Renalytix AI plc
Renalytix AI plc
11/19/2024 | Press release | Distributed by Public on 11/19/2024 15:36
Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)
10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
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 001-39387
Renalytix plc
(Exact name of Registrant as specified in its Charter)
|
England and Wales |
Not Applicable |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
2 Leman Street |
E1W 9US |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code: +44 20 3139 2910
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|||
|
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
|||
|
Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if 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 November 7, 2024, there were 331,206,012ordinary shares, nominal value £0.0025 per share, outstanding, which if all were held in ADS form would be represented by 165,603,006 American Depositary Shares, each representing two ordinary shares.
RENALYTIX PLC
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
|
Page |
||
|
PART I |
||
|
Item 1. |
Consolidated Financial Statements (unaudited) |
1 |
|
Consolidated Balance Sheets as of September 30, 2024 (unaudited) and June 30, 2024 |
1 |
|
|
Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2024 and 2023 (unaudited) |
2 |
|
|
Consolidated Statements of Shareholders' Equity (Deficit) for the three months ended September 30, 2024 and 2023 (unaudited) |
3 |
|
|
Consolidated Statements of Cash Flows for the three months ended September 30, 2024 and 2023 (unaudited) |
4 |
|
|
Notes to Consolidated Financial Statements (unaudited) |
5 |
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
22 |
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
33 |
|
Item 4. |
Controls and Procedures |
33 |
|
PART II |
||
|
Item 1. |
Legal Proceedings |
35 |
|
Item 1A. |
Risk Factors |
35 |
|
Item 2. |
Unregistered Sales of Equity Securities |
36 |
|
Item 3. |
Defaults Upon Senior Securities |
36 |
|
Item 4. |
Mine Safety Disclosures |
36 |
|
Item 5. |
Other Information |
36 |
|
Item 6. |
Exhibits |
37 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the three months ended September 30, 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, projections 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:
•
the ability to execute our plans for commercialization of our FDA approved kidneyintelX.dkd prognostic testing service;
•
the timing and plans for regulatory filings and decisions;
•
our plans to maintain regulatory approval of kidneyintelX.dkd and to further obtain and maintain regulatory approvals for other products from our KidneyIntelX technology platform;
•
the potential benefits of KidneyIntelX technology and kidneyintelX.dkd;
•
the market opportunities for kidneyintelX.dkd and our ability to maximize those opportunities;
•
our business strategies and goals;
•
our ability and plans to establish and maintain partnerships and the projections of future test volume related to those partnerships;
•
our ability and plans to drive adoption of kidneyintelX.dkd prognostic service and integrate kidneyintelX.dkd into clinical workflow;
•
estimates of our sales, revenue, expenses and capital requirements and our need for and ability to obtain additional financing;
•
our ability to continue as a going concern;
•
third-party payor reimbursement and coverage decisions;
•
the performance of our third-party suppliers and manufacturers;
•
our expectations regarding our ability to obtain and maintain intellectual property protection for our diagnostic services and our ability to operate our business without infringing on the intellectual property rights of others;
•
our expectations regarding regulatory classification of kidneyintelX.dkd and future services and/or products, as well as the regulatory response to the marketing and promotion of kidneyintelX.dkd and KidneyIntelX technology;
•
the impact of guidelines and recommendations published by various organizations, including KDIGO 2023 Clinical Practice Guideline for Evaluation and Management of Chronic Kidney Disease, on the use of our services;
•
our expectations regarding developments relating to our competitors;
•
our ability to identify, recruit and retain key personnel;
•
the potential for breaches of data privacy, or disruptions in our information technology systems;
•
global economic trends, competition and geopolitical risks, including impacts from the ongoing conflict between Russia and Ukraine and the related sanctions and other measures, tensions across the Middle East, changes in the rates of investment or economic growth in key markets we serve, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our operations and strategies;
•
risks involved in our operations such as supply chain issues, disruption of markets, changes in import and export laws, environmental regulations, currency restrictions and local currency exchange rate fluctuations
•
our ability to complete any additional fundraising through a placing, a subscription or a retail offer of new ordinary shares to new and existing institutional and other investors;
i
•
the quotation of our American Depositary Shares on The OTCQB Market, including any assurance that a market for our American Depositary Shares will develop on The OTCQB Market;
•
our ability to become a "foreign private issuer" under U.S. federal securities laws rather than a reporting company under the Securities Exchange Act of 1934;
•
the sufficiency of our existing cash, cash equivalents and short-term investments to fund our operations and capital expenditure requirements; and
•
risks detailed under the caption "Risk Factors" in quarterly and annual reports and in our other reports filed with the U.S. Securities and Exchange Commission ("SEC"), from time to time hereafter.
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, 2024 (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 OTCQB Market.
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) |
September 30, 2024 |
June 30, 2024 |
||||||||
|
Assets |
||||||||||
|
Current assets: |
||||||||||
|
Cash and cash equivalents |
$ |
909 |
$ |
4,680 |
||||||
|
Accounts receivable, net |
902 |
722 |
||||||||
|
Prepaid expenses and other current assets |
1,068 |
716 |
||||||||
|
Total current assets |
2,879 |
6,118 |
||||||||
|
Property and equipment, net |
202 |
216 |
||||||||
|
Investment in VericiDx |
776 |
698 |
||||||||
|
Other assets, net |
937 |
940 |
||||||||
|
Total assets |
$ |
4,794 |
$ |
7,972 |
||||||
|
Liabilities and Shareholders' Deficit |
||||||||||
|
Current liabilities: |
||||||||||
|
Accounts payable |
$ |
3,188 |
$ |
1,590 |
||||||
|
Accounts payable - related party |
2,408 |
1,018 |
||||||||
|
Accrued expenses and other current liabilities |
2,162 |
3,354 |
||||||||
|
Accrued expenses - related party |
102 |
1,329 |
||||||||
|
Current lease liability |
11 |
45 |
||||||||
|
Convertible notes-current |
4,142 |
4,159 |
||||||||
|
Total current liabilities |
12,013 |
11,495 |
||||||||
|
Convertible notes-noncurrent |
4,100 |
4,331 |
||||||||
|
Total liabilities |
16,113 |
15,826 |
||||||||
|
Commitments and contingencies (Note 10) |
||||||||||
|
Shareholders' deficit: |
||||||||||
|
Ordinary shares, £0.0025 par value per share: 173,841,695 shares |
515 |
478 |
||||||||
|
Additional paid-in capital |
206,705 |
204,893 |
||||||||
|
Accumulated other comprehensive loss |
(2,029 |
) |
(1,443 |
) |
||||||
|
Accumulated deficit |
(216,510 |
) |
(211,782 |
) |
||||||
|
Total shareholders' deficit |
(11,319 |
) |
(7,854 |
) |
||||||
|
Total liabilities and shareholders' deficit |
$ |
4,794 |
$ |
7,972 |
The accompanying notes are an integral part of these consolidated financial statements.
1
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
|
For the Three Months Ended September 30, |
||||||||
|
(in thousands, except share and per share data) |
2024 |
2023 |
||||||
|
Revenue |
$ |
522 |
$ |
459 |
||||
|
Cost of revenue |
422 |
502 |
||||||
|
Gross profit (loss) |
100 |
(43 |
) |
|||||
|
Operating expenses: |
||||||||
|
Research and development |
921 |
2,787 |
||||||
|
General and administrative |
3,271 |
6,059 |
||||||
|
Total operating expenses |
4,192 |
8,846 |
||||||
|
Loss from operations |
(4,093 |
) |
(8,889 |
) |
||||
|
Foreign currency gain, net |
37 |
289 |
||||||
|
Fair value adjustment to VericiDx investment |
97 |
(447 |
) |
|||||
|
Fair value adjustment to convertible notes |
(762 |
) |
(1,207 |
) |
||||
|
Other (expense) income, net |
(5 |
) |
100 |
|||||
|
Net loss before income taxes |
(4,726 |
) |
(10,154 |
) |
||||
|
Income tax expense |
(2 |
) |
- |
|||||
|
Net loss |
(4,728 |
) |
(10,154 |
) |
||||
|
Net loss per ordinary share-basic |
$ |
(0.04 |
) |
$ |
(0.11 |
) |
||
|
Net loss per ordinary share-diluted |
$ |
(0.04 |
) |
$ |
(0.11 |
) |
||
|
Weighted average ordinary shares-basic |
105,697,401 |
94,767,841 |
||||||
|
Weighted average ordinary shares-diluted |
105,697,401 |
94,767,841 |
||||||
|
Other comprehensive income (loss): |
||||||||
|
Changes in the fair value of the convertible notes |
(125 |
) |
75 |
|||||
|
Foreign exchange translation adjustment |
(461 |
) |
42 |
|||||
|
Comprehensive loss |
$ |
(5,314 |
) |
$ |
(10,037 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
2
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
|
Ordinary shares |
Additional |
Accumulated |
Accumulated |
Total |
||||||||||||||||||||
|
(in thousands, except share and per data) |
Shares |
Amount |
capital |
loss |
deficit |
deficit |
||||||||||||||||||
|
Balance at July 1, 2024 |
154,368,191 |
$ |
478 |
$ |
204,893 |
$ |
(1,443 |
) |
$ |
(211,782 |
) |
$ |
(7,854 |
) |
||||||||||
|
Shares issued for repayment of convertible bond |
11,557,322 |
37 |
1,551 |
- |
- |
1,588 |
||||||||||||||||||
|
Share-based compensation expense |
- |
- |
254 |
- |
- |
254 |
||||||||||||||||||
|
Changes in the fair value of the convertible notes at fair value through other comprehensive income (loss) |
- |
- |
- |
(125 |
) |
- |
(125 |
) |
||||||||||||||||
|
Currency translation adjustment |
- |
- |
7 |
(461 |
) |
- |
(454 |
) |
||||||||||||||||
|
Net loss |
- |
- |
- |
(4,728 |
) |
(4,728 |
) |
|||||||||||||||||
|
Balance at September 30, 2024 |
165,925,513 |
$ |
515 |
$ |
206,705 |
$ |
(2,029 |
) |
$ |
(216,510 |
) |
$ |
(11,319 |
) |
|
Ordinary shares |
Additional |
Accumulated |
Accumulated |
Total |
||||||||||||||||||||
|
(in thousands, except share and per share data) |
Shares |
Amount |
capital |
loss |
deficit |
equity (deficit) |
||||||||||||||||||
|
Balance at July 1, 2023 |
93,781,478 |
$ |
286 |
$ |
186,456 |
$ |
(1,450 |
) |
$ |
(178,325 |
) |
$ |
6,967 |
|||||||||||
|
Shares issued for repayment of convertible bond |
1,052,422 |
3 |
1,051 |
- |
- |
1,054 |
||||||||||||||||||
|
Vesting of RSUs |
185,540 |
1 |
- |
- |
- |
1 |
||||||||||||||||||
|
Share-based compensation expense |
- |
- |
524 |
- |
- |
524 |
||||||||||||||||||
|
Currency translation adjustment |
- |
- |
- |
42 |
- |
42 |
||||||||||||||||||
|
Changes in the fair value of the convertible notes at fair value through other comprehensive income (loss) |
- |
- |
- |
75 |
- |
75 |
||||||||||||||||||
|
Net loss |
- |
- |
- |
- |
(10,154 |
) |
(10,154 |
) |
||||||||||||||||
|
Balance at September 30, 2023 |
95,019,440 |
$ |
290 |
$ |
188,031 |
$ |
(1,333 |
) |
$ |
(188,479 |
) |
$ |
(1,491 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
3
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
For the Three Months Ended September 30, |
||||||||
|
(in thousands) |
2024 |
2023 |
||||||
|
Cash flows from operating activities: |
||||||||
|
Net loss |
$ |
(4,728 |
) |
$ |
(10,154 |
) |
||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
|
Depreciation and amortization |
60 |
127 |
||||||
|
Stock-based compensation |
254 |
523 |
||||||
|
Fair value adjustment to VericiDx investment |
(97 |
) |
447 |
|||||
|
Realized loss on sale of ordinary shares in VericiDx |
42 |
- |
||||||
|
Realized foreign exchange gain |
(18 |
) |
- |
|||||
|
Fair value adjustment to convertible debt, net interest paid |
762 |
945 |
||||||
|
Non cash lease expense |
- |
28 |
||||||
|
Provision for credit losses |
(25 |
) |
- |
|||||
|
Changes in operating assets and liabilities: |
||||||||
|
Accounts receivable |
(154 |
) |
(238 |
) |
||||
|
Prepaid expenses and other current assets |
(327 |
) |
(153 |
) |
||||
|
Accounts payable |
1,550 |
250 |
||||||
|
Accounts payable - related party |
1,390 |
202 |
||||||
|
Accrued expenses and other current liabilities |
(1,312 |
) |
(2,060 |
) |
||||
|
Accrued expenses - related party |
(1,233 |
) |
579 |
|||||
|
Net cash used in operating activities |
(3,836 |
) |
(9,504 |
) |
||||
|
Cash flows from investing activities: |
||||||||
|
Sale of ordinary shares in VericiDx investment |
23 |
- |
||||||
|
Net cash provided by investing activities |
23 |
- |
||||||
|
Cash flows from financing activities: |
||||||||
|
Payment of convertible notes principal |
- |
(1,060 |
) |
|||||
|
Payment of offering costs |
- |
(5 |
) |
|||||
|
Net cash used by financing activities |
- |
(1,065 |
) |
|||||
|
Effect of exchange rate changes on cash |
42 |
(222 |
) |
|||||
|
Net decrease in cash and cash equivalents |
(3,771 |
) |
(10,791 |
) |
||||
|
Cash and cash equivalents, beginning of period |
4,680 |
24,682 |
||||||
|
Cash and cash equivalents, end of period |
$ |
909 |
$ |
13,891 |
||||
|
Supplemental noncash investing and financing activities: |
||||||||
|
Noncash lease liabilities arising from obtaining right-of-use assets |
$ |
- |
$ |
4 |
||||
|
Cash paid for interest on convertible debt |
$ |
- |
$ |
249 |
||||
|
Issuance of shares for debt repayment |
$ |
(1,588 |
) |
$ |
(1,054 |
) |
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 technology 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. kidneyintelX.dkd is the Company's FDA approved, Medicare reimbursed prognostic testing service currently implemented with large physician group practices, health care systems in the United States.
The Company is also collaborating with pharmaceutical companies which generates 'Pharmaceutical Services Revenue' using KidneyIntelX platform technology for understanding patient response to novel and widely used drug therapies including SLGT2 inhibitors and GLP1s
Since inception in March 2018, the Company has focused primarily on organizing and staffing the Company, raising capital, developing the KidneyIntelX technology platform, conducting clinical validation studies, clinical utility studies, health economics studies, establishing and protecting its intellectual property portfolio and commercial laboratory operations, pursuing state and federal regulatory approvals and securing insurance pricing, coverage and payment for its prognostic services. The Company has funded its operations primarily through equity and debt financings. In 2024, following FDA approval, Medicare insurance coverage and guidelines inclusion for kidneyintelX.dkd, the Company largely completed reorganization from development activities to commercial sales activities. This reorganization has resulted in a substantially lower cost of operations and a growing doctor prescription rate of kidneyintelX.dkd.
The Company is subject to risks and uncertainties common to early-stage companies in the diagnostics industry, including, but not limited to, ability to secure additional capital to fund operations, compliance with governmental regulations, development by competitors of new technological innovations, dependence on key personnel and protection of proprietary technology. To achieve widespread usage, kidneyintelX.dkd will require significant investment in sales and marketing. Additional diagnostic services currently under development, if they are pursued at a future date by the Company, will likely require extensive clinical testing and validation prior to regulatory approval and commercialization, and will require various levels of investment capital.
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 $216.5million as of September 30, 2024. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of kidneyintelX.dkd or KidneyIntelX technology services income.
Post-period, the Company has closed an equity financing round of approximately $14.9million, net of expenses, that concurrent with the completion of cost reductions achieved through its reorganization and increasing testing services sales, management believes will be likely to bring the company through profitable operations in the next 2 years.
The Company's ability to continue as a going concern is contingent upon successful execution of management's intended plan over the next 24 months to improve the Company's liquidity and profitability, which includes, without limitation:
•
The achievement of certain testing volumes in the lab;
•
Continued expansion of reimbursement policies and contracts with commercial payers; and
•
Continued management of operating and commercial expenses.
As a result of the Company's losses and its projected cash needs, as defined in the accounting literature, substantial doubt exists about the Company's ability to continue as a going concern. While subsequent to September 30, 2024, the Company has successfully raised approximately $14.9million, net of expenses, in new equity capital and restructured the existing long term debt recorded on the Balance Sheet, the company does have a history of operating losses and it has been expensive to deliver all of the milestones to commercialize the kidneyintelX.dkd test. Should the company require additional capital it may not be available 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 future financing may adversely affect the holdings or the rights of the Company's shareholders. Should it be necessary, if the Company is unable to obtain funding it could be required to delay, curtail or discontinue research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects. As such,
5
management has concluded that there is a going concern uncertainty. The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty.
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"). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes in the Company's Annual Report on Form 10-K for the year ended June 30, 2024. The information as of June 30, 2024 in the Company's condensed consolidated balance sheet included herein was derived from the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K.
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. Results of operations for the three months ended September 30, 2024 are not necessarily indicative of the results expected for the full fiscal year ending June 30, 2025.
Principles of consolidation
The consolidated financial statements include the accounts of Renalytix plc and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. The Company accounts for investments in which it has significant influence, but not a controlling financial interest, using the equity method of accounting.
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
The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company's singular focus is to make significant improvements in kidney disease diagnosis and prognosis, clinical care, patient stratification for drug clinical trials, and drug target discovery.
Foreign currency
The Company's consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. The functional currency of Renalytix plc and Renalytix AI Limited is GB Pounds. The functional currency of Renalytix AI, Inc. is the U.S. dollar. Assets and liabilities of Renalytix plc and Renalytix AI Limited are translated at the rate of exchange at period-end, while the consolidated statements of operations and comprehensive loss are translated at the weighted average exchange rates in effect during the reporting period. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive loss. Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency are included in income in the period in which the change occurs and reported in the consolidated statements of operations and comprehensive loss.
Concentrations of credit risk and major customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable balances. Periodically, the Company maintains deposits in accredited financial institutions in excess of
6
federally insured limits. The Company deposits its cash and cash equivalents 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.
The Company's accounts receivable related to testing services are derived from revenue earned from customers located in the U.S. For the three months ended September 30, 2024,approximately 74% of all receivables related to kidneyintelX.dkd and KidneyIntelX technology testing services revenue related to two customers and the remaining 26% of receivables were due from other third-party payors.For the three months ended September 30, 2023, approximately 77% of all receivables related to kidneyintelX.dkd testing services revenue related to one customer and, approximately 23% of receivables were due from other party payors. The Company performs initial and ongoing credit reviews on customers, which involve consideration of the customers' financial information, their location, and other factors to assess the customers' ability to pay and reserved for $0.04million of receivables as of September 30, 2024.
Fair value of financial instruments
At September 30, 2024 and June 30, 2024,the Company's financial instruments included accounts receivable and accounts payable. 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 September 30, 2024 and June 30, 2024, the Company had a cash and cash equivalents of $0.9million and $4.7million, respectively.
Accounts receivable
Accounts receivable are recorded at the invoice amount and are non-interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company reserves specific receivables if collectability is no longer reasonably assured. Estimates for credit losses are determined based on existing contractual obligations, historical payment patterns, and individual customer circumstances. The Company reserved for $0.04million of receivables as of September 30, 2024. The Company reserved for $0.1million of receivables as of June 30, 2024.
Property and equipment
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.
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 $0.8million and $0.7million at September 30, 2024 and June 30, 2024, respectively. During the three months ended September 30, 2024 and 2023, the Company recorded an increase in fair value of $0.1million and a decrease in fair value of $0.5million, respectively, in the consolidated statements of operations and comprehensive loss. During the three months ended September 30, 2024, the Company recorded $0.042million of realized loss on the sale of 250,000VericiDx shares in other expense line of the consolidated statements of operations and comprehensive loss. The Company owned 3.5% of the ordinary shares of VericiDx at September 30, 2024.
7
Impairment assessment
The Company evaluates its investments that are in unrealized loss positions, if any, and equity method investments for other-than-temporary impairment on a quarterly basis (see Note 5). Such evaluation involves a variety of considerations, including assessments of the risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers or investees. Factors considered by the Company include (i) the length of time and the extent to which an investment's fair value has been below its cost; (ii) the financial condition, credit worthiness, and near-term prospects of the issuer; (iii) the length of time to maturity; (iv) future economic conditions and market forecasts; (v) the Company's intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value; (vi) an assessment of whether it is more likely than not that the Company will be required to sell its investment before recovery of market value; and (vii) whether events or changes in circumstances indicate that the investment's carrying amount might not be recoverable.
Software development costs
The Company follows the provisions of ASC 985, Software, which requires software development costs for software to marketed externally to be expensed as incurred until the establishment of technological feasibility, at which time those costs are capitalized until the software is available for general release and amortized over its estimated useful life of ten years. For the three months ended September 30, 2024 and 2023, there was nocapitalization of research and development expenses related to software development to record. Technological feasibility is established upon the completion of a working model that has been validated.
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.
The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. Certain contracts have options for the customer to acquire additional services. The Company evaluates these options to determine if a material right exists. If, after that evaluation, it determines a material right does exist, it assigns value to the material right based upon the renewal option approach. The Company recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. The Company uses the present right to payment principle and customer acceptance as indicators to determine the transfer of control to the customer occurs at a point in time. Sales tax and other similar taxes are excluded from revenues.
Cost of revenue
Cost of revenue consists of costs directly attributable to the services rendered, including labor, rent, lab consumables, depreciation, amortization and sample collection costs directly related to revenue generating activities.
Research and development expenses
Research and development costs consist primarily of internal and external labor costs incurred in connection with the development of KidneyIntelX technology as well as expenses related to studies and clinical trials to further the clinical value, performance and utility of kidneyintelX.dkd. Research and development costs are expensed as incurred.
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. Accordingly, the Company 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.
The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.
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 months ended September 30, 2024. The Company did not record a provision for income taxes for the three months ended September 30, 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 September 30, 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. At September 30, 2024, the Company had nounrecognized tax benefits. The Company does not expect any material increase or decrease in its income tax expense, in the next twelve months, related to examinations or changes in uncertain tax positions.
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in shareholders' equity that result from transactions and economic events other than those with shareholders. For the periods presented, changes in shareholders' equity include foreign currency translation as well as changes in fair value of the convertible note due to changes in instrument-specific credit risk. The change in instrument-specific credit risk was calculated as the change in the risk yield from the convertible debt issuance date to the valuation date. The instrument-specific credit risk at issuance date was calibrated such that the fair value of the convertible bond was equal to the issue price as of the issuance date. The risk yield was adjusted to reflect the change in credit spreads between the issuance date and the valuation date.
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 months ended September 30, 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
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the "JOBS Act"). Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. The Company has elected to avail itself of this exemption and, therefore, while the Company is an emerging growth company it will not be subject to new or revised accounting standards at the same time that they become applicable to other public emerging growth companies that have not elected to avail themselves of this exemption.
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.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 expands public entities' segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The guidance is effective for the fiscal year ending June 30, 2025, and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides for improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance is effective for annual periods beginning after December 15, 2024, and the adoption of this standard is not anticipated to have a significant impact on the Company's consolidated financial statements other than adding new disclosures, which the Company is currently evaluating.
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 months ended September 30, 2024 and 2023, the Company recognized $0.5million and $0.5million, respectively, of testing services revenue. Sales tax and other similar taxes are excluded from revenues.
10
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.
During the three months ended September 30, 2024and 2023, there was nopharmaceutical services revenue recognized.
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:
•
Level 1-Quoted prices (unadjusted in active markets for identical assets or liabilities)
•
Level 2-Inputs other than quoted prices in active markets that are observable either directly or indirectly
•
Level 3-Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions
This hierarchy requires the use of observable market data when available and to minimize the use of unobservable inputs when determining fair value. The following fair value hierarchy table presents information about the Company's assets measured at fair value on a recurring basis:
|
Fair value measurement at |
||||||||||||
|
reporting date using |
||||||||||||
|
(in thousands) |
(Level 1) |
(Level 2) |
(Level 3) |
|||||||||
|
September 30, 2024 |
||||||||||||
|
Assets: |
||||||||||||
|
Equity securities |
$ |
776 |
$ |
- |
$ |
- |
||||||
|
Liabilities: |
||||||||||||
|
Convertible notes |
$ |
- |
$ |
- |
$ |
8,242 |
||||||
|
June 30, 2024 |
||||||||||||
|
Assets: |
||||||||||||
|
Equity securities |
$ |
698 |
$ |
- |
$ |
- |
||||||
|
Liabilities: |
||||||||||||
|
Convertible notes |
$ |
- |
$ |
- |
$ |
8,490 |
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. As of September 30, 2024, the Company owns 8,581,682shares of VericiDx. Based on closing stock price of VericiDx, the fair value of the investment in VericiDx was $0.8million and $0.7million at September 30, 2024 and June 30, 2024, respectively.
As further described in Note 8, in April 2022 the Company issued convertible promissory notes (the "Notes") to an investor. The fair value option, as prescribed by ASC 815, Derivatives and Hedging, was elected and applied in connection with the preparation of these consolidated financial statements. The fair value of the Notes is determined using a scenario-based analysis that estimates the fair value based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders.
The Company adjusts the carrying value of the Notes to their estimated fair value at each reporting date, with qualifying increases or decreases in the fair value recorded as change in fair value of convertible promissory notes in the statements of operations and comprehensive loss. Changes in the fair value resulting from changes in the instrument-specific credit risk will be presented separately in other comprehensive income.
11
|
(in thousands) |
September 30, 2024 |
|||
|
Balance at July 1, 2024 |
$ |
8,490 |
||
|
Change due to payment of principal and interest |
(1,235 |
) |
||
|
Fair value adjustments |
414 |
|||
|
Change in credit risk |
125 |
|||
|
FX Impact |
448 |
|||
|
Balance at September 30, 2024 |
$ |
8,242 |
Non-financial assets and liabilities
The Company's non-financial assets, which primarily consist of property and equipment and equity method investments, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value in its consolidated balance sheets. However, on a periodic basis or whenever events or changes in circumstances indicate that they may not be fully recoverable, the respective carrying value of non-financial assets are assessed for impairment and, if ultimately considered impaired, are adjusted and written down to their fair value, as estimated based on consideration of external market participant assumptions.
6. Property and equipment, net and intangibles
Property and equipment consist of the following:
|
(in thousands) |
September 30, 2024 |
June 30, 2024 |
||||||||
|
Lab equipment |
$ |
388 |
$ |
388 |
||||||
|
Office equipment |
127 |
127 |
||||||||
|
Office furniture |
- |
- |
||||||||
|
Leasehold improvements |
- |
- |
||||||||
|
Total |
515 |
515 |
||||||||
|
Less accumulated depreciation |
(313 |
) |
(299 |
) |
||||||
|
$ |
202 |
$ |
216 |
Depreciation expense was $0.01million and $0.1million for the three months ended September 30, 2024 and 2023, respectively.
Software, which is included in other assets on the condensed consolidated balance sheets, consists of:
|
(in thousands) |
September 30, 2024 |
June 30, 2024 |
||||||||
|
Software |
$ |
1,601 |
$ |
1,527 |
||||||
|
Less accumulated amortization |
(732 |
) |
(658 |
) |
||||||
|
$ |
869 |
$ |
869 |
Amortization expense was $0.05million and $0.05million for the three months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024, the expected amortization expense for the next five years and thereafter is as follows:
|
(in thousands) |
||||
|
2025 |
$ |
141 |
||
|
2026 |
150 |
|||
|
2027 |
133 |
|||
|
2028 |
133 |
|||
|
2029 |
133 |
|||
|
Thereafter |
179 |
|||
|
$ |
869 |
12
7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
|
(in thousands) |
September 30, 2024 |
June 30, 2024 |
||||||||
|
Consulting and professional fees |
$ |
694 |
$ |
1,109 |
||||||
|
Research and development |
215 |
892 |
||||||||
|
Payroll and related benefits |
259 |
388 |
||||||||
|
License and royalty expense |
831 |
787 |
||||||||
|
Other |
163 |
178 |
||||||||
|
$ |
2,162 |
$ |
3,354 |
8. Convertible Notes
In April 2022, the Company issued amortizing senior convertible bonds with a principal amount of $21.2million in amortizing senior convertible bonds due in April 2027 (the "Bonds") to CVI Investments, Inc. (the "Convertible Bond Investor"). The Bonds were issued at 85% par value with total net proceeds of $18.0million andaccrue interest at an annual rate of 5.5%, payable quarterly in arrears, in cash or American Depositary Shares ("ADSs") valued at the ADS Settlement Price at the option of the Company. The principal and interest payments are due in equal quarterly installments starting in July 2022. The Bonds contain various conversion and redemption features. The initial conversion price for the Bonds of $8.70has been set at a 20percent premium to the Reference ADS Price. The Conversion Price may reset down at 12, 24and 36 months, depending on share price performance, and the Bonds have a hard floor in the conversion price of $7.25. As a result of the February 2023 private placement and pursuant to conditions of the bond agreement, the conversion price was adjusted to $8.2508(previously $8.70) and the floor price was adjusted to $6.8757(previously $7.25). Further, pursuant to such agreement, effective April 7, 2023, the conversion price was adjusted from $8.2508to $7.7924. Between amortization dates, the Convertible Bond Investor retains the right to advance future amortization payments, provided that (a) there shall be no amortization advancements during the first 12 months, (b) no more than two amortization advancements may occur in any 12-month period, and (c) no more than one amortization advancement may occur in any 3-month period. On March 28, 2024, the Company entered into a second amendment and restatement agreement with the Convertible Bond Investor, which further amended the terms of the Company's existing bond agreement. This Amendment to the bond agreement, among other things:
•
implemented a beneficial ownership limitation whereby each bondholder, together with its affiliates, must not at any time own or acquire the beneficial ownership of more than 9.99% of the issued and outstanding ordinary shares of the Company;
•
adjusted the bondholder's maximum trading volume by removing a cap on the number of ADS that can be sold each day and reduced the length of certain non-trading periods applicable to the bondholders;
•
reduced certain market price observation periods to 5 days and 3 days (rather than 10 days and 5 days);
•
granted the holders of more than 50% of the principal amount of the bonds issued thereunder and then-outstanding (the "Majority Bondholders") the right to defer the amortization payment scheduled for April 7, 2024 (the "April 2024 Amortized Payment Amount") in addition to the deferrals already permitted as well as the right to accelerate the April 2024 Amortized Payment Amount if previously deferred in addition to the accelerations already permitted; and
•
in addition to the existing right to accelerate the next scheduled amortization payment, provide the Majority Bondholders the ability to accelerate any other future scheduled amortization payment, subject to certain limitations.
The Company performed an analysis and determined that the financial impact was immaterial as the amended and restated agreement was not substantially different than the previous agreement.
The Convertible Bond Investor is also permitted to defer up to two amortization payments to a subsequent amortization date. The Company retains the option to repay any deferred amortization in cash at 100percent of the nominal amount. In July 2023, the Company made a cash amortization payment of $1.4million, which consisted of $1.1million of principal and $0.3million of interest. Also, in July 2023, the Convertible Bond Investor exercised its right to advance an amortization payment and the Company made an acceleratedrepayment of $1.1million through the issuance of 526,211ADSs. In October 2023, the Company made an amortization payment of $1.3million, which consisted of $1.1million of principal and $0.2million of interest, through the issuance of 2,335,388ordinary shares in the form of 150,000ordinary shares and 1,092,694ADSs. In December 2023, the Company made an amortization payment of $1.3million, which consisted of $1.1million of principal and $0.2million of interest, through the issuance of 2,500,000ordinary shares and a cash payment of $0.6million. In April 2024, the Company made an amortization payment of $1.3million, which consisted of $1.1million of principal and $0.2million of interest, through the issuance of 3,636,162ordinary shares. In July
13
2024, the Company made an amortization payment of $1.3million, which consisted of $1.1million of principal and $0.2million of interest, through the issuance of 11,557,322ordinary shares in the form of 2,275,000ordinary shares and 4,641,161ADSs. As of September 30, 2024 and June 30, 2024, $11.7and $12.7million, respectively, of principal was outstanding.
On issuance, the Company elected to account for the Bonds at fair value in accordance with ASC 815, Derivatives and Hedging,with qualifying changes in fair value being recognized through the statements of operations and comprehensive loss until the Bonds are settled. Changes in fair value related to instrument-specific credit risk are recognized through comprehensive loss until the Bonds are settled. The fair value of the bonds is determined using a scenario-based analysis that estimates the fair value based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders. Significant assumptions used in the fair value analysis include the volatility rate, risk-free rate, dividend yield and risky yield. The fair value of the Bonds was determined to be $16.9million on issuance, which is the principal amount of the Bonds. As of September 30, 2024, the fair value of the Bonds was determined to be $8.2million.During the three months ended September 30, 2024, the Company recognized a decrease in fair value of the Notes related to the instrument-specific credit risk of $0.1million in comprehensive loss and a decrease in fair value related to non-instrument specific credit risk of $0.8million as a loss in the consolidated statement of operations and comprehensive loss, respectively. The Company recognized an increase in fair value of the Notes related to the instrument-specific credit risk of $0.1million in comprehensive loss and a decrease in fair value related to non-instrument specific credit risk of $1.2million as a loss in the consolidated statements of operations and comprehensive loss during the three months ended September 30, 2023, respectively.
9. Leases
The Company leases certain office space and laboratory space. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company does not recognize right-of-use assets or lease liabilities for leases determined to have a term of 12months or less. Many of the Company's leases contain variable non-lease components such as maintenance, taxes, insurance, and similar costs for the spaces it occupies.
Variable executory costs, as it relates to net leases, are excluded from the calculation of the lease liability. Variable executory costs include costs relating to utilities, repairs, maintenance, insurance, common area expenses, and taxes paid for the leased asset during its economic life.
Upon adoption of ASC 842, the Company elected the package of practical expedients and the hindsight practical expedient but did not elect the easement practical expedient which is not applicable to the Company as the Company does not have any ground leases. In accordance with the package of practical expedients, the Company has not reassessed any of their existing or expired contracts or any other agreements that were previously concluded to not contain a lease for the following practical expedient guidance: (1) whether the arrangement is or contains a lease, (2) lease classification and (3) whether previously capitalized costs continue to qualify as initial direct costs.
The Company leased lab space in Salt Lake City, UT, under a five-yearlease, the term of which commenced in November 2019. The Company has measured its right-of-use assets and lease liabilities based on lease terms ending in October 2024. The Company consolidated Utah lab operations in November 2023, using it as an office space instead of lab space. After the end of the lease in October 2024, the Company will maintain the space on a month-to-month term.
The Company leased lab space in New York City, NY, under an initial three-monthlease, the term of which commenced in February 2019. The Company has classified this lease as a short-term lease as the Company concluded that the noncancelable terms of this lease was less than one year at the commencement and none of the Company's renewals or amendments were for additional noncancelable terms greater than one year.
The Company leased office space in New York City, NY, under an initial month-to-month term, the term of which commenced in June 2018. The lease did not have termination or formal renewal options however the Company can renew their office space if they are still needed and are still available at the end of the term. The Company has classified this lease as a short-term lease as the Company concluded that the noncancelable terms of this lease was less than one year at the commencement and none of the Company's renewals or amendments were for additional noncancelable terms greater than one year.
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities during the adoption of ASC 842:
As the Company's leases do not provide an implicit rate, itconcluded that a 10.0% IBR, the approximate midpoint between the average commercial real estate loans during 2022, is an appropriate discount rate to use for the Utah lease, which was the only lease existingas of the adoption date.
14
The following table shows the lease balance sheet classification of leases for the three months ended September 30, 2024:
|
(in thousands) |
September 30, 2024 |
||
|
Assets |
|||
|
Operating lease right-of-use assets, net of accumulated amortization |
$ |
- |
|
|
Liabilities |
|||
|
Current |
$ |
11 |
|
|
Operating lease liabilities, current |
|||
|
Non-current |
|||
|
Operating lease liabilities, non-current |
- |
||
|
Total lease liabilities |
$ |
11 |
The following table shows the lease costs for the three months ended September 30, 2024:
|
Lease costs (in thousands) |
Statement of operations classification |
September 30, 2024 |
||
|
Operating lease costs |
Operating expenses: research and development |
$ |
(2 |
) |
|
Short-term lease costs |
Operating expenses: research and development |
3 |
||
|
Short-term lease costs |
Operating expenses: general and administrative |
18 |
||
|
Short-term lease costs |
Cost of goods sold |
95 |
||
|
Total lease costs |
$ |
114 |
|
Other information |
September 30, 2024 |
||
|
Cash paid for amounts included in the measurement of lease liabilities (in thousands) |
$ |
(2 |
) |
|
Remaining lease term - operating leases (in years) |
0.1 |
||
|
Discount rate - operating leases |
10 |
% |
The future minimum payments for noncancelable leases with terms in excess of one year as of September 30, 2024 are payable as follows:
|
(in thousands) |
||||
|
2025 |
$ |
11.6 |
||
|
2026 |
- |
|||
|
2027 |
- |
|||
|
Total minimum lease payments |
11.6 |
|||
|
Less amounts representing interest |
(0.1 |
) |
||
|
Present value of lease liabilities |
$ |
11.5 |
10. Commitments and contingencies
Leases
Lease payments under operating leases as of September 30, 2024 and information about the Company's lease arrangements are disclosed in Note 9, "Leases".
Employment agreements
The Company has entered into employment agreements with certain key executives providing for compensation and severance in certain circumstances, as set forth in the agreements.
15
Retirement plans
The Company maintains a defined contribution 401(k) retirement plan which covers all U.S. employees. Employees are eligible after three months of service. Under the 401(k) plan, participating employees may make contributions in an amount up to the limit set by the Internal Revenue Service on an annual basis. The Company has a safe harbor plan and makes contributions to employee accounts of 6% of compensation (as defined by the plan). The Company paid $0.1million and $0.2million in contributions for the three months ended September 30, 2024 and 2023, respectively.
Legal proceedings
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.
11. License and services agreements
Mount Sinai license and sponsored research agreements
On May 30, 2018, the Company entered into an exclusive license agreement (the "ISMMS License Agreement") and on March 7, 2019, a sponsored research agreement (the "ISMMS SRA") with Mount Sinai. Under the terms of the ISMMS License Agreement, ISMMS granted the Company (i) an exclusive, sublicensable license to use certain patent rights covering specific inventions concerning the utilization of biomarkers guided artificial intelligence techniques for detecting kidney functional decline (the "ISMMS Technology"), (ii) a non-exclusive license under unregistered licensed copyrights and licensed know-how and (iii) an exclusive option to obtain licensed technology conceived after May 30, 2018. The Company is obligated to pay Mount Sinai $1.5million and $7.5million in commercial milestone payments upon achieving worldwide net sales of KidneyIntelX of $50.0million and $300.0million, respectively. The Company is also obligated to pay Mount Sinai a 4% to 5% royalty on net sales of KidneyIntelX, subject to customary reductions. Royalties are payable on a product-by-product basis from first commercial sale of such product until the later of (1) expiration of the last valid claim of a licensed patent covering such product or (2) on a country-by-country basis, 12years from first commercial sale of such product in such country. Moreover, the Company is obligated to pay Mount Sinai between 15% and 25% of any consideration received from a sublicensee.
As part of the ISMMS SRA, the Company has agreed to fund several research projects to further develop the ISMMS Technology. The Company incurred $0.1million and $0.3million related to the ISMMS SRA for the three months ended September 30, 2024 and 2023, respectively.
Mount Sinai Clinical Trial agreement
In July 2021, the Company entered into a Clinical Trial Agreement (the "CTA") with ISMMS. Under the CTA, ISMMS will undertake a sponsored clinical trial entitled, "A prospective decision impact trial of KidneyIntelX in patients with Type 2 diabetes and existing chronic kidney disease". The clinical trial is to be conducted at ISMMS with Renalytix agreeing to pay ISMMS in accordance with the agreed upon budget. The clinical trial is expected to last up to four years with a total estimated budget of $3.2million. As of September 30, 2024, amounts due to ISMMS under the CTA totaled $0.04million, and $0was expensed during the three months ended September 30, 2024. At September 30, 2023, amounts due to ISMMS under the CTA totaled $0.7million, and $0.3million was expensed during the three months ended September 30, 2023.
Joslin Diabetes Center agreement
In October 2018, the Company purchased a worldwide exclusive license agreement (the "Joslin Agreement") with the Joslin Diabetes Center, Inc. ("Joslin") that was previously entered into with EKF Diagnostics Holding plc ("EKF"), a related party, in July 2017. The license agreement provides the Company with the right to develop and commercialize licensed products covering a novel methodology of diagnosing and predicting kidney disease using certain biomarkers (the "Joslin Diabetes Technology").
Under the terms of the Joslin Agreement, the Company is obligated to pay Joslin aggregate commercial milestone payments of $0.3million and $1.0million upon achieving worldwide net sales of licensed products and processes of $2.0million and $10.0million, respectively. The Company is also obligated to pay Joslin a 5% royalty on net sales of any licensed products or licensed processes, subject to customary reductions. Moreover, the Company is obligated to pay Joslin 25% of any consideration received from a sublicensee. The Company accrued $0.3million related to achievement of the first sales milestone and accrued $0.4million of royalties due to Joslin as of September 30, 2024, which were recorded as cost of revenue within the consolidated statements of operations and comprehensive loss. The Company accrued $0.3million of royalties due to Joslin for the three months ended September 30, 2023.
16
The Joslin Agreement initially expires on July 31, 2025and is subject to an automatic five-yearextension unless either party notifies the other party of its intent not to extend the agreement at least 180days prior to initial expiration. Either party may terminate the Joslin Agreement earlier upon an uncured material breach of the agreement by the other party, the insolvency of the other party, or in the event the other party is unable to perform its obligations under the agreement for a specified period. Additionally, Joslin may terminate the agreement in the event that the Company ceases developing or commercializing licensed products or processes, if the Company fails to maintain certain required insurance policies, and if the Company fails to pay patent expenses related to the licensed patents.
Wake Forest/Atrium Health
In May 2021, the Company entered into a partnership with Atrium Health, Wake Forest Baptist Health and Wake Forest School of Medicine to implement an advanced clinical care model to improve kidney health and reduce kidney disease progression and kidney failure. Through these partnerships, KidneyIntelX access was enabled to primary care physicians, endocrinologists, nephrologists and care teams in 37 hospitals and more than 1,350 care locations across the Carolinas and Georgia. Additionally, the Company entered into a five year clinical trial agreement with Wake Forest University Health Sciences to evaluate the clinical impact of KidneyIntelX on the management of patients with type 2 diabetes (T2D) and diabetic (chronic) kidney disease (stage 1-3). The total estimated cost of the clinical trial was $6.9million. In August 2024, an amendment was approved to end all KidneyIntelX study visits. To date the Company has incurred $3.6million in expenses and provided over 2,390 reportable patient results in the Atrium Wake Forest system across over 150 providers. As of September 30, 2024, the Company accrued $0related to the clinical trial agreement and released $0.4million of accruals during the three months ended September 30, 2024. As of September 30, 2023, the Company accrued $1.6millionrelated to the clinical trial agreement and expensed $0.5millionduring the three months ended September 30, 2023.
12. Shareholders' equity
Ordinary shares
As of September 30, 2024, the Company had 173,841,695ordinary shares authorized on a fully diluted basis. Each share entitles the holder to one vote on all matters submitted to a vote of the Company's shareholders. Ordinary shareholders are entitled to receive dividends as may be declared by the board of directors. From inception through September 30, 2024, nocash dividends have been declared or paid. For more information regarding the Company's completed equity financings, see Note 16. Subsequent Events.
13. Share-based compensation
Equity Incentive Plan
In November 2018, Company established the Renalytix AI plc Share Option Plan (the "2018 Share Option Plan") and a U.S. Sub-Plan and Non-Employee Sub-Plan. In July 2020, the Company's board of directors adopted and the Company's shareholders approved the 2020 Equity Incentive Plan (the "EIP"), which superseded the 2018 Share Option Plan. The equity incentive plan provides for the Company to grant options, restricted share awards and other share-based awards to employees, directors and consultants of the Company. As of September 30, 2024, there were 16,898,553shares available for future issuance under the EIP.
The EIP is administered by the board of directors. The exercise prices, vesting and other restrictions are determined at their discretion, except that all options granted have exercise prices equal to the fair value of the underlying ordinary shares on the date of the grant and the term of stock option may not be greater than ten yearsfrom the grant date.
With respect to the options outstanding as of September 30, 2024:
•
5,689,026options vest equally over 12 quarters following the grant date;
•
767,156options vest 25% on the one year anniversary of the grant date and the remaining 75% equally over 12 quarters following the one year anniversary of the grant date;
•
532,500options vest one-third on the one year anniversary of the grant date and the remaining two-thirds equally over eight quarters following the one year anniversary of the grant date;
•
332,500options vest 25% at the end of the first quarter following Vesting Commencement Date and the remaining shares vest quarterly thereafter;
•
285,000options vest 12 months after the vesting commencement date;
•
212,750options vest 25% on the one year anniversary of the grant date, 50% on the two-year anniversary of the grant date, and 25% on the three-year anniversary;
17
•
60,000options vest 25% three months following Vesting Commencement Date and the remaining shares vest monthly thereafter;
•
12,500options vest quarterly over two years following the grant date; and
•
10,000options vested on the vesting commencement date.
If options remain unexercised after the date one day before the tenth anniversary of grant, the options expire. On termination of employment, any options that remain unexercised are either forfeited immediately or after a delayed expiration period, depending on the circumstances of termination. Upon the exercise of awards, new ordinary shares are issued by the Company.
The Company recorded share-based compensation expense in the following expense categories in the consolidated statements of operations for the three months ended September 30, 2024 and 2023:
|
Three Months Ended September 30, |
||||||||
|
(in thousands) |
2024 |
2023 |
||||||
|
Research and development |
$ |
66 |
$ |
97 |
||||
|
General and administrative |
187 |
424 |
||||||
|
Cost of revenue |
1 |
3 |
||||||
|
$ |
254 |
$ |
524 |
The fair value of options is estimated using the Black-Scholes option-pricing model, which takes into account inputs such as the exercise price, the value of the underlying ordinary shares at the grant date, expected term, expected volatility, risk-free interest rate and dividend yield. The fair value of each grant of options during the three months ended September 30, 2024 and 2023 were determined using the methods and assumptions discussed below.
•
The expected term of employee options is determined using the "simplified" method, as prescribed in SEC's Staff Accounting Bulletin No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company's lack of sufficient historical data.
•
The expected volatility is based on historical volatility of the publicly-traded common stock of a peer group of companies.
•
The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term.
•
The expected dividend yield is none because the Company has not historically paid and does not expect for the foreseeable future to pay a dividend on its ordinary shares.
For the three months ended September 30, 2024 and 2023, the grant date fair value of all option grants was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:
|
Three Months Ended September 30, |
||||||||
|
2024 |
2023 |
|||||||
|
Expected term (in years) |
6.3 |
6.4 |
||||||
|
Expected volatility |
83.2 |
% |
74.3 |
% |
||||
|
Risk-free rate |
4.0 |
% |
4.3 |
% |
||||
|
Dividend yield |
- |
% |
- |
% |
The weighted average fair value of the options granted during the three months ended September 30, 2024 and 2023 was $0.14and $0.92per share, respectively.
18
The following table summarizes the stock option granted to employees and non-employees for the three months ended September 30, 2024:
|
Number of |
Weighted- |
Weighted- |
||||||||||
|
Outstanding at June 30, 2024 |
7,473,866 |
$ |
3.06 |
7.0 |
||||||||
|
Granted |
517,500 |
$ |
0.24 |
|||||||||
|
Exercised |
- |
$ |
- |
|||||||||
|
Forfeited |
(75,184 |
) |
$ |
1.62 |
||||||||
|
Expired |
- |
$ |
- |
|||||||||
|
Outstanding at September 30, 2024 |
7,916,182 |
$ |
3.06 |
6.9 |
||||||||
|
Exercisable at September 30, 2024 |
5,639,979 |
$ |
3.87 |
6.0 |
||||||||
|
Vested and expected to vest at September 30, 2024 |
7,916,182 |
$ |
3.06 |
6.9 |
As of September 30, 2024, there was $1.27million in unrecognized compensation cost related to unvested options that will be recognized as expense over a weighted average period of 1.64years. The aggregate intrinsic value of options outstanding and options exercisable at each of September 30, 2024 and September 30, 2023was $0.
Employee Share Purchase Plan
The Company's 2020 Employee Share Purchase Plan (the "ESPP") became effective on August 17, 2020. The ESPP authorizes the issuance of up to 850,000shares of the Company's common stock. The number of shares of the Company's common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year, commencing on January 1, 2021 and continuing for 10 years, in an amount equal to the lesser of onepercent of the total number of shares of the Company's common stock outstanding on December 31st of the preceding calendar year, and 2,000,000ordinary shares, subject to the discretion of the Board of Directors or remuneration committee to determine a lesser number of shares shall be added for such year.
Under the ESPP, eligible employees can purchase the Company's common stock through accumulated payroll deductions at such times as are established by the Board of Directors or remuneration committee. Eligible employees may purchase the Company's common stock at 85% of the lower of the fair market value of the Company's common stock on the first day of the offering period or on the purchase date. Eligible employees may contribute up to 15% of their eligible compensation. Under the ESPP, a participant may not purchase more than $25,000worth of the Company's common stock for each calendar year in which such rights are outstanding. Noshares were purchased under the ESPP during the three months ended September 30, 2024 and 2023.
In accordance with the guidance in ASC 718-50,Compensation - Stock Compensation, the ability to purchase shares of the Company's common stock at 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e., the purchase date) represents an option and, therefore, the ESPP is a compensatory plan under this guidance. Accordingly, share-based compensation expense is determined based on the option's grant-date fair value as estimated by applying the Black-Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $0and $0.01million in general and administrative expense and $0million and $0.01million in research and development expense during the three months, ended September 30, 2024 and 2023, respectively, related to the ESPP.
Restricted Stock Units
Activity for restricted stock units for the three months ended September 30, 2024 is as follows:
|
Number of |
Weighted- |
|||||||
|
Non-vested balance at June 30, 2024 |
7,930 |
$ |
1.33 |
|||||
|
Granted |
- |
$ |
- |
|||||
|
Vested |
(3,915 |
) |
$ |
1.69 |
||||
|
Forfeited |
(875 |
) |
$ |
1.69 |
||||
|
Non-vested balance at September 30, 2024 |
3,140 |
$ |
1.69 |
19
The total fair value of restricted stock units vested during the three months ended September 30, 2024was $0.001million. Restricted stock units vest upon the achievement of time-based service requirements.
At September 30, 2024, total unrecognized compensation expense related to non-vested restricted stock units was approximately $0.001million. Unrecognized compensation expense relating to restricted stock units that are deemed probable of vesting is expected to be recognized over a weighted-average period of approximately 0.25years.
14. Related-party transactions
EKF Diagnostic Holdings
During the three months ended September 30, 2024 and 2023, the Company incurred expenses of $0million and $0.01million, respectively, related to employees of EKF who provided services to Renalytix.
Icahn School of Medicine at Mount Sinai
In May 2018, the Company secured its cornerstone license agreement with ISMMS for research and clinical study work and intended commercialization by the Company (see Note 11). As part of the collaboration, ISMMS became a shareholder in the Company and has subsequently made equity investments both in the Company's IPO on AIM in November 2018, the subsequent sale of ordinary shares in July 2019 and the Company's IPO on Nasdaq in July 2020, and private placements in April 2022 and February 2023. As of September 30, 2024 and 2023, amounts due to ISMMS totaled $2.5million and $4.2million, respectively. During the three months ended September 30, 2024 and 2023, the Company incurred expenses of $0.1million and $0.7million, respectively, related to its obligations under the ISMMS license agreement.
15. 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 which would result in the issuance of incremental ordinary shares. Potentially dilutive securities outstanding as of September 30, 2024 and 2023 have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive. Therefore, the weighted average number of shares used to calculate both basic and diluted net loss per share are the same.
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of ordinary shares outstanding as they would be anti-dilutive:
|
Three Months Ended September 30, |
||||||||
|
2024 |
2023 |
|||||||
|
Stock options to purchase ordinary shares |
7,916,182 |
7,518,257 |
||||||
|
Restricted stock units |
3,140 |
49,520 |
||||||
|
Conversion of convertible note |
2,992,660 |
4,625,019 |
||||||
|
10,911,982 |
12,192,796 |
20
16. Subsequent Events
On September 30, 2024, the Company announced that it had received commitments from existing and new investors to raise £11.8million through a subscription of 131,161,556new ordinary shares at £0.09per share. The Company also agreed to issue 36,550,543new ordinary shares at £0.09per share to convert part of the existing convertible notes to equity and separately to convert part of the accounts payable balances to equity. In respect of the convertible notes, the Company converted approximately £2.97million of the notes to equity via the issuance of 33million new ordinary shares and the remaining balance treated as new unsecured convertible notes with interest at a rate of 5.5% per annum payable quarterly in cash, or 7.5% per annum if rolled into the principal amount of the debt (paid-in-kind), at the discretion of the Company. The new convertible notes are non-amortizing, have a maturity date ofJuly 31, 2029and may not be converted before April 1, 2026.The notes are callable at the Company's option at any time prior to maturity. In respect to the accounts payable balance with a professional adviser, $750,000has been restructured such that $425,000of the balance has been converted into equity, and $325,000has been restructured as a long term promissory note bearing paid- in-kind interest at 5% per annum. The new note will be due at the earlier of 5years from the initiation of the note, or accelerated should the Company be acquired prior to maturity. The Company may prepay the note at any time without penalty. The equity financing commitments closed in two tranches, the first on October 8, 2024and the second on November 4, 2024with all net proceeds received by the Company on the closing dates. All debt restructurings were effective with the second close of the equity financing.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our audited consolidated financial statements and related notes for the year ended June 30, 2024, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on September 30, 2024 (the "Annual Report on Form 10-K"), as well as the information contained under Management's Discussion and Analysis of Financial Condition and Results of Operations and "Risk Factors" contained in the Annual Report on Form 10-K, and Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q, and other information provided from time to time in our other filings with the SEC.
Overview
Renalytix is focused on providing doctors around the world with a safe, reliable and effective tool to identify which patients are or are not in danger of losing significant kidney function and falling into kidney failure and may require long-term dialysis or a kidney transplant. Chronic kidney disease is one of the largest urgent medical needs, globally affecting an estimated 850 million people, and is responsible for an unsustainable and growing societal cost burden.
We believe an important part of the answer is preventative medicine and the ability to identify individuals with advancing chronic kidney disease early, where new drug therapies and clinical strategies have the optimal chance to stop uncontrolled disease progression.
At Renalytix, we have developed kidneyintelX.dkd, the first U.S. Food and Drug Administration ("FDA") authorized in vitroprognostic test that uses an artificial intelligence-enabled algorithm to aid in assessment of the risk of progressive decline in kidney function. The test is designed to predict early in the progression of kidney disease who is at risk for significant sustained decline in kidney function. Prognostic tests, such as kidneyintelX.dkd, are not intended for diagnosing any disease or for monitoring disease progression or the effect of any therapeutic product. Rather, prognostic tests are intended to be used in conjunction with other clinical and diagnostic findings and consistent with professional standards of practice, including information obtained by alternative methods, and clinical evaluation, as appropriate. When used as intended, potential interventions can be considered early, ideally before major damage is done and when treatments can be most effective. KidneyintelX.dkd is part of a family of clinical tests being developed from the KidneyIntelX technology platform developed using technology licensed from the Icahn School of Medicine at Mount Sinai in New York, the Joslin Diabetes Center in Boston and under development through U.S. and international collaborations.
We are deploying kidneyintelX.dkd to patient populations with DKD on a regional basis through partnerships with healthcare systems and insurance payors that provide coverage to those healthcare systems' patients. In June 2024 , Medicare issued a final Local Coverage Determination ("LCD") for the Company's kidneyintelX.dkd testing and is effective for dates of service on or after August 1, 2024. The established Medicare price for kidneyintelX.dkd is $950 per test. Distinct CPT Codes (Common Procedural Terminology Codes) have been established for kidneyintelX.dkd and is published in CMS' 2024 Clinical Lab Fee Schedule. The LCD specifies coverage for use of kidneyintelX.dkd for patients with diagnosed Type 2 diabetes and Stage 1-3b Chronic Kidney Disease is reasonable and necessary. The LCD was issued by National Government Services ("NGS"). NGS is a subsidiary of Elevance Health, Inc. (previously Anthem, Inc.), a Medicare Administrative Contractor responsible for claims processing for testing performed in the Company's New York City laboratory.
Since our inception in March 2018, we have focused primarily on organizing and staffing our company, raising capital, developing KidneyIntelX technology, conducting clinical validation studies for kidneyintelX.dkd, establishing and protecting our intellectual property portfolio and commercial laboratory operations, pursuing regulatory approval, developing our reimbursement strategy and commercializing our testing services. We have funded our operations primarily through equity and debt financings.
There is always the possibility that a change in the regulatory or reimbursement landscape can have an impact on our ability to deliver commercial kidneyintelX.dkd testing services in the United States, maintain the current and anticipated costs and services reportable result turnaround times. Any of the aforementioned changes could materially alter our revenue projections.
Macroeconomic Considerations
Unfavorable conditions in the economy in the United States and abroad may negatively affect the growth of our business and our results of operations. For example, macroeconomic events, including conflicts in Ukraine-Russia and Middle East, increased inflation rates and U.S. and U.K. interest rates, have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled "Risk Factors" in the Company's Annual Report on Form 10-K.
22
Our Key Agreements
Mount Sinai Health System
In May 2018, we entered into the Mount Sinai Agreement, with Mount Sinai, pursuant to which we obtained a worldwide, royalty-bearing, exclusive license under certain patents and a worldwide, royalty-bearing, non-exclusive license under certain know-how of Mount Sinai to develop and commercialize licensed products in connection with the application of artificial intelligence for the diagnosis of kidney disease. Pursuant to the terms of the Mount Sinai Agreement, we are obligated to use commercially reasonable efforts in connection with the development and commercialization of the licensed technologies, including in accordance with specified diligence milestones.
Under the terms of the Mount Sinai Agreement, we are obligated to pay Mount Sinai $1.5 million and $7.5 million in commercial milestone payments upon achieving worldwide net sales of kidneyintelX.dkd testing services of $50.0 million and $300.0 million, respectively. We are also obligated to pay Mount Sinai a 4% to 5% royalty on net sales of kidneyintelX.dkd, subject to customary reductions. Royalties are payable on a product-by-product basis from first commercial sale of such product until the later of (1) expiration of the last valid claim of a licensed patent covering such product or (2) on a country-by-country basis, 12 years from first commercial sale of such product in such country. Moreover, we are obligated to pay Mount Sinai between 15% and 25% of any consideration received by us from a sublicensee. The two provisional patent applications covering the KidneyIntelX diagnostic in-licensed under the Mount Sinai Agreement were filed in February 2020 and April 2020, respectively.
The Mount Sinai Agreement expires on the later of the tenth anniversary of the execution of the agreement and expiration of the last remaining royalty term. We may terminate the Mount Sinai Agreement at any time upon 90 days' prior written notice. Mount Sinai may terminate the agreement for our uncured material breach, our failure to meet certain diligence milestones, our insolvency, or in the event that we challenge the validity or enforceability of any licensed patent.
Joslin Diabetes Center
In July 2017, EKF entered into the Joslin Agreement with Joslin. In October 2018, we purchased all of EKF's rights, title, interest and benefit in the Joslin Agreement in exchange for the issuance of 15.4 million of our ordinary shares.
Pursuant to the Joslin Agreement and the related assignment from EKF, we obtained a worldwide, royalty-bearing, exclusive license under any patents and any related know-how of Joslin related to the patent application filed with respect to the Joslin IP to make, have made, use, offer for sale and sell licensed products covered by claims in the Joslin IP, and to perform, practice offer for sale and sell certain licensed processes related to the Joslin IP. We are obligated to use commercially reasonable efforts in connection with the development and commercialization of the licensed products and licensed processes, including in accordance with a development plan.
Under the terms of the Joslin Agreement, we are obligated to pay Joslin aggregate commercial milestone payments of $0.3 million and $1.0 million in commercial milestone payments upon achieving worldwide net sales of licensed products and processes of $2.0 million and $10.0 million, respectively. We are also obligated to pay Joslin a 5% royalty on net sales of any licensed products or licensed processes, subject to customary reductions. Moreover, we are obligated to pay Joslin 25% of any consideration received by us from a sublicensee.
The Joslin Agreement initially expires on July 31, 2025, and is subject to an automatic five-year extension unless either party notifies the other party of its intent not to extend the agreement at least 180 days prior to initial expiration. Either party may terminate the Joslin Agreement earlier upon an uncured material breach of the agreement by the other party, the insolvency of the other party, or in the event the other party is unable to perform its obligations under the agreement for a specified period. Additionally, Joslin may terminate the agreement in the event that we cease developing or commercializing licensed products or processes, if we fail to maintain certain required insurance policies, and if we fail to pay patent expenses related to the licensed patents.
Recent Developments
•
Launched FDA approved kidneyintelX.dkd testing services to replace laboratory developed testing developed services
•
Began receiving Medicare reimbursement under formal Local Coverage Determination
•
New leadership with a track record of commercial success
•
Revamped sales and customer service strategy to focus on health care systems leveraging electronic health records and implementation of a scalable sales-force-led or "direct-to-doctor" strategy
•
Now demonstrating quarter-over-quarter sales growth and repeat doctor testing
23
•
Major new kidneyintelX.dkd integrated commercial testing implementation with a large New York area physician practice, with test ordering and processing having commenced during September 2024
•
Significant expansion in patient blood draw options in combination with a simplified test order requisition form to reduce doctor workload
•
Improvements implemented in customer service and test services billing to improve end-to-end user experience.
•
Nasdaq delisting with American Depository Shares ("ADSs") now quoted on the OTCQB®Venture Market under symbol (OTCQB: RNLXY), and anticipated transition to Foreign Private Issuer ("FPI") status to provide significant potential savings of up to $2.5 million annually when fully implemented
•
Subsequent to quarter end, completed over-subscribed equity capital Fundraise raising approximately $14.9 million, net of expenses, with strong demand exceeding our initial funding target of $13 million.
•
Board changes:
▪
Julian Baines, MBE, an experienced executive within the life science industry and former Renalytix Non-Executive Chairman of the Company from March 2018 to June 2020, reappointed as Executive Chairman
▪
Daniel Levangie, Non-Executive Director has stepped down from the Board of Renalytix effective October 31, 2024
Components of Results of Operations
Revenues
During the three months ended September 30, 2024 and 2023, we continued to deploy kidneyintelX.dkd to patient populations with DKD, on a regional basis through partnerships with healthcare systems and insurance payors that provide coverage to those healthcare systems' patients. If these strategic partners fail to meet their key contractual obligations or to purchase kidneyintelX.dkd tests, it will likely have an adverse effect on us and our ability to achieve our commercial objectives, potentially including the attainment of sales volumes leading to profitability.
Cost of Revenue
During the three months ended September 30, 2024 and 2023, cost of revenue consists of costs directly attributable to the kidneyintelX.dkd testing and services rendered, including labor, lab consumables and sample collection costs directly related to revenue generating activities.
Research and Development Expenses
Research and development costs consist primarily of costs incurred in connection with the development of KidneyIntelX technology. We are continuing to conduct limited clinical utility and other studies for kidneyintelX.dkd to expand long-term, prospective clinical value and performance in chronic kidney disease. We expense research and development costs as incurred.
We incur both direct and indirect expenses related to our research and development programs. Direct expenses include third-party expenses related to our programs such as expenses for data science and artificial intelligence capabilities, consulting fees, lab supplies, assay development services and clinical validation costs. Indirect expenses include salaries and other personnel-related costs, including share-based compensation for personnel in research and development functions and rent.
At the end of the reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate to have been made as a result of the service provided, we may record net prepaid or accrued expense relating to these costs. Upfront milestone payments made to third parties who perform research and development services on our behalf are expensed as services are rendered.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and other personnel-related costs including share-based compensation; professional fees for accounting, auditing, tax and administrative consulting services; legal fees relating to patent and corporate matters; administrative travel expenses; insurance costs; marketing expenses and other operating costs. Additionally, general and administrative expenses include the cost of maintaining our admission to AIM, Nasdaq and OTC trading.
24
Foreign Currency Gain (Loss), net
Foreign currency gain (loss), net consists of foreign currency income (losses) due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency.
Fair Value Adjustments to VericiDx Investment
In October 2020, the Company completed a spinoff of VericiDx, a developer of advanced clinical diagnostics for organ transplant and retained 9,831,681 ordinary shares of VericiDx. The Company accounts for the investment in VericiDx equity securities at fair value, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss. As of September 30, 2024, the Company owns 8,581,682 shares of VericiDx
Fair Value Adjustment on Convertible Notes
We elected to account for the bonds at fair value with qualifying changes in fair value recognized through the consolidated statements of operations and comprehensive loss until the notes are settled.
Other Income (Expense)
Other income relates to interest income earned on our cash deposits, grant income earned for work performed under the Horizon Europe grant and other services provided to academic institutions or pharmaceutical companies. Other expense relates to realized loss on the sale of VericiDx shares.
Consolidated Results of Operations
|
For the Three Months Ended September 30, |
Change 2024 vs.2023 |
|||||||||||||||
|
(in thousands, except share and per share data) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Revenue |
$ |
522 |
$ |
459 |
$ |
63 |
14 |
% |
||||||||
|
Cost of revenue |
422 |
502 |
(80 |
) |
-16 |
% |
||||||||||
|
Gross profit (loss) |
100 |
(43 |
) |
143 |
-332 |
% |
||||||||||
|
Operating expenses: |
||||||||||||||||
|
Research and development |
921 |
2,787 |
(1,866 |
) |
-67 |
% |
||||||||||
|
General and administrative |
3,271 |
6,059 |
(2,788 |
) |
-46 |
% |
||||||||||
|
Total operating expenses |
4,192 |
8,846 |
(4,654 |
) |
-53 |
% |
||||||||||
|
Loss from operations |
(4,093 |
) |
(8,889 |
) |
4,796 |
-54 |
% |
|||||||||
|
Foreign currency gain, net |
37 |
289 |
(252 |
) |
-87 |
% |
||||||||||
|
Fair value adjustment to VericiDx investment |
97 |
(447 |
) |
544 |
-122 |
% |
||||||||||
|
Fair value adjustment to convertible notes |
(762 |
) |
(1,207 |
) |
445 |
-37 |
% |
|||||||||
|
Other (expense) income, net |
(5 |
) |
100 |
(105 |
) |
-105 |
% |
|||||||||
|
Net loss before income taxes |
(4,726 |
) |
(10,154 |
) |
5,428 |
-53 |
% |
|||||||||
|
Income tax expense |
(2 |
) |
- |
(2 |
) |
- |
||||||||||
|
Net loss |
(4,728 |
) |
(10,154 |
) |
5,426 |
-53 |
% |
|||||||||
|
Net loss per ordinary share-basic |
$ |
(0.04 |
) |
$ |
(0.11 |
) |
$ |
0.06 |
-58 |
% |
||||||
|
Net loss per ordinary share-diluted |
$ |
(0.04 |
) |
$ |
(0.11 |
) |
$ |
0.06 |
-58 |
% |
||||||
|
Weighted average ordinary shares-basic |
105,697,401 |
94,767,841 |
10,929,560 |
12 |
% |
|||||||||||
|
Weighted average ordinary shares-diluted |
105,697,401 |
94,767,841 |
10,929,560 |
12 |
% |
|||||||||||
|
Other comprehensive income (loss): |
||||||||||||||||
|
Changes in the fair value of the convertible notes |
(125 |
) |
75 |
(200 |
) |
-267 |
% |
|||||||||
|
Foreign exchange translation adjustment |
(461 |
) |
42 |
(503 |
) |
-1198 |
% |
|||||||||
|
Comprehensive loss |
$ |
(5,314 |
) |
$ |
(10,037 |
) |
$ |
4,723 |
-47 |
% |
25
Comparison of three months ended September 30, 2024 and 2023
Revenue
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Revenue |
$ |
522 |
$ |
459 |
$ |
63 |
14 |
% |
During the three months ended September 30, 2024, we recognized $0.52 million of revenue related to sales of KidneyIntelX. During the three months ended September 30, 2023, we recognized $0.46 million revenue related to sales of KidneyIntelX.
Cost of Revenue
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Cost of revenue |
$ |
422 |
$ |
502 |
$ |
(80 |
) |
-16 |
% |
During the three months ended September 30, 2024, we recognized cost of revenue of $0.4 million primarily attributable to KidneyIntelX testing, including labor, lab consumables and sample collection costs related to revenue generating activities. We recognized $0.5 million of cost of revenue for the three months ended September 30, 2023.
Research and Development Expenses
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Research and development expenses |
$ |
921 |
$ |
2,787 |
$ |
(1,866 |
) |
-67 |
% |
Research and development expenses decreased by $1.9 million from $2.8 million for the three months ended September 30, 2023 to $0.9 million for the three months ended September 30, 2024. The decrease was attributable to a $1.7 million decrease related to external R&D projects and studies with Mount Sinai and Wake Forest, $0.2 million decrease related to consulting and professional fees, $0.1 million decrease in other miscellaneous expenses, offset by $0.2 million increase in compensation and related benefits.
General and Administrative Expenses
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
General and administrative |
$ |
3,271 |
$ |
6,059 |
$ |
(2,788 |
) |
-46 |
% |
General and administrative expenses decreased $2.8 million from $6.0 million for the three months ended September 30, 2023 to $3.3 million for the three months ended September 30, 2024. The decrease was driven by even further cost cutting measures, which resulted in a $1.5 million decrease in compensation and related benefits, including share-based payments and bonuses, due to decreased headcount, $0.6 million decrease in consulting and professional fees, $0.2 million decrease in insurance costs, $0.2 million decrease in marketing, and $0.3 million decrease in other operating expenses. We have implemented a plan to further reduce payroll expense and total general and administrative expenses while preserving our sales capacity.
In connection with the delisting of our ADSs from Nasdaq effective on October 7, 2024, and our ADSs becoming quoted on the OTC Markets' OTCQB tier effective on October 8, 2024, we anticipate that we will requalify as a foreign private issuer ("FPI") at our next testing date for FPI status. As a foreign private issuer, we expect annual cost savings of up to $1.5 million from a reduction in regulatory filing costs, professional fees (audit, legal, and consulting), listing fees, insurance and other administrative costs when fully implemented.
26
Foreign Currency Gain
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Foreign currency gain, net |
$ |
37 |
$ |
289 |
$ |
(252 |
) |
-87 |
% |
During the three months ended September 30, 2024, we recognized a foreign currency gain of $0.04 million due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency. During the three months ended September 30, 2023, we recognized a foreign currency gain of $0.3 million primarily attributable to cash balances denominated in currencies other than our functional currency, GB Pounds.
Fair Value Adjustments to VericiDx Investment
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Fair value adjustment to VericiDx investment |
$ |
97 |
$ |
(447 |
) |
$ |
544 |
-122 |
% |
We account for the investment in VericiDx equity securities at fair value, with changes in fair value recognized in the income statement. During the three months ended September 30, 2024, we recorded a gain of $0.1 million to adjust the VericiDx investment to fair value. During the three months ended September 30, 2023, we recorded a loss of $0.5 million to adjust the VericiDx investment to fair value.
Fair Value Adjustment on Convertible Notes
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Fair value adjustment to convertible notes |
$ |
(762 |
) |
$ |
(1,207 |
) |
$ |
445 |
-37 |
% |
We elected to account for the bonds at fair value with qualifying changes in fair value recognized through the consolidated statements of operations and comprehensive loss until the notes are settled. This excludes fair value adjustments related to instrument-specific credit risk, which is recognized in other comprehensive income (OCI). For the three months ended September 30, 2024, we recorded a loss of $0.8 million to adjust the bonds to fair value. For the three months ended September 30, 2023, we recorded a loss of $1.2 million to adjust the bonds to fair value. The change in fair value of the bond was driven by a decrease in term to maturity, increase in risk free rate and change in stock price.
Other (Expense) Income
|
For the Three Months Ended September 30, |
Change 2024 vs. 2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
Change |
% |
||||||||||||
|
Other (expense) income, net |
$ |
(5 |
) |
$ |
100 |
$ |
(105 |
) |
-105 |
% |
During the three months ended September 30, 2024, we realized $0.01 million of other expense which included $0.014 million of interest income earned on our cash deposits and $0.024 million of grant income, offset by $0.042 million of realized loss on the sale of VericiDx shares. During the three months ended September 30, 2023, we realized $0.1 million of income related to interest income earned on our cash deposits
Liquidity and Capital Resources
Since our inception, we have incurred net losses. We incurred net losses of $4.7 million and $10.2 million for the three months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $216.5 million.
November 2024 Debt Restructurings
In connection with the Company's previously equity fundraising (the "Fundraise"), the Company also announced a revision to the terms of its £8.7 million amortizing senior convertible bond (the "Convertible Bond") held by a fund advised by Heights Capital Ireland LLC (the "Convertible Bond Investor"), subject to the closing of the Fundraise which closed in two tranches on October 7,
27
2024 and November 4, 2024. Under the completed terms, the Convertible Bond was partially repaid and restructured as follows: (i) £2.97 million of the Convertible Bond was converted to equity via issue to the Convertible Bond Investor of 33 million ordinary shares (the "Heights Conversion Shares"), at 9 pence per share price (the "Issue Price") being offered in the Fundraise; and (ii) the balance of the Convertible Bond was restructured as a new unsecured convertible bond (the "New Convertible Bond"). The Heights Conversion Shares issued to the Convertible Bond Investor represented 9.9% of the Company's enlarged issued share capital at such time. The Convertible Bond Investor is subject to a 6-month lock-up.
The New Convertible Bond will accrue interest quarterly at a rate of 5.5% per annum if paid in cash, or 7.5% per annum if rolled into the principal amount of the outstanding, at the discretion of the Company. The New Convertible Bond has maturity date of July 31, 2029 and may not be converted before April 1, 2026, except in the event that the Company undertakes a further qualifying equity issuance in the future (which would exclude securities properly issued to employees and other staff of the Company for bona fide remuneration and incentivisation purposes). The New Convertible Bond can be redeemed as follows:
•
at any time from April 1, 2026, a holder of the New Convertible Bond can redeem any or all of the New Convertible Bond at a conversion price (subject to customary adjustment provisions) equal to 250% of the Issue Price;
•
in the event of a change of control of the Company or if the ordinary shares cease to be admitted to trading on AIM or the Main Market of the London Stock Exchange (or if dealing in the ordinary shares is suspended, other than in connection with a corporate reorganization, for a period of 60 dealing days or more) or in the event that less than 20% of the Company's issued share capital (including ADSs) comprises free float, a holder of the New Convertible Bond can require the Company to redeem all but not some of their New Convertible Bond at a conversion price equal to 120% of the principal amount of the New Convertible Bond (together with accrued but unpaid interest); and
•
at any time, the Company can elect to redeem all, but not some, of the principal amount of the New Convertible Bond at a price equal to the greater of (i) the principal amount and all accrued but unpaid interest and (ii) the "parity value" of the New Convertible Bond. For this purpose, the "parity value" is the product of: (a) such number of ordinary shares as would have been issued on conversion and the mean volume weighted average price of an ordinary share on the ten consecutive dealing days preceding the date on which such redemption is to occur.
Additionally, an accounts payable balance with a professional adviser of $750,000 (the "Advisor Accounts Payable Balance") has been restructured such that $425,000 of the outstanding balance has been converted to equity at the Issue Price. The remaining $325,000 has been converted to a long term unsecured note (the "Advisor Loan Note"), bearing interest at 5% per annum, which will be rolled into the principal amount of the Advisor Loan Note. The principal and interest of the Advisor Loan Note will be repaid on the earlier of: (i) 5 years from the issuance of the Advisor Loan Note; or (ii) such earlier time as the Company is acquired by another company. Additionally, the Company has the right to redeem the Advisor Loan Note at any time without prepayment penalties.
The Company believes that the restructuring of the Convertible Bond and the Advisor Accounts Payable Balance, the creation of the New Convertible Bond and the Advisor Loan Note and the Creditor Write-offs, along with some ancillary debt restructuring, will substantially reduce the Company's monthly cash burn.
The ordinary shares issued pursuant to the debt restructuring described in this section are approximately 36.5 million ordinary shares which were issued on November 4, 2024.
Equity Financings
The Company received commitments from existing and new investors to raise £11.8 million through a subscription of 131,161,556 new ordinary shares at 9 pence per share. The equity financing commitments closed in two tranches, the first on October 8, 2024 and the second on November 4, 2024 with all net proceeds received by the Company on the closing dates.
We expect to incur additional losses in the near future, and we expect our expenses may increase in connection with our ongoing activities to further commercial scale of kidneyintelX.dkd testing services. While we expect our costs associated with operating as a public company in the United States to be reduced following our transition to OTC trading markets, there may be additional capital and professional resources required to satisfy ongoing US regulatory requirements. The timing and amount of our operating expenditures will depend largely on:
•
the growth and uptake of kidneyintelX.dkd by doctors;
•
the cost and supply of reagents for kidneyintelX.dkd;
•
the cost, timing and outcome of identified and potential future commercialization activities, including manufacturing, marketing, sales and distribution, for KidneyIntelX technology;
28
•
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;
•
the timing and amount of future revenue received from commercial sales of kidneyintelX.dkd;
•
the sales price and expansion of third-party coverage and reimbursement for kidneyintelX.dkd;
•
the effect of competing technological and market developments; and
•
the extent to which we acquire or invest in businesses, products and technologies, although we currently have no other commitments or agreements to complete any such transactions.
To date, we have primarily financed our operations through equity and debt financings. As of September 30, 2024, we had cash and cash equivalents of $0.9 million. We have incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $216.5 million as of September 30, 2024. We anticipate incurring additional losses until such time, if ever, that we can generate significant incremental sales of kidneyintelX.dkd or any future products currently in development.
If we decide and to the extent that we could potentially raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders.
Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or diagnostic products or grant licenses on terms that may not be favorable to us. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, curtail or discontinue our product development or future commercialization efforts, or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.
Going Concern
We have limited sources of revenue to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to increase our testing revenue and the effectiveness of our expense management and other capital preservation measures. As discussed Note 16, Subsequent Events to the financial statements, subsequent to the end of the quarter ended September 30, 2024, the Company raised approximately $14.9 million, net of expenses, from additional rounds of equity in October and November 2024 and concurrently restructured a number of liabilities on the balance sheet. This additional equity funding, the reduction of cash expenses related to the Company's liabilities, and an overall reduction in General and Administrative Expenses, have significantly changed the Company's financial position. While the Company intends that this capital will be sufficient to fund the company through to cash flow positive operations, there can be no guarantee to that outcome.
The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $216.5 million as of September 30, 2024. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of kidneyintelX.dkd or any future products currently in development.
The Company's ability to continue as a going concern is contingent upon successful execution of management's intended plan over the next 24 months to improve the Company's liquidity and profitability, which includes, without limitation:
•
The achievement of certain testing volumes in the lab;
•
Continued expansion of reimbursement policies and contracts with commercial payers; and
•
Continued management of operating and commercial expenses.
As a result of the Company's losses and its projected cash needs, as defined in the accounting literature, substantial doubt exists about the Company's ability to continue as a going concern. While subsequent to September 30, 2024, the company has successfully raised approximately $14.9 million, net of expenses, in new equity capital and restructured the existing long-term debt recorded on the balance sheet, the Company does have a history of operating losses and it has been expensive to deliver all of the milestones to
29
commercialize the kidneyintelX.dkd test. Should the Company require additional capital it may not be available 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 future financing may adversely affect the holdings or the rights of the Company's shareholders. Should it be necessary, if the Company is unable to obtain funding it could be required to delay, curtail or discontinue research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects. As such, management has concluded that there is a going concern uncertainty. The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty.
We have based our future cash needs on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect or may fail in our efforts to enact additional cost reduction programs. Furthermore, our operating plan may change, and we may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization.
As discussed in Note 16, Subsequent Events to the financial statements, subsequent to the end of the quarter ended September 30, 2024, the Company closed additional rounds of equity financing in October and November 2024 and concurrently restructured a number of liabilities on the balance sheet. As a result, the Company believes that it has sufficient cash on the balance sheet to sustain current operations.
Cash Flows
The following table shows a summary of our cash flows from operations for the periods indicated:
|
For the Three Months Ended September 30, |
Change 2024 vs.2023 |
|||||||||||||||
|
(in thousands) |
2024 |
2023 |
 |
Change |
% |
|||||||||||
|
Net cash used in operating activities |
$ |
(3,836 |
) |
$ |
(9,504 |
) |
$ |
5,668 |
-60 |
% |
||||||
|
Net cash provided by investing activities |
23 |
- |
23 |
- |
||||||||||||
|
Net cash used in financial activities |
- |
(1,065 |
) |
 |
1,065 |
-100 |
% |
|||||||||
|
Effect of exchange rate changes on cash |
42 |
(222 |
) |
264 |
-119 |
% |
Net cash used in operating activities
During the three months ended September 30, 2024, net cash used in operating activities was $3.8 million and was primarily attributable to our $4.7 million net loss as well as $1.0 million of noncash charges and $0.1 million net change in our operating assets and liabilities. Noncash charges were primarily related to $0.3 million in share-based compensation expense, $0.8 million fair value adjustment related to the bonds, $0.1 million of depreciation and amortization expense, offset by $0.1 million fair value adjustment on our VericiDx investment. The change in our operating assets and liabilities was primarily attributable to $0.4 million increase in accrued expenses and other current liabilities, $0.5 million decrease in accounts receivables, prepaids and other current assets.
During the three months ended September 30, 2023, net cash used in operating activities was $9.5 million and was primarily attributable to our $10.1 million net loss as well as $2.5 million of noncash charges and $1.9 million net change in our operating assets and liabilities. Noncash charges were primarily related to $1.0 million in share-based compensation expense, $0.9 million fair value adjustment related to the bonds, $0.4 million fair value adjustment on our VericiDx investment, $0.1 million of depreciation and amortization expense. The change in our operating assets and liabilities was primarily attributable to $1.0 million decrease in accrued expenses and other current liabilities, $0.9 million decrease in accounts receivables, prepaids and other current assets.
Net cash provided by investing activities
During the three months ended September 30, 2024, net cash provided by investing activities was $0.02 million from the sale of ordinary shares in VericiDx investment .
During the three months ended September 30, 2023, no cash was provided by or used in investing activities.
Net cash used in financing activities
During the three months ended September 30, 2024, no cash was provided by or used in financing activities.
During the three months ended September 30, 2023, net cash used in financing activities was $1.1 million and was primarily attributable to $1.0 million in cash used to pay down the principal of the Bonds.
30
Recent Accounting Pronouncements
See Note 3 to our consolidated financial statements found elsewhere in this report for a description of recent accounting pronouncements applicable to our financial statements.
JOBS Act Transition Period
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. An emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and, as a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We have evaluated the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we have chosen to rely on certain of these exemptions, including without limitation exemptions to the requirements for (1) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier to occur of (a) the last day of the fiscal year (1) following the fifth anniversary of the completion of our U.S. IPO, (2) in which we have total annual gross revenues of at least $1.235 billion or (3) in which we are deemed to be a "large accelerated filer" under the rules of the SEC, which means the market value of our ordinary shares and ADSs that are held by non-affiliates exceeds $700.0 million as of the prior December 31, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making 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 3 to our consolidated financial statements included elsewhere in this report, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of the KidneyIntelX technology platform. We expense research and development costs as incurred.
At the end of the reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the service provided, we may record a prepaid expense or accrued liability relating to these costs. Upfront milestone payments made to third parties who perform research and development services on our behalf are expensed as services are rendered. Contingent development or regulatory milestone payments are recognized upon the related resolution of such contingencies.
We make estimates of our accrued expenses as of each consolidated balance sheet date in our consolidated financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
31
Share-based Compensation
We measure equity classified share-based awards granted to employees and nonemployees based on the estimated fair value on the date of grant and recognize compensation expense of those awards over the requisite service period, which is the vesting period of the respective award. We account for forfeitures as they occur. For share-based awards with service-based vesting conditions, we recognize 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 our expected dividend yield. We were a privately-held organization prior to November 2018 and have been a publicly-traded company for a limited period of time and therefore lack company-specific historical and implied volatility information for our shares. Accordingly, we estimate our expected share price volatility based on the historical volatility of publicly-traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price. The expected term of our 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 we have never paid cash dividends on ordinary shares and do not expect to pay any cash dividends in the foreseeable future.
We classify share-based compensation expense in our consolidated statements of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.
Convertible Notes
In April 2022, we issued amortizing senior convertible bonds with a principal amount of $21.2 million in amortizing senior convertible bonds due in April 2027 (the "Bonds") to CVI Investments, Inc. (the "Convertible Bond Investor"). The Bonds were issued at 85% par value with total net proceeds of $18.0 million and accrue interest at an annual rate of 5.5%, payable quarterly in arrears, in cash or ADSs valued at the ADS Settlement Price at our option. The principal and interest payments are due in equal quarterly installments starting in July 2022. The Bonds contain various conversion and redemption features. The initial conversion price for the Convertible Bonds of $8.70 has been set at a 20 percent premium to the Reference ADS Price. The Conversion Price may reset down at 12, 24 and 36 months, depending on share price performance, the Bonds have a hard floor in the conversion price of $7.25. As a result of the February 2023 private placement and pursuant to conditions of the bond agreement, the conversion price was adjusted to $8.2508 (previously $8.70) and the floor price was adjusted to $6.8757 (previously $7.25). Further, pursuant to conditions of the agreement, effective April 7, 2023, the conversion price was adjusted from $8.2508 to $7.7924. Between amortization dates, Convertible Bond Investor retains the right to advance future amortization payments, provided that (a) there shall be no amortization advancements during the first 12 months, (b) no more than two amortization advancements may occur in any 12-month period, and (c) no more than one amortization advancement may occur in any 3-month period. On March 28, 2024, the Company entered into a second amendment and restatement agreement with the Convertible Bond Investor, which amended the terms of the Company's existing bond agreement, dated March 31, 2022. The Company performed an analysis and determined that the financial impact was immaterial as the amended and restated agreement was not substantially different than the previous agreement.
The Convertible Bond Investor is also permitted to defer up to two amortization payments to a subsequent amortization date. We retain the option to repay any deferred amortization in cash at 100 percent of the nominal amount. In July 2022, we made a cash amortization payment of $1.4 million, which consisted of $1.1 million of principal and $0.3 million of interest. In October 2022, the Convertible Bond Investor deferred the October amortization payment to maturity of the bond and we made an interest payment of $0.3 million. In January 2023, we made a cash amortization payment of $1.4 million, which consisted of $1.1 million of principal and $0.3 million of interest. In April 2023, we made a cash amortization payment of $1.4 million, which consisted of $1.1 million of principal and $0.3 million of interest. In July 2023, we made a cash amortization payment of $1.4 million, which consisted of $1.1 million of principal and $0.3 million of interest. Also in July 2023, the Convertible Bond Investor exercised its right to advance an amortization payment and we made an accelerated repayment of $1.1 million through the issuance of 526,211 ADSs representing 1,052,422 ordinary shares. In October 2023, we made an amortization payment of $1.3 million, which consisted of $1.1 million of principal and $0.2 million of interest, through the issuance of 2,335,388 ordinary shares in the form of 150,000 ordinary shares and 1,092,694 ADSs. In December 2023, we made an amortization payment of $1.3 million, which consisted of $1.1 million of principal and $0.2 million of interest, through the issuance of 2,500,000 ordinary shares and a cash payment of $0.6 million. In April 2024, we issued 3,636,162 ordinary shares in the form of 1,818,081 ADSs to the Convertible Bond Investor, which settled the principal and interest amounts due under the bonds on April 7, 2024. In July 2024, we made an amortization payment of $1.3 million, which consisted of $1.1 million of principal and $0.2 million of interest, through the issuance of 11,557,322 ordinary shares in the form of 2,275,000 ordinary shares and 4,641,161 ADSs. As of September 30, 2024, $11.7 million of principal was outstanding. The securities were issued without registration in reliance upon the exemption provided in Section 3(a)(9) of the Securities Act.
32
The Bond Agreement contains a negative pledge covenant that provides that for so long as the principal amount outstanding under the Bonds is equal to or exceeds U.S. $3,000,000, the Company shall not, and will procure that none of its subsidiaries, will, create or permit to subsist any Security Interest (as defined in the Bond Agreement), other than a Permitted Security Interest (as defined in the Bond Agreement), upon the whole or any part of its present or future undertaking, assets or revenues (including any uncalled capital) to secure any Financial Indebtedness (as defined in the Bond Agreement) or to secure any Financial Indebtedness Guarantee (as defined in the Bond Agreement), without at the same time or prior thereto securing the obligations of the Company under the Bonds and the Bond Agreement equally and ratably therewith or providing such other security, guarantees and/or other arrangements for the benefit of holders of the Bonds as may be approved by all of the holders of the Bonds. The Bond Agreement also contains a covenant regarding the incurrence of indebtedness which provides that for so long as the principal amount outstanding under the Bonds is equal to or exceeds U.S. $5,000,000, the Company shall not, and shall procure that its subsidiaries shall not, at any time permit to create, incur, assume or otherwise become liable in respect of any Financial Indebtedness, contingently or otherwise. The Bond also contains negative covenants regarding, among other things, the issuance or paying up any securities, modifying the rights attaching to the ordinary shares; issuing any share capital with rights which are more favorable than the rights attaching to the ordinary shares; modify securities already issued, or grant securities, below a consideration floor; grant or issue securities that could not be legally issued as fully paid; not reduce its share capital, share premium account, or any uncalled liability in respect thereof, or any non-distributable reserves; certain third party offers made to shareholders; and ADSs and the ADS facility.
We elected the fair value option to account for the bonds as we believe the fair value option provides users of the consolidated financial statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes in the fair value of the ordinary shares underlying the conversion option. The fair value of the Notes is determined using a scenario-based analysis that estimates the fair value based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders. For each reporting period, changes in the fair value of the notes are recognized through other income (expense) with the portion of the change that results from a change in the instrument-specific credit risk recorded separately in OCI for each reporting period.
On September 30, 2024, we announced a restructuring of these bonds. For more information, see "- Liquidity and Capital Resources - November 2024 Debt Restructurings" above.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company and not required to provide this information.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (principal executive officer) and Interim Chief Financial Officer (principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2024, have concluded that, as of such date, our disclosure controls and procedures were effective as described further below.
It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals.
Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
33
Remediation of Previously Disclosed Material Weakness
In connection with the preparation of our consolidated financial statements for the year ended June 30, 2024, we concluded that there was a material weakness in the design of our internal control over financial reporting impacting accounting for the mark-to-market adjustment for convertible debt. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weakness was related to an error in the mark-to-market adjustment to our convertible debt that had been elected under the fair value option, which resulted in insufficient expense recognition. The deficiency arose due to the high complexity and technical nature of the convertible debt instrument and due to the lack of technical expertise. This material weakness resulted in adjustments to expense and equity which were recorded prior to the issuance of the consolidated financial statements as of June 30, 2024.
During the three months ended September 30, 2024, we executed our remediation plan by engaging a third-party advisory firm to help navigate the complexity of the convertible debt. We have also implemented controls to include senior management review of the transactions. These efforts ensure that our financial records are managed appropriately but also help ensure that the appropriate level of review is performed. We have concluded that the applicable remediated controls are designed, implemented and operating effectively.
As a result of these remediation activities we concluded the previously reported material weakness have been remediated as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
Besides the remediation of the previously disclosed material weakness in the design of our internal control over financial reporting impacting accounting for the mark-to-market adjustment for convertible debt, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
34
PART II
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading "Item 1A. Risk Factors" included in our 2024 Annual Report on Form 10-K and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Our future capital needs are uncertain, and our independent registered public accounting firm has expressed in its report on our audited financial statements for the fiscal year ended June 30, 2024 a substantial doubt about our ability to continue as a going concern. If our ability to continue as a going concern is dependent on our ability to raise additional capital, our operations could be curtailed if we are unable to obtain the required additional funding when needed. We may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to us.
Our financial statements included in this report have been prepared assuming we will continue to operate as a going concern. However, due to our recurring losses from operations, and working capital deficiency, there is substantial doubt about our ability to continue as a going concern. Because we expect to continue to experience negative cash flow, our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from offerings of our equity securities or debt, transactions involving product development, licensing or collaboration, or other forms of financing. Management intends to continue its efforts to contain costs and to raise additional capital until we can generate sufficient cash from commercial sales to support operations, if ever. If we are unable to obtain sufficient financing, we may be required to delay, scale back or discontinue one or more product development programs, curtail our commercialization activities and significantly reduce expenses or we may not be able to continue as a going concern. As a result, our independent registered public accounting firm has expressed in its auditors' report on the financial statements included in our Annual Report on Form 10-K a substantial doubt regarding our ability to continue as a going concern. Our financial statements in our Annual Report on Form 10-K and in this report do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. If we cannot continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and our shareholders may lose their entire investment in our securities. Further, the perception that we may be unable to continue as a going concern may impede our ability to pursue strategic opportunities or operate our business due to concerns regarding our ability to discharge our contractual obligations. Future reports from our independent registered public accounting firm may also contain statements expressing doubt about our ability to continue as a going concern.
Subsequent to September 30, 2024, we raised an additional $14.9 million, net of expenses, to fund the operations of the company going forward. While the company plans to operate the business well beyond 12 months with this capital, there can be no guarantees that we will be successful in those plans. We have based our estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect or may fail in our efforts to enact additional cost reduction options. Furthermore, our operating plan may change, and we may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization.
35
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchase of Equity Securities
Recent Sales of Unregistered Equity Securities.
None.
Issuer Purchases of Equity Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the quarter ended September 30, 2024, none of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adoptedor terminateda "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (each as defined in Item 408(a) and (c) of Regulation S-K).
36
Item 6. Exhibits, Financial Statement Schedules.
|
Incorporation by Reference |
|||||
|
Exhibit No. |
Description |
Schedule/ |
File Number |
Exhibit |
File Date |
|
3.1 |
10-Q |
001-39387 |
3.1 |
2/14/2024 |
|
|
4.1 |
|||||
|
4.2 |
F-1/A |
333-239414 |
4.1 |
7/13/2020 |
|
|
4.3 |
Form of American Depositary Receipt (included in Exhibit 4.2) |
F-1/A |
333-239414 |
4.1 |
7/13/2020 |
|
4.4 |
20-F |
001-39387 |
4.3 |
10/28/2020 |
|
|
10.1 |
8-K |
001-39387 |
10.1 |
10/1/2024 |
|
|
10.2 |
8-K |
001-39387 |
10.2 |
10/1/2024 |
|
|
31.1* |
Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14a |
||||
|
31.2* |
Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14a |
||||
|
32.1** |
Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||||
|
101.INS* |
Inline XBRL Instance Document |
||||
|
101.SCH* |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
||||
|
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
||||
* Filed herewith.
** Furnished herewith and not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
RENALYTIX PLC |
|||
|
November 19, 2024 |
By: |
/s/ James McCullough |
|
|
Name: |
James McCullough |
||
|
Title: |
Chief Executive Officer |
|
RENALYTIX PLC |
|||
|
November 19, 2024 |
By: |
/s/ Joel R. Jung |
|
|
Name: |
Joel R. Jung |
||
|
Title: |
Interim Chief Financial Officer (Principal Financial Officer) |
38