale will be accounted for as a “sale” by the Company, as that term is used under generally accepted accounting principles,
for accounting and financial reporting purposes.
No
Appraisal or Dissenters’ Rights
Stockholders
may vote against the authorization of the Asset Sale Proposal, but under Delaware law, appraisal or dissenters’ rights are not
provided to Stockholders in connection with the Sale.
Required
Vote
The
affirmative vote of a majority of the outstanding capital stock of the Company entitled to vote thereon is required to approve the Sale
Proposal. This means that, of the shares of capital stock of the Company that are outstanding as of the close of business on the Record
Date and entitled to vote on the Sale Proposal, a majority must vote in favor of the Sale Proposal in order for the Sale Proposal to
be approved. Abstentions and broker non-votes, if any, will have the effect of a vote against the Sale Proposal.
Recommendation
of the Board
After
careful consideration of a number of factors, as further described in this proxy statement, the Board has unanimously (i) determined
that the Sale pursuant to the Asset Purchase Agreement and the other transactions contemplated thereby are advisable and in the best
interests of the Company and its stockholders, and (ii) approved in all respects the Sale and the Asset Purchase Agreement and the other
transactions contemplated thereby.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL ONE.
PROPOSAL
2: APPROVAL OF THE DISSOLUTION PURSUANT TO THE PLAN OF DISSOLUTION
General
Not
contingent on the sale of our assets to AxoSim, but intended to occur after the closing thereof, if any, and as part of our Cash Preservation
Plan, our Board seeks to effect the liquidation and dissolution of the Company, including to monetize any remaining assets. In furtherance
of these efforts, the Board is presenting the Dissolution Proposal (as defined below) for approval by the Company’s stockholders.
At
the Special Meeting, the stockholders will be asked to consider and vote upon the proposal to approve the voluntary liquidation and dissolution
of the Company (the “Dissolution”), pursuant to a Plan of Liquidation and Dissolution in substantially the form attached
as Appendix B (such plan, the “Plan of Dissolution,” and such proposal, the “Dissolution Proposal”), which was
unanimously approved and adopted by the Board on June 30, 2023, subject to stockholder approval. The Board also unanimously recommended
that our stockholders approve the Plan of Dissolution. Delaware law provides that a corporation may dissolve upon the recommendation
of its board of directors, followed by the approval of its stockholders. At the Special Meeting, you will be asked to consider and vote
upon the Dissolution Proposal for approval of the Dissolution pursuant to the Plan of Dissolution. We encourage you to read the Plan
of Dissolution in its entirety.
Overview
If
the Dissolution Proposal is approved by our stockholders, we will effect the Dissolution pursuant to the Plan of Dissolution and file
a Certificate of Dissolution with the Delaware Secretary of State dissolving the Company. Pursuant to Delaware law, we will continue
to exist for three years after our dissolution or for such longer period as the Delaware Court of Chancery shall direct, or as may be
required to resolve any pending litigation matters, for the purpose of prosecuting and defending suits against us and enabling us gradually
to close our business, to dispose of our property, to discharge our liabilities and to distribute any remaining assets to stockholders,
but not for the purpose of continuing the business for which the Company was organized. Any action, suit or proceeding begun by or against
the Company before or during this survival period does not abate by reason of the dissolution, and for the purpose of any such action,
suit or proceeding, the Company will continue beyond the three-year period until any related judgments, orders or decrees are fully executed,
without the necessity for any special direction by the Delaware Court of Chancery.
The
proportionate interests of all of our stockholders will be fixed on the basis of each holder’s respective stock holdings at the
close of business on the day that is the effective date of the Certificate of Dissolution, which date is referred to as the “Final Record Date.” We intend to discontinue recording transfers of shares of
the Common Stock on the Final Record Date, and thereafter certificates representing shares of the Common Stock will not be assignable
or transferable on our books except by will, intestate succession or operation of law. After the Final Record Date and as a result of
the closing of the stock transfer books, any distributions made by us will be made to the same stockholders who held shares of record
as of the close of business on the Final Record Date, except as may be necessary to reflect subsequent transfers recorded on our books
as a result of any assignments by will, intestate succession or operation of law.
Summary
of the Dissolution pursuant to the Plan of Dissolution
The
Plan of Dissolution contemplates that the Company will be dissolved under the default dissolution procedures set forth in Section 281(b)
of the DGCL, but also provides the Board with the flexibility to dissolve the Company using the “safe harbor” procedures
of Sections 280 and 281(a) of the DGCL if it determines that doing so would be in the best interests of the Company and its stockholders.
The following summary assumes that the Company will be dissolved under the default method of Section 281(b) of the DGCL.
In
connection with the Dissolution, we are required by Delaware law to (i) pay or make reasonable provision for payment of all of claims,
liabilities and obligations, including making reasonable provision for the payment of contingent, conditional or unmatured contractual
claims known to the Company, (ii) make such provision as will be reasonably likely to be sufficient to provide compensation for any claim
against the Company which is the subject of a pending action, suit or proceeding to which the Company is a party, and (iii) make such
provision as will be reasonably likely to be sufficient to provide compensation for claims that have not been made known to the Company
or that have not arisen but that, based on facts known to the Company, are likely to arise or become known to the Company within 10 years
after the date of dissolution. After filing a Certificate of Dissolution with the Delaware Secretary of State, we shall not engage in
any business activities except for the purpose of winding up and liquidating our business and affairs, which include, but are not limited
to:
| ● | prosecuting and
defending suits, whether civil, criminal or administrative, by or against us; |
| | | |
| ● | converting our
assets into cash or cash equivalents; |
| | | |
| ● | discharging or
making provision for discharging our liabilities; |
| | | |
| ● | withdrawing from
all jurisdictions in which we are qualified to do business; |
| | | |
| ● | distributing our
remaining property among our stockholders according to their interests; and |
| | | |
| ● | doing every other
act necessary to wind up and liquidate our business and affairs, but not for the purpose of continuing the business for which we are
organized. |
Delaware
law provides that, following the approval of the Plan of Dissolution by our stockholders, the Board may take such actions as it deems
necessary in furtherance of the dissolution of the Company and the winding up of our operations and affairs.
We
will pay all of our expenses (including operating and wind-up expenses to be incurred throughout the dissolution and wind-up process)
and other known, non-contingent liabilities (which we presently estimate at between $ million and $
million for the period from June 30, 2023 through the time at which we expect the distributions would be made). Following the
filing of the Certificate of Dissolution, while we complete the wind-up and collect any subsequent payments due to us from AxoSim, we
may owe additional legal and accounting fees and consulting fees of our Chief Executive Officer and Chief Financial Officer Andrew D.
C. LaFrence. We will determine whether and when to collect, sell, exchange, distribute or otherwise dispose of all or substantially all
of our non-cash assets and property that remain after the Sale, and we expect such remaining assets to be immaterial. Under the Asset
Purchase Agreement, which is subject to the approval of the Sale Proposal, we have agreed to certain indemnification obligations which
will survive the closing of the Sale, as described above in “Proposal 1: Approval of the Sale Pursuant to the Asset Purchase
Agreement—The Asset Purchase Agreement—Survival.” In particular, there will be the $338,000 Indemnification Escrow
Amount, which is a portion of the Purchase Price held in escrow until the one-year anniversary of the closing of the Sale, and which
amount is the cap for indemnification obligations owed to AxoSim other than for breaches of any Fundamental Representation. The cap for
breaches of Fundamental Representations is $2,250,000.
We
cannot predict with certainty the amount of liquidating distributions to our stockholders. Based on the information currently available
to us, we estimate that the aggregate amount ultimately distributed to stockholders will be in the range of between approximately $ and
$ per share. The estimated distributions are based on, among other things, the Sale Proposal being approved,
the Sale being consummated and the fact that, as of June 30, 2023, we had approximately $1.5 million in cash, cash equivalents and marketable
securities and take into account severance obligations and other known expenses, as well as the assumption that we will be paid the $1,150,000
total Escrow Amount under the Asset Purchase Agreement, which is comprised of the $175,000 Delivered Plates Escrow Amount, the $338,000
Indemnification Escrow Amount and the $637,000 Post-Closing Revenue Escrow Amount. The estimated distributions represent our estimate
of the amount to be distributed to stockholders during the liquidation, but do not represent the minimum or maximum distribution amount.
Total actual distributions, if any, could be higher or lower, or there may not be any liquidating distributions at all. It is possible
that any distribution could be followed in the future by distributions, if it is determined that any reserved amounts no longer need
to be reserved. If the Sale Proposal is not approved, we do not foresee any funds being available for distribution to stockholders.
If
funds are available and to the extent permitted by Delaware law, we intend to make liquidating distributions from time to time following
the effective date of the filing of the Certificate of Dissolution, but likely no earlier than one year after the closing of the
Sale. However, we are unable to predict the precise amount or timing of any liquidating distributions (or whether any liquidating distributions
will occur at all), as many of the factors influencing the amount of cash distributed to our stockholders in liquidating distribution(s)
and/or the timing of such distributions cannot be currently quantified with certainty and are subject to change. The actual amounts and
timing of any liquidating distributions may vary substantially, depending on, among other things, the actual operating expenses we incur
during the dissolution and wind-up process, our ability to successfully defend, resolve and/or settle any litigation matters that may
arise (and the timing of any such successful defense, resolution or settlement), whether we become subject to additional liabilities
or claims (and the speed with which we are able to defend, resolve or discharge any such liabilities or claims), whether we incur unexpected
or greater than expected losses with respect to presently unknown, contingent and/or conditional liabilities, and the ability of AxoSim
to achieve the Milestones and the actual amount and timing of releases of the Escrow Amount under the Asset Purchase Agreement, if
any. Accordingly, our stockholders will not know the amount of any liquidating distributions that they may receive as a result of the
Plan of Dissolution when they vote on the proposal to approve the Plan of Dissolution; they may receive substantially less than the amount
we currently estimate or that they otherwise expect to receive. See the section of this proxy statement captioned “Special
Note Regarding Forward-Looking Statements,” “Risk Factors Related to the Sale Proposal” and “Risk
Factors Related to the Dissolution Proposal.”
Any
liquidating distributions from us will be made to stockholders who held shares of Common Stock as of the Final Record Date. Any such
distributions to stockholders will be in complete redemption and cancellation of all of the outstanding shares of our Common Stock as
of the termination of the Company’s legal existence in accordance with Section 278 of the DGCL.
We
may, at any time, choose to implement the Plan of Dissolution through a liquidating trust, which, if adopted, would succeed to all of
our assets, liabilities and obligations. The Board may appoint one or more of its members, one or more of our officers or employees,
or a third party, to act as trustee or trustees of such liquidating trust. If all of our assets are not distributed within three years
after the date our dissolution and a judicial extension of this deadline has not been sought or received, we expect to transfer our remaining
assets to a liquidating trust at such time.
During
the liquidation of our assets, we will pay certain of our officers, directors, employees, independent contractors and agents, or any
of them, compensation for services rendered in connection with the implementation of the Plan of Dissolution. See the section of this
proxy statement captioned “Interests of Certain Persons in the Dissolution.” Such compensation is not expected to
be materially different from the compensation that would be paid to an outside party for similar services. We will also continue to indemnify
our officers, directors, employees, independent contractors and agents to the maximum extent specified under existing agreements and
in accordance with applicable law, our charter and bylaws and any contractual arrangements, for actions taken in connection with the
implementation of the Plan of Dissolution.
Reasons
for the Dissolution Proposal
The
Board believes that the Dissolution is in the best interests of the Company and its stockholders. In consideration of the Cash Preservation
Plan, the Board considered at length potential strategic alternatives available to us, and the only viable proposal was the Sale to AxoSim.
Accordingly, on consummation of such Sale, or even if such Sale is not consummated, the Board believes that the Company should pursue
a wind-up of the Company. In making our determination to approve the Dissolution, the Board considered, in addition to other pertinent
factors, the fact that we (i) have no significant remaining business operations or business prospects other than the assets to be sold
to AxoSim in the Sale; (ii) will continue to incur substantial accounting, legal and other expenses despite having no significant source
of revenue; (iii) would cause substantial dilution to existing stockholders if we were to raise additional money from investors in the
capital markets; and (iv) have conducted an evaluation to identify any remaining strategic alternatives and transactions (other than
as contemplated by the Sale Proposal) available to us involving the Company as a whole, such as a merger, reverse merger, asset sale,
strategic partnership or other business combination transaction, that would have a reasonable likelihood of providing value to our stockholders
in excess of the amount the stockholders would receive in a liquidation, and no such alternatives have been identified.
As
part of its evaluation process, the Board carefully considered the terms of the Plan of Dissolution and the dissolution process under
Delaware law, as well as the lack of strategic alternatives available to us. As a result of its evaluation process, the Board concluded
that the Dissolution pursuant to the Plan of Dissolution is in the best interests of the Company and its stockholders.
In
making its decision to approve the Dissolution pursuant to the Plan of Dissolution and recommend the stockholders approve the Dissolution
Proposal, the Board also considered, among other things, the following factors:
| ● | the anticipated
timing of liquidating distributions of cash to our stockholders in a dissolution compared to the uncertainty of continuing to pursue
other potential strategic alternatives; |
| | | |
| ● | the terms and conditions
of the Plan of Dissolution, including the provisions that permit the Board to abandon the plan prior to the effective time of the dissolution
if it determines that, in light of new proposals presented or changes in circumstances, the Dissolution is no longer advisable and in
our best interests and the best interests of our stockholders; |
| | | |
| ● | the fact that Delaware
corporate law requires that the Dissolution be approved by the affirmative vote of a majority of the outstanding shares of capital stock
of the Company entitled to vote thereon, which ensures that the Board will not be taking actions with respect to the Dissolution of which
a majority of our stockholders disapprove; and |
| | | |
| ● | the fact that approval
of the Plan of Dissolution by the requisite vote of our stockholders authorizes the Board and officers to implement and amend the Plan
of Dissolution without further stockholder approval. |
In
arriving at its conclusion that the Dissolution pursuant to the Plan of Dissolution is the preferred strategy among the remaining strategic
alternatives available to us and is in the best interests of the Company and its stockholders, the Board also considered, among other
things, the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2022, filed with the SEC on March 31, 2023, the risk factors in included in the “Risk Factors Related to
the Dissolution Proposal” section of this proxy statement, and certain other risks and uncertainties, including, but not limited
to the following:
| ● | the uncertainty
of the timing, nature and amount of any liquidating distributions to stockholders; |
| | | |
| ● | the possibility
that liquidation would not yield distributions to stockholders in excess of the amount that stockholders could have received upon a sale
or other transaction involving the Company or a sale of shares on the open market; |
| | | |
| ● | the possibility
that the price of our Common Sock might have increased in the future to a price greater than the current price or the value of the assets
distributed in liquidation; |
| | | |
| ● | the possibility
that certain of our executive officers and directors may have financial interests in the Dissolution that may be different from, or in
addition to, the interests of our stockholders generally; |
| | | |
| ● | the risk that our
stockholders may be required to return to creditors some or all of the liquidating distributions; and |
| | | |
| ● | the fact that,
if the Dissolution pursuant to the Plan of Dissolution is approved by our stockholders, we anticipate that stockholders would generally
not be permitted to transfer shares of Common Stock after the effective date of our filing of the Certificate of Dissolution with the
Delaware Secretary of State. |
In
view of the variety of factors considered in connection with its evaluation of the Dissolution pursuant to the Plan of Dissolution, the
Board did not find it practical, and did not quantify or otherwise attempt, to assign relative weight to the specific factors considered
in reaching its conclusions. In addition, the Board did not undertake to make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but rather conducted an overall
analysis of the factors described above. In considering the factors described above, individual members of the Board may have given different
weight to different factors.
We
cannot offer any assurance that the liquidation value per share of the Common Stock will equal or exceed the price or prices at which
such shares recently have traded or could trade over-the-counter in the future. However, the Board believes that it is in the best interests
of the Company and its stockholders to distribute to the stockholders our net assets pursuant to the Plan of Dissolution. If our stockholders
do not approve the Dissolution pursuant to the Plan of Dissolution, the Board will explore what, if any, alternatives are available in
light of our limited business activities.
As
previously announced, we had engaged LifeSci Capital as our financial advisor to assist in exploring a range of strategic alternatives
focused on enhancing stockholder value. At this time, the Board has considered all of these options and has determined that it is in
the best interests of the Company and its stockholders to dissolve the Company and periodically return its cash to our stockholders in
the form of liquidating distributions, following the Sale and the receipt of the Purchase Price thereunder (including the portions of
the Escrow Amount that may be released to us), subject to the Sale being consummated and our ability to satisfy all of our liabilities.
The Board retains the right to abandon the Plan of Dissolution prior to or after the effective time of the Dissolution.
Risk
Factors Related to the Dissolution Proposal
This
proxy statement contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of factors both in and out of our control, including the risks described
below and elsewhere in this proxy statement. See the section of this proxy statement captioned, “Special Note Regarding Forward-Looking
Statements” for more information. Additionally, there are many risk and uncertainties that stockholders should consider when
deciding whether to vote to approve the Dissolution Proposal, among other things, certain risks and uncertainties, including, but not
limited to, the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2022, filed with the SEC on March 31, 2023, the risk factors included in the section captioned “Risk
Factors Related to the Sale Proposal” and this section captioned, “Risk Factors Related to the Dissolution Proposal”
as set forth below. You should carefully consider the following risk factors, together with all of the other information included
in this proxy statement, before you decide whether to vote or instruct your vote to be cast to approve the Dissolution pursuant to the
Plan of Dissolution, as described in this proxy statement.
The
amounts distributed to our stockholders as liquidating distributions, if any, may be substantially less than the estimates set forth
in this proxy statement.
At
present, the Board cannot determine with certainty the amount of any liquidating distribution to our stockholders. The amount of cash
ultimately distributed to our stockholders in any liquidating distribution depends on, among other things, whether we are able to consummate
the Sale, how much of the Escrow Amount is released to us, if any, the amount of our liabilities, obligations and expenses and
claims against us, and the amount of the reserves that we maintain during the liquidation process. Our estimates of these amounts may
be inaccurate.
Factors
that could impact our estimates include the following:
| ● | if any of our estimates
regarding the Plan of Dissolution, including the expenses to satisfy outstanding obligations, liabilities and claims during the liquidation
process, are inaccurate; |
| | | |
| ● | if litigation is
brought against us or our directors and officers; |
| | | |
| ● | if unforeseen claims
are asserted against us, we will have to defend or resolve such claims or establish a reasonable reserve before making distributions
to our stockholders; |
| | | |
| ● | if AxoSim has any
indemnification claims; |
| | |
| ● | if
the Sale is not consummated for any reason; |
| | | |
| | ● | if the Sale is consummated, if AxoSim does
not realize the required operational milestones associated with the release of the Delivered
Plates Escrow Amount within one year of the closing of the Sale or the Post-Closing Revenue
Escrow Amount within three years of the closing of the Sale; and |
| | | |
| ● | if any of our estimates
regarding the expenses to be incurred in the liquidation process, including expenses of personnel required and other operating expenses
(including legal, accounting and other professional fees) necessary to dissolve and liquidate the Company, are inaccurate. |
If
any of the foregoing occurs, the amount distributed to our stockholders may be substantially less than the amount we currently estimate,
if any.
In
addition, under Delaware law, claims and demands may be asserted against us at any time during the three years following the effective
date of the filing of the Certificate of Dissolution. Accordingly, the Board may obtain and maintain insurance coverage for such potential
claims. The Board also expects to retain cash for unknown, contingent and/or conditional liabilities, and may also set aside additional
amounts of cash or other assets as a reserve to satisfy claims against us and our obligations that may arise during the three-year period
following the effective date of the filing of the Certificate of Dissolution. As a result of these factors, we may retain for distribution
at a later date some or all of the estimated amounts that we expect to distribute to stockholders.
We
may not be able to settle all of our obligations, which may delay or reduce liquidating distributions to our stockholders.
We
have current and future obligations to third parties. Our estimated remaining distributions to our stockholders take into account all
of our known liabilities and certain possible contingent liabilities and the Board’s current best estimate of the amount reasonably
required to satisfy such liabilities. As part of the wind-up process, we intend to discharge all of our obligations to third parties.
We cannot assure you that unknown liabilities that have not been accounted for will not arise, that we will be able to settle all of
our liabilities or that our liabilities can be settled for the amounts we have estimated for purposes of calculating the range of distribution
to our stockholders. If we are unable to reach an agreement with a third party relating to a liability, that third party may bring a
lawsuit against us. Amounts required to settle liabilities or to defend, resolve or settle lawsuits in excess of the amounts estimated
may reduce the amount of net proceeds available for distribution to stockholders.
The
Sale Proposal may not be approved, and even if it is, the Sale may not be consummated.
Stockholders
may not approve the Sale Proposal, and if the Dissolution Proposal is approved, we would nevertheless proceed with the Dissolution. Even
if the Sale Proposal is approved, the Sale may not be consummated if one or more of the conditions to closing are not met or the Asset
Purchase Agreement is otherwise terminated before a closing occurs.
We
may not receive some or all of certain cash inflows we currently expect to receive during the identified time frame, particularly the
Milestone payments under the Asset Purchase Agreement, or the actual amounts we receive in connection therewith may be substantially
less than we currently expect, which may delay or reduce liquidating distributions to our stockholders.
Our
current estimates of the amounts we will have available for payment of our expenses and liabilities during the three-year period following
the effective date of the filing of the Certificate of Dissolution and the amounts we will have available for liquidating distributions
to our stockholders are based on, among other things, certain assumptions with respect to the receipt of the Purchase Price from AxoSim,
including the Escrow Amount. If we do not receive some or all of the Purchase Price during the identified time frame, or if the Sale
Proposal is not approved, the amount distributed to our stockholders may be substantially less than the amount we currently estimate.
If
our stockholders do not approve the Dissolution Proposal, it would be very difficult for us to continue our business operations.
If
our stockholders do not approve the Dissolution Proposal, the Board will continue to explore what, if any, alternatives are available
for our future in light of our discontinued business activities. Possible alternatives include, among other things, seeking voluntary
dissolution at a later time with potentially diminished assets or seeking bankruptcy protection (should our net assets decline to levels
that would require such action). There can be no assurance that any of these alternatives would result in greater stockholder value than
the proposed liquidation and dissolution of the Company.
The
Board may abandon or delay implementation of the Plan of Dissolution even if approved by our stockholders.
Even
if our stockholders approve the Dissolution Proposal, the Board has reserved the right, in its discretion, to the extent permitted by
Delaware law, to abandon or delay the filing of the Certificate of Dissolution or implementation of the Plan of Dissolution if such action
is determined to be in the best interests of the Company, in order, for example, to permit us to pursue strategic alternatives. Any such
decision to abandon or delay implementation of the filing of the Certification of Dissolution or Plan of Dissolution may result in our
incurring of additional operating costs and liabilities, which could reduce the amount available for liquidating distributions to our
stockholders. Additionally, we may, subject to approval by the Board but without further stockholder approval, make an assignment for
benefit of our creditors under applicable state law, and thereby liquidate and wind up our affairs through such an assignment for benefit
of creditors proceeding under applicable law, as further described below.
The
payment of liquidating distributions, if any, to our stockholders could be delayed.
Although
the Board has not established a firm timetable for liquidating distributions to our stockholders, the Board intends, subject to contingencies
inherent in winding up our business, to make such liquidating distributions, if any, from time to time following the filing of the Certificate
of Dissolution in light of when creditor claims and contingent liabilities are paid or settled and when we receive portions of the Purchase
Price from AxoSim, including the portions of the Escrow Amount, which we expect will be no earlier than one year after the closing
of the Sale. However, we are currently unable to predict the precise timing of any such liquidating distributions or whether any
liquidating distributions will occur at all. The timing of any such liquidating distributions will depend on and could be delayed by,
among other things, any settlements of obligations to third parties. Additionally, a creditor could seek an injunction against the making
of such distributions to our stockholders on the basis that the amounts to be distributed were needed to provide for the payment of our
liabilities and expenses. Any action of this type could delay or substantially diminish the amount available for such distribution to
our stockholders.
We
will continue to incur claims, liabilities and expenses that will reduce the amount available for distribution.
Claims,
liabilities and expenses from operations, such as operating costs, costs of the Special Meeting, directors’ and officers’
insurance, legal, accounting and consulting fees (including the consulting fees of Mr. LaFrence) and miscellaneous expenses, will continue
to be incurred as we wind up. These expenses could be much higher than currently anticipated and will reduce the amount of assets available
for ultimate distribution to stockholders.
If
we fail to maintain an adequate reserve for payment of our expenses and liabilities, each stockholder receiving liquidating distributions
could be held liable for payment to our creditors of his, her or its pro rata share of amounts owed to creditors in excess of the reserve,
up to the amount actually distributed to such stockholder in connection with the Dissolution.
If
the Dissolution Proposal is approved by our stockholders, we expect to file a Certificate of Dissolution with the Delaware Secretary
of State dissolving the Company. Pursuant to Delaware law, we will continue to exist for three years after our dissolution or for such
longer period as the Delaware Court of Chancery may direct, or as may be required to resolve any pending litigation matters, for the
purpose of prosecuting and defending suits against us and enabling us to gradually close our business, dispose of our property, discharge
our liabilities and to distribute to our stockholders any remaining assets. In the event that we fail to maintain during this three-year
period an adequate reserve for payment of our expenses and liabilities, our creditors may be able to pursue claims against our stockholders
directly to the extent that they have claims co-extensive with such stockholders’ receipt of liquidating distributions. Although
the liability of any stockholder is limited to the amounts previously received by such stockholder from us (and from any liquidating
trust or trusts) pursuant to the Plan of Dissolution, this means that a stockholder could be required to return all liquidating distributions
previously made to such stockholder and receive nothing from us under the Plan of Dissolution. Moreover, in the event a stockholder has
paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net
tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.
There can be no guarantee that the reserves maintained by us will be adequate to satisfy all such expenses and liabilities.
Further
stockholder approval will not be required in connection with the implementation of the Plan of Dissolution, including for the sale of
all or substantially all of our non-cash assets, if any, as contemplated in the Plan of Dissolution.
The
approval of the Dissolution Proposal by our stockholders will also authorize, without further stockholder approval, the Board to take
such actions as deemed necessary, appropriate or desirable to implement the Plan of Dissolution and the transactions contemplated thereby.
Accordingly, we may dispose of our non-cash assets, in a manner determined appropriate by the Board, without further stockholder approval.
Although
the Board will be responsible for overseeing the Plan of Dissolution, the Board’s authority could effectively be transferred to
a liquidating trustee or some other party.
Under
Delaware law, a company’s board of directors retains ultimate decision-making authority following a company’s dissolution,
and therefore the Board would initially be responsible for overseeing the Plan of Dissolution. However, pursuant to the Plan of Dissolution,
a liquidating trust could be used to complete the Dissolution, or, under Delaware law, any director, creditor, stockholder or other party
showing good cause could seek court appointment of a trustee or receiver to complete the Dissolution.
Interests
of our stockholders in the Company after the Final Record Date, and interests of our stockholders in any liquidating trust we may establish
pursuant to the Plan of Dissolution, may not be assignable or transferable.
We
intend to discontinue recording transfers of shares of our Common Stock on the Final Record Date, and thereafter certificates representing
shares of our Common Stock will not be assignable or transferable on our books except by will, intestate succession or operation of law.
In addition, if we were to establish a liquidating trust, the interests of our stockholders in such liquidating trust would similarly
not be assignable or transferable except by will, intestate succession or operation of law, which could adversely affect our stockholders’
ability to realize the value of such interests. Furthermore, given that our stockholders will be deemed to have received a liquidating
distribution equal to their pro rata share of the value of the net assets distributed to any entity which is treated as a liquidating
trust for tax purposes, the distribution of non-transferable interests would result in tax liability to the stockholders without their
being readily able to realize the value of such interest to pay such taxes or otherwise.
The
tax treatment of any liquidating distributions may vary from stockholder to stockholder, and the discussions in this proxy statement
regarding such tax treatment are general in nature. You should consult your own tax advisor instead of relying on the discussions of
tax treatment in this proxy for tax advice.
We
have not requested a ruling from the IRS with respect to the anticipated tax consequences of the Plan of Dissolution, and will not seek
an opinion of counsel with respect to the anticipated tax consequences of any liquidating distributions. If any of the anticipated tax
consequences of the Plan of Dissolution described in the proxy statement proves to be incorrect, the result could be increased taxation
to the Company and/or our stockholders, thus reducing the benefit to our stockholders and the Company from the liquidation and distributions.
Tax considerations applicable to particular stockholders may vary with and be contingent upon the stockholder’s individual circumstances.
Dissolution
Under Delaware Law
Delaware
law provides that a corporation may dissolve upon the approval of a corporation’s board of directors followed by a vote of a majority
of its outstanding stock entitled to vote thereon. Following such approval, the dissolution is effected by filing a certificate of dissolution
with the Delaware Secretary of State. The corporation is dissolved upon the effective time of its certificate of dissolution.
Under
Delaware law, once a corporation is dissolved, it continues its corporate existence for three years, but may not carry on any business
except that appropriate to wind up and liquidate its business and affairs. The process of winding up includes, among other things:
| ● | the settling and
closing of any business; |
| | | |
| ● | the disposition
and conveyance of any property; |
| | | |
| ● | the discharge of
any liabilities, including making reasonable provision for contingent and likely future claims; |
| | | |
| ● | the prosecution
and defense of any lawsuits; and |
| | | |
| ● | the distribution
of any remaining assets to stockholders. |
If
any action, suit or proceeding is commenced by or against the corporation before or within the three-year winding up period (or any extension
thereof granted by a court), the corporation will, solely for the purpose of such action, suit or proceeding, automatically continue
to exist beyond the three-year period until any judgments, orders or decrees are fully executed.
Absence
of Appraisal Rights
Under
Delaware law, our stockholders are not entitled to appraisal, dissenters’ or similar rights in connection with the Dissolution.
Our
Conduct Following Approval of the Dissolution Proposal
This
section of the proxy statement describes material aspects of the proposed Plan of Dissolution and the steps the Company, the Board expects
to take pursuant thereto. While we believe that this description covers the material terms of the Plan of Dissolution, this summary may
not contain all of the information that is important to you. You should carefully read this entire proxy statement, including the section
captioned “Summary of the Plan of Dissolution and Dissolution Process” and the Plan of Dissolution attached as Appendix
B to this proxy statement, and the other documents delivered with this proxy statement for a more complete understanding of the Plan
of Dissolution.
Approval
of Plan of Dissolution
To
become effective, the Dissolution Proposal must be approved by the affirmative vote of a majority of the outstanding shares of capital
stock of the Company entitled to vote on the Dissolution Proposal. The approval of the Plan of Dissolution by the requisite vote of the
holders of our Common Stock will constitute adoption of the Dissolution and of the Plan of Dissolution and a grant of full and complete
authority for the Board and officers, without further stockholder action, to proceed with the Dissolution pursuant to the Plan of Dissolution
and in accordance with any applicable provision of the Delaware law, including the authority to dispose of all of our remaining non-cash
assets.
Liquidation
and dissolution
If
the Dissolution Proposal is approved by the requisite vote of our stockholders, the steps set forth below, among others, may be completed
at such times as the Board in its discretion, in accordance with Delaware law, deems necessary, appropriate or advisable in our best
interests and the best interests of our stockholders:
| |
● |
the filing of a Certificate
of Dissolution with the Delaware Secretary of State; |
| |
|
|
| |
● |
the cessation of all of
our business activities except those relating to winding up and liquidating our business and affairs, including, but not limited
to, prosecuting and defending suits by or against us; |
| |
|
|
| |
● |
the collection, sale, exchange
or other disposition of all or substantially all of our non-cash assets and property, if any, in one transaction or in several transactions;
|
| |
|
|
| |
● |
the defense, resolution
and/or settlement of any litigation against us, and the making of reasonable provision to pay insurance retentions and legal fees
in connection with any such lawsuit or claim; |
| |
|
|
| |
● |
the payment of or the making
of reasonable provision to pay all known claims and obligations, including all contingent, conditional or un-matured contractual
claims known to us; |
| |
● |
the
making of such provision as will be reasonably likely to be sufficient to satisfy any claims that have not been made known to us
or that have not arisen but that, based on facts known to us, are likely to arise or become known to us within ten years after the
date of dissolution; |
| |
|
|
| |
● |
the
maintenance of a reserve consisting of cash and/or property to satisfy such claims and contingent obligations; |
| |
|
|
| |
● |
the
payment of any liquidating distribution to our stockholders of record, determined as of the Final Record Date; |
| |
|
|
| |
● |
the
pro rata distribution to our stockholders, or the transfer to one or more liquidating trustees for the benefit of our stockholders
under a liquidating trust, of our remaining assets after payment or provision for payment of claims against us and our obligations;
and |
| |
|
|
| |
● |
the
taking of any and all other actions permitted or required by Delaware law and any other applicable
laws and regulations. |
The
Board may, to the fullest extent permitted by law, amend the Plan of Dissolution without further stockholder approval if it determines
that such amendment is in the best interest of the Company. In addition, if the Board determines that the Dissolution is not in our best
interest, the Board may direct that the Plan of Dissolution, and therefore the dissolution of the Company, be abandoned at any time,
even after the receipt of stockholder approval of the Dissolution.
Expenses
We
will pay all of our expenses (including operating and wind-up expenses to be incurred throughout the dissolution and wind-up process)
and other known, non-contingent liabilities (which we presently estimate at between $ million and $ million for the period from June
30, 2023 through the time at which we expect the distributions would be made). Following the filing of the Certificate of Dissolution,
while we complete the wind-up and collect any subsequent payments due to us from AxoSim, we may owe additional legal and accounting fees
and consulting fees of our Chief Executive Officer and Chief Financial Officer Andrew D. C. LaFrence. We will determine whether and when
to collect, sell, exchange, distribute or otherwise dispose of all or substantially all of our non-cash assets and property that remain
after the Sale. Under the Asset Purchase Agreement, which is subject to the approval of the Sale Proposal, we have agreed to certain
indemnification obligations which will survive the closing of the Sale, as described above in “Proposal 1: Approval of the Sale
Pursuant to the Asset Purchase Agreement—The Asset Purchase Agreement—Survival.” In particular, there will be the
$338,000 Indemnification Escrow Amount, which is a portion of the Purchase Price held in escrow until the one-year anniversary of the
closing of the Sale, and which amount is the cap for indemnification obligations owed to AxoSim other than for breaches of any Fundamental
Representation. The cap for breaches of Fundamental Representations is $2,250,000.
Liquidating
Distributions
It
is our current intention to make liquidating distributions to our stockholders who held shares of Common Stock as of the Final Record
Date from time to time, as permitted by Delaware law. Delaware law requires that, prior to making any liquidating distribution, we pay
or provide for payment of all of our liabilities and obligations, including contingent liabilities. In determining whether adequate provision
is being made for any outstanding liabilities or wind down costs, the Board may consider a variety of factors. For example, in the case
of outstanding disputed or contingent liabilities, considerations may include the estimated maximum amount of the claim and the likelihood
that the claim will be resolved in the claimant’s favor or that the contingency will occur. Further, our ability to make liquidating
distributions could be adversely affected if any unanticipated liabilities or claims arise prior to the anticipated distribution.
Uncertainties
as to the amount of liabilities make it impossible to predict precisely the aggregate amount that will ultimately be available for distribution,
if anything. We will continue to incur claims, liabilities and expenses (including operating costs, directors’ and officers’
insurance, legal, accounting and consulting fees and miscellaneous expenses) following the approval of the liquidation and dissolution
of the Company pursuant to the Plan of Dissolution. These claims, liabilities and expenses will reduce the amount of cash and assets
available for ultimate distribution to our stockholders.
We
cannot predict with certainty the amount of any liquidating distributions to its stockholders or whether it will be able to make liquidating
distributions at all. Based on the information currently available to us, we estimate that the aggregate amount ultimately distributed
to our stockholders will be in the range of between approximately $ and $ per share. This estimate of the amount that may be available
for distribution assumes, among other things:
| ● | that
there will be no lawsuits filed against us or our officers or directors prior to or following
the approval of the liquidation and dissolution pursuant to the Plan of Dissolution; |
| | | |
| ● | that
the Dissolution will be completed within three years; |
| | | |
| ● | the
Sale Proposal being approved, the closing of the sale and our receipt of the Purchase Price,
including the Escrow Amount, consistent with our current expectations; and |
| | | |
| ● | that
the amount of our estimated expenses to complete the Dissolution will not exceed the estimates
contained in the table below. |
Any
one or more of these assumptions may prove to be wrong, which could reduce the amount available to distribute to our stockholders.
The
following table sets forth the basis for our estimate of liquidating distributions. The following table is based upon, among other things,
the assumptions set forth above and estimates of certain liabilities. If our assumptions or estimates contained therein prove to be incorrect,
our stockholders may ultimately receive substantially more or less than the amounts estimated here. We do not plan to resolicit stockholder
approval for the Dissolution even if the amount ultimately distributed to our stockholders changes significantly from the estimates set
forth in this proxy statement.
Estimated Liquidating Distribution to Stockholders
as of June 30, 2023
(in thousands, except for share and per share amounts) | |
Low
Estimate | | |
High
Estimate | |
| Cash, cash equivalents and marketable securities, net of severance obligations and other known expenses through June 30, 2023 (unaudited) | |
$ | | | |
$ | | |
| Purchase Price from AxoSim, including estimated Escrow Amount releases | |
$ | | | |
$ | | |
| Estimated operating expenses from June 30, 2023 through the time at which we expect the distributions would be made | |
$ | | | |
$ | | |
| Estimated cash to distribute to stockholders | |
$ | | | |
$ | | |
| Assumed shares outstanding | |
| 6,328,752 | | |
| 6,328,752 | |
| Estimated liquidating distribution(s) per share | |
$ | | | |
$ | | |
The
actual amounts of any liquidating distributions may vary substantially, depending on, among other things, whether we become subject to
additional liabilities or claims. See the sections of this proxy statement captioned “Special Note Regarding Forward-Looking
Statements,” “Risk Factors Related to the Sale Proposal” and “Risk Factors Related to the Dissolution
Proposal.” Although the Board has not established a firm timetable for liquidating distributions, subject to contingencies
inherent in winding up our business, the Board intends to make such distributions from time to time following the filing of the Certificate
of Dissolution, no earlier than one year after the closing of the Sale.
Final
Record Date
The
Final Record Date will be the close of business on the day that is the effective date of the Certificate of Dissolution. We intend to close our stock transfer books and discontinue recording transfers of shares of our
Common Stock on the Final Record Date, and thereafter certificates representing shares of our Common Stock will not be assignable or
transferable on our books except by will, intestate succession or operation of law. After the Final Record Date, we will not issue any
new stock certificates, other than replacement certificates. It is anticipated that no further trading of our shares will occur after
the Final Record Date.
All
liquidating distributions from us or a liquidating trust, or as a result of an assignment for the benefit of creditors, on or after the
Final Record Date, if any, will be made to stockholders who held shares of Common Stock as of the Final Record Date. Subsequent to the
Final Record Date, we may at our election require stockholders to surrender certificates representing their shares of Common Stock in
order to receive subsequent distributions. Stockholders should not forward their stock certificates before receiving instructions to
do so. If surrender of stock certificates should be required, all distributions otherwise payable by us or the liquidating trust, if
any, to stockholders who have not surrendered their stock certificates may be held in trust for such stockholders, without interest,
until the surrender of their certificates (subject to escheat pursuant to the laws relating to unclaimed property). If a stockholder’s
certificate evidencing the Common Stock has been lost, stolen or destroyed, the stockholder may be required to furnish us with satisfactory
evidence of the loss, theft or destruction thereof, together with a surety bond or other indemnity, as a condition to the receipt of
any distribution.
Sale
of Remaining Assets
Following
the proposed Sale, we do not believe that any of our remaining non-cash assets will be material. Therefore, the Plan of Dissolution contemplates
the sale of all of our remaining non-cash assets if and at such time as the Board may approve, without
further stockholder approval, subject to the Sale, if approved by stockholders. The Plan of Dissolution does not specify the manner in
which we may sell our assets. Such sales could take the form of sales of individual assets, sales of groups of assets organized by type
of asset or otherwise, a single sale of all or substantially all of our assets, or some other form of sale. The assets may be sold to
one or more purchasers in one or more transactions over a period of time. It is not anticipated that any further stockholder votes will
be solicited with respect to the approval of the specific terms of any particular sales of assets approved by the Board. We do not anticipate
amending or supplementing this proxy statement to reflect any such agreement or sale, unless required by applicable law, or selling any
additional assets in the future. See the section of this proxy statement captioned “Risk Factors Related to the Dissolution
Proposal.”
Contingent
Liabilities; Reserves
Under
Delaware law, we are required, in connection with the Dissolution, to (i) pay or make reasonable provision for payment of all claims,
liabilities and obligations, including all contingent, conditional or unmatured contractual claims known to the Company, (ii) make such
provision as will be reasonably likely to be sufficient to provide compensation for any claim against the Company which is the subject
of a pending action, suit or proceeding to which the Company is a party, and (iii) make such provision as will be reasonably likely to
be sufficient to provide compensation for claims that have not been made known to the Company or that have not arisen but that, based
on facts known to the Company, are likely to arise or become known to the Company within 10 years after the date of dissolution. We have
used and anticipate continuing to use cash until the end of the three-year period following the effective date of the filing of the Certificate
of Dissolution for a number of items, including, but not limited to, the following:
| ● | ongoing
operating expenses; |
| | | |
| ● | expenses,
including retention amounts, incurred in connection with extending our directors’ and
officers’ insurance coverage; |
| | | |
| ● | expenses
incurred in connection with the Dissolution pursuant to the Plan of Dissolution; |
| | | |
| ● | taxes
imposed upon us and any of our assets; and |
| | | |
| ● | professional,
legal, consulting and accounting fees. |
We
will maintain a reserve, consisting of cash or other assets that we believe will be adequate for the satisfaction of all of our current
unknown, contingent and/or conditional claims and liabilities. We may also take other steps to provide for the satisfaction of the reasonably
estimated amount of such claims and liabilities, including possibly seeking to acquire insurance coverage with respect to certain claims
and liabilities. There can be no assurance that the reserve will be sufficient. After the liabilities, expenses and obligations for which
the reserve is established have been satisfied in full (or determined not to be owed), we will distribute to its stockholders any remaining
portion of the reserve.
In
the event we fail to create an adequate reserve for the payment of our expenses and liabilities and amounts have been distributed to
the stockholders under the Plan of Dissolution, our creditors may be able to pursue claims against our stockholders directly to the extent
that they have claims co-extensive with such stockholders’ receipt of liquidating distributions. See the section of this proxy
statement captioned “Risk Factors Related to the Dissolution Proposal—If we fail to maintain an adequate reserve for payment
of our expenses and liabilities, each stockholder receiving liquidating distributions could be held liable for payment to our creditors
of his, her or its pro rata share of amounts owed to creditors in excess of the reserve, up to the amount actually distributed to such
stockholder in connection with the Dissolution.”
If
we were held by a court to have failed to make adequate provision for our expenses and liabilities or if the amount required to be paid
in respect of such liabilities exceeded the amount available from the reserve and any assets of the liquidating trust or trusts, a creditor
could seek an injunction against the making of liquidating distributions under the Plan of Dissolution on the grounds that the amounts
to be distributed were needed to provide for the payment of our expenses and liabilities. Any such action could delay or substantially
diminish the cash distributions to be made to stockholders under the Plan of Dissolution.
Interests
of Certain Persons in the Dissolution
Certain
of our executive officers and directors may have financial interests in the Dissolution pursuant to the Plan of Dissolution that may
be different from, or in addition to, the interests of our stockholders generally. In particular:
| ● | during
the liquidation of our assets, we will pay certain of our officers, directors, service providers
and agents, or any of them, compensation for services rendered in connection with the implementation
of the Plan of Dissolution. Such compensation is not expected to be materially different
from the compensation that would be paid to an outside party for similar services; |
| | | |
| ● | if
the Sale occurs, Ping Yeh, a director, will be party to a consulting agreement with AxoSim,
as described in “Proposal 1: Approval of the Sale Pursuant to the Asset Purchase
Agreement—The Asset Purchase Agreement—Yeh Consulting Agreement,” above;
|
| | | |
| ● | as
of June 30, 2023, our directors and executive officers beneficially owned 618,124 shares
of Common Stock. Our directors and executive officers who own shares of Common Stock will
be entitled to receive, on the same terms and conditions as our other stockholders, the same
distributions and other benefits that our stockholders would receive when we make liquidating
distributions to our stockholders of record; and |
| | | |
| ● | our
directors and officers may be entitled to indemnification and insurance coverage from us. |
The
Board was aware of those potentially differing interests and considered them, among other matters, in evaluating the Plan of Dissolution
and in reaching its decision to approve such plan and the actions contemplated thereby, as more fully discussed in the section of this
proxy statement captioned “Reasons for the Dissolution Proposal.”
Equity
Compensation Plan Information
Effective
with the merger between us and StemoniX, 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 900,000 of equity-based instruments to officers, key employees, and non-employee
consultants. The following table provides information as of December 31, 2022 regarding shares of the Company’s Common Stock that
may be issued under (i) the two legacy equity incentive plans: the Cancer Genetics Inc. 2011 Equity Incentive Plan (the “2011 Plan”),
and the StemoniX Inc. 2015 Stock Option Plan (the “2015 Plan”, and together with the 2011 Plan, the “Frozen Stock Option
Plans”) and (ii) the 2021 Plan.
| | |
Equity
Compensation Plan Information | |
| Plan
Category | |
(a)
Number of
securities
to be issued upon
exercise
of outstanding
options
and rights (1) | | |
(b)
Weighted
average
exercise price of
outstanding
options
and rights | | |
(c)
Number of securities
remaining available
for
future issuance under
equity
compensation plan
(excluding securities
referenced
in column
(a)) | |
| Equity
compensation plans approved by security holders (2) | |
| 428,301 | | |
$ | 14.97 | (3) | |
| 391,163 | (4) |
(1)
Does not include any restricted stock as such shares are already reflected in the Company’s outstanding shares, does include 78,801
restricted stock units outstanding as of December 31, 2022.
(2)
Consists of the 2011 Plan, the 2015 Plan and the 2021 Plan.
(3)
The weighted-average exercise price does not reflect the shares that will be issued in connection with the settlement of RSUs, since
RSUs have no exercise price.
(4)
Includes securities available for future issuance under the 2021 Plan. The Company is no longer able to issue securities from the 2011
Plan and the 2015 Plan.
Indemnification
Agreements
The
Company has entered into indemnification agreements with each of its current directors and executive officers. These agreements will
require the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise
by reason of their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they
could be indemnified. The Company also intends to enter into indemnification agreements with its future directors and executive officers.
Other
than as set forth above, it is not currently anticipated that the Dissolution will result in any material benefit to any of our executive
officers or to directors who participated in the vote to adopt the Plan of Dissolution.
Certain
Material U.S. Federal Income Tax Consequences of the Dissolution Proposal
The
following is a summary of certain material U.S. federal income tax consequences of the Plan of Dissolution that will generally be applicable
to U.S. Stockholders and Non-U.S. Stockholders (each as defined below) if such stockholders approve the Plan of Dissolution, but does
not purport to be a complete analysis of all potential tax effects. This discussion is for general information purposes only and does
not constitute, and is not, a tax opinion or tax advice to any particular stockholder. This summary is based on the Code, the Treasury
Regulations promulgated thereunder, judicial decisions, administrative rulings and other legal authorities, all as of the date hereof
and all of which are subject to change, possibly with retroactive effect. Any such change could alter or modify the statements and conclusions
set forth below. No ruling from the IRS and no opinion of counsel will be requested or obtained concerning the U.S. federal income tax
consequences of the Plan of Dissolution. The tax consequences set forth in the following discussion are not binding on the IRS or the
courts, and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court.
STOCKHOLDERS
ARE URGED TO CAREFULLY REVIEW THIS DESCRIPTION AND TO CONSULT THEIR OWN TAX ADVISORS AS TO DETERMINE ANY SPECIFIC TAX CONSEQUENCES TO
THE STOCKHOLDER IN CONNECTION WITH THE DISSOLUTION PROPOSAL, INCLUDING, ANY U.S. FEDERAL INCOME TAX CONSEQUENCES AND/OR ANY FEDERAL NON-INCOME,
STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES RELAVANT TO SUCH STOCKHOLDER AS A RESULT OF THE DISSOLUTION PURSUANT TO THE PLAN OF DISSOLUTION.
The
following discussion does not address all of the U.S. federal income tax consequences that may be relevant to a particular stockholder
in light of such stockholder’s particular circumstances, or who may be subject to special rules under the U.S. federal income tax
laws, including, without limitation, mutual funds, retirement plans, financial institutions, tax-exempt organizations, insurance companies,
regulated investment companies, real estate investment trusts, brokers or dealers in securities, traders who mark to market, stockholders
who hold their shares as part of a straddle, hedge or conversion transaction, stockholders who hold shares as “qualified small
business stock” under Section 1202 of the Code or “section 1244 stock” under Section 1244 of the Code, and stockholders
that hold shares through a partnership or other pass-through entity. Furthermore, this discussion does not apply to holders of options
or warrants or stockholders who acquired their shares by exercising options or warrants, nor does it apply to stockholders who received
their shares in connection with the performance of services. This discussion assumes that stockholders hold their stock as capital assets
within the meaning of Section 1221 of the Code and that a stockholder did not treat their stock as worthless within the meaning of Section
165(g) of the Code prior to adoption of the Plan of Dissolution. In addition, the discussion does not address any aspect of federal non-income,
state, local or non-U.S. taxation that may be applicable to a particular stockholder.
U.S.
Federal Income Taxation of the Company
We
intend for distributions made pursuant to the Plan of Dissolution to be treated as a series of distributions in complete liquidation
of the Company, and this discussion assumes this treatment will be respected. In accordance with such treatment, each stockholder will
be treated as receiving its portion of such distributions in exchange for its shares of our Common Stock. If a stockholder holds different
blocks of shares of our Common Stock (generally, shares of our Common Stock purchased or acquired on different dates or at different
prices), the stockholder’s portion of such distributions must be allocated among the several blocks of shares in the proportion
that the number of shares in a particular block bears to the total number of shares owned by the stockholder.
If
we distribute any property other than cash in a liquidating distribution to its stockholders, we will recognize gain or loss as if such
property were sold to the stockholders at its fair market value. Accordingly, we may be subject to U.S. federal income tax on gain from
a distribution of our property (other than cash), which may reduce the amount of cash available to distribute to our stockholders. If
any property distributed by us are subject to a liability or if a stockholder assumes a liability of us in connection with the distribution
of property, the fair market value of such distributed property shall be treated as not less than the amount of such liability. After
the close of the taxable year during which a liquidating distribution was made, we will provide stockholders and the IRS with a statement
of the amount of cash distributed to the stockholders and our best estimate as to the value of any property distributed during that year.
The IRS may challenge our valuation of any distributed property. As a result of such a challenge, the amount of gain or loss recognized
by us and our stockholders on the distribution might change.
Until
all of our remaining assets have been distributed to stockholders or a liquidating trust and the liquidation is complete, we will continue
to be subject to U.S. federal income tax on our income.
Notwithstanding
our position that the distributions made pursuant to the Plan of Dissolution will be treated as a series of distributions in complete
liquidation of the Company, it is possible that the IRS or a court could determine that any of these distributions is a current distribution.
In addition, if our stockholders do not approve the Dissolution Proposal, any distributions received by the stockholders as a result
of the Dissolution pursuant to the Plan of Dissolution will be treated as a non-liquidating distribution. Such distribution will be taxable
as a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined for
U.S. federal income tax purposes. Dividends paid to our non-corporate stockholders are generally taxed at long-term capital gains rates
provided certain holding periods are met. Non-liquidating distributions in excess of current or accumulated earnings and profits will
be treated as a non-taxable return of capital to the extent of a stockholder’s basis in shares of Common Stock and thereafter as
either long-term or short-term capital gain, depending on the stockholder’s holding period for such shares of Common Stock. Dividends
received by Non-U.S. Stockholders may be subject to U.S. withholding tax at a rate of 30% or such lower rate as is established under
an applicable treaty.
U.S.
Federal Income Taxation of U.S. Stockholders
For
purposes of this discussion a “U.S. Stockholder” is a beneficial owner of our Common Stock that, for U.S. federal income
tax purposes, is or is treated as:
| ● | An
individual who is a citizen or resident of the United States; |
| ● | An
entity that is treated as a corporation for U.S. federal income tax purposes and created
or organized under the laws of the United States, any state thereof, or the District of Columbia;
|
| ● | An
estate, the income of which is subject to U.S. federal income tax regardless of its source;
or |
| ● | A
trust that (1) is subject to the primary supervision of a U.S. court and the control of one
or more “United States persons” (within the meaning of Section 7701(a)(30) of
the Code), or (2) has a valid election in effect to be treated as a United States person
for U.S. federal income tax purposes. |
Assuming
our stockholders approve the Dissolution Proposal, amounts received by U.S. Stockholders from the Dissolution pursuant to the Plan of
Dissolution will be treated as full payment in exchange for their shares of Common Stock. As a result of the Dissolution, a U.S. Stockholder
generally will recognize gain or loss equal to the difference between (i) the sum of the amount of cash and the fair market value (at
the time of distribution) of any other property distributed to the U.S. Stockholder with respect to each share (including distributions
to any liquidating trust, as discussed below), less any liabilities assumed by the U.S. Stockholder or to which the distributed property
is subject, and (ii) the U.S. Stockholder’s adjusted tax basis in the shares of Common Stock. If a U.S. Stockholder owns shares
acquired at different times or for different prices, gain or loss is calculated separately for each such block of shares.
Liquidating
distributions are first applied against, and reduce, the U.S. Stockholder’s adjusted tax basis in its shares, or block of shares,
of Common Stock before recognizing any gain. If we make more than one liquidating distribution, a U.S. Stockholder will recognize gain
to the extent the aggregate liquidating distributions (including a constructive distribution in the case of a transfer of assets to a
liquidating trust or trusts) allocated to a share, or block of shares, of Common Stock exceed the U.S. Stockholder’s adjusted tax
basis with respect to that share or block of shares. Any loss will generally be recognized only when the final distribution from us has
been received, and then only if the aggregate value of all liquidating distributions (including a constructive distribution in the case
of a transfer of assets to a liquidating trust or trusts) with respect to a share or block of shares is less than the U.S. Stockholder’s
adjusted tax basis for that share or block of shares. Gain or loss recognized by a U.S. Stockholder will be long-term capital gain or
loss if the shares have been held for more than one year. The deductibility of capital losses is subject to certain limitations. For
a discussion of the U.S. federal income tax treatment of gain or loss from a liquidating distribution received by foreign stockholders,
see “U.S. Federal Income Taxation of Non-U.S. Stockholders” below.
If
we make a distribution of property other than cash to U.S. Stockholders, the U.S. Stockholder’s tax basis in such property immediately
after the distribution will be the fair market value of such property at the time of distribution. After the close of our taxable year
during which a liquidating distribution was made, we will provide U.S. Stockholders and the IRS with a statement of the amount of cash
distributed to our stockholders and our best estimate as to the value of any property distributed during that year. There is no assurance
that the IRS will not challenge our valuation of any property. As a result of such a challenge, the amount of gain or loss recognized
by U.S. Stockholders might change. Distributions of property other than cash to U.S. Stockholders could result in tax liability to any
given U.S. Stockholder exceeding the amount of cash received, requiring the U.S. Stockholder to meet the tax obligations from other sources
or by selling all or a portion of the assets received. If we opt to use a trust, the timing of distributions to U.S. Stockholders will
be as described below under the section of this proxy statement captioned “Liquidating Trusts.”
If
a U.S. Stockholder is required to satisfy any liability not fully covered by our reserve (see the section of this proxy statement captioned
“Contingent Liabilities; Reserves”), payments by U.S. Stockholders in satisfaction of such liabilities would generally
result in a capital loss in the year paid, which, in the hands of individual U.S. Stockholders, cannot be carried back to prior years
to offset capital gains realized from a liquidating distribution in those years.
U.S.
Federal Income Taxation of Non-U.S. Stockholders
For
purposes of this paragraph, a “Non-U.S. Stockholder” is a stockholder that is not a U.S. Stockholder and is not a partnership.
Distributions made pursuant to the Plan of Dissolution to a Non-U.S. Stockholder will be treated as received by the non-U.S. stockholder
in exchange for the non-U.S. stockholder’s shares of Common Stock. The amount of any such distribution allocable to a block of
shares of Common Stock owned by the Non-U.S. Stockholder will reduce the Non-U.S. Stockholder’s adjusted tax basis in such shares,
but not below zero. Any excess amount allocable to such shares will be treated as capital gain. A Non-U.S. Stockholder will not be subject
to U.S. federal income tax on any such gain unless:
| |
• |
the
gain is effectively connected with the Non-U.S. Stockholder’s conduct of a trade or business within the United States (and,
if required by an applicable income tax treaty, the Non-U.S. Stockholder maintains a permanent establishment in the United States
to which such gain is attributable); or |
| |
|
|
| |
• |
the
Non-U.S. Stockholder is a nonresident alien individual present in the United States for 183 days or more during the taxable year
of the disposition and certain other requirements are met. |
Gain
described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated
rates. A Non-U.S. Stockholder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate
specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain
described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified
by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Stockholder (even though the individual
is not considered a resident of the United States), provided the Non-U.S. Stockholder has timely filed U.S. federal income tax returns
with respect to such losses.
NON-U.S.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES
OF THE RECEIPT OF LIQUIDATING DISTRIBUTIONS FROM US.
Backup
Withholding
In
order to avoid “backup withholding” of U.S. federal income tax on payments to our U.S. Stockholders, each stockholder must,
unless an exception applies, provide such U.S. Stockholder’s correct taxpayer identification number (“TIN”) on IRS
Form W-9 (or, if applicable, another withholding form) and certify under penalties of perjury that such number is correct and that such
U.S. Stockholder is not subject to backup withholding. If a U.S. Stockholder fails to provide the correct TIN or certification, payments
received may be subject to backup withholding at the rate applicable at the time, currently 24%. Payments to Non-U.S. Stockholders may
be subject to backup withholding unless such Non-U.S. Stockholder establishes an exemption, for example, by properly certifying its non-U.S.
status on an IRS Form W-8BEN or W-8BEN-E or another appropriate version of IRS Form W-8. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results
in an overpayment of taxes, a refund generally may be obtained from the IRS, provided that the required information is properly furnished
in a timely manner to the IRS. Stockholders should consult their own tax advisors regarding the applicability of backup withholding in
their particular circumstances.
THE
TAX CONSEQUENCES OF THE PLAN OF DISSOLUTION MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. WE RECOMMEND THAT
EACH STOCKHOLDER CONSULT HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF DISSOLUTION
AS WELL AS THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES.
Liquidating
Trusts
We
may transfer our remaining assets and obligations to a liquidating trust if our Board determines that such a transfer is advisable. Under
applicable Treasury Regulations, a trust will be treated as a “liquidating trust” if it is organized for the primary purpose
of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to and consistent with
the accomplishment of that purpose. However, if the liquidation is unreasonably prolonged or if the liquidation purpose becomes so obscured
by business activities that the declared purpose of the liquidation can be said to be lost or abandoned, the trust will no longer be
considered a liquidating trust and adverse tax consequences may apply to the trust or to stockholders. Although neither the Code nor
the Treasury Regulations thereunder provide any specific guidance as to the length of time a liquidating trust may last, the IRS’s
guidelines for issuing rulings with respect to liquidating trust status call for a term not to exceed three years, which period may be
extended to cover the collection of installment obligations.
If
we transfer assets to a liquidating trust and distribute interests in the liquidating trust to stockholders, we intend that such transfer
and distribution would be treated for U.S. federal income tax purposes as if we distributed an interest in each of the assets so transferred
directly to such stockholders. Each stockholder would be treated as receiving a liquidating distribution from us, which would be treated
generally as described above.
Assuming
that the liquidating trust is treated as a “liquidating trust” for U.S. federal income tax purposes, we intend that the liquidating
trust would be treated as a “grantor trust” for U.S. federal income tax purposes. In that case, each unit or interest in
the liquidating trust would represent ownership of an undivided proportionate interest in all of the assets and liabilities of the liquidating
trust and a stockholder would be treated for U.S. federal income tax purposes as receiving or paying, as applicable, directly a pro rata
portion of all income, gain, loss, deduction, and credit of the liquidating trust. A stockholder would be taxed each year on its share
of income from the liquidating trust, net of such stockholder’s share of expenses of the liquidating trust (including interest
and depreciation) whether or not such stockholder receives a distribution of cash from the liquidating trust that year. When the liquidating
trust makes distributions to stockholders, the stockholders generally would recognize no additional gain or loss.
Assuming
the liquidating trust is treated as a grantor trust for U.S. federal income tax purposes, a stockholder’s adjusted tax basis in
a unit of the liquidating trust (and indirectly in the pro rata portion of the net assets in the liquidating trust that are attributable
to that unit) would be equal to the fair market value of a unit (and those net assets) on the date that it is treated as distributed
to the stockholder, which value would be determined by us and reported to the stockholder. The long-term or short-term character of any
capital gain or loss recognized in connection with the sale of the liquidating trust’s assets would be determined based upon a
holding period commencing at the time of the acquisition by a stockholder of such stockholder’s beneficial interest in the liquidating
trust.
The
trustee or trustees of the liquidating trust would provide to each stockholder of units in the liquidating trust after each year end
a detailed itemized statement that reports on a per unit basis the stockholder’s allocable share of all the various categories
of income and expense of the liquidating trust for the year. Each stockholder must report such items on its U.S. federal income tax return
regardless of whether the liquidating trust makes current cash distributions.
If
the liquidating trust fails to qualify as a liquidating trust that is a grantor trust for U.S. federal income tax purposes, the consequences
to stockholders would depend on the reason for the failure to qualify, and, under certain circumstances, the liquidating trust could
be treated as an association taxable as a corporation for U.S. federal income tax purposes. If the liquidating trust is taxable as a
corporation, the trust itself would be subject to U.S. federal income tax at the applicable corporate income tax rate, which is currently
21%. In that case, distributions made by the liquidating trust would be reduced by any such additional taxes imposed on the trust, and
a stockholder would be subject to tax upon the receipt of distributions that constitute dividends from the trust rather than taking into
account its share of the trust’s taxable items on an annual basis.
Stockholders
should consult their tax advisors regarding the tax consequences that would apply to them if we were to transfer assets to a liquidating
trust.
Accounting
Treatment
If
our stockholders approve the Dissolution Proposal for the Dissolution pursuant to the Plan of Dissolution, we will change our basis of
accounting to the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net
realizable values, and liabilities are stated at their estimated settlement amounts. Recorded liabilities will include the estimated
expenses associated with carrying out the Plan of Dissolution. For periodic reporting, a statement of net assets in liquidation will
summarize the liquidation value per outstanding share of Common Stock. Valuations presented in the statement will represent management’s
estimates, based on present facts and circumstances, of the net realizable values of assets, satisfaction amounts of liabilities, and
expenses associated with carrying out the Plan of Dissolution based upon management assumptions. The valuation of assets and liabilities
will necessarily require many estimates and assumptions, and there will be substantial uncertainties in carrying out the provisions of
the Plan of Dissolution. Ultimate values realized for our assets and ultimate amounts paid to satisfy our liabilities are expected to
differ from estimates recorded in annual or interim financial statements.
Required
Vote
The
affirmative vote of a majority of the outstanding capital stock of the Company entitled to vote thereon is required to approve the Dissolution
Proposal. This means that, of the shares of capital stock of the Company that are outstanding as of the close of business on the Record
Date and entitled to vote on the Dissolution Proposal, a majority must vote in favor of the Dissolution Proposal in order for the Dissolution
Proposal to be approved. Abstentions and broker non-votes, if any, will have the effect of a vote against the Dissolution Proposal.
Recommendation
of the Board
After
careful consideration of a number of factors, as further described in this proxy statement, the Board has unanimously (i) determined
that the Dissolution pursuant to the Plan of Dissolution and the other transactions contemplated thereby are advisable and in the best
interests of the Company and its stockholders, and (ii) approved in all respects the Dissolution and the Plan of Dissolution and the
other transactions contemplated thereby.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL TWO.
PROPOSAL
3: APPROVAL OF THE ADJOURNMENT OF THE SPECIAL MEETING
IN
ORDER TO SOLICIT ADDITIONAL PROXIES.
Adjournment
of the Special Meeting
If
necessary, including in the event that at the Special Meeting, the number of shares of Common Stock present or represented by proxy at
the Special Meeting and voting “FOR” the adoption of any one or more of the foregoing proposals (including the Sale
Proposal and/or the Dissolution Proposal) are insufficient to approve any such proposal, we may move to adjourn the Special Meeting in
order to enable us to solicit additional proxies in favor of the adoption of any such proposal. In that event, we may ask stockholders
to vote only upon the adjournment proposal and not on any other proposal discussed in this proxy statement. If the adjournment is for
more than thirty (30) days or a new record date for the adjourned meeting is set, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
For
the avoidance of doubt, any proxy authorizing the adjournment of the Special Meeting shall also authorize successive adjournments thereof,
at any meeting so adjourned, to the extent necessary for us to solicit additional proxies in favor of the adoption of any such proposal.
Required
Vote and Recommendation
In
accordance with our Charter, Bylaws and Delaware law, and as further discussed above under “Abstentions and Broker Non-Votes,”
approval and adoption of this Proposal 3 requires the affirmative (“FOR”) vote of the holder of a majority in voting
power of the shares of stock present or represented by proxy and entitled to vote thereon. Unless otherwise instructed on the proxy or
unless authority to vote is withheld, shares represented by executed proxies will be voted “FOR” this proposal. Abstentions,
if any, with respect to this proposal will have the effect of a vote against this Proposal 3. Broker non-votes, if any, with respect
to this proposal will have no effect.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL THREE.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information as of June 30, 2023 with respect to the beneficial ownership of Common Stock of the Company
by the following: (i) each of the Company’s current directors; (ii) each of the named executive officers; (iii) all of the current
executive officers and directors as a group; and (iv) each person known by the Company to own beneficially more than five percent (5%)
of the outstanding shares of the Company’s Common Stock.
For
purposes of the following table, beneficial ownership is determined in accordance with the applicable SEC rules and the information is
not necessarily indicative of beneficial ownership for any other purpose. Except as otherwise noted in the footnotes to the table, the
Company believes that each person or entity named in the table has sole voting and investment power with respect to all shares of the
Company’s Common Stock shown as beneficially owned by that person or entity (or shares such power with his or her spouse). Under
the SEC’s rules, shares of the Company’s Common Stock issuable under options that are exercisable on or within 60 days after
June 30, 2023 (“Presently Exercisable Options”) are deemed outstanding and therefore included in the number of shares reported
as beneficially owned by a person or entity named in the table and are used to compute the percentage of the Common Stock beneficially
owned by that person or entity. These shares are not, however, deemed outstanding for computing the percentage of the Common Stock beneficially
owned by any other person or entity.
The
percentage of the Common Stock beneficially owned by each person or entity named in the following table is based on 6,328,752 shares
of Common Stock issued and outstanding as of June 30, 2023 plus any shares issuable upon exercise of Presently Exercisable Options held
by such person or entity.
| Name
and Address of Beneficial Owner | |
Number
of Shares
Beneficially Owned | | |
Percentage
of Shares
Beneficially Owned | |
| Named
Executive Officers, Executive Officers and Directors: | |
| | | |
| | |
| John Fletcher | |
| 30,278 | (1) | |
| * | |
| Geoffrey Harris | |
| 16,181 | (2) | |
| * | |
| Howard McLeod | |
| 12,317 | (3) | |
| * | |
| John A. Roberts | |
| 39,399 | (4) | |
| * | |
| Joanna Horobin | |
| 16,355 | (5) | |
| * | |
| Paul Hanson | |
| 150,036 | (6) | |
| 2.37 | % |
| Ping Yeh | |
| 282,728 | (7) | |
| 4.46 | % |
| Andrew D. C. LaFrence | |
| 70,830 | (8) | |
| 1.11 | % |
| All current
executive officers and directors as a group (8 persons) | |
| 618,124 | | |
| 9.56 | % |
| | |
| | | |
| | |
| 5% Holders: | |
| | | |
| | |
| The Robert John Petcavich
Living Trust | |
| 339,886 | | |
| 5.37 | % |
| Khejri Pte LTD | |
| 354,509 | (9) | |
| 5.60 | % |
(*)
Less than 1%.
(1)
Includes 4,652 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(2)
Includes 3,533 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(3)
Includes 3,533 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(4)
Includes 31,417 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(5)
Includes 3,615 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(6)
Includes 2,603 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(7)
Includes 265,624 shares of Common Stock owned by the Ping Yeh Revocable Trust, 8,409 shares of Common Stock underlying options exercisable
on or before August 29, 2023.
(8)
Includes 12,823 common shares owned by the Trust Agreement of Andrew David Chapman LaFrence and Kimberly Ann Chapman LaFrence dated August
11, 2017, and 58,007 shares of Common Stock underlying options exercisable on or before August 29, 2023.
(9)
Includes 3,104 shares of Common Stock underlying options exercisable on or before August 29, 2023 by Sriram Nadathur, a beneficial owner
of Khejri Pte LTD.
INFORMATION
ABOUT VYANT BIO, INC.
Overview
Vyant
Bio, Inc. (the “Company”, “Vyant Bio”, “VYNT” or “we”),
has historically been a company that incorporates innovative biology and data science to improve drug discovery for complex neurodevelopmental
and neurodegenerative disorders. Our central nervous system (“CNS”) drug discovery platform combines human-derived organoid
models of brain disease, scaled biology, and machine learning. Our platform is designed to: (i) elucidate disease pathophysiology; (ii)
formulate key therapeutic hypotheses; (iii) identify and validate drug targets, cellular assays, and biomarkers to guide candidate molecule
selection; and (iv) guide clinical trial patient selection and trial design. Our programs focused on identifying repurposed and novel
small molecule clinical candidates for rare CNS genetic disorders including Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders
(“CDD”) and familial Parkinson’s Disease (“PD”). We focused on combining sophisticated data science capabilities
with highly functional human cell derived disease models. We also aimed to leverage our ability to identify validated targets and molecular-based
biomarkers to screen and test thousands of small molecule compounds in human diseased 3D brain organoids in order to create a unique
approach to assimilating biological data that supports decision making iteratively throughout the discovery phase of drug development
to identify both novel and repurposed drug candidates. In January 2023 we have ceased substantially all preclinical and clinical development
activities as we complete our review of our strategic alternatives.
We
have incurred substantial operating losses and have used substantial amounts of cash in our operating activities since inception. On
January 4, 2023, the Company announced that it had engaged LifeSci Capital as its financial advisor to assist in exploring a range of
strategic alternatives focused on enhancing shareholder value. There can be no assurance that this review process will result in any
changes to the Company’s current business plans or lead to any specific action or transaction.
The
Company’s Board of Directors (the “Board”), after an assessment of the status of the Company’s efforts to seek
strategic alternatives and the Company’s then current cash position, approved a plan on January 31, 2023 to preserve the Company’s
cash to be able to continue to pursue a satisfactory strategic alternative for the purpose of maximizing the value of the Company’s
business while also having sufficient cash to adequately fund an orderly wind down of the Company’s operations (the “Cash
Preservation Plan”) in the event it is unable to secure a satisfactory strategic alternative. As part of the Cash Preservation
Plan, the Company implemented a reduction in force, resulting in the retention of a core group of employees required for one or more
potential strategic transactions and/or to execute an orderly wind down of the Company if required. The Company also deferred pending
efforts with respect to its current preclinical and clinical programs.
On
January 31, 2023, John A. Roberts and Robert T. Fremeau, Jr., agreed in principle that Mr. Roberts and Dr. Fremeau would step down as
President and Chief Executive Officer and Chief Scientific Officer, respectively, of the Company, effective as of February 3, 2023, and
pursuant to their employment agreements, would be deemed terminated as of that date by the Company without cause for purposes of determining
severance thereunder. Mr. Roberts remains a member of the Board of Directors of the Company. Andrew D. C. LaFrence, the Company’s
Chief Financial Officer, assumed the role of President and Chief Executive Officer following Mr. Roberts’ departure. Mr. LaFrence
became Chief Financial Officer upon the Company’s merger with StemoniX, Inc. on March 30, 2021, pursuant to the terms of an employment
agreement, dated March 30, 2021. On May 9, 2023, the Company and Mr. LaFrence entered into a Consulting Agreement providing that effective
as of June 1, 2023 (or such later date as may be agreement to by the Company and Mr. LaFrence), Mr. LaFrence would continue to serve
as the Company’s President, Chief Executive Officer and Chief Financial Officer as a part time consultant rather than a full time
employee. His employment agreement, which is filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, would be deemed terminated as of that date by the Company without cause for purposes of determining severance thereunder.
The Consulting Agreement was a further step in the Company’s efforts to conserve cash consistent with its Cash Preservation Plan.
Additionally,
as part of its Cash Preservation Plan, on April 24, 2023 the Company’s Board of Directors determined it was appropriate to voluntarily
delist its securities from The Nasdaq Capital Market (“Nasdaq”). On May 4, the Company filed a Form 25 with the Securities
and Exchange Commission (the “SEC”) and the delisting became effective on May 15, 2023. Following the delisting of the Company’s
securities from Nasdaq, the Company filed a Form 15 with the SEC to suspend its reporting obligations under the Securities Exchange Act
of 1934, as amended. The Company expects that the deregistration of such securities will become effective 90 days after the filing of
the Form 25 with the SEC. The documents filed with the SEC are available on the Company’s website. The Board made the decision
to pursue this strategy following its review and careful consideration of a number of factors, including, but not limited to, the expected
reduction in operating expenses by eliminating SEC reporting costs, which would allow the Company to focus more resources on its continued
pursuit and exploration of satisfactory strategic alternative transactions and/or execution of an orderly wind down of the Company, if
necessary. The Board determined that deregistration is in the overall best interests of the Company and its stockholders. Following delisting
of the Company’s common stock from Nasdaq, the common stock has been quoted on the Pink Open Market operated by OTC Markets Group
Inc. (the “OTC”) under the symbol “VYNT” starting on May 15, 2023.
StemoniX
Merger
On
March 30, 2021, Vyant Bio, 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 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 2,201,437 shares of Common Stock
or $50.74 million, 431,537 Common Stock warrants or $9.04 million and 11,181 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 160,942 incremental shares in accordance with the conversion ratio set forth in the Merger Agreement.
Effective
with the Merger, the historical financial statements of StemoniX, as the accounting acquiror, became the historical financial statements
of the Company under U.S. generally accepted accounting principles (“US GAAP”) and Cancer Genetics, Inc. was renamed Vyant
Bio, Inc. Therefore, the underlying operations of CGI and subsidiaries are consolidated in the Vyant Bio consolidated financial statements
from March 30, 2021 onward. The discussions regarding the Company’s business herein reflect the operations of StemoniX prior to
the Merger as well as the post-Merger combined operations of Vyant Bio and StemoniX.
Reverse
Stock Split
On
July 14, 2022, the Company’s stockholders approved a reverse stock split (the “Reverse Split”) of the Company’s
issued and outstanding shares of Common Stock in the range of one for five to one for fifteen shares. On October 18, 2022, the Company’s
Board of Directors approved a Reverse Split of one for five shares effective November 1, 2022. As a result of the reverse split, every
5 shares of the Company’s Common Stock issued and outstanding were converted into one share of Common Stock. No fractional shares
were issued in connection with the reverse split. Stockholders who would otherwise be entitled to a fractional share of Common Stock
instead received cash in lieu of fractional shares based on the closing sales price of the Company’s Common Stock as quoted on
the Nasdaq Global Market on the five trading days immediately prior to November 1, 2022. The reverse split did not reduce the number
of authorized shares of the Common Stock or preferred stock (the “Preferred Stock”) or change the par values of the Company’s
Common Stock or Preferred Stock. The Reverse Split affected all stockholders uniformly and did not affect any stockholder’s ownership
percentage of the Company’s shares of Common Stock (except to the extent that the reverse split would result in some of the stockholders
receiving cash in lieu of fractional shares). All outstanding Common Stock options, warrants and restricted stock units entitling their
holders to receive or purchase shares of the Company’s Common Stock have been adjusted as a result of the reverse split, as required
by the terms of each security. All historical share and per share amounts presented herein have been retroactively adjusted to reflect
the impact of the Reverse Split.
vivoPharm
Business
In
December 2021, the Company’s Board of Directors approved the engagement of an investment banker to seek to sell the vivoPharm
business to allow the Company to focus on the development of neurological
developmental and degenerative disease therapeutics. As of December 31, 2021, the Company commenced
accounting for vivoPharm as discontinuing operations. In the fourth quarter of 2022, the Company sold substantially all of the
operations of vivoPharm in two separate transactions. On March 13, 2023, the remaining vivoPharm business was sold. For
further information, see section entitled “Discontinuing Operations” later in this section, and Note 3, Discontinuing
Operations, to the Company’s Consolidated Financial Statements.
Business
Strategy
Drug
Discovery
Historically,
the Company’s strategy had been to utilize a unique and robust “human-first” drug discovery platform to discover repurposed
and novel therapeutics to treat neurodevelopmental and neurodegenerative diseases, initially focusing on rare CNS genetic disorders including
Rett, CDD and familial PD. Key to the Company’s strategy was the development by utilizing human-derived induced pluripotent stem
cells (“iPSC”) to generate three dimensional organoids that exhibit spontaneous synchronized neuronal activity that can be
detected in a high-throughput fashion. Vyant Bio has industrialized the production of iPSC-derived organoids into standard multi-well
plate formats that we believe are sufficiently robust and reproducible to enable high throughput drug screening and provide insightful
data for optimized selection of therapeutic candidates.
The
human organoid platform is combined with software analytics and machine learning systems, branded by the Company as its proprietary AnalytiX™
system. This integrated approach enables standardized, high-throughput screening of drug candidates to establish human efficacy prior
to conducting human clinical studies, mitigating or in some cases avoiding the inadequacies of testing in clonal cell lines or preclinical
animal models. The Company believes that its technologies will permit drug discovery in human disease areas that are difficult to address
using current methodologies, such as brain diseases, accelerate preclinical drug discovery and development, reduce risk of clinical failure,
predict drug candidate efficacy with greater degrees of confidence and, ultimately, reduce the cost of discovering new therapeutic agents.
The
Company began transforming its Maple Grove, Minnesota facility to a high throughput manufacturing and screening facility in the fourth
quarter of 2021 to expand the Company’s internal research and development capabilities. This transition was in line with the Company’s
strategy to leverage its iPSC technology to pursue wholly owned and partnered drug discovery projects that yield higher valued proprietary
therapeutic assets. This facility transformation was substantially completed in the second half of 2022. Previously, the Company derived
revenue from the sale of iPSC-based microOrganTM plates to pharmaceutical, biotechnology and research customers and through
the performance of Discovery as a Service (“DaaS”) for these customers.
Therapeutic
Programs
Prior
to February 2023 the Company was actively seeking to discover repurposed and novel (New Chemical Entity, or “NCE”) lead candidates
for Rett, CDD and familial PD which was intended to become the foundation of the Company’s therapeutic platform. In January 2023,
the Company placed all its preclinical and clinical development activities on hold as it evaluated its strategic alternatives.
Rett
Syndrome (“Rett”)
Rett
is a rare genetic neurological disorder that occurs almost exclusively in girls and leads to severe impairments, affecting nearly every
aspect of the child’s life including their ability to speak, walk, eat, and even breathe easily. The hallmark of Rett is near constant
repetitive hand movements. Rett is usually recognized in children between 6 to 18 months as they begin to miss developmental milestones
or lose abilities they had gained. Rett is caused by mutations on the X chromosome in a gene called MECP2. There are more than 900 different
mutations found on the MECP2 gene. Most of these mutations are found in eight different “hot spots.” Rett is not a degenerative
disorder with individuals living to middle age or beyond. Rett occurs worldwide in 1 of every 10,000 female births and is even rarer
in boys. Rett can present with a wide range of disability ranging from mild to severe. The course and severity of Rett is determined
by the location, type and severity of the mutation and X-inactivation. A 2022 report from Mellalta estimates the total global market
opportunity for Rett therapeutic treatments is approximately $1.5 billion. On March 10, 2023, Acadia Pharmaceuticals announced
that the United States Food and Drug Administration (“FDA”) has approved DAYBUE™
(trofinetide) for the treatment of Rett syndrome in adult and pediatric patients two years of age and older. DAYBUE is the first
and only drug approved for the treatment of Rett syndrome.
The
Company had two programs focused on Rett, that were identified based on a phenotypic screen of the SMART library provided by the International
Rett Syndrome Foundation on our Rett patient-derived organoids: Donepezil, a repurposed drug candidate (referred to as “VYNT0126”)
and two families of new chemical entity compounds.
Donepezil
is a promising repurposed candidate for several reasons. The compound has already been approved by the FDA, including in a recently approved
transdermal patch delivery system, as a cognition-enhancing medication for dementia related to Alzheimer’s disease, and there is
readily available safety data. It exhibits a consistent dose-dependent rescue of the functional diseased Rett phenotype on our Rett patient-derived
organoids and across additional functional readouts such as multielectrode electrophysiology assays, and cellular phenotypes (synaptogenesis).
The Company has engaged a contract research organization in Australia to execute a Phase II clinical trial for adult Rett patients in
Australia and New Zealand. The Company has not enrolled patients in this trial. As part of the Company’s Cash Preservation Plan
in February 2023, the Company placed this clinical trial on hold. Further, the scope of any such clinical trial would need to be evaluated
given the recent announcement of DAYBUE’s approval.
The
Company was also pursuing novel compounds for Rett identified in the SMART screen in collaboration with Atomwise (as described below).
CDKL5
Deficiency Disorder (“CDD”)
CDD
is a neurodevelopmental condition characterized by early-onset seizures, intellectual delay, and motor dysfunction. Although crucial
for proper brain development, the precise targets of CDKL5 and its relation to patients’ symptoms are under investigation. Our
microBrain organoid screening platform was aimed to enlighten cellular, molecular, and neural network mechanisms of genetic epilepsy
that we are researching to ultimately promote novel therapeutic opportunities for patients. While genetic testing is currently available
to determine if patients have mutation in the CDKL5 gene, the limited knowledge of pathology has hindered development of therapeutics,
leaving CDD as an ultra-rare disease with a defined unmet medical need and no currently approved therapeutic treatments.
The
Company’s researchers screened approximately 5,200 custom library compounds composed of FDA approved molecules, molecules that
passed Phase 1 clinical trials, and a panel of phenotypic screening compounds. This effort led to the potential to identify both internal
NCE’s and potential repurposing molecules. Approximately 288 compounds showed some degree of rescue of the CDD hyperexcitability
phenotype, and we were conducting further confirmatory screening followed by dose response studies and pharmacologic deconvolution. In
collaboration with Cyclica (as described below), we were applying machine learning to identity in silico molecules for screening
of 3 novel CDD targets. To drive hit-to-lead optimization we are establishing in vitro binding and cell-based functional assays
for these targets to examine the relationship between target potency and degree of phenotypic rescue.
Parkinson’s
Disease (“PD”)
PD
is a progressive neurodegenerative disorder that affects predominately dopamine-producing (“dopaminergic”) neurons in a specific
area of the brain called the substantia nigra. PD symptoms generally develop slowly over time and include tremors, muscle rigidity, gait
and balance problems, and slow, imprecise movements. PD afflicts more than 10 million people worldwide, with 60,000 new cases per annum
diagnosed in the US alone, typically middle-aged and elderly people. The market for therapeutics to treat the many symptoms and different
types of Parkinson’s disease is expected to expand to $7.2 billion by 2028, according to business intelligence provider Coherent
Market Insights.
The
etiology of PD is poorly understood but it is widely accepted that a combination of genetics and environmental factors are the cause.
About 10-15 percent of people with PD have a family history of the condition, and family-linked
cases can result from genetic mutations in a group of genes, including GBA, LRRK2, PARK2, PARK7, PINK1 or the SNCA gene.
Joint
Venture and Collaborations
Atomwise
Joint Venture
On
December 3, 2019, StemoniX announced a non-exclusive joint venture with Atomwise, Inc. (“Atomwise”), a San Francisco based
company, which combines StemoniX’s human microOrgan platform with Atomwise’s structure-based Artificial Intelligence (“AI”)
technology to enable the rapid discovery and development of novel small molecule therapies. The joint venture was initially targeting
Rett. In the joint venture, Atomwise was using its AI technology to analyze billions of compounds in silico to identify potent
and selective binders for proteins that are important for Rett. The Company had identified two promising families of molecules identified
through this arrangement and testing related compounds on its human microBrain 3D disease model to determine biological activity. We
believed this joint effort could decrease the traditional medicinal chemistry timeline as well as increase the number of promising compounds
that can be tested, and thereby result in an efficient path to successful drug development. Each party owned 50% of this venture and
is required to fund their respective development activities related to this arrangement. Consistent with Company’s Cash Preservation
Plan, we have placed on hold our development activities with Atomwise.
Cyclica
Collaboration
On
August 12, 2021, we entered into a non-exclusive Strategic Collaboration Agreement (“SCA”) with Cyclica, Inc., a Toronto,
Ontario-based company that uses a proprietary AI and machine learning (“ML”) platform to identify potential new therapeutic
targets, re-purposed compounds, and NCEs. In this collaboration we were focusing on identifying new targets and NCE for CDD. The collaboration
combines patient-derived neural organoids of the Company’s human-first neural platform with Cyclica’s in-silico platform
to generate a disease-based, proteome-wide, discovery platform. The clinically linked biological signal of the CDD organoids and their
responses to biologically active compounds drives the Cyclica platform to generate high-quality predictions for therapeutic targets based
on their proprietary knowledge and structure-based algorithms. The predictions were to be tested in the Company’s platform, and
if verified, were to advance into AI/ML-based NCE synthesis. Together the platforms were aimed to enable rapid interrogation of the human
proteome to accelerate the discovery of new cures for this debilitating disease and the SCA had identified four novel targets, three
of which were being actively pursued under the SCA. The Company was to own all inventions and discoveries resulting from the collaboration
(“Work Product”). Cyclica was entitled to a decreasing percentage of any consideration that the Company received for the
sale, licensing, or other disposition of Work Product, ranging from the mid-double digits in the early preclinical stages of development
down to the mid-single digits from and after late-stage clinical development. Consistent with Company’s Cash Preservation Plan,
we placed on hold our development activities with Cyclica.
Competition
The
pharmaceutical industry is intensely competitive, where a company’s proprietary advancements in science and technology play a critical
role in its competitive advantage. Any product candidates that we may successfully discover and develop, may compete with existing therapies,
or new therapies that may become available in the future. Our commercial opportunities could be reduced or eliminated if our competitors
develop and commercialize products that are more effective, have fewer side effects, are more convenient or are less expensive than any
products that we may develop.
Historically,
our primary competitors were other pharmaceutical and biotechnology or biomedical development companies that are trying to discover and
develop compounds to be used in the treatment of Rett, CDKL5, PD and other CNS diseases, including those companies already doing so.
Some of those companies include Acadia Pharmaceuticals (NASDAQ:ACAD), Anavex Life Sciences (NASDAQ:AVXL) Biogen (NASDAQ:BIIB), Pfizer
Inc. (NYSE:PFE), Abbvie Plc (NYSE:ABBV), Novartis AG (NYSE:NVS), GlaxoSmithKline Plc (NYSE:GSK), Merck & Co. Inc. (NYSE:MRK), Eli
Lilly & Co. (NYSE: LLY), Johnson & Johnson (NYSE:JNJ), Roche Holding AG (VTX:ROG), Zogenix (NASDAQ:ZGNX), UCB (Euronext:UCB),
Cerevel Therapeutics (NASDAQ:CERE), Corium, Inc., and Marinus Pharmaceuticals, Inc. (NASDAQ:MRNS). We also faced competition from academic
institutions and government agencies, both in the United States and abroad.
Intellectual
Property
Patents
and Trade Secrets
Historically,
we protected and expanded our intellectual property primarily through a combination of patent filings, trade secrets and exclusive/non-exclusive
in-licensing. For processes and products that were capable of being reverse-engineered, we typically filed utility patent applications.
Regarding
our patent portfolio, the Company did not historically rely on a singular patent to execute its business plan. Our objective was to create
a significant barrier to entry for competitors by applying for patents not only on our lead products and processes but also on possible
workarounds. Our intellectual property portfolio (including both owned patent applications and licensed-in technology) covers stem cells,
manufacturing processes, product packaging, digital cellular electronics, cell micro-environments and structure, and cell networks. Each
patent application included its own strategy, which (as applicable) included the use of provisional patent application filings and related
domestic and foreign patent applications that claim the benefits of the provisional applications and that were intended to provide the
Company coverage in key geographical markets. Our patent portfolio was designed to grow with our Company.
Trademarks
The
Company has historically had the following registered trademarks: StemoniX, microHeart, microBrain, microTumor, microPancreas, BeYourCure,
Person-on-a-Plate, Clinical Trial on-a-Plate, microOrgan, VyantBio, Vyant Bio, and Human-powered.
Licenses
The
Company had previously licensed multiple patents and protocols from the University of California, San Diego, as well as from (1) Academia
Japan for technology that we need in order to create and sell induced pluripotent stem cells, (2) ID Pharma for the Sendai virus vector
technology, and (3) the Max Plank Innovation GmbH for mid-brain organoid production.
In
the context of our drug development effort, we historically obtained licenses from customers to use the data we collected while providing
drug screening services to those customers. We believed that this data will have significant value to our business as it refined its
screening models.
IDP
License Agreement
StemoniX
entered into a Non-Exclusive License Agreement (the “IDP License Agreement”) with ID Pharma Co., Ltd., a Japanese corporation
(“IDP”) effective as of January 29, 2016. Under the terms of the IDP License Agreement, IDP granted StemoniX a royalty bearing,
non-exclusive and non-transferable license in the United States and, upon exercise of the option described below, worldwide, to use the
technology and processes covered by certain patents owned by IDP (the “IDP Licensed Patents”) to (i) generate iPSCs covered
by the IDP Licensed Patents and differentiated cells derived from such iPSCs (collectively, the “IDP Licensed Products”),
(ii) sell the IDP Licensed Products that are differentiated cells, and (iii) provide services involving the IDP Licensed Products (the
“IDP Licensed Services”).
Pursuant
to the IDP License Agreement, StemoniX agreed to pay IDP a non-credible and non-refundable up-front fee. The IDP License Agreement provides
StemoniX the option, at any time during the term of the IDP License Agreement, to pay IDP an additional non-creditable and non-refundable
fee in exchange for the rights to sell the IDP Licensed Products and IDP Licensed Services worldwide. Additionally, StemoniX agreed to
pay IDP a single digit percentage royalty on net sales of IDP Licensed Products sold by StemoniX. Royalties are payable within 60 days
after the close of each consecutive 12-month period after the effective date of the IDP License Agreement, and annual minimum royalties
apply. The IDP License Agreement may be terminated by either party upon an uncured breach of any material provision of the IDP License
Agreement by the other party and under certain other circumstances.
Academia
Japan License Agreement
StemoniX
signed an Amended and Restated Non-Exclusive License Agreement (the “AJ License Agreement”) with iPS Academia Japan, Inc.,
a Japanese corporation (“Academia Japan”) effective as of April 1, 2017. Under the terms of the AJ License Agreement, Academia
Japan granted StemoniX a royalty bearing, non-exclusive, non-transferable license to use the technology and processes covered by two
groups of patents owned by Academia Japan (collectively, the “AJ Licensed Patents”) to (i) develop, make, use, sell, have
sold by one or more distributors, offer to sell and have offered to sell by one or more distributors iPSCs covered by the AJ Licensed
Patents and differentiated cells derived from such iPSCs (collectively, the “AJ Licensed Products”), and (ii) provide services
involving the AJ Licensed Products (the “AJ Licensed Services”). Similarly, StemoniX granted Academia Japan a non-exclusive,
worldwide, royalty free license to certain of its patents solely for academic and educational purposes.
Pursuant
to the AJ License Agreement, StemoniX agreed to pay Academia Japan a non-creditable and non-refundable upfront fee as well as running
royalties for the AJ Licensed Patents, with single digit percentage royalties payable at varying rates depending on the applicable group
of AJ Licensed Patents and the applicable group of AJ Licensed Products and/or AJ Licensed Services.
The
AJ License Agreement may be terminated by Academia Japan upon a material, uncured breach of the AJ License Agreement by StemoniX, and
under certain other circumstances.
Manufacturing
and Supply
We
do not have any manufacturing facilities or personnel for our therapeutic assets. We had historically manufactured microBrains at our
facility in Maple Grove, Minnesota and expected to rely on third parties to manufacture our therapeutic product candidates for preclinical
and clinical testing. In 2022, we converted our Maple Grove, MN to a research and development facility to focus our resources on internal
drug discovery development programs. We began transforming our Maple Grove, Minnesota facility to a high throughput manufacturing and
screening facility in the fourth quarter of 2021 to expand our internal research and development capabilities. This transition was in
line with our strategy to leverage our iPSC technology to pursue wholly owned and partnered drug discovery projects that yield higher
valued proprietary therapeutic assets. This facility transformation was substantially completed in the second half of 2022. We have manufactured
microBrains at our facility in Maple Grove, Minnesota. Previously, we derived revenue from the sale of iPSC-based microOrganTM plates
to pharmaceutical, biotechnology and research customers and through the performance of Discovery as a Service (“DaaS”) for
these customers.
Sales
and Marketing
We
had historically planned to utilize third-party, specialized business development firms to support our internal staff as we pursue licenses
for our proprietary disease models and, once developed, our therapeutic assets. We ceased pursuing marketing or sales activities to evaluate
our strategic alternatives.
Government
Regulation
Government
authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things,
the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by
the FDA before it may be legally marketed in the United States. We are subject to various government regulations in connection with the
development of our pipeline.
U.S.
Drug Development and Regulation
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act and its implementing regulations (“FDCA”).
The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes
and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements
at any time during the product development process, approval process or after approval may subject an applicant to administrative or
judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval,
a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us.
Once
a drug candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations
of product chemistry, toxicity and formulation, as well as animal studies. An Investigational New Drug (“IND”) sponsor must
submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND.
The sponsor must also include a protocol detailing, among other things, the objectives of the first phase of clinical trials, the parameters
to be used in monitoring the safety of the trial, and the effectiveness criteria to be evaluated should the first phase lend itself to
an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective
thirty (30) days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold.
Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going or proposed
clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the
sponsor that the hold has been lifted.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with the FDA good clinical
practice (“GCP”) requirements, which include a requirement that all research subjects provide their informed consent in writing
for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial,
dosing procedures, subject selection and exclusion criteria and the safety and/or effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND, and timely safety reports must be submitted to the FDA and the investigators for serious
and unexpected adverse events. An Institutional Review Board (“IRB”) at each institution participating in the clinical trial
must review and approve each protocol before a clinical trial may commence at the institution and must also approve the information regarding
the trial as well as the consent form that must be provided to each trial subject or his or her legal representative, monitor the study
until completed and otherwise comply with all applicable IRB regulation.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined in certain cases:
Phase
1: The compound is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion and, if possible, to gain an early indication of its effectiveness. In most cases, initial Phase 1 clinical
trials are conducted with healthy volunteers. However, where the compound being evaluated is for the treatment of severe or life-threatening
diseases, such as cancer, and especially when the product may be too toxic to ethically administer to healthy volunteers, the initial
human testing may be conducted on patients with the target disease or condition. Sponsors sometimes subdivide their Phase 1 clinical
trials into Phase 1a and Phase 1b clinical trials. Phase 1b clinical trials are typically aimed at confirming dosage, pharmacokinetics
and safety in a larger number of patients. Some Phase 1b studies evaluate biomarkers or surrogate markers that may be associated with
efficacy in patients with specific types of diseases or conditions.
Phase
2: This phase involves clinical trials in a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases or conditions and to confirm dosage tolerance and appropriate dosage.
Phase
3: Phase 3 clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population,
generally at geographically dispersed clinical study sites. These clinical trials, often referred to as “pivotal” clinical
trials, are intended to establish the overall risk-benefit ratio of the compound and provide, if appropriate, an adequate basis for product
labeling.
The
FDA or the sponsor may suspend a clinical trial at any time on various grounds, including any finding that the research subjects or patients
are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution
if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with
unexpected, serious harm to study subjects. In addition, clinical trials may be overseen by an independent group of qualified experts
organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this committee may determine
whether a trial may move forward at designated check points based on access to certain data from the trial.
Post-approval
trials may also be conducted after a drug receives initial marketing approval. These trials, often referred to as “Phase 4”
trials, are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
the FDA may mandate the performance of such clinical trials as a condition of approval of a drug.
During
the development of a new drug, sponsors are given several opportunities to meet with the FDA. These meetings can provide an opportunity
for the sponsor to share information about the progress of the application or clinical trials, for the FDA to provide advice, and for
the sponsor and the FDA to reach agreement on the next phase of development. These meetings may occur prior to the submission of an IND,
at the end of Phase 2 clinical trials, or before a New Drug Application (“NDA”) is ultimately submitted. Sponsors typically
use the meetings at the end of the Phase 2 trials to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical
trials that they believe will support approval of the new drug. Meetings at other times may be made upon request.
Concurrent
with clinical trials, companies typically complete additional animal and laboratory studies, develop additional information about the
chemistry and physical characteristics of the drug, and finalize a process for manufacturing the product in commercial quantities in
accordance with the FDA’s current Good Manufacturing Practices (“cGMP”) requirements. The manufacturing process must
consistently produce quality batches of the drug, and, among other things, the manufacturer must develop methods for testing the identity,
strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies
must be conducted to demonstrate the effectiveness of the packaging and that the compound does not undergo unacceptable deterioration
over its shelf life.
While
the IND is active, progress reports summarizing the results of ongoing clinical trials and nonclinical studies performed since the last
progress report must be submitted on at least an annual basis to the FDA, and written IND safety reports must be submitted to the FDA
and investigators for serious and unexpected adverse events, findings from other studies suggesting a significant risk to humans exposed
to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important,
increased incidence of a serious adverse reaction compared to that listed in the protocol or investigator brochure.
There
are also requirements governing the submission of certain clinical trials and completed trial results to public registries. Sponsors
of certain clinical trials of FDA-regulated products are required to register and disclose specified clinical trial registration and
results information, which is made publicly available at www.clinicaltrials.gov. Failure to properly report clinical trial results can
result in civil monetary penalties. Disclosure of clinical trial results can often be delayed until the new product or new indication
being studied has been approved.
U.S.
review and approval process
The
results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing
process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the
FDA as part of an NDA. The submission of an NDA is subject to the payment of substantial user fees; a waiver of which may be obtained
under certain limited circumstances.
The
FDA reviews NDAs to determine, among other things, whether the product is safe and effective for its intended use and whether it is manufactured
in a cGMP-compliant manner, which will assure and preserve the product’s identity, strength, quality and purity. Under the Prescription
Drug User Fee Act (“PDUFA”), as amended, the FDA has a goal of ten months from the date of “filing” of a standard,
completed NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date
the NDA is submitted to the FDA because FDA has approximately two months to make a “filing” decision after the application
is submitted. The FDA conducts a preliminary review of all NDAs within the first sixty days after submission, before accepting them for
filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information
rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application
also is subject to review before the FDA accepts it for filing.
The
FDA may refer an application for a new drug to an advisory committee within the FDA. An advisory committee is a panel of independent
experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether and under
what conditions the application should be approved. The FDA is not bound by the recommendations of such an advisory committee, but it
considers advisory committee recommendations carefully when making decisions.
Before
approving an NDA, the FDA will also inspect the facility where the product is manufactured. The FDA will not approve an application unless
it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent
production of the product within required specifications. Before approving an NDA, the FDA may also inspect one or more clinical trial
sites to assure compliance with GCP requirements.
After
the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. A Complete Response Letter indicates that the
review cycle of the application is complete, and the application will not be approved in its present form. A Complete Response Letter
usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional
pivotal Phase 3 trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing.
If a Complete Response Letter is issued, the sponsor must resubmit the NDA, addressing all of the deficiencies identified in the letter,
or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria
for approval. An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications.
The
Pediatric Research Equity Act (“PREA”) requires IND sponsors to conduct pediatric clinical trials for most drugs, for a new
active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and
supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate
the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and
administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or the FDA may request a deferral
of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including
a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety
or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to
any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric
formulation.
If
a drug receives the FDA approval, the approval may be limited to specific diseases and dosages, which could restrict the commercial value
of the product. In addition, the FDA may require testing and surveillance programs to monitor the safety of approved products which have
been commercialized and may require a sponsor to conduct post-marketing clinical trials, which are designed to further assess a drug’s
safety and effectiveness after NDA approval. The FDA may also place other conditions on approval, including a requirement for a risk
evaluation and mitigation strategy (“REMS”) to assure the safe use of the drug. If the FDA concludes a REMS is needed, the
sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could
include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient
registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion,
distribution, prescribing or dispensing of products. Marketing approval may be withdrawn for non-compliance with REMS or other regulatory
requirements, or if problems occur following initial marketing.
Post-approval
requirements
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur
after the drug reaches the market. Later discovery of previously unknown problems with a drug may result in restrictions on the drug
or even complete withdrawal of the drug from the market. After approval, some types of changes to the approved drug, such as adding new
indications, certain manufacturing changes and additional labeling claims, are subject to further the FDA review and approval. Manufacturers
and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with
the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance
with cGMP regulations and other laws and regulations.
Any
drug product manufactured or distributed by us pursuant to FDA approval will be subject to continuing regulation by the FDA, including,
among other things, record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety
and efficacy information, drug sampling and distribution requirements, complying with certain electronic records and signature requirements,
and complying with the FDA’s promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion
and other types of information regarding approved drugs that are placed on the market, and imposes requirements and restrictions on drug
manufacturers, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient
populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored
scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or
the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product for a certain
indication or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable
governmental requirements at any time during the product development process, approval process or after approval, may subject an applicant
or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. The FDA sanctions could include refusal
to approve pending applications, withdrawal of an approval, clinical holds on post-marketing clinical trials, enforcement letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts,
mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal
penalties.
Expedited
development and review programs
The
FDA administers a number of programs that can expedite the development and review of new drugs.
The
fast track designation program is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria.
Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or
condition and demonstrate the potential to address unmet medical needs for the disease or condition. With regard to a fast track product,
the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides
a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule
is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
A
product is eligible for priority review if it is intended to treat a serious condition, and if approved, would provide a significant
improvement in safety or efficacy compared to currently marketed products. The FDA will attempt to direct additional resources to the
evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. The FDA endeavors to
review applications with priority review designations within six months of the filing date, as compared to ten months for review of NDAs
under its current PDUFA review goals.
In
addition, a product may be eligible for accelerated approval. Drugs intended to treat serious or life-threatening diseases or conditions
may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably
likely to predict a clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality,
that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account
the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval,
the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical
trials. Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required
post-marketing trials or if such trials fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition
for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the
product.
Also,
the Food and Drug Administration Safety and Innovation Act (“FDASIA”) established a category of drugs referred to as “breakthrough
therapies” that may be eligible to receive breakthrough therapy designation. A sponsor may seek FDA designation of a compound as
a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a
serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early
in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and
guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also
be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work to expedite
the development and review of such drug.
Fast
track designation, priority review and breakthrough therapy designation do not change the standards for approval but may expedite the
development or approval process. However, even if a product qualifies for one or more of these programs, the FDA may later decide that
the product no longer meets the conditions for qualification or decide that the time period for the FDA review or approval will not be
shortened.
Orphan
drug designation
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease
or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the
United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States
for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before an NDA
is submitted. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are publicly
disclosed by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval
process.
If
a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such
designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to
market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority
to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug
also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and
user-fee waivers. However, competitors, may receive approval of different products for the indication for which the orphan product has
exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan
exclusivity also could block the approval of one of our compounds for seven years if our compound is determined to be contained within
the competitor’s product for the same indication or disease, or if a competitor obtains approval of the same drug as defined by
the FDA. In addition, if an orphan designated product receives marketing approval for an indication broader than what is designated,
it may not be entitled to orphan exclusivity.
Marketing
exclusivity
Market
exclusivity provisions under the FDCA can delay the submission or approval of certain marketing applications. The FDCA provides a five-year
period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical
entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety,
which is the molecule or ion responsible for the action of the drug substance.
During
the exclusivity period, the FDA may not approve or even accept for review an abbreviated new drug application (“ANDA”), or
an NDA submitted under Section 505(b)(2) (a “505(b)(2) NDA”), submitted by another company for another drug based on the
same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another
indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application
may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed
with the FDA by the innovator NDA holder.
The
FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations,
other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval
of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the
modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from
approving ANDAs or 505(b)(2) NDAs for drugs containing the active ingredient for the original indication or condition of use. Five-year
and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would
be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials
necessary to demonstrate safety and effectiveness.
Pediatric
exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional
six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response
to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical
trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain
circumstances.
Foreign
Approval and Sales
Sales
outside the United States of potential drug compounds we develop will also be subject to foreign regulatory requirements governing human
clinical trials and marketing for drugs. The requirements vary widely from country to country, but typically the registration and approval
process takes several years and requires significant resources. In most cases, if the FDA has not approved a potential drug compound
for sale in the United States, the potential drug compound may be exported for sale outside of the United States, only if it has been
approved in any one of the following: the European Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South Africa.
There are specific FDA regulations that govern this process.
Health
Insurance Portability and Accountability Act
The
Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health
Act (“HITECH”), and implementing regulations thereunder (collectively, “HIPAA”) requires certain healthcare providers,
health plans and healthcare clearinghouses who conduct specified electronic healthcare transactions (“covered entities”),
as well as their independent contractors and agents who conduct certain activities involving protected health information on their behalf
(“business associates”) to comply with enumerated requirements relating to the privacy, security and transmission of protected
health information. Failure to comply with HIPAA can result in corrective action, as well as civil fines and penalties and government
oversight. Among other changes, HITECH made HIPAA security standards directly applicable to business associates, increased the tiered
civil and criminal fines and penalties that may be imposed against covered entities, business associates and possibly other persons,
and gave state attorneys general new authority to file actions to enforce HIPAA. Further, the breach notification rule implemented under
HITECH requires covered entities to notify affected individuals, the U.S. Department of Health and Human Services Office of Civil Rights
(“OCR”), the agency that enforces HIPAA, and for breaches affecting more than 500 individuals, the media, of any breaches
of unsecured protected health information. HIPAA does not create a private right of action for individuals, though individuals may submit
complaints related to HIPAA to OCR.
European
General Data Protection Regulation
The
collection and use of personal health data in the European Union had previously been governed by the provisions of the Data Protection
Directive, which has been replaced by the General Data Protection Regulation (“GRPR”) which became effective on May 25, 2018.
While the Data Protection Directive did not apply to organizations based outside the EU, the GDPR has expanded its reach to include any
business, regardless of its location, that provides goods or services to residents in the EU. This expansion would incorporate the Company’s
clinical trial activities in EU members states. The GDPR imposes strict requirements on controllers and processors of personal data,
including special protections for “sensitive information” which includes health and genetic information of data subjects
residing in the EU. GDPR grants individuals the opportunity to object to the processing of their personal information, allows them to
request deletion of personal information in certain circumstances, and provides the individual with an express right to seek legal remedies
in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of
personal data out of the European Union to the United States or other regions that have not been deemed to offer “adequate”
privacy protections. Failure to comply with the requirements of the GDPR and the related national data protection laws of the European
Union Member States, which may deviate slightly from the GDPR, may result in fines of up to 4% of global revenue, or €20,000,000,
whichever is greater. As a result of the implementation of the GDPR, the Company may be required to put in place additional mechanisms
ensuring compliance with the new data protection rules.
The
Company’s research activities in the EU are currently limited to non-human preclinical studies, and as such, the Company does not
collect, store, maintain, process, or transmit any personal data (as that term is defined under the GDPR) of trial subjects. The Company
had several employees located in the EU prior to the sale of its remaining vivoPharm business in March 2023 whose personal data
was subject to GDPR requirements. The Company has implemented a privacy and security program that is designed to adhere to the requirements
of the GDPR in order to protect employee personal data, and in the event the Company progresses to research or clinical trials involving
humans, to protect participant personal data. However, there is significant uncertainty related to the manner in which data protection
authorities will seek to enforce compliance with GDPR. For example, it is not clear if the authorities will conduct random audits of
companies doing business in the EU, or if the authorities will wait for complaints to be filed by individuals who claim their rights
have been violated. Enforcement uncertainty and the costs associated with ensuring GDPR compliance be onerous and adversely affect the
Company’s business, financial condition, results of operations and prospects. As a result, the Company cannot predict the impact
of the GDPR regulations on its current or future business, either in the US or the EU.
Other
Regulatory Requirements
The
Company’s laboratory is subject to federal, state and local regulations relating to the handling and disposal of regulated medical
waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood and bone marrow samples and
other human tissue. Typically, the Company uses outside vendors who are contractually obligated to comply with applicable laws and regulations
to dispose of such waste. These vendors are licensed or otherwise qualified to handle and dispose of such waste.
OSHA
has established extensive requirements relating to workplace safety for health care employers, including requirements to develop and
implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle
stick or similar penetrating injuries.
Discontinuing
Operations
vivoPharm
Business
The
Company owned and operated the vivoPharm Pty Ltd (“vivoPharm”) business which it acquired in 2017. In December
2021, the Company’s Board of Directors approved the engagement of an investment banker to seek to sell the vivoPharm business
to allow the Company to focus on the development of neurological
developmental and degenerative disease therapeutics. As of December 31, 2021, the Company commenced
accounting for vivoPharm as discontinuing operations. In the fourth quarter of 2022, the Company sold substantially all of the
operations of vivoPharm in two separate transactions. On March 13, 2023, the remaining vivoPharm business was sold. For
further information, see section entitled “Discontinuing Operations”, and Note 3, Discontinuing Operations, to the
Company’s Consolidated Financial Statements.
On
November 2, 2022, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) by and among the Company,
Reaction Biology Corporation (“Reaction”) and vivoPharm, pursuant to which the Company sold the U.S. operations of
its subsidiary, vivoPharm to Reaction, in exchange for approximately $5.8 million in cash. Including final customary adjustments
for working capital, closing cash, indebtedness and transaction expenses, the Company received net proceeds from the Reaction transaction
of approximately $4.8 million. In addition, the Company incurred $0.4 million in exit costs associated with the Reaction transaction.
On
December 30, 2022, vivoPharm, entered into a Share Purchase Agreement (the “Share Agreement”) with Sabine Brandt as
trustee for the Brandt Family Trust (“Buyer”), pursuant to which vivoPharm sold the entirety of the Company’s
remaining vivoPharm operating business for early discovery services, represented by 100% of the outstanding shares of (i) of RDDT
a vivoPharm Company Pty Ltd; and (ii) vivoPharm Europe Ltd, to Buyer in exchange for a nominal cash amount, subject to
adjustments for closing cash and accounts payable, on and subject to the terms and conditions set forth therein (the “Second Transaction”).
The Second Transaction resulted in the Company delivering target closing cash as part of the sold entities of approximately $827 thousand
and the assumption by Buyer of liabilities of the sold entities aggregating to approximately $2.0 million. The Second Transaction was
consummated effective December 31, 2022.
To
complete the disposition of the Company’s former vivoPharm business and to resolve certain issues that had arisen with the
Buyer, on March 13, 2023, the Company sold vivoPharm to the Buyer for a nominal sum. As part of the sale of vivoPharm to
Buyer, the Company provided that vivoPharm had cash of at least $200 thousand and the Company assumed certain specific vivoPharm
liabilities, principally liabilities directly associated with the proposed Phase 2 Donepezil clinical trial in Australia (which the Company
placed on hold as it evaluated its strategic alternatives) and certain vivoPharm tax liabilities through the transaction’s
closing. The transaction was consummated effective March 13, 2023.
vivoPharm
had a large set of anti-tumor referenced data based on xenograft, syngeneic predictive orthotopic tumor models to provide discovery services
such as contract research services, focused on predictive and unique specialized models to guide drug discovery with a major focus in
immuno-oncology. vivoPharm offered a suite of protocols and standard of care (“SoC”) data and supports planning and
conducting unique, specialized studies to guide drug discovery and development programs. These studies ranged from early compound selection
to developing comprehensive sets of in vitro and in vivo data, as needed for IND applications as required by regulatory bodies, such
as the FDA, the European Medicines Agency (“MEA”) and Therapeutic Goods Administration (“TGA”) in Australia.
vivoPharm’s discovery services include
preclinical anti-tumor efficacy, good laboratory practice (“GLP”) compliant toxicity studies and small and bio-molecule analytical
services. vivoPharm provided 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.
vivoPharm’s
international presence enabled it to access global market opportunities. vivoPharm’s headquarters in Australia specialized
in safety and toxicology studies, including mammalian, genetic and in vitro, along with bioanalytical services including immune-analytical
capabilities. vivoPharm operated from multiple locations in Melbourne (VIC) and Adelaide
(SA). vivoPharm’s U.S.-based laboratory, located at the Hershey Center for Applied Research in Hershey, Pennsylvania, primarily
focused on screening and efficacy testing for a wide range of pharmaceutical and chemical products. The third location, in Munich, Germany,
hosted project management and business development personnel for the European customers.
Other
Discontinuing Operations
Prior
to the Merger with StemoniX, in July 2019, CGI sold all assets related to its biopharma and clinical businesses. As of December 31, 2022
and 2021, $267 thousand and $409 thousand of
liabilities, respectively, relating to these businesses are classified as other current liabilities - discontinuing operations on the
Company’s consolidated balance sheets.
Employees
and Human Capital Management
As
part of the Cash Preservation Plan, the Company implemented a reduction in force, resulting in the retention of a core group of employees
required for one or more potential strategic transactions and/or to execute an orderly wind down of the Company if required. As of July
31, 2023, we had 4 full-time employees. Historically, we have never had a work stoppage, and none of our employees are represented by
a labor organization or under any collective-bargaining arrangements. We consider our employee relations to be good.
Historically,
our human capital management objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our
existing and new employees, advisors and consultants. The principal purposes of our equity and cash incentive plans, along with a comprehensive
benefits package and a 401(k) plan, were to attract, retain and reward personnel through the granting of stock-based and cash-based compensation
awards.
The
Company’s employees were historically in high demand in the industries in which we operate. We experienced employee turnover in
2022 of 52.4% employees. The demand for our employees remained subject to the overall employment market conditions, including increased
salaries and a high number of job openings experienced by many companies that are highly dependent on human capital talent. From January
1, 2023 through July 31, 2023, a total of 19 jobs were eliminated by the Company as part of the Cash Preservation Plan.
Segment
and Geographical Information
The
Company operates in one reportable business segment and derives revenue from one country as of December 31, 2022, with 53% and 61% of
its continuing operations revenue coming from the United States in fiscal year 2022 and 2021, respectively. See section entitled “Revenue
from Continuing Operations” for additional detail.
Corporate
and Available Information
The
Company was incorporated in the State of Delaware on April 8, 1999. On March 30, 2021, the Company
completed its Merger with StemoniX, which is now a wholly-owned subsidiary of the Company.
The
Company’s principal executive offices are located at 2370 State Route 70 West, Two Executive Campus, Suite 310, Cherry Hill, NJ
08002-4102. The Company’s telephone number is (201) 479-1357 and the corporate website address is www.vyantbio.com. On the Company’s
website, investors can obtain, free of charge, a copy of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, Code of Conduct and Business Ethics, including disclosure related to any amendments or waivers thereto, other reports and
any amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended, as soon as reasonably
practicable after the Company files such material electronically with, or furnishes it to, the U.S. Securities and Exchange Commission
(the “SEC”). None of the information posted on the Company’s website is incorporated by reference into this Annual
Report. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information
regarding the Company and other companies that file materials with the SEC electronically.
Properties
As
of March 31, 2023, the Company has lease agreements for two locations, including (i) a 14,932 square foot lab, manufacturing and office
in Maple Grove, Minnesota, and (ii) a 1,625 square foot corporate headquarters office in Cherry Hill, New Jersey. All leases have escalating
payment schedules. The Maple Grove lease expires in 2027 and the Cherry Hill lease expires on March 31, 2024. On March 9, 2023, the Company
terminated its lease agreement for its 4,995 square foot research and development facility and office in San Diego, California, effective
March 31, 2023, resulting in a $1.2 million reduction in future operating lease payments and an early termination fee of $45 thousand.
On May 11, 2023, we returned one piece of equipment to our leasing company for the final lease payment of $181 thousand. Prior to that,
we sold equipment in our San Diego laboratory on March 7, 2023 to a third party in exchange of $200 thousand in consideration. As part
of the Sale, AxoSim is assuming the Maple Grove Lease at the closing.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Unless
the context otherwise requires, all references in this section to the “Company,” “we,” “us” or “our”
refer to Vyant Bio, Inc. and its wholly owned subsidiaries StemoniX, Inc. (“StemoniX”). The following discussion and analysis
provides information management believes is useful in understanding the operating results, cash flows and financial condition of Vyant
Bio, Inc. The discussion should be read in conjunction with both the unaudited condensed consolidated financial statements and related
notes included in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and our audited consolidated financial statements
and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included in our
Annual Report on Form 10-K for the year ended December 31, 2022. Our independent auditors have not performed any audit or review procedures
over the Company’s 2023 condensed consolidated interim financial information and, therefore, have not expressed an opinion or any
other form of assurance on them. This discussion contains various “Forward-Looking Statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. We refer readers to the statement entitled “Special Note Regarding Forward-Looking
Statements” located elsewhere in this proxy statement.
Overview
Historically,
we have been a company that incorporates innovative biotechnology and data science to improve drug discovery for complex neurodevelopmental
and neurodegenerative disorders. Our central nervous system (“CNS”) drug discovery platform combines human-derived organoid
models of brain disease, scaled biology, and machine learning. Our platform is designed to: (i) elucidate disease pathophysiology; (ii)
formulate key therapeutic hypotheses; (iii) identify and validate drug targets, cellular assays, and biomarkers to guide candidate molecule
selection; and (iv) guide clinical trial patient selection and trial design. Our programs focused on identifying repurposed and novel
small molecule clinical candidates for rare CNS genetic disorders including Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders
(“CDD”) and familial Parkinson’s Disease (“PD”). We focused on combining sophisticated data science capabilities
with highly functional human cell derived disease models. We also aimed to leverage our ability to identify validated targets and molecular-based
biomarkers to screen and test thousands of small molecule compounds in human diseased 3D brain organoids in order to create a unique
approach to assimilating biological data that supports decision making iteratively throughout the discovery phase of drug development
to identify both novel and repurposed drug candidates. In January 2023, we ceased substantially all preclinical and clinical development
activities in furtherance of completing our review of strategic alternatives as further discussed below.
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm Pty Ltd (“vivoPharm”)
business to focus the Company on the development of neurological developmental and degenerative disease therapeutics. In the fourth quarter
of 2022, the Company sold substantially all of the operations of vivoPharm in two separate transactions. To complete the disposition
of the Company’s former vivoPharm business and to resolve certain issues that had arisen with the Buyer, on March 13, 2023,
the Company sold vivoPharm to the Buyer for a nominal sum. As part of the sale of vivoPharm to Buyer, the Company provided
that vivoPharm had cash of at least $200 thousand and the Company assumed certain specific vivoPharm liabilities, principally
liabilities directly associated with the proposed Phase 2 Donepezil clinical trial in Australia (which the Company placed on hold as
it evaluated its strategic alternatives) and certain vivoPharm tax liabilities through the transaction’s closing. The transaction
was consummated effective March 13, 2023.
We
have incurred substantial operating losses and have used cash in our operating activities since inception. On January 4, 2023, the Company
announced that it had engaged LifeSci Capital as its financial advisor to assist in exploring a range of strategic alternatives focused
on enhancing shareholder value. There can be no assurance that this review process will result in any changes to the Company’s
current business plans or lead to any specific action or transaction. On January 31, 2023 the Company’s Board of Directors, approved
a plan to preserve the Company’s cash to be able to continue to pursue a satisfactory strategic alternative for the purpose of
maximizing the value of the Company’s business while also having sufficient cash to adequately fund an orderly wind down of the
Company’s operations (the “Cash Preservation Plan”) in the event it is unable to secure a satisfactory strategic alternative.
On April 24, 2023 the Company’s Board of Directors determined it was appropriate to voluntarily delist its securities from The
Nasdaq Capital Market. See further discussion regarding our liquidity and capital resources below.
Cancer
Genetics, Inc. Merger
On
March 30, 2021, Vyant Bio, 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 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 2,201,437 shares of Common Stock
or $50.74 million, 431,537 Common Stock warrants or $9.04 million and 11,181 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 160,942 incremental shares in accordance with the conversion ratio set forth in the Merger Agreement. As the Merger was
consummated at the close of business on March 30, 2021, the Company’s consolidated statement of operations for the year ended December
31, 2021 includes nine months and one day of operations associated with the historical CGI business.
Revenue
from Continuing Operations
The
Company’s primary revenue sources are microOrgan plate product sales and the performance of preclinical drug testing services using
our microOrgan technology, referred to as Discovery as a Service, or DaaS. In December 2021, the Company announced its plan to focus
its resources on internal drug discovery development programs and wind down substantially all customer revenue generation. The Company
expects nominal sales in 2023. For the three months ended March 31, 2023 and 2022, 66% and 33%, respectively, of revenue from continuing
operations in each period was generated from customers located outside of the United States. During the three months ended March 31,
2023 and 2022, two customers accounted for approximately 94% and four customers accounted for approximately 76%, respectively, of the
consolidated revenue from continuing operations. For the years ended December 31, 2022 and 2021, 47% and 21% of revenue, respectively,
was generated from customers located outside of the United States. During the years ended December 31, 2022 and 2021, four and three
customers accounted for approximately 77% and 47%, respectively, of the consolidated revenue from continuing operations.
Cost
of Goods Sold from Continuing Operations
The
Company separately reports cost of goods sold for product sales and service revenue. Product revenue costs include labor and product
costs such as labware, plates and reagents required to develop iPSC’s into microOrgans as well as overhead, facility and equipment
costs at the Company’s Maple Grove, Minnesota facility. As the facility was designed to accommodate the Company’s long-term
growth, it has historically operated at less than 25% of capacity. The Company converted the Maple Grove facility to a research and development
facility in the first half of 2022 to focus its resources on internal drug discovery development programs. Cost of goods sold for service
revenue includes internal labor, materials and allocated overhead costs to perform services for DaaS projects.
Operating
Expenses from Continuing Operations
The
Company classifies its operating expenses into three categories: research and development, selling, general and administrative as well
as merger related costs. Operating expenses principally consist of personnel costs including non-cash stock-based compensation, outside
services, laboratory consumables, rent, overhead, development costs, and marketing program costs, legal and accounting fees.
Research
and Development Expenses. Research and development expenses reflect the personnel related expenses, overhead and lab consumable costs
to develop its microOrgan technology at its San Diego, California facility as well as development activities undertaken at the Maple
Grove, Minnesota facility. The Company closed its San Diego facility in the first quarter of 2023.
Selling,
General and Administrative Expenses. Selling, general and administrative expenses consist principally of personnel-related expenses,
professional fees, such as legal, accounting, occupancy costs and other general expenses as well as personnel and related overhead costs
for its business development team and related support personnel, travel and entertainment expenses, other selling costs, and trade shows.
Merger
Related Costs. Merger related costs are direct professional service and investor banker costs incurred by the Company in connection
with the Merger.
Results
of Operations
Three
Months Ended March 31, 2023 and 2022
The
following table sets forth certain information concerning the Company’s results from continuing operations for the periods shown
(in thousands):
| | |
Three months ended
March 31, | | |
Dollar | | |
Percentage | |
| | |
2023 | | |
2022 | | |
Change | | |
Change | |
| Revenue: | |
| | |
| | |
| | |
| |
| Service | |
$ | - | | |
$ | 94 | | |
$ | (94 | ) | |
| (100 | )% |
| Product | |
| 80 | | |
| 209 | | |
| (129 | ) | |
| (62 | ) |
| Total revenue | |
| 80 | | |
| 303 | | |
| (223 | ) | |
| (74 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
| Cost of goods sold – service | |
| - | | |
| 38 | | |
| (38 | ) | |
| (100 | ) |
| Cost of goods sold – product | |
| 142 | | |
| 348 | | |
| (206 | ) | |
| (60 | ) |
| Research and development | |
| 1,318 | | |
| 1,551 | | |
| (233 | ) | |
| (15 | ) |
| Selling, general and administrative | |
| 3,018 | | |
| 2,763 | | |
| 255 | | |
| 9 | |
| Total operating costs and expenses | |
| 4,478 | | |
| 4,700 | | |
| (422 | ) | |
| (13 | ) |
| Loss from operations | |
| (4,398 | ) | |
| (4,397 | ) | |
| 1 | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| Interest income (expense), net | |
| 70 | | |
| (9 | ) | |
| 79 | | |
| 878 | |
| Total other (expense) income | |
| 70 | | |
| (9 | ) | |
| 79 | | |
| 878 | |
| Loss from continuing operations before income taxes | |
| (4,328 | ) | |
| (4,406 | ) | |
| 78 | | |
| 2 | |
| Income tax expense (benefit) | |
| - | | |
| - | | |
| - | | |
| | |
| Net loss from continuing operations | |
$ | (4,328 | ) | |
$ | (4,406 | ) | |
$ | 78 | | |
| 2 | % |
Operating
results: Comparison for the three months ended March 31, 2023 and 2022
Revenue
from Continuing Operations
Total
revenue decreased 74%, or $223 thousand, to $80 thousand for the three months ended March 31, 2023, as compared with $303 thousand for
the three months ended March 31, 2022. We realized a decrease in product revenue of 62% or $129 thousand in 2023 due to decreased sales
volume as compared with 2022. There was no service revenue in the first quarter of 2023.
Cost
of Goods Sold from Continuing Operations
Cost
of goods sold – service aggregated $38 thousand for the three months ended March 31, 2022, resulting in a cost of goods sold of
40% of service revenue. There were no service revenue or related costs of goods - service in the first quarter of 2023.
Cost
of goods sold – product aggregated $142 thousand and $348 thousand for the three months ended March 31, 2023 and 2022, respectively,
resulting in a cost of goods sold gross margin deficit of $62 thousand and $139 thousand. The decrease in cost of sales resulted from
a decrease in production in the 2023 period.
Operating
Expenses from Continuing Operations
Research
and development expenses decreased by 15%, or $233 thousand, to $1.3 million for the three months ended March 31, 2023 from $1.6 million
for the three months ended March 31, 2022. This decrease is principally due reductions in personnel and research and development activities
related to the Company’s Cash Preservation Plan offset by severance expense of $360 thousand in the current-year quarter and an
asset impairment charge of $170 thousand.
Selling,
general and administrative expenses increased by 9%, or $255 thousand, to $3.0 million for the three months ended March 31, 2023, as
compared with $2.8 million for the three months ended March 31, 2022. The increase in current-year expense was the result of an increase
of severance expense of $428 thousand as compared with the prior-year quarter which was partially offset by lower head count and consulting
expenses.
Other
Expenses, net from Continuing Operations
Total
other income, net was not significant for the quarters ended March 31, 2023 and 2022.
Discontinuing
Operations
During
the fourth quarter of 2022, the Company sold its vivoPharm operating companies and in March 2023, sold the vivoPharm PTY
LTD (“PTY”), the holding company of the former operating companies. Therefore, there was no significant activity in the first
quarter of 2023 other than administrative and costs to sell PTY. The Company incurred a loss of $152 thousand in the first quarter of
2023 related to the sale of PTY. In the quarter ended March 31, 2022, the vivoPharm business generated $1.4 million in revenue
and incurred a $4.8 million net loss. This net loss includes a goodwill impairment charge of $2.2 million, an impairment charge of $2.1
million for intangible assets arising from the merger, $168 thousand of professional service costs related to accounting for the vivoPharm
business and a $298 thousand operating loss. The impairment loss of $4.3 million during the quarter ended March 31, 2022 was the result
of changes in market valuations for contract research organizations from December 31, 2021 to March 31, 2022 which impact the Company’s
valuation of the vivoPharm business which is accounted for as a held for sale asset since the fourth quarter of 2021. Factors
such as funding for biotech and pharma companies, higher interest rates and inflation as well as the Ukraine War have all impacted public
company stock valuations in 2022 which may result in additional adjustments to the carrying value of the vivoPharm business.
Years
Ended December 31, 2022 and 2021
The
following table sets forth certain information concerning the Company’s results from continuing operations for the periods shown
(in thousands):
| | |
For the year ended December 31, | | |
Change | |
| | |
2022 | | |
2021 | | |
$ | | |
% | |
| | |
| | |
| | |
| | |
| |
| Revenue: | |
| | | |
| | | |
| | | |
| | |
| Service | |
$ | 99 | | |
$ | 665 | | |
$ | (566 | ) | |
| (85 | )% |
| Product | |
| 567 | | |
| 483 | | |
| 84 | | |
| 17 | % |
| Total revenue | |
| 666 | | |
| 1,148 | | |
| (482 | ) | |
| (42 | )% |
| Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
| Cost of goods sold - service | |
| 44 | | |
| 408 | | |
| (364 | ) | |
| (89 | )% |
| Cost of goods sold - product | |
| 964 | | |
| 1,439 | | |
| (475 | ) | |
| (33 | )% |
| Research and development | |
| 6,772 | | |
| 4,273 | | |
| 2,499 | | |
| 58 | % |
| Selling, general and administrative | |
| 8,798 | | |
| 8,424 | | |
| 374 | | |
| 4 | % |
| Merger related costs | |
| - | | |
| 2,310 | | |
| (2,310 | ) | |
| (100 | )% |
| Total operating costs and expenses | |
| 16,578 | | |
| 16,854 | | |
| (276 | ) | |
| (2 | )% |
| Loss from operations | |
| (15,912 | ) | |
| (15,706 | ) | |
| (206 | ) | |
| 1 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Other expense: | |
| | | |
| | | |
| | | |
| | |
| Change in fair value of warrant liability | |
| - | | |
| 214 | | |
| (214 | ) | |
| (100 | )% |
| Change in fair value of share settlement obligation derivative | |
| - | | |
| (250 | ) | |
| 250 | | |
| (100 | )% |
| Loss on debt conversions | |
| - | | |
| (2,518 | | |
| 2,518 | | |
| (100 | )% |
| Other income, net | |
| 12 | | |
| 57 | | |
| (45 | ) | |
| (79 | )% |
| Interest income (expense), net | |
| 93 | | |
| (372 | ) | |
| 465 | | |
| (125 | )% |
| Total other income (expense), net | |
| 105 | | |
| (2,869 | ) | |
| 2,974 | | |
| (104 | )% |
| Loss from continuing operations before income taxes | |
| (15,807 | ) | |
| (18,575 | ) | |
| 2,768 | | |
| (15 | )% |
| Income tax expense (benefit) | |
| - | | |
| - | | |
| - | | |
| - | |
| Net loss from continuing operations | |
$ | (15,807 | ) | |
$ | (18,575 | ) | |
$ | 2,768 | | |
| (15 | )% |
Revenue
from Continuing Operations
Total
revenue from continuing operations decreased 42%, or $482 thousand, to $666 thousand for the year ended December 31, 2022, from $1.1
million for the year ended December 31, 2021. The decrease in the current-year periods were the result of our planned decrease in revenue
generating activities at our Maple Grove facility as we transitioned its operations to an internal research and development facility
in 2022. Product revenue increased in 2022 as compared with 2021, primarily from increased shipping volumes and increased pricing.
Cost
of Goods from Continuing Operations
Cost
of goods sold - service aggregated $44 thousand and $408 thousand, respectively, for the years ended December 31, 2022 and 2021, resulting
in a cost of goods sold of 44.4% and 61.4%, respectively, of service revenue. The 2022 period was favorably impacted by a higher margin
project and the 2021 period was negatively impacted by incremental costs incurred to achieve contract deliverables.
Cost
of goods sold - product aggregated $964 thousand and $1.4 million for the years ended December 31, 2022 and 2021, respectively, resulting
in a gross margin deficit of $397 thousand and $956 thousand, respectively, resulting from StemoniX’s excess manufacturing capacity
at its Maple Grove facility. The decrease in cost of goods sold margin deficit in 2022 as compared with 2021 was the result of increased
revenue, a decrease in scrap materials and our focus on transforming our Maple Grove location to a research and development facility
in 2022.
Operating
Expenses from Continuing Operations
Research
and Development Expenses. Research and development expenses from continuing operations increased 58%, or $2.5 million, to $6.8 million
for the year ended December 31, 2022, from $4.3 million for the year ended December 31, 2021. This increase is primarily due to transforming
our Maple Grove location to a research and development facility in 2022 which included a $1.2 million increase in payroll-related expenses,
$553 thousand increase in research and development activities, $448 thousand reserve for manufacturing inventory repurposed as research
and development expense and $223 thousand related to moving to a new facility in California in order to reduce the annual lease expense
in that location.
Selling,
General and Administrative Expenses. Selling, general and administrative expenses from continuing operations increased 4%, or $374
thousand, to $8.8 million for the year ended December 31, 2022, from $8.4 million for the year ended December 31, 2021. The 2021 period
reflects the Company as a privately held company during the first quarter whereas the 2022 period reflects the Company as a publicly
held company. The decrease is primarily due to transforming our Maple Grove location to a research and development facility in 2022 which
included a $1.2 million increase in payroll-related expenses, offset by a $793 thousand increase in employee compensation. The 2022 period
also includes one-time severance benefits for two former employees of $437 thousand. The Company incurred $467 thousand of additional
insurance expense in 2022 as compared with 2021 largely due to public-company related insurance premiums.
Merger
Related Costs. Merger related costs for the year ended December 31, 2021 were $2.3 million. There were no merger related costs for
the year ended December 31, 2022.
Change
in Fair Value of Warrant Liability
The
Company issued a warrant with multiple settlement terms in the first quarter of 2021 and as a result, this warrant was classified as
liability. Upon the close of the Merger, the warrant’s settlement terms were finalized resulting in a final mark-to-market adjustment
resulting in a non-cash gain of $214 thousand during the year ended December 31, 2021.
Change
in Fair Value of Share Settlement Obligation Derivative
The
Company recorded $250 thousand mark-to-market losses during the year ended December 31, 2021 for an embedded compound derivative from
the 2020 Convertible Notes. Upon the close of the Merger the 2020 Convertible Notes were converted to equity.
Loss
on Debt Conversion
The
year ended December 31, 2021 included a $2.5 million loss on the conversion of the 2020 Convertible Notes to equity upon the closing
of the Merger.
Interest
Expense, Net
Net
interest expense from continuing operations decreased by $465 thousand, or 125%, to $93 thousand interest income during the year ended
December 31, 2022, from $372 thousand interest expense during the year ended December 31, 2021. Total other expense in 2021 consisted
of a $250 thousand mark-to-market loss for an embedded compound derivative from the 2020 Convertible Notes, $2.5 million loss on the
conversion of these notes to equity upon the closing of the Merger, a $214 thousand mark to market warrant liability gain, and interest
expense of $368 thousand primarily related to the 2020 Convertible Notes.
Discontinuing
Operations
In
connection with the Merger, the Company was deemed to be the accounting acquiror of CGI, which included the vivoPharm business
on March 30, 2021. Therefore, upon classification as discontinuing operations in the fourth quarter of 2021, the vivoPharm business
is reflected in discontinued operations for nine months and one day in the year ended December 31, 2021 (the “Merger Impact”).
The
vivoPharm business generated $6.4 million in revenue for 2022, an increase of $2.4 million, or 60% from $4.0 million in 2021 due
to the Merger Impact and increased revenue from two customer contracts.
The
vivoPharm business incurred a $6.9 million net loss in 2022, a decrease of $15.4 million, or 69% from a $22.3 million net loss
in 2021. The 2022 net loss includes an operating loss of $1.4 million, an impairment charge for goodwill and intangible assets of $5.4
million, which was the result of changes in market valuations for contract research organizations during 2022 which impacted the Company’s
valuation of the vivoPharm business and a $106 thousand loss on the sale of the vivoPharm businesses during the fourth
quarter of 2022. The 2021 net loss includes an operating loss of $1.25 million and a goodwill impairment charge of $20.2 million.
Substantially
all of vivoPharm operations were sold in the fourth quarter of 2022.
Liquidity
and Capital Resources
The
Company has financed its operations through CGI cash balances on hand on the Merger date, product and services revenue, the sale of the
vivoPharm business and the sale of Common Stock under its at-the-market financing vehicle. Prior to the Merger, the Company’s
operating activities have been primarily funded with proceeds from the sale of convertible notes and preferred stock securities.
The
Company’s Board of Directors (the “Board”), after an assessment of the status of the Company’s efforts to seek
strategic alternatives and the Company’s then current cash position, approved a plan on January 31, 2023 to preserve the Company’s
cash to be able to continue to pursue a satisfactory strategic alternative for the purpose of maximizing the value of the Company’s
business while also having sufficient cash to adequately fund an orderly wind down of the Company’s operations (the “Cash
Preservation Plan”) in the event it is unable to secure a satisfactory strategic alternative. As part of the Cash Preservation
Plan, the Company implemented a reduction in force, resulting in the retention of a core group of employees required for one or more
potential strategic transactions and/or to execute an orderly wind down of the Company if required. The Company estimates that it will
incur approximately $1.4 million for retention, severance and other employee termination-related costs in the first and second quarters
of 2023. The Company has put on hold its pending efforts with respect to its current preclinical and clinical programs.
The
Company has suffered recurring losses and negative cash flows from operations since inception, has an accumulated deficit, and is expected
to generate minimal revenue from continuing operations as we have substantially ceased the Maple Grove facility’s revenue producing
operations to support internal drug discovery programs. The Company is projecting insufficient liquidity to meet its obligations as they
become due over the next twelve months. The Company had cash and cash equivalents of $4.9 million as of March 31, 2023, an accumulated
deficit of $106.0 million, cash outflows from continuing operations of $5.1 million for the three-months ended March 31, 2023 and $12.8
million for the year then ended December 31, 2022, as well as a net loss from continuing operations of $4.3 million for the three months
ended March 31, 2023 and $15.8 million for the year ended December 31, 2022. These conditions and events raise substantial doubt about
the Company’s ability to continue as a going concern.
The
Company’s forecast of the period of time through which its current financial resources will be adequate to support its operations
and its expected operating expenses are forward-looking statements and involve risks and uncertainties.
In
2023, the Company has undertaken the following actions:
| |
● |
On
January 4, 2023, the Company announced that it had engaged LifeSci Capital as its financial advisor to assist in exploring a range
of strategic alternatives focused on enhancing shareholder value. There can be no assurance that this review process will result
in any changes to the Company’s current business plans or lead to any specific action or transaction. |
| |
|
|
| |
● |
The
Company’s Board of Directors (the “Board”) approved a plan on January 31, 2023 to preserve the Company’s
cash to be able to continue to pursue a satisfactory strategic alternative for the purpose of maximizing the value of the Company’s
business while also having sufficient cash to adequately fund an orderly wind down of the Company’s operations (the “Cash
Preservation Plan”) in the event it is unable to secure a satisfactory strategic alternative. As part of the Cash Preservation
Plan, the Company implemented a reduction in force which included the Company’s former President and Chief Executive Officer,
and Chief Scientific Officer. |
| |
|
|
| |
● |
On
March 7, 2023, the Company sold its equipment in its San Diego laboratory to a third party in exchange of $200,000 in consideration. |
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● |
On
March 9, 2023, the Company terminated its January 2022, San Diego office and laboratory lease agreement. The effective date of the
termination is March 31, 2023. The landlord retained approximately $45 thousand as an early termination fee. This lease termination
resulted in a $1.2 million reduction in future operating lease payments. |
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|
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● |
On
March 24, 2023 the Company terminated its (a) Equity Distribution Agreement, dated April 8, 2022, by and between the Company and
Canaccord Genuity LLC, regarding the issue and sale, from time to time, of shares of the Company’s Common Stock for an aggregate
offering price of up to $20,000,000, and (b) Purchase Agreement, dated March 28, 2022, by and between the Company and Lincoln Park
Capital Fund, LLC, regarding the issue and sale, from time to time, of shares of the Company’s Common Stock for an aggregate
offering price of up to $15,000,000. |
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|
|
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● |
On
March 24, 2023, the Company filed post-effective amendments to certain of its registration statements previously filed with the SEC,
including post-effective amendments to each of: (i) Registration Statement Nos. 333-249513, 333-252628, 333-239497, and 333-218229
on Form S-3; (ii) Registration Statement Nos. 333-191520, 333-191521, 333-196198, 333-205903, 333-256225 and 333-214599 on Form S-8;
and (ii) Registration Statement No. 333-215284 and 333-264595 on Form S-1 (such post-effective amendments, collectively the “Post-Effective
Amendments” and such registration statements, collectively the “Registration Statements”). In accordance with undertakings
made by the Company in each of the Registration Statements to remove from registration, by means of a post-effective amendment, any
and all securities of the Company that were registered for issuance that remain unsold at the termination of the offerings, the Company
removed from registration any and all securities of the Company registered but unsold under each of the Registration Statements.
As a result of this deregistration, no securities remain registered for sale pursuant to the Registration Statements. |
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|
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● |
On
April 24, 2023 the Company’s Board of Directors determined it was appropriate to voluntarily delist its securities from The
Nasdaq Capital Market (“Nasdaq”). On May 4, the Company filed a Form 25 with the Securities and Exchange Commission (the
“SEC”), and the delisting became effective on May 15, 2023. Following the delisting of the Company’s securities
from Nasdaq, the Company filed a Form 15 with the SEC to suspend its reporting obligations under the Securities Exchange Act of 1934,
as amended. The Company expects that the deregistration of such securities will become effective 90 days after the filing of the
Form 25 with the SEC. The documents filed with the SEC will be available on the Company’s website. The Board made the decision
to pursue this strategy following its review and careful consideration of a number of factors, including, but not limited to, the
expected reduction in operating expenses by eliminating SEC reporting costs, which would allow the Company to focus more resources
on its continued pursuit and exploration of satisfactory strategic alternative transactions and/or execution of an orderly wind down
of the Company, if necessary. The Board determined that deregistration is in the overall best interests of the Company and its stockholders.
Following delisting of the Company’s Common Stock from Nasdaq, the Common Stock has been quoted on the Pink Open Market operated
by OTC Markets Group Inc. (the “OTC”) under the symbol “VYNT” starting on May 15, 2023. The Company intends
to continue to provide information to its stockholders and to take other actions within its control to enable its Common Stock to
be quoted on the OTC Pink Open Market in the Pink Current Information market tier. There is no guarantee, however, that a broker
will continue to make a market in the Common Stock and that trading of the Common Stock will continue on an OTC market or otherwise.
Going forward, Vyant Bio may, from time to time, when it deems appropriate, provide limited information regarding its financial status
and business activities, or issue press releases for select events or developments. |
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|
|
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● |
On
May 9, 2023, the Company and the Andrew D. C. LaFrence, the Company’s President, Chief Executive Officer and Chief Financial
Officer, entered into a Consulting Agreement providing that effective as of June 1, 2023 (or such later date as may be agreement
to by the Company and Mr. LaFrence), Mr. LaFrence would continue to serve as the Company’s President, Chief Executive Officer
and Chief Financial Officer as a part time consultant rather than a full time employee. His employment agreement, which is filed
as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, would be deemed terminated
as of that date by the Company without cause for purposes of determining severance thereunder. The Consulting Agreement is a further
step in the Company’s efforts to conserve cash consistent with its Cash Preservation Plan. |
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|
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● |
On
May 11, 2023 pursuant to the Company’s Cash Preservation Plan, the Company returned one piece of equipment to its leasing Company
for the final lease payment of $181 thousand. |
As
a result of the above activities, the Company accrued $1.2 million of severance expense in the first quarter of 2023 of which $0.9 million
was paid as of March 31, 2023. Substantially all of the remaining severance accrual is expected to be paid in the second quarter of 2023.
As of May 22, 2023 the Company has 5 fulltime employees, including Mr. LaFrence.
In
response to these conditions and based on our current operating plan, the Company plans to further reduce expenses, slow cash flows,
and evaluate strategic partners to acquire our assets, including our public company as a reverse merger candidate. There are no assurances
that we will be able to raise cash in these transactions or find a reverse merger candidate and we may therefore need to complete an
orderly winddown of the Company’s operations or, if sufficient funds are not available, bankruptcy. These plans have not yet been
finalized and are not within the Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded
that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The
Company expects to continue to incur operating losses in the future, unless and until the Company’s drug discovery efforts or other
revenue from collaborators are able to demonstrate a level of success that would lead to licensing potential. In addition, the Company
will continue to incur the costs of being public, including legal and audit fees and director’s and officer’s liability insurance.
These losses have had, and will continue to have, an adverse effect on the Company’s working capital, total assets and stockholders’
equity. Because of the numerous risks and uncertainties associated with drug discovery and development efforts and costs associated with
being a public company, the Company is unable to predict when it will become profitable, and it may never become profitable. Even if
the Company does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. The Company’s
inability to achieve and then maintain profitability would negatively affect its business, financial condition, results of operations
and cash flows.
The
Company’s forecast of the period of time through which its current financial resources will be adequate to support its operations
and its expected operating expenses are forward-looking statements and involve risks and uncertainties. Actual results could vary materially
and negatively as a result of a number of factors, including:
| ● |
the
Company’s ability to consummate any strategic transaction, whether by acquisition, sale of any part of its business, or otherwise,
and effectively operate its business during any such transaction process; |
| ● |
The
time needed to consummate a strategic transaction if a counterparty is found; |
| ● |
the
Company’s ability to execute on its current business plans while exploring strategic alternatives; |
| ● |
the
Company’s need for significant additional capital and the Company’s ability to satisfy its capital needs; |
| ● |
the
Company’s 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 adapt its business for future developments in light of the global outbreak of COVID-19, which continues
to rapidly evolve; |
| ● |
the
Company’s dependency on the intellectual property licensed to the Company or possessed by third parties; and |
| ● |
the
Company’s ability to retain key talent. |
Cash
Flows from Continuing Operations
Net
cash flow from operating, investing and financing activities from continuing operations for the periods below were as follows (in thousands):
| | |
Three months ended March 31, | |
| | |
2023 | | |
2022 | |
| Net cash used in operating activities | |
$ | (5,074 | ) | |
$ | (3,511 | ) |
| Net cash provided by (used in) investing activities | |
| 190 | | |
| (30 | ) |
| Net cash (used in) provided by financing activities | |
| 369 | | |
| (131 | ) |
| Net (decrease) increase in cash and cash equivalents from continuing operations | |
$ | (4,515 | ) | |
$ | (3,672 | ) |
The
Company had cash and cash equivalents of $4.9 million as of March 31, 2023.
Cash
Used in Operating Activities
Net
cash used in operating activities from continuing operations was $5.1 million for the quarter ending March 31, 2023, consisting of a
net loss of $4.3 million, decreased for net non-cash adjustments of $710 thousand and increased for cash used in operating assets and
liabilities items of $1.5 million primarily related to payments of accrued expenses, an $837 thousand increase in prepaid expense related
to an $1.3 million insurance renewal payment prior to quarter end and a $133 thousand increase in accounts receivable primarily from
research and development tax credit rebates. As of March 31, 2023 the Company has approximately $0.5 million of severance and employee
benefits accruals that are expected to be paid in 2023 as well as $0.4 million of accrued insurance premiums that were paid in April
2023. Net cash used in operating activities from continuing operations was $3.5 million for the quarter ending March 31, 2022 consisting
of a net loss of $4.4 million, decreased for net non-cash adjustments of $518 thousand and additional cash provided by operating assets
and liabilities items of $377 thousand.
Cash
Used in Investing Activities
Net
cash provided by investing activities from continuing operations was $190 thousand for the quarter ended March 31, 2023, primarily related
to the sale of equipment at the Company’s former San Diego facility. Net cash used in investing activities from continuing operations
was $30 thousand for the quarter ended March 31, 2022, related to investments in equipment.
Cash
Used in Financing Activities
Net
cash provided by financing activities from continuing operations for the quarter ended March 31, 2023 was $369 thousand, primarily related
to issuance of common shares pursuant to the At The Market Financing. Net cash used in financing activities for the quarter ended March
31, 2022 from continuing operations was $131 thousand, primarily related to issuance costs related to the Lincoln Park Capital Fund LLC
agreement.
Cash
Flows from Discontinuing Operations
During
the fourth quarter of 2022, the Company sold its vivoPharm operating companies and in March 2023, sold vivoPharm PTY LTD
(“PTY”), the holding company of the former operating companies. During the first quarter of 2023, the Company used $535 thousand
of cash in operating activities of discontinuing operations. This cash usage consistent of $152 thousand net loss and reductions in accounts
payable and accruals related to vivoPharm sale transactions costs and payment of contractual severance obligations to former vivoPharm
employees which were accrued as of December 31, 2022. During the first quarter of 2023, $132 thousand of cash was used in discontinuing
operations investing activities related to the finalization of all of the vivoPharm sale transactions.
Years
Ended December 31, 2022 and 2021
The
Company’s net cash flow from operating, investing and financing activities from continuing operations for the periods below were
as follows (in thousands):
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Cash (used in) provided by continuing operations: | |
| | | |
| | |
| Operating activities | |
$ | (12,888 | ) | |
$ | (16,488 | ) |
| Investing activities | |
| (617 | ) | |
| 29,678 | |
| Financing activities | |
| (113 | ) | |
| 7,222 | |
| Net (decrease) increase in cash and cash equivalents from continuing operations | |
$ | (13,618 | ) | |
$ | 20,412 | |
The
Company had cash and cash equivalents of $10.0 million and $20.6 million as of December 31, 2022 and 2021, respectively.
Cash
Used in Operating Activities from Continuing Operations
Net
cash used in operating activities from continuing operations was $12.9 million for the year ended December 31, 2022, consisting of a
net loss of $15.8 million, decreased for net non-cash adjustments of $2.0 million and additional cash provided by operating assets and
liabilities items of $891 thousand, largely from a reduction of inventory of $422 thousand as we transitioned the Maple Grove location
to a research and development facility as well as an increase in accrued compensation and employee benefits.
Net
cash used in operating activities from continuing operations was $16.5 million for the year ended December 31, 2021, consisting of a
net loss from continuing operations of $18.6 million, decreased for net non-cash adjustments of $4.8 million. The non-cash adjustments
include (i) stock-based compensation of $1.0 million, (ii) depreciation and amortization expense of $1.1 million, and (iii) a net loss
related to the pre-merger StemoniX capital structure and related debt conversions of $2.7 million. Operating assets and liabilities used
net cash of $2.7 million including Merger related costs in 2021. The net loss for the year ended December 31, 2021, also includes $2.3
million of Merger related costs.
Cash
Provided by Investing Activities from Continuing Operations
Net
cash used in investing activities from continuing operations was $617 thousand for the year ended December 31, 2022, related to investments
in equipment and our new leased facility in California.
Net
cash provided by investing activities from continuing operations was $29.7 million for the year ended December 31, 2021, principally
from CGI cash balances at the close of the Merger of $30.2 million, offset by $535 thousand of equipment purchases.
Cash
Provided by Financing Activities from Continuing Operations
Net
cash used in financing activities from continuing operations was $113 thousand for the year ended December 31, 2022, primarily related
to issuance costs related to the Lincoln Park Capital Fund LLC agreement partially offset by a new financing lease entered into in the
third quarter.
Net
cash provided by financing activities from continuing operations was $7.2 million for the year ended December 31, 2021 due to $5.0 million
from the issuance of 2020 Convertible Notes and $1.8 million from the issuance of Series Preferred C shares.
Tax
Contingency
In
August 2022, in connection with efforts to sell its vivoPharm subsidiary, the Company determined that certain historical vivoPharm
tax returns either had not been filed or were incorrectly filed with the U.S. Internal Revenue Service (“IRS”). As a result
of this finding, the Company determined that it is more-likely-than not that the tax exposure is not significant to the consolidated
financial statements taken as a whole. This conclusion is based on the specific facts related to this matter and how we believe the IRS
will treat these facts. Corrective tax returns were filed with the IRS in September 2022. In the event the IRS does not accept our position,
the Company’s tax liability could aggregate up to $2.8 million plus interest and penalties.
Income
Taxes
Over
the past several years the Company has generated operating losses in all jurisdictions in which it may be subject to income taxes. As
a result, the Company has accumulated significant net operating losses and other deferred tax assets. Because of the Company’s
history of losses and the uncertainty as to the realization of those deferred tax assets, a full valuation allowance has been recognized.
The Company does not expect to report a benefit related to the deferred tax assets until it has a history of earnings, if ever, that
would support the realization of its deferred tax assets.
Critical
Accounting Policies and Significant Judgment and Estimates
The
Company’s management’s discussion and analysis of financial condition and results of operations is based on its financial
statements and condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of
the financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates
based on historical experience and makes various assumptions, which management believes to be reasonable under the circumstances, and
which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
While
our significant accounting policies are described in more detail in Note 4 to our December 31, 2022 and 2021 consolidated financial statements
appearing elsewhere herein, we believe that the following accounting policies are those most critical to the judgments and estimates
used in the preparation of our financial statements.
Revenue
recognition. Prior to the Merger, the Company’s primary sources of revenue were 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
revenue includes vivoPharm’s discovery services, consisting primarily of contract research services focused primarily on
unique specialized studies to guide drug discovery. As noted herein, the vivoPharm business has been classified as discontinuing
operations as of December 31, 2021 and revenue earned from that business are included therein.
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.
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’s 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 Vyant Bio’s customers for which the associated performance obligations have not been satisfied
and revenue has not been recognized based on Vyant Bio’s revenue recognition criteria described above.
Given
the Company’s exit from selling products and services, which was substantially completed in 2022, the Company no longer considers
revenue recognition as a critical accounting policy as of December 31, 2022.
Derivative
Instruments. Prior to the closing of the Merger on March 30, 2021 the Company had a number of the financial instruments that were
classified as derivatives. Upon the closing of the Merger, these instruments were converted to Company Common Stock at which time final
mark-to-market adjustments were recorded by the Company.
The
Company recognized all derivative instruments as either assets or liabilities in the consolidated balance sheets at their respective
fair values. The Company evaluated its debt and equity issuances to determine if those contracts or embedded components of those contracts
qualify as derivatives requiring separate recognition in its financial statements. The result of this accounting treatment is that the
fair value of embedded derivatives was 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 was 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 were 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, was 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 balance sheet date.
The
2020 Convertible Notes contained a share settled redemption feature that required conversion to equity 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 changed based
on the passage of time between issuance of the convertible note and the conversion event. This feature was considered a derivative that
required bifurcation because it provide a specified premium to the holder of the note upon conversion. We measured the share-settlement
derivative obligation at fair value based on significant inputs that are not observable in the market and require significant judgement.
This instrument was settled upon the closing of the Merger.
The
Company issued a warrant during the first quarter of 2021 that contained an indexation feature not indexed to the Company’s stock
resulting in this warrant to be accounted for as a derivative. As a result, this warrant was accounted for as a liability and marked
to market from its issuance date in February 2021 through the Merger date, at which time the warrant’s indexation features were
finalized. The Company no longer deemed derivative instruments as a critical accounting policy as of December 31, 2022.
Business
Combinations. Accounting for acquisitions requires extensive use of estimates and judgment to measure the fair value of the identifiable
tangible and intangible assets acquired and liabilities assumed. Additionally, we must determine whether an acquired entity is considered
a business or a set of net assets because the excess of the purchase price over the fair value of net assets acquired can only be recognized
as goodwill in a business combination. We accounted for the Merger with CGI as a business combination under the acquisition method of
accounting. Consideration transferred to acquire CGI was measured at fair value. The determination of the $59.9 million purchase price
consideration for the Merger was based on the closing stock price of the CGI common stock on the Merger date as well as the fair value
of CGI common stock warrants and options outstanding on the Merger date using the Black Scholes Merton option pricing model. We allocated
the purchase price to the acquired tangible and intangible assets and assumed liabilities of CGI based on their estimated fair values
as of the acquisition date. Significant judgement is required to value and allocate the purchase price, especially for identified intangible
assets. The allocation of the purchase price resulted in recognition of intangible assets related to tradename, customer relationships
aggregating to $9.5 million and goodwill of $22.4 million. Given the completion of purchase accounting adjustments in Q1 2022 and there
being no business combinations in 2022, the Company no longer deems business combinations to be a critical accounting policy as of December
31, 2022.
Valuation
of Goodwill and Intangible Assets. 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. The Company did
not record Goodwill prior to the March 30, 2021 Merger. As a result of the Merger, the Company recorded $22.4 million of goodwill attributed
to the vivoPharm business.
As
a described in Note 3 to the Company’s consolidated financial statements, in the fourth quarter of 2021, the Company classified
the vivoPharm business as discontinuing operations and applied held for sale accounting. The Company valued the vivoPharm
business as of December 31, 2021 equally weighting public company revenue multiples as of December 31, 2021 and comparable transaction
revenue multiples, which are classified as Level 3 measurements within the fair value hierarchy. The Company updated the valuation of
the vivoPharm business during the quarter ending March 31, 2022 based on equally weighting public company revenue multiples and
comparable transaction revenue multiples, which resulted in a $4.5 million decrease to the fair value of vivoPharm in the first
quarter of 2022. The Company recognized an impairment charge of $4.3 million during the quarter ended March 31, 2022, which decreased
vivoPharm’s net carrying value, net of estimated disposal costs from $9.2 million as of December 31, 2021 to $4.9 million.
During the second quarter of 2022, the Company received two offers for mutually exclusive components of the vivoPharm business
and assessed the carrying value of each asset group using the estimated net sales proceeds based on these offers. As a result, the Company
recorded a net impairment charge of $1.5 million during the second quarter of 2022. The Company recorded an impairment recovery of $388
thousand during the third quarter of 2022 based upon September 30, 2022 vivoPharm net assets. The valuation of goodwill and intangible
assets is no longer a critical accounting policy as of December 31, 2022.
Valuation
of Long-Lived Assets. Long-lived assets, such as fixed assets subject to depreciation and right-of-use assets subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be
recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that asset group to its carrying amount. If the carrying amount of the long-lived 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 December 31, 2022 and 2021 the Company determined that there were no indicators of impairment and did not recognize
any fixed asset impairment in continuing operations.
Qualitative
and Quantitative Disclosures about Market Risk
The
Company has exposure to financial market risks, including changes in foreign currency exchange rates, and risk associated with how it
invests its cash.
Foreign
Exchange Risk
The
Company conducted its business in foreign markets through its subsidiary in Australia (vivoPharm Pty Ltd.). In the fourth quarter
of 2022, the Company sold substantially all of the operations of vivoPharm in two separate transactions. For the years ended December
31, 2022 and 2021, 0% and 21%, respectively, of the Company’s continuing revenue was earned outside the United States and collected
in local currency. The Company also commenced plans for a clinical trial in 2023 of which substantially all costs are denominated in
Australian Dollars. This clinical trial has been placed on hold as part of the Company’s cash preservation plan. As the vivoPharm
entities were sold in the fourth quarter of 2022, translation of foreign currencies is not material to the Company’s consolidated
financial position. Since the Merger, the Company was subject to risk for exchange rate fluctuations between such local currencies and
the United States dollar and the subsequent translation of the Australia Dollar or Euro to United States dollars. The Company currently
does not hedge currency risk.
Investment
of Cash
The
Company invests its cash primarily in cash and US government money market funds which are held by JPMorgan Chase Bank, N. A. and its
affiliates. Because of the short-term nature of these investments, the Company does not believe it has material exposure due to market
risk. The impact to the Company’s financial position and results of operations from likely changes in interest rates is not material.
PROPOSALS
OF STOCKHOLDERS AND OTHER MATTERS
Stockholder
Proposals for 2023 Annual Meeting
We
do not intend to hold future annual meetings of stockholders if each of the Sale Proposal and the Dissolution Proposal are approved,
and the Certificate of Dissolution is filed with the Delaware Secretary of State. However, if we hold our 2023 Annual Meeting, then
any stockholders who wish to present proposals for inclusion in the proxy materials to be distributed in connection with our 2023
Annual Meeting must have submitted their proposals no later than February 13, 2023 in order to be considered for inclusion in our
proxy statement and form of proxy; provided, however, that in the event the 2023 Annual Meeting is changed by more than thirty
(30) days from the anniversary date of the immediately preceding Annual Meeting of Stockholders (the “Anniversary
Date”), a stockholder must have submitted such proposals within a reasonable time before the Company begins to print and send
its proxy materials. We will announce the date of our 2023 Annual Meeting if such meeting is called. Pursuant to the rules
promulgated by the SEC, simply submitting a proposal does not guarantee that it will be included. Such proposal must also comply
with the requirements as to form and substance established by the SEC if such proposals are to be included in the proxy statement
and form of proxy. Any such proposal shall be mailed to: Vyant Bio, Inc., 2 Executive Campus, 2370 State Route 70 West, Suite 310,
Cherry Hill, New Jersey 08002, Attn.: Secretary.
Our
by-laws state that a stockholder must provide timely written notice of a proposal, or must timely submit a nomination of a director candidate,
to be brought before the meeting and supporting documentation as well as be present at such meeting, either in person or by a representative.
For our 2023 Annual Meeting of Stockholders, a stockholder’s notice or nomination shall be timely received by the Company at our
principal executive office no later than April 15, 2023 and no earlier than March 16, 2023; provided, however, that in
the event the 2023 Annual Meeting is scheduled to be held on a date more than thirty (30) days before the Anniversary Date or more than seventy (70) days after the
Anniversary Date, a stockholder’s notice or nomination shall be timely if received by the Company at our principal executive office
not earlier than the close of business on the one hundred twentieth (120th) day prior to such Annual Meeting and not later than the close
of business on the later of (i) the ninetieth (90th) day prior to the scheduled date of such Annual Meeting; and (ii) the tenth (10th)
day following the day on which such public announcement of the date of such Annual Meeting is first made by the Company. Proxies solicited
by our Board will confer discretionary voting authority with respect to these proposals or nominations, subject to the SEC’s rules
and regulations governing the exercise of this authority. Any such proposal or nomination shall be mailed to: Vyant Bio, Inc., 2 Executive
Campus, 2370 State Route 70 West, Suite 310, Cherry Hill, New Jersey 08002, Attn.: Secretary.
Further,
if you intend to nominate a director and solicit proxies in support of such director nominee(s) at the 2023 Annual Meeting of Stockholders,
you must also provide the notice and additional information required by Rule 14a-19 to: Vyant Bio, Inc., 2 Executive Campus, 2370 State
Route 70 West, Suite 310, Cherry Hill, New Jersey 08002, Attn.: Secretary, no later than May 15, 2023. This deadline under Rule 14a-19
does not supersede any of the timing requirements for advance notice under our by-laws. The supplemental notice and information required
under Rule 14a-19 is in addition to the applicable advance notice requirements under our by-laws as described in this section and it
shall not extend any such deadline set forth under our by-laws.
Householding
of Proxy Materials
Some
banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements.
This means that only one copy of this Proxy Statement may have been sent to multiple stockholders in the same household. We will promptly
deliver a separate copy of this Proxy Statement to any stockholder upon written or oral request to: Vyant Bio, Inc., 2 Executive Campus,
2370 State Route 70 West, Suite 310, Cherry Hill, New Jersey 08002, Attn.: Secretary or by phone at (201) 479-1357. Any stockholder who
wants to receive a separate copy of this proxy statement, or of our proxy statements or annual reports in the future, or any stockholder
who is receiving multiple copies and would like to receive only one copy per household, should contact the stockholder’s bank,
broker, or other nominee record holder, or the stockholder may contact us at the address and phone number above.
Other
Matters
As
of the date of this proxy statement, the Board does not intend to present at the Special Meeting of Stockholders any matters other than
those described herein and does not presently know of any matters that will be presented by other parties. If any other matter requiring
a vote of the stockholders should come before the meeting, it is the intention of the persons named in the proxy to vote with respect
to any such matter in accordance with the recommendation of the Board or, in the absence of such a recommendation, in accordance with
the best judgment of the proxy holder.
Solicitation
of Proxies
The
solicitation of proxies pursuant to this proxy statement is being made by us. Proxies may be solicited, among other methods, by mail,
facsimile, telephone, telegraph, Internet and in person.
The
expenses of preparing, printing and distributing this proxy statement and the accompanying form of proxy and the cost of soliciting proxies
will be borne by us.
Copies
of soliciting materials will be furnished to banks, brokerage houses and other custodians, nominees and fiduciaries for forwarding to
the beneficial owners of shares of Common Stock for whom they hold shares, and we will reimburse them for their reasonable out-of-pocket
expenses in connection therewith.
We
have engaged Alliance Advisors LLC, to assist in the solicitation of proxies and provide related advice and informational support, for
a services fee not expected to exceed $10,000, plus out-of-pocket fees and expenses. Alliance Advisors LLC will solicit proxies on our
behalf from individuals, brokers, bank nominees and other institutional holders in the same manner described above. We have also agreed
to indemnify Alliance Advisors LLC against certain claims.
REGARDLESS
OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING VIRTUALLY, PLEASE READ THE PROXY STATEMENT AND THEN SUBMIT A PROXY TO VOTE BY INTERNET,
TELEPHONE OR MAIL AS PROMPTLY AS POSSIBLE TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING.
| |
By
Order of the Board of Directors, |
| |
|
| |
|
| ,
2023 |
Andrew
D. C. LaFrence |
| Cherry
Hill, New Jersey |
President,
Chief Executive Officer and Chief Financial Officer |
If
you have any questions or require any assistance in voting your shares, please call:
Alliance
Advisors LLC
200
Broadacres Drive, 3rd Floor
Bloomfield,
NJ 07003
866-407-1665
WHERE
YOU CAN FIND MORE INFORMATION
We
formerly filed annual, quarterly and current reports, proxy statements and other information with the SEC, and currently file annual
and quarterly disclosure statements, including financial statements, with the OTC Markets Group. The SEC maintains a website at www.sec.gov
that contains reports, proxy statements and other information regarding issuers, including us, who file electronically with the SEC.
The reports and other information filed by us with the SEC are also available at our website at https://ir.vyantbio.com/sec-filings.
The OTC Markets Group maintains a website at otcmarkets.com. The information contained on those websites is specifically not incorporated
by reference into this proxy statement.
INDEX
TO FINANCIAL STATEMENTS
Vyant
Bio, Inc. and Subsidiaries
Consolidated
Financial Report March 31, 2023
Our independent auditors have not performed
any audit or review procedures over the Company’s 2023 condensed consolidated interim financial information and, therefore, have
not expressed an opinion or any other form of assurance on them.
Consolidated
Financial Report December 31, 2022
Vyant
Bio, Inc.
Condensed
Consolidated Balance Sheets
(unaudited)
(Shares
and USD in Thousands)
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 4,859 | | |
$ | 10,041 | |
| Trade accounts and other receivables | |
| 456 | | |
| 323 | |
| Inventory | |
| - | | |
| 53 | |
| Prepaid expenses and other current assets | |
| 822 | | |
| 747 | |
| Assets of discontinuing operations – current | |
| - | | |
| 345 | |
| Total current assets | |
| 6,137 | | |
| 11,509 | |
| Non-current assets: | |
| | | |
| | |
| Fixed assets, net | |
| 385 | | |
| 1,106 | |
| Operating lease right-of-use assets, net | |
| 442 | | |
| 1,542 | |
| Long-term prepaid expenses and other assets | |
| 2,217 | | |
| 1,048 | |
| Total non-current assets | |
| 3,044 | | |
| 3,696 | |
| Total assets | |
$ | 9,181 | | |
$ | 15,205 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Equity | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 1,036 | | |
$ | 655 | |
| Accrued expenses | |
| 788 | | |
| 1,154 | |
| Deferred revenue | |
| - | | |
| 72 | |
| Obligations under operating leases, current portion | |
| 115 | | |
| 313 | |
| Obligation under finance lease, current portion | |
| 208 | | |
| 252 | |
| Liabilities of discontinuing operations – current | |
| 326 | | |
| 1,219 | |
| Total current liabilities | |
| 2,473 | | |
| 3,665 | |
| Obligations under operating leases, less current portion | |
| 375 | | |
| 1,301 | |
| Obligations under finance leases, less current portion | |
| 198 | | |
| 273 | |
| Long-term debt | |
| 57 | | |
| 57 | |
| Total liabilities | |
$ | 3,103 | | |
$ | 5,296 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders’ equity: | |
| | | |
| | |
| Preferred stock, authorized 9,764 shares $0.0001 par value, none issued | |
| - | | |
| - | |
| Common stock, authorized 100,000 shares, $0.0001 par value, 6,325 and 5,922 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | |
| 1 | | |
| 1 | |
| Additional paid-in capital | |
| 112,060 | | |
| 111,443 | |
| Accumulated deficit | |
| (105,983 | ) | |
| (101,503 | ) |
| Accumulated comprehensive loss | |
| - | | |
| (32 | ) |
| Total Stockholders’ equity | |
| 6,078 | | |
| 9,909 | |
| Total liabilities and Stockholders’ equity | |
$ | 9,181 | | |
$ | 15,205 | |
See
Notes to Unaudited Condensed Consolidated Financial Statements.
Vyant
Bio, Inc.
Condensed
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(Shares
and USD in Thousands)
| | |
Three months ended March 31, | |
| | |
2023 | | |
2022 | |
| Revenue: | |
| | | |
| | |
| Service | |
$ | - | | |
$ | 94 | |
| Product | |
| 80 | | |
| 209 | |
| Total revenue | |
| 80 | | |
| 303 | |
| Operating costs and expenses: | |
| | | |
| | |
| Cost of goods sold – service | |
| - | | |
| 38 | |
| Cost of goods sold – product | |
| 142 | | |
| 348 | |
| Research and development | |
| 1,318 | | |
| 1,551 | |
| Selling, general and administrative | |
| 3,018 | | |
| 2,763 | |
| Total operating costs and expenses | |
| 4,478 | | |
| 4,700 | |
| Loss from operations | |
| (4,398 | ) | |
| (4,397 | ) |
| Other income (expense): | |
| | | |
| | |
| Interest income (expense), net | |
| 70 | | |
| (9 | ) |
| Total other income (expense) | |
| 70 | | |
| (9 | ) |
| Loss from continuing operations before income taxes | |
| (4,328 | ) | |
| (4,406 | ) |
| Income tax expense (benefit) | |
| - | | |
| - | |
| Loss from continuing operations | |
| (4,328 | ) | |
| (4,406 | ) |
| Discontinuing operations (net of $0 tax benefit in 2023 and 2022) | |
| (152 | ) | |
| (4,757 | ) |
| Net loss | |
| (4,480 | ) | |
| (9,163 | ) |
| Cumulative translation adjustment | |
| 32 | | |
| 4 | |
| Comprehensive loss | |
$ | (4,448 | ) | |
$ | (9,159 | ) |
| | |
| | | |
| | |
| Net loss per share attributed to common stock – basic and diluted: | |
| | | |
| | |
| Net loss per share from continuing operations | |
$ | (0.69 | ) | |
$ | (0.76 | ) |
| Net loss per share from discontinuing operations | |
| (0.02 | ) | |
| (0.82 | ) |
| Net loss per share | |
$ | (0.71 | ) | |
$ | (1.58 | ) |
| Weighted average shares outstanding: | |
| | | |
| | |
| Weighted average common shares outstanding - Basic and Diluted | |
| 6,248 | | |
| 5,803 | |
See
Notes to Unaudited Condensed Consolidated Financial Statements.
Vyant
Bio, Inc.
Condensed
Consolidated Statements of Stockholders’ Equity
(unaudited)
(Shares
and USD in Thousands)
| | |
Three Months Ended March 31, 2023 | |
| | |
Common Stock | | |
Additional
Paid In | | |
Accumulated | | |
Comprehensive | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| Balance as of January 1, 2023 | |
| 5,922 | | |
$ | 1 | | |
$ | 111,443 | | |
$ | (101,503 | ) | |
$ | (32 | ) | |
$ | 9,909 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 159 | | |
| - | | |
| - | | |
| 159 | |
| Vesting of restricted stock | |
| 61 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Issuance of common stock to pursuant to At The Market financing, net of $14 thousand of issuance costs | |
| 342 | | |
| - | | |
| 458 | | |
| - | | |
| - | | |
| 458 | |
| Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| 32 | | |
| 32 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (4,480 | ) | |
| - | | |
| (4,480 | ) |
| Balance as of March 31, 2023 | |
| 6,325 | | |
$ | 1 | | |
$ | 112,060 | | |
$ | (105,983 | ) | |
$ | - | | |
$ | 6,078 | |
| | |
Three Months Ended March 31, 2022 | |
| | |
Common Stock | | |
Additional
Paid In | | |
Accumulated | | |
Comprehensive | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| Balance as of January 1, 2022 | |
| 5,798 | | |
$ | 1 | | |
$ | 110,176 | | |
$ | (78,813 | ) | |
$ | (74 | ) | |
$ | 31,290 | |
| Stock-based compensation | |
| - | | |
| - | | |
| 334 | | |
| - | | |
| - | | |
| 334 | |
| Exercise of stock options | |
| 1 | | |
| - | | |
| 4 | | |
| - | | |
| - | | |
| 4 | |
| Vesting of restricted stock | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Issuance of common stock to Lincoln Park Capital Fund, LLC, and issuance costs | |
| 81 | | |
| - | | |
| (101 | ) | |
| - | | |
| - | | |
| (101 | ) |
| Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4 | | |
| 4 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (9,163 | ) | |
| - | | |
| (9,163 | ) |
| Balance as of March 31, 2022 | |
| 5,882 | | |
$ | 1 | | |
$ | 110,413 | | |
$ | (87,976 | ) | |
$ | (70 | ) | |
$ | 22,368 | |
See
Notes to Unaudited Condensed Consolidated Financial Statements.
Vyant
Bio, Inc.
Condensed
Consolidated Statements of Cash Flows
(unaudited)
(USD
in Thousands)
| | |
Three months ended March 31, | |
| | |
2023 | | |
2022 | |
| Cash Flows from Operating Activities: | |
| | | |
| | |
| Net loss | |
$ | (4,480 | ) | |
$ | (9,163 | ) |
| Net loss from discontinuing operations | |
| 152 | | |
| 4,757 | |
| Reconciliation of net loss to net cash used in operating activities, continuing operations: | |
| | | |
| | |
| Stock-based compensation | |
| 159 | | |
| 278 | |
| Amortization of operating lease right-of-use assets | |
| 77 | | |
| 98 | |
| Depreciation and amortization expense | |
| 116 | | |
| 142 | |
| Loss on the sale of leasehold improvements and equipment and asset impairment charges | |
| 358 | | |
| - | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Trade accounts and other receivables | |
| (133 | ) | |
| (151 | ) |
| Inventory | |
| 53 | | |
| (22 | ) |
| Prepaid expenses and other assets | |
| (837 | ) | |
| 213 | |
| Accounts payable | |
| (26 | ) | |
| (279 | ) |
| Obligations under operating leases | |
| (74 | ) | |
| (98 | ) |
| Accrued expenses and other current liabilities | |
| (439 | ) | |
| 714 | |
| Net cash used in operating activities, continuing operations | |
| (5,074 | ) | |
| (3,511 | ) |
| Net cash used in operating activities, discontinuing operations | |
| (535 | ) | |
| (461 | ) |
| Net cash used in operating activities | |
| (5,609 | ) | |
| (3,972 | ) |
| Cash Flows from Investing Activities: | |
| | | |
| | |
| Sale of leasehold improvements and equipment | |
| 190 | | |
| (30 | ) |
| Net cash provided by (used in) investing activities, continuing operations | |
| 190 | | |
| (30 | ) |
| Net cash used in investing activities, discontinuing operations | |
| (132 | ) | |
| (30 | ) |
| Net cash provided by (used in) investing activities | |
| 58 | | |
| (60 | ) |
| Cash Flows from Financing Activities: | |
| | | |
| | |
| Issuance of common stock, net of issuance costs | |
| 458 | | |
| (97 | ) |
| Principal payments on obligations under finance leases | |
| (89 | ) | |
| (34 | ) |
| Net cash provided by (used in) financing activities, continuing operations | |
| 369 | | |
| (131 | ) |
| Net cash used in financing activities, discontinuing operations | |
| - | | |
| (5 | ) |
| Net cash provided by (used in) financing activities | |
| 369 | | |
| (136 | ) |
| Net decrease in cash and cash equivalents | |
| (5,182 | ) | |
| (4,168 | ) |
| Cash and cash equivalents, and restricted cash beginning of the period | |
| 10,041 | | |
| 20,608 | |
| Cash and cash equivalents, and restricted cash end of the period | |
$ | 4,859 | | |
$ | 16,440 | |
| | |
| | | |
| | |
| Supplemental disclosure of cash flow information from continuing operations: | |
| | | |
| | |
| Cash paid for interest | |
$ | 4 | | |
$ | 7 | |
| Cash paid for income taxes | |
| - | | |
| 1 | |
| Non-cash investing activities from continuing operations: | |
| | | |
| | |
| Right-of-use asset obtained in exchange for new lease | |
| - | | |
| 1,189 | |
See
Notes to Unaudited Condensed Consolidated Financial Statements.
Vyant
Bio, Inc.
Notes
to Condensed Consolidated Financial Statements
Period
Ended March 31, 2023
(Unaudited)
Note
1. Organization and Description of Business
Vyant
Bio, Inc. (the “Company”, “Vyant Bio”, “VYNT” or “we”), has historically been an innovative biotechnology
company reinventing drug discovery for complex neurodevelopmental and neurodegenerative disorders. Our central nervous system (“CNS”)
drug discovery platform combines human-derived organoid models of brain disease, scaled biology, and machine learning. Our platform is
designed to: 1) elucidate disease pathophysiology; 2) formulate key therapeutic hypotheses; 3) identify and validate drug targets, cellular
assays, and biomarkers to guide candidate molecule selection; and 4) guide clinical trial patient selection and trial design. Our current
programs are focused on identifying repurposed and novel small molecule clinical candidates for rare CNS genetic disorders including
Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders (“CDD”) and familial Parkinson’s Disease (“PD”).
The Company’s management believes that drug discovery needs to progressively shift as the widely used preclinical models for predicting
safe and effective drugs have under-performed, as evidenced by the time and cost of bringing novel drugs to market. As a result, Vyant
Bio has historically focused on combining sophisticated data science capabilities with highly functional human cell derived disease models. We have leveraged
our ability to identify validated targets and molecular-based biomarkers to screen and test thousands of small molecule compounds in
human diseased 3D brain organoids in order to create a unique approach to assimilating biological data that supports decision making
iteratively throughout the discovery phase of drug development to identify both novel and repurposed drug candidates.
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm Pty Ltd (“vivoPharm”)
business to focus the Company on the development of neurological developmental and degenerative disease therapeutics. In the fourth quarter
of 2022, the Company sold substantially all of the operations of vivoPharm in two separate transactions. To complete the disposition
of the Company’s former vivoPharm business and to resolve certain issues that had arisen with the Buyer, on March 13, 2023,
the Company sold vivoPharm to the Buyer for a nominal sum. As part of the sale of vivoPharm to Buyer, the Company provided
that vivoPharm had cash of at least $200 thousand and the Company assumed certain specific vivoPharm liabilities, principally
liabilities directly associated with the proposed Phase 2 Donepezil clinical trial in Australia (which the Company has placed on hold
as it evaluates its strategic alternatives) and certain vivoPharm tax liabilities through the transaction’s closing. The
transaction was consummated effective March 13, 2023.
Going
Concern
The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable
to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The
Company has suffered recurring losses and negative cash flows from operations since inception, has an accumulated deficit, and is expected
to generate minimal revenue from continuing operations as we have substantially ceased the Maple Grove facility’s revenue producing
operations to support internal drug discovery programs. The Company is projecting insufficient liquidity to meet its obligations as they
become due over the next twelve months. The Company had cash and cash equivalents of $4.9 million as of March 31, 2023, an accumulated
deficit of $106.0 million, cash outflows from continuing operations of $5.1 million for the three-months ended March 31, 2023 and $12.8
million for the year then ended December 31, 2022, as well as a net loss from continuing operations of $4.3 million for the three months
ended March 31, 2023 and $15.8 million for the year ended December 31, 2022. These conditions and events raise substantial doubt about
the Company’s ability to continue as a going concern.
In
2023, the Company has undertaken the following actions:
| ● | On
January 4, 2023, the Company announced that it had engaged LifeSci Capital as its financial
advisor to assist in exploring a range of strategic alternatives focused on enhancing shareholder
value. There can be no assurance that this review process will result in any changes to the
Company’s current business plans or lead to any specific action or transaction. |
| ● | The
Company’s Board of Directors (the “Board”) approved a plan on January 31,
2023 to preserve the Company’s cash to be able to continue to pursue a satisfactory
strategic alternative for the purpose of maximizing the value of the Company’s business
while also having sufficient cash to adequately fund an orderly wind down of the Company’s
operations (the “Cash Preservation Plan”) in the event it is unable to secure
a satisfactory strategic alternative. As part of the Cash Preservation Plan, the Company
implemented a reduction in force which included the Company’s former President and
Chief Executive Officer, and Chief Scientific Officer. |
| ● | On
March 7, 2023, the Company sold its equipment in its San Diego laboratory to a third party
in exchange of $200,000 in consideration. |
| ● | On
March 9, 2023, the Company terminated its January 2022, San Diego office and laboratory lease
agreement. The effective date of the termination was March 31, 2023. The landlord retained
approximately $45 thousand as an early termination fee. This lease termination resulted in
a $1.2 million reduction in future operating lease payments. |
| ● | On
March 24, 2023 the Company terminated its (a) Equity Distribution Agreement, dated April
8, 2022, by and between the Company and Canaccord Genuity LLC, regarding the issue and sale,
from time to time, of shares of the Company’s common stock, par value $0.0001
per share (the “Common Stock”) for an aggregate offering
price of up to $20,000,000, and (b) Purchase Agreement, dated March 28, 2022, by and between
the Company and Lincoln Park Capital Fund, LLC, regarding the issue and sale, from time to
time, of shares of the Company’s Common Stock for an aggregate offering price of up
to $15,000,000. |
| ● | On
March 24, 2023, the Company filed post-effective amendments to certain of its registration
statements previously filed with the SEC, including post-effective amendments to each of:
(i) Registration Statement Nos. 333-249513, 333-252628, 333-239497, and 333-218229 on Form
S-3; (ii) Registration Statement Nos. 333-191520, 333-191521, 333-196198, 333-205903, 333-256225
and 333-214599 on Form S-8; and (ii) Registration Statement No. 333-215284 and 333-264595
on Form S-1 (such post-effective amendments, collectively the “Post-Effective Amendments”
and such registration statements, collectively the “Registration Statements”).
In accordance with undertakings made by the Company in each of the Registration Statements
to remove from registration, by means of a post-effective amendment, any and all securities
of the Company that were registered for issuance that remain unsold at the termination of
the offerings, the Company removed from registration any and all securities of the Company
registered but unsold under each of the Registration Statements. As a result of this deregistration,
no securities remain registered for sale pursuant to the Registration Statements. |
| ● | On
April 24, 2023 the Company’s Board of Directors determined it was appropriate to voluntarily
delist its securities from The Nasdaq Capital Market (“Nasdaq”). On May 4, the
Company filed a Form 25 with the Securities and Exchange Commission (the “SEC”),
and the delisting became effective on May 15, 2023. Following the delisting of the Company’s
securities from Nasdaq, the Company filed a Form 15 with the SEC to suspend its
reporting obligations under the Securities Exchange Act of 1934, as amended. The Company
expects that the deregistration of such securities will become effective 90 days after the
filing of the Form 25 with the SEC. The documents filed with the SEC will be available on
the Company’s website. The Board made the decision to pursue this strategy following
its review and careful consideration of a number of factors, including, but not limited to,
the expected reduction in operating expenses by eliminating SEC reporting costs, which would
allow the Company to focus more resources on its continued pursuit and exploration of satisfactory
strategic alternative transactions and/or execution of an orderly wind down of the Company,
if necessary. The Board determined that deregistration is in the overall best interests of
the Company and its stockholders. Following delisting of the Company’s Common Stock
from Nasdaq, the Common Stock has been quoted on the Pink Open
Market operated by OTC Markets Group Inc. (the “OTC”) under the symbol “VYNT”
starting on May 15, 2023. The Company intends to continue to provide information
to its stockholders and to take other actions within its control to enable its Common Stock
to be quoted on the OTC Pink Open Market in the Pink Current Information market tier. There
is no guarantee, however, that a broker will continue to make a market in the Common Stock
and that trading of the Common Stock will continue on an OTC market or otherwise. Going forward,
Vyant Bio may, from time to time, when it deems appropriate, provide limited information
regarding its financial status and business activities, or issue press releases for select
events or developments. |
| ● | On
May 9, 2023, the Company and the Andrew D. C. LaFrence, the Company’s President, Chief
Executive Officer and Chief Financial Officer, entered into a Consulting Agreement providing
that effective as of June 1, 2023 (or such later date as may be agreement to by the Company
and Mr. LaFrence), Mr. LaFrence would continue to serve as the Company’s President,
Chief Executive Officer and Chief Financial Officer as a part time consultant rather than
a full time employee. His employment agreement, which is filed as an exhibit to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021, would be deemed terminated
as of that date by the Company without cause for purposes of determining severance thereunder.
The Consulting Agreement is a further step in the Company’s efforts to conserve
cash consistent with its Cash Preservation Plan. |
| ● | On
May 11, 2023 pursuant to the Company’s Cash Preservation Plan, the Company returned one
piece of equipment to its leasing Company for the final lease payment of $181 thousand. |
As a result of the above activities, the Company accrued
$1.2 million of severance expense in the first quarter of 2023 of which approximately $0.8 million was paid as of March 31, 2023. Substantially
all of the remaining severance accrual is expected to be paid in the second quarter of 2023.
In
response to these conditions and based on our current operating plan, the Company plans to further reduce expenses, slow cash flows,
and evaluate strategic partners to acquire our assets, including our public company as a reverse merger candidate. There are no assurances
that we will be able to raise cash in these transactions or find a reverse merger candidate and we may therefore need to complete an
orderly winddown of the Company’s operations or, if sufficient funds are not available, bankruptcy. These plans have not yet been
finalized and are not within the Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded
that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
These
unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for
the year ended December 31, 2022, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC. The preparation
of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates.
The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected
for the entire 2023 year.
No
new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s condensed
consolidated financial statements.
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 3,595,508
shares of VYNT 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 “Major Investor Warrant”) issued to a certain StemoniX convertible note holder (the “Major
Investor”)), (ii) options to purchase an aggregate of 178,356 shares of Common Stock to the holders of StemoniX options with exercise
prices ranging from $3.30 to $23.05 per share and a weighted average exercise price of $7.30 per share, and (iii) a warrant (the “Major
Investor Warrant”) to the Major Investor, expiring February 23, 2026 to purchase 28,778 shares of Common Stock at a price of $29.5295
per share in exchange for the Major 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 2,201,437 shares of Common Stock
or $50.74 million, 431,537 Common Stock warrants or $9.04 million and 11,181 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 160,942 incremental shares in accordance with the conversion ratio set forth in the Merger Agreement.
Note
3. Discontinuing Operations
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm Pty Ltd (“vivoPharm”)
business to focus the Company on the development of neurological developmental and degenerative disease therapeutics. In December 2021,
the Company engaged an investment bank to sell the vivoPharm business which was substantially completed in the fourth quarter
of 2022.
On
November 2, 2022 the Company completed the sale of its vivoPharm subsidiary, vivoPharm LLC located in Hershey, Pennsylvania,
to Reaction Biology Corporation for $5.5 million in an upfront cash payment, subject to customary adjustments for working capital, closing
cash, indebtedness and transaction expenses. After these closing adjustments were reflected, $5.5 million was paid at closing and an
additional $0.3 million was paid in February 2023. The Company received approximately $4.8 million in cash after transaction related
expenses and income taxes, as well as incurred $0.4 million in exit costs associated with this transaction. Exit costs associated with
the vivoPharm business were paid in January 2023. In connection with the sale of the vivoPharm LLC business, the Company
agreed to retain certain liabilities aggregating to $357 thousand.
On
December 30, 2022, the Company entered into a Share Purchase Agreement (the “Agreement”) with Sabine Brandt as trustee for
the Brandt Family Trust (“Buyer”), pursuant to which vivoPharm sold the entirety of the Company’s remaining
vivoPharm business for early discovery services, represented by 100% of the outstanding shares of (i) of RDDT a vivoPharm
Company Pty Ltd; and (ii) vivoPharm Europe Ltd, to Buyer in exchange for a nominal cash amount, subject to adjustments for closing
cash and accounts payable, on and subject to the terms and conditions set forth therein. The sale resulted in the Company delivering
target closing cash as part of the sold entities of approximately $827 thousand and the assumption by Buyer of liabilities of the sold
entities aggregating to approximately $2.0 million. The Transaction was consummated effective December 31, 2022. The Agreement contains
customary representations, warranties, covenants and indemnification provisions.
To
complete the disposition of the Company’s former vivoPharm business and to resolve certain issues that had arisen with the
Buyer, on March 13, 2023, the Company sold vivoPharm to the Buyer for a nominal sum. As part of the sale of vivoPharm to
Buyer, the Company provided that vivoPharm had cash of at least $200 thousand and the Company assumed certain specific vivoPharm
liabilities, principally liabilities directly associated with the proposed Phase 2 Donepezil clinical trial in Australia (which the Company
has placed on hold as it evaluates its strategic alternatives) and certain vivoPharm tax liabilities through the transaction’s
closing. The transaction was consummated effective March 13, 2023.
Also
included in discontinuing operations are pre-Merger-related payables related to Cancer Genetics’ sale of its BioPharma and Clinical
businesses (“Pre-Merger discontinuing operations”). As of March 31, 2023 and December 31, 2022, $263 thousand and $267 thousand,
respectively, of liabilities relating to these businesses are classified as other current liabilities – discontinuing operations
on the Company’s condensed consolidated balance sheets.
Asset
and liabilities of discontinuing operations were as follows:
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Accounts receivable | |
$ | - | | |
$ | 11 | |
| Due from Reaction Biology Corporation | |
| - | | |
| 334 | |
| Assets of discontinuing operations - current | |
$ | - | | |
$ | 345 | |
| | |
| | | |
| | |
| Assets of discontinuing operations - non-current | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| Accounts payable | |
$ | - | | |
$ | 47 | |
| Due to RDDT a vivoPharm Company Pty Ltd | |
| - | | |
| 216 | |
| Accrued expense | |
| - | | |
| 577 | |
| Deferred revenue | |
| - | | |
| 43 | |
| Taxes payable | |
| 63 | | |
| 69 | |
| Other current liabilities | |
| 263 | | |
| 267 | |
| Liabilities of discontinued operations - current | |
$ | 326 | | |
$ | 1,219 | |
| | |
| | | |
| | |
| Liabilities of discontinued operations -non- current | |
$ | - | | |
$ | - | |
Results
of discontinuing operations were as follows for the three months ended March 31, 2023 and 2022:
| | |
2023 | | |
2022 | |
| Revenue | |
$ | - | | |
$ | 1,353 | |
| Cost of goods sold | |
| - | | |
| 775 | |
| General and administrative | |
| 152 | | |
| 1,045 | |
| Impairment of goodwill and intangible assets | |
| - | | |
| 4,290 | |
| Total operating costs and expenses | |
$ | 152 | | |
$ | 6,110 | |
| Loss from discontinuing operations | |
$ | (152 | ) | |
$ | (4,757 | ) |
| Total other income | |
$ | - | | |
$ | - | |
| Loss from discontinuing operations before income taxes | |
$ | (152 | ) | |
$ | (4,757 | ) |
| Income tax expense (benefit) | |
| - | ) | |
| - | |
| Net loss from discontinuing operations | |
$ | (152 | ) | |
$ | (4,757 | ) |
During
the three months ended March 31, 2022, the vivoPharm business signed an extension to its Hershey, Pennsylvania facility lease
and a new lease in South Australia resulting in an increase of $1.0 million of right-of-use (“ROU”) assets and related liability
within discontinuing operations.
Intangible
assets consisted of the following as of March 31, 2022:
| Customer relationships | |
$ | 6,187 | |
| Trade name | |
| 1,160 | |
| | |
| 7,347 | |
| Less accumulated amortization | |
| (713 | ) |
| Intangible assets, net | |
$ | 6,634 | |
Goodwill
arising from the Merger was solely attributed to the vivoPharm business. The following is a roll forward of goodwill as of and
for the three months ended March 31, 2022:
| Beginning balance, January 1, 2022 | |
$ | 2,164 | |
| Purchase price adjustments | |
| - | |
| Impairment charge | |
| (2,164 | ) |
| Ending balance, March 31, 2022 | |
$ | - | |
Note
4. Inventory
The
Company’s inventory consists of the following:
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Finished goods | |
$ | - | | |
$ | - | |
| Work in process | |
| - | | |
| 9 | |
| Raw materials | |
| - | | |
| 44 | |
| Total inventory | |
$ | - | | |
$ | 53 | |
Note
5. Fixed Assets
Presented
in the table below are the major classes of fixed assets by category:
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Equipment | |
$ | 1,705 | | |
$ | 2,962 | |
| Furniture and fixtures | |
| - | | |
| 6 | |
| Leasehold improvements | |
| 187 | | |
| 612 | |
| | |
| 1,862 | | |
| 3,580 | |
| Less accumulated depreciation | |
| (1,507 | ) | |
| (2,474 | ) |
| | |
$ | 385 | | |
$ | 1,106 | |
Depreciation
expense from continuing operations recognized during the three months ended March 31, 2023 and 2022 was $116 thousand and $142 thousand,
respectively. The Company recorded an asset impairment charge of $170 thousand within research and development expense in the first
quarter of 2023 related to equipment that was returned to the leasing company in May 2023.
Note
6. Leases
The
Company leases its laboratory, research and administrative office space under various operating leases. In January 2022, the Company
recorded a $1.2 million of ROU asset and related liability upon the signing of a new 5-year lease in San Diego, California.
The
components of operating and finance lease expenses for the three-month periods ended March 31, are as follows:
| | |
2023 | | |
2022 | |
| Operating lease costs | |
$ | 112 | | |
$ | 98 | |
| Finance lease costs: | |
| | | |
| | |
| Depreciation of ROU assets | |
| 61 | | |
| 40 | |
| Interest on lease liabilities | |
| 7 | | |
| 7 | |
| Total finance lease cost | |
| 68 | | |
| 47 | |
| Variable lease costs | |
| - | | |
| - | |
| Short-term lease costs | |
| - | | |
| - | |
| Total lease cost | |
$ | 180 | | |
$ | 145 | |
Amounts
reported in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 are as follows:
| | |
2023 | | |
2022 | |
| Operating leases: | |
| | | |
| | |
| Operating lease ROU assets, net | |
$ | 442 | | |
$ | 1,542 | |
| Operating lease current liabilities | |
| 115 | | |
| 313 | |
| Operating lease long-term liabilities | |
| 375 | | |
| 1,301 | |
| Total operating lease liabilities | |
| 490 | | |
| 1,614 | |
| Finance leases: | |
| | | |
| | |
| Equipment | |
| 438 | | |
| 744 | |
| Accumulated depreciation | |
| (305 | ) | |
| (244 | ) |
| Finance leases, net | |
| 133 | | |
| 500 | |
| Current installment obligations under finance leases | |
| 208 | | |
| 252 | |
| Long-term portion of obligations under finance leases | |
| 198 | | |
| 273 | |
| Total finance lease liabilities | |
$ | 406 | | |
$ | 525 | |
Other
information related to leases from continuing operations for the three-month periods ended March 31, are as follows:
| | |
2023 | | |
2022 | |
| Supplemental cash flow information: | |
| | | |
| | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
| Operating cash flow from operating leases | |
$ | 38 | | |
$ | 98 | |
| Financing cash flow from finance leases | |
| 65 | | |
| 34 | |
| Weighted average remaining lease term: | |
| | | |
| | |
| Operating leases | |
| 4.29 years | | |
| 5.18 years | |
| Finance leases | |
| 2.4 years | | |
| 2.5 years | |
| Weighted average discount rate: | |
| | | |
| | |
| Operating leases | |
| 9.97 | % | |
| 8.3 | % |
| Finance leases | |
| 5.38 | % | |
| 6.5 | % |
Annual
payments of lease liabilities under noncancelable leases from continuing operations as of March 31, 2023 are as follows:
| | |
Operating
leases | | |
Finance leases | |
| Remainder of 2023 | |
$ | 149 | | |
$ | 178 | |
| 2024 | |
| 136 | | |
| 205 | |
| 2025 | |
| 131 | | |
| 42 | |
| 2026 | |
| 134 | | |
| - | |
| 2027 | |
| 80 | | |
| - | |
| Thereafter | |
| - | | |
| - | |
| Total undiscounted lease payments | |
| 630 | | |
| 425 | |
| Less: Imputed interest | |
| (140 | ) | |
| (19 | ) |
| Total lease liabilities | |
$ | 490 | | |
$ | 406 | |
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, 2023 and December 31, 2022, the Company’s liability for
gross unrecognized tax benefits (excluding interest and penalties) totaled $0 thousand and $0, respectively, in continuing
operations. The Company had accrued interest and penalties relating to unrecognized tax benefits of $0 and $0 on a gross basis as of
March 31, 2023 and December 31, 2022, respectively, in continuing operations. The Company does not currently expect significant
changes in the amount of unrecognized tax benefits during the next twelve months.
Note
8. Long-Term Debt
Long-term
debt as of March 31, 2023 and December 31, 2022 consists of a $57 thousand Economic Injury Disaster Loan with annual principal payments
of approximately $1 thousand per year. This loan bears interest at 3.75% and is repayable in monthly installments starting in June 2023
with a final balance due on June 21, 2050.
Note
9. Stockholders’ Equity
Common
Stock
Holders
of Common Stock are entitled to one vote per share, to receive dividends if and when declared, and, upon liquidation or dissolution,
are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights
and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock
with respect to dividend rights and rights upon liquidation, winding up and dissolution of the Company.
Lincoln
Park Capital Fund, LLC Agreement
On
March 28, 2022, the Company entered into a purchase agreement, or Purchase Agreement, with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), which, subject to the terms and conditions, provides that the Company has the right to sell to Lincoln Park and Lincoln
Park was obligated to purchase up to $15.0 million of its common shares. Under the Purchase Agreement, the Company issued a commitment
fee of 81,190 common shares as consideration for Lincoln Park entering into the Purchase Agreement.
At
The Market Financing
On
April 8, 2022, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (“Canaccord”), pursuant
to which the Company could issue and sell, from time to time, shares of its Common Stock having an aggregate offering price of up to
$20,000,000, depending on market demand, with Canaccord acting as an agent for sales. As of December 31, 2022, the Company had issued
41,162 shares of Common Stock under the Sales Agreement with Canaccord. The Company sold 342,067 shares pursuant to this agreement in
the first quarter of 2023 realizing net proceeds of $458 thousand.
On
March 23, 2023, the Company terminated the arrangements with both Lincoln Park and Canaccord.
Warrants
Common
Stock Warrants
The
Company issued the Investor Warrant on February 23, 2022. Effective with the Merger, the Investor Warrant was exchanged for a warrant
to purchase 28,778 shares of the Company’s Common Stock at an exercise price of $29.5295 per share. In connection with the Merger,
the Company assumed 431,537 Common Stock warrants issued in prior financings of which 426,361 remain outstanding as of March 31, 2023.
A summary of all Common Stock warrants outstanding as of March 31, 2023 is as follows:
| Issuance Related to: | |
Exercise Price | | |
Outstanding Warrants | | |
Expiration Dates |
| 2020 Convertible Note | |
$ | 29.55 | | |
| 28,778 | | |
Feb 23, 2026 |
| 2021 offerings | |
$ | 17.50 | | |
| 324,828 | | |
Feb 10, 2026 - Aug 3, 2026 |
| Advisory fees | |
| $12.10 - 37.95 | | |
| 98,578 | | |
Jan 9, 2024 - Oct 28, 2025 |
| Debt | |
$ | 138.00 | | |
| 2,955 | | |
Mar 22, 2024 |
| Total | |
| | | |
| 455,139 | | |
|
Note
10. Fair Value Measurements
In
the fourth quarter of 2021, the Company classified the vivoPharm business as discontinuing operations and applied held for sale
accounting. The Company valued the vivoPharm business as of December 31, 2021 equally weighting public company revenue multiples
as of December 31, 2021 and comparable transaction revenue multiples, which are classified as Level 3 measurements within the fair value
hierarchy. The Company updated the valuation of the vivoPharm business during the quarter ending March 31, 2022 based on equally
weighting public company revenue multiples and comparable transaction revenue multiples, which resulted in a $4.5 million decrease to
the fair value of vivoPharm in the first quarter of 2022. The Company recognized an impairment charge of $4.3 million during the
quarter ended March 31, 2022, which decreased vivoPharm’s net carrying value, net of estimated disposal costs from $9.2
million as of December 31, 2021 to $4.9 million. During the second quarter of 2022, the Company received two offers for mutually exclusive
components of the vivoPharm business and assessed the carrying value of each asset group using the estimated net sales proceeds
based on these offers. As a result, the Company recorded a net impairment charge of $1.5 million during the second quarter of 2022. The
Company recorded an impairment recovery of $388 thousand during the third quarter of 2022 based upon September 30, 2022 vivoPharm
net assets. As described in Note 3, the Company completed the sales of vivoPharm’s operating subsidiaries in the fourth
quarter of 2022 resulting in a loss upon sales of $106 thousand.
The
following tables present changes in fair value of level 3 valued instruments as of and for the three months ended March 31, 2022:
| | |
vivoPharm Business | |
| Balance – January 1, 2022 | |
$ | 11,000 | |
| Additions | |
| - | |
| Measurement adjustments | |
| (4,500 | ) |
| Settlement | |
| - | |
| Balance – March 31, 2022 | |
$ | 6,500 | |
The
Company did not have level 3 valued instruments as of March 31, 2023 and December 31, 2022 or during the quarter ended March 31, 2023.
Note
11. Loss Per Share
Basic
loss per share is computed by dividing the net loss after tax attributable to common stockholders by the weighted average shares outstanding
during the period. Diluted loss per share is computed by including potentially dilutive securities outstanding during the period in the
calculation of weighted average shares outstanding. The Company did not have any dilutive securities during the periods presented; therefore,
diluted loss per share is equal to basic loss per share.
Presented
in the table below is a reconciliation of the numerator and denominator for the basic and diluted loss per share calculations for the
three months ended March 31, 2023 and 2022:
| | |
March 31, | |
| | |
2023 | | |
2022 | |
| Net loss from continuing operations | |
$ | (4,328 | ) | |
$ | (4,406 | ) |
| Net loss from discontinuing operations | |
| (152 | ) | |
| (4,757 | ) |
| Net loss | |
$ | (4,480 | ) | |
$ | (9,163 | ) |
| Basic and diluted weighted average shares outstanding | |
| 6,248,736 | | |
| 3,184,106 | |
| Basic and diluted net loss per share: | |
| | | |
| | |
| Continuing operations | |
$ | (0.69 | ) | |
$ | (0.76 | ) |
| Discontinuing operations | |
| (0.02 | ) | |
| (0.82 | ) |
| Net loss | |
$ | (0.71 | ) | |
$ | (1.58 | ) |
The
following securities were not included in the computation of diluted shares outstanding for the for the three months ended March 31,
2023 and 2022 because the effect would be anti-dilutive:
| | |
March 31, | |
| | |
2023 | | |
2022 | |
| Common Stock warrants | |
| 455,139 | | |
| 458,599 | |
| Common Stock options | |
| 251,593 | | |
| 553,325 | |
| Restricted stock | |
| 38,409 | | |
| - | |
| Total | |
| 745,141 | | |
| 1,011,924 | |
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. The number of Common Stock options issued under the 2015
plan were adjusted for the Merger exchange ratio resulting in an incremental 38,376 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 900,000 of equity-based instruments to officers, key employees, and non-employee consultants. 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. RSU’s are granted to members of the Board of Directors and vest 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 March 31, 2023, there were 661,659 additional shares available for the Company to grant under the 2021 Plan. The grant-date fair value
of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The assumptions for stock
option grants during the quarters ended March 31, 2023 and 2022 are provided in the following table.
| | |
2023 | | |
2022 | |
| Valuation assumptions | |
| | | |
| | |
| Expected dividend yield | |
| - | % | |
| 0.0 | % |
| Expected volatility | |
| - | % | |
| 56.3% –69.8 | % |
| Expected term (years) – simplified method | |
| - | | |
| 3.0 – 6.1 | |
| Risk-free interest rate | |
| - | % | |
| 1.74% – 2.13 | % |
Stock
option activity during the for the three-month periods ended March 31, 2023 and 2022 is as follows:
| | |
Number of Options | | |
Weighted average exercise price | | |
Weighted average remaining contractual term | |
| Balance as of January 1, 2022 | |
| 464,021 | | |
$ | 20.95 | | |
| 7.4 | |
| Granted | |
| 145,060 | | |
| 5.05 | | |
| | |
| Exercised | |
| (1,035 | ) | |
| 4.80 | | |
| | |
| Forfeited | |
| (51,153 | ) | |
| 21.10 | | |
| | |
| Expired | |
| (3,568 | ) | |
| 286.20 | | |
| | |
| Balance as of March 31, 2022 | |
| 553,325 | | |
$ | 15.09 | | |
| 8.7 | |
| | |
| | | |
| | | |
| | |
| Balance as of January 1, 2023 | |
| 428,301 | | |
$ | 14.97 | | |
| 7.5 | |
| Granted | |
| - | | |
| - | | |
| | |
| Exercised | |
| - | | |
| - | | |
| | |
| Forfeited | |
| (144,150 | ) | |
| 11.06 | | |
| | |
| Expired | |
| (32,558 | ) | |
| 35.49 | | |
| | |
| Balance as of March 31, 2023 | |
| 251,593 | | |
$ | 11.06 | | |
| 5.3 | |
| | |
| | | |
| | | |
| | |
| Exercisable as of March 31, 2023 | |
| 195,316 | | |
$ | 16.07 | | |
| 4.8 | |
The
weighted average grant-date fair value of options granted during the three-month period ended March 31, 2022 was $2.70. There were no
stock options issue in the first quarter of 2023. The aggregate intrinsic value of options outstanding and options exercisable as of
March 31, 2023 was zero. The total intrinsic value of options exercised was $1 thousand for the three-month period ended March 2022.
No stock options were exercised in the first quarter of 2023. An aggregate of 60,333 RSU’s vested in the first quarter of 2023.
The
Company recognized stock-based compensation in continuing operations related to different instruments for the three-month periods ended
March 31 as follows:
| | |
2023 | | |
2022 | |
| Stock options | |
$ | 38 | | |
$ | 258 | |
| Shares issued for services | |
| 121 | | |
| 20 | |
| Total | |
$ | 159 | | |
$ | 278 | |
As
of March 31, 2023, there was $0.1 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 1.77 years.
Note
13. Segment Information
The
Company reports segment information based on how the Company’s chief operating decision maker (“CODM”), regularly reviews
operating results, allocates resources and makes decisions regarding business operations. For segment reporting purposes, the Company’s
business structure is comprised of one operating and reportable segment.
During
the three-months ended March 31, 2023 and 2022, two customers and four customers accounted for approximately 94% and 76%, respectively,
of the consolidated revenue from continuing operations.
During
the three-months ended March 31, 2023 and 2022, approximately 66% and 33%, respectively, of the Company’s consolidated revenue
from continuing operations were earned outside of the U.S.
Customers
representing 10% or more of the Company’s total revenue from continuing operations for the three-month periods ended March 31,
2023 and 2022 are presented in the table below:
| | |
2023 | | |
2022 | |
| Customer A | |
| 66 | % | |
| 27 | % |
| Customer B | |
| 28 | % | |
| 24 | % |
| Customer C | |
| - | % | |
| 14 | % |
| Customer D | |
| - | % | |
| 11 | % |
Note
14. Related Party Transactions
During
the first quarter of 2022, the Company paid a third-party collaboration partner $39 thousand as a reimbursement of third-party costs
incurred by the collaborator in connection with the collaboration arrangement. An executive’s family member is an employee of this
collaborator. The arrangements with this third-party collaborator had arms-length terms.
As
disclosed in Note 3, the Company sold RDDT a vivoPharm Company Pty Ltd, vivoPharm Europe Ltd and vivoPharm Pty Ltd
to Sabine Brandt as trustee for the Brandt Family Trust. Mrs. Brandt is a former Company employee and is married to a former officer
of the Company.
Note
15. Contingencies
We
are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings
arising in the ordinary course of our business.
Note
16. Subsequent Events
NASDAQ
Delisting
On April 24, 2023 the Company’s Board of Directors
determined it was appropriate to voluntarily delist its securities from The Nasdaq Capital Market (“Nasdaq”). On May 4, the
Company filed a Form 25 with the Securities and Exchange Commission (the “SEC”), and the delisting became effective on May
15, 2023. Following the delisting of the Company’s securities from Nasdaq, the Company filed a Form 15 with the SEC to suspend its
reporting obligations under the Securities Exchange Act of 1934, as amended. The Company expects that the deregistration of such securities
will become effective 90 days after the filing of the Form 25 with the SEC. The documents filed with the SEC will be available on the
Company’s website. The Board made the decision to pursue this strategy following its review and careful consideration of a number
of factors, including, but not limited to, the expected reduction in operating expenses by eliminating SEC reporting costs, which would
allow the Company to focus more resources on its continued pursuit and exploration of satisfactory strategic alternative transactions
and/or execution of an orderly wind down of the Company, if necessary. The Board determined that deregistration is in the overall best
interests of the Company and its stockholders. Following delisting of the Company’s Common Stock from Nasdaq, the Common Stock has
been quoted on the Pink Open Market operated by OTC Markets Group Inc. (the “OTC”) under the symbol “VYNT” starting
on May 15, 2023. The Company intends to continue to provide information to its stockholders and to take other actions within its control
to enable its Common Stock to be quoted on the OTC Pink Open Market in the Pink Current Information market tier. There is no guarantee,
however, that a broker will continue to make a market in the Common Stock and that trading of the Common Stock will continue on an OTC
market or otherwise. Going forward, Vyant Bio may, from time to time, when it deems appropriate, provide limited information regarding
its financial status and business activities, or issue press releases for select events or developments.
Cash
Preservation Plan Developments
On
May 9, 2023, the Company and the Andrew D. C. LaFrence, the Company’s President, Chief Executive Officer and Chief Financial Officer,
entered into a Consulting Agreement providing that effective as of June 1, 2023 (or such later date as may be agreement to by the Company
and Mr. LaFrence), Mr. LaFrence would continue to serve as the Company’s President, Chief Executive Officer and Chief Financial
Officer as a part time consultant rather than a full time employee. His employment agreement, which is filed as an exhibit to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021, would be deemed terminated as of that date by the Company without cause
for purposes of determining severance thereunder. The Consulting Agreement is seen as a further step in the Company’s efforts to
conserve cash consistent with its Cash Preservation Plan.
On
May 11, 2023 pursuant to the Company’s Cash Preservation Plan, the Company returned one piece of equipment to its leasing
Company for the final lease payment of $181 thousand.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the stockholders and the Board of Directors of Vyant Bio, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Vyant Bio, Inc. and subsidiaries (the “Company”) as of December
31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, temporary equity and common stockholders’
equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States
of America.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations since inception, has
an accumulated deficit, has substantially ceased revenue generation, and is projecting insufficient liquidity to meet its obligations
as they become due over the next twelve months, which raises substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Long-lived
Assets — Determination of Impairment Indicators — Refer to Notes 4, 6 and 7 to the financial statements
Critical
Audit Matter Description
The
Company’s evaluation of long-lived assets for impairment involves an initial assessment of each asset group to determine whether
events or changes in circumstances exist that may indicate that the carrying amounts of an asset group is no longer recoverable. Possible
indications of impairment may include events or changes in circumstances affecting the recoverability of an asset group’s carrying
value. When events or changes in circumstances exist, the Company evaluates its assets for impairment by comparing undiscounted future
cash flows expected to be generated over the life of each asset group to the respective carrying amount. If the carrying amount of an
asset group exceeds the undiscounted future cash flows, an impairment is recognized.
The
Company makes significant assumptions to evaluate an asset group for possible indications of impairment. Changes in these assumptions
could have a significant impact on an asset group identified for further analysis. For the year ended December 31, 2022, no impairment
loss has been recognized on its long-lived assets.
Given
the Company’s evaluation of possible indications of impairment of an asset group requires management to make significant assumptions,
performing audit procedures to evaluate whether management appropriately identified events or changes in circumstances indicating that
the carrying amounts of assets may not be recoverable required a high degree of auditor judgment and the use of fair value specialists.
How
the Critical Audit Matter Was Addressed in the Audit
Our
audit procedures related to the assessment of long-lived asset groups for possible indications of impairment included the following,
among others:
With
the assistance of fair value specialists, we evaluated management’s analysis of impairment indicators by:
| |
– |
Performing
inquiries of management regarding the process and assumptions used to identify potential indicators of impairment and evaluating
the consistency of the assumptions with evidence obtained in other areas of the audit. |
| |
|
|
| |
– |
Developing
an independent expectation of impairment indicators (or lack thereof) and comparing such expectation to management’s analysis. |
| |
|
|
| |
– |
Testing
long-lived asset groups for possible indications of impairment, including searching for adverse asset group-specific and/or market
conditions. |
| |
|
|
| |
– |
Inspecting
minutes of the board of directors, the Company’s public statements, operating plans, and industry data to identify evidence
that may contradict management’s assumptions. |
| /s/
DELOITTE & TOUCHE LLP |
|
| |
|
| Minneapolis,
Minnesota |
|
| March
31, 2023 |
|
| We
have served as the Company’s auditor since 2020. |
|
Vyant
Bio, Inc.
Consolidated
Balance Sheets
(Shares
and USD in thousands)
| | |
2022 | | |
2021 | |
| | |
December
31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Assets | |
| | | |
| | |
| Current
assets: | |
| | | |
| | |
| Cash
and cash equivalents | |
$ | 10,041 | | |
$ | 20,608 | |
| Trade
accounts and other receivables | |
| 323 | | |
| 434 | |
| Inventory | |
| 53 | | |
| 475 | |
| Prepaid
expenses and other current assets | |
| 747 | | |
| 895 | |
| Assets
of discontinuing operations – current | |
| 345 | | |
| 802 | |
| Total
current assets | |
| 11,509 | | |
| 23,214 | |
| Non-current
assets: | |
| | | |
| | |
| Fixed
assets, net | |
| 1,106 | | |
| 1,020 | |
| Operating
lease right-of-use assets, net | |
| 1,542 | | |
| 673 | |
| Long-term
prepaid expenses and other assets | |
| 1,048 | | |
| 1,221 | |
| Assets
of discontinuing operations – non-current | |
| - | | |
| 11,508 | |
| Total
non-current assets | |
| 3,696 | | |
| 14,422 | |
| Total
Assets | |
$ | 15,205 | | |
$ | 37,636 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Equity | |
| | | |
| | |
| Current
liabilities: | |
| | | |
| | |
| Accounts
payable | |
$ | 655 | | |
$ | 740 | |
| Accrued
expenses | |
| 1,154 | | |
| 764 | |
| Deferred
revenue | |
| 72 | | |
| 74 | |
| Obligations
under operating leases, current portion | |
| 313 | | |
| 174 | |
| Obligation
under finance lease, current portion | |
| 252 | | |
| 157 | |
| Liabilities
of discontinuing operations – current | |
| 1,219 | | |
| 3,522 | |
| Total
current liabilities | |
| 3,665 | | |
| 5,431 | |
| Obligations
under operating leases, less current portion | |
| 1,301 | | |
| 516 | |
| Obligations
under finance leases, less current portion | |
| 273 | | |
| 293 | |
| Long-term
debt | |
| 57 | | |
| 57 | |
| Liabilities
of discontinuing operations – non-current | |
| - | | |
| 49 | |
| Total
Liabilities | |
| 5,296 | | |
| 6,346 | |
| | |
| | | |
| | |
| Commitments
and Contingencies (Note 16) | |
| - | | |
| | |
| | |
| | | |
| | |
| Stockholders’
Equity | |
| | | |
| | |
| Preferred stock,
authorized 9,764 shares $ 0.0001 par value, 0 shares issued and outstanding as of December 31, 2022 and 2021 | |
| - | | |
| - | |
| Common
stock, authorized 100,000 shares, $0.0001 par value, 5,922 and 5,798 shares issued and outstanding as of December 31, 2022 and 2021,
respectively | |
| 1 | | |
| 1 | |
| Additional
paid-in capital | |
| 111,443 | | |
| 110,176 | |
| Accumulated
comprehensive loss | |
| (32 | ) | |
| (74 | ) |
| Accumulated
deficit | |
| (101,503 | ) | |
| (78,813 | ) |
| Total
Common Stockholders’ Equity | |
| 9,909 | | |
| 31,290 | |
| Total
Liabilities and Stockholders’ Equity | |
$ | 15,205 | | |
$ | 37,636 | |
See
Notes to Consolidated Financial Statements.
Vyant
Bio, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
(Shares
and USD in thousands, except per share amounts)
| | |
2022 | | |
2021 | |
| | |
Years
Ended December 31, | |
| | |
2022 | | |
2021 | |
| Revenue: | |
| | | |
| | |
| Service | |
$ | 99 | | |
$ | 665 | |
| Product | |
| 567 | | |
| 483 | |
| Total
revenue | |
| 666 | | |
| 1,148 | |
| Operating
costs and expenses: | |
| | | |
| | |
| Cost
of goods sold – service | |
| 44 | | |
| 408 | |
| Cost
of goods sold – product | |
| 964 | | |
| 1,439 | |
| Research
and development | |
| 6,772 | | |
| 4,273 | |
| Selling,
general and administrative | |
| 8,798 | | |
| 8,424 | |
| Merger
related costs | |
| - | | |
| 2,310 | |
| Total
operating costs and expenses | |
| 16,578 | | |
| 16,854 | |
| Loss
from operations | |
| (15,912 | ) | |
| (15,706 | ) |
| Other
income (expense): | |
| | | |
| | |
| Change
in fair value of warrant liability | |
| - | | |
| 214 | |
| Change
in fair value of share-settlement obligation derivative | |
| - | | |
| (250 | ) |
| Loss
on debt conversions | |
| - | | |
| (2,518 | ) |
| Other
income | |
| 12 | | |
| 57 | |
| Interest
expense, net | |
| 93 | | |
| (372 | ) |
| Total
other income (expense) | |
| 105 | | |
| (2,869 | ) |
| Loss
from continuing operations before income taxes | |
| (15,807 | ) | |
| (18,575 | ) |
| Income
tax expense (benefit) | |
| - | | |
| - | |
| Loss
from continuing operations | |
| (15,807 | ) | |
| (18,575 | ) |
| Discontinuing
operations (net of ($21)
and $0
tax (benefit) expense in 2022 and 2021, respectively) | |
| (6,883 | ) | |
| (22,284 | ) |
| Net
loss | |
| (22,690 | ) | |
| (40,859 | ) |
| Cumulative
translation adjustment | |
| 42 | | |
| (74 | ) |
| Comprehensive
loss | |
$ | (22,648 | ) | |
$ | (40,933 | ) |
| | |
| | | |
| | |
| Net
loss per share attributed to common stock – basic and diluted: | |
| | | |
| | |
| Net
loss per share from continuing operations | |
$ | (2.69 | ) | |
$ | (4.11 | ) |
| Net
loss per share from discontinuing operations | |
| (1.18 | ) | |
| (4.92 | ) |
| Net
loss per share | |
$ | (3.87 | ) | |
$ | (9.03 | ) |
| Weighted
average shares outstanding: | |
| | | |
| | |
| Weighted
average common shares outstanding – basic and diluted | |
| 5,868 | | |
| 4,525 | |
See
Notes to Consolidated Financial Statements.
Vyant
Bio, Inc.
Consolidated
Statements of Temporary Equity and Common Stockholders’ Equity (Deficit)
(Shares
and USD in thousands)
Years
Ended December 31, 2022 and 2021
| |
|
|
|
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income
(Loss) | | |
Equity | |
| |
|
|
|
| |
Common
Stock | | |
Additional
Paid In | | |
Accumulated | | |
Accumulated
Comprehensive | | |
Total
Stockholders’ | |
| |
|
|
|
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Equity | |
| Balance
as of January 1, 2022 |
- |
- |
- |
- | |
| 5,798 | | |
$ | 1 | | |
$ | 110,176 | | |
$ | (78,813 | ) | |
$ | (74 | ) | |
$ | 31,290 | |
| Beginning balance value |
- |
- |
- |
- | |
| 5,798 | | |
$ | 1 | | |
$ | 110,176 | | |
$ | (78,813 | ) | |
$ | (74 | ) | |
$ | 31,290 | |
| Stock-based
compensation |
- |
- |
- |
- | |
| - | | |
| - | | |
| 1,455 | | |
| - | | |
| - | | |
| 1,455 | |
| Exercise of stock
options |
|
|
|
| |
| 1 | | |
| - | | |
| 4 | | |
| - | | |
| - | | |
| 4 | |
| Vesting
of restricted stock |
|
|
|
| |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Issuance
of common stock, net of issuance costs of $250 |
|
|
|
| |
| 121 | | |
| - | | |
| (192 | ) | |
| - | | |
| - | | |
| (192 | ) |
| Foreign
currency translation adjustment |
|
|
|
| |
| - | | |
| - | | |
| - | | |
| - | | |
| 42 | | |
| 42 | |
| Net
loss |
|
|
|
| |
| - | | |
| - | | |
| - | | |
| (22,690 | ) | |
| - | | |
| (22,690 | ) |
| Balance
as of December 31, 2022 |
- |
- |
- |
- | |
| 5,922 | | |
$ | 1 | | |
$ | 111,443 | | |
$ | (101,503 | ) | |
$ | (32 | ) | |
$ | 9,909 | |
| Ending balance value |
- |
- |
- |
- | |
| 5,922 | | |
$ | 1 | | |
$ | 111,443 | | |
$ | (101,503 | ) | |
$ | (32 | | |
$ | 9,909 | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Equity | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
(Deficit) | |
| | |
Series
A
Preferred Stock | | |
Series
B
Preferred Stock | | |
Series
C
Preferred Stock | | |
Total
Temporary |
|
|
Common
Stock | | |
Additional
Paid In | | |
Accumulated | | |
Accumulated
Comprehensive | | |
Total
Common
Stockholders’
Equity | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Equity | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
(Deficit) | |
| Balance
as of January 1, 2021 | |
| 4,612 | | |
$ | 12,356 | | |
| 3,489 | | |
$ | 16,651 | | |
| - | | |
$ | - | | |
$ | 29,007 | | |
| 519 | | |
$ | - | | |
$ | 1,514 | | |
$ | (37,954 | ) | |
$ | - | | |
$ | (36,440 | ) |
| Stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,298 | | |
| - | | |
| - | | |
| 1,298 | |
| Exercise of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1 | | |
| - | | |
| 41 | | |
| - | | |
| - | | |
| 41 | |
| 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 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,201 | | |
| - | | |
| 59,920 | | |
| - | | |
| - | | |
| 59,920 | |
| Issuance
of Incremental shares to StemoniX shareholders upon Merger | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 161 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Conversion
of Preferred Stock to Common Stock upon Merger | |
| (4,612 | ) | |
| (12,356 | ) | |
| (3,489 | ) | |
| (16,651 | ) | |
| (567 | ) | |
| (1,786 | ) | |
| (30,793 | ) | |
| 2,239 | | |
| 1 | | |
| 30,792 | | |
| - | | |
| - | | |
| 30,793 | |
| Conversion
of 2020 Notes to Common Stock upon Merger | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 668 | | |
| - | | |
| 16,190 | | |
| - | | |
| - | | |
| 16,190 | |
| Preferred
stock warrant settled for Common Stock upon Merger | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Warrant
liability reclassified to equity upon Merger | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| 421 | | |
| - | | |
| - | | |
| 421 | |
| Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| | | |
| (74 | ) | |
| (74 | ) |
| Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (40,859 | ) | |
| - | | |
| (40,859 | ) |
| Balance
as of December 31, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
| 5,798 | | |
$ | 1 | | |
$ | 110,176 | | |
$ | (78,813 | ) | |
$ | (74 | ) | |
$ | 31,290 | |
See
Notes to Consolidated Financial Statements.
Vyant
Bio, Inc.
Condensed
Consolidated Statements of Cash Flows
(USD
in Thousands)
| | |
2022 | | |
2021 | |
| | |
Years
Ended December 31, | |
| | |
2022 | | |
2021 | |
| Cash
Flows from Operating Activities: | |
| | | |
| | |
| Net
loss | |
$ | (22,690 | ) | |
$ | (40,859 | ) |
| Net
loss from discontinuing operations | |
| 6,883 | | |
| 22,284 | |
| Reconciliation
of net loss to net cash used in operating activities, continuing operations: | |
| | | |
| | |
| Stock-based
compensation | |
| 1,186 | | |
| 1,003 | |
| Amortization
of operating lease right-of-use assets | |
| 321 | | |
| 504 | |
| Depreciation
and amortization expense | |
| 522 | | |
| 550 | |
| Change
in fair value of share-settlement obligation derivative | |
| - | | |
| 250 | |
| Change
in fair value of financial instruments | |
| - | | |
| (210 | ) |
| Accretion
of debt discount | |
| - | | |
| 173 | |
| Loss
on conversion of debt | |
| - | | |
| 2,518 | |
| Other | |
| (1 | ) | |
| (14 | ) |
| Changes
in operating assets and liabilities, net of impacts of business combination: | |
| | | |
| | |
| Trade
accounts and other receivables | |
| 111 | | |
| (77 | ) |
| Inventory | |
| 422 | | |
| (60 | ) |
| Prepaid
expense and other assets | |
| 321 | | |
| (165 | ) |
| Accounts
payable | |
| (85 | ) | |
| (1,146 | ) |
| Obligations
under operating leases | |
| (265 | ) | |
| (499 | ) |
| Accrued
expenses and other liabilities | |
| 387 | | |
| (740 | ) |
| Net
cash used in operating activities, continuing operations | |
| (12,888 | ) | |
| (16,488 | ) |
| Net
cash used in operating activities, discontinuing operations | |
| (793 | ) | |
| (505 | ) |
| Net
cash used in operating activities | |
| (13,681 | ) | |
| (16,993 | ) |
| Cash
Flows from Investing Activities: | |
| | | |
| | |
| Purchase
of equipment | |
| (617 | ) | |
| (535 | ) |
| Proceeds
from patent held for sale and equipment sales | |
| - | | |
| 50 | |
| Cash
acquired from acquisition | |
| - | | |
| 30,163 | |
| Net
cash (used in) provided by investing activities, continuing operations | |
| (617 | ) | |
| 29,678 | |
| Net
cash provided by (used in) investing activities, discontinuing operations | |
| 3,880 | | |
| (59 | ) |
| Net
cash provided by investing activities | |
| 3,263 | | |
| 29,619 | |
| Cash
Flows from Financing Activities: | |
| | | |
| | |
| Issuance
of common stock, net of issuance costs | |
| (188 | ) | |
| 41 | |
| Issuance
of Series C Convertible Preferred Stock, net of issuance costs | |
| - | | |
| 1,786 | |
| 2020
Convertible Note proceeds, net of issuance costs | |
| - | | |
| 5,022 | |
| Principal
payments on long-term debt | |
| - | | |
| (82 | ) |
| Proceeds
from lease financing | |
| 266 | | |
| 492 | |
| Principal
payments on obligations under financing leases | |
| (191 | ) | |
| (37 | ) |
| Net
cash (used in) provided by financing activities, continuing operations | |
| (113 | ) | |
| 7,222 | |
| Net
cash used in financing activities, discontinuing operations | |
| (36 | ) | |
| (32 | ) |
| Net
cash (used in) provided by financing activities | |
| (149 | ) | |
| 7,190 | |
| Net
(decrease) increase in cash and cash equivalents | |
| (10,567 | ) | |
| 19,816 | |
| Cash
and cash equivalents, beginning of year | |
| 20,608 | | |
| 792 | |
| Cash
and cash equivalents, end of year | |
$ | 10,041 | | |
$ | 20,608 | |
| | |
| | | |
| | |
| Supplemental
disclosure of cash flow information: | |
| | | |
| | |
| Cash
paid for interest | |
$ | 34 | | |
$ | 8 | |
| Cash
paid for income taxes | |
| 8 | | |
| - | |
| Non-cash
investing activities: | |
| | | |
| | |
| Fair
value of non-cash merger consideration | |
$ | - | | |
$ | 59,920 | |
| Right-of-use
assets obtained in exchange for new operating lease liabilities | |
| 1,189 | | |
| 83 | |
| Non-cash
financing activities: | |
| | | |
| | |
| Conversion
of Convertible 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 Consolidated Financial Statements.
Vyant
Bio, Inc.
Notes
to Consolidated Financial Statements
Note
1. Organization, Description of Business, Business Disposals, Offerings and Merger
Vyant
Bio, Inc. (the “Company”, “Vyant Bio”, “VYNT” or “we”),
is an innovative biotechnology company reinventing drug discovery for complex neurodevelopmental and neurodegenerative disorders.
Our central nervous system (“CNS”) drug discovery platform combines human-derived organoid models of brain disease, scaled
biology, and machine learning. Our platform is designed to: 1) elucidate disease pathophysiology; 2) formulate key therapeutic hypotheses;
3) identify and validate drug targets, cellular assays, and biomarkers to guide candidate molecule selection; and 4) guide clinical trial
patient selection and trial design. Our current programs are focused on identifying repurposed and novel small molecule clinical candidates
for rare CNS genetic disorders including Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders (“CDD”) and familial
Parkinson’s Disease (“PD”). The Company’s management believes that drug discovery needs to progressively shift
as the widely used preclinical models for predicting safe and effective drugs have under-performed, as evidenced by the time and cost
of bringing novel drugs to market. As a result, Vyant Bio is focused on combining sophisticated data science capabilities with highly
functional human cell derived disease models. We leverage our ability to identify validated targets and molecular-based biomarkers to
screen and test thousands of small molecule compounds in human diseased 3D brain organoids in order to create a unique approach to assimilating
biological data that supports decision making iteratively throughout the discovery phase of drug development to identify both novel and
repurposed drug candidates.
As
further described in Note 3, in December 2021, the Company’s Board of Directors approved
a plan to sell the vivoPharm Pty Ltd (“vivoPharm”) business to focus the Company on the development of neurological
developmental and degenerative disease therapeutics. In the fourth quarter of 2022, the Company sold substantially all of the operations
of vivoPharm in two separate transactions.
The Company is expected to generate minimal revenue
from continuing operations as we have substantially ceased the Maple Grove facility’s revenue producing operations to support internal
drug discovery programs. The Company had cash and cash equivalents of $10.0 million as of December 31, 2022, an accumulated deficit of
$101.5 million, cash outflows from continuing operations of $12.8 million for the year then ended 2022, and a net loss from continuing
operations of $15.8 million. As further described in Note 17, on January 4, 2023, the Company announced that it had engaged LifeSci Capital
as its financial advisor to assist in exploring a wide range of strategic alternatives focused on enhancing shareholder value which could
include selling the Company, selling Company assets, or including our public company as a reverse merger candidate. The Company’s
Board of Directors (the “Board”) approved a plan on January 31, 2023 to preserve the Company’s cash to be able to continue
to pursue a satisfactory strategic alternative for the purpose of maximizing the value of the Company’s business while also having
sufficient cash to adequately fund an orderly wind down of the Company’s operations (the “Cash Preservation Plan”) in
the event it is unable to secure a satisfactory strategic alternative. On March 24, 2023 the Company terminated its (a) Equity Distribution
Agreement, dated April 8, 2022, by and between the Company and Canaccord Genuity LLC, regarding the issue and sale, from time to time,
of shares of the Company’s common stock for an aggregate offering price of up to $20,000,000, and (b) Purchase Agreement, dated
March 28, 2022, by and between the Company and Lincoln Park Capital Fund, LLC, regarding the issue and sale, from time to time, of shares
of the Company’s common stock for an aggregate offering price of up to $15,000,000.
Going Concern
The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Company has suffered recurring losses and negative
cash flows from operations since inception, has an accumulated deficit, and is expected to generate minimal revenue from continuing operations
as we have substantially ceased the Maple Grove facility’s revenue producing operations to support internal drug discovery programs.
The Company is projecting insufficient liquidity to meet its obligations as they become due over the next twelve months. The Company had cash and cash equivalents of $10.0 million as of December 31, 2022, an accumulated deficit of $101.5
million, cash outflows from continuing operations of $12.8 million for the year then ended 2022, and a net loss from continuing operations
of $15.8 million. As further described in Note 17, on January 4, 2023, the Company announced that it had engaged LifeSci Capital as its
financial advisor to assist in exploring a wide range of strategic alternatives focused on enhancing shareholder value which could include
selling the Company, selling Company assets, or including our public company as a reverse merger candidate. The Company’s Board
of Directors (the “Board”) approved a plan on January 31, 2023 to preserve the Company’s cash to be able to continue
to pursue a satisfactory strategic alternative for the purpose of maximizing the value of the Company’s business while also having
sufficient cash to adequately fund an orderly wind down of the Company’s operations (the “Cash Preservation Plan”) in
the event it is unable to secure a satisfactory strategic alternative. On March 24, 2023 the Company terminated its (a) Equity Distribution
Agreement, dated April 8, 2022, by and between the Company and Canaccord Genuity LLC, regarding the issue and sale, from time to time,
of shares of the Company’s common stock for an aggregate offering price of up to $20,000,000, and (b) Purchase Agreement, dated
March 28, 2022, by and between the Company and Lincoln Park Capital Fund, LLC, regarding the issue and sale, from time to time, of shares
of the Company’s common stock for an aggregate offering price of up to $15,000,000. These conditions
and events raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions and based on our current
operating plan, the Company plans to reduce expenses, slow cash flows, and evaluate strategic partners to acquire our assets, including
our public company as a reverse merger candidate. There are no assurances that we will be able to raise cash in these transactions or
find a reverse merger candidate and we may therefore need to complete an orderly winddown of the Company’s operations or, if sufficient
funds are not available, bankruptcy. These plans have not yet been finalized and are not within the Company’s control, and therefore
cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about
the Company’s ability to continue as a going concern.
The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities
that might result from the outcome of this uncertainty.
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 3,595,508 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
“Major Investor Warrant”) issued to a certain StemoniX convertible note holder (the “Major Investor”)), (ii)
options to purchase an aggregate of 178,356 shares
of Common Stock to the holders of StemoniX options with exercise prices ranging from $3.30 to
$23.05 per
share and a weighted average exercise price of $7.30
per share, and (iii) a warrant (the “Major Investor Warrant”) to the Major Investor, expiring February 23, 2026 to
purchase 28,778 shares
of Common Stock at a price of $29.5295 per
share in exchange for the Major 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 2,201,437 shares of Common
Stock or $50.74 million, 431,537 Common Stock warrants or $9.04 million and 11,181 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 160,942 incremental shares in accordance with the conversion ratio set forth in the Merger Agreement.
The
Company incurred $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 year ended December 31, 2021.
The
following details the allocation of the preliminary purchase price consideration recorded on March 30, 2021, the acquisition date, with
adjustments recorded through the first quarter of 2022, the end of the purchase price allocation period.
Schedule
of Preliminary Allocation of Purchase Price Consideration
| | |
Preliminary | | |
Adjustments | | |
Final | |
| Assets
acquired: | |
| | | |
| | | |
| | |
| Cash
and equivalents | |
$ | 30,163 | | |
$ | - | | |
$ | 30,163 | |
| Accounts
receivable | |
| 705 | | |
| - | | |
| 705 | |
| Other
current assets | |
| 806 | | |
| 227 | | |
| 1,033 | |
| Intangible
assets | |
| 9,500 | | |
| - | | |
| 9,500 | |
| Fixed
assets | |
| 416 | | |
| (256 | ) | |
| 160 | |
| Goodwill | |
| 22,164 | | |
| 216 | | |
| 22,380 | |
| Long-term
prepaid expenses and other assets | |
| 1,381 | | |
| - | | |
| 1,381 | |
| Total
assets acquired | |
$ | 65,135 | | |
$ | 187 | | |
$ | 65,322 | |
| | |
| | | |
| | | |
| | |
| Liabilities
assumed: | |
| | | |
| | | |
| | |
| Accounts
payable and accrued expenses | |
$ | 2,670 | | |
$ | 437 | | |
$ | 3,107 | |
| Current
liabilities of discontinuing operations | |
| 588 | | |
| (141 | ) | |
| 447 | |
| Obligations
under operating leases | |
| 198 | | |
| - | | |
| 198 | |
| Obligations
under finance leases | |
| 106 | | |
| - | | |
| 106 | |
| Deferred
revenue | |
| 1,293 | | |
| (114 | ) | |
| 1,179 | |
| Payroll
and income taxes payable | |
| 360 | | |
| 5 | | |
| 365 | |
| Total
liabilities assumed | |
$ | 5,215 | | |
$ | 187 | | |
$ | 5,402 | |
| | |
| | | |
| | | |
| | |
| Net
assets acquired | |
$ | 59,920 | | |
$ | - | | |
$ | 59,920 | |
The
Company substantially completed valuation analyses necessary to assess the fair values of the tangible and intangible assets acquired
and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. Fair values were based on management’s estimates and assumptions.
The Company recognized intangible assets related to the Merger, which consist of the tradename valued at $1.5
million with an estimated useful life of ten
years and customer relationships valued at $8.0
million with an estimated useful life of ten
years. The 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, 2021:
Schedule
of Proforma Financial Information
| | |
Year
ended
December
31, | |
| | |
2021 | |
| Total
revenue | |
$ | 6,726 | |
| Net
loss | |
| (35,623 | ) |
| Pro
forma loss per common share, | |
| (6.15 | ) |
| Pro forma weighted
average number of common shares basic and diluted | |
| 5,795,498 | |
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, 2021, nor are they necessarily indicative of future consolidated results.
Note
3. Discontinuing Operations
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm Pty Ltd
(“vivoPharm”) business to focus the Company on the development of neurological developmental and
degenerative disease therapeutics. In December 2021, the Company engaged an investment bank to sell the vivoPharm business
which was substantially completed in the fourth quarter of 2022.
On
November 2, 2022 the Company completed the sale of its principal vivoPharm subsidiary, vivoPharm LLC located in
Hershey, Pennsylvania, to Reaction Biology Corporation for $5.5 million
in an upfront cash payment, subject to customary adjustments for working capital, closing cash, indebtedness and transaction
expenses. After these closing adjustments were reflected, $5.5 million
was paid at closing and an additional $0.3 million was paid in February 2023. Vyant Bio received approximately $4.8 million
in cash after transaction related expenses and income taxes, as well as incur $0.4 million
in exit costs associated with this transaction. Exit costs associated with the vivoPharm business were paid in January 2023.
In connection with the sale of the vivoPharm LLC business, the Company agreed to retain certain liabilities aggregating to
$357 thousand.
On
December 30, 2022, the Company entered into a Share Purchase Agreement (the “Agreement”) with Sabine Brandt as trustee
for the Brandt Family Trust (“Buyer”), pursuant to which vivoPharm sold the entirety of the Company’s
remaining vivoPharm business for early discovery services, represented by 100% of the outstanding shares of (i) of RDDT a vivoPharm
Company Pty Ltd; and (ii) vivoPharm Europe Ltd, to Buyer in exchange for a nominal cash amount, subject to adjustments for
closing cash and accounts payable, on and subject to the terms and conditions set forth therein. The sale resulted in the Company
delivering target closing cash as part of the sold entities of approximately $827 thousand
and the assumption by Buyer of liabilities of the sold entities aggregating to approximately $2.0 million.
The Transaction was consummated effective December 31, 2022. The Agreement contains customary representations, warranties, covenants
and indemnification provisions.
As further described in note 17, the Company sold
the remainder of the vivoPharm business in Australia on March 13, 2023.
In
connection with the classification of the vivoPharm business as held for sale in the fourth quarter of 2021, the Company
completed a valuation of the net carrying value of this business and recorded a goodwill impairment charge of $20.2
million. In 2022, the Company recorded an additional impairment charges of $5.4
million consisting of the write-off of the remaining $2.2
million goodwill balance and reducing the cost basis of customer relationships and tradenames by $2.7
million and $0.5
million, respectively.
Also
included in discontinuing operations are pre-Merger-related payables related to Cancer Genetics’ sale of its BioPharma and Clinical
businesses (“Pre-Merger discontinuing operations”). As of December 31, 2022 and 2021, $267 thousand and $409 thousand, respectively,
of liabilities relating to these businesses are classified as other current liabilities – discontinuing operations on the Company’s
condensed consolidated balance sheets.
Results
of discontinuing operations were as follows:
Schedule of Disposal Groups Including
Discontinuing Operations from Income Statement
| | |
|
2022 |
|
|
2021 | |
| | |
Years
ended December 31, | |
| | |
2022 | | |
2021 | |
| Revenue | |
$ | 6,406 | | |
$ | 3,978 | |
| Cost
of goods sold | |
| 3,189 | | |
| 2,524 | |
| General
and administrative | |
| 4,709 | | |
| 3,531 | |
| Impairment of
goodwill and intangible assets | |
| 5,415 | | |
| 20,216 | |
| Total
operating costs and expenses | |
$ | 13,313 | | |
$ | 26,271 | |
| Loss
from discontinuing operations | |
$ | (6,907 | ) | |
$ | (22,293 | ) |
| Total
other income | |
$ | 3 | | |
$ | 9 | |
| Loss
from discontinuing operations before income taxes | |
$ | (6,904 | ) | |
$ | (22,284 | ) |
| Income
tax expense (benefit) | |
| (21 | ) | |
| - | |
| Net
loss from discontinuing operations | |
$ | (6,883 | ) | |
$ | (22,284 | ) |
Asset
and liabilities of discontinuing operations were as follows:
Schedule
of Disposal Groups Including Discontinuing Operations from Balance Sheet
| | |
|
2022 |
|
|
2021 | |
| | |
December
31, | |
| | |
2022 | | |
2021 | |
| Accounts
receivable | |
$ | 11 | | |
$ | 457 | |
| Due from Reaction Biology Corporation | |
| 334 | | |
| | |
| Other
current assets | |
| - | | |
| 345 | |
| Assets
of discontinuing operations - current | |
$ | 345 | | |
$ | 802 | |
| | |
| | | |
| | |
| Fixed
assets, net of accumulated depreciation | |
$ | - | | |
$ | 163 | |
| Operating
lease right-of-use assets | |
| - | | |
| 30 | |
| Patents
and other intangible assets, net | |
| - | | |
| 8,787 | |
| Goodwill | |
| - | | |
| 2,164 | |
| Other
assets | |
| - | | |
| 364 | |
| Assets
of discontinuing operations - non-current | |
$ | - | | |
$ | 11,508 | |
| | |
| | | |
| | |
| Accounts
payable | |
$ | 47 | | |
$ | 358 | |
| Due to RDDT a vivoPharm Company Pty Ltd | |
| 216 | | |
| | |
| Accrued
expense | |
| 577 | | |
| 418 | |
| Obligation
under operating lease, current | |
| - | | |
| 29 | |
| Obligation
under finance lease, current | |
| - | | |
| 32 | |
| Deferred
revenue | |
| 43 | | |
| 1,911 | |
| Taxes
payable | |
| 69 | | |
| 365 | |
| Other
current liabilities | |
| 267 | | |
| 409 | |
| Liabilities
of discontinued operations - current | |
$ | 1,219 | | |
$ | 3,522 | |
| | |
| | | |
| | |
| Obligations
under operating leases, less current | |
$ | - | | |
$ | 2 | |
| Obligations
under finance leases, less current | |
| - | | |
| 47 | |
| Liabilities
of discontinued operations -non- current | |
$ | - | | |
$ | 49 | |
There
were no intangible assets as of December 31, 2022. Intangible assets consisted of the following as of December 31, 2021:
Schedule
of Intangible Assets
| | |
2021 | |
| Intangible
Assets: | |
| | |
| Customer
relationships | |
$ | 8,000 | |
| Trade
name | |
| 1,500 | |
| Intangible
assets gross | |
| 9,500 | |
| Less
accumulated amortization | |
| (713 | ) |
| Intangible
assets, net | |
$ | 8,787 | |
Amortization
expense for intangible assets aggregated $713 thousand for the year ended December 31, 2021. There was no amortization expense for intangible
assets recorded in 2022.
Goodwill
arising from the Merger was solely attributed to the vivoPharm business. The following is a roll forward of goodwill as of and
for the year ended December 31, 2022 and 2021:
Schedule of Goodwill Rollforward
| Beginning balance,
January 1, 2021 | |
$ | - | |
| Initial
balance upon consummation of the Merger | |
| 22,164 | |
| Purchase price adjustments | |
| 216 | |
| Impairment
charge | |
| (20,216 | ) |
| Ending balance, December
31, 2021 | |
$ | 2,164 | |
| Impairment
charge | |
| (2,164 | ) |
| Ending
balance, December 31, 2022 | |
$ | - | |
Note
4. Significant Accounting Policies
Basis
of presentation: The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP).
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.
All of the Company’s assets from continuing operations are maintained in the U.S. The Company views and manages its continuing
operations as one segment. Per Note 2, the Merger on March 30, 2021, combined the StemoniX business with Vyant Bio and its vivoPharm
business. The Company completed its review of the ongoing strategy and reporting structure of its operations in the fourth quarter of
2021 resulting in the Company’s Board of Directors approval to engage investment bankers to sell the vivoPharm business
in 2022. As a result of this strategic decision, the Company completed its analysis of segment and reporting unit accounting arising
from the Merger, identified vivoPharm as a reporting unit, and allocated all of the goodwill arising from the Merger to the vivoPharm
business’ discontinuing operations. See Note 3 for further information regarding the vivoPharm discontinuing operations.
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.
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 loss as a component of stockholders’ equity. For the years ended December 31,
2022 and 2021 there were foreign currency translation gains of $42
thousand and losses of $74
thousand, respectively, all related to the vivoPharm
business. Gains and losses resulting from foreign currency transactions that are denominated in currencies other than the entity’s
functional currency are included within discontinuing operations in the consolidated statements of operations.
Use
of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
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 revenue 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 fair value of the net assets of the vivoPharm business classified as discontinuing operations,
the useful lives of fixed assets; the valuation of embedded derivatives; deferred tax assets, inventory, right-of-use (ROU)
assets and lease liabilities, stock-based compensation, income tax uncertainties, other long-lived assets and other
contingencies.
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. The cash and cash equivalents balance as of December 31, 2022 and 2021 includes $8.6 million and $12.0 million,
respectively, invested in a U.S. government money market fund.
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.
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. 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, which is generally deemed to occur upon shipment. 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.
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
(i.e., deferred revenue) 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 revenue 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.
There
were no contract
assets from continuing operations as of December 31, 2022. There were contract assets from continuing operations of $70
thousand as of December 31, 2021. Contract liabilities
from continuing operations related to unfulfilled performance obligations were $72 thousand and $74 thousand as of December 31, 2022
and 2021, respectively, and are recorded in deferred revenue. There were no contract assets classified within discontinuing operations
as of December 31, 2022. Contract assets classified within discontinuing operations aggregated $75 thousand as of December 31, 2021.
Contract liabilities classified within discontinuing operations aggregated $43 thousand and $1.9 million as of December 31, 2022 and
2021, respectively.
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 December 31, 2022 or 2021. Write-offs for the years ended
December 31, 2022 and 2021 were not significant. The Company does not have any off-balance-sheet credit exposure related to its customers.
Other
receivables: For the years ended December 31, 2022 and 2021, the Company elected to use federal research and development
(R&D) tax credit carryforwards to offset federal payroll taxes paid. The Company recorded R&D tax credit receivables of
$252
thousand and $100
thousand as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022 and 2021, the Company recognized
$252
thousand and $205
thousand, respectively, of R&D tax credits as a reduction in payroll tax expenses within continuing operations.
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 December 31, 2022 and 2021, one and four customers,
respectively, represented 10% or more of the Company’s total trade accounts receivable, and in the aggregate, these customers
represented 100%,
or $ 71
thousand, and 78%,
or $262 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 - 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
expenses and other assets: In connection with the Merger, 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 $2.7 million are being expensed over
the term of each respective policy. As of December 31, 2022 and 2021, $797 thousand and
$1.0 million, respectively, 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 year end.
Deferred
revenue: Payments received in advance of services rendered are recorded as deferred revenue and are subsequently recognized as revenue
in the period in which the services are performed.
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 group may not be recoverable. If circumstances require a long-lived asset group be tested for possible impairment, the Company
first compares undiscounted cash flows expected to be generated by that asset group to its carrying amount. If the carrying amount
of the long-lived 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 December 31, 2022 and 2021 the Company determined that there were no indicators of
impairment and did not recognize any fixed asset impairment use in continuing operations.
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. The Company did not record Goodwill
prior to the March 30, 2021 Merger. As a result of the Merger, the Company recorded $22.4
million of goodwill attributed to the vivoPharm business. As a described in Note 3, the Company classified the vivoPharm business as a held for sale asset in the fourth quarter of 2021 and concurrently evaluated the carrying value
of this asset group to its estimated fair value resulting in the recording of a $20.2
million goodwill impairment charge in 2021. An additional $2.2
million goodwill impairment charge was recorded in 2022.
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.
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.
Derivative
instruments: The Company recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets
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.
Income
taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized 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 and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be
realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company recognizes the effect of income tax positions
only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that
is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in
judgment occurs. The Company records interest related to unrecognized tax benefits and penalties in income tax expense.
The
Company elects to present deferred taxes and the effect of unrecognized tax benefits associated with the held for sale assets and liabilities
as part of the assets (or liabilities) held for sale. The deferred taxes primarily relate to net operating loss carryforwards in US and
foreign jurisdictions that are classified as held for sale. Due to a valuation allowance recorded against the deferred tax assets, the
net impact of deferred tax assets included in the held for sale assets and liabilities is $0.
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 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.
Intangible
assets: Intangible assets consist of vivoPharm’s customer relationships and tradename that were acquired in
the Merger, which were being amortized using the straight-line method over the estimated useful lives of the assets of ten
years. These assets were included in long-term assets of discontinuing operations as of December 31, 2021. Therefore, the Company
did not record any amortization expense in 2022 for these assets. As described in Note 3, the vivoPharm business was sold in the
fourth quarter of 2022, and there are no
intangible assets remaining as of December 31, 2022. Amortization expense in discontinuing operations for these intangible assets
aggregated $713 thousand
for the year ended December 31, 2021.
Research
and development: Research and development 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 were $6.8 million and $4.3 million for the years ended December 31, 2022 and 2021, respectively.
Advertising
costs: Advertising costs are expensed as incurred. Advertising costs were $28 thousand and
$34 thousand for the years ended December 31, 2022 and 2021, respectively.
Stock-based
compensation: The Company recognizes all employee stock-based compensation as an expense
in the consolidated statements of operations. 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.
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.
Subsequent
events: The Company has evaluated potential subsequent events through the date the financial statements were issued within our Annual
Report on Form 10-K. See Note 17 to these Consolidated Financial Statements.
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.
Note
5. Inventory
The
Company’s inventory consists of the following:
Schedule
of Inventory
| | |
December 31,
2022 | | |
December 31,
2021 | |
| Finished
goods | |
$ | - | | |
$ | 23 | |
| Work
in process | |
| 9 | | |
| 138 | |
| Raw
materials | |
| 44 | | |
| 314 | |
| Total
inventory | |
$ | 53 | | |
$ | 475 | |
Note
6. Fixed Assets
Presented
in the table below are the major classes of fixed assets by category:
Schedule
of Fixed Assets
| | |
December 31,
2022 | | |
December 31,
2021 | |
| Equipment | |
$ | 2,962 | | |
$ | 2,733 | |
| Furniture
and fixtures | |
| 6 | | |
| 6 | |
| Leasehold
improvements | |
| 612 | | |
| 251 | |
| Fixed
assets, gross | |
| 3,580 | | |
| 2,990 | |
| Less
accumulated depreciation | |
| (2,474 | ) | |
| (1,970 | ) |
| Fixed
assets, net | |
$ | 1,106 | | |
$ | 1,020 | |
Depreciation
expense from continuing operations for the years ended December 31, 2022 and 2021 was $522 thousand and $550 thousand, respectively.
Note
7. Leases
During
October 2021, the Company entered into a new $491 thousand equipment financing lease. The Company leases its laboratory, research and
administrative office spaces under various operating leases. As of December 31, 2022, the Company leased facilities in Maple Grove, Minnesota
and in San Diego, California under arrangements which expire in 2027. These leases require monthly
rent with periodic rent increases. Under the agreements, the Company is also liable for certain insurance, property tax and common area
maintenance costs. 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. In January 2022, the Company recorded a $1.2 million ROU asset
and related liability upon the signing of a new 5-year lease in San Diego, California.
The
components of operating and finance lease expense in continuing operations for the years ended December 31, are as follows:
Schedule
of Components of Lease Expense and Supplemental Information
| | |
2022 | | |
2021 | |
| Operating
lease cost | |
$ | 441 | | |
$ | 504 | |
| Finance
lease cost: | |
| | | |
| | |
| Depreciation
of ROU assets | |
$ | 204 | | |
$ | 35 | |
| Interest
on lease liabilities | |
| 34 | | |
| 8 | |
| Total
finance lease cost: | |
$ | 238 | | |
$ | 43 | |
| Variable
lease costs | |
$ | - | | |
$ | - | |
| Short-term
lease costs | |
| - | | |
| - | |
| Total
lease continuing operations expense | |
$ | 679 | | |
$ | 547 | |
Amounts
reported in the consolidated balance sheet from continuing operations as of December 31, 2022 and 2021 are as follows:
Schedule
of Amounts Reported in the Consolidated Balance Sheet
| | |
2022 | | |
2021 | |
| Operating
leases: | |
| | | |
| | |
| Operating
lease ROU assets, net | |
$ | 1,542 | | |
$ | 673 | |
| Operating
lease current liabilities | |
$ | 313 | | |
$ | 174 | |
| Operating
lease long-term liabilities | |
| 1,301 | | |
| 516 | |
| Total
operating lease liabilities | |
$ | 1,614 | | |
$ | 690 | |
| Finance
leases: | |
| | | |
| | |
| Equipment | |
$ | 744 | | |
$ | 477 | |
| Accumulated
depreciation | |
| (244 | ) | |
| (63 | ) |
| Finance
leases, net | |
$ | 500 | | |
$ | 414 | |
| Current
installment obligations under finance leases | |
$ | 252 | | |
$ | 157 | |
| Long-term
portion of obligations under finance leases | |
| 273 | | |
| 293 | |
| Total
finance lease liabilities | |
$ | 525 | | |
$ | 450 | |
Equipment
subject to finance leases are classified within fixed assets, net, on the accompanying consolidated balance sheets.
Supplemental
cash flow related to operating and finance leases of the Company’s continuing operations is as follows for the years ended December
31, 2022 and 2021:
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Cash
paid amounts included in the measurement of lease liabilities from continuing operations: | |
| | | |
| | |
| Operating
cash flows used for operating leases | |
$ | (265 | ) | |
$ | (509 | ) |
| Financing
cash flows used for finance leases | |
$ | (191 | ) | |
$ | (37 | ) |
| Financing
cash flows provided by finance leases | |
$ | 266 | | |
$ | 492 | |
Other
supplemental information related to operating and finance leases of the Company’s continuing operations is as follows as of December
31, 2022 and 2021:
| | |
2022 | | |
2021 | |
| Weighted
average remaining lease term (in years): | |
| | | |
| | |
| Operating
leases | |
| 4.45 | | |
| 5.42 | |
| Finance
leases | |
| 2.05 | | |
| 2.75 | |
| | |
| | | |
| | |
| Weighted average
discount rate: | |
| | | |
| | |
| Operating
leases | |
| 8.30 | % | |
| 9.88 | % |
| Finance
leases | |
| 6.90 | % | |
| 6.54 | % |
Annual
future payments of lease liabilities under noncancelable leases as of December 31, 2022 are as follows:
Schedule
of Annual Payments of Lease liabilities Under Noncancelable leases
| | |
Operating
leases | | |
Finance
leases | |
| 2023 | |
$ | 433 | | |
$ | 280 | |
| 2024 | |
| 423 | | |
| 235 | |
| 2025 | |
| 427 | | |
| 50 | |
| 2026 | |
| 441 | | |
| - | |
| 2027 | |
| 215 | | |
| - | |
| Thereafter | |
| - | | |
| - | |
| Total
undiscounted lease payments | |
| 1,939 | | |
| 566 | |
| Less:
imputed interest | |
| (325 | ) | |
| (41 | ) |
| Total
lease liabilities | |
$ | 1,614 | | |
$ | 525 | |
Note
8. Income Taxes
The
components of loss before income taxes from continuing operations consist of the following.
Schedule
of Components of Loss Before Income Tax From Continuing operations
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| United
States | |
$ | (15,807 | ) | |
$ | (18,575 | ) |
| Foreign | |
| - | | |
| - | |
| Total
loss before income taxes | |
$ | (15,807 | ) | |
$ | (18,575 | ) |
The
Company did not record any current, deferred, or net income tax expense (benefit) from continuing operations in 2022 or 2021. Total income
tax expense (benefit) from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21%
to pretax income as a result of the following for the years ended December 31:
Schedule
of Components of Income Tax Expense Benefit
| | |
2022 | |
| 2021 |
|
| Computed
“expected” tax expense | |
$ | (3,219 | ) |
| $ |
(3,901) |
|
| Deferred
rate change | |
| (132 | ) |
| |
84 |
|
| State
taxes, net of federal tax effect | |
| (822 | ) |
| |
(752) |
|
| Non-deductible
transaction costs | |
| - | |
| |
222 |
|
| Non-deductible
interest | |
| 2 | |
| |
664 |
|
| R&D
tax credit | |
| 238 | |
| |
(238) |
|
| Sale of vivoPharm business | |
| (72 | ) |
| |
|
|
| Other,
net | |
| 117 | |
| |
(51) |
|
| Change
in valuation allowance | |
| 3,888 | |
| |
3,972 |
|
| Income
tax expense (benefit) | |
$ | - | |
| $ |
- |
|
The
tax effects of temporary differences from continuing operations that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below as of December 31:
Components
of Approximate Deferred tax
| |
|
2022 |
|
|
2021 |
|
| Deferred
tax assets |
|
|
|
|
|
|
|
|
| Accrued
liabilities |
|
$ |
109 |
|
|
$ |
47 |
|
| Capitalized
R&D costs |
|
|
3,233 |
|
|
|
1,931 |
|
| Intangibles |
|
|
107 |
|
|
|
127 |
|
| Fixed
assets |
|
|
2 |
|
|
|
- |
|
| Stock
compensation |
|
|
248 |
|
|
|
160 |
|
| Lease
liability |
|
|
478 |
|
|
|
170 |
|
| Loss
carryforward |
|
|
20,750 |
|
|
|
18,144 |
|
| Tax
credit carryforward |
|
|
1,085 |
|
|
|
1,406 |
|
| Other
temporary differences |
|
|
3 |
|
|
|
4 |
|
| Total
gross deferred tax assets |
|
|
26,015 |
|
|
|
21,989 |
|
| Valuation
allowance |
|
|
(25,614 |
) |
|
|
(21,807 |
) |
| Total
deferred tax assets |
|
$ |
401 |
|
|
$ |
182 |
|
| |
|
|
|
|
|
|
|
|
| Deferred
tax liabilities |
|
|
|
|
|
|
|
|
| Fixed
assets |
|
$ |
- |
|
|
$ |
(17 |
) |
| Lease
assets |
|
|
(401 |
) |
|
|
(165 |
) |
| Total
gross deferred tax liabilities |
|
$ |
(401 |
) |
|
$ |
(182 |
) |
| Net
deferred tax asset |
|
$ |
- |
|
|
$ |
- |
|
The
Company assessed that the valuation allowance against its deferred tax assets is still appropriate as of December 31, 2022 and 2021,
based on the consideration of all available positive and negative evidence using the “more likely than not” standard required
when accounting for income taxes.
Under
the Code, certain corporate stock transactions into which the Company has entered or may enter in the future could limit the amount of
the net operating loss carryforwards that can be utilized in future periods. The Company has completed a review of historical stock transactions,
as well as the current stock transactions completed in conjunction with the Merger and concluded our federal net operating loss and R&D
credit carryforwards are subject to limitations under Section 382 and 383 of the Internal Revenue Code. As of December 31, 2022, the
Company has federal net operating loss carryforwards of $78.3 million. Of this amount, $11.9 million relate to losses originating in
tax years beginning prior to January 1, 2018 and expire between 2026 and 2037. The federal net operating losses of $66.4 million generated
in tax years beginning on or after December 31, 2017 do not expire.
On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors
(“CHIPS”) Act was signed into law creating a new advanced manufacturing investment credit under new Internal Revenue Code section
48D. On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law, which, among other changes, created a new corporate alternative
minimum tax (AMT) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective
date of these provisions is January 1, 2023. The CHIPS Act and IRA did not have a material impact on the Company’s financial statements
for the year-ended December 31, 2022.
As
of December 31, 2022 and 2021, the Company had no liability for unrecognized tax benefits recorded in continued operations. The Company
does not expect the liability for unrecognized tax benefits to change in the next twelve months.
The
Company has elected to classify tax-related accrued interest and penalties as a component of income tax expense.
The
Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. As of December 31, 2022, the Company
was no longer subject to income tax examinations for taxable years before 2019 in the case of U.S. federal taxing authorities, and taxable
years generally before 2018 in the case of state and local taxing jurisdictions.
Note
9. Long-Term Debt
Long-term
debt consists of the following:
Schedule
of Long- term Debt
| |
|
December
31,
2022 |
|
|
December
31,
2021 |
|
| Economic
Injury Disaster Loan |
|
$ |
57 |
|
|
$ |
57 |
|
| Total
long-term debt |
|
$ |
57 |
|
|
$ |
57 |
|
Future
annual principal repayments due on the long-term debt as of December 31, 2022 are as follows:
Schedule
of Future Annual Principal Repayments Due on Long - term Debt
| | |
Amount | |
| 2023 | |
$ | 1 | |
| 2024 | |
| 1 | |
| 2025 | |
| 1 | |
| 2026 | |
| 1 | |
| 2027 | |
| 1 | |
| Thereafter | |
| 52 | |
| Total | |
$ | 57 | |
Department
of Employment and Economic Development (“DEED”) loan
On
March 10, 2015, the Company received an interest free loan with a loan maturity date of March 10, 2022 from the Minnesota DEED under
the State Small Business Credit Initiative Act of 2010. The funds were received under the Angel Loan Fund Program which are provided
to early-stage small businesses for financial support through direct loans. Upon consummation of the merger with CGI on March 30, 2021,
the Company triggered the 30% repayment premium and this loan was repaid.
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 28,778
shares of the Company’s common stock at an exercise price of $29.5295 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 667,788 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 year ended December 31, 2021 was 18.22%.
Paycheck
Protection Program Loan
In
April 2020, the Company applied for and received a $730 thousand loan under the Payroll Protection Plan (“PPP”) as part of
the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”). Under the PPP, the Company was able to receive
funds for two and a half months of payroll, rent, utilities, and interest cost. In April 2021 the SBA fully forgave the PPP loan. The
$730 thousand of PPP loan forgiveness was recorded as a reduction of operating costs during 2020.
Economic
Injury Disaster Loan
In
2020 the Company received a $57
thousand Economic Injury Disaster Loan (“EIDL”)
loan 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.
Reverse
Stock Split
On
July 14, 2022, the Company’s stockholders approved a reverse stock split (the “Reverse Split”) of the Company’s
issued and outstanding shares of Common Stock in the range of one for five to one for fifteen shares. On October 18, 2022, the Company’s
Board of Directors approved a Reverse Split of one for five shares effective November 1, 2022. As a result of the reverse split, every
5 shares of the Company’s Common Stock issued and outstanding were converted into one share of Common Stock. No fractional shares
were issued in connection with the reverse split. Stockholders who would otherwise be entitled to a fractional share of Common Stock
instead received cash in lieu of fractional shares based on the average of the closing sales prices of the Company’s Common Stock
as quoted on the Nasdaq Capital Market on the five trading days immediately prior to November 1, 2022. The reverse split did not reduce
the number of authorized shares of the Common Stock or preferred stock (the “Preferred Stock”) or change the par values of
the Company’s Common Stock or Preferred Stock. The Reverse Split affected all stockholders uniformly and did not affect any stockholder’s
ownership percentage of the Company’s shares of Common Stock (except to the extent that the reverse split would result in some
of the stockholders receiving cash in lieu of fractional shares). All outstanding common stock options, warrants and restricted stock
units entitling their holders to receive or purchase shares of the Company’s Common Stock have been adjusted as a result of the
reverse split, as required by the terms of each security. All historical share and per share amounts presented herein have been retroactively
adjusted to reflect the impact of the Reverse Split.
Lincoln Park Capital Fund, LLC Agreement
On March 28, 2022, the Company entered into a purchase
agreement, or Purchase Agreement, with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which, subject to the terms and conditions,
provides that the Company has the right to sell to Lincoln Park and Lincoln Park is obligated to purchase up to $15.0 million of its common
shares. Under the Purchase Agreement, the Company agreed to issue a commitment fee of 81,190 common shares as consideration for Lincoln
Park entering into the Purchase Agreement.
At The Market Financing
On April 8, 2022, the Company entered into an Equity
Distribution Agreement with Canaccord Genuity LLC (the “Canaccord”), pursuant to which the Company may issue and sell, from
time to time, shares of its common stock having an aggregate offering price of up to $20,000,000, depending on market demand, with Canaccord
acting as an agent for sales. As of December 31, 2022, the Company had issued 41,162 shares of common stock under the Sales Agreement
with the Canaccord.
As further described in Note 17, on March 23, 2023,
the Company terminated the arrangements with both Lincoln Park and Canaccord.
For
the year ended December 31, 2022, the Company incurred $250
thousand of issuance costs related
to Lincoln Park and Canaccord Genuity LLC ATM arrangements which were recorded in the Condensed Consolidated Statements of Stockholders’
Equity.
Preferred
Stock
Series
A and B Preferred Stock
As
of December 31, 2020, the Company had 4,611,587 shares of Series A Preferred Stock (the “Series A Preferred”) 3,489,470 shares
of Series B Preferred Stock (the “Series B 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 controlled
a Deemed Liquidation Event, as defined below, under the terms of the Series A and Series B Preferred Stock as described below. Effective
with the Merger, all the Series A Preferred and the Series B Preferred shares were exchanged for 5,973,509 and 4,524,171 shares of Vyant
Bio common stock, respectively, and the related carrying value was reclassified to common stock
and additional paid-in capital.
Series
C Preferred Stock
Effective
March 15, 2021, StemoniX shareholders approved the Merger with Cancer Genetics and the authorization of $2.0 million of 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.
Effective
with the Merger, all Series A, B and C Preferred shares were converted to StemoniX common stock which were exchanged for Vyant Bio common
stock. As of December 31, 2022, the Company is authorized to issue 9.8 million shares of Preferred stock of which none were outstanding.
Warrants
Common
Stock Warrant
The
Company issued the Major Investor Warrant on February 23, 2021. Effective with the Merger, the Major Investor Warrant was exchanged
for a warrant to purchase 28,778
shares of the Company’s common stock at an exercise price of $29.5295.
Prior to this exchange, the Major Investor Warrant was classified as a liability and the Company recognized a $214
thousand gain in the first quarter of 2021 related to fair value adjustments. The fair value of the Major 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 431,537 common stock warrants issued in prior financings of which 426,361 remain outstanding
as of December 31, 2022. A summary of all common stock warrants outstanding as of December 31, 2022 is as follows:
Summary
of Common Stock Warrants Outstanding
| Issuance
Related to: | |
Exercise
Price | | |
Outstanding
Warrants | | |
Expiration
Dates |
| 2020
Convertible Note | |
$ | 29.55 | | |
| 28,778 | | |
Feb 23,
2026 |
| 2021 offerings | |
$ | 17.50 | | |
| 324,828 | | |
Feb 10, 2026 - Aug
3, 2026 |
| Advisory
fees | |
$ | 12.10
- 37.95 | | |
| 98,578 | | |
Jan 9, 2024 - Oct
28, 2025 |
| Debt | |
$ | 138.00 | | |
| 2,955 | | |
Mar
22, 2024 |
| Total | |
| | | |
| 455,139 | | |
|
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 8,621 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 provided the holder the right to convert the instrument into shares of Series B Preferred Stock
at a 20% discount. Given the timing of the issuance of the instrument near the Merger date, management determined that there was a 99.5%
probability of the holders converting the instrument to Company shares at a 20% discount.
The
Company valued the warrants issued with the 2020 Convertible Notes using a Black-Scholes-Merton model using the value of the underlying
stock and exercise price of $2.01, along with a risk-free interest rate of 0.59% and volatility of 86%. The Company estimated the term
of the warrant to be 5 years.
The
Company’s 2020 Convertible Notes contain a share settled redemption feature (“Embedded Derivative”) that requires conversion
at the lesser of specified discounts from qualified financing price per share or the fair value of the common stock at the time of conversion.
The discount changes based on the passage of time between issuance of the convertible note and the conversion event. This feature is
considered a derivative that requires bifurcation because it provides a specified premium to the holder of the note upon conversion.
The Company measures the share-settlement obligation derivative at fair value based on significant inputs that are not observable in
the market. This results in the liability classified as a Level 3 measurement within the fair value hierarchy.
Upon
the Merger, all of the Level 3 instruments were exchanged for Vyant Bio equity classified instruments. Prior to their exchange, all of
these instruments were marked to their fair market values with corresponding changes recorded in the statement of operations in the first
quarter of 2021.
In
the fourth quarter of 2021, the Company classified the vivoPharm business as discontinuing operations and applied held for sale
accounting. The Company valued the vivoPharm business as of December 31, 2021 equally weighting public company revenue multiples
as of December 31, 2021 and comparable transaction revenue multiples, which are classified as Level 3 measurements within the fair value
hierarchy. The Company updated the valuation of the vivoPharm business during the quarter ending March 31, 2022 based on equally
weighting public company revenue multiples and comparable transaction revenue multiples, which resulted in a $4.5
million decrease to the fair value of vivoPharm
in the first quarter of 2022. The Company recognized an impairment charge of $4.3
million during the quarter ended March 31, 2022,
which decreased vivoPharm’s net carrying value, net of estimated disposal costs from $9.2
million as of December 31, 2021 to $4.9
million. During the second quarter of 2022, the
Company received two offers for mutually exclusive components of the vivoPharm business and assessed the carrying value of each
asset group using the estimated net sales proceeds based on these offers. As a result, the Company recorded a net impairment charge of
$1.5 million
during the second quarter of 2022. The Company recorded an impairment recovery of $388
thousand during the third quarter of 2022 based
upon September 30, 2022 vivoPharm net assets. As described in Note 3, the Company completed the sales of vivoPharm’s
operating subsidiaries in the fourth quarter of 2022 resulting in a loss upon sale of $106 thousand.
The
following tables present changes in fair value of level 3 valued instruments as of and for the years ended December 31, 2022 and 2021:
Schedule
of Changes in Fair Value of Level 3 Valued Instruments
| | |
vivoPharm
Business | |
| Balance
- January 1, 2022 | |
$ | 11,000 | |
| Additions | |
| - | |
| Measurement
adjustments | |
| (5,528 | ) |
| Sale
of vivoPharm businesses | |
| (5,472 | ) |
| Balance
- December 31, 2022 | |
$ | - | |
The
following tables present changes in fair value of level 3 valued instruments for the year ended December 31, 2021:
| | |
2020
Convertible Note | | |
Warrant | | |
Embedded
Derivative | | |
vivoPharm
Business | |
| Balance
- January 1, 2021 | |
$ | - | | |
$ | - | | |
$ | 1,690 | | |
$ | - | |
| Additions | |
| 3,746 | | |
| 635 | | |
| 325 | | |
| 11,000 | |
| Measurement
adjustments | |
| 4 | | |
| (214 | ) | |
| 250 | | |
| - | |
| Settlement | |
| (3,750 | ) | |
| (421 | ) | |
| (2,265 | ) | |
| - | |
| Balance
- December 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 11,000 | |
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
years ended December 31, 2022 and 2021:
Schedule
of Reconciliation of Numerator and Denominator for Basic and Diluted Loss Per Share
| | |
2022 | | |
2021 | |
| | |
December
31, | |
| | |
2022 | | |
2021 | |
| Net
loss from continuing operations | |
$ | (15,807 | ) | |
$ | (18,575 | ) |
| Net
loss from discontinuing operations | |
| (6,883 | ) | |
| (22,284 | ) |
| Net
loss | |
$ | (22,690 | ) | |
$ | (40,859 | ) |
| Basic
and diluted weighted average shares outstanding | |
| 5,868,402 | | |
| 4,522,889 | |
| Basic
and diluted net loss per share: | |
| | | |
| | |
| Continuing
operations | |
$ | (2.69 | ) | |
$ | (4.11 | ) |
| Discontinuing
operations | |
| (1.18 | ) | |
| (4.92 | ) |
| Net
loss | |
$ | (3.87 | ) | |
$ | (9.03 | ) |
The
following securities were not included in the computation of diluted shares outstanding for the years ended December 31, 2022 and 2021
because the effect would be anti-dilutive:
Schedule
of Computation of Diluted Shares Outstanding
| | |
| | |
| |
| | |
December
31, | |
| | |
2022 | | |
2021 | |
| Common
Stock warrants | |
| 455,139 | | |
| 459,382 | |
| Common
Stock options | |
| 428,301 | | |
| 464,019 | |
| Restricted
stock | |
| 77,104 | | |
| - | |
| Total | |
| 960,544 | | |
| 923,401 | |
| Anti-dilutive securities | |
| 960,544 | | |
| 923,401 | |
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 38,376 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 900,000 of equity-based instruments to officers, key employees, and non-employee consultants. On March
30, 2021, the Company granted 230,300 stock options to officers and other employees, 15,618 stock options to independent Board members
and a restricted stock unit (“RSU”) of 1,735 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 December 31, 2022, there were 533,495 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 years ended December 31, 2022 and 2021 are provided in the following table.
Schedule of Assumptions for Stock Option Grants
| | |
2022 | |
|
2021 | |
| Valuation
assumptions | |
| | |
|
| | |
| Expected
dividend yield | |
| 0.0 | % |
|
| 0.0 | % |
| Expected
volatility | |
| 56.3%
- 70.72% | |
|
| 69.5%-123 | % |
| Expected
term (years) – simplified method | |
| 3.0
– 6.1 | |
|
| 5.5
– 6.1 | |
| Risk-free
interest rate | |
| 1.74%
– 3.20 | % |
|
| 0.95%
– 1.39 | % |
Stock
option activity during years ended December 31, 2022 and 2021 is as follows:
Schedule of Stock Option Activity
| | |
Number
of Options | | |
Weighted
average exercise price | | |
Weighted
average remaining contractual term | |
| Balance
as of January 1, 2021 | |
| 151,147 | | |
$ | 9.10 | | |
| 8.7 | |
| Granted | |
| 307,988 | | |
| 21.05 | | |
| | |
| StemoniX
options exchanged for Vyant Bio options | |
| (136,276 | ) | |
| 9.20 | | |
| | |
| Vyant
Bio options issued to StemoniX option holders | |
| 174,652 | | |
| 7.20 | | |
| | |
| Options
assumed in Merger | |
| 11,168 | | |
| 229.75 | | |
| | |
| Exercised | |
| (7,419 | ) | |
| 6.05 | | |
| | |
| Forfeited | |
| (34,462 | ) | |
| 18.45 | | |
| | |
| Expired | |
| (2,777 | ) | |
| 9.60 | | |
| | |
| Balance
as of December 31, 2021 | |
| 464,021 | | |
$ | 20.95 | | |
| 8.6 | |
| Exercisable
as of December 31, 2021 | |
| 127,119 | | |
$ | 27.90 | | |
| 7.1 | |
| | |
| | | |
| | | |
| | |
| Balance as of January
1, 2022 | |
| 464,021 | | |
$ | 20.95 | | |
| 8.6 | |
| Granted | |
| 148,855 | | |
| 5.02 | | |
| | |
| Exercised | |
| (1,034 | ) | |
| 4.80 | | |
| | |
| Forfeited | |
| (141,306 | ) | |
| 17.64 | | |
| | |
| Expired | |
| (42,235 | ) | |
| 36.33 | | |
| | |
| Balance
as of December 31, 2022 | |
| 428,301 | | |
$ | 14.97 | | |
| 7.5 | |
| Exercisable
as of December 31, 2022 | |
| 232,175 | | |
$ | 18.18 | | |
| 6.4 | |
The
weighted average grant-date fair value of options granted during the years ended December 31, 2022 and 2021 were $10.23
and $17.55,
respectively.
The
Company recognized stock-based compensation in continuing operations related to different instruments for the years ended December 31,
as follows:
Schedule of Share Based Compensation Activity
| | |
2022 | | |
2021 | |
| | |
December
31, | |
| | |
2022 | | |
2021 | |
| Stock
options | |
$ | 782 | | |
$ | 973 | |
| Shares
issued for services | |
| 404 | | |
| 30 | |
| Total | |
$ | 1,186 | | |
$ | 1,003 | |
| Share
based compensation | |
$ | 1,186 | | |
$ | 1,003 | |
As
of December 31, 2022, there was $1.6 million of total unrecognized compensation cost related to unvested stock options granted under
the Plan. That cost is expected to be recognized over a weighted average period of 2.2 years.
Note
14. Segment Information and Risk Concentration
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
both years ended December 31, 2022 and 2021, four customers and three customers
accounted for approximately 77%
and 47%,
respectively, of the consolidated revenue from continuing operations.
During
years ended December 31, 2022 and 2021, approximately 47% and 21%, respectively, of the Company’s consolidated revenue from continuing
operations was earned outside of the U.S.
Customers
representing 10% or more of the Company’s total revenue from continuing operations for years ended December 31, 2022 and 2021,
are presented in the table below:
Schedule of Customers Representing Revenues
| | |
December
31, | |
| | |
2022 | | |
2021 | |
| Customer
A | |
| 42 | % | |
| 18 | % |
| Customer
B | |
| 10 | % | |
| 9 | % |
| Customer
C | |
| 4 | % | |
| 11 | % |
| Customer
D | |
| 15 | % | |
| 1 | % |
| Customer E | |
| 10 | % | |
| 6 | % |
| Customer
F | |
| N/A | | |
| 19 | % |
Note
15. Related Party Transactions
In
2020, the Company raised approximately $1.5
million from the sale of 2020 Convertible Notes in 2020 from related parties, including former StemoniX Board members as well as one
shareholder who owned more than 5% of Series B Preferred stock. The Company raised approximately $3.9
million from the sale of 2020 Convertible Notes from January 1, 2021 through March 12, 2021 from related parties, including former
StemoniX Board members as well as one shareholder who owned more than 5% of Series B Preferred stock. This Series B preferred stock
shareholder was also a Major Investor and received the Major Investor Warrant on February 23, 2021. Effective with the Merger, the
Major Investor Warrant was exchanged for a warrant to purchase 28,778
shares of the Company’s common stock at an exercise price of $29.5295
per share.
During
the fourth quarter of 2021, the Company paid a third-party collaboration partner $89
thousand as a reimbursement
of third-party costs incurred by the collaborator in connection with the collaboration arrangement. In September 2021, an executive’s
family member became an employee of this collaborator. Separately, in the fourth quarter of 2021, the Company entered into a $60
thousand consulting
agreement with this third-party collaborator. During the first quarter of 2022, the Company paid the third-party collaboration partner
$39 thousand as a reimbursement of third-party costs incurred by the collaborator in connection with the collaboration arrangement. The
arrangements with this third-party collaborator had arms-length terms.
As
disclosed in Note 3, the Company sold RDDT a vivoPharm Company Pty Ltd and vivoPharm Europe Ltd to Sabine Brandt as trustee
for the Brandt Family Trust. Mrs. Brandt is a former Company employee and is married to a former officer of the Company.
Note
16. Contingencies and Commitments
We
are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings
arising in the ordinary course of our business.
Australian
Adult Clinical Trial: The Company’s Australian subsidiary, vivoPharm Pty Ltd, entered into a master services
agreement and related statement of work with an Australian contract research organization in November 2022 to support the
Company’s adult Rett Syndrome clinical trial. The statement of work aggregates approximately 3.9 million
Australian dollars and can be cancelled with 60 days’ notice. This clinical trial was suspended in January 2023 as the Company
evaluates its strategic alternatives.
Note
17. Subsequent Events
The
Company has evaluated subsequent events from the balance sheet date through March 31, 2023, the date at which the financial statements
were available to be issued as follows:
Continuing
Operations
On January 4, 2023, the Company announced that it
had engaged LifeSci Capital as its financial advisor to assist in exploring a range of strategic alternatives focused on enhancing shareholder
value. There can be no assurance that this review process will result in any changes to the Company’s current business plans or
lead to any specific action or transaction.
The Company’s Board of Directors (the
“Board”) approved a plan on January 31, 2023 to preserve the Company’s cash to be able to continue to pursue a
satisfactory strategic alternative for the purpose of maximizing the value of the Company’s business while also having
sufficient cash to adequately fund an orderly wind down of the Company’s operations (the “Cash Preservation Plan”)
in the event it is unable to secure a satisfactory strategic alternative. As part of the Cash Preservation Plan, the Company
implemented a reduction in force which included the Company’s former President and Chief
Executive Officer, and Chief Scientific Officer. The Company will record a charge of $954K thousand in 2023 related to termination
benefits which will be paid in 2023 for these employees.
On March 9, 2023, the Company terminated its January
2022, San Diego office and laboratory lease agreement. The effective date of the termination is March 31, 2023. The landlord is retaining
approximately $45 thousand as an early termination fee. This lease termination will result in a $1.2 million reduction in future operating
lease payments.
On March 7, 2023, the Company sold its equipment in
its San Diego laboratory to a third party and received $200,000 in consideration for such sale.
On March 24, 2023 the Company terminated its (a) Equity
Distribution Agreement, dated April 8, 2022, by and between the Company and Canaccord Genuity LLC, regarding the issue and sale, from
time to time, of shares of the Company’s common stock for an aggregate offering price of up to $20,000,000, and (b) Purchase Agreement,
dated March 28, 2022, by and between the Company and Lincoln Park Capital Fund, LLC, regarding the issue and sale, from time to time,
of shares of the Company’s common stock for an aggregate offering price of up to $15,000,000.
Further, on March 24, 2023, the Company filed post-effective
amendments to certain of its registration statements previously filed with the SEC, including post-effective amendments to each of: (i)
Registration Statement Nos. 333-249513, 333-252628, 333-239497, and 333-218229 on Form S-3; (ii) Registration Statement Nos. 333-191520,
333-191521, 333-196198, 333-205903, 333-256225 and 333-214599 on Form S-8; and (ii) Registration Statement No. 333-215284 and 333-264595
on Form S-1 (such post-effective amendments, collectively the “Post-Effective Amendments” and such registration statements,
collectively the “Registration Statements”). In accordance with undertakings made by the Company in each of the Registration
Statements to remove from registration, by means of a post-effective amendment, any and all securities of the Company that were registered
for issuance that remain unsold at the termination of the offerings, the Company removed from registration any and all securities of
the Company registered but unsold under each of the Registration Statements. As a result of this deregistration, no securities remain
registered for sale pursuant to the Registration Statements.
On March 29, 2023, the Company entered into a commitment to renew certain
expiring insurance policies for a premium of $1.7 million.
Discontinuing
Operations
To complete the disposition of the Company’s
former vivoPharm business and to resolve certain issues that had arisen with the Buyer, on March 13, 2023, the Company sold vivoPharm
to the Buyer for a nominal sum. As part of the sale of vivoPharm to Buyer, the Company provided that vivoPharm had cash
of at least $200 thousand and the Company assumed certain specific vivoPharm liabilities, principally liabilities directly associated
with the proposed Phase 2 Donepezil clinical trial in Australia (which the Company has placed on hold as it evaluates its strategic alternatives)
and certain vivoPharm tax liabilities through the transaction’s closing. The transaction was consummated effective March
13, 2023.
APPENDIX
A
ASSET
PURCHASE AGREEMENT
[see
attached.]
ASSET
PURCHASE AGREEMENT
by
and among
AxoSim,
Inc.,
STEMONIX,
INC.,
VYANT
BIO, INC., and
solely
for purposes of Sections 5.10 and 10.10, Yung-Ping Yeh
Dated
as of July 13, 2023
Table
of Contents
| |
Page |
| |
|
| ARTICLE 1 PURCHASE OF RIGHTS AND ASSETS |
1 |
| |
|
| |
Section
1.1 Agreement to Purchase and Sell |
1 |
| |
Section
1.2 Retained Assets |
3 |
| |
Section
1.3 Assumed Liabilities |
4 |
| |
Section
1.4 Retained Liabilities |
4 |
| |
Section
1.5 Prorations and EDA Amount |
6 |
| |
Section
1.6 Purchase Price |
6 |
| |
Section
1.7 Escrow Mechanics |
7 |
| |
Section
1.8 Time and Place of Closing |
8 |
| |
Section
1.9 Deliveries at Closing |
8 |
| |
Section
1.10 Withholding |
10 |
| |
|
|
| ARTICLE
2 REPRESENTATIONS AND WARRANTIES OF SELLER |
10 |
| |
|
| |
Section
2.1 Organization; Qualification |
10 |
| |
Section
2.2 Authority and Validity |
10 |
| |
Section
2.3 Noncontravention |
11 |
| |
Section
2.4 Compliance with Laws; Regulatory Matters |
12 |
| |
Section
2.5 Permits |
14 |
| |
Section
2.6 Financial Statements; Indebtedness |
14 |
| |
Section
2.7 Absence of Changes |
14 |
| |
Section
2.8 No Undisclosed Liabilities |
15 |
| |
Section
2.9 Litigation and Claims |
15 |
| |
Section
2.10 Transferred Assets; Real and Personal Property |
16 |
| |
Section
2.11 Intellectual Property |
17 |
| |
Section
2.12 Contracts |
20 |
| |
Section
2.13 Employment and Labor Matters |
20 |
| |
Section
2.14 Employee Benefit Matters |
21 |
| |
Section
2.15 Insurance Policies |
22 |
| |
Section
2.16 Taxes |
22 |
| |
Section
2.17 Environmental Matters |
23 |
| |
Section
2.18 Customers, Vendors and Suppliers |
24 |
| |
Section
2.19 Accounts Payable |
24 |
| |
Section
2.20 Affiliate Transactions |
24 |
| |
Section
2.21 Brokers |
24 |
| |
Section
2.22 Coronavirus Pandemic Matters. |
25 |
| |
Section
2.23 Foreign Corrupt Practices and International Trade Sanctions |
25 |
| |
Section
2.24 Warranties |
25 |
| |
Section
2.25 Product Liability; Recalls |
25 |
| |
Section
2.26 Export Control Laws |
26 |
| |
Section
2.27 Government Contracts |
26 |
| |
Section
2.28 Retention Bonuses |
26 |
| |
Section
2.29 No Other Representations or Warranties |
26 |
| ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER |
26 |
| |
|
| |
Section
3.1 Organization, Authority and Capacity |
26 |
| |
Section
3.2 Authorization and Validity |
27 |
| |
Section
3.3 Absence of Conflicting Agreements or Required Consents |
27 |
| |
Section
3.4 Brokers |
27 |
| |
Section
3.5 Claims and Proceedings |
27 |
| |
Section
3.6 Adequacy of Funds |
27 |
| |
Section
3.7 Solvency |
27 |
| |
Section
3.8 Independent Investigation |
27 |
| |
|
|
| ARTICLE
4 PRE-CLOSING COVENANTS |
28 |
| |
|
| |
Section
4.1 Maintenance of the Business |
28 |
| |
Section
4.2 Operation of the Business |
28 |
| |
Section
4.3 Access |
29 |
| |
Section
4.4 No Shop |
29 |
| |
Section
4.5 Special Meeting and Parent Proxy Materials |
31 |
| |
Section
4.6 Required Actions. |
32 |
| |
Section
4.7 Notification of Events |
32 |
| |
Section
4.8 Option to Exclude SBIR Grant and EGC Contract |
34 |
| |
|
|
| ARTICLE
5 ADDITIONAL COVENANTS |
34 |
| |
|
| |
Section
5.1 Certain Tax Matters |
34 |
| |
Section
5.2 Transfer Taxes |
35 |
| |
Section
5.3 Confidentiality |
35 |
| |
Section
5.4 Public Disclosure |
35 |
| |
Section
5.5 Refunds and Remittances |
35 |
| |
Section
5.6 Use of Name; Name Change of Seller |
36 |
| |
Section
5.7 Employee Matters. |
36 |
| |
Section
5.8 Consents |
37 |
| |
Section
5.9 Discharge of Retained Liabilities |
37 |
| |
Section
5.10 Restrictive Covenants |
37 |
| |
Section
5.11 Employee Reimbursement Amount |
38 |
| |
Section
5.12 Covenant Not to Challenge |
39 |
| |
Section
5.13 Distributions |
39 |
| |
Section
5.14 Access |
39 |
| |
|
|
| ARTICLE
6 INDEMNIFICATION |
39 |
| |
|
| |
Section
6.1 Survival |
39 |
| |
Section
6.2 Indemnification by Seller |
40 |
| |
Section
6.3 Indemnification by Purchaser |
40 |
| |
Section
6.4 Indemnification Procedures |
40 |
| |
Section
6.5 Indemnification Limitations |
42 |
| |
Section
6.6 Losses Net of Insurance |
42 |
| |
Section
6.7 Materiality |
42 |
| |
Section
6.8 Satisfaction of Indemnification Obligations; Release of Remaining Indemnification Escrow Amount |
43 |
| |
Section
6.9 Exclusive Remedy |
44 |
| |
|
|
| ARTICLE
7 CONDITIONS TO CLOSING |
44 |
| |
|
| |
Section
7.1 Conditions of the Obligations of Purchaser and Seller |
44 |
| |
Section
7.2 Conditions to the Obligations of Purchaser |
44 |
| |
Section
7.3 Conditions to the Obligations of Seller |
45 |
| |
|
|
| ARTICLE 8 TERMINATION |
45 |
| |
|
| |
Section
8.1 Termination |
45 |
| |
Section
8.2 Effect of Termination; Break Fee |
46 |
| |
|
|
| ARTICLE
9 CERTAIN DEFINITIONS |
46 |
| |
|
| |
Section
9.1 Definitions |
46 |
| |
Section
9.2 Additional Defined Terms |
54 |
| |
Section
9.3 Construction |
56 |
| |
|
|
| ARTICLE
10 MISCELLANEOUS PROVISIONS |
56 |
| |
|
| |
Section
10.1 Notices |
56 |
| |
Section
10.2 Expenses |
57 |
| |
Section
10.3 Further Assurances |
57 |
| |
Section
10.4 Waiver; Remedies Cumulative |
57 |
| |
Section
10.5 Assignment |
57 |
| |
Section
10.6 Binding Effect |
58 |
| |
Section
10.7 Headings |
58 |
| |
Section
10.8 Entire Agreement |
58 |
| |
Section
10.9 Severability |
58 |
| |
Section
10.10 Governing Law; Venue; Waiver of Jury Trial |
58 |
| |
Section
10.11 Counterparts |
59 |
| |
Section
10.12 No Recourse |
59 |
| |
Section
10.13 Waiver of Conflicts Regarding Representation |
59 |
| |
Section
10.14 Specific Performance |
60 |
ASSET
PURCHASE AGREEMENT
THIS
ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of July 13, 2023 (the “Effective Date”),
is by and among AxoSim, Inc., a Delaware corporation (“Purchaser”); StemoniX, Inc., a Minnesota corporation (“StemoniX”);
Vyant Bio, Inc., a Delaware corporation (“Parent” and, together with StemoniX, “Seller”); and,
solely for purposes of Sections 5.10 and 10.10 hereof, Yung-Ping Yeh, an individual resident of the State of Minnesota
(“Founder”). Purchaser, Seller and, solely for purposes of Sections 5.10 and 10.10, Founder are each
referred to herein as a “Party” and, collectively, as the “Parties.”
RECITALS
WHEREAS,
Seller has been or currently is engaged in the business of (i) drug discovery and drug screening through the use of organoids including,
without limitation, its microBrain® platform and its microHeart® platform; and (ii) marketing and selling its products and services
to drug companies, research institutions, and academic institutions throughout the United States, France, Japan, Singapore, Switzerland,
Germany, and the United Kingdom (collectively, the “Business”);
WHEREAS,
on the terms set forth in this Agreement, Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller, the Transferred
Assets, and Seller desires to transfer to Purchaser and Purchaser desires to assume from Seller, the Assumed Liabilities (collectively,
the “Acquisition”); and
WHEREAS,
prior to or contemporaneously with the execution and delivery of this Agreement, the following documents with respect to the Leased Real
Property have been executed and delivered, each to be effective upon (and conditioned upon) the Closing: (i) the assignment and assumption
of lease, estoppel and consent of landlord, by and among Landlord, StemoniX and Purchaser attached as Exhibit A hereto (the “Real
Property Lease Assignment”) and (ii) the lease subordination, non-disturbance, attornment and consent agreement, by and among
Wings Financial Credit Union, Landlord and StemoniX attached as Exhibit B hereto (the “SNDAC”).
NOW,
THEREFORE, in consideration of the above and the mutual warranties, representations, covenants and agreements set forth herein, the Parties
hereby agree as follows:
Article
1
PURCHASE OF RIGHTS AND ASSETS
Section
1.1 Agreement to Purchase and Sell. Subject
to the terms and conditions set forth herein (including, without limitation, Section 4.8), at the Closing, Seller shall sell,
convey, transfer, assign and deliver to Purchaser, and Purchaser shall purchase, acquire and accept delivery of all of Seller’s
right, title and interest in and to all of the properties, rights and assets owned, used or held for use by Seller or its Affiliates
in connection with the Business, wherever located and whether or not reflected on the books of Seller, other than the Retained Assets
(collectively, the “Transferred Assets”), free and clear of all Liens, including the following:
(a)
Any and all rights, whether owned or licensed from third
parties, in and to any (i) inventions (whether or not patentable), patents, patent applications, provisional patent applications, design
patents, Patent Cooperation Treaty filings, invention disclosures and other rights to inventions or designs, trade secrets, technical
data, confidential information, databases, customer lists, supplier lists, designs, tools, methods, processes, formulae, recipes, technology,
ideas, know-how, product roadmaps and other proprietary information and materials, (ii) trademarks (whether or not registered), trademark
applications, service marks (whether or not registered), service mark applications, trade names, logos, trade dress and other proprietary
indicia and all goodwill associated therewith, (iii) copyrights and other works of authorship (whether or not protected by copyright),
moral rights, compilations, derivative works, literary works, maskworks, sound recordings, designs, schematics, documentation, advertising
copy, marketing materials, domain names, websites and social media accounts (including the content of all websites and social media accounts),
specifications, drawings, graphics, and recordings, (iv) computer programs (including any and all software implementations of algorithms,
models and methodologies, whether in source code or object code), interfaces, algorithms, program files, design documents, flowcharts,
user manuals and training materials, together with any translations thereof, (v) business methods, digital purchasing and fulfillment
systems, data processing procedures, software, devices, prototypes, and hardware, (vi) documentation and correspondence related to abandoned
patents and abandoned patent applications, and (vii) other similar intellectual property rights pertaining to the subject matter of any
of the foregoing, including tangible embodiments of any of the foregoing, licenses in, to and under any of the foregoing, all forms of
legal rights and protections that may be obtained for, or may pertain to the foregoing, the right to sue for past, present and future
infringement, misappropriation, or violation of intellectual property rights, registrations, issuances, divisions, continuations, continuations-in-part,
renewals, reexaminations, reissuances and extensions of the foregoing, and those items listed on Schedule 1.1(a) (collectively,
the “Intellectual Property”);
(b)
All goodwill and other intangible assets of Seller,
including all telephone and facsimile numbers of the Business;
(c)
All equipment, machinery, furniture, fixtures, vehicles,
computers, office equipment, supplies, spare parts, tools, packaging, telephony and related communications equipment and other items
of tangible personal property owned, leased, used, or held for use by Seller in connection with the Business located at the Leased Real
Property (collectively, the “Equipment”), including the Equipment set forth on Schedule 1.1(c);
(d)
all products, raw materials, work-in-process, supplies,
finished goods, inventory and similar assets, including, but not limited to, those in existence as of the Closing Time and usable, salable
or leasable in the Ordinary Course of Business for the purpose for which they were intended, and all operating supplies, promotional
and advertising materials and samples used in connection therewith, in each case, owned, used, or held for use by Seller in connection
with the Business located at the Leased Real Property (collectively, the “Inventory”), including the Inventory set
forth on Schedule 1.1(d);
(e)
To the extent transferable and subject to applicable
regulatory approvals, all Permits, including those set forth on Schedule 1.1(e), all pending applications therefor or renewals
thereof and all operating rights derived therefrom, including any and all “grandfathered rights,” which include the authority
to operate the Business;
(f)
Those Contracts pertaining to the Business listed on
Schedule 1.1(f) (collectively, the “Assumed Contracts”);
(g)
Subject to Seller receiving credit for such items pursuant
to Section 1.5(a), all prepaid items, including all security, equipment, utility and other deposits (including those held by third
parties) that have been paid by or for the account of Seller prior to the Closing Time for a period including times after the Closing
Time, including those set forth on Schedule 1.1(g);
(h)
Except for any rights associated with Retained Assets,
all of Seller’s rights, claims, privileges, defenses, rights of recovery, rights of set off and rights of recoupment against any
other Person of whatever nature, whether known or unknown, relating to the Business, the Transferred Assets or the Assumed Liabilities,
and the right to enforce any such rights and file any such claims against any other Person associated therewith; and
(i)
All books and records (including computer records) of
Seller related to the Business, including documents relating to the Transferred Assets, personnel records (to the extent permitted by
Law), customer lists, mailing lists, customer price lists, customer files (including, any correspondence, feedback or other communications
with customers, end users or similar Persons), supplier lists, supplier price lists, and other recorded knowledge relating to the Business,
the Transferred Assets, or customers or suppliers of the Business.
Notwithstanding
anything else contained herein, the transfer of the Transferred Assets pursuant to this Agreement and the other Acquisition Documents
shall not include the assumption of any Liability related to the Transferred Assets other than the Assumed Liabilities.
Section
1.2 Retained Assets. Subject to Section 4.8,
the Parties expressly agree that Seller shall retain only the following properties, rights and assets associated with the Business (collectively,
the “Retained Assets”):
(a)
All cash and cash equivalents;
(b)
All bank accounts of Seller;
(c)
All Contracts that are not Assumed Contracts (“Retained
Contracts”);
(d)
All employee benefit plans (including plan assets) maintained
by, or covering employees of StemoniX or Parent or their respective Affiliates;
(e)
The corporate seals, organizational documents, minute
books, stock transfer registers, Tax Returns, books of account or other records having to do with the corporate organization of Seller;
(f)
The rights of Seller, Parent, and their respective Affiliates
under the Acquisition Documents;
(g)
Notes and accounts receivable, including all trade accounts
receivable and other rights to payment from customers and other Persons, including proceeds, credits due and rebates receivable and,
the full benefit of all security for such accounts or rights to payment for all and any period prior to the Closing;
(h)
All of Seller’s rights, claims, privileges, defenses,
rights of recovery, rights of set off and rights of recoupment against any other Person of whatever nature, whether known or unknown,
relating to any Retained Assets, and the right to enforce any such rights and file any such claims against any other Person associated
therewith;
(i)
All rights and interests under all certificates for
insurance, binders for insurance policies and insurance policies;
(j)
The Exclusive Distributorship Agreement;
(k)
All claims for refunds or credits of Taxes and of other
governmental charges of whatever nature arising out of Seller’s operation of the Business or ownership of the Transferred Assets
prior to the Closing Time;
(l)
The equity interests in the Excluded Entities; and
(m)
Those additional Retained Assets set forth on Schedule
1.2(l).
Section
1.3 Assumed Liabilities. As of the Closing Time,
and subject to the terms and conditions hereof (including the terms and conditions of any other Acquisition Documents), Purchaser accepts
and assumes ONLY THOSE LIABILITIES RELATING TO OR ARISING OUT OF THE OWNERSHIP, USE, OPERATION OR MAINTENANCE OF THE TRANSFERRED ASSETS
FROM AND AFTER THE CLOSING TIME (the “Assumed Liabilities”), including any Assumed Liabilities related to the Assumed
Contracts (including each Lease and Equipment Lease listed on Schedule 1.3); provided, however, for the avoidance of doubt, in
no event shall Purchaser be deemed to assume any Liability related to any breach or default, or an event which with notice or lapse of
time or both would constitute any breach or default, of any Assumed Contract occurring before the Closing Time.
Section
1.4 Retained Liabilities. Purchaser shall not
assume and shall have no responsibility for, and Seller and its Affiliates shall retain, all Liabilities against or obligation or commitment
of Seller or any of its Affiliates of any kind or nature whatsoever (whether direct or indirect, known or unknown, due or to become due,
or fixed, contingent or otherwise) at any time existing or asserted, whether or not accrued, matured or un-matured or otherwise, other
than the Assumed Liabilities, including, without limitation, any Liability that relates to, or arises out of, (i) the ownership, use,
operation or maintenance of the Transferred Assets or the Business prior to the Closing Time, or (ii) the ownership, use, operation or
maintenance of the Retained Assets, or any other operations, actions, omissions or other conduct of the Business by Seller or its Affiliates
prior to or following the Closing Time (collectively, the “Retained Liabilities”). Without limiting the generality
of the foregoing, Purchaser shall not assume or become liable for any of the following Liabilities:
(a)
Any Liability with respect to any claim or cause of
action, regardless of when made or asserted, which arises out of or in connection with the business and operations of Seller (including
the Business) prior to the Closing Time;
(b)
Any Liability or obligation arising out of any employee
benefit plan ever maintained by Seller or covering employees of Seller or to which Seller has made any contribution or to which Seller
could be subject to any Liability, including but not limited to Liabilities arising under Section 601 et. seq. of ERISA or Code Section
4980B;
(c)
Any Liability arising out of or relating to any Retained
Contract or any other Contract, (i) which is not validly and effectively assigned to Purchaser pursuant to this Agreement; or (ii) to
the extent such Liability arises out of or relates to a breach by Seller of such Contract prior to the Closing Time;
(d)
Any Liability or obligation arising prior to the Closing
Time or in connection with the Acquisition to any officer, director, manager, employee, agent or independent contractor of Seller, whether
or not such Person is employed by Purchaser after the Closing Time;
(e)
Any Liability or obligation of Seller for Taxes, whether
disputed or not and whether known or unknown, related to the business and operations of Seller (including the Business) prior to the
Closing Time;
(f)
All wages, commissions and workers’ compensation
obligations of Seller with respect to its employees, agents or independent contractors accrued through the Closing Time and all bonuses
and fringe benefits as to such employees, agents and independent contractors accrued through the Closing Time, and all severance pay
obligations of Seller to employees resulting solely from the consummation of the transactions contemplated by this Agreement;
(g)
Any Liability or obligation related to, arising out
of or in connection with COBRA or similar state law continuation coverage for any employees of Seller not hired by Purchaser following
the Closing or former employees of Seller who are currently on COBRA or similar state law continuation coverage (collectively, the “Non-Hired
Employees”) and entitled to COBRA or similar state law continuation coverage under applicable Law following the Closing; and,
to the extent required, the acquisition or funding of a health plan to fully satisfy any such COBRA or similar state law continuation
coverage obligations to the Non-Hired Employees;
(h)
Any other Liability related to any (i) employees that
are employed by Seller following the Closing (for the avoidance of doubt, it being understood that it is the Parties’ current intent
that all four current employees of Seller will be hired by Purchaser effective as of the Closing) or (ii) independent contractors that
are engaged by Seller following the Closing to the extent relating to engagement by Seller following the Closing and not engagement by
Purchaser or its Affiliates following the Closing;
(i)
Any Liability or obligation related to, arising out
of or in connection with any Retained Asset;
(j)
Any Liability arising out of or relating to Indebtedness
of Seller or any of their respective Affiliates, in each case, to the extent not included as an Assumed Liability;
(k)
Any Liability arising out of or resulting from any Seller’s
noncompliance with any Law (including any Labor Law);
(l)
Any professional, financial advisory, broker, finder
or other fees of any kind incurred by Seller;
(m)
Any Environmental Liabilities with respect to Environmental
Laws incurred prior to the Closing Time, including claims for injury suffered by employees and former employees related to exposure to
harmful chemicals and substances prior to the Closing Time;
(n)
Any Intellectual Property-related fees or expenses (including
foreign associate fees, maintenance fees and corresponding attorney fees) incurred and owed prior to the Closing Time with respect to
any Registered Intellectual Property owned by Seller and used by Seller as of immediately prior to the Closing in connection with the
Business;
(o)
All accounts payable and any other current liabilities
of Seller incurred or owed prior to the Closing Time; or
(p)
Any Liability or obligation related to, arising out
of or in connection with any (i) actual or alleged defect in the Business’s services or products, components or other items manufactured
sold, leased, or produced prior to the Closing Time, (ii) actual or alleged failure of such products or services to meet applicable specifications,
warranties or contractual commitments or (iii) claim of any nature whether based on strict liability, negligence, breach of warranty
(express or implied), breach of contract or otherwise, in respect of any product, component or other item manufactured, sold, leased,
or produced prior to the Closing Time, or service rendered prior to the Closing Time by or on behalf of Seller or the Business.
Section
1.5 Prorations and EDA Amount.
(a)
Except as otherwise specified herein, all (i) water,
sewer, electricity, gas and other utility charges, if any, applicable to the Transferred Assets or the Business and (ii) real estate
and equipment rental charges payable or receivable and other payments or receipts applicable to the Transferred Assets or the Business
(including, for the avoidance of doubt, prepaid expenses) shall be apportioned to the Closing Time (collectively, the “Proration
Items”). Within three (3) Business Days prior to Closing, Seller shall deliver to Purchaser a statement setting forth Seller’s
good faith estimate of the net amount of all Proration Items (the “Estimated Proration Amount”). Following the Closing,
Purchaser and Seller shall provide to the other written notice ten (10) Business Days after receipt of each third party invoice relating
to any Proration Item. Within ten (10) Business Days thereafter, Purchaser and Seller each shall make any payments to the other that
are necessary to compensate for any difference between the Estimated Proration Amount and the correct proration based on the third party
invoice. The Parties hereby agree to work together in good faith to obtain any necessary third party invoices and to complete the foregoing
post-Closing prorations true-up process within forty-five (45) days following the Closing Date. In the event that either Seller or Purchaser
pays a Proration Item (the “Payor”) for which the other party (the “Payee”) is obligated in whole
or in part under this Section 1.5, the Payor shall present to the Payee evidence of payment and a statement setting forth the
Payee’s proportionate share of such Proration Item, and the Payee shall promptly pay such share to the Payor. In the event either
Party (the “Recipient”) receives payments, or the benefits of payments, of a Proration Item to which the other Party
(the “Beneficiary”) is entitled in whole or in part under this Agreement, the Recipient shall promptly pay such amount
to the Beneficiary.
(b)
Within three Business Days prior to Closing, Seller
shall deliver to Purchaser a statement setting forth Seller’s good faith calculation of all amounts due to be paid to Seller under
the Exclusive Distribution Agreement as of the Closing (the “EDA Amount”).
Section
1.6 Purchase Price. Subject to the Section
1.7, the total consideration for the Transferred Assets shall be Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) (the
“Purchase Price”) and the assumption of the Assumed Liabilities. At the Closing, the Purchase Price will be paid by
Purchaser as follows:
(a)
Purchaser shall pay Seller an amount equal to (i) One
Million One Hundred Thousand Dollars ($1,100,000), plus or minus as applicable (ii) the Estimated Proration Amount (the “Closing
Date Payment”), by wire transfer of immediately available funds to an account or accounts designated by Seller in writing.
(b)
At the Closing, Purchaser shall pay JPMorgan Chase Bank,
N.A. (the “Escrow Agent”) an amount equal to (i) One Hundred Seventy Five Thousand Dollars ($175,000) (the “Delivered
Plates Escrow Amount”) plus (ii) Six Hundred Thirty Seven Thousand Dollars ($637,000) (the “Post-Closing Revenue
Escrow Amount”) plus (iii) Three Hundred Thirty Eight Thousand Dollars ($338,000) (the “Indemnification Escrow
Amount” and, together with the Delivered Plates Escrow Amount and the Post-Closing Revenue Escrow Amount, the “Escrow
Amount”), by wire transfer of immediately available funds to an account or accounts designated by the Escrow Agent (the “Escrow
Account”). The Parties agree that the Escrow Amount shall be deposited in the Escrow Account, to be held and administered by
the Escrow Agent, as escrow agent, in accordance with the terms and conditions of this Agreement (including, specifically Sections
1.7 and 6.8 hereof) and the escrow agreement substantially in the form attached hereto as Exhibit C (the “Escrow
Agreement”).
(c)
At the Closing, Purchaser shall pay to Seller the EDA
Amount. In the event that any such amounts are not paid to Seller at the Closing, Purchaser shall pay such amounts to Seller, as promptly
as practicable following the Closing, but in no event later than thirty (30) days following the Closing Date.
(d)
The Parties acknowledge that as a condition to obtaining
the Real Property Lease Assignment, Purchaser and Seller have agreed to pay the Landlord an aggregate amount equal to Fifty Thousand
Dollars ($50,000) at the Closing. Accordingly, the Parties acknowledge and agree that, at the Closing, Purchaser shall pay to the Landlord
an amount equal to Twenty-Five Thousand Dollars ($25,000) and Seller shall pay to the Landlord an amount equal to Twenty-Five Thousand
Dollars ($25,000). On the twelve (12) month anniversary of the Closing Date, Purchaser shall pay to Seller an amount equal to Twenty-Five
Thousand Dollars ($25,000) to reimburse Seller for the payment made by Seller described in the foregoing sentence.
Section
1.7 Escrow Mechanics.
(a)
The portion of the Escrow Account relating to the Delivered
Plates Escrow Amount shall be distributed as provided in this Section 1.7(a). Following the Closing, promptly (and in any event
within five (5) Business Days) following the full recognition of revenue, including customer acceptance and receipt of cash payment for
final invoice(s), from either (i) the first delivery of Business Products quality controlled, shipped, and delivered from a successful
production run started and finished post-Closing, or (ii) services completed and performed on the Business Products from a successful
production run started and finished post-Closing, Purchaser and Seller shall deliver joint written instructions to the Escrow Agent instructing
the Escrow Agent to disburse to Seller an amount equal to the Delivered Plates Escrow Amount; provided that if neither item (i)
nor (ii) occurs prior to the twelve (12)-month anniversary of the Closing, promptly (and in any event within five (5) Business Days)
following the twelve (12)-month anniversary of the Closing, Purchaser and Seller shall deliver joint written instructions to the Escrow
Agent instructing the Escrow Agent to disburse to Purchaser an amount equal to the Delivered Plates Escrow Amount.
(b)
The portion of the Escrow Account relating to the Post-Closing
Revenue Escrow Amount shall be distributed as provided in this Section 1.7(b). Following the Closing, promptly (and in any event
within five (5) Business Days) following Purchaser’s recognition of Five Hundred Thousand Dollars ($500,000) in revenue and receipt
of cash payments of the invoices from the sale of Business Products and/or services relating to the Business Products, Purchaser and
Seller shall deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to disburse to Seller an amount equal
to the Post-Closing Revenue Escrow Amount; provided that if Purchaser does not recognize Five Hundred Thousand Dollars ($500,000) in
revenue and receipt of cash payments of the invoices from the sale of Business Products and/or services relating to the Business Products
prior to the three (3) year anniversary of the Closing, promptly (and in any event within five (5) Business Days) following the three
(3) year anniversary of the Closing, Purchaser and Seller shall deliver joint written instructions to the Escrow Agent instructing the
Escrow Agent to disburse to Purchaser an amount equal to the Post-Closing Revenue Escrow Amount.
(c)
The portion of the Escrow Account relating to the Indemnification
Escrow Amount shall be distributed as provided in Section 6.8.
(d)
Neither Purchaser nor any of its Affiliates will take
any actions, or omit to take any actions, in either case for the primary purpose of failing to achieve the conditions with respect to
the release to Seller of the portion of the Escrow Account relating to the Delivered Plates Escrow Amount and the Post-Closing Revenue
Escrow Amount.
Section
1.8 Time and Place of Closing.
(a)
Subject to the terms and conditions of this Agreement,
the closing of the transactions contemplated by this Agreement (the “Closing”) shall take place by electronic exchange
of executed documents on (i) the third Business Day following the date on which all of the conditions set forth in Article 7 are
satisfied or (ii) such other date as mutually agreed upon by Purchaser and Seller (such date, as applicable, the “Closing Date”).
(b)
The Parties hereto agree that, should the Closing occur,
the effective time and date of the transactions contemplated by this Agreement shall be 11:59 p.m., Central Standard Time, on the day
immediately prior to the Closing Date (the “Closing Time”).
Section
1.9 Deliveries at Closing.
(a)
At or prior to the Closing, Seller shall deliver to
Purchaser the following:
(i)
A Bill of Sale, Assignment and Assumption Agreement,
in the form attached hereto as Exhibit D (the “Bill of Sale”), executed by Seller;
(ii)
The Escrow Agreement, executed by Seller;
(iii)
offer letters, in the forms attached as Exhibit E hereto
(collectively, the “Offer Letters”), executed by Andrew LaCroix, Nicholas Coungeris, Morgan Williamson, and Victoria
Alstat;
(iv)
confidentiality and invention assignment agreements,
in the form attached as Exhibit F hereto (collectively, the “CIIAs”), executed by Andrew LaCroix, Nicholas Coungeris,
Morgan Williamson, and Victoria Alstat;
(v)
consulting agreement, in the form attached hereto as
Exhibit G (the “Consulting Agreement”), executed by Founder;
(vi)
A certificate in the form attached hereto as Exhibit
H dated as of the Closing Date and signed by a duly authorized officer of Seller certifying (A) that attached thereto are true and complete
copies of all resolutions adopted by any directors, stockholders or other necessary Persons authorizing the execution, delivery and performance
of this Agreement and the other Acquisition Documents and the consummation of the Acquisition and transactions contemplated hereby and
thereby, (B) that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Acquisition
and the transactions contemplated hereby and thereby, (C) the names and signatures of the Persons authorized on behalf of Seller to execute
and deliver this Agreement, the Acquisition Documents and the other documents, certificates, or instruments to be delivered hereunder
and thereunder, (D) the Estimated Proration Amount, (E) the EDA Amount, (F) that attached thereto are those certificates of good standing,
dated as of a recent date prior to the Closing Date, for Seller in its jurisdiction of incorporation, and (E) the amount that Seller
has paid in salary and benefits expenses for Victoria Alstat during the time period between April 6, 2023 and the Closing Date (such
amount, the “Employee Reimbursement Amount”) and written evidence of Seller’s payment of the Employee Reimbursement
Amount;
(vii)
All consents, waivers, approvals, authorizations, qualifications
and orders of Governmental Authorities or any other Persons that are necessary in connection with Sellers’ execution and delivery
of the Acquisition Documents or performance of the transactions contemplated thereunder, including, but not limited to, those set forth
on Schedule 1.9(a)(vi);
(viii)
(A) payoff letters or other evidence of discharge and
extinguishment, in form and substance reasonably satisfactory to Purchaser, from each creditor with respect to the Indebtedness set forth
on Schedule 1.9(viii)(A), and (B) any Lien releases and associated documentation (including UCC financing statement amendments
and termination statements), in form and substance reasonably satisfactory to Purchaser, necessary to terminate the Liens associated
with such Indebtedness upon repayment thereof;
(ix)
Written evidence of payment by Seller to Broker for
fees then due in connection with the Acquisition;
(x)
(A) Written evidence of payment by Seller to Andrew
LaCroix, Morgan Williamson and Nicholas Coungeris for retention bonuses and (B) releases related to such retention bonuses in the form
attached as Exhibit I hereto (collectively, the “Retention Bonus Releases”), executed by Andrew LaCroix, Morgan Williamson
and Nicholas Coungeris;
(xi)
Intellectual Property Assignments, in customary form
and substance mutually agreeable to Purchaser and Seller (collectively, the “IP Assignments”), executed by StemoniX;
(xii)
An IRS Form W-9 executed by Seller, or an affidavit
of non-foreign status of Seller that complies with Section 1445 of the Code;
(xiii)
An electronic copy of all materials uploaded to the
virtual data room maintained by Seller in connection with the transactions contemplated hereby; and
(xiv)
Such other documents as may be necessary to consummate
the Acquisition and the other transactions contemplated by this Agreement, as reasonably requested by Purchaser.
(b)
At the Closing, Purchaser shall deliver to Seller the
following:
(i)
The Closing Date Payment;
(ii)
The Bill of Sale, executed by Purchaser;
(iii)
The Escrow Agreement, executed by Purchaser;
(iv)
The Offer Letters, executed by Purchaser;
(v)
The Consulting Agreement, executed by Purchaser;
(vi)
The IP Assignments, executed by Purchaser; and
(vii)
An amount equal to the lesser of the Employee Reimbursement
Amount and Thirty Thousand Dollars ($30,000) (the “Employee Reimbursement Payment”), by wire transfer of immediately
available funds to an account or accounts designated by Seller in writing.
Section
1.10 Withholding. While the Parties do not currently
believe any withholding will be required, Purchaser shall be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement such amounts as are required to be deducted or withheld therefrom under applicable Law, and shall
remit any amounts withheld to the appropriate Governmental Authority. To the extent such amounts are so deducted or withheld, such amounts
will be treated for all purposes of this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.
If any payor under this Agreement hereafter determines that it will be required to withhold on account of Taxes from a payment under
this Agreement, such payor shall use commercially reasonable efforts to provide reasonable prior notice to the payee and to reasonably
cooperate with the payee to determine whether an exemption or reduced rate of withholding applies.
Article
2
REPRESENTATIONS AND WARRANTIES OF SELLER
Except
(i) as set forth in a written disclosure schedule being delivered by Seller to Purchaser at the time of execution of this Agreement,
(ii) disclosed in Parent’s Form 10-K annual report for the year ending December 31, 2022 publicly filed with or furnished to the
U.S. Securities and Exchange Commission, or (iii) as set forth in Parent’s Quarterly Report for the period ending March 31, 2023
Disclosure Statement Pursuant to the Pink Basic Disclosure Guidelines attached to Schedule 2, Seller hereby represents and warrants
to Purchaser as follows:
Section
2.1 Organization; Qualification.
(a)
StemoniX is duly incorporated, validly existing and
in good standing as a corporation under the laws of the State of Minnesota. StemoniX is duly qualified to do business and is in good
standing in each of the jurisdictions in which either ownership or use of the rights, assets and properties of StemoniX (including the
Transferred Assets), or conduct of the business of StemoniX (including the Business), requires such qualification, except, in each case,
as would not have a Material Adverse Effect. Schedule 2.1(a) contains all trade names under which the Business (i) operates or
(ii) has been operated within the past three years.
(b)
Parent is duly incorporated, validly existing and in
good standing as a corporation under the laws of the State of Delaware. Parent is duly qualified to do business and is in good standing
in each of the jurisdictions in which either ownership or use of the rights, assets and properties of Parent (including the Transferred
Assets), or conduct of the business of Parent (including the Business), requires such qualification, except, in each case, as would not
have a Material Adverse Effect.
Section
2.2 Authority and Validity.
(a)
Each of StemoniX and Parent has the full power and authority
necessary to (i) execute, deliver and perform its obligations under the Acquisition Documents to be executed and delivered by it, (ii)
carry on the Business as it has been and is now being conducted, and (iii) own or lease the rights, properties and assets which it now
owns or leases (including the Transferred Assets).
(b)
The execution, delivery and performance of the Acquisition
Documents to be executed and delivered by StemoniX or Parent have been duly authorized by all necessary corporate action of StemoniX
or Parent, as applicable, except as provided in Section 2.2(c). The Acquisition Documents to which StemoniX or Parent is a party
have been or will be, as the case may be, duly executed and delivered by StemoniX or Parent, as applicable, and constitute or will constitute
the legal, valid and binding obligations of StemoniX or Parent, as applicable, enforceable in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, or other laws affecting creditors’ rights generally, or as may be modified
by a court of equity.
(c)
The affirmative vote of (i) the holders of a majority
of the outstanding shares of StemoniX common stock entitled to vote to approve the transactions contemplated by this Agreement and (ii)
the holders of a majority of the outstanding shares of Parent common stock entitled to vote to approve the transactions contemplated
by this Agreement (this clause (ii), the “Stockholder Approval”) is the only vote or consent of the holders of any
class or series of StemoniX’s or Parent’s capital stock or any of their respective Affiliate’s equity that is necessary
in connection with the consummation of the transactions contemplated by this Agreement, and no other corporate or stockholder proceedings
are still necessary to approve this Agreement or to consummate the transactions contemplated hereby. Prior to the execution of this Agreement,
at a meeting duly called and held, the board of directors of Parent (the “Parent Board”) duly, validly and adopted
resolutions (i) approving and declaring advisable this Agreement and the transactions contemplated hereby on the terms and subject to
the conditions set forth herein, (ii) declaring and determining that it is in the best interests of the stockholders of Parent that StemoniX
and Parent enter into this Agreement and consummate the transactions contemplated hereby on the terms and subject to the conditions set
forth herein, (iii) directing that this Agreement be submitted to a vote at a meeting of the stockholders of Parent for approval and
adoption and calling a meeting of the stockholders of Parent for such purpose, and (iv) recommending that the stockholders of Parent
approve and adopt this Agreement (items (i), (ii), (iii) and (iv) being collectively referred to herein as the “Board Recommendation”),
which resolutions, as of the date of this Agreement, have not been rescinded, modified or withdrawn in any way.
(d)
Other than with respect to the Excluded Entities, neither
StemoniX nor Parent directly or indirectly owns any equity or similar interest in, or any interest convertible into or exchangeable or
exercisable for, at any time, any equity or similar interest in any corporation, partnership, limited liability company, joint venture
or other business association or entity. No Person other than Seller (including employees and independent contractors thereof) is engaged
in the Business.
Section
2.3 Noncontravention.
(a)
The execution, delivery and performance by Seller of
this Agreement and the other Acquisition Documents to be executed and delivered by Seller do not and will not: (i) conflict with any
provision of Seller’s organizational documents; (ii) conflict with or result in a violation of any Law, ruling, judgment, order
or injunction of any court or Governmental Authority to which Seller is subject or by which it or any of its rights, assets or properties
are bound; (iii) conflict with, constitute grounds for termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance required by the terms of any Contract or Permit to which Seller
is a party or by which it or any of its rights, assets or properties are bound (including the Assumed Contracts); or (iv) create any
Lien upon any of the Transferred Assets, or result in the acceleration of the maturity of any payment date of any of the Assumed Liabilities,
or increase or adversely affect the obligations of Seller under any of the Assumed Liabilities (or, following the Closing Time, the obligations
of Purchaser under any of the Assumed Liabilities).
(b)
Except (i) for the filing with the SEC of the preliminary
proxy statement, the Proxy Statement and any related filings under Section 14 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) and any Current Reports on Form 8-K under the Exchange Act related to this Agreement or the completion
of the transactions contemplated hereby, (ii) the Stockholder Approval, and (iii) filings, permits, clearances, authorizations, consents,
orders and approvals as may be required pursuant to the rules and regulations of the NASDAQ Stock Market, the execution and delivery
of the Acquisition Documents by Seller does not, and the performance of the Acquisition Documents by Seller and the consummation of the
transactions contemplated hereby and thereby will not require Seller to obtain any Consent or order of, or make any filing with, any
Person.
Section
2.4 Compliance with Laws; Regulatory Matters.
(a)
Seller is and for the last two years has been in compliance
in all material respects with all Laws and Orders applicable to the Business or the ownership or use of any of its assets and properties
(including the Transferred Assets). The Business Products and any other applicable Transferred Assets are being, and have been, developed,
tested, processed, manufactured, stored, marketed and distributed, in compliance with all applicable Laws, including all Health Care
Laws, Good Laboratory Practices, Good Clinical Practices, and Good Manufacturing Practices.
(b)
Seller is and for the last two years has been in possession
of, and in compliance in all material respects with, all Permits necessary for Seller to engage in the testing, development, processing,
manufacture, storage, marketing, distribution and provision of the Business Products or otherwise related to the operation of the Business,
including any FDA or EMA approvals and registrations, BLAs, INDs, MAAs, NDAs and any other international equivalent thereof (the “Regulatory
Authorizations”). To the extent required, each Regulatory Authorization is valid and in full force and effect, and Seller (as
applicable) is in compliance in all material respects with the terms of such Regulatory Authorizations. Seller has not received any notice
of, there is no pending or threatened in writing, and, to the Knowledge of Seller, there are no grounds that would reasonably give rise
to, any suspension, cancellation, modification, termination, revocation, or nonrenewal of any Regulatory Authorization, including any
IND, NDA, MAA or BLA.
(c)
There have been no recalls, field notifications or corrective
actions, market withdrawals or replacements, letters or investigator notices relating to any Business Product or otherwise related to
the operation of the Business, and, to the Knowledge of Seller, there are no facts or circumstances that would be reasonably likely to
result in such action or otherwise require a change in the labeling of or the termination or suspension of the development, manufacture,
distribution, marketing or testing of any Business Product or otherwise related to the operation of the Business. Seller has not received
any FDA Form 483, notice of violation, warning letter, untitled letter or other correspondence or written notice from the FDA or other
Governmental Authority alleging or asserting noncompliance in any material respect with any applicable Laws, including Healthcare Laws,
Regulatory Authorizations, or Business Permits. To the Knowledge of Seller, no Person has filed or has threatened in writing to file
against Seller any Legal Proceeding under any federal or state whistleblower statute or equivalent Law in the applicable jurisdiction,
including under the federal False Claims Act, 21 U.S.C. §§ 3729-3733. Neither Seller nor, to the Knowledge of Seller, any officer,
employee, agent or clinical investigator thereof has committed any act, made any statement or failed to make any statement that establishes
a reasonable basis for the FDA to invoke its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy.
Seller is not a party to any corporate integrity agreements, monitoring agreements, consent decrees, settlement Orders or similar agreements
with or imposed by the FDA or any other Governmental Authority with respect to the Business. Neither Seller nor, to the Knowledge of
Seller, any officer, employee, agent or clinical investigator thereof has been suspended, debarred, excluded or convicted of any crime
or engaged in any conduct that would reasonably be expected to result in debarment under 21 U.S.C. Section 335a, exclusion under 42 U.S.C.
Section 1320a-7 or any similar Legal Proceeding or Order.
(d)
All material reports, documents, forms, claims, applications
for Regulatory Authorizations, records submissions, supplements, amendments, and notices, including all design history files, technical
files and adverse event reports concerning Business Products or otherwise related to the operation of the Business, required to be filed
with, maintained for or furnished to any Governmental Authority by Seller or any Person that manufactures, develops, packages, processes,
labels, markets, tests or distributes Business Products or otherwise provides Business products or services pursuant to a development,
distribution, commercialization, manufacturing, supply, testing, research, licensing or other arrangement with Seller (each, a “Business
Partner”) have in all material respects been so filed, maintained or furnished by Seller and the Business Partners, as applicable,
are complete and accurate in all material respects and in material compliance with applicable Laws, and no deficiencies have been asserted
by any Governmental Authority with respect thereto. Neither Seller nor, to the Knowledge of Seller, any officer, director, employee or
agent thereof has made any material false statement or material omission in any report, document, form, claim, application for Regulatory
Authorization, application, records submission, supplement, amendment, or notice relating to the Business Products or otherwise related
to the operation of the Business to any Governmental Authority.
(e)
Seller has not received notice from any Governmental
Authority, and no Governmental Authority has issued any such notice to any other Person that any Business Product or other product or
service offered by Seller in connection with the Business cannot be developed, investigated, or marketed substantially in the manner
presently performed or contemplated by Seller.
(f)
All preclinical and clinical investigations sponsored
or conducted by Seller, including all Clinical Trials, and all other trials involving any Business Product or otherwise related to the
operation of the Business, have been and are being conducted in, and all Business Products used in and all Business activities conducted
in connection with such investigations are and have been in, material compliance with all applicable Laws, including Good Laboratory
Practices, Good Clinical Practices, Good Manufacturing Practices, Health Care Laws, applicable research protocols, corrective action
plans, all Laws relating to patient privacy requirements or restricting the use and disclosure of individually identifiable health information
and all applicable contractual or other requirements relating to privacy and data security that regulate or limit the maintenance, use,
disclosure or transmission of medical records, trial data, patient information or other personal information made available to or collected
by Seller, including but not limited to business associate agreements. Neither Seller nor, to the Knowledge of Seller, any preclinical
or clinical investigation involving any Business Product or otherwise related to the operation of the Business has, experienced any material
unauthorized or unlawful breach, destruction, loss, alteration, or disclosure of, or access to, personal data, and neither Seller nor,
to the Knowledge of Seller, any preclinical or Clinical Trial involving any Business Product or otherwise related to the operation of
the Business has, suffered any material security breach in relation to any other data which it holds that would require notification
under any similar applicable Laws.
(g)
Seller has implemented a compliance program reasonably
designed to ensure compliance with applicable industry codes and standards, including but not limited to those promulgated by Healthcare
Laws and Pharmaceutical Research and Manufacturers of America.
(h)
Seller does not engage, and for the last two years has
not engaged, in an unlawful or unauthorized practice of medicine or other professionally licensed activity including pursuant to applicable
Law.
Section
2.5 Permits. All Permits required to use the Transferred
Assets or to conduct the Business, in each case as such Transferred Assets have been used for the last two years and the Business has
been conducted for the last two years, are set forth on Schedule 2.5 (the “Business Permits”) and, except as
set forth on Schedule 2.5, are valid and in full force and effect. Schedule 2.5 correctly describes each Business Permit,
together with the name of the Governmental Authority and/or Trade Organization issuing such Permit and the expiration date of such Permit.
Each Business Permit is valid and in full force and effect for the benefit of Seller, is not subject to any change of control limitation,
is transferable to Purchaser, and no condition exists that with notice or lapse of time, or both, would constitute a default under any
of the Business Permits. Seller has conducted the Business in compliance with, and is in compliance with, in all material respects all
Business Permits. Seller has not received written notice of any threatened or recommended revocation, limitation, withdrawal, suspension
or cancellation of any Business Permit and, to the Knowledge of Seller, no cause exists therefor.
Section
2.6 Financial Statements; Indebtedness.
(a)
(i) Set forth in Parent’s Form 10-K for the calendar
year ended 2022 filed with the U.S. Securities and Exchange Commission are the audited consolidated balance sheets of Parent as of December
31, 2022, and related audited consolidated statements of income, changes in equity and cash flows of Parent for the year then ended and
(ii) attached hereto as Schedule 2.6(a) is the interim, unaudited consolidated balance sheet of Parent as of March 31, 2023, and
related unaudited consolidated statements of income, changes in equity and cash flows for Parent for the three-month period then ended
(items (i) and (ii) collectively with all related notes thereto, the “Financial Statements”).
(b)
The Financial Statements are true, correct and complete,
in all material respects, and have been prepared in accordance with GAAP consistently applied. The Financial Statements present fairly
the financial position of Seller as of the dates indicated in all material respects and present fairly the results of the operations,
changes in equity and cash flows of Seller for the periods then ended in all material respects. The Financial Statements have been prepared
in accordance with the books and records of the Business, which have been properly maintained and are true, complete and correct in all
material respects. Parent has not received any written advice or notification that it has used any improper accounting practice that
would have the effect of not reflecting or incorrectly reflecting in the Financial Statements or the books and records, any properties,
assets, Liabilities, revenues or expenses.
(c)
Except as set forth on Schedule 2.6(c), there
is no Indebtedness owed or guaranteed by Seller with respect to the Business; as of the Closing, there will be no Indebtedness owed or
guaranteed by Seller with respect to the Business.
Section
2.7 Absence of Changes. Except as contemplated
by this Agreement, since December 31, 2022, Seller has conducted the Business only in the Ordinary Course of Business, and neither Seller
with respect to the Business nor the Business has:
(a)
suffered any Material Adverse Effect;
(b)
paid, discharged or satisfied any Lien or Liability
other than in the Ordinary Course of Business;
(c)
waived any debts or Contractual claims or rights;
(d)
sold, assigned, disposed of or otherwise transferred,
or subjected to any Lien, any of its material rights, properties or assets (including any tangible asset or any patent, trademark, trade
name, copyright or other intangible asset), other than sales of inventory in the Ordinary Course of Business;
(e)
purchased, acquired or leased any material assets or
properties, whether real or personal, tangible or intangible;
(f)
entered into any commitments or transactions not in
the Ordinary Course of Business, involving aggregate value in excess of Ten Thousand Dollars ($10,000) or made aggregate capital expenditures
or commitments in excess of Ten Thousand Dollars ($10,000);
(g)
made any change in any method of accounting or accounting
practice;
(h)
increased any salaries, wages, compensation or employee
benefits (other than annual increases to employee salaries and/or wages in the Ordinary Course of Business), made any arrangement for
payment of any bonus or special compensation for any employee, or otherwise entered into or amended any severance or employment agreement
with any employee;
(i)
hired, committed to hire or terminated any employee
or independent contractor;
(j)
terminated or amended any material Contract, agreement,
license or other instrument to which Seller is or was a party, suffered any loss or termination or threatened loss or termination of
any existing material business arrangement or supplier, or waived, released, compromised or assigned any Contractual rights or claims
related to or benefiting the Business;
(k)
commenced any litigation involving any right, property,
asset or Liability of the Business, or settled any litigation involving any right, property, asset or Liability of the Business;
(l)
sold or otherwise transferred, directly or indirectly,
any interest in the Business; or
(m)
agreed, whether in writing or otherwise, to take any
action described in this Section 2.7.
Section
2.8 No Undisclosed Liabilities. Seller has no
Liabilities with respect to the Business or the Transferred Assets of a type required to be reflected on a balance sheet prepared in
accordance with GAAP, except for Liabilities reflected in the Financial Statements or incurred in the Ordinary Course of Business since
the date of the most recent balance sheet included in the Financial Statements.
Section
2.9 Litigation and Claims. There are no, and for
the last two years there have not been any, Legal Proceedings pending or, to the Knowledge of Seller, threatened against Seller with
respect or related to the Business or the Transferred Assets, and (b) there are no judgments against or consent decrees binding on Seller
with respect to the Business or the Transferred Assets or, to the Knowledge of Seller, any licensed professional employed by, contracted
for or otherwise relating to the Business.
Section
2.10 Transferred Assets; Real and Personal Property.
(a)
No Person other than StemoniX and Parent have any right,
title, or interest, directly or indirectly, in or to any assets owned, used or held for use in connection with the Business, other than
third party lessors of leased Transferred Assets. Seller (i) has good, valid and marketable title to, or a valid leasehold interest in,
all of the Transferred Assets, (ii) owns or leases the Transferred Assets free and clear of all Liens, other than (A) Liens for Taxes
not yet due and payable or being contested in good faith and (B) mechanics’, carriers’, workmen’s repairmen’s
or other like Liens arising or incurred in the Ordinary Course or Business, and (C) the non-exclusive licenses of Intellectual Property
set forth on Schedule 2.10(a)(C) (clauses (A)–(C), “Permitted Liens”) and (iii) will, upon the Closing,
convey good, valid and marketable title to, or a assign a valid leasehold interest in, the Transferred Assets to Purchaser free and clear
of any and all Liens, other than Permitted Liens. All of the Transferred Assets, whether owned or leased, are in the possession and control
of Seller and upon the Closing will be in the possession and control of Purchaser.
(b)
All of the Transferred Assets, in all material respects,
(i) are in good operating condition and repair, ordinary wear and tear excepted, (ii) are suitable for the purposes for which they are
being used and currently planned to be used by Seller, and (iii) have been maintained in accordance with normal industry practice. The
Transferred Assets constitute all of the properties and assets necessary to conduct the Business as conducted by Seller immediately prior
to the Closing. The Transferred Assets will be sufficient for the conduct and operation of the Business at and following the Closing
in substantially the same manner as the Business was conducted and operated immediately prior to the Closing.
(c)
The items set forth on Schedule 1.1(c) constitute
all of the Equipment owned, leased or otherwise used in the operation of the Business, and each item set forth on Schedule 1.1(c)
is located at the Leased Real Property. Schedule 2.10(c) sets forth each item of Equipment that is leased by Seller and used
or necessary for the conduct of the Business, and Seller has delivered to Purchaser a true and complete list of all Contracts pursuant
to which Seller leases such Equipment, together with any amendments, modifications, or supplements thereto (collectively, the “Equipment
Leases”). Seller is not in breach of or default under (and no event has occurred that, with due notice or lapse of time or
both, may constitute such a breach of or default under) Equipment Lease, and, to the Knowledge of Seller, no other party is in breach
of or default under any such Equipment Lease.
(d)
The items set forth on Schedule 1.1(d) constitute
all of the Inventory owned, leased or otherwise used in the operation of the Business, and each item set forth on Schedule 1.1(d)
is located at the Leased Real Property. Each item of Inventory is (i) free of any Liens, material defect or other deficiency, other
than Permitted Liens; (ii) not held by Seller on a consignment basis; (iii) merchantable and fit for the purpose for which it was procured
or manufactured; and (iv) as of the dates set forth therein, properly reflected in the Financial Statements in all material respects.
Except as to items of Inventory that have been written down on the face of the Financial Statements, none of the Inventory is slow-moving
or obsolete, damaged or defective (and any item of Inventory that has been so written down has been reserved against to its net realizable
value).
(e)
Schedule 2.10(e) sets forth a list of any real
property leased or subleased in the operation of the Business (the “Leased Real Property”), including the street address
of each such Leased Real Property. Seller has delivered to Purchaser a correct and complete copy of each written underlying lease (or
sub-lease or similar agreement), or an accurate summary of the material terms of each oral underlying lease (or sub-lease or similar
agreement), in each case with respect to each parcel of Leased Real Property (each, a “Lease”). With respect to each
parcel of Leased Real Property: (i) Seller is a tenant and possessor in good standing in accordance with the material terms of the applicable
Lease, all rents due and owing under each such Lease have been paid, Seller is in peaceful and undisturbed possession of the space and/or
estate in accordance with the terms of the applicable Lease, and Seller is not and, to the Knowledge of Seller, no other party to any
such Lease is, in default or breach (with or without due notice or lapse of time or both) under the terms of any such Lease; (ii) Seller
has not received any written notice that the lessor or any sublessor under any Lease intends to cancel or terminate any such Lease or
to exercise or not exercise any option thereunder; (iii) there have not been, and there are not now, any material disputes, oral agreements,
temporary waivers or forbearances in effect with respect to such Leased Real Property, and (iv) with respect to each written Lease, Seller
has a valid and enforceable leasehold interest in such Leased Real Property.
(f)
Seller has not received any notice of any existing or
threatened material condemnation or eminent domain proceedings, or their local equivalent, relating to or affecting any portion of the
Leased Real Property or other matters materially and adversely affecting the current use or occupancy thereof. Other than the Lease,
there is no outstanding option, obligation, right of first refusal, purchase contract or other contractual right to sell, lease or purchase
any of the Leased Real Property or any portions thereof or interests therein, nor any other contractual right to sell, dispose or lease
any of the Leased Real Property or any portion thereof or any interest therein. Other than the Lease, there are no leases, subleases,
licenses, concessions, purchase options, rights of first refusal, rights of first offer, or other contracts (written or oral) granting
to any Person or Persons, other than as may exist for the benefit of the Business, the right to use, possess or occupy any parcel or
portion of the Leased Real Property.
(g)
To the Knowledge of Seller, all of the Leased Real Property
and buildings, fixtures and improvements thereon are in good operating condition (ordinary wear and tear excepted), without material
structural defects, and all mechanical and other systems located thereon are in good operating condition (ordinary wear and tear excepted).
To the Knowledge of Seller, the Leased Real Property has adequate utilities of a capacity and condition to serve such Leased Real Property
to operate the Business as it is currently conducted.
(h)
Schedule 2.10(h) sets forth a list of all trade
fixtures, movable equipment, furniture or other personal property owned by Seller located at the Leased Real Property. To the Knowledge
of Seller, none of the improvements made by Seller to the Leased Real Property constitutes a legal non-conforming use or otherwise requires
any special dispensation, variance or special permit under and Law.
(i)
To the Knowledge of Seller, the use and occupancy of
the Leased Real Property in connection with the Business does not violate any deed restrictions, building codes, or zoning, subdivision
or other land use or similar Laws. To the Knowledge of Seller, no special assessments have been levied, are pending or are contemplated
against the Leased Real Property.
(j)
Seller does not own any real property used in connection
with the Business.
(k)
The Leased Real Property constitutes all of the real
property used in connection with the operation of the Business
Section
2.11 Intellectual Property.
(a)
Registered Intellectual Property. Schedule
2.11(a) lists: (i) each item of Intellectual Property that is (A) registered with a Governmental Authority and (B) owned, filed in
the name of, or purported to be owned by Seller or subject to a valid obligation of assignment to Seller (whether owned exclusively,
jointly with another Person, or otherwise) (“Registered Intellectual Property”); (ii) any other Person that has an
ownership interest in such item of Registered Intellectual Property and the nature of such ownership interest; (iii) the jurisdiction
in which such item of Registered Intellectual Property has been registered or filed and the applicable title, registration and application
numbers; and (iv) to the Knowledge of Seller, any Legal Proceedings before any court or tribunal (including the United States Patent
and Trademark Office (the “PTO”), the U.S. Copyright Office, or equivalent authority anywhere in the world) to which
Seller is a party and in which claims are raised relating to the validity, enforceability, scope, ownership or infringement of any of
the Registered Intellectual Property. All necessary registration, maintenance and renewal fees in connection with the Registered Intellectual
Property owned by Seller and used by Seller as of immediately prior to the Closing in connection with the Business that are or shall
be due for payment by Seller on or before the Closing Date have been or shall be timely paid and all necessary documents and certificates
in connection with such Registered Intellectual Property that are or shall be due for filing on or before the Closing Date have been
or shall be timely filed with the PTO or other relevant patent, copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. Seller has made available to
Purchaser correct and complete copies of all applications, correspondence and other material documents in its possession (e.g., drawings
and sequence listings) related to Registered Intellectual Property owned by Seller.
(b)
Owned Intellectual Property. Seller exclusively
owns all right, title, and interest to and in each item of Intellectual Property that is owned or purported to be owned by Seller (“Owned
Intellectual Property”) free and clear of all Liens, other than Permitted Liens. Seller has the exclusive right to bring infringement
or invalidity actions with respect to Owned Intellectual Property. Neither Seller nor any of its Affiliates has (i) transferred full
or partial ownership of, or granted any exclusive license with respect to, any Owned Intellectual Property or (ii) permitted Owned Intellectual
Property to enter into the public domain. To the Knowledge of Seller, no Person has infringed, misappropriated or otherwise violated,
and no Person is currently infringing, misappropriating or otherwise violating, any Owned Intellectual Property. Schedule 2.11(b)
lists (and Seller has made available to Purchaser a correct and complete copy of) each letter or other written or electronic communication,
or correspondence or claim that has been sent or otherwise delivered to any other Person by Seller or any Affiliate thereof, or any of
their Representatives, regarding any actual, alleged or suspected infringement or misappropriation of any Owned Intellectual Property.
(c)
Development of Intellectual Property. Neither
Seller nor any Affiliate thereof has jointly developed any Intellectual Property with any other Person with respect to which such other
Person has retained any rights in the developed subject matter. Without limiting the generality of the foregoing:
(i)
Each Person who is or was an employee, consultant or
contractor of Seller or any Affiliate thereof and that was involved in the development of any Intellectual Property for or on behalf
of Seller or any Affiliate thereof has signed a valid, enforceable agreement (A) containing a present assignment to Seller (or such other
assignment as is sufficient under applicable Law) of such Person’s rights, title and interest in and to the resulting Intellectual
Property, and (B) which also contains customary confidentiality provisions protecting the rights of Seller or such Affiliate in trade
secrets and other Seller or Affiliate proprietary information (such valid, enforceable agreements “Personnel Agreements”),
and Seller or such Affiliate and all other parties thereto are in compliance in all material respects with the provisions of the Personnel
Agreements;
(ii)
No current or former shareholder, manager, officer,
director, consultant, contractor or employee of Seller or any Affiliate thereof, to the Knowledge of Seller, (A) has made any claim of
ownership with respect to any Intellectual Property, or (B) has any claim, right (whether or not currently exercisable) or interest to
or in Intellectual Property;
(iii)
To the Knowledge of Seller, no employee of the Business
is: (A) bound by or otherwise subject to any Contract with a third Person restricting such employee from performing (or in the case of
former employees, having performed) such employee’s duties for the Business; or (B) in breach of any Contract with any former employer
or other Person concerning Intellectual Property or confidentiality due to his/her activities as an employee or contractor of the Business;
and
(iv)
No funding, facilities or personnel of any Governmental
Authority or any public or private university, college or other educational or research institution were used directly to develop or
create, in whole or in part, any Intellectual Property for or on behalf of Seller or any Affiliate thereof.
(d)
Intellectual Property Contracts.
(i)
Schedule 2.11(d)(i) lists all licenses or Contracts
to which Seller or any of its Affiliates is a party or by which Seller or any of its Affiliates is bound pursuant to which any Intellectual
Property is licensed to Seller or any of its Affiliates.
(ii)
Schedule 2.11(d)(ii) lists each license or Contract
to which Seller or any Affiliate thereof is a party or by which Seller or any Affiliate thereof is bound pursuant to which Seller or
any Affiliate thereof has granted to any Person any license under, agreed not to assert or enforce, or in which any Person has otherwise
received or acquired any right (whether or not currently exercisable) or interest in, any Intellectual Property (other than (A) nondisclosure
agreements entered in the Ordinary Course of Business or (B) access or incidental licenses to Intellectual Property granted to Seller’s
or any Affiliate thereof’s, consultants, and independent contractors solely for use in connection with providing services to Seller
or any Affiliate pursuant to Personnel Agreements).
(e)
Protection of Trade Secrets. Seller has taken
reasonable steps and precautions necessary to maintain the confidentiality of, and otherwise protect and enforce its rights in, all proprietary
and confidential information that Seller and its Affiliates hold, or purport to hold, as a trade secret or maintains, or purport to maintain,
as confidential, in each case, in respect of the Business.
(f)
Non-Infringement. To the Knowledge of Seller,
the operation of the Business as currently conducted, including the design, development, use, import, branding, advertising, promotion,
marketing, sale, provision, and licensing out of any products or services, has not and does not infringe, violate or misappropriate,
any intellectual property rights of any Person, or constitute unfair competition or trade practices under the Laws of any jurisdiction.
Without limiting the generality of the foregoing, to the Knowledge of Seller:
(i)
No infringement, misappropriation, or similar claim
or Legal Proceeding involving or relating to any intellectual property rights of another Person is pending or threatened against Seller
or its Affiliates or against any other Person who is or may be entitled to be indemnified, defended, held harmless or reimbursed by Seller
or its Affiliates with respect to such Legal Proceeding, in each case, in respect of the Business; and
(ii)
Seller has not received any notice or other communications
(in writing or otherwise) relating to any actual, alleged or suspected infringement, misappropriation or violation by Seller or any Affiliate
thereof of any intellectual property rights of another Person, including any letter or other communication suggesting or offering that
Seller obtain a license to any intellectual property rights of another Person in a manner that reasonably implies infringement or violation
in the absence of a license thereto, in each case, in respect of the Business.
Section
2.12 Contracts.
(a)
Schedule 2.12(a) contains a complete and accurate
list of all Contracts to which Seller or any of its Affiliates is a party in connection with the Business (the “Business Contracts”).
(b)
Each Business Contract is valid and binding on Seller
in accordance with its terms and is in full force and effect. None of Seller or, to the Knowledge of Seller, any other party thereto
is in breach of or default under (or is alleged to be in breach of or default under) in any material respect, or has provided or received
any notice of any intention to terminate, any Business Contract. No event or circumstance has occurred that, with notice or lapse of
time or both, would constitute a default or event of default under any Business Contract or result in a termination thereof or the loss
of any benefit thereunder. Accurate and complete copies of each Business Contract (including all modifications, amendments and supplements
thereto and waivers thereunder) have been provided to Purchaser. There are no disputes pending or threatened in writing under any Contract
included in the Transferred Assets. Originals or true and complete copies of all documents or other written materials underlying the
Business Contracts have been furnished or made available to Purchaser in the form in which each of such documents is in effect, together
with any amendments or supplements.
Section
2.13 Employment and Labor Matters.
(a)
Schedule 2.13(a) sets forth a list of all (i)
full-time and part-time employees of Parent or StemoniX involved in the Business (collectively, the “Employees”),
including each such Person’s (1) name, (2) job title, (3) start date, (4) annual salary or hourly rate, (5) commission, bonus or
other incentive-based compensation (including whether any such amounts are guaranteed or subject to a minimum), (6) leave status, if
applicable, (7) exempt or non-exempt designation for purposes of the Fair Labor Standards Act, and (8) current vacation balances, sick
time, and other paid time off balances, and (ii) independent contractors of Seller involved in the Business.
(b)
StemoniX and Parent are in compliance in all material
respects with all applicable Laws with respect to employment and employment practices, terms and conditions of employment, wages and
hours, and occupational safety and health, including ERISA, the Immigration Reform and Control Act of 1986, the National Labor Relations
Act, the Civil Rights Acts of 1866 and 1964, the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with Disabilities
Act, the Family and Medical Leave Act of 1993, the Worker Adjustment and Retraining Notification Act, the Occupational Safety and Health
Act, the Davis-Bacon Act, the Walsh-Healy Act, the Service Contract Act, Executive Order 11246, the Fair Labor Standards Act and the
Rehabilitation Act of 1973 and all regulations under such acts (collectively, the “Labor Laws”), except where the
failure to be in compliance could not reasonably be expected to have a material impact on the Business. Neither StemoniX nor Parent is
liable or currently alleged to be liable for any liabilities, judgments, decrees, orders, arrearage of wages or Taxes, fines or penalties
for failure to comply with any Labor Laws.
(c)
There are no charges, governmental audits, investigations,
administrative proceedings or formal or informal complaints concerning StemoniX’s or Parent’s employment practices with respect
to the Business pending or, to the Knowledge of Seller, threatened before any Governmental Authority or court, and, to the Knowledge
of Seller, no basis for any such matter exists.
(d)
Neither StemoniX nor Parent is a party to any union
or collective bargaining agreement or any other agreement regarding the rates of pay or working conditions of any Employees, and, to
the Knowledge of Seller, no union attempts to organize the Employees has been made, and, to the Knowledge of Seller, there are no such
attempts threatened.
(e)
Neither StemoniX nor Parent has experienced any organized
slowdown, work interruption, strike, or work stoppage by its Employees.
(f)
Neither StemoniX nor Parent has effectuated (i) a “plant
closing” (as defined in the Worker Adjustment and Retraining Notification Act (the “WARN Act”)), or (ii) a “mass
layoff” (as defined in the WARN Act), in each case, with respect to the Business, and Seller has not been affected by any transaction
or engaged in layoffs or employment terminations with respect to the Business sufficient in number to trigger application of any similar
Law. No employee of the Business has suffered an “employment loss” (as defined in the WARN Act) more recently than six months
prior to the Closing Date.
(g)
There are no pending or, to the Knowledge of Seller,
threatened unfair labor practices claims; equal employment opportunity claims; human rights or civil rights complaints; wage and hour
claims; unemployment compensation claims; United States Department of Labor Occupational Safety and Health Administration (“OSHA”)
citations and notifications of penalty, final orders, settlement agreements or violations; workers’ compensation claims or any
similar claims with respect to or otherwise involving the Business. Seller has delivered all reports, records, data or other information
with respect to the Business to OSHA as required by applicable Law.
Section
2.14 Employee Benefit Matters.
(a)
The employee benefit plans and agreements listed on
Schedule 2.14(a) are the only employee benefit plans and agreements maintained by StemoniX or Parent or their respective ERISA
Affiliates for the benefit of any Employee, including (i) all pension, retirement, profit sharing, stock bonus or other similar plans
or programs; (ii) any affirmative action plans or programs; (iii) employment agreements, current and deferred compensation, severance,
vacation, stock purchase, stock option, bonus and incentive compensation benefits; and (iv) medical, hospital, life, health, accident,
disability, death and other fringe and welfare benefits, all of which plans, programs, practices, policies and other individual and group
arrangements and agreements, including any unwritten compensation, fringe benefit, payroll or employment practices, procedures or policies
of any kind or description are hereinafter referred to as “Benefit Programs.” Seller has made available to Purchaser
copies of all such Benefit Programs and related information, including summary plan descriptions, employee handbooks and other benefits
summaries and communications to Employees.
(b)
None of the Liabilities of StemoniX or Parent pursuant
to any of the Benefit Programs are being assigned to, or assumed by, Purchaser, and the Business and the Transferred Assets are not,
and will not become, subject to any Lien with respect to any obligation or Liability of Seller involving the Benefit Programs.
Section
2.15 Insurance Policies.
(a)
Seller maintains in full force and effect the insurance
policies set forth on Schedule 2.15(a) (collectively, the “Insurance Policies”). Schedule 2.15(a) denotes
whether each Insurance Policy is claims made or occurrence based.
Section
2.16 Taxes.
(a)
Seller has timely filed with the appropriate Taxing
authorities all income and other material Tax Returns in all jurisdictions in which Tax Returns are required to be filed, and each affiliated,
unitary or combined group of corporations of which Seller is a member has filed all income Tax Returns that it was required to file for
each taxable period during which Seller was a member of such group, and such Tax Returns are correct and complete in all material respects.
Seller is not the beneficiary of any extension of time within which to file any Tax Return. All Taxes of Seller (whether or not shown
on any Tax Return) have been fully and timely paid. There are no Liens for any Taxes (other than Permitted Liens) on any of the Transferred
Assets. No claim has ever been made by an authority in a jurisdiction in which Seller does not file a Tax Return that Seller is or may
be subject to Taxes in that jurisdiction.
(b)
Seller has not received any written notice of assessment
or proposed assessment in connection with any Taxes, and, to the Knowledge of Seller, there are no threatened or pending disputes, claims,
audits or examinations regarding any Taxes of Seller or the Transferred Assets. Seller has not waived any statute of limitations in respect
of any Taxes or agreed to a Tax assessment or deficiency.
(c)
Seller is in compliance in all material respects with
all applicable Laws relating to the withholding of Taxes and the payment thereof to appropriate authorities, including Taxes required
to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor, and Taxes required
to be withheld and paid pursuant to Code Sections 1441 and 1442 or similar provisions under foreign Law.
(d)
The unpaid Taxes of Seller (i) did not, as of the most
recent fiscal month end, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the most recent balance sheets (rather than in any notes thereto) for
Seller and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with past custom
and practice of Seller in filing their Tax Returns.
(e)
Seller is not a party to any Tax allocation or sharing
agreement and has not been a member of an affiliated group filing a consolidated federal income Tax Return or has any Tax Liability of
any Person under Treasury Regulation Section 1.1502 6 or any similar provision of state, local or foreign law, or as a transferee or
successor, by contract or otherwise.
(f)
Seller has disclosed on its federal income Tax Returns
all positions taken thereon that could give rise to a substantial understatement of federal income Tax within the means of Code Section
6662.
(g)
Seller has not participated in or been a party to any
reportable transaction, as defined in Regulation Section 1.6011-4(b)(1), or a transaction substantially similar to a reportable transaction.
(h)
None of the Assumed Liabilities is an obligation or
agreement to make a payment that is or could be an “excess parachute payment” within the meaning of Code Section 280G (or
any corresponding provision of state, local, or non-U.S. Tax law).
(i)
None of the Transferred Assets (i) directly or indirectly
secures any debt the interest on which is tax exempt under Code Section 103(a), (i) is “tax-exempt use property” within the
meaning of Code Section 168(h) or (iii) is treated as owned by any other Person under Code Section 168(f)(8).
(j)
Seller is not a “foreign person” as defined
in Code Section 1445(f)(3), and the transaction contemplated herein is not subject to the withholding provisions of Code Sec. 3406, subchapter
A of Chapter 3 of the Code or Chapter 4 of the Code.
Section
2.17 Environmental Matters.
(a)
Seller and its Affiliates are in compliance in all material
respects with all applicable Environmental Laws.
(b)
Neither Seller nor any of its Affiliates has generated,
treated, stored, released, transported or disposed of any Hazardous Substances at any Leased Real Property included in the Transferred
Assets except in compliance with all Environmental Laws.
(c)
Neither Seller nor any of its Affiliates has received
any Environmental Notice or Environmental Claim with respect to the Business or the Transferred Assets, the subject of which is pending
or unresolved or which involves ongoing obligations or requirements.
(d)
There are no ongoing or, to the Knowledge of Seller,
imminent, anticipated or threatened, Legal Proceedings against Seller or any of its Affiliates, or investigations by any Governmental
Authority, pursuant to any Environmental Laws, with respect to the Business or the Transferred Assets.
(e)
Neither Seller nor any of its Affiliates is responsible
for, nor has any of them agreed to assume responsibility for, any Remedial Action, with respect to the Business or the Transferred Assets.
(f)
Neither Seller nor any of its Affiliates has been identified
as, or received any written notice or information indicating that it may be, a responsible party or potentially responsible party at
any Leased Real Property included in the Transferred Assets.
(g)
The Leased Real Property included in the Transferred
Assets is not listed on, and, to the Knowledge of Seller, has not been proposed for listing on, the National Priorities List or any similar
list of any Governmental Authority of sites requiring investigation or Remedial Action.
(h)
To the Knowledge of Seller, there are no underground
storage tanks (active or abandoned), polychlorinated biphenyls or polychlorinated biphenyl-containing equipment, asbestos or asbestos-containing
materials, lead-based paint or other lead-containing materials, or Hazardous Substances landfills, impoundments or disposal facilities,
at or on any of the Leased Real Property included in the Transferred Assets.
(i)
Neither Seller nor any of its Affiliates has any obligations
or Liabilities under any settlement or other agreement with any Governmental Authority or other Person (other than under agreements for
services entered into with customers in the Ordinary Course of Business) related to Environmental Laws, Environmental Permits, or Hazardous
Substances that have not been fully complied with, satisfied and completed, with respect to any Leased Real Property included in the
Transferred Assets.
(j)
Seller has delivered to Purchaser all reports and other
documents related to environmental, ecological, human health or natural resource assessments, investigations, studies, audits, tests,
reviews or other analyses that are in the possession or control of Seller with respect to the Business or the Leased Real Property included
in the Transferred Assets.
(k)
Schedule 2.17(k) sets forth a true and complete
list of all Environmental Permits held by Seller or by any of its Affiliates with respect to the Business, and the expiration date of
each such Environmental Permit (if applicable). Seller has delivered to Purchaser true and complete copies of all such Environmental
Permits. All such Environmental Permits are in full force and effect in accordance with all applicable Environmental Laws. All applications
or notices required to have been filed for the renewal or extensions of such Environmental Permits have been duly filed on a timely basis
with the appropriate Governmental Authority. Neither Seller nor any of its Affiliates has been notified that such renewals or extensions
will be withheld or delayed, or of any actual or potential material adverse change in the status, terms or conditions of any such Environmental
Permits. No Environmental Permit other than those listed on Schedule 2.17(k) is required in order to conduct the Business as presently
conducted.
Section
2.18 Customers, Vendors and Suppliers. Schedule
2.18 sets forth (a) a list of the top ten customers of the Business (the “Material Customers”) and the top ten
suppliers of the Business (the “Material Suppliers”) for the 12 month period ended December 31, 2022, based on aggregate
revenues received and payments made by Seller.
Section
2.19 Accounts Payable. All accounts payable related
to the Business (other than any incurred since the date of the most recent balance sheet included in the Financial Statements) are truly
and accurately reflected in the Financial Statements and were incurred in the Ordinary Course of Business in connection with bona fide
transactions.
Section
2.20 Affiliate Transactions.
(a)
(i) There are no Assumed Contracts between Seller, on
the one hand, and any of its Affiliates or any Employee, or any of their respective Affiliates, on the other hand; and (ii) to the Knowledge
of Seller, neither any current or former stockholder, director, officer or employee of Seller, nor any immediate family member of any
of the foregoing: (A) has any ownership interest in any Transferred Asset; (B) provides services to the Business (other than employment
by StemoniX or Parent); or (C) is a party to any arrangement or ongoing transaction or business relationship with, or has any claim or
right against, Seller that is an Assumed Liability (collectively, the “Affiliate Agreements”).
Section
2.21 Brokers. Neither Seller nor any of its Affiliates
has incurred, and none will incur, directly or indirectly, as a result of any action taken by it, any liability for brokerage or finders’
fees or agents’ commissions or any similar charges in connection with this Agreement or the transactions contemplated hereby.
Section
2.22 Coronavirus Pandemic Matters.
(a)
With respect to each Government Loan: (i) Seller was
eligible pursuant to applicable Laws to apply for and receive the Government Loan; (ii) Seller was, at all times, in compliance in all
material respects with all of the terms and conditions of the Government Loan and the requirements of Laws applicable to the Government
Loan; and (iii) all of the proceeds of the Government Loan were utilized for forgiveness eligible or other allowable uses as proscribed
in applicable Laws.
(b)
Seller has not received any loans, grants, or funding
from any government programs or any other third person as a result of or in connection with the Coronavirus Pandemic (“Government
Loans”).
(c)
Seller has not applied for, or received, any relief
from Taxes or other Tax benefit under the CARES Act or any other Coronavirus Pandemic-related Law, including claiming an employee retention
credit or deferring any amount of employer or employee pay-roll Taxes.
Section
2.23 Foreign Corrupt Practices and International Trade
Sanctions. Neither Seller, nor, to the Knowledge of Seller, any of its Representatives has, in connection with the operation of the
Business (a) used any corporate or other funds directly or indirectly for unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government officials, candidates or members of political parties or
organizations, or any other Person, or established or maintained any unlawful or unrecorded funds in material violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any other similar applicable Law (including any laws enacted pursuant to the OECD Convention
on Combating Bribery of Foreign Public Officials), or (b) violated or operated in noncompliance, in any material respect, with any export
restrictions, anti-boycott regulations, embargo regulations or other applicable domestic or foreign Laws, including the regulations enacted
by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), which prohibit transactions involving
parties located in countries subject to comprehensive economic sanctions by OFAC or parties identified on OFAC’s Specifically Designated
Nationals and Blocked Persons List.
Section
2.24 Warranties. Seller has not given or undertaken
any warranties or guarantees with respect to the Business Products or any other Business activity. The aggregate cost to Seller to comply
with any such warranties or guarantees is properly reflected in Sellers’ books and records in accordance with GAAP. The reserves
for product warranties reflected in the Financial Statements have been determined in accordance with GAAP.
Section
2.25 Product Liability; Recalls. There has been
no accident, happening or event caused or allegedly caused by any defect in manufacture, design, materials or workmanship including any
failure to warn or any breach of express or implied warranties or representations with respect to the operation of the Business, including
any Business Product which has resulted in any material Liability, including any serious injury or death to any Person or damage to or
destruction of property or other material damages. Each tangible Transferred Asset (a) is in compliance in all material respects with
applicable Laws and (b) is fit for the ordinary purposes in all material respects for which it is intended to be used and conforms in
all material respects to any promises or affirmations of fact made in the warranty or on the label for such product or in connection
with its sale, whether through advertising or otherwise. There is no design defect with respect to any tangible Transferred Asset. Each
tangible Transferred Asset contains warnings, presented in a prominent manner, in material compliance with applicable Laws. There has
been no product recall or post-sale warning conducted by Seller with respect to any tangible Transferred Asset.
Section
2.26 Export Control Laws. Seller has conducted
its export transactions with respect to the Business in all material respects in accordance with all applicable provisions of United
States export and re-export controls, including the Export Administration Act and Regulations, the Foreign Assets Control Regulations,
the International Traffic in Arms Regulations and other controls administered by the United States Department of Commerce and/or the
United States Department of State and all other applicable import/export controls in other countries in which Seller conducts the Business.
Without limiting the foregoing: (a) Seller has obtained all material applicable export and import licenses, license exceptions and other
consents, notices, waivers, approvals, Orders, authorizations, registrations, declarations and filings with Governmental Authority required
for the export, import and re-export of Business Products in the manner in which the Business is currently being conducted (collectively,
“Export Approvals”), (b) Seller is in compliance in all material respects with the terms of all applicable Export
Approvals with respect to the Business, (c) there are no pending or, to the Knowledge of Seller, threatened or anticipated claims against
Seller with respect to such Export Approvals, and (d) to the Knowledge of Seller, there are no actions, conditions or circumstances pertaining
to Seller’s export transactions with respect to the Business that could reasonably be expected to give rise to any future claims.
Section
2.27 Government Contracts. Seller is not a party
to or otherwise bound by any Contract (written or oral) that is related to the Business with any Governmental Authority (other than with
respect to utilities (electricity, water and the like) and municipality services, or other governmental services in the Ordinary Course
of Business). Seller is not suspended or debarred from bidding on Contracts or subcontracts with any Government Entity; and no such suspension
or debarment has been initiated or, to the Knowledge of Seller, threatened or anticipated.
Section
2.28 Retention Bonuses. There will be no transaction
bonuses, retention bonuses or similar payments that are due to any Employee, directly or indirectly, at or prior to the Closing as a
result of and in connection with the consummation of the transactions contemplated hereby that will not be paid by Seller at or prior
to the Closing.
Section
2.29 No Other Representations or Warranties. Except
for the representations and warranties contained in this Agreement or any certificate delivered in connection herewith, as qualified
by the Disclosure Schedule, neither StemoniX, Parent nor any other Person makes any express or implied representations or warranties
regarding StemoniX, Parent, the Business, the Transferred Assets, the Assumed Liabilities, the Acquisition or the other transactions
contemplated hereby, and StemoniX and Parent hereby disclaim any such other representation or warranty with respect to the execution
and delivery of this Agreement, the other Acquisition Documents, and any other agreement, instrument, and document contemplated hereby
or thereby and the consummation of the Acquisition and the other transactions contemplated hereby and thereby. Except as otherwise expressly
provided by a specific representation or warranty contained in this Agreement or any certificate delivered in connection herewith, neither
the StemoniX, Parent nor any other Person shall be deemed to make any representation or warranty with respect to any projections, estimates
or budgets heretofore delivered to or made available to Purchaser or its counsel, accountants or advisors of future revenues, expenses
or expenditures or future results of operations or any other information or documents (financial or otherwise) made available to Purchaser
or its counsel, accountants or advisors with respect to the Business or the Acquisition or the other transactions contemplated hereby.
Article
3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser
hereby represents and warrants to Seller as follows:
Section
3.1 Organization, Authority and Capacity. Purchaser
is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser has the full
power and authority necessary to execute, deliver and perform its obligations under the Acquisition Documents to be executed and delivered
by it. Purchaser is qualified to do business and is in good standing in each jurisdiction in which a failure to be so qualified or in
good standing would have a material adverse effect on its ability to perform its obligations under the Acquisition Documents to be executed
and delivered by it.
Section
3.2 Authorization and Validity. The execution,
delivery and performance of the Acquisition Documents to be executed and delivered by Purchaser have been duly authorized by all necessary
corporate action of Purchaser. The Acquisition Documents to be executed and delivered by Purchaser have been or will be, as the case
may be, duly executed and delivered by Purchaser, as applicable and constitute or will constitute the legal, valid and binding obligations
of Purchaser, as applicable, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency,
or other laws affecting creditors’ rights generally, or as may be modified by a court of equity.
Section
3.3 Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance by Purchaser of the Acquisition Documents to be executed and delivered by Purchaser:
(a) do not require the consent of or notice to any Governmental Authority or any other third party; (b) will not conflict with any provision
of Purchaser’s organizational documents; and (c) will not conflict with or result in a violation of any Law, ruling, judgment,
order or injunction of any Governmental Authority to which Purchaser is subject or by which Purchaser or any of its rights, assets or
properties are bound.
Section
3.4 Brokers. Neither Purchaser nor any of its
Affiliates has incurred, and none will incur, directly or indirectly, as a result of any action taken by it, any liability for brokerage
or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or the transactions contemplated
hereby.
Section
3.5 Claims and Proceedings. There is no Legal
Proceeding pending or, to the knowledge of Purchaser, threatened against Purchaser that could affect the performance of its obligations
under this Agreement or any other Acquisition Document.
Section
3.6 Adequacy of Funds. Purchaser has immediately
available funds that are, as of the date hereof, and will be, as of the Closing Date, sufficient to pay in cash any and all amounts required
to be paid by it pursuant to this Agreement, including the Purchase Price and all fees and expenses related to the transactions contemplated
by this Agreement to be paid by Purchaser.
Section
3.7 Solvency. As of the Closing, and immediately after giving effect to all of the transactions contemplated hereby and
assuming the accuracy of the representations and warranties in Article 2, Purchaser will be Solvent. For purposes hereof, “Solvent”
shall mean (i) the amount of the “fair saleable value” of the assets of Purchaser will exceed the value of all liabilities
of Purchaser, including contingent and other liabilities, (ii) Purchaser will not have an unreasonably small amount of capital for the
operation of the businesses in which it is engaged or proposed to be engaged and (iii) Purchaser will be able to pay its liabilities,
including contingent and other liabilities, as they mature, taking into account the timing of and amounts of cash to be received by it
and the timing of and amounts of cash to be payable on or in respect of its indebtedness.
Section
3.8 Independent Investigation. Purchaser acknowledges
that it and its Representatives have been permitted reasonable access to the books and records, facilities, equipment, Tax returns, Contracts,
insurance policies (or summaries thereof), and other properties and assets of the Business that it and its Representatives have desired
or requested to see or review, and that it and its Representatives have had an adequate opportunity to meet with the officers and employees
of the Business to discuss the Business, the Transferred Assets, and the Assumed Liabilities. Purchaser acknowledges that, except as
explicitly set forth in the representations and warranties set forth in this Agreement or in any other Acquisition Document, none of
Seller, Parent, or any other Person has made any representation or warranty, express or implied, written or oral, as to the accuracy
or completeness of any information that Seller, Parent, or any other Person furnished or made available to Purchaser or its Representatives.
Purchaser acknowledges that, except for the representations and warranties contained in this Agreement or any other Acquisition Document,
Seller has not made any other representation or warranty, express or implied, written or oral, by or on behalf of Seller.
Article
4
PRE-CLOSING COVENANTS
Section
4.1 Maintenance of the Business. From the Effective
Date until the earlier of the Closing and the Termination Date, except as (a) consented to in writing by Purchaser, (b) required by Law,
(c) required or expressly contemplated by this Agreement, or (d) contemplated by the Exclusive Distribution Agreement, Seller shall in
all material respects (i) maintain the Transferred Assets in a substantially similar operating condition and repair (ordinary wear and
tear excepted) to the operating condition and repair of the Transferred Assets as of the Effective Date, (ii) maintain Business books,
accounts and records in accordance with past custom and practice and (iii) preserve and maintain the Business Permits.
Section
4.2 Operation of the Business. From the Effective
Date until the earlier of the Closing and the Termination Date, except as (w) consented to in writing by Purchaser, (x) required by Law,
(y) required or expressly contemplated by this Agreement, or (z) contemplated by the Exclusive Distribution Agreement, Seller shall operate
the Business in the Ordinary Course of Business and shall use commercially reasonable efforts to maintain and preserve intact its current
Business and the rights, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships
with the Business. Without limiting the foregoing, except as (i) consented to in writing by Purchaser, (ii) required by Law, (iii) required
or expressly contemplated by this Agreement, or (iv) contemplated by the Exclusive Distribution Agreement, Seller shall not:
(a)
amend its articles of incorporation or by-laws;
(b)
adopt a plan of liquidation, dissolution, merger, consolidation
or other reorganization;
(c)
redeem any capital stock of Seller;
(d)
With respect solely to StemoniX, grant, award, sell,
or pledge any capital stock or issue or become a party to any subscriptions, warrants, rights, options, convertible securities or other
Contracts or commitments of any character relating to its issued or unissued capital stock, or its other equity interests, if any, or
grant any stock appreciation or similar rights, in each case, to any Person other than Parent;
(e)
transfer, sell, assign, or exclusively license to any
Person any rights to any Intellectual Property included in the Transferred Assets;
(f)
abandon, fail to maintain, let lapse or take (or fail
to take) any other action regarding any item of Intellectual Property included in the Transferred Assets, other than prosecution activities
pertaining to registration, maintaining, perfecting and renewing Registered Intellectual Property in the Ordinary Course of Business;
(g)
enter into any agreement with respect to the development
of Intellectual Property included in the Transferred Assets by or for a third party;
(h)
change pricing charged by Seller to Business customers
or licensees other than in accordance with the Exclusive Distribution Agreement;
(i)
enter into, amend, renew or terminate, or agree to a
release, waiver, modification or termination of, an Affiliate Agreement (other than terminations as a result of the expiration of such
Affiliate Agreement), or enter into a new Affiliate Agreement, other than the payment of Indebtedness owed to an Affiliate or the incurrence
of Indebtedness to an Affiliate (which would be satisfied in full at or prior to Closing), in each case, related to the Business or included
in the Assumed Contracts;
(j)
execute any guaranty, issue any debt or letter of credit,
borrow any money or otherwise incur or create any Indebtedness;
(k)
purchase, sell, lease or dispose of any property or
assets (including any Equipment) included in the Transferred Assets, other than in accordance with the Exclusive Distribution Agreement
or the use of Inventory in the Ordinary Course of Business;
(l)
terminate, amend or renew any Assumed Contract;
(m)
enter into any Contract relating to the Transferred
Assets;
(n)
commence, compromise, or settle any Legal Proceeding
with respect to the Business;
(o)
change or rescind any election relating to Taxes, make
any election relating to Taxes inconsistent with past practices, settle or compromise any Tax claim, change any of its methods of accounting
or methods of reporting income or deductions for Tax or accounting practice or policy from those employed in the preparation of its most
recent Tax Return, file any amended Tax Return, ruling request, closing agreement or similar agreement with respect to Taxes, abandon
any ongoing proceedings relating to Taxes, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment, incur any liability for Taxes outside the Ordinary Course of Business or
fail to pay any Taxes that became due and payable (including any estimated Tax payments); or
(p)
authorize or enter into any Contract to do any of the
foregoing.
Section
4.3 Access. From the Effective Date until the
earlier of the Closing and the Termination Date, Seller shall afford, and cause their key management personnel to afford, to Purchaser
and its Representatives, reasonable access, during normal business hours, and upon reasonable advance notice, to Seller’ personnel,
and to business, financial, legal, tax, compensation and other data and information concerning the Business’s affairs and operations.
Section
4.4 No Shop.
(a)
Takeover Proposal. Seller shall not, and shall
direct and cause its directors, officers, employees, investment bankers, attorneys, accountants, consultants, or other agents or advisors
(with respect to any Person, the foregoing Persons are referred to herein as such Person’s “Representatives”) not
to, directly or indirectly, solicit, initiate, or take any action to facilitate or encourage the submission of any Takeover Proposal
or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or, subject to Section 4.4(b):
(i) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to Seller or any of its Affiliates
to, afford access to the Business, properties, assets, books, or records of Seller or any of its Affiliates to, or knowingly assist,
participate in, facilitate, or encourage any effort by, any third party (or its potential sources of financing) that is seeking to make,
or has made, any Takeover Proposal; (ii) (A) except where the Parent Board makes a good faith determination, after consultation with
its financial advisors and outside legal counsel, that the failure to do so would cause the Parent Board to be in breach of its fiduciary
duties, amend or grant any waiver or release under, or terminate, any standstill or similar agreement or obligation with respect to any
class of equity securities of Seller or any of its Affiliates, or (B) approve any transaction under, or any third party becoming an “interested
stockholder” under, Section 203 of the Delaware General Corporation Law; or (iii) enter into any agreement in principle, letter
of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or
other Contract, in each case relating to any Takeover Proposal (each, a “Seller Acquisition Agreement”). Seller shall,
and shall cause its Affiliates and Seller’s and its Affiliate’s Representatives to cease immediately and cause to be terminated
any and all existing activities, discussions, or negotiations, if any, with any third party conducted prior to the date hereof with respect
to any Takeover Proposal and shall use its commercially reasonable efforts to cause any such third party (or its agents or advisors)
in possession of non-public information in respect of Seller or any of its Affiliates that was furnished by or on behalf of Seller and
its Affiliates to return or destroy (and confirm destruction of) all such information.
(b)
Superior Proposal. Notwithstanding Section
4.4(a), prior to the receipt of the Stockholder Approval, the Parent Board, directly or indirectly through any Representative, may,
subject to Section 4.4(c): (i) participate in negotiations or discussions with any third party that has made (and not withdrawn)
a bona fide, unsolicited Takeover Proposal that the Parent Board believes in good faith, after consultation with its financial advisors
and outside legal counsel, constitutes a Superior Proposal; (ii) thereafter furnish to such third party non-public information relating
to Seller or any of its Affiliates, or afford access to the Business, properties, assets, books, or records of Seller or any of its Affiliates,
in each case pursuant to an executed confidentiality agreement; (iii) following receipt of and on account of a Superior Proposal, make
a Seller Adverse Recommendation Change, amend or grant any waiver or release under any standstill or similar agreement with respect to
any class of equity securities of Seller or any of its Affiliates, approve any transaction under, or any third party becoming an “interested
stockholder” under, Section 203 of the Delaware General Corporation Law, or enter into any Seller Acquisition Agreement; and/or
(iv) take any action that any court of competent jurisdiction orders Seller or any of its Affiliates to take (which order remains unstayed),
but in each case referred to in the foregoing clauses (i) through (iv), only if the Parent Board determines in good faith, after consultation
with its financial advisors and outside legal counsel, that the failure to take such action would cause the Parent Board to be in breach
of its fiduciary duties under applicable Law. Nothing contained herein shall prevent the Parent Board from disclosing to Parent’s
stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act with regard to a Takeover Proposal,
if the Parent Board determines, after consultation with its financial advisors and outside legal counsel, that failure to disclose such
position would cause the Parent Board to be in breach of its fiduciary duties under applicable Law.
(c)
Notification to Purchaser. The Parent Board shall
not take any of the actions referred to in clauses (i) through (iv) of Section 4.4(b) unless Seller shall have delivered to Purchaser
a prior written notice advising Purchaser that it intends to take such action. Seller shall notify Purchaser promptly (but in no event
later than 24 hours) after it obtains Knowledge of the receipt by Seller (or any of its Representatives) of any Takeover Proposal, any
inquiry that could reasonably be expected to lead to a Takeover Proposal, any request for non-public information relating to Seller or
any of its Affiliates or for access to the business, properties, assets, books, or records of Seller or any of its Affiliates by any
third party in connection with a Takeover Proposal. In such notice, Seller shall identify the third party making, and details of the
material terms and conditions of, any such Takeover Proposal, indication or request. Seller shall keep Purchaser fully informed, within
48 hours of any material change, of the status and material terms of any such Takeover Proposal, indication or request, including any
material amendments or proposed amendments as to price, proposed financing, and other material terms thereof. Seller shall provide Purchaser
with at least 48 hours prior notice of any meeting of the Parent Board (or such lesser notice as is provided to the members of the Parent
Board) at which the Parent Board is reasonably expected to consider any Takeover Proposal.
(d)
Seller Adverse Recommendation Change or Seller Acquisition
Agreement. Except as expressly permitted by this Section 4.4, the Parent Board shall not effect a Seller Adverse Recommendation
Change or enter into (or permit any Seller Affiliate to enter into) a Seller Acquisition Agreement. Notwithstanding the foregoing, at
any time prior to the receipt of the Stockholder Approval, the Parent Board may effect a Seller Adverse Recommendation Change or enter
into (or permit any Affiliate to enter into) a Seller Acquisition Agreement that did not result from a breach of this Section 4.4,
if: (i) Seller promptly notifies Purchaser, in writing, at least five Business Days (the “Superior Proposal Notice Period”)
before making a Seller Adverse Recommendation Change or entering into (or causing any Seller Affiliate to enter into) a Seller Acquisition
Agreement, of its intention to take such action with respect to a Superior Proposal, which notice shall state that Seller has received
a Takeover Proposal, that the Parent Board intends to declare a Superior Proposal, and that the Parent Board intends to effect a Seller
Adverse Recommendation Change and/or Seller intends to enter into a Seller Acquisition Agreement; (ii) Seller specifies the identity
of the party making the Superior Proposal and the material terms and conditions thereof in such notice; (iii) Seller and its Representatives,
during the Superior Proposal Notice Period, negotiate with Purchaser in good faith to make such adjustments in the terms and conditions
of this Agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Purchaser, in its discretion, proposes
to make such adjustments (it being agreed that in the event that, after commencement of the Superior Proposal Notice Period, there is
any material revision to the terms of a Superior Proposal, including, any revision in price or financing, the Superior Proposal Notice
Period shall be extended, if applicable, to ensure that at least three Business Days remains in the Superior Proposal Notice Period subsequent
to the time Seller notifies Purchaser of any such material revision (it being understood that there may be multiple extensions)); and
(iv) the Parent Board determines in good faith, after consulting with its financial advisors and outside legal counsel, that such Takeover
Proposal continues to constitute a Superior Proposal (after taking into account any adjustments made by Purchaser during the Superior
Proposal Notice Period in the terms and conditions of this Agreement) and that the failure to take such action would cause the Parent
Board to be in breach of its fiduciary duties under applicable Law.
Section
4.5 Special Meeting and Parent Proxy Materials.
Parent shall call, give notice of, convene and hold a special meeting of its stockholders (the “Special Meeting”)
as soon as reasonably practicable after the execution of this Agreement for the purpose of submitting the Acquisition and this Agreement
to such stockholders for the Stockholder Approval. In connection with the Special Meeting, Parent shall:
(a)
within fifteen Business Days of the Effective Date,
file a preliminary proxy statement and other proxy materials (the “Parent Proxy Materials”) with the U.S. Securities
and Exchange Commission (the “SEC”);
(b)
respond promptly to any comments by the SEC to the Parent
Proxy Materials;
(c)
file definitive Parent Proxy Materials within five Business
Days of resolving all comments with the SEC or the expiration of the ten-day period following the filing of the preliminary proxy statement
with the SEC; and
(d)
hold the meeting to obtain the requisite Stockholder
Approval as soon as practicable.
Seller
shall provide Purchaser with (y) a copy of all communications between Seller and the SEC related to the Parent Proxy Materials and (z)
the opportunity to comment upon all such communications, prior to Seller’s transmission. Except as provided in Section 4.4,
the Parent Board shall (i) communicate to the stockholders of Seller the Board Recommendation and (ii) include the Board Recommendation
in the Parent Proxy Materials.
To
the extent that Purchaser is the subject of any comments from the SEC related to the Parent Proxy Materials, Purchaser shall furnish
to Parent all information concerning Purchaser, Purchaser’s Affiliates and equityholders, if any, that is required to respond to
such comments.
Section
4.6 Required Actions.
(a)
From the Effective Date until the Closing, each of Parent
and StemoniX shall use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper or advisable under any applicable Laws to consummate and make effective as promptly as reasonably possible
the Acquisition, including (i) the preparation and filing of all forms, registrations and notices required to be filed to consummate
the Acquisition; (ii) taking all actions reasonably necessary to obtain the Stockholder Approval; and (iii) fulfilling all closing conditions
to this Agreement.
(b)
From the Effective Date until the Closing, Purchaser
shall use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under any applicable Laws to consummate and make effective as promptly as reasonably possible the Acquisition,
including (i) the preparation and filing of all forms, registrations and notices required to be filed to consummate the Acquisition;
and (ii) fulfilling all closing conditions to this Agreement. Purchaser shall cooperate in good faith and use its commercially reasonable
efforts (including by providing reasonably requested financial and other information) to satisfy the applicable landlord’s requirements
to obtain such landlord’s consent to the assignment to Purchaser of each Lease included in the Transferred Assets or Assumed Liabilities.
Section
4.7 Notification of Events.
(a)
From the date hereof until the Closing, Seller shall
promptly notify Purchaser in writing of:
(i)
any fact, circumstance, event or action the existence,
occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect, or (B) has resulted in or would cause a material change in anticipated revenues or expenses of the Business, or (C) has resulted
in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 7.1 or 7.2
to be satisfied;
(ii)
any notice or other communication from any Person (including
any Governmental Authority) alleging that the consent of such Person is or may be required in connection with the transactions contemplated
by this Agreement;
(iii)
any notice or other communication from any Governmental
Body in connection with the transactions contemplated by this Agreement;
(iv)
any Legal Proceedings commenced or, to the Knowledge
of Seller, threatened against, relating to or involving or otherwise affecting Seller, the Business or the Transferred Assets that, if
pending on the date of this Agreement, would have been required to have been disclosed pursuant to this Agreement or that relates to
the consummation of the transactions contemplated by this Agreement;
(v)
any issuance, adjustment, split, combination, subdivision,
reclassification of any capital stock of Parent; and
(vi)
any grant, award, sale, or pledge of any capital stock
of Parent or Parent’s issuance of, or becoming a party to, any subscriptions, warrants, rights, options, convertible securities
or other Contracts or commitments of any character relating to its issued or unissued capital stock, or its other equity interests, if
any, or any grant of any stock appreciation or similar rights of Parent.
(b)
Purchaser’s receipt of information pursuant to
Section 4.7(a) shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller
in this Agreement or any certificate delivered in connection herewith and shall not be deemed to amend or supplement any written disclosure
schedule delivered in connection herewith.
(c)
From the date hereof until the Closing, Purchaser shall
promptly notify Seller in writing of:
(i)
any fact, circumstance, event or action the existence,
occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a material adverse
effect on Purchaser’s ability to consummate the transactions contemplated hereby, or (B) has resulted in, or could reasonably be
expected to result in, the failure of any of the conditions set forth in Section 7.1 or 7.3 to be satisfied;
(ii)
any notice or other communication from any Person (including
any Governmental Authority) alleging that the consent of such Person is or may be required in connection with the transactions contemplated
by this Agreement;
(iii)
any notice or other communication from any Governmental
Body in connection with the transactions contemplated by this Agreement; and
(iv)
any Legal Proceedings commenced or, to the knowledge
of Purchaser, threatened against, relating to or involving or otherwise affecting Purchaser that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to this Agreement or that relates to the consummation of the transactions contemplated
by this Agreement.
(d)
Seller’s receipt of information pursuant to Section
4.7(c) shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Purchaser in
this Agreement or any certificate delivered in connection herewith and shall not be deemed to amend or supplement any written disclosure
schedule delivered in connection herewith.
Section
4.8 Option to Exclude SBIR Grant and EGC Contract.
Notwithstanding anything to the contrary set forth in this Agreement, the Schedules, the other Acquisition Documents and any other documents
contemplated hereby and thereby, prior to the Closing, Purchaser shall have the option, in its sole discretion, to provide Seller with
written notice (in accordance with Section 10.1 below) that it will not acquire the SBIR Grant and the EGC Contract. Upon Purchaser’s
delivery of any such written notice, the SBIR Grant and the EGC Contract will automatically (and without any further action by any of
the Parties or any other Person) be deemed “Retained Assets” for all purposes under this Agreement, the other Acquisition
Documents and any other documents contemplated hereby and thereby.
Article
5
ADDITIONAL COVENANTS
Section
5.1 Certain Tax Matters.
(a)
Each of Purchaser and Seller shall provide the other,
at the expense of the requesting party, with such assistance as may reasonably be requested in connection with the preparation of any
Tax Return, any audit or other examination by any Governmental Authority, or any judicial or administrative proceedings relating to Liability
for Taxes, and each will retain for the applicable statute of limitations, and to provide the requesting party, any records or information
that may be relevant to any of the foregoing.
(b)
Seller shall prepare, or cause to be prepared, consistent
with the past practice of Seller, all Tax Returns for the Business relating to any taxable period of the Business ending on or prior
to the Closing Date. Seller shall provide Purchaser with a draft of each such Tax Return required to be filed after the Closing Date
(including relevant work papers) at least 30 days prior to the due date for the filing of such Tax Return, and shall permit Purchaser
and its Representatives to review, comment on and approve in writing each such Tax Return prior to finalizing and filing such Tax Return.
Seller shall timely file, or cause to be timely filed, with the applicable Governmental Authority, each such Tax Return.
(c)
For any taxable period of the Business beginning on
or prior to the Closing Date and ending after the Closing Date (“Straddle Periods”), Seller’s ad valorem and
similar Taxes and assessments relating to the Transferred Assets (and any refunds relating to such ad valorem and similar Taxes and assessments)
shall be prorated between Seller, on one hand, and Purchaser, on the other hand, as of the Closing Date based upon actual amounts paid
or payable as evidenced by appropriate invoices from the applicable Governmental Authority or, if actual amounts of Tax are not known,
then estimates of the amount of such Taxes and assessments that are due and payable with respect to the Transferred Assets during the
year during which the Closing Date occurs. With respect to pro rata determinations, ad valorem and similar Taxes and assessments payable
(and any refunds relating to such Taxes and assessments payable) shall be allocable, based upon the Closing Date, over the taxable year
with respect to which the Tax is paid. If Seller and Purchaser estimate any such actual amount of such Tax assessments, then as soon
as practicable after the actual amount of such Taxes and assessments is known, Seller and Purchaser shall determine if there is any amount
owed either by Seller to Purchaser or vice versa based on Seller being liable for those Taxes and assessments attributable to the time
period up to and including the Closing Date, and Purchaser being liable for those Taxes and assessments attributable to the post-Closing
Date period. Any such liability by Seller to Purchaser or vice versa shall be paid promptly following the delivery of a calculation of
such liability by either party to the other party.
(d)
Any income of Seller from deferred revenue and/or prepaid
amounts received on or prior to the Closing Date shall be reflected on the income Tax Return of Seller for the taxable year that includes
the Closing Date, and the principles and holding in James M. Pierce Corp. v. Commissioner, 326 F.2d 67 (8th Cir. 1964) shall not
apply to the transactions contemplated by this Agreement (including that there will be no “Pierce income” recognized by Purchaser
as a result of any deemed payment by Seller to Purchaser in respect of deferred revenue and/or prepaid amounts of Seller).
Section
5.2 Transfer Taxes. Although the Parties do not
believe any shall be incurred, in the event that any are incurred, all transfer, sales, use, excise, realty transfer, controlling interest,
documentary stamp and other such Taxes and fees (including any penalties and interest) (“Transfer Taxes”) incurred
in connection with the consummation of the transactions contemplated by this Agreement (regardless of the Person on whom such Taxes are
imposed by applicable Law) shall be paid fifty percent (50%) by Seller and fifty percent (50%) by Purchaser. For the avoidance of doubt,
“Transfer Taxes” shall not include income and capital gains Taxes.
Section
5.3 Confidentiality.
(a)
From and after the Closing, Seller shall not, and shall
cause its Affiliates and their respective Representatives not to, directly or indirectly, disclose, reveal, divulge or communicate to
any Person other than Purchaser or its Representatives, or use or otherwise exploit for its own benefit or for the benefit of anyone
other than Purchaser, any Confidential Information; provided that the obligations under this Section 5.3(a) shall not apply
to any Confidential Information that (i) is or becomes generally available to and known by the public through no fault of or improper
disclosure by Seller or (ii) is required in connection with Seller obtaining the Stockholder Approval.
(b)
If Seller (or any of its Affiliates or their respective
Representatives) becomes legally compelled to make any disclosure that is prohibited or otherwise restricted by this Agreement, then
such party will give Purchaser prompt written notice of such requirement so that Purchaser may seek to obtain an injunction or other
appropriate remedy to prevent such disclosure. Subject to the previous sentence, Seller (or its applicable Affiliate or their respective
Representative) may make only such disclosure that, upon the advice of its counsel, it is legally compelled or otherwise required by
Law.
Section
5.4 Public Disclosure. Notwithstanding anything
to the contrary contained herein, except as may be required to comply with the requirements of any applicable Law and the rules and regulations
of any stock exchange upon which the securities of Parent or one of the Parties is listed, from and after the date hereof, no press release
or similar public announcement or communication shall be made or caused to be made relating to Seller or the Acquisition, unless Seller
has (a) provided Purchaser with prior notice of such announcement and the opportunity to comment thereon and (b) implemented any such
reasonable comments from Purchaser. Purchaser and Seller will consult with each other concerning the means by which Seller’s employees,
customers, suppliers and others having dealings with Seller will be informed of the Acquisition, and Purchaser will have the right to
approve and be present for any such communication, such approval or requirement of presence not to be unreasonably delayed, conditioned
or withheld.
Section
5.5 Refunds and Remittances. Following the Closing,
(a) if Seller receives any cash, check, property or other amount that is a Transferred Asset (or that constitutes the proceeds thereof)
or that otherwise properly belongs to Purchaser in accordance with the terms of this Agreement, Seller shall promptly (but in no event
later than ten (10) Business Days after receipt thereof) deliver such amount to Purchaser, and (b) if Purchaser receives any cash, check,
property, refund or other amount that is a Retained Asset or that otherwise properly belongs to Seller in accordance with the terms of
this Agreement, Purchaser shall promptly (but in no event later than ten (10) Business Days after receipt thereof) deliver such amount
to Seller.
Section
5.6 Use of Name; Name Change of Seller. Schedule
5.6 sets forth a list of each name currently or historically used by Seller in connection with the operation of the Business (each,
a “Business Name” and, collectively, the “Business Names”). Following the Closing, Seller shall
not, and shall cause its respective Affiliates not to, use or do business, or assist any third party in using or doing business, under
any Business Name, or any related domain name, social media account, slogan, logo trademark, source indicator or any variation thereof,
except as necessary to effect the change of the Business Name’s name or to evidence that such change has occurred, or in connection
with the filing of Tax Returns. Within five days following the Closing Date, StemoniX shall make the necessary filings with the Secretary
of State of the State of Minnesota to change its name to a name that could not reasonably be confused with any of the Business Names.
Seller shall not contest any filings made by Purchaser under the Business Names or any other name similar to such names.
Section
5.7 Employee Matters.(a)
(a)
Parent shall take any and all action necessary to cause
(i) coverage of all Employees, their dependents and beneficiaries under any Benefit Program to terminate in all respects effective as
of the Closing Date; and (ii) the Employees to cease actively participating in any such Benefit Program effective as of the Closing Date.
(b)
During the one (1) year period commencing on the Closing
Date, Purchaser shall, or shall cause its Affiliates to provide to each Employee who continues employment with the Business, Purchaser,
or any of its Affiliates after the Closing Date (such employees, the “Continuing Employees”) (i) base salary or base
wages that are no less favorable than the base salary or base wages provided to such Continuing Employee immediately prior to the Closing.
Nothing in this Agreement shall be construed as altering or limiting the rights of Purchaser or any of its Affiliates to (x) terminate
the employment of any Continuing Employee, (y) amend, modify, or terminate any compensation or employee benefit plan, program, agreement,
or arrangement, subject to the terms of such plan, program, agreement, or arrangement or as necessary to comply with applicable Laws,
or (z) except as expressly set forth herein, change the terms or conditions of employment of any Continuing Employee.
(c)
Nothing in this Section 5.7, express or implied,
shall be construed to (i) confer on any Person, other than the parties hereto, and their respective successors and permitted assigns,
any benefit or right, including the right to continued employment or as altering the at-will nature of any Continuing Employee’s
employment, any health or welfare benefit, or to otherwise enforce the provisions of this Section 5.7, (ii) cause any Person to
be a third party beneficiary of this Agreement, or (iii) establish, amend, modify, waive, or terminate any Benefit Program or any comparable
compensation or benefit plan, agreement, or arrangement of Purchaser or its Affiliates prior to, upon, or following the Closing.
Section
5.8 Consents.
(a)
Notwithstanding anything to the contrary in this Agreement,
no Transferred Asset shall be deemed sold, transferred or assigned to Purchaser pursuant to this Agreement if the attempted sale, transfer
or assignment thereof to Purchaser without the consent or approval of any other Person would be ineffective or would constitute a breach
of contract or a violation of any Law, ruling, judgment, order or injunction of any Governmental Authority or would in any other way
adversely affect the rights of Seller (or Purchaser as transferee or assignee), and such consent or approval is not obtained at or prior
to the Closing. In such case (i) the beneficial interest in or to such Transferred Asset (collectively, the “Beneficial Rights”)
shall in any event pass at the Closing to Purchaser under this Agreement; and (ii) pending such consent or approval, Purchaser shall
discharge the obligations of Seller under such Beneficial Rights (to the extent such obligations are Assumed Liabilities) as agent for
Seller, and Seller shall act as Purchaser’s agent in the receipt of any benefits, rights or interest received from the Beneficial
Rights. Seller shall use commercially reasonable efforts to obtain and secure all consents and approvals that may be necessary to effect
the legal and valid sale, transfer and assignment of the Transferred Assets underlying the Beneficial Rights to Purchaser, including
their formal assignment or novation, if advisable. Seller shall make or complete such transfers as soon as reasonably possible and cooperate
with Purchaser in any other reasonable arrangement designed to provide for Purchaser the benefits of such Transferred Asset, including
enforcement at the cost and for the account of Purchaser of any and all rights of Seller against the other party thereto arising out
of the breach or cancellation thereof by such other party or otherwise, and to provide for the discharge of any Liability under such
Transferred Asset, to the extent such Liability constitutes an Assumed Liability. If and to the extent an arrangement acceptable to Purchaser
with respect to Beneficial Rights cannot be made, then Purchaser shall have no obligation under Section 1.3 or otherwise with
respect to any such Transferred Asset, and such Transferred Asset shall no longer be deemed to be a Transferred Asset under Section
1.1(a) and no related Liability shall any longer be deemed an Assumed Liability. Seller’s obligations under this Section
5.8(a) shall terminate on the one year anniversary of the Closing Date.
(b)
Nothing in this Section 5.8 shall be deemed a
waiver by Purchaser of its right to have received on or before the Closing an effective assignment of all of the Transferred Assets,
nor will this Section 5.8 be deemed to constitute an agreement to exclude from the Transferred Assets any of the assets described
under Section 1.1(a).
Section
5.9 Discharge of Retained Liabilities. From and
after the Closing, pursuant to Section 1.4, Seller shall pay, perform and/or otherwise discharge (as and when due) all of the
Retained Liabilities.
Section
5.10 Restrictive Covenants.
(a)
For a period commencing on the date hereof and ending on the third anniversary of the Closing Date (the “Restricted Period”),
neither Seller nor Founder shall, nor shall either of them permit its Affiliates to, within the United States, France, Japan, Singapore,
Switzerland, Germany, or the United Kingdom, directly or indirectly, own, manage, operate, control or participate in the ownership, management,
operation or control of any business that is substantially similar to the Business or that otherwise competes with the Business.
(b)
During the Restricted Period, neither Seller nor Founder shall, nor shall either of them permit its Affiliates to: (i) solicit, induce,
encourage or otherwise attempt to persuade any employees or independent contractors of Purchaser involved in the Business to leave such
employment or hire, employ or otherwise engage any such individual; or (ii) induce or encourage any actual or prospective client, customer,
supplier, licensor, independent contractor or lessor of the Business (including any existing or former customer of Seller or the Business
and any Person that becomes a client, customer, supplier, licensor or lessor of the Business after the Closing), to terminate or adversely
modify any such actual or prospective relationship, or otherwise direct or engage in any act which may interfere with or adversely affect,
alter or change the relationship (contractual or otherwise) with Purchaser or its respective Affiliates regarding the Business.
(c)
During the Restricted Period, neither Seller nor Founder shall, nor shall either of them permit its Affiliates to, provide any competing
service to the Business to any customer of the Business that existed prior to the Effective Date of this Agreement.
(d)
From and after the date hereof, neither Seller nor Founder shall, nor shall either of them permit its Affiliates to, directly or indirectly,
disparage or demean the Business, Purchaser or its Affiliates, or their respective members, managers, directors, officers, stockholders,
partners, employees and agents. From and after the date hereof, Purchaser shall not, and Purchaser shall cause its Affiliates not to,
directly or indirectly, disparage or demean Seller, Founder or their respective Affiliates, or their respective members, managers, directors,
officers, stockholders, partners, employees and agents. The foregoing shall not be violated by truthful statements in direct response
to Legal Proceedings (including, without limitation, depositions in connection with such Legal Proceedings).
(e)
The covenants and undertakings contained in this Section 5.10 relate to matters that are of a special, unique and extraordinary
character and the Parties hereto agree that a violation of any of the terms of this Section 5.10 will cause irreparable injury
to Purchaser, Seller, or Founder as applicable, the amount of which will be impossible to estimate or determine and which may not be
adequately compensated. Accordingly, the remedy at Law for any breach of this Section 5.10 may be inadequate. Therefore, Purchaser,
Seller, or Founder, as applicable, shall be entitled to seek an injunction, restraining order or other equitable relief from any court
of competent jurisdiction in the event of any breach of this Section 5.10 without the necessity of proving actual damages or posting
any bond. The rights and remedies provided by this Section 5.10 are cumulative and in addition to any other rights and remedies
Purchaser, Seller, or Founder, as applicable, may have hereunder or at Law or in equity.
(f)
In the event that Founder, Seller or any of their respective Affiliates violates any of the covenants contained in this Section 5.10,
then the Restricted Period with respect to such covenant will automatically be extended by a period of time equal in length to the period
during which such violation occurred. The Parties hereto agree that if any court of competent jurisdiction in a final non-appealable
judgment determines that a specified time period, geographical area, business limitation or any other relevant feature of this Section
5.10 is unreasonable, arbitrary or against public policy, then a lesser time period, geographical area, business limitation or other
relevant feature determined by such court to be reasonable, not arbitrary and not against public policy may be enforced against the applicable
Party. Without limitation to Section 10.9, the Parties agree that the covenants and other provisions contained in this Section
5.10 are severable and distinct covenants and provisions, and the invalidity or unenforceability of any such covenant or provision
as written will not invalidate or render unenforceable the remaining covenants or provisions of this Section 5.10, and any such
invalidity or unenforceability in any provision will not invalidate or render unenforceable such covenant or provision in any other jurisdiction.
Section
5.11 Employee Reimbursement Amount. If, following
the Closing, Purchaser becomes aware that either (i) Seller did not pay the full amount of the Employee Reimbursement Amount due and
payable by Seller prior to Closing (the amount of any such underpayment, the “Employee Reimbursement Underpayment”) or (ii)
the Employee Reimbursement Payment exceeds the Employee Reimbursement Amount (the amount of any such overpayment, the “Employee
Reimbursement Overpayment”), Purchaser shall be entitled to receive from Seller, within ten (10) Business Days, an amount equal
to the Employee Reimbursement Underpayment or the Employee Reimbursement Overpayment, as applicable. If, following the Closing, Purchaser
or Seller becomes aware that the Employee Reimbursement Payment is less than the Employee Reimbursement Amount (the amount of any such
underpayment, the “Seller Reimbursement”), Seller shall be entitled to receive from Purchaser, within ten (10) Business Days,
an amount equal to the Seller Reimbursement.
Section
5.12 Covenant Not to Challenge. Seller hereby
covenants and agrees that it will not challenge, contest or otherwise dispute the ownership or validity of any Intellectual Property
rights transferred to Purchaser pursuant to this Agreement in any manner whatsoever, whether in a United States District Court, a national
patent office such as USPTO (e.g., in an administrative proceeding including but not limited to post grant review, inter partes review,
reexamination, or third party submission), or in any other applicable venue.
Section
5.13 Distributions. For the avoidance of doubt,
notwithstanding anything to the contrary, Seller may distribute or dividend any amounts received by Seller pursuant to this Agreement,
the Exclusive Distribution Agreement, or otherwise to its equityholders upon the earlier of (i) the date upon which Seller has paid or
made reasonable provision to pay all of its claims and obligations and (ii) the one (1) year anniversary of the Closing Date, and thereafter
Purchaser shall not, and shall cause its Affiliates to not, take any action to prevent or interfere with any such distributions or dividends.
Section
5.14 Access
.
From and after the Closing Date, to the extent necessary in connection with any reasonable business purpose, including the preparation
or amendment of Tax Returns, claims or obligations relating to Excluded Liabilities, the preparation of financial statements, U.S. Securities
and Exchange Commission or bank regulatory reporting obligations, the dissolution, winding-up, or liquidation of Seller or its Affiliates,
the determination of any matter relating to the rights or obligations of Seller or any of its Affiliates under this Agreement or the
Acquisition Documents, any Legal Proceeding against, among, or with a third-party, upon reasonable prior notice, Purchaser shall, and
shall cause its Affiliates and Representatives to, (A) afford Seller and its Representatives reasonable access, during normal business
hours, to the properties, books and records of Purchaser and its Affiliates in respect of the Business, the Transferred Assets and the
Assumed Liabilities, and (B) furnish to Seller such additional existing financial and other existing information regarding the Business,
the Transferred Assets and the Assumed Liabilities as Seller or its Representatives may from time to time reasonably request; provided,
however, that such investigation shall not unreasonably interfere with the business or operations of Purchaser or any of its Affiliates;
and provided, further, that the auditors and accountants of Purchaser or its Affiliates shall not be obligated to make any work papers
available to any Person except in accordance with such auditors’ and accountants’ normal disclosure procedures and then only
after such Person has signed a customary agreement relating to such access to work papers in form and substance reasonably acceptable
to such auditors or accountants. Purchaser shall preserve and keep all original books and records in respect of the Business in its possession
or control for a period of three (3) years from the Closing Date.
Article
6
INDEMNIFICATION
Section
6.1 Survival. The representations and warranties
of the Parties contained in the Acquisition Documents or in any document or instrument delivered in connection therewith shall survive
the Closing, for a period of one year from the Closing Date; provided, however, that notwithstanding anything else contained
in this Section 6.1, any claim with respect to an inaccuracy of any representation or warranty in respect of which indemnity may
be sought under this Agreement shall survive the time at which the applicable representation or warranty would otherwise terminate pursuant
to this Section 6.1 if notice of the inaccuracy of such representation or warranty giving rise to such right of indemnity shall
have been given to the party against whom such indemnity may be sought prior to such time in accordance with Section 6.4. All
agreements and covenants contained in this Agreement shall survive indefinitely, or, if shorter, for the period provided in the applicable
agreement or covenant.
Section
6.2 Indemnification by Seller. Seller shall, jointly
and severally, indemnify and hold harmless Purchaser and its Representatives, members, managers, officers, controlling persons and Affiliates,
and their respective successors and assigns (the “Purchaser Indemnified Parties”), for, and will promptly pay to or
reimburse the Purchaser Indemnified Parties the amount of, any Liability, claim, damage, cost, expense (including costs of investigation
and defense and reasonable attorneys’ fees), charge and diminution of value, whether or not involving a third-party claim (in each
case, excluding punitive damages, except to the extent actually awarded to a third party in connection with a Third-Party Claim) (collectively,
“Losses”), suffered or incurred by any such person, arising (directly or indirectly) out of, resulting (directly or
indirectly) from or in connection with:
(a)
the Retained Liabilities or the Retained Assets;
(b)
a breach of any representation or warranty of Seller
contained in this Agreement, or in any other Acquisition Document;
(c)
a breach of any covenant or agreement of Seller contained
in this Agreement or in any other Acquisition Document;
(d)
any Taxes of Seller, or any Taxes imposed on or with
respect to the operation of the Business or ownership of the Transferred Assets prior to the Closing Time; and
(e)
any claims by stockholders of Parent related to any
material omissions or misstatement contained in the Parent Proxy Materials, except to the extent the Loss relates to information provided
by Purchaser pursuant to the last paragraph of Section 4.5.
Section
6.3 Indemnification by Purchaser. Purchaser shall
indemnify and hold harmless StemoniX and Parent and their respective Representatives, stockholders, directors, officers, controlling
persons and Affiliates, and their respective successors and assigns (the “Seller Indemnified Parties”), from and against
any and all Losses suffered or incurred by any such person, arising (directly or indirectly) out of, resulting (directly or indirectly)
from or in connection with:
(a)
The Assumed Liabilities or the Transferred Assets;
(b)
A breach of any representation or warranty of Purchaser
contained in this Agreement or any certificate delivered herewith; and
(c)
A breach of any covenant or agreement of Purchaser contained
in this Agreement.
Section
6.4 Indemnification Procedures.
(a)
In the event that any claim for which an indemnifying
party (an “Indemnifying Party”) may have Liability to any indemnified party (an “Indemnified Party”)
pursuant to Section 6.1 or 6.2 is asserted against or sought to be collected from any Indemnified Party by a third party
(a “Third-Party Claim”), such Indemnified Party shall promptly notify the Indemnifying Party in writing of such Third-Party
Claim and the amount or the estimated amount of Losses sought thereunder (which estimate shall not be conclusive of the final amount
of such Third-Party Claim) (a “Claim Notice”); provided, however, that the failure to provide such notice
shall not affect the rights of an Indemnified Party hereunder except to the extent that the defense of such Third-Party Claim is materially
prejudiced by such failure. The Indemnifying Party shall have 15 days after receipt of a Claim Notice to notify the Indemnified Party
that it desires to defend the Indemnified Party against such Third-Party Claim.
(b)
In the event that the Indemnifying Party notifies the
Indemnified Party within such 15-day period that it desires to defend the Indemnified Party against a Third-Party Claim, (i) the Indemnifying
Party shall have the right to defend the Indemnified Party by appropriate proceedings, (ii) the Indemnified Party shall have the right
to participate in the defense of such Claim, and (iii) the Indemnifying Party shall have the power and authority to settle or consent
to the entry of judgment in respect of the Third-Party Claim without the consent of the Indemnified Party only if the judgment or settlement
(A) results only in the payment by the Indemnifying Party of the full amount of money damages and (B) includes a full release of the
Indemnified Party from any and all Liability thereunder, and, in all other events, the Indemnifying Party shall not consent to the entry
of judgment or enter into any settlement in respect of a Third-Party Claim without the prior written consent of the Indemnified Party,
which consent may be withheld in its sole discretion. If the Indemnified Party shall participate in any such defense, it shall participate
at its sole cost and expense, unless (A) the Indemnifying Party and the Indemnified Party are both named parties to the proceedings and
the Indemnified Party shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate,
due to actual or potential differing interests between them, or (B) the Indemnified Party assumes the defense of a Third-Party Claim
after it reasonably concludes that the Indemnifying Party has failed to diligently defend a Third-Party Claim it has assumed, as provided
in Section 6.4(c), in either of which events the Indemnifying Party shall bear the cost and expense of such participation. Notwithstanding
anything else contained herein, if any Third-Party Claim or the litigation or resolution of any such Third-Party Claim involves (1) the
administration of the tax returns and responsibilities under the tax Laws of any Indemnified Party, (2) equitable or injunctive relief
or the imposition of any restriction on the future activity or conduct of any Indemnified Party or its Affiliates, (3) any finding of
a violation of Law or violation of the rights of any Person by any Indemnified Party or its Affiliates or (4) the imposition of criminal
liability or criminal damages, then the Indemnified Party shall have the right to control the defense or settlement of any such Third-Party
Claim, using counsel reasonably acceptable to the Indemnifying Party, and its reasonable costs and expenses shall be included as part
of the indemnification obligation of Indemnifying Party hereunder; provided, however, that the Indemnified Party shall
not settle any such claim or demand without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably
withheld, conditioned or delayed. If the Indemnified Party should elect to exercise such right, the Indemnifying Party shall have the
right to participate in, but not control, the defense or settlement of such claim or demand, at its sole cost and expense.
(c)
If the Indemnifying Party (i) elects not to defend the
Indemnified Party against a Third-Party Claim which it otherwise has a right to defend pursuant to Section 6.4(b), whether by
not giving the Indemnified Party timely notice of its desire to so defend in accordance with Section 6.4(a) or otherwise, or (ii)
after assuming the defense of a Third-Party Claim, fails to take reasonable steps necessary to defend diligently such Third-Party Claim
within ten days after receiving written notice from the Indemnified Party stating that the Indemnifying Party has so failed, the Indemnified
Party shall have the right, but not the obligation, to provide its own defense and to settle or compromise the Third-Party Claim as it
deems appropriate, in its sole and absolute discretion in good faith, in each case at the cost and expense of the Indemnifying Party,
and the Indemnified Party shall provide the Indemnifying Party with at least five (5) Business Days’ prior written notice of its
intention to enter into any such settlement or compromise along with details of the terms and conditions thereof.
(d)
The Indemnified Party and the Indemnifying Party shall
reasonably cooperate in order to ensure the proper and adequate defense of a Third-Party Claim, including by providing access to each
other’s relevant business records and other documents, and employees.
(e)
In the event any Indemnified Party desires to assert
a claim for indemnification under this Article 6 with respect to any matter not involving a Third-Party Claim, such Indemnified
Party shall promptly notify the Indemnifying Party in writing of such claim; provided, however, that the failure to provide
such a notice shall not affect the rights of an Indemnified Party hereunder except to the extent that the Indemnifying Party was materially
prejudiced by such failure. The Indemnifying Party shall have 30 days after receipt of such written notice to respond in writing to such
claim. If after the expiration of such 30-day period the Indemnifying Party has not given the Indemnified Party written notice agreeing
to indemnify the Indemnified Party in connection with such claim, then it is to be presumed that the Indemnifying Party has rejected
such claim, in which case the Indemnified Party is entitled to pursue such remedies as available to the Indemnified Party on the terms
and subject to the limitations and qualifications of this Agreement.
Section
6.5 Indemnification Limitations.
(a)
Except in the case of breach of any Fundamental Representation,
the aggregate amount of all Losses for which Seller shall be required to indemnify the Purchaser Indemnified Parties under Section
6.2(b) shall not exceed the Indemnification Escrow Amount. The aggregate amount of all Losses for which Seller shall be required
to indemnify the Purchaser Indemnified Parties under Section 6.2(b) arising out of or related to breaches of any of the Fundamental
Representations shall not exceed the Purchase Price.
(b)
Notwithstanding anything else contained herein, nothing
in this Agreement shall limit the Liability of a party for fraud.
(c)
Except in the case of breach of any Fundamental Representation,
Seller shall not be liable for Losses pursuant to Section 6.2(b) until the aggregate amount of all such Losses exceeds Twenty-Two
Thousand Five Hundred Dollars ($22,500) (the “Deductible”), in which event, Seller shall be liable for all such Losses
in excess of the Deductible, subject to any other applicable limitations set forth herein.
(d)
Nothing herein is intended to modify any Indemnified
Party’s duty to mitigate under applicable Law.
Section
6.6 Losses Net of Insurance. The amount of any
claim for which indemnification is provided under this Article 6 shall be net of any amounts actually recovered by any Indemnified
Party or its Affiliates under insurance policies with respect to the Losses associated with such claim (provided that no Indemnified
Party shall be required by this Agreement to maintain any such insurance policy) or other sources of indemnification, reimbursement,
or recovery with respect to such claim. If the applicable Indemnified Party or its Affiliates realizes any such indemnification, reimbursement,
or recovery after an indemnification payment has been made to such Indemnified Party pursuant to this Article 6, then such Indemnified
Party shall reasonably promptly following such realization pay to the Person or Persons that made such indemnification payment under
this Article 6 an aggregate amount equal to the lesser of (i) the indemnification provided under this Article 6 or (ii)
such indemnification, reimbursement, or recovery realized by any Indemnified Party or its Affiliates.
Section
6.7 Materiality. Solely for purposes of determining
whether there has been a breach of a representation or warranty contained in this Agreement and for calculating Losses under this Section
6, any qualification or exception using the term “material” or “materially” or “Material Adverse Effect”
(or any other word or phrase of similar import) contained in any representation or warranty in this Agreement shall be disregarded and
have no effect.
Section
6.8 Satisfaction of Indemnification Obligations; Release
of Remaining Indemnification Escrow Amount.
(a)
Subject to Section 6.8(d), Seller shall satisfy
its obligations under this Article 6 in respect of a claim for indemnification hereunder in the following order:
(i)
first, to the extent there are any funds remaining in
the Escrow Account relating to the Indemnification Escrow Amount, by delivering a joint instruction with Purchaser to the Escrow Agent
instructing the Escrow Agent to disburse funds from the Escrow Account to Purchaser in the amount of the lesser of such obligations or
the remaining amount of funds in the Escrow Account relating to the Indemnification Escrow Amount;
(ii)
second, to the extent there are (A) no longer any funds
remaining in the Escrow Account relating to the Indemnification Escrow Amount and (B) any funds remaining in the Escrow Account relating
to either the Delivered Plates Escrow Amount or the Post-Closing Revenue Escrow Amount, by delivering a joint instruction with Purchaser
to the Escrow Agent instructing the Escrow Agent to disburse funds from the Escrow Account to Purchaser in the amount of the lesser of
such obligations or the remaining amount of funds in the Escrow Account; and
(iii)
third, to the extent there are no longer any funds remaining
in the Escrow Account, from Seller, jointly and severally, by wire transfer of immediately available funds to an account specified by
Purchaser.
(b)
Any indemnification of the Seller Indemnified Parties
pursuant to this Article 6 shall be satisfied by wire transfer of immediately available funds from Purchaser to the account(s)
designated by such Seller Indemnified Party.
(c)
Notwithstanding the foregoing, upon the date that is
one year following the Closing Date, Purchaser and Seller shall deliver a joint instruction to the Escrow Agent instructing the Escrow
Agent to disburse to Seller any funds remaining in the Escrow Account relating to the Indemnification Escrow Amount that are not otherwise
subject to an unresolved claim by Purchaser under this Article 6.
(d)
Purchaser shall have a right to set-off against any
amounts due to Seller hereunder any amounts to which Purchaser is entitled pursuant to the indemnification provisions contained in this
Article 6. In furtherance of the foregoing, to the extent that Purchaser believes that it is entitled to an indemnification payment
pursuant to Article 6 in connection with a claim by Purchaser, including in connection with a Third-Party Claim that has not been
finally resolved, the amount of such indemnification payment (the “Set-Off Amount”), as determined by Purchaser in
good faith, may be set-off against any amounts due to Seller hereunder. If it is later determined (in accordance with the applicable
provisions of this Agreement) that any Set-Off Amount is not owed to Purchaser as an indemnification payment, then such amount shall
be paid by Purchaser to Seller. Any amounts that are set-off by Purchaser hereunder in accordance with this Section 6.8(d) shall
be deemed to have been paid by Purchaser to Seller for all purposes of this Agreement.
(e)
After any indemnification payment is made pursuant to
this Agreement, or payment is made from the Escrow Account, the Indemnifying Party shall, to the extent of such payment, be subrogated
to all rights (if any) of the Indemnified Party against any third Person in connection with the Losses to which such payment relates.
Without limiting the generality of the preceding sentence, any Indemnified Party receiving an indemnification payment or payment that
is made from the Escrow Account pursuant to the preceding sentence shall execute, upon the written request of the Indemnifying Party,
any instrument reasonably necessary evidence and facilitate the pursuit of such subrogation rights.
(f)
All indemnification payments made under this Agreement
shall be treated by the Parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
Section
6.9 Exclusive Remedy. From and after the Closing,
the remedies set forth in this Article 6 shall be each Party’s sole and exclusive remedies against the other Parties for any Losses
incurred in connection with the breach of any covenant or agreement contained in this Agreement or the untruth or inaccuracy or breach
of any representation or warranty set forth in this Agreement, or any other matter indemnified against pursuant to this Article 6, or
otherwise relating to the subject matter of this Agreement; provided that this Section 6.9 shall not limit the rights or remedies
of the Parties (a) for claims based on fraud or (b) under Sections 8.2(b) or 10.14.
Article
7
CONDITIONS
TO CLOSING
Section
7.1 Conditions of the Obligations of Purchaser and
Seller. The obligations of Purchaser and Seller to consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions on or prior to the Closing Date:
(a)
The Stockholder Approval shall have been obtained;
(b)
No Legal Proceeding and no provision of any applicable
Law shall prohibit or make illegal the consummation of the Closing; and
(c)
As of the Closing, there shall be no Order issued by
any Governmental Authority to the effect that the Agreement may not be consummated as herein provided, and no legal proceeding shall
be pending by any Governmental Authority for the purpose of obtaining any such Order.
Section
7.2 Conditions to the Obligations of Purchaser.
The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following
conditions on or prior to the Closing Date:
(a)
(i) The representations and warranties contained in
Article 2 (other than the Fundamental Representations) shall be true and correct in all respects as of the Closing Date as though
made as of the Closing Date (other than representations and warranties which by their terms address matters only as of another specified
time, which shall be true and correct in all respects only as of such time), except as would not have a Material Adverse Effect, and
(ii) the Fundamental Representations shall be true and correct in all material respects as of the Closing Date as though made as of the
Closing Date (other than representations and warranties which by their terms address matters only as of another specified time, which
shall be true and correct in all material respects only as of such time).
(b)
Seller shall have performed in all material respects
all of the covenants and agreements required to be performed by it hereunder prior to the Closing.
(c)
Since the Effective Date, there shall not have occurred
any effect, event, fact, occurrence, circumstance, condition, development or change that has had, individually or in the aggregate, a
Material Adverse Effect.
(d)
Seller shall deliver to Purchaser a certificate dated
as of the Closing Date stating that the conditions specified in Sections 7.2(a), (b) and (c) above have been satisfied
as of the Closing.
(e)
Seller shall have delivered to Purchaser all of the
items required to be delivered by Seller pursuant to Section 1.9(a).
Section
7.3 Conditions to the Obligations of Seller. The
obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following
conditions at or prior to the Closing Date:
(a)
The representations and warranties made in Article
III hereof shall be true and correct in all respects as of the Closing Date as though such representations and warranties were made
as of the Closing Date (other than representations and warranties which by their terms address matters only as of another specified time,
which shall be true and correct in all respects only as of such time), in each case except to the extent that the failure of such representations
and warranties to be true and correct does not have and would not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on Purchaser’s ability to consummate the transactions contemplated by this Agreement.
(b)
Purchaser shall have performed in all material respects
all the covenants and agreements required to be performed by it hereunder prior to the Closing.
(c)
At the Closing, Purchaser shall deliver to Seller a
certificate dated as of the Closing Date, stating that the conditions specified in Sections 7.3(a) and (b) above have been
satisfied.
(d)
Purchaser shall have delivered to Seller all of the
items required to be delivered by Purchaser pursuant to Section 1.9(b).
Article
8
TERMINATION
Section
8.1 Termination. This Agreement may be terminated
at any time prior to the Closing only as follows:
(a)
by the mutual written consent of Purchaser, on the one
hand, and Seller, on the other hand;
(b)
by Purchaser, if there has been a misrepresentation
or a breach of warranty or a breach of a covenant by Seller in the representations and warranties or covenants set forth in this Agreement
(which in the case of any breach which is curable has not been cured within thirty days after written notification thereof by Purchaser
to Seller), such that the conditions set forth in Sections 7.2(a) or (b), as applicable, would not be satisfied; provided
that Purchaser shall not be entitled to terminate this Agreement pursuant to this Section 8.1(b) if it is then in material
breach of this Agreement;
(c)
by Seller if there has been a misrepresentation or a
breach of warranty or a breach of a covenant by Purchaser in the representations and warranties or covenants set forth in this Agreement
(which in the case of any breach which is curable has not been cured within 30 days after written notification thereof by Seller to Purchaser),
such that the conditions set forth in Sections 7.3(a) or (c) would not be satisfied; provided that Seller shall
not be entitled to terminate this Agreement pursuant to this Section 8.1(c) if Seller is then in material breach of this Agreement;
(d)
by Purchaser, if any of the conditions set forth in
Sections 7.1 or 7.2 shall not have been satisfied by December 31, 2023 (the “End Date”); provided,
that Purchaser shall not be entitled to terminate this Agreement pursuant to this Section 8.1(d) if Purchaser’s material
breach of this Agreement has prevented the consummation of the transactions contemplated hereby;
(e)
by Seller, if any of the conditions set forth in Sections
7.1 or 7.3 shall not have been satisfied by the End Date; provided, that Seller shall not be entitled to terminate
this Agreement pursuant to this Section 8.1(e) if Seller’s material breach of this Agreement has prevented the consummation
of the transactions contemplated hereby; or
(f)
by Purchaser or Seller, upon written notice to Purchaser
of an Adverse Recommendation Change by the Parent Board, provided, that Seller shall only be able to terminate this Agreement
pursuant to this Section 8.1(f) if it has complied in all material respects with the terms and conditions set forth in Section
4.4.
In
the event of termination by Purchaser or Seller pursuant to this Section 8.1, written notice thereof (specifying the basis therefor)
shall forthwith be delivered to the other Party pursuant to Section 10.1 below. For purposes of this Agreement, the date on which
any such written notice of termination is deemed duly given pursuant to Section 10.1 below shall be referred to as the “Termination
Date”.
Section
8.2 Effect of Termination; Break Fee.
(a)
In the event of termination of this Agreement by Purchaser
or Seller as provided above, this Agreement shall forthwith terminate and have no further force or effect (other than Section 5.3
(Confidentiality), Section 5.4 (Public Disclosure), this Section 8.2 and Article 10 (Miscellaneous Provisions),
all of which shall survive the termination of this Agreement) without any liability or obligation on the part of any party hereto.
(b)
In the event that this Agreement is terminated by Seller
pursuant to Section 8.1(f), Seller shall pay to Purchaser an amount equal to (i) Eighty-Five Thousand Dollars ($85,000) plus (ii)
Purchaser’s fees, costs and expenses incurred in connection with the evaluation, negotiation and attempted consummation of the
transactions contemplated by this Agreement and the other Acquisition Documents (including fees and expenses of bankers, brokers, financial
advisors, attorneys and accountants) up to a maximum aggregate amount of One Hundred and Forty Thousand Dollars ($140,000) (items (i)
and (ii), collectively, the “Break Fee”) in cash by wire transfer of immediately available funds, and such Break Fee
shall be due and payable by Seller to Purchaser within five Business Days of the Termination Date.
Article
9
CERTAIN DEFINITIONS
Section
9.1 Definitions. Except as otherwise provided
herein, the capitalized terms set forth below have the following meanings:
“Acquisition
Documents” means this Agreement, the Bill of Sale, the Escrow Agreement, the IP Assignments, the Real Property Lease Assignment,
the SNDAC and the other documents and certificates to be executed by or on behalf of the Parties pursuant to this Agreement.
“Affiliate”
means, with respect to a specified Person, a Person that directly, or indirectly through one or more intermediaries, controls, is controlled
by or is under common control with, the specified Person. For purposes of this definition, the term “control” (including
the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct
or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership
of voting securities, by contract or otherwise.
“Anti-Bribery
Laws” means (a) the United States Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, et seq.) and (b) all international
anti-bribery and other Laws applicable to the Business relating to corruption, bribery, ethical business conduct, money laundering, political
contributions, gifts and gratuities to public officials and private persons, and Laws requiring the disclosure of agency relationships
or commissions and the anticorruption rules of any international financial institutions with which it does business.
“BLA”
means a Biologics License Application submitted to and approved by the FDA pursuant to 21 C.F.R. Part 601 (as amended from time to time)
with respect to the Business Products or otherwise related to the operation of the Business, or the equivalent application or filing
submitted to any equivalent agency or Governmental Entity outside the United States (including any supra-national agency such as the
EMA), and all supplements, amendments, variations, extensions and renewals thereof that may be submitted with respect to the foregoing,
including all documents, data and other information concerning the applicable drug which are necessary for approval to market such drug.
“Broker”
means LifeSci Caiptal LLC.
“Business
Day” means any day other than Saturday, Sunday or any day on which banking institutions in New Orleans, Louisiana are closed
either under applicable Law or action of any Governmental Authority.
“Business
Product(s)” means (i) microBrain 384-well plates and any derivatives thereof, (ii) microBrain 96-well plates and any derivatives
thereof, and (iii) any other cell cultures, chemical matter, or other production related to the Intellectual Property, in each case to
the extent any of the foregoing was used by Seller in connection with the Business prior to Closing, provided that in no event shall
“Business Products” be deemed to include the integration or application of items (i)-(iii) with or into Purchaser’s
NerveSim and BrainSim platforms.
“CARES
Act” means the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136), signed into law on March 27, 2020,
as may be amended from time to time.
“Clinical
Trial” means a clinical trial in humans that is designed to generate data regarding a pharmaceutical or biologic product to
obtain, support or maintain a BLA, MAA, NDA (or their equivalent) with the FDA, EMA or other applicable Governmental Authority.
“Code”
means the Internal Revenue Code of 1986, as amended, and any successor statute thereof, and the rules and regulations promulgated thereunder.
“Confidential
Information” means any information with respect to the Business, including with respect to methods of operation, customers,
customer lists, prices, fees, costs, technology, inventions, trade secrets, know-how, software, marketing methods, plans, personnel,
suppliers, competitors, markets and other specialized information or proprietary matters.
“Consents”
shall mean any consents, notices, approvals, novations, Permits, requirements, waivers, and exemptions required in order to transfer
or assign any Transferred Asset.
“Contract”
means any legally binding agreement, contract, subcontract, settlement agreement, lease, sublease, instrument, concession, franchise,
binding understanding, note, option, bond, mortgage, indenture, trust document, loan or credit agreement, license, sublicense, insurance
policy or other legally binding commitment or undertaking of any nature.
“Coronavirus
Pandemic” means the 2020 “coronavirus pandemic”, as declared by the World Health Organization on March 11, 2020,
caused by severe acute respiratory syndrome coronavirus (SARS-CoV-2) also known as the novel coronavirus, and the disease caused thereby,
COVID-19.
“EGC
Contract” means that certain Service Agreement, dated September 8, 2022, by and between Eva Garland Consulting, LLC, a North
Carolina limited liability company, and Parent.
“EMA”
means the European Medicines Agency or any successor agency or authority having substantially the same function.
“Environmental
Claim” means any Legal Proceeding, audit, Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom,
made, commenced, conducted or pending by, from or before any Person alleging liability of whatever kind or nature (including liability
or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural
resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief)
arising out of, based on or resulting from (a) the presence, release of, or exposure to, any Hazardous Substances or (b) any actual or
alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.
“Environmental
Laws” means any Laws which relate to pollution, or protection of human health to the extent related to exposure to Hazardous
Substances, the protection or cleanup of the environment, or the release or disposal of deleterious substances into the environment,
including, but not limited to, ambient air, surface water, groundwater, land surface or subsurface strata, including all such Laws, orders,
rules, regulations and judgments as same may be amended, varied or modified in the future. The term “Environmental Laws”
includes, without limitation, the following, including any state law analogs, and any of their respective implementing regulations: CERCLA;
the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid
Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean
Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§
2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act
of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.
“Environmental
Liabilities” means all obligations, duties, losses, Liabilities, claims, fines, expenses, damages (including natural resource
damages), costs (including attorney’s fees and expenses) and penalties created by, related to or arising out of any Environmental
Law and pertaining to the Transferred Assets, whether attributable, in whole or in part, to actions, events or conditions existing or
occurring before or after the Closing Date.
“Environmental
Notice” means any written directive, notice of violation or infraction, notice potential penalty, responsibility or liability,
notice of intent to sue, warning letter, request for information, objection or other notice respecting any Environmental Claim or relating
to any actual or alleged non-compliance with or Liability under any Environmental Law or any term or condition of any Environmental Permit.
“Environmental
Permit” means any approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Authority and required by or under, or issued pursuant to, any Environmental
Law.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA
Affiliate” means, with respect to any entity, any other entity, which, together with such entity, would be treated as a single
employer (a) under Section 414(b) or (c) of the Code or (b) for purposes of any benefit plan subject to Title IV of ERISA, under Section
414(b), (c), (m) or (o) of the Code.
“Exchange
Act” means the Securities Exchange Act of 1934, together with the rules and regulations promulgated thereunder.
“Excluded
Entities” means all of the set forth on Schedule 9.
“Exclusive
Distributorship Agreement” means that certain Exclusive Distributorship Agreement, dated July 13, 2023, by and between Seller
and Purchaser.
“FDA”
means the U.S. Food and Drug Administration or any successor agency or authority thereto.
“FDCA”
means the Federal Food, Drug and Cosmetic Act, as amended, and all related rules, regulations and guidelines
“FTC”
means the U.S. Federal Trade Commission.
“Fundamental
Representations” means the representations and warranties set forth in Section 2.1 (Organization; Qualification), Section
2.2 (Authority and Validity), Section 2.3 (Noncontravention), Section 2.6(c) (Indebtedness), Section 2.10(a)
(Transferred Assets), Section 2.11 (Intellectual Property), Section 2.16 (Taxes), Section 2.21 (Brokers) and Section
2.28 (Retention Bonuses).
“GAAP”
means United States generally accepted accounting principles, consistently applied.
“Good
Clinical Practices” means FDA’s standards for the design, conduct, performance, monitoring, auditing, recording, analysis,
and reporting of Clinical Trials, including those standards contained in 21 C.F.R. Parts 50, 54, 56 and 312.
“Good
Laboratory Practices” means the FDA’s standards for conducting non-clinical laboratory studies, including those standards
contained in 21 C.F.R. Part 58.
“Good
Manufacturing Practices” means the FDA’s requirements set forth in the quality systems regulations for drugs contained
in 21 C.F.R. Parts 210 and 211.
“Governmental
Authority” means local, state, federal or foreign governmental body, agency or department, including any political subdivision
thereof or any agency or instrumentality of such government or political subdivision and any regulatory agency having jurisdiction over
any of the parties, the Transferred Assets or the Acquisition.
“Hazardous
Substances” means, collectively (a) any flammable explosives, radioactive materials, petroleum or petroleum products, asbestos
in any form that is or could become friable, lead paint, urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials, substances or wastes which
are now or hereafter become defined as or included in the definition of “hazardous substances,” “hazardous wastes,”
“pollutants,” “contaminants,” “solid waste,” “toxic chemical,” “hazardous chemical,”
“extremely hazardous substances,” “restricted hazardous wastes,” “toxic substances,” “toxic
pollutants,” “oil field waste” or words of similar import, under any applicable Environmental Law; and (c) any other
chemical, material, substance, or waste, exposure to which is now or hereafter prohibited, limited or regulated by any applicable Governmental
Authority or Environmental Law.
“Health
Care Laws” means all healthcare-related Laws applicable to the Business or any Business Product, including, as applicable:
(a) the FDCA and all regulations promulgated thereunder, including those requirements relating to the FDA’s current Good Manufacturing
Practices, Good Laboratory Practices, Good Clinical Practices, investigational use, pre-market approval and applications to market new
pharmaceutical or biological products; (b) the Clinical Laboratory Improvement Amendments of 1988; (c) the Health Insurance Portability
and Accountability Act of 1996, the Health Information and Technology for Economic and Clinical Health Act, and the regulations promulgated
pursuant thereto; (d) the U.S. Patient Protection and Affordable Care Act, (e) the Physician Payment Sunshine Act (42 U.S.C. § 1320a-7h);
(f) federal and state anti-kickback Laws (including the federal Anti-Kickback Statute (42 U.S.C. § 1320-7(b))); (g) federal and
state referral Laws (including the Stark Law (42 U.S.C. § 1395nn)); (h) false claims Laws (including the Federal False Claims Act
(31 U.S.C. §§ 3729, et seq.)); (i) Laws governing the development, conduct, monitoring, patient informed consent, auditing,
analysis and reporting of Clinical Trials (including the Good Clinical Practice regulations and guidance of the FDA); (j) Laws governing
data gathering activities relating to the detection, assessment, and understanding of adverse events (including pharmacovigilance and
adverse event regulations and guidance of FDA and ICH); (k) Laws governing government and private healthcare programs, including the
federal Medicare and Medicaid statutes; (l) Laws, the violation of which is cause for exclusion from any federal health care program;
and (m) all comparable state, federal or foreign Laws relating to any of the foregoing.
“HHS”
means the U.S. Department of Health and Human Services, or any successor agency or authority thereto.
“ICH”
means the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use.
“IND”
means an Investigational New Drug Application submitted to the FDA pursuant to 21 C.F.R. Part 312 (as amended from time to time) with
respect to the Business Products or otherwise related to the operation of the Business, or the equivalent application or filing submitted
to any equivalent agency or Governmental Entity outside the United States (including any supra-national agency such as the EMA), and
all supplements, amendments, variations, extensions and renewals thereof that may be submitted with respect to the foregoing.
“Indebtedness”
of any Person means, without duplication, (a) the principal, accreted value, accrued and unpaid interest, prepayment and redemption premiums
or penalties (if any), unpaid fees or expenses and other monetary obligations in respect of (i) indebtedness of such Person for borrowed
money and (ii) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is
responsible or liable, (b) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such Person and all obligations of such Person under any title retention agreement, (c) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction, (d) all obligations
of such Person under interest rate or currency swap transactions (valued at the termination value thereof), (e) all obligations of the
type referred to in clauses (a) through (d) of any third Person, the payment of which such Person is responsible or liable, directly
or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations, and (f) all obligations of the types
referred to in clauses (a) through (e) of third Persons secured by (or for which the holder of such obligations has an existing right,
contingent or otherwise, to be secured by) any Lien on any property or asset of such Person (whether or not such obligation is assumed
by such Person).
“Knowledge
of Seller” means the actual knowledge of Andrew LaFrence and Founder, in each case after reasonable due inquiry.
“Landlord”
means Summit Limited Partnership, a Minnesota limited partnership and successor in interest to WBL Properties 1, LLC.
“Law”
means any local, state, federal, or foreign code, law, ordinance, regulation, treaty, reporting, ruling or licensing requirement, rule,
code, statute or Order enacted, issued, enforced, or entered by a Governmental Authority applicable to a Person or its assets, Liabilities
or business.
“Legal
Proceeding” means a judicial, administrative or arbitral claim, lawsuit, action, mediation, investigation, inquiry, or other
proceeding (including any counter-claim) by or before a Governmental Authority.
“Liability”
means any direct or indirect, primary or secondary, liability, Indebtedness, obligation, penalty, cost or expense (including costs of
investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes,
bills, checks, and drafts presented for collection or deposit in the Ordinary Course of Business) of any type, whether accrued, absolute
or contingent, known or unknown, liquidated or unliquidated, matured or unmatured, or otherwise.
“Lien”
means any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage,
pledge, right of way, security interest, title retention or other security arrangement.
“MAA”
means a Marketing Authorization Application filed with and approved by the EMA or other applicable Governmental Authority under the centralized
EMA filings procedure with respect to the Business Products or otherwise related to the operation of the Business, and all supplements,
amendments, variations, extensions and renewals thereof that may be submitted with respect to the foregoing, including all documents,
data and other information concerning the applicable drug which are necessary for approval to market such drug.
“Material
Adverse Effect” shall mean any effect, event, fact, occurrence, circumstance, condition, development or change that, individually
or in the aggregate, (i) has had or would reasonably be expected to have a material adverse effect on the business, operations, condition
(financial or otherwise), results of operations, assets or liabilities of the Business or (ii) has or present a material impairment of,
or material delay beyond the End Date in, Seller’s ability to consummate the Acquisition; provided, however, that
for purposes of clause (i), Material Adverse Effect shall not include any effect, event, fact, occurrence, circumstance, condition, development
or change, directly or indirectly, arising out of or attributable to: (A) general economic or political conditions; (B) any changes in
financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or
any market index or any change in prevailing interest rates; (C) acts of war (whether or not declared), armed hostilities or terrorism,
or the escalation or worsening thereof; (D) any action required or permitted by this Agreement or any action taken (or omitted to be
taken) with the written consent of or at the written request of Purchaser; (E) any changes in applicable Laws or accounting rules (including
GAAP) or the enforcement, implementation or interpretation thereof; (F) the announcement, pendency or completion of the transactions
contemplated by this Agreement, including losses or threatened losses of employees, customers, suppliers, distributors or others having
relationships with the Business; (G) any natural or man-made disaster or acts of God; or (H) any epidemics, pandemics, disease outbreaks
or other public health emergencies; provided, however, that any event, occurrence, fact, condition or change referred to in clauses (A),
(B), (C), (E), (G), or (H) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred
or would reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate
effect on the Business compared to other comparable companies engaged in the industries in which the Business operates.
“NDA”
means a new drug application submitted to and approved by the FDA pursuant to 21 C.F.R. Part 314 (as amended from time to time) with
respect to the Business Products or otherwise related to the operation of the Business, and all amendments, supplements, variations,
extensions and renewals thereof that may be submitted with respect to the foregoing, including all documents, data and other information
concerning the applicable drug which are necessary for approval to market such drug, and any equivalent application submitted to any
other health authority.
“Order”
means any order, writ, injunction, judgment, decree, ruling, award, assessment or arbitration award of any Governmental Authority or
arbitrator.
“Ordinary
Course of Business” means any action that constitutes an ordinary business activity of the Business, conducted in a commercially
reasonable and businesslike manner, consistent with past practice and being such as Seller or another Person of similar nature and size
and engaged in a similar business to the Business might reasonably be expected to carry out from time to time.
“Permit”
means all permits, licenses, franchises, approvals, authorizations (including Regulatory Authorizations), registrations, certifications
and certificates, accreditations, clearances and similar rights obtained, or required to be obtained, from any Trade Organization or
Governmental Authority.
“Person”
means a natural person or any legal, commercial or Governmental Authority, including any Governmental Authority, such as, but not limited
to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group
acting in concert, or any person acting in a representative capacity.
“Remedial
Action” means any action to (a) clean up, remove, treat or handle in any other way Hazardous Substances in the environment,
(b) prevent the release of Hazardous Substances so that they do not migrate, endanger or threaten to endanger public health or the environment,
or (c) perform remedial investigations, feasibility studies, corrective actions, closures and post-remedial or post-closure studies,
investigations, operations, maintenance and monitoring.
“SBIR
Grant” means that certain SBIR Grant (GRANT13775259) from the National Institutes of Health for the development of a GBA1 mutant
midbrain organoid model for Parkinsons disease discovery, projected start date July 1, 2023.
“Schedules”
means the schedules to this Agreement, including the written disclosure schedule related to Article 2 being delivered by Seller
to Purchaser at the time of execution of this Agreement.
“Securities
Act” means the Securities Act of 1933, together with the rules and regulations promulgated thereunder.
“Seller
Adverse Recommendation Change” means the Parent Board: (a) failing to make, or withdrawing, amending, modifying, or materially
qualifying, in a manner adverse to Purchaser, the Board Recommendation; (b) failing to include the Board Recommendation in the Parent
Proxy Materials; (c) recommending a Superior Proposal; (d) failing to recommend against acceptance of any tender offer or exchange offer
for the shares of Company Common Stock within ten Business Days after the commencement of such offer; (e) failing to reaffirm (publicly,
if so reasonably requested by Purchaser) the Board Recommendation within five (5) Business Days after the date any Superior Proposal
(or material modification thereto) is first publicly disclosed by Seller or the Person making such Superior Proposal; (f) making any
public statement inconsistent with the Board Recommendation; or (g) resolving or agreeing to take any of the foregoing actions.
“Superior
Proposal” means a bona fide Takeover Proposal that the Parent Board determines in good faith (after consultation with its financial
advisor and outside legal counsel) is (a) reasonably likely to be consummated in accordance with its terms, and (b) if consummated, more
favorable to the holders of Parent’s common stock than the transactions contemplated by this Agreement; in each case, after taking
into account: (i) all financial considerations; (ii) the identity of the third party making such Takeover Proposal; (iii) the anticipated
timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for
completion of such Takeover Proposal; (iv) the other terms and conditions of such Takeover Proposal and the implications thereof on the
Company, including relevant legal, regulatory, and other aspects of such Takeover Proposal deemed relevant by the Parent Board (including
any conditions relating to financing, stockholder approval, regulatory approvals, or other events or circumstances beyond the control
of the party invoking the condition); and (v) any revisions to the terms of this Agreement proposed by Purchaser during the Superior
Proposal Notice Period set forth in Section 4.4(d).
“Takeover
Proposal” means a bona fide inquiry, proposal, or offer from, or indication of interest in making a proposal or offer by, any
Person or group (as defined in Section 13(d) of the Exchange Act) (other than Purchaser or its Affiliates), relating to any transaction
or series of related transactions (other than the transactions contemplated by this Agreement), involving any: (a) direct or indirect
acquisition of assets of Seller (including any voting equity interests of Affiliates, but excluding sales of assets in the Ordinary Course
of Business); (b) direct or indirect acquisition of voting equity interests of Parent or StemoniX; (c) tender offer or exchange offer
related to the voting equity interests of Seller; (d) merger, consolidation, other business combination, or similar transaction involving
Parent or StemoniX; (e) liquidation, dissolution (or the adoption of a plan of liquidation or dissolution), or recapitalization or other
significant corporate reorganization of Seller; or (f) any combination of the foregoing.
“Tax”
means any federal, state, county, local, or foreign taxes, charges, fees, levies, imposts, duties or other assessments, including income,
gross receipts, excise, employment, sales, use, transfer, recording license, payroll, franchise, documentary, stamp, occupation, unclaimed
property, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits,
withholding, Social Security, single business, unemployment, disability, real property, personal property, registration, ad valorem,
value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed or required to
be withheld by the United States or any state, county, local or foreign government or subdivision or agency thereof, whether disputed
or not, or known or unknown, including any interest, penalties, and additions imposed thereon or with respect thereto, and including
any Liability for Taxes of another Person pursuant to a contract, as a transferee or successor, under Treasury Regulation Section 1.1502-6
or analogous state, local or foreign law or otherwise and any liabilities resulting from imputed underpayments determined under Code
Section 6225.
“Tax
Return” returns, reports, estimates, declarations, statements and any other documents of any nature required to be filed in
connection with any Taxes (including any elections, declarations, schedules or attachments thereto, and any amendments thereof), including
any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required,
combined, consolidated or unitary returns for any group of entities that includes Seller or any of its Affiliates.
“Trade
Organization” means any industry, trade, certifying or other regulatory organization that is applicable to Seller, the Business
or the Transferred Assets.
Section
9.2 Additional Defined Terms(i). For purposes
of this Agreement, the following terms have the meanings specified in the indicated Section of this Agreement:
| Term |
|
Section |
| Acquisition |
|
Recitals |
| Affiliate
Agreements |
|
2.19 |
| Agreement |
|
Preamble |
| Anniversary
Date |
|
1.7(a) |
| Assumed
Contracts |
|
1.1(f) |
| Assumed
Liabilities |
|
1.3 |
| Beneficiary |
|
1.5(a) |
| Beneficial
Rights |
|
5.8(a) |
| Benefit
Programs |
|
2.14(a) |
| Bill
of Sale |
|
1.9(a)(i) |
| Board
Recommendation |
|
2.2(c) |
| Break
Fee |
|
8.2(b) |
| Business |
|
Recitals |
| Business
Contract |
|
2.12(a) |
| Business
Name |
|
5.6 |
| Business
Partner |
|
2.4(d) |
| Business
Permits |
|
2.5 |
| CIIAs |
|
1.9(a)(iv) |
| Claim
Notice |
|
6.4(a) |
| Closing |
|
1.8(a) |
| Closing
Date |
|
1.8(a) |
| Closing
Date Payment |
|
1.6(a) |
| Closing
Time |
|
1.8(b) |
| Consulting
Agreement |
|
1.9(a)(v) |
| Continuing
Employees |
|
5.7(b) |
| Delivered
Plates Escrow Amount |
|
1.6(b) |
| EDA
Amount |
|
1.5(b) |
| Employee
Reimbursement Amount |
|
1.9(a)(vi) |
| Employee
Reimbursement Overpayment |
|
5.11 |
| Employee
Reimbursement Payment |
|
1.9(b)(x) |
| Employee
Reimbursement Underpayment |
|
5.11 |
| Employees |
|
2.13(a) |
| Equipment |
|
1.1(c) |
| Equipment
Leases |
|
2.10(c) |
| Escrow
Account |
|
1.6(b) |
| Escrow
Agent |
|
1.6(b) |
| Escrow
Agreement |
|
1.6(b) |
| Escrow
Amount |
|
1.6(b) |
| Estimated
Proration Amount |
|
1.5(a) |
| Exchange
Act |
|
2.3(b) |
| Export
Approvals |
|
2.25 |
| Financial
Statements |
|
2.6(a) |
| Founder |
|
Preamble |
| Fundamental
Representations |
|
6.1 |
| Government
Loans |
|
2.22(b) |
| Improvements |
|
2.10(i) |
| Indemnification
Escrow Amount |
|
1.6(b) |
| Indemnified
Party |
|
6.4(a) |
| Indemnifying
Party |
|
6.4(a) |
| Insurance
Policies |
|
2.15(a) |
| Intellectual
Property |
|
1.1(a) |
| Inventory |
|
1.1(d) |
| IP
Assignments |
|
1.9(a)(xi) |
| Labor
Laws |
|
2.13(b) |
| Lease |
|
2.5(e) |
| Leased
Real Property |
|
2.10(e) |
| Losses |
|
6.2 |
| Material
Customers |
|
2.18 |
| Material
Suppliers |
|
2.18 |
| Non-Hired
Employees |
|
1.4(h) |
| OFAC |
|
2.22 |
| Offer
Letters |
|
1.9(a)(iii) |
| OSHA |
|
2.13(e) |
| Owned
Intellectual Property |
|
2.11(b) |
| Parent |
|
Preamble |
| Parent
Board |
|
2.2(c) |
| Parent
Proxy Materials |
|
4.5(a) |
| Party(ies) |
|
Preamble |
| Payee |
|
1.5(a) |
| Payor |
|
1.5(a) |
| Personnel
Agreements |
|
2.11(c)(i) |
| Post-Closing
Revenue Escrow Amount |
|
1.6(b) |
| Proration
Items |
|
1.5(a) |
| PTO |
|
2.11(a) |
| Purchase
Price |
|
1.6 |
| Purchaser |
|
Preamble |
| Purchaser
Indemnified Parties |
|
6.2 |
| Real
Property Lease Assignment |
|
Recitals |
| Recipient |
|
1.5 |
| Registered
Intellectual Property |
|
2.11(a) |
| Regulatory
Authorizations |
|
2.4(b) |
| Representative(s) |
|
4.4 |
| Restricted
Period |
|
5.10(a) |
| Retained
Assets |
|
1.2 |
| Retained
Contracts |
|
1.2(c) |
| Retained
Liabilities |
|
1.4 |
| Retention
Bonuses Amount |
|
2.29 |
| SEC |
|
4.5(a) |
| Seller |
|
Preamble |
| Seller
Acquisition Agreement |
|
4.4(a) |
| SNDAC |
|
Recitals |
| Seller
Indemnified Parties |
|
6.3 |
| Set-Off
Amount |
|
6.8(d) |
| Special
Meeting |
|
4.5 |
| StemoniX |
|
Preamble |
| Straddle
Periods |
|
5.1(c) |
| Stockholder
Approval |
|
2.2(c) |
| Superior
Proposal Notice Period |
|
4.4(d) |
| Termination
Date |
|
8.1(d) |
| Third-Party
Claim |
|
6.4(a) |
| Transaction
Bonuses |
|
2.27 |
| Transferred
Assets |
|
1.1 |
| WARN
Act |
|
2.13(d) |
| |
|
|
Section
9.3 Construction. Any reference in this Agreement
to an “Article,” “Section,” “Exhibit” or “Schedule” refers to the corresponding Article,
Section, Exhibit or Schedule of or to this Agreement, unless the context indicates otherwise. The table of contents and the headings
of Articles and Sections are provided for convenience only and are not intended to affect the construction or interpretation of this
Agreement. Whenever used in this Agreement, except as otherwise expressly provided or unless the context otherwise requires, any noun
or pronoun shall be deemed to include the plural as well as the singular and to cover all genders, the terms “include” and
“including” shall be inclusive and not exclusive and, to the extent not already followed by the words “without limitation”
or “but not limited to,” shall be deemed to be followed by the words “without limitation,” and the term “or”
shall not be exclusive and shall be read to mean “and/or.” Unless otherwise specified, the terms “hereof,” “herein,”
“hereunder,” “herewith” and similar terms refer to this Agreement as a whole, and references herein to Sections
and Articles refer to sections and articles of this Agreement. Where this Agreement states that a party “shall”, “will”
or “must” perform in some manner or otherwise act or omit to act, it means that the party is obligated to do so in accordance
with this Agreement. Any reference to a statute is deemed also to refer to any amendments or successor legislation as in effect at the
relevant time. Any reference to a contract, agreement or other document as of a given date means the contract, agreement or other document
as amended, supplemented and modified from time to time through such date.
Article
10
MISCELLANEOUS PROVISIONS
Section
10.1 Notices.
(a)
All notices and other communications under this Agreement
must be in writing and are deemed duly delivered when (i) delivered if delivered personally or by nationally recognized overnight courier
service (costs prepaid), (ii) sent by email transmission if delivered without receipt of any “bounceback” or similar notice
indicating failure of delivery (or the first Business Day following such delivery if the date of delivery is not a Business Day), or
(iii) received by the addressee, if sent by United States of America certified or registered mail, return receipt requested; in each
case to the following addresses or facsimile numbers or email addresses and marked to the attention of the individual (by name or title)
designated below (or to such other address, facsimile number, email address or individual as a party may designate by notice to the other
Parties):
If
to Seller:
StemoniX,
Inc.
10475
110th Street N
Stillwater,
MN 55082
Email:
Andrew.Lafrence@vyantbio.com
Attention:
Andrew LaFrence
with
a copy (which shall not constitute notice) to:
Lowenstein
Sandler LLP
One
Lowenstein Drive
Roseland,
NJ 07068
Email:
awovsaniker@lowenstein.com and mmcdonald@lowenstein.com
Attention:
Alan Wovsaniker and Mitchell McDonald
If
to Purchaser:
AxoSim,
Inc.
New
Orleans BioInnovation Center
1441
Canal Street, Suite 205
New
Orleans, LA 70112
Email:
lowry.curley@axosim.com, ben.cappiello@axosim.com
Attention:
Lowry Curley, Ben Cappiello
with
copies (which shall not constitute notice) to:
Jones
Walker L.L.P
201
St. Charles Avenue, 51st Floor
New
Orleans, LA 70170-5100
Email:
afriend@joneswalker.com, bbeter@joneswalker.com
Attention:
Asher Friend, Brett Beter
(b)
Any party hereto may change its address specified for
notices herein by designating a new address by notice in accordance with this Section 10.1.
Section
10.2 Expenses. Each of the Parties hereto shall
bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, except
to the extent explicitly set forth herein; provided that unless otherwise expressly set forth herein, in any dispute between the
Parties arising out of or relating to the Acquisition or the Acquisition Documents, the substantially prevailing party in such dispute
shall be awarded, in addition to any damages, injunctions or other relief, its costs and expenses, not limited to taxable costs, and
reasonable attorneys’ fees, and if each Party prevails in a portion of any such dispute, the adjudicator of such dispute shall
equitably allocate attorneys’ fees, costs and related expenses based upon the extent to which each such party prevailed in the
dispute.
Section
10.3 Further Assurances. Each Party covenants
that at any time, and from time to time, after the Closing, it will execute (and in the case of Seller, will cause the Excluded Entities
to execute) such additional instruments and take such actions as may be required, and as may be reasonably requested by the other Party,
to confirm or perfect or otherwise to carry out the intent and purposes of this Agreement.
Section
10.4 Waiver; Remedies Cumulative. Any failure
on the part of any party to comply with any of its obligations, agreements or conditions hereunder may be waived by any other party to
whom such compliance is owed only by an agreement in writing signed by the Party against whom enforcement of such waiver is sought. No
waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. The rights and remedies of the Parties to this Agreement are cumulative and not
alternative.
Section
10.5 Assignment. This Agreement shall not be assignable
by any of the Parties hereto without the written consent of each other Party hereto.
Section
10.6 Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective heirs, legal representatives, executors, administrators, successors
and permitted assigns. Each Party agree that the representations, warranties, covenants and agreements set forth herein are solely for
the benefit of the Parties, in accordance with and subject to the terms of this Agreement, and not for the benefit of any third party,
and this Agreement is not intended to, and does not, confer upon any Person other than the Parties any rights or remedies hereunder,
including the right to rely upon any representations and warranties set forth herein.
Section
10.7 Headings. The section and other headings
in this Agreement are inserted solely as a matter of convenience and for reference, and are not a part of this Agreement.
Section
10.8 Entire Agreement. All Schedules and Exhibits
attached to this Agreement are by reference made a part hereof. This Agreement and the Exhibits, Schedules, certificates and other documents
delivered pursuant hereto or incorporated herein by reference (together with the Exclusive Distribution Agreement and any confidentiality
agreement entered into by or on behalf of Purchaser or any of its Affiliates, on the one hand, and Seller or any of its Affiliates, on
the other hand), contain and constitute the entire agreement among the Parties and supersede and cancel any prior agreements, representations,
warranties, or communications, whether oral or written, among the Parties relating to the transactions contemplated by this Agreement.
Neither this Agreement nor any provision hereof may be changed, discharged or terminated orally, but only by an agreement in writing
signed by the party against whom or which the enforcement of such change, discharge or termination is sought.
Section
10.9 Severability. If any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, then this Agreement shall continue
in full force and effect without such provisions; provided, however, that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect
their original intent as closely as possible in an acceptable manner to the end that the transactions contemplated by the Acquisition
Documents are consummated to the extent possible, and in any case such term or provision shall be deemed amended to the extent necessary
to make it no longer invalid, illegal or unenforceable.
Section
10.10 Governing Law; Venue; Waiver of Jury Trial.
(a)
All issues and questions concerning the construction,
validity, interpretation and enforceability of this Agreement or any transactions contemplated hereby, and all suits, actions or other
proceedings arising hereunder or thereunder or in connection herewith or therewith, whether purporting to be sound in contract or tort,
or at law or in equity, shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect
to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause
the application of the Laws of any jurisdiction other than the State of Delaware.
(b)
The Parties hereby agree and consent to be subject to
the exclusive jurisdiction of the Delaware Court of Chancery or, to the extent such court declines jurisdiction, first to any federal
court, or second, to any state court, each located in the State of Delaware (and in each case of the appropriate appellate courts therefrom),
and hereby waive the right to assert the lack of personal or subject matter jurisdiction or improper venue in connection with any such
suit, action or other proceeding. In furtherance of the foregoing, each of the Parties hereto (i) waives the defense of inconvenient
forum, (ii) agrees that any suit, action or other proceeding arising out of this Agreement or any transactions contemplated hereby shall
be litigated in such court to the exclusion of the courts of any other country, state, city or county where suit might otherwise be brought,
and (iii) agrees that a final judgment in any such suit, action or other proceeding shall be conclusive and may be enforced in other
jurisdictions by suit or judgment or in any other manner provided by Law. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 10.1 shall be deemed effective service of process on
such party.
(c)
EACH PARTY HERETO HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY AND WITH AND UPON THE ADVICE OF COMPETENT COUNSEL IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION, SUIT,
ACTION, PROCEEDING, CROSS CLAIM, OR COUNTERCLAIM IN ANY COURT (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF, RELATING
TO OR IN CONNECTION WITH (i) THIS AGREEMENT OR THE VALIDITY, PERFORMANCE, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF, (ii) THE
TRANSACTIONS CONTEMPLATED HEREBY OR (iii) THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, AUTHORIZATION, EXECUTION, DELIVERY, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF. EACH PARTY HERETO (1) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (2) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION.
Section
10.11 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Signatures may be delivered by facsimile or by portable document format (“pdf”) in electronic transmission, which shall be
as effective as delivery of a manually executed counterpart of this Agreement and shall also be deemed an original.
Section
10.12 No Recourse. This Agreement may only be
enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation,
execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto and
no other Person that is not a party hereto shall have any Liability for any obligations or Liabilities of the parties to this Agreement
or for any claim (whether (to the extent valid under applicable law) in tort, contract or otherwise) based on, in respect of, or by reason
of, the transactions contemplated hereby or in respect of any oral representations made or alleged to be made in connection herewith.
In no event shall Purchaser or any of its Affiliates, and Purchaser agrees not to and to cause its controlled Affiliates not to, seek
to enforce this Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from, any
Person not a party to this Agreement.
Section
10.13 Waiver of Conflicts Regarding Representation.
Recognizing that Lowenstein Sandler LLP has acted as legal counsel to StemoniX, Parent, the Business, and their respective Affiliates
prior to the Closing, and that Lowenstein Sandler LLP intends to act as legal counsel to StemoniX and Parent and their respective Affiliates
after the Closing, Purchaser hereby waives and agrees to cause the Business to waive, any conflict of interest that may arise in connection
with Lowenstein Sandler LLP representing StemoniX and Parent and their respective Affiliates after the Closing, including any litigation,
claim or obligation arising out of or relating to this Agreement or the transactions contemplated hereby. Purchaser (on behalf of itself
and, following the Closing, the Business) also further agrees that all communications among Lowenstein Sandler LLP, on the one hand,
and StemoniX, Parent, the Business, or any of their respective Affiliates or Representatives, on the other hand, that relate to the negotiation,
documentation and consummation of the transactions contemplated by this Agreement and that are attorney-client privileged, shall remain
privileged after the Closing, and the attorney-client privilege and the expectation of client confidence as to such communications belong
to Seller and may be controlled by Seller and shall not pass to or be claimed by Purchaser or the Business. Notwithstanding the foregoing,
in the event that a dispute arises between Purchaser or the Business and a third party other than StemoniX or Parent or any of their
respective Affiliates after the Closing, Purchaser and the Business, as applicable, may assert the attorney-client privilege to prevent
disclosure of privileged communications by Lowenstein Sandler LLP to such third party; provided, however, that neither Purchaser nor
the Business may waive such privilege without the prior written consent of Seller. In the event that Purchaser or the Business is legally
required by governmental order or otherwise to access or obtain a copy of all or a portion of such privileged communications, Purchaser
shall promptly notify Seller in writing (including by making specific reference to this Section 10.13) so that Seller can seek (at its
expense) a protective order and Purchaser agrees to use all commercially reasonable efforts to assist therewith.
Section
10.14 Specific Performance.
(a)
The Parties agree that irreparable damage, for which
monetary damages (even if available) may not be an adequate remedy, would occur in the event that the Parties do not perform any provision
of this Agreement in accordance with its specified terms or otherwise breach such provisions. Accordingly, without in any way limiting
Section 5.10(e) and subject to Section 8.2(b), the Parties acknowledge and agree that the Parties shall be entitled to
seek an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof. The Parties acknowledge and agree that the limitations on remedies of the Parties following termination
of this Agreement set forth in Section 8.2 shall not limit the right of either Party prior to valid termination of this Agreement
to seek specific performance pursuant to this Section 10.14, including either Party’s right to obtain specific performance
or other appropriate form of specific equitable relief to: (i) cause the other Party to perform its obligations under Section 4.6(a).
(b)
Each Party acknowledges and agrees that (i) it will
not oppose the granting of an injunction, specific performance, and other equitable relief on the basis that the other Party has an adequate
remedy at Law or that any award of specific performance is not an appropriate remedy for any reason at Law or in equity, (ii) any Party
seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this
Agreement shall not be required to provide any bond or other security in connection with such order or injunction, and (iii) if, prior
to the End Date, either party brings any Legal Proceeding in accordance this Section 10.14 to enforce specifically the performance
of the terms and provisions hereof by the other Party, the End Date shall automatically be extended by: (1) the amount of time during
which such Legal Proceeding is pending, plus 20 Business Days; or (2) such other time period established by the court presiding over
such action, and (iv) nothing contained in this Section 10.14 shall require any Party to institute any Legal Proceeding for (or
limit any Party’s right to institute any Legal Proceeding for) specific performance under this Section 10.14 prior to or
as a condition to exercising any termination right under Article 8.
[Signatures
appear on following page]
IN
WITNESS WHEREOF, each of the Parties hereto executed or has caused this Agreement to be executed on its behalf as of the Effective Date.
| |
PURCHASER: |
| |
|
|
| |
AxoSim, Inc. |
| |
|
|
| |
By: |
/s/
Benjamin Cappiello |
| |
Name: |
Benjamin
Cappiello |
| |
Title: |
Chief
Business Officer, Director |
| |
STEMONIX: |
| |
|
|
| |
StemoniX, Inc. |
| |
|
|
| |
By: |
/s/
Andrew LaFrence |
| |
Name: |
Andrew
LaFrence |
| |
Title: |
President,
Chief Executive Officer |
| |
PARENT: |
| |
|
|
| |
Vyant Bio, Inc. |
| |
|
|
| |
By: |
/s/
Andrew LaFrence |
| |
Name: |
Andrew
LaFrence |
| |
Title: |
Chief
Executive Officer, Chief Financial Officer |
| |
Solely
for the purposes of Section 5.10 and 10.10, |
| |
|
| |
FOUNDER: |
| |
|
| |
/s/
Yung-Ping Yeh |
| |
Yung-Ping
Yeh
|
[Signature Page to Asset Purchase Agreement]
DISCLOSURE
SCHEDULES
Schedule
1.1(a) – Intellectual Property
Schedule
1.1(c) – Equipment
Schedule
1.1(d) – Inventory
Schedule
1.1(e) – Permits
Schedule
1.1(f) – Assumed Contracts
Schedule
1.1(g) – Prepaid Items
Schedule
1.2(m) – Retained Assets
Schedule
1.3 – Certain Assumed Contracts
Schedule
1.9(a) – Consents
Schedule
2.0 – Pink Basic Disclosure Guidelines
Schedule
2.1 – Organization; Qualification
Schedule
2.5 – Permits
Schedule
2.6 – Financial Statements
Schedule
2.7 – Absence of Changes
Schedule
2.10 – Transferred Assets; Real and Personal Property
Schedule
2.11 – Intellectual Property
Schedule
2.12 – Contracts
Schedule
2.13 – Employment and Labor Matters
Schedule
2.14 – Employee Benefit Matters
Schedule
2.15 – Insurance
Schedule
2.16 – Taxes
Schedule
2.17 – Environmental Matters
Schedule
2.18 – Customers, Vendors and Suppliers
Schedule
4.2 – Operation of the Business
Schedule
5.6 – Business Names
Schedule
9 – Excluded Entities
EXHIBITS
Exhibit
A – Real Property Lease Assignment
Exhibit
B – SNDAC
Exhibit
C – Form of Escrow Agreement
Exhibit
D – Form of Bill of Sale
Exhibit
E – Form of Offer Letters
Exhibit
F – Form of CIIAs
Exhibit
G – Form of Consulting Agreement
Exhibit
H – Form of Officer’s Certificate
Exhibit
I – Form of Retention Bonus Releases
APPENDIX
B
PLAN
OF LIQUIDATION AND DISSOLUTION
OF
VYANT
BIO, INC.
The
following Plan of Liquidation and Dissolution (the “Plan of Dissolution”), dated as of June 30, 2023, shall
effect the dissolution and complete liquidation of Vyant Bio, Inc., a Delaware corporation (the “Company”),
in accordance with Section 275 and Section 281(b) of the Delaware General Corporation Law (the “DGCL”). The
following Plan of Dissolution is intended to comply with the requirements of the Internal Revenue Code of 1986, as amended, (the “Code”)
and the regulations thereunder.
1.
Adoption of Plan. The board of directors of the Company (the “Board of Directors”) has adopted resolutions
deeming it advisable and in the best interest of the stockholders of the Company to dissolve and liquidate the Company and adopt the
Plan of Dissolution, and will solicit approval of the holders of the Company’s capital stock (the “Capital Stock”)
to approve at a special meeting of stockholders the voluntary liquidation and dissolution of the Company, adopt the Plan of Dissolution
and ratify the Company’s actions taken to date on the Plan of Dissolution. If stockholders holding a majority of the voting power
of the outstanding shares of Capital Stock (the “Requisite Holders”) vote in favor of the proposed liquidation
and dissolution of the Company and the adoption of the Plan of Dissolution, the Plan of Dissolution shall constitute the adopted Plan
of Dissolution of the Company as of the date of the approval by the Requisite Holders (the “Approval Date”).
2.
Cessation of Business Activities. After the Effective Date (as defined below) and in accordance with Section 278 of the DGCL,
the Company shall not engage in any business activities except for the purpose of winding up and liquidating its business and affairs,
including, but not limited to, prosecuting and defending suits, whether civil, criminal or administrative, by or against the Company,
collecting its assets, converting its assets into cash or cash equivalents, discharging or making provision for discharging its liabilities,
withdrawing from all jurisdictions in which it is qualified to do business, distributing its remaining property among its stockholders
according to their interests, and doing every other act necessary to wind up and liquidate its business and affairs, but not for the
purpose of continuing the business for which the Company was organized.
3.
Certificate of Dissolution. After the Approval Date, the officers of the Company shall obtain any certificates required from the
Delaware tax authorities and, upon obtaining such certificates and paying such taxes as may be owing, and securing the necessary stockholder
approvals, the Company shall, at such time as determined by the Board of Directors in its sole discretion, file with the Secretary of
State of the State of Delaware a certificate of dissolution (the “Certificate of Dissolution”) in accordance
with the DGCL specifying the date upon which the Certificate of Dissolution will become effective (the “Effective Date”).
4.
Liquidation Process. From and after the Effective Date and subject to the provisions hereof, the Company shall complete the following
corporate actions:
a.
Sale of All or Substantially All of the Non-Cash Assets. The Company shall determine whether and when to collect, sell, exchange,
distribute, or otherwise dispose of all or substantially all of its non-cash assets and property, including but not limited to all tangible
property, intellectual property and other intangible property, in one or more transactions upon such terms and conditions as the Company,
in its absolute discretion, deems expedient and in the best interests of our stockholders, without any further vote or action by the
Company’s stockholders. The Company’s non-cash assets and property may be sold or transferred in one transaction or in several
transactions to one or more buyers. The Company shall not be required to obtain appraisals, fairness opinions or other third-party opinions
as to the value of its assets and property in connection with the liquidation. In connection with such collection, sale, exchange and
other disposition, the Company shall collect or make provision for the collection of all accounts receivable, debts and claims owing
to the Company.
b.
Liquidation of Assets. The Company shall determine whether and when to transfer the Company’s assets and property to a liquidating
trust (established pursuant to Section 6 hereof).
c.
Payment Obligations. The Company shall (i) pay or make reasonable provision to pay all claims and obligations, including all contingent,
conditional or unmatured contractual claims known to the Company, (ii) make such provisions as will be reasonably likely to be sufficient
to provide compensation for any claim against the Company which is the subject of a pending action, suit or proceeding to which the Company
is a party and (iii) make such provision as will be reasonably likely to be sufficient to provide compensation for claims that have not
been made known to the Company or that have not arisen but that, based on facts known to the Company or successor entity, are likely
to arise or to become known to the Company or successor entity within ten (10) years after the Effective Date. Such claims shall be paid
as required by applicable law. If there are insufficient assets of the Company, such claims and obligations of the Company shall be paid
or provided for in accordance with their priority and, among claims of equal priority, ratably to the extent of assets of the Company
legally available therefor. If and to the extent deemed necessary, appropriate or desirable by the Company or the Trustees (as defined
in Section 6 below), in their absolute discretion, the Company may establish and set aside a reasonable amount of cash and/or
property (the “Contingency Reserve”) to satisfy such claims and obligations against the Company, including,
without limitation, tax obligations, and all expenses related to the sale of the Company’s assets and property, all expenses related
to the collection and defense of the Company’s assets and property, and the liquidation and dissolution provided for in this Plan.
d.
Distributions to Stockholders. Any assets of the Company remaining after the payment of claims or the provision for payment of
claims and obligations of the Company as provided in Section 4(c) above shall be distributed by the Company pro rata to its stockholders.
Such distribution may occur all at once or in a series of distributions and shall be in cash or assets, in such amounts, and at such
time or times, as the Board of Directors or the Trustees, in their absolute discretion, may determine.
Notwithstanding
anything contained herein to the contrary, the Board, in its sole discretion, may opt to dissolve and wind-up the Company in accordance
with the procedures set forth in Section 280 and 281(a) of the DGCL.
5.
Cancellation of Capital Stock. The distributions to stockholders pursuant to Section 4 (the “Liquidating Distribution”)
shall be in complete redemption and cancellation of all of the outstanding shares of Capital Stock as of the termination of the Company’s
legal existence in accordance with Section 278 of the DGCL. As a condition to receipt of any Liquidating Distribution, the Board of Directors
or the Trustees, in their absolute discretion, may require the stockholders to (i) surrender their certificates evidencing the Capital
Stock to the Company or its agents for recording of such distributions thereon, or (ii) furnish the Company with evidence satisfactory
to the Board of Directors or the Trustees of the loss, theft or destruction of their certificates evidencing the Capital Stock, together
with such surety bond or other security or indemnity as may be required by and satisfactory to the Board of Directors or the Trustees.
The Board of Directors, in its absolute discretion, may direct that the Company’s stock transfer books be closed and recording
of transfers of Capital Stock discontinued as of the Effective Date (the “Record Date”), and thereafter certificates representing shares of Capital Stock will not
be assignable or transferable on the books of the Company except by will, intestate succession or operation of law.
6.
Liquidating Trust. If deemed necessary, appropriate or desirable by the Board of Directors, in its absolute discretion, in furtherance
of the liquidation and distribution of the Company’s assets to the stockholders in accordance with the provisions hereof, as a
final Liquidating Distribution or from time to time, the Company may transfer to one or more liquidating trustees, for the benefit of
its stockholders (the “Trustees”) under a liquidating trust (the “Trust”), any assets
of the Company, including cash, intended for distribution to creditors and stockholders not disposed of at the time of dissolution of
the Company, including the Contingency Reserve. The Board of Directors is hereby authorized to appoint one or more individuals, corporations,
partnerships or other persons, or any combination thereof, including, without limitation, any one or more officers, directors, employees,
agents or representatives of the Company, to act as the initial Trustee or Trustees for the benefit of the stockholders and to receive
any assets of the Company. Any Trustees appointed as provided in the preceding sentence shall succeed to all right, title and interest
of the Company of any kind and character with respect to such transferred assets and, to the extent of the assets so transferred and
solely in their capacity as Trustees, shall assume all of the claims and obligations of the Company as provided in Section 4(b)
hereof, including, without limitation, any unsatisfied claims and unknown or contingent liabilities. Further, any conveyance of assets
to the Trustees shall be deemed to be a distribution of assets and property by the Company to the stockholders for the purposes of Section
4(d) of this Plan. Any such conveyance to the Trustees shall be treated for U.S federal and state income tax purposes as if the Company
made such distribution to the stockholders and the assets conveyed shall be held in trust for the stockholders of the Company. The Company,
subject to this Section 6 and as authorized by the Board of Directors, in its absolute discretion, may enter into a liquidating
trust agreement with the Trustees, on such terms and conditions as the Board of Directors, in its absolute discretion, may deem necessary,
appropriate or desirable. Adoption of the Plan of Dissolution by holders of a majority of the outstanding shares of Capital Stock shall
constitute the approval of the stockholders of any such appointment, any such liquidating trust agreement and any transfer of assets
by the Company to the Trust as their act and as a part hereof as if herein written.
7.
Abandoned Property. If any Liquidating Distribution to a stockholder cannot be made, whether because the stockholder cannot be
located, has not surrendered its certificates evidencing the Capital Stock as required hereunder or for any other reason, then the distribution
to which such stockholder is entitled (unless transferred to the Trust established pursuant to Section 6) shall be transferred,
at such time as the final Liquidating Distribution is made by the Company, to the extent permitted by law, to the official of such state
or other jurisdiction authorized by applicable law to receive the proceeds of such distribution. The proceeds of such distribution shall
thereafter be held solely for the benefit of and for ultimate distribution to such stockholder as the sole equitable owner thereof and
shall be treated as abandoned property and escheat to the applicable state or other jurisdiction in accordance with applicable law. In
no event shall the proceeds of any such distribution revert to or become the property of the Company.
8.
Stockholder Consent to Sale of Assets. Approval of the proposed dissolution and adoption of the Plan of Dissolution by the Requisite
Holders shall constitute the approval of the stockholders of the Company of the dissolution of the Company and the sale, exchange or
other disposition in liquidation of all or substantially all of the assets and property of the Company pursuant to the terms hereof,
whether such sale, exchange or other disposition occurs in one transaction or a series of transactions, and shall constitute ratification
of all contracts for sale, exchange or other disposition which are conditioned on adoption of the Plan of Dissolution.
9.
Expenses of Dissolution. In connection with and for the purposes of implementing and assuring completion of the Plan of Dissolution,
the Company may, in the absolute discretion of the Board of Directors, pay any brokerage, agency, professional, legal and other fees
and expenses of persons rendering services to the Company in connection with the collection, sale, exchange or other disposition of the
Company’s assets and property and the implementation of the Plan of Dissolution. Adoption of the Plan of Dissolution shall constitute
approval of such payments by the stockholders of the Company.
10.
Employees and Independent Contractors. In connection with effecting the dissolution of the Company and for the purpose of implementing
and assuring completion of the Plan of Dissolution, the Company may, in the absolute discretion of the Board of Directors, hire employees
and retain independent contractors and agents as the Board of Directors deems necessary or desirable to supervise the liquidation and
dissolution. The Company may, in the absolute discretion of the Board of Directors, but subject to applicable legal and regulatory requirements,
pay the Company’s officers, directors, employees, independent contractors, agents and representatives, or any of them, compensation
or additional compensation above their regular compensation, in money or other property, as severance, bonus, or in any other form, in
recognition of the extraordinary efforts they, or any of them, will be required to undertake, or actually undertake, or otherwise necessary
retain the services of any of them, in connection with the implementation of the Plan of Dissolution. Adoption of the Plan of Dissolution
shall constitute approval of any such compensation by the stockholders of the Company.
11.
Indemnification. The Company shall continue to indemnify its officers, directors, employees, independent contractors and agents
to the maximum extent specified under existing agreements and in accordance with applicable law, its certificate of incorporation and
bylaws and any contractual arrangements, for actions taken in connection with the Plan of Dissolution and the winding up of the affairs
of the Company and shall indemnify the Trustees and its agents on similar terms. The Company’s obligation to indemnify such persons
may also be satisfied out of the assets of the Trust. The Board of Directors and the Trustees, in their absolute discretion, are authorized
to obtain and maintain insurance for the benefit of such officers, directors, employees, independent contractors, agents and Trustees
to the extent permitted by law and as may be necessary or appropriate to cover the Company’s obligations hereunder, including seeking
an extension in time and coverage of the Company’s insurance policies currently in effect.
12.
Intent to Completely Liquidate. This Plan of Dissolution is intended to accomplish the complete liquidation and dissolution of
the Company in accordance with Section 331 of the Code and the regulations thereunder. This Plan of Dissolution shall be deemed to authorize
the taking of such action as may be necessary to conform with the relevant provisions of the Code, including Section 331 of the Code,
and the regulations thereunder. The Officers of the Company shall be authorized to cause the Company to make such elections for tax purposes
as are deemed appropriate and in the best interest of the Company.
13.
Internal Revenue Service Filings. Within thirty (30) days after the Effective Date, the Company shall file Form 966 with the appropriate
Internal Revenue Service Center, together with a certified copy of the resolutions adopting this Plan of Dissolution. Additionally, the
Company shall file such additional forms and reports with the Internal Revenue Service as may be necessary or appropriate in connection
with this Plan of Dissolution and the carrying out thereof.
14.
Amendment, Modification or Abandonment of Plan. If for any reason the Board of Directors determines that such action would be
in the best interest of the Company, the Board of Directors may, in its sole discretion and without requiring further stockholder approval,
revoke, amend or modify the Plan of Dissolution and all action contemplated thereunder, to the extent permitted by the DGCL. The Board
of Directors may not amend or modify the Plan of Dissolution under circumstances that would require additional stockholder approval under
the DGCL without complying with the DGCL. Upon the revocation or abandonment of the Plan of Dissolution, the Plan of Dissolution shall
be void.
15.
Power of Board of Directors and Officers. The Board of Directors is hereby authorized, without further action by the Company’s
stockholders, to do and perform, or cause the officers of the Company, subject to approval of the Board of Directors, to do and perform,
any and all acts, and to make, execute, deliver or adopt any and all agreements, resolutions, conveyances, certificates and other documents
of every kind that are deemed necessary, appropriate or desirable, in the absolute discretion of the Board of Directors, to implement
the Plan of Dissolution and the transactions contemplated hereby, including, without limitation, all filings or acts required by any
state or Federal law or regulation to wind up its affairs.
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