20-F/A
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
20-F/A
(Amendment No. 2)
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission File Number
001-39387
 
 
RENALYTIX PLC
(Exact name of Registrant as specified in its charter and translation of Registrant’s name into English)
 
 
ENGLAND AND WALES
(Jurisdiction of incorporation or organization)
Finsgate
5-7 Cranwood Street
London EC1V 9EE
United Kingdom
(Address of principal executive offices)
James McCullough
Chief Executive Officer
Renalytix plc
Finsgate
5-7 Cranwood Street
London EC1V 9EE
United Kingdom
Tel: +44 20 3139 2910
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
American Depositary Shares, each representing
two ordinary shares, nominal value £0.0025 per
share
 
RNLX
 
The Nasdaq Global Market
Ordinary shares, nominal value
 
*
 
The Nasdaq Global Market*
£0.0025 per share
 
 
 
 
 
 
 
 
 
 
*
Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None.
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary Shares: 72,197,286 outstanding as of
 
June 30, 2021
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☐  Yes    ☒  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ☐  Yes    ☒  No
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, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 

Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Emerging growth company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.   
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒           International Financial Reporting Standards as issued             Other  ☐
            by the International Accounting Standards Board            
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act).
    ☐  Yes 
     No
 
 
 

Table of Contents
EXPLANATORY NOTE
Renalytix plc (the “
Company
”) is filing this Amendment No. 2 (the “
Amendment
”) on Form
20-F/A
to amend its Annual Report on Form
20-F
for the fiscal year ended June 30, 2021, filed with the Securities and Exchange Commission (the “
SEC
”) on October 21, 2021, as amended by Amendment No. 1 on Form
20-F/A
filed with the SEC on January 27, 2022 (as amended by Amendment No. 1, the “
20-F
”), for the purposes of amending (i) Item 18 of Part III of the
20-F
to include the audit opinion of the previous independent registered public accounting firm which was previously omitted from the
20-F
and (ii) Item 19 of Part III of the
20-F
to include Exhibit 15.1—Consent of Ernst & Young LLP, independent registered public accounting firm and Exhibit 15.2—Consent of Deloitte & Touche LLP, previous independent registered public accounting firm.
In addition, pursuant to Rule
12b-15
under the Securities Exchange Act of 1934, as amended, as a result of this Amendment, the Company is refiling the certifications by the Company’s Principal Executive Officer and Principal Financial Officer, required pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, as Exhibits 12.1, 12.2 and 13.1 to this Amendment.
The Amendment does not reflect events occurring after the date of the filing of the
20-F.
The Amendment does not contain any material modifications or updates to the other disclosures contained therein or change any previously reported financial results. Accordingly, the Amendment should be read in conjunction with the
20-F
and the Company’s other filings with the SEC subsequent to the filing of the
20-F.
 
2

Table of Contents
PART III
Item 18. Financial Statements
See pages
F-1
through
F-27.
 
Item 19.
Exhibits
 
Exhibit
Number
  
Description
  12.1*
  
  12.2*
  
  13.1**
  
  15.1*
  
  15.2*
  
101.INS*
  
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*
  
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
  
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
  
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
  
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
  
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
  
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
 
*
Filed herewith.
**
Furnished herewith.
 
3

Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form
20-F/A
and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
RENALYTIX PLC
By:
 
/s/ James McCullough
Name:
 
James McCullough
Title:
 
Chief Executive Officer
Date: August 1, 2022
 
4

Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
     F-1  
     F-2  
     F-3  
     F-4  
     F-5  
     F-6  
     F-7  
 
5

Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Renalytix plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Renalytix plc (the Company) as of June 30, 2021, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the year ended June 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2021, and the results of its operations and its cash flows for the year ended June 30, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Iselin, New Jersey
October 21, 2021
 
F-1

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Renalytix AI plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Renalytix AI plc and subsidiaries (the “Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, shareholders’ (deficit) equity, and cash flows, for each of the two years in the period ended June 30, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 27, 2020
We began serving as the Company’s auditor in 2020. In 2021 we became the predecessor auditor.
 
F-2

Table of Contents
RENALYTIX PLC
CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
  
June 30,
2021
 
 
June 30,
2020
 
 
June 30,
2019
 
Assets
  
 
 
Current assets:
  
 
 
Cash and cash equivalents
   $ 65,128     $ 13,293     $ 8,201  
Short-term investments
     —         982       994  
Accounts receivable
     594       —         —    
Prepaid expenses and other current assets
     993       551       227  
Note receivable from Kantaro—current
     75       —         —    
Receivable from affiliates
     1       18       —    
    
 
 
   
 
 
   
 
 
 
Total current assets
     66,791       14,844       9,422  
Property and equipment, net
     2,490       1,655       278  
Investment in VericiDx
     9,295       —         —    
Investment in Kantaro
     —         1,937       —    
Note receivable from Kantaro—noncurrent
     —         83       —    
Deferred offering costs
     —         2,364       —    
    
 
 
   
 
 
   
 
 
 
Total assets
   $ 78,576     $ 20,883     $ 9,700  
    
 
 
   
 
 
   
 
 
 
Liabilities and Shareholders’ Equity
                        
Current liabilities:
                        
Accounts payable
   $ 1,403     $ 2,218     $ 317  
Accounts payable-related party
 
 
361
 
 
 
 
 
 
 
 
 
Accrued expenses and other current liabilities
     4,602       683       832  
Accrued expenses—related party
     224       —         —    
Deferred revenue
    
122
            —    
Note payable—current
 
 
 
 
 
120
 
 
 
 
Payable to affiliate—current
     350       271       —    
    
 
 
   
 
 
   
 
 
 
Total current liabilities
     7,062       3,292       1,149  
Payable to affiliate—noncurrent
     —         1,544       —    
Note payable—noncurrent
     —         135       —    
Other liabilities
     53       —         —    
    
 
 
   
 
 
   
 
 
 
Total liabilities
     7,115       4,971       1,149  
    
 
 
   
 
 
   
 
 
 
Commitments and contingencies (Note 9)
                 
Shareholders’ equity:
                        
Ordinary shares, £0.0025 par value per share: 76,463,244 and 62,444,992 shares authorized at June 30, 2021 and June 30, 2020, respectively; 72,197,286 and 59,416,134 shares issued and outstanding at June 30, 2021 and June 30, 2020, respectively
     220       179       162  
Additional
paid-in
capital
     150,407       69,650       52,084  
Accumulated other comprehensive income (loss)
     8,276       (1,200     (822
Accumulated deficit
     (87,442 )     (52,717     (42,873
    
 
 
   
 
 
   
 
 
 
Total shareholders’ equity
     71,461       15,912       8,551  
    
 
 
   
 
 
   
 
 
 
Total liabilities and shareholders’ equity
   $ 78,576     $ 20,883     $ 9,700  
 
  
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
3

RENALYTIX PLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
(in thousands, except share data)
  
Year Ended

June 30, 2021
   
Year Ended

June 30, 2020
   
Year Ended
June 30, 2019
 
Revenue
   $ 1,491     $ —       $ —    
Cost of revenue
     858       —         —    
    
 
 
   
 
 
   
 
 
 
Gross profit
     633       —         —    
Operating expenses:
                        
Acquired
in-process
research and development
     —         —         35,286  
Research and development
     10,040       4,565       4,316  
General and administrative
     23,479       5,750       2,737  
Performance of contract liability to affiliate
     (970     —         —    
    
 
 
   
 
 
   
 
 
 
Total operating expenses
     (32,549 )     (10,315     (42,339
    
 
 
   
 
 
   
 
 
 
Loss from operations
     (31,916 )     (10,315     (42,339
Equity in losses of affiliate
     (2,112 )     (63     —    
Foreign currency (loss)/gain
     (8,772 )     245       20  
Fair value adjustment to VericiDx investment
     6,483       —         —    
Gain on loan extinguishmen
t
 
 
255
 
 
 
 
 
 
 
 
 
Other income, net
     726       289       18  
    
 
 
   
 
 
   
 
 
 
Net loss
     (35,336 )     (9,844     (42,301
Net loss attributable to noncontrolling interest
     (611     —         —    
    
 
 
   
 
 
   
 
 
 
Net loss attributable to ordinary shareholders
     (34,725 )     (9,844     (42,301
    
 
 
   
 
 
   
 
 
 
Other comprehensive income (loss):
                        
Foreign exchange translation adjustment
     9,501       (378     (826
    
 
 
   
 
 
   
 
 
 
Comprehensive loss
     (25,835 )     (10,222     (43,127
    
 
 
   
 
 
   
 
 
 
Comprehensive loss attributable to noncontrolling interest
     (72     —         —    
    
 
 
   
 
 
   
 
 
 
Comprehensive loss attributable to Renalytix AI
   $ (25,763 )   $ (10,222   $ (43,127
    
 
 
   
 
 
   
 
 
 
Net loss per ordinary share—basic and diluted
   $ (0.49   $ (0.17   $ (0.99
Weighted average ordinary shares—basic and diluted
     71,484,934       59,079,522       42,561,600  
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the
s
e consolidated financial statements.
 
F-
4

RENALYTIX PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
(in thousands, except share and per share data)
  
Ordinary shares
 
 
Additional
paid-in

capital
 
 
Accumulated
other
comprehensive

income (loss)
 
 
Accumulated

deficit
 
 
Total
shareholders’
(deficit)
equity
attributable
to

Renalytix
 
 
Noncontrolling

interests
 
 
Total
shareholders’

equity
 
  
Shares
 
  
Amount
 
Balance at July 1, 2018
    20,000,000    
$
66    
$
—      
$
4    
$
(572
)
 
$
(502
)
 
$
—      
$
(502
)
Ordinary shares issued to acquire Joslin license
    15,427,704       49       24,237       —         —         24,286       —         24,286  
Sale of ordinary shares in initial public offering, net of offering costs of $1,742
    18,388,430       47       27,322       —         —         27,369       —         27,369  
Share-based compensation expense
    —         —         525       —         —         525       —         525  
Currency translation adjustments
    —         —         —         (826     —         (826     —         (826
Net loss
    —         —         —         —         (9,844     (42,301     —         (42,301
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2019
    53,816,134       162       52,084       (822     (42,873     8,551       —         8,551  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Sale of ordinary shares in secondary offering, net of offering costs of $842
    5,600,000       17       16,407       —         —         16,424       —         16,424  
Share-based compensation expense
    —         —         1,159       —         —         1,159       —         1,159  
Currency translation adjustment
    —         —         —         (378     —         (378     —         (378
Net loss
    —         —         —         —         (9,844     (9,844     —         (9,844
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
    59,416,134       179       69,650       (1,200     (52,717     15,912       —         15,912  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Sale of ordinary shares in initial public offering on Nasdaq, net of offering costs and underwriting fees of $9,007
    12,613,500       40       76,094       —         —         76,134       —         76,134  
VericiDx distribution in specie
    —         —         1,638       (25     —         1,613       (1,613     —    
Deconsolidation of Verici
    —         —         —         —         —         —         2,296       2,296  
Shares issued under the employee share purchase plan
    17,652       —         111       —         —         111       —         111  
Exercise of stock options
    150,000       1       251       —         —         252       —         252  
Share-based compensation expense
    —         —         2,663       —         —         2,663       —         2,663  
Currency translation adjustments
    —         —         —         9,501       —         9,501       (72     9,429  
Net loss
    —         —         —         —         (34,725 )     (34,725 )     (611     (35,336 )
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
    72,197,286     $ 220     $ 150,407     $ 8,276     $ (87,442 )   $ 71,461     $ —       $ 71,461  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-
5

RENALYTIX PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in thousands)
  
Year Ended
June 30, 2021
 
 
Year Ended
June 30, 2020
 
 
Year Ended
June 30, 2019
 
Cash flows from operating activities:
  
     
 
     
 
     
Net loss
  
$
(35,336 )
 
$
(9,844
 
$
(42,301
Adjustments to reconcile net loss to net cash used in operating activities
  
 
 
 
 
 
 
 
 
 
 
 
Non-cash
in-process
research and development charge
  
 
—  
 
 
 
—  
 
 
 
35,286
 
Gain on deconsolidation of VericiDx
  
 
(46
 
 
—  
 
 
 
—  
 
Depreciation and amortization
  
 
282
 
 
 
70
 
 
 
31
 
Share-based compensation
  
 
2,663
 
 
 
1,159
 
 
 
525
 
Gain on loan
  
 
(255
 
 
—  
 
 
 
—  
 
Realized gain on short-term investments
  
 
(18
 
 
(128
 
 
(24
Equity losses in affiliate, including related impairments
  
 
2,112
 
 
 
63
 
 
 
—  
 
Reversal of Kantaro Liability
 
 
(495
)
 
 
 
 
 
 
 
 
Fair value adjustment to VericiDx investment
  
 
(6,483
 
 
—  
 
 
 
—  
 
Unrealized foreign exchange loss (gain)
  
 
5,539
 
 
 
(213
 
 
—  
 
Changes in operating assets and liabilities:
  
 
 
 
 
 
—  
 
 
 
 
 
Accounts receivable
  
 
(594
 
 
—  
 
 
 
—  
 
Prepaid expenses and other current assets
  
 
(710
 
 
(325
 
 
(197
Related party receivable
  
 
17
 
 
 
(18
 
 
—  
 
Accounts payable
  
 
782
 
 
 
355
 
 
 
303
 
Accrued expenses-related party
 
 
585
 
 
 
 
 
 
 
 
 
Accrued expenses and other current liabilities
  
 
4,353
 
 
 
(456
 
 
221
 
Deferred revenue
 
 
122
 
 
 
 
 
 
 
Payable to affiliate
  
 
(970 )
 
 
(185
 
 
—  
 
Other liabilities
  
 
53
 
 
 
—  
 
 
 
—  
 
Net cash used in operating activities
  
 
(28,399 )
 
 
(9,522
 
 
(6,156
Cash flows from investing activities:
  
 
 
 
 
 
 
 
 
 
 
 
Note receivable—related party
  
 
(167
 
 
(83
 
 
—  
 
Purchases of property and equipment
  
 
(773
 
 
(804
 
 
(309
Software development costs
  
 
(749
 
 
(427
 
 
—  
 
Purchase of short-term investments
  
 
—  
 
 
 
(21,260
 
 
(4,970
Proceeds from short-term investments
  
 
1,000
 
 
 
21,400
 
 
 
4,000
 
Decrease in cash (VericiDx deconsolidation)
  
 
(62
 
 
—  
 
 
 
—  
 
Acquired
in-process
research and development
  
 
—  
 
 
 
—  
 
 
 
(11,021
Net cash used in investing activities
  
 
(751
 
 
(1,174
 
 
(12,300
Cash flows from financing activities:
  
 
 
 
 
 
 
 
 
 
 
 
Gross proceeds from the issuance of ordinary shares, net of underwriting fees
  
 
79,182
 
 
 
—  
 
 
 
—  
 
Gross proceeds from the issuance of ordinary shares
  
 
—  
 
 
 
17,276
 
 
 
29,111
 
Payment of offering costs
  
 
(2,305
 
 
(1,593
 
 
(1,292
Payment from related-party notes
  
 
—  
 
 
 
—  
 
 
 
633
 
Proceeds from the issuance of ordinary shares under employee share purchase plan
  
 
111
 
 
 
—  
 
 
 
—  
 
Proceeds from exercise of stock options
  
 
252
 
 
 
—  
 
 
 
—  
 
Proceeds from PPP Loan
  
 
  —
 
 
 
255
 
 
 
—  
 
Repayment of related-party notes
  
 
—  
 
 
 
—  
 
 
 
(1,069
Net cash provided by financing activities
  
 
77,240
 
 
 
15,938
 
 
 
27,383
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
  
 
3,745
 
 
 
(150
 
 
(808
 
  
 
 
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
  
 
51,835
 
 
 
5,092
 
 
 
8,119
 
Cash and cash equivalents, beginning of year
  
 
13,293
 
 
 
8,201
 
 
 
82
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, end of year
  
 
65,128
 
 
$
13,293
 
 
 
8,201
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cashflow information:
  
     
 
     
 
     
Cash paid for interest
  
$
—  
 
 
$
—  
 
 
$
21
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Supplemental noncash investing and financing activities:
  
     
 
     
 
     
Ordinary shares issued to acquire Joslin license
  
$
—  
 
 
$
—  
 
 
$
24,286
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Financing costs in accounts payable and accrued expenses
  
$
—  
 
 
$
1,630
 
 
$
450
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Software development costs in accounts payable and accrued expenses
  
$
—  
 
 
$
177
 
 
$
—  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Purchase of property and equipment in accounts payable and accrued expenses
  
$
—  
 
 
$
56
 
 
$
—  
 
Reclassification of note receivable in Kantaro to Investment in Kantaro
 
$
175
 
 
$
 
 
$
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Deemed distribution of VericiDx ordinary shares
  
$
75
 
 
$
—  
 
 
$
—  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Conversion of VericiDx note receivable into VericiDx ordinary shares
  
$
2,556
 
 
$
—  
 
 
$
—  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Fair value of services exchanged for equity method investment of which services are recorded as the payable to
affiliate
  
$
—  
 
 
$
2,000
 
 
$
—  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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RENALYTIX PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and risks
Renalytix and its wholly-owned subsidiaries, Renalytix AI, Inc. and Renalytix AI Limited, (collectively, “Renalytix”, or the “Company”) is an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and significantly lower healthcare costs. KidneyIntelX, the Company’s first-in-class diagnostic platform, employs a proprietary artificial intelligence-enabled algorithm that combines diverse data inputs, including validated blood-based biomarkers, inherited genetics and personalized patient data from EHR systems, to generate a unique patient risk score. Additionally, the Company has successfully completed the first stage of a statement of work with AstraZeneca Pharmaceuticals LP (“AstraZeneca”) to conduct a feasibility study to determine the impact of the use of the Company’s KidneyIntelX platform to optimize utilization of various CKD agents. Further, in December 2020 the Company entered into a master service agreement with AstraZeneca for future services of this nature. As a result of the initial success with AstraZeneca the Company plans to pursue further collaborations with pharmaceutical companies and make ‘Pharmaceutical Services Revenue’ a core part of the business going forward with the goal of improving guideline-based standard-of-care for optimal utilization of existing and novel therapeutics using the KidneyIntelX testing platform and proprietary care management software.
In August 2020, the Company created
 
a wholly-owned subsidiary of Renalytix AI plc, Renalytix AI Limited (“Limited”) to facilitate operations in Ireland.
Since inception in March 2018, the Company has focused primarily on organizing and staffing the Company, raising capital, developing the KidneyIntelX platform, conducting clinical validation studies for KidneyIntelX, establishing and protecting its intellectual property portfolio and commercial laboratory operations, pursuing regulatory clearance and developing a reimbursement strategy. To date, the Company has generated de minimis revenue from the sales of KidneyIntelX tests. The Company has funded its op
e
rations primarily through equity financings.
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 and additional diagnostic products currently under development will require extensive clinical testing and validation prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities.
2. Liquidity and Going
 
Concern
The Company has incurred recurring losses and negative cash flows from operations sinc
e
 inception and had an accumulated deficit of
$87.4
million
 
as of June 30, 2021. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of KidneyIntelX or any future products currently in development. Management believes its cash and cash equivalents of
 
$65.1 
million as of June 30, 2021, are sufficient to fund the projected operations for at least the next twelve months from the issuance date of these financial statements. Substantial additional capital will be needed by the Company to fund its operations, expand its commercial activities and develop other potential diagnostic related products.
The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company could be
 
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required to delay, curtail or discontinue research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospect.
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”).
The Company reclassified certain prior year comparative figures in the consolidated statements of operations and comprehensive loss to conform to the current year’s presentation. This change in presentation did not have an impact on the Company’s financial condition, operating results or cash flows.
Principles of consolidation
The consolidated financial statements include the accounts of Renalytix plc, and its wholly-owned subsidiaries, Renalytix AI, Inc. and Renalytix AI Limited. 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.
Deconsolidation
Upon the occurrence of certain events and on a regular basis, the Company evaluates whether it no longer has a controlling interest in its subsidiaries, including consolidated variable interest entities. If the Company determines it no longer has a controlling interest, the subsidiary is deconsolidated. The Company records a gain or loss on deconsolidation based on the difference on the deconsolidation date between (i) the aggregate of (a) the fair value of any consideration received, (b) the fair value of any retained noncontrolling investment in the former subsidiary and (c) the carrying amount of any noncontrolling interest in the subsidiary being deconsolidated, less (ii) the carrying amount of the former subsidiary’s assets and liabilities.
The Company assesses whether a deconsolidation is required to be presented as discontinued operations in its consolidated financial statements on the deconsolidation date. This assessment is based on whether or not the deconsolidation represents a strategic shift that has or will have a major effect on the Company’s operations or financial results. If the Company determines that a deconsolidation requires presentation as a discontinued operation on the deconsolidation date, or at any point during the
one-year
period following such date, it will present the former subsidiary as a discontinued operation in current and comparative period financial statements.
Verici Dx plc 
In April 2020, the Company created a wholly-owned subsidiary, Verici Dx
plc
 (“VericiDx”), to hold technology
in-licensed
from the Icahn School of Medicine at Mount Sinai (“ISMMS” or “Mount Sinai”) in late 2018. In May 2020, the Company transferred the
in-licensed
FractalDx technology and associated assets to VericiDx in exchange for $2.0 million, which was satisfied by the issuance of convertible loan notes of VericiDx to the Company. The reduction of capital necessary to implement this transaction was approved by the Company’s shareholders at a general meeting held on May 15, 2020 and confirmed by the High Court in England and Wales on June 9, 2020. The Company’s board of directors declared the distribution of shares of VericiDx to the then shareholders of the Company, to effect the FractalDx
spin-off,
on July 7, 2020, and the distribution occurred on July 10, 2020.
The Company announced on July 8, 2020 that the share capital of VericiDx had been
re-designated
into 59,416,134 A Shares of £0.001 each and one golden share of £0.001 (the “Golden Share”) and that Renalytix
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would retain the Golden Share and its associated controlling voting rights. Subsequent to that announcement, the Company entered into a declaration of trust whereby Renalytix AI plc had declared that it held the Golden Share as nominee and on trust for certain Directors of Renalytix AI and accordingly, the Company itself had no ongoing beneficial interest in VericiDx shares. This triggered a reconsideration event for ongoing consolidation of VericiDx and since the Company was still the primary funding source for VericiDx, the Company continued to hold a controlling financial interest in VericiDx and continued to consolidate VericiDx. Consequently, the
 
Company recognized noncontrolling interest of $1.6 million to reflect VericiDx’s distribution of A Shares and the Golden Share.
As the Company had been the primary funding source for VericiDx since its distribution to the Company’s stockholders, the operations and financial position of VericiDx were included in the consolidated financial statements of the Company. Participation of the stockholders in the net assets and losses of VericiDx were reflected in the line items “Noncontrolling interests” in the Company’s consolidated balance sheets and “Net loss attributable to the noncontrolling interests” in the Company’s consolidated statements of operations and comprehensive loss. Noncontrolling interests adjusts the Company’s consolidated results of operations and comprehensive loss to exclude all of the losses of VericiDx as Renalytix AI had no direct equity ownership in VericiDx from the date of the distribution through October 28, 2020. Changes in the underlying net book value of VericiDx due to equity issuances are reflected as equity transaction in the Company’s consolidated statements of stockholders’ equity.
On November 3, 2020, VericiDx completed an initial public offering on AIM and raised gross proceeds of £14.5 million (“VericiDx IPO”) triggering a reconsideration event for ongoing consolidation of VericiDx. The VericiDx IPO resulted in the Company no longer having a controlling financial
interest in VericiDx as the Company was no longer VericiDx’s primary funding source. VericiDx previously issued the Company an aggregate of $2.5 
million in convertible loan notes which reflected the $2.0 million consideration for the FractalDx assets and $0.5 million of additional funding the Company provided VericiDx through October 28, 2020. Prior to the VericiDx IPO, on October 28, 2020, the Company gave notice to convert the aggregate outstanding $2.5 million convertible loan notes into 9,831,681 ordinary shares of VericiDx. As a result of the VericiDx IPO, the Company deconsolidated VericiDx from the consolidated financial statements of the Company as of that date and recognized a gain of $46,000 within other (expense) income in the consolidated statements of operations and comprehensive loss for the year ended June 30, 2021.
As the Company can exert significant influence over, but does not control, VericiDx’s operations through representation on VericiDx’s board of directors, the Company accounts for the investment as an equity method investment and has also elected the fair value option. In connection with the deconsolidation of VericiDx, the Company evaluated whether the results of VericiDx should be presented as discontinued operations for the year ended June 30, 2021. The Company concluded that the deconsolidation of VericiDx, as a r
e
sult of the VericiDx IPO, is not a development that significantly impacts the Company’s overall operations and financial results. Research and development expenses incurred related to this program accounted for a minor portion of the Company’s overall annual research and development expenses and the Company remains focused on developing the KidneyIntelX platform. Therefore, the Company has not presented the results related to VericiDx as discontinued operations in its consolidated statements of operations and comprehensive loss for the year ended June 30, 2021.
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.
 
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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, recording the prepaid/accrual and associated expense for research and development activities performed for the Company by third parties, determining useful lives of property and equipment and capitalized software, the assessment of noncontrolling interest and equity method investments, fair value measurements, the payable to affiliates and the consolidation and deconsolidation of variable interest entities.
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 statements of operations 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 income (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 and accounts receivable balances. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and are not exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships and has not experienced any losses on such accounts.
The Company’s accounts receivable are derived from revenue earned from customers located in the U.S. All of the Company’s revenue has been generated from two customers for the years ended June 30, 2021. 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.
Fair value of financial instruments
At June 30, 2021, 2020 and 2019, the Company’s financial instruments included accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities. The carrying amounts of these assets and liabilities approximates fair value due to their short-term nature.
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).
 
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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 June 30, 2021, the Company had a cash balance of $65.1 million. As of June 30, 2020, the Company had a cash balance of $12.8 million and cash equivalents consisting of $0.5 million held in a money market account. As of June 30, 2019, the Company had a cash balance of $7.2 million and cash equivalents consisting of $1.0 million held in U.S. Treasury Bills.
Short-term investments
Short-term investments consist of debt securities with a maturity date greater than three months when acquired. The Company classifies its short-term investments at the time of purchase as
available-for-sale
securities.
Available-for-sale
securities are carried at fair value. Unrealized gains or losses on
available-for-sale
securities are reported in accumulated other comprehensive income (loss), a component of the shareholders’ equity, until realized. Short-term investments at June 30, 2020 and 2019 consisted of U.S. Treasury Bills with a fair value of $1.0 million. Unrealized gains (losses) at June 30, 2020 and 2019 were de minimis as their maturity date was 91 days from original purchase. The Company had no short-term investments at June 30, 2021.
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 allowances for doubtful accounts are determined based on existing contractual obligations, historical payment patterns, and individual customer circumstances. No reserves have been recorded as of June 30, 2021, 2020 or 2019.
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 acc
u
mulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations.
Deferred offering costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with
in-process
common equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of additional
paid-in
capital generated as a result of such offering. Should an
in-process
equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. As of June 30, 2020, the Company had deferred offering costs of $2.4 million related to the IPO on the Nasdaq Global Market which was completed in July 2020. Upon completion of the IPO, the deferred offering costs were reclassified into additional
paid-in
capital. The Company had no deferred offering costs as of June 30, 2021 or June 30, 2019.
Performance of contract liability to affiliate
In May 2020, the Company and the Icahn School of Medicine at Mount Sinai entered into an operating agreement (“Kantaro Operating Agreement”) to form a joint venture, Kantaro Biosciences LLC (“Kantaro”), for the purpose of developing and commercializing laboratory tests for the detection of antibodies against SARS-CoV-2 originally developed by Mount Sinai. Kantaro has a fiscal year ending December 31
st
. Kantaro has partnered with Bio-Techne Corporation to develop and launch the new test which are designed for use in any
 
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authorized clinical testing laboratory without the need for proprietary equipment. During the year ended June 30, 2021, the Company recognized $1.0 
million related to the performance of the contract liability with Kantaro. This represents the allocation of costs for performing services on behalf of Kantaro. There was no such transaction in fiscal 2020 and 2019.
Equity method investments
The Company accounts for equity investments where it owns a
non-controlling
interest, but has the ability to exercise significant influence, under the equity method of accounting. Under the equity method of accounting, the original cost of the investment is adjusted for the Company’s share of equity in the earnings of the equity investee and reduced by dividends and distributions of capital received, unless the fair value option is elected, in which case the investment balance is marked to fair value each reporting period and the impact of changes in fair value of the equity investment are reported in earnings.
Kantaro Biosciences LLC
As the Company can exert significant influence over, but does not control, Kantaro’s operations through voting rights or representation on Kantaro’s board of directors, the Company accounts for this investment using the equity method of accounting. The Company records its share in Kantaro’s earnings and losses in the consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognize an impairment loss to adjust the investment to its then-current fair value (see Note 5). The Company owned
25
% of the membership equity units in Kantaro at June 
30
,
2021
.
VericiDx plc 
As the Company can exert significant influence over, but does not control, VericiDx’s operations through representation on VericiDx’s board of directors, the Company accounts for this investment as an equity method investment and has elected the fair value option because VericiDx’s stock price is readily observable via the London Stock Exchange. Under the fair value option, the investment in VericiDx is recorded at fair value at each reporting period with subsequent changes in fair value reported in the consolidated statements of operations and comprehensive loss. Based on closing stock price of VericiDx, the fair value of the investment in VericiDx was $9.3 million at June 30, 2021. During the year ended June 30, 2021, the Company recorded a fair value adjustment of $6.5 million, in the consolidated statements of operations and comprehensive loss. The Company owned 6.94% of the ordinary shares of VericiDx at June 30, 2021.
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
 
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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 year ended June 30, 2020, the Company expensed $0.6 million of research and development expenses related to capitalized software. There was no research and development expense related to capitalized software for the years ended June 30, 2021 and 2019. Technological feasibility is established upon the completion of a working model
 
that has been validated.
Revenue recognition
The Company adopted ASC 606 –
Revenue from Contracts
 
with Customers
(“ASC 606”) on July 1, 2018. The adoption of ASC 606 did not have a material impact on the consolidated financial statements.
Pursuant to ASC 606, 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 ar
e
 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 present right to payment a
n
d 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 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 and other studies for KidneyIntelX to determine clinical value and performance in different CKD populations. 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 privately-held organization prior to November 2018 and has
been a 
 
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publicly-traded company for a limited period of time and therefore lacks company-specific historical and implied volatility information for its shares. Therefore, it estimates its expected share price volatility based on the historical volatility of publicly-traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is none based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future.
The Company classifies share-based compensation expense in its consolidated statement 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.
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 the only other changes in shareholders’ equity is from foreign currency translation.
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 June 30, 2021, 2020 and 2019 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.
As of June 30, 2021 and 2020, there were 4,265,958, 3,028,858 and 2,195,697 shares, respectively, issuable upon exercise of outstanding options that were anti-dilutive and excluded from diluted loss per share for the years ended June 30, 2021, 2020 and 2019, respectively.
 
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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 February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, in order to inc
r
ease transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) the lease classification or (c) the determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. In June 2020, the FASB issued ASU No 2020-05 that further delayed the effective date of Topic 842 to fiscal years beginning July 1, 2022, and interim periods within those years. The Company is currently evaluating the impact of adopting this guidance to its consolidated financial statements.
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 current guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. The new guidance w
i
ll be effective for the Company on July 1, 2023. The Company is currently evaluating the impact of adopting this guidance to its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based on income, evaluating tax basis of goodwill recognized from a business combination and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal year beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The Company has elected to adopt this ASU as of January 1, 2020 on a prospective basis. The adoption of
ASU 2019-12
did not have a material impact on the current financial statements.
In January 2020, FASB issued ASU 2020-01,
Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)
, which, generally, provides guidance for investments in entities accounted for under the equity method of accounting. ASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The Company is currently evaluating the impact of adopting this guidance to its consolidated financial statements.
 
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Table of Contents
4. Revenue
Testing services revenue
Testing services revenue is generated from the KidneyIntelX platform, which provides analytical services to customers. 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 year ended June 30, 2021, the Company recognized $0.4 million of testing services revenue. Sales tax and other similar taxes are excluded from revenues. There was no testing services revenue recognized in fiscal 2020 and 2019.
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 present right to payment 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 year ended June 
30
,
2021
, the Company recognized $
0.5
 million of pharmaceutical services revenue where performance obligations are satisfied at a point in time. There was
no
pharmaceutical services revenue recognized in fiscal
2020
and
2019
.
Professional services revenue
Professional services revenue consists of services related to the creation of a branded care navigation portal/pathway for use with KidneyIntelX. Revenue is recognized when control of the promised services is transferred to customers and the performance obligation is fulfilled in an amount that reflects the consideration that the Company expects to be entitled in exchange for those services. During the year ended June 30, 2021, the Company recognized $0.6 million of other services revenue where performance obligations are satisfied at a point in time. There was no professional services revenue recognized in fiscal 2020 and 2019.
Deferred revenue
Deferred revenue represents the allocated transaction price to the material right which will be recognized as revenue when the renewal options are exercised which is expected to occur over the next 24 months.
The following table summarizes the changes in deferred revenue:
 
 
  
Year Ended June 30,
 
 
  
2021
 
  
2020
 
  
2019
 
Balance, beginning of period
  
$
  
 
  
$
  
 
  
$
  
 
Deferral of revenue
  
 
250
 
  
 
  
 
  
 
  
 
Revenue recognized
  
 
(128
  
 
  
 
  
 
  
 
Balance, end of period
  
$
122
 
  
$
  
 
  
$
  
 

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
 
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16

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)
 
June 30, 2021:
  
     
  
     
  
     
Assets:
  
     
  
     
  
     
Equity investment in VericiDx
  
$
9,295
 
  
$
  
 
  
$
  
 
June 30, 2020:
  
     
  
     
  
     
Assets:
  
     
  
     
  
     
Cash equivalents (Money Market Fund)
  
$
500
 
  
$
  
 
  
$
  
 
U.S. Treasury Bills
  
 
982
 
  
 
  
 
  
 
  
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total
  
$
1,482
 
  
$
  
 
  
$
  
 
June 30, 2019
  
     
  
     
  
     
Assets:
  
     
  
     
  
     
Cash equivalents (U.S. Treasury Bills - Maturity < 90 Days)
   $ 996      $         $     
U.S. Treasury Bills
  
$
994
 
  
$
  
 
  
$
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
   $ 1,990      $         $     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 sheet. 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.
Based on sales forecasts, the Company concluded that its equity method investment in Kantaro was impaired due to a shift in focus from COVID antibody testing to promoting vaccination in the United States and European Union. As a result of this shift, demand for COVID antibody testing decreased. The forecasts indicate there is a prolonged period of time that Kantaro’s fair value is below the carrying value of the investment and the discounted and undiscounted cash flows are also below the carrying value of the investment. For these reasons, the Company concluded the decline in value is other-than-temporary. As such, during the year ended June 30, 2021, the Company determined the fair value usi
n
g a discounted cash flow model and concluded that the fair value of the equity method investment in Kantaro was zero. Accordingly, the Company recorded a $1.9 million 
impairment charge within equity in losses of affiliate in the consolidated statements of operations.
 
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17

6. Property and equipment
Property and equipment consists of (in thousands):
 
 
 
June 30, 2021
 
 
June 30, 2020
 
 
June 30, 2019
 
Lab equipment
   $ 592      $ 862      $ 309  
Software
     1,534        744            
Office equipment
     84        31            
Office furniture
     35        10            
Leasehold improvements
     576                      
Construction in process
               113            
    
 
 
    
 
 
    
 
 
 
Total
     2,821        1,760        309  
Less accumulated depreciation and amortization
     (331      (105      (31
    
 
 
    
 
 
    
 
 
 
     $ 2,490      $ 1,655      $ 278  
Depreciation expense was $0.2 million, $0.1 million and $31,000 for the years ended June 30, 2021, 2020 and 2019, respectively.
As of June 30, 2021 and 2020, there was $1.3 million and $0.6 million, respectively, of unamortized capitalized software development costs. There was no unamortized capitalized software development costs as of June 30, 2019. Amortization expense related to capitalized software development costs was $85,000 for the years ended June 30, 2021 and
was
expensed within cost of revenue in the consolidated statement of operations. There was no amortization expense related to capitalized software development costs for fiscal 2020 and 2019.
As of June 30, 2021, the expected amortization expense for the next five years and thereafter is as follows:
 
2022
     123  
2023
     124  
2024
     124  
2025
     124  
2026
     124  
Thereafter
     606  
    
 
 
 
     $ 1,225  
7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of (in thousands):
 
    
June 30, 2021
    
June 30, 2020
    
June 30, 2019
 
Consulting and professional fees
   $ 954      $ 567      $ 719  
Research and development
               80        —    
Payroll and related benefits
     3,493        24        28  
Other
     155        12        85  
    
 
 
    
 
 
    
 
 
 
     $ 4,602      $ 683      $ 832  
    
 
 
    
 
 
    
 
 
 
8. Debt
Paycheck Protection Program
On April 29, 2020, the Company entered into an original loan agreement with Fortis Private Bank as the lender (“Lender”) for a loan in an aggregate principal amount of $