UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
+44
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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* , but only in connection with the registration of the American Depositary Shares.
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 14, 2024, there were
RENALYTIX PLC
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the three months ended March 31, 2024 (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “goal,” “target,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements include statements about:
i
You should refer to the section titled "Part I, Item 1A. Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended June 30, 2023 (the “Annual Report on Form 10-K”) and the sections of this Quarterly Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, applicable regulations or the rules of the Nasdaq Stock Market LLC.
You should read this Quarterly Report, the documents that we reference in this Quarterly Report and the documents we have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
ii
RENALYTIX PLC
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share and per share data) |
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March 31, 2024 |
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June 30, 2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right of Use Asset |
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Investment in VericiDx |
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Other Assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accounts payable – related party |
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Accrued expenses and other current liabilities |
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Accrued expenses – related party |
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Current lease liability |
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Convertible notes-current |
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Total current liabilities |
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Convertible notes-noncurrent |
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Noncurrent lease liability |
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Total liabilities |
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(Note 10) |
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Shareholders’ equity: |
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Ordinary shares, £ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total shareholders’ (deficit) equity |
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( |
) |
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Total liabilities and shareholders’ (deficit) equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
1
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
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For the Three Months Ended March 31, |
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For the Nine Months Ended March 31, |
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(in thousands, except share data) |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit (loss) |
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( |
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Operating expenses: |
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Research and development |
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General and administrative |
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Impairment loss on property, equipment and other long-lived assets |
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Performance of contract liability to affiliate |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Equity in net losses of affiliate |
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( |
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Foreign currency gain (loss), net |
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( |
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Fair value adjustment to VericiDx investment |
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( |
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( |
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Fair value adjustment to convertible notes |
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( |
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( |
) |
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( |
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( |
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Other (expense) income, net |
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( |
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Net loss before income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Income tax (expense) benefit |
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( |
) |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Net loss per ordinary share—basic |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per ordinary share—diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Weighted average ordinary shares—basic |
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Weighted average ordinary shares—diluted |
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Other comprehensive income (loss): |
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Changes in the fair value of the convertible notes |
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$ |
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$ |
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$ |
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$ |
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Foreign exchange translation adjustment |
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
2
RENALYTIX PLC
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Ordinary shares |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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(in thousands, except share and per share data) |
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Shares |
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Amount |
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capital |
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income (loss) |
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deficit |
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equity (deficit) |
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Balance at July 1, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Shares issued for repayment of convertible bond |
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— |
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— |
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Vesting of RSUs |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Currency translation adjustment |
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— |
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— |
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— |
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— |
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Changes in the fair value of the convertible notes at fair value through other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Shares issued for repayment of convertible bond |
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— |
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— |
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Shares issued under employee stock purchase program |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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||
Currency translation adjustment |
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— |
|
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— |
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— |
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( |
) |
|
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— |
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|
( |
) |
Net loss |
|
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— |
|
|
|
— |
|
|
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— |
|
|
|
— |
|
|
|
( |
) |
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( |
) |
Balance at December 31, 2023 |
|
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
|||
Shares issued in March 2024 Private placement, net |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Changes in the fair value of the convertible notes at fair value through other comprehensive income |
|
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— |
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— |
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— |
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— |
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||
Currency translation adjustment |
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— |
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— |
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— |
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— |
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||
Net loss |
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— |
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— |
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— |
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— |
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|
( |
) |
|
|
( |
) |
Balance at March 31, 2024 |
|
|
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|
$ |
|
|
$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Ordinary shares |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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(in thousands, except share and per share data) |
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Shares |
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Amount |
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capital |
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income (loss) |
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deficit |
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equity (deficit) |
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Balance at July 1, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Shares issued under the employee share purchase program |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
|
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|
— |
|
|
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||
Currency translation adjustments |
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— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
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|
( |
) |
Changes in the fair value of the convertible notes at fair value through other comprehensive income |
|
|
— |
|
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|
— |
|
|
|
— |
|
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|
|
|
|
— |
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||
Net loss |
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— |
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— |
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— |
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|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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Stock-based compensation expense |
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— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
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||
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
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|
||
Changes in the fair value of the convertible notes at fair value through other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at December 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Shares issued under the February 2023 private placement |
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|
|
|
|
|
|
|
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— |
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— |
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Shares issued under the employee share purchase program |
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— |
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|
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|
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— |
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— |
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|||
Stock-based compensation expense |
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— |
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|
— |
|
|
|
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|
|
— |
|
|
|
— |
|
|
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||
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
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||
Changes in the fair value of the convertible notes through other comprehensive income |
|
|
— |
|
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|
— |
|
|
|
— |
|
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|
|
|
|
— |
|
|
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||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
For the Nine Months Ended March 31, |
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|||||
(in thousands) |
|
2024 |
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|
2023 |
|
||
Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Impairment loss on property, equipment and other long-lived assets |
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Stock-based compensation |
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Equity in losses of affiliate |
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Reduction of Kantaro liability |
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( |
) |
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Fair value adjustment to VericiDx investment |
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Unrealized foreign exchange loss |
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Realized loss on sale of ordinary shares in VericiDx |
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Realized foreign exchange gain |
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( |
) |
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Fair value adjustment to convertible debt, net interest paid |
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Non cash lease expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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( |
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Accounts payable |
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Accounts payable – related party |
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Accrued expenses and other current liabilities |
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( |
) |
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Accrued expenses – related party |
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( |
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( |
) |
Deferred revenue |
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( |
) |
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Net cash used in operating activities |
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( |
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( |
) |
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Cash flows from investing activities: |
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Purchase of equipment |
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( |
) |
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Payment for long term deferred expense |
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( |
) |
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Net cash used in investing activities |
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( |
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( |
) |
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Cash flows from financing activities: |
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Payment of convertible notes principal |
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( |
) |
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( |
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Proceeds from issuance of ordinary shares in Private Placement |
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Payment of offering costs |
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( |
) |
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( |
) |
Proceeds from purchase of ordinary shares under employee share |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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( |
) |
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Net decrease in cash and cash equivalents |
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( |
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( |
) |
Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental noncash investing and financing activities: |
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Cash paid for interest on convertible debt |
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$ |
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$ |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
RENALYTIX PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Business and risks
Renalytix PLC and its wholly-owned subsidiaries, (the “Company” or "Renalytix") is an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and significantly lower healthcare costs. KidneyIntelX, the Company’s first-in-class diagnostic platform, employs a proprietary artificial intelligence-enabled algorithm that combines diverse data inputs, including validated blood-based biomarkers, inherited genetics and personalized patient data from EHR systems, to generate a unique patient risk score. Additionally, the Company plans to pursue collaborations with pharmaceutical companies and make ‘Pharmaceutical Services Revenue’ a core part of the business going forward with the goal of improving guideline-based standard-of-care for optimal utilization of existing and novel therapeutics using the KidneyIntelX testing platform and proprietary care management software.
Since inception in March 2018, the Company has focused primarily on organizing and staffing the Company, raising capital, developing the KidneyIntelX platform, conducting clinical validation studies for KidneyIntelX, establishing and protecting its intellectual property portfolio and commercial laboratory operations, pursuing regulatory clearance and developing a reimbursement strategy. The Company has funded its operations primarily through equity and debt financings.
2. Liquidity and Going Concern
The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $
As a result of its losses and projected cash needs, substantial doubt exists about the Company’s ability to continue as a going concern. Substantial additional capital will be necessary to fund the Company's operations, expand its commercial activities and develop other potential diagnostic related products. The Company is seeking additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company may not be able to meet its obligations and could be required to delay, curtail or discontinue research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects.
The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and profitability, which includes, without limitation:
The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty.
5
3. Basis of presentation and summary of significant accounting policies
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented.
Principles of consolidation
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.
Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant areas that require management’s estimate include the assumptions used in determining the fair value of share-based awards, determining the fair value of the bonds, recording the prepaid/accrual and associated expense for research and development activities performed for the Company by third parties and determining useful lives of property and equipment and capitalized software.
Segment information
Foreign currency
Concentrations of credit risk and major customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable balances. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and are not exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships and has not experienced any losses on such accounts.
6
Fair value of financial instruments
At March 31, 2024 and June 30, 2023, the Company’s financial instruments included accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities. The carrying amounts of these assets and liabilities approximates fair value due to their short-term nature. The convertible notes are recorded at their estimated fair value.
Fair value option
Under the Fair Value Option Subsections of ASC subtopic 825-10, Financial Instruments – Overall, 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 (see Note 5). The Company has elected to measure and record the convertible notes at their estimated fair value.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. As of March 31, 2024 and June 30, 2023, the Company had cash and cash equivalents of $
Accounts receivable
Accounts receivable are recorded at the invoice amount and are non-interest bearing. The Company estimates expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about collectability, including historical credit losses, existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. The Company reserved for $
Property, equipment and other long-lived assets
Property and equipment are recorded at cost. Depreciation is determined using the straight-line method over the estimated useful lives ranging from three to ten years. Expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. When property and equipment are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations. In November 2023, the Company consolidated lab operations which resulted in a $
Investments
VericiDx plc
The Company accounts for its ownership of VericiDx securities at fair value in accordance with ASC 321, Investments-Equity Securities, with changes in fair value recorded in earnings as the fair value of VericiDx's ordinary shares is readily determinable via the London Stock Exchange. Based on the closing stock price of VericiDx, the fair value of the investment in VericiDx was $
In March 2024, the Company sold
7
Impairment assessment
Software development costs
Revenue recognition
Pursuant to ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when a customer obtains control of promised goods or services. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Cost of revenue
Research and development expenses
Share-based compensation
The Company measures equity classified share-based awards granted to employees and nonemployees based on the estimated fair value on the date of grant and recognizes compensation expense of those awards over the requisite service period, which is the vesting period of the respective award. The Company accounts for forfeitures as they occur. For share-based awards with service-based vesting conditions, the Company recognizes compensation expense on a straight-line basis over the service period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield. The Company was a
8
privately-held organization prior to November 2018 and has been a publicly-traded company for a limited period of time and therefore lacks company-specific historical and implied volatility information for its shares. Therefore, it estimates its expected share price volatility based on the historical volatility of publicly-traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is none based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future.
Income taxes
Income taxes are accounted for under the asset and liability method as required by FASB ASC Topic 740, Income Taxes (ASC 740). 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. 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. A reduction in the carrying value of the deferred tax assets is required when it is not more likely than not that such deferred tax assets are realizable.
FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes (ASC 740-10), defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements prepared in conformity with U.S. GAAP. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position. The tax benefits recognized in the financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. In accordance with disclosure requirements of ASC 740-10, the Company’s policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of income tax expense.
The Company recorded an immaterial provision for income taxes for the three and nine months ended March 31, 2024. The Company did not record a provision for income taxes for the three and nine months ended March 31, 2023, as the Company generated losses for such periods. The Company periodically evaluates the realizability of its deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company weighed both positive and negative evidence and determined that there is a continued need for a full valuation allowance on its deferred tax assets as of March 31, 2024. Should the Company determine that it would be able to realize its remaining deferred tax assets in the foreseeable future, an adjustment to its remaining deferred tax assets would cause a material increase to income in the period such determination is made.
Comprehensive loss
Net loss per ordinary share
Basic net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during each period. Diluted net loss per ordinary share includes the effect, if any, from the potential exercise or conversion of securities, such as options and convertible debt which would result in the issuance of incremental ordinary shares.
9
The dilutive effect of convertible securities is calculated using the if-converted method. Under the if-converted method, interest charges applicable to the convertible debt as well as nondiscretionary adjustments which include any expenses or charges that are determined based on the income (loss) for the period are added back to net income. The convertible debt is assumed to have been converted at the beginning of the period (or at time of issuance, if later). For the three and nine months ended March 31, 2024, under the if-converted method, the add back of nondiscretionary adjustments and inclusion of potentially converted shares would be anti-dilutive.
Emerging growth company
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the previous guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. The Company implemented ASU 2016-13 in the fiscal year beginning July 1, 2023 and evaluated the impact of ASU 2016-13 and it did not have a material impact on the consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 eliminates two of the three models in ASC 470-20 that require issuers to separately account for embedded conversion features and eliminates some of the requirements for equity classification in ASC 815-40-25 for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of potential share settlement for instruments that may be settled in cash or shares. It is effective for annual periods beginning after December 15, 2023, and interim periods therein. The Company evaluated the effect of ASU 2020-06 and it is not expected to have a material impact on the consolidated financial statements.
4. Revenue
Testing services revenue
Each individual test is a performance obligation that is satisfied at a point in time upon completion of the testing process (when results are reported) which is when control passes to the customer and revenue is recognized. During the three and nine months ended March 31, 2024, the Company recognized $
Pharmaceutical services revenue
Pharmaceutical services revenue is generated from the provision of analytical services to customers. Contracts with customers generally include an initial upfront payment and additional payments upon achieving performance milestones. The Company uses the present right to payment principle and customer acceptance as indicators to determine the transfer of control to the customer which may occur at a point in time or over time depending on the individual contract terms. Sales tax and other similar taxes are excluded from revenues.
10
5. Fair value measurements and the fair value option
Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
This hierarchy requires the use of observable market data when available and to minimize the use of unobservable inputs when determining fair value.
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Fair value measurement at |
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reporting date using |
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(in thousands) |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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March 31, 2024 |
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Assets: |
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Equity Securities |
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$ |
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$ |
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$ |