10-Q
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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 June 30, 2021

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 001-39587

23ANDME HOLDING CO.

(Exact name of registrant as specified in its charter)

 

Delaware

87-1240344

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

223 N. Mathilda Avenue

Sunnyvale, California

94086

(Address of principal executive offices)

(Zip Code)

 

(650) 938-6300

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par value per share

ME

The Nasdaq Global Select Market

Redeemable warrants, each whole warrant exercisable for one share of Class A common stock

MEUSW

The Nasdaq Global Select Market

 

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, a 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 July 31, 2021, there were 93,026,554 shares of Class A common stock, $0.0001 par value per share, and 313,759,355 shares of Class B common stock, $0.0001 par value per share, issued and outstanding.

 


 

23ANDME HOLDING CO.

TABLE OF CONTENTS

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021

4

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2021 and 2020

5

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(Deficit) for the three months ended June 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020

7

Notes to the Condensed Consolidated Financial Statements

8

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

43

Item 4. Controls and Procedures

44

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

45

Item 1A. Risk Factors

45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3. Defaults Upon Senior Securities

74

Item 4. Mine Safety Disclosures

74

Item 5. Other Information

74

Item 6. Exhibits

75

Signature

78

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 

This quarterly report on Form 10-Q (this "Form 10-Q), including, without limitation, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Generally, statements that are not historical facts, including statements concerning 23andMe Holding Co.’s (the “Company,” “we,” “us,” or “our”) possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the words "believes," "estimates," "anticipates," "expects," "intends," "plans," "may," "will," "potential," "projects," "predicts," "continue," or "should," or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations.

The forward-looking statements contained in this Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, without limitation, those factors described under Part II, Item 1A: "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. These risks and others described under Part II, Item 1A: "Risk Factors" may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

3


 

PART I.       FINANCIAL INFORMATION

Item 1.         Financial Statements

23ANDME HOLDING CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) 

 

 

 

June 30,

 

 

March 31,

 

 

 

 

2021

 

 

2021

 

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

769,938

 

 

$

282,489

 

 

Restricted cash

 

 

1,399

 

 

 

1,399

 

 

Accounts receivable, net

 

 

9,404

 

 

 

2,481

 

 

Inventories

 

 

15,272

 

 

 

6,239

 

 

Deferred cost of revenue

 

 

6,118

 

 

 

5,482

 

 

Prepaid expenses and other current assets

 

 

12,532

 

 

 

15,485

 

 

Total current assets

 

 

814,663

 

 

 

313,575

 

 

Property and equipment, net

 

 

57,700

 

 

 

60,884

 

 

Operating lease right-of-use assets

 

 

59,996

 

 

 

63,122

 

 

Restricted cash, noncurrent

 

 

6,974

 

 

 

6,974

 

 

Internal-use software, net

 

 

7,132

 

 

 

6,889

 

 

Other assets

 

 

553

 

 

 

654

 

 

Total assets

 

$

947,018

 

 

$

452,098

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable (related party amounts of $6,604 and $4,422 as of June 30, 2021 and March 31, 2021, respectively)

 

$

17,684

 

 

$

12,271

 

 

Accrued expenses and other current liabilities (related party amounts of $6,930 and $7,065 as of June 30, 2021 and March 31, 2021, respectively)

 

 

33,029

 

 

 

31,953

 

 

Deferred revenue (related party amounts of $18,930 and $30,140 as of June 30, 2021 and March 31, 2021, respectively)

 

 

66,103

 

 

 

71,255

 

 

Operating lease liabilities

 

 

5,853

 

 

 

6,140

 

 

Total current liabilities

 

 

122,669

 

 

 

121,619

 

 

Operating lease liabilities, noncurrent

 

 

84,670

 

 

 

87,582

 

 

Other liabilities

 

 

1,188

 

 

 

1,165

 

 

Warrant Liabilities

 

 

75,949

 

 

 

 

 

Total liabilities

 

$

284,476

 

 

$

210,366

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Redeemable convertible preferred stock

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.00001 par value per share, 10,000,000 and 209,512,070 shares authorized as of June 30, 2021 and March 31, 2021, respectively; nil and 209,181,855 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively; aggregate liquidation preference of nil and $874,107 as of June 30, 2021 and March 31, 2021, respectively

 

 

 

 

 

837,351

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

Common Stock - Class A shares, par value $0.0001, 92,672,510 and 20,713,076 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively; Class B shares, par value $0.0001, 313,759,355 and 103,816,706 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively.

 

 

41

 

 

 

 

 

Additional paid-in capital

 

 

1,681,765

 

 

 

381,619

 

 

Accumulated deficit

 

 

(1,019,264

)

 

 

(977,238

)

 

Total stockholders’ equity (deficit)

 

 

662,542

 

 

 

(595,619

)

 

Total liabilities and stockholders’ equity (deficit)

 

$

947,018

 

 

$

452,098

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

23ANDME HOLDING CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

 

 

2021

 

 

2020

 

 

Revenue (related party amounts of $11,209 and $11,827 for the three months ended June 30, 2021 and 2020, respectively)

 

$

59,239

 

 

$

48,057

 

 

Cost of revenue (related party amounts of $448 and $412 for the three months ended June 30, 2021 and 2020, respectively)

 

 

28,542

 

 

 

25,563

 

 

Gross profit

 

 

30,697

 

 

 

22,494

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development (related party amounts of $6,022 and $1,818 for the three months ended June 30, 2021 and 2020, respectively)

 

 

44,232

 

 

 

34,370

 

 

Sales and marketing

 

 

15,419

 

 

 

10,655

 

 

General and administrative

 

 

12,596

 

 

 

14,191

 

 

Total operating expenses

 

 

72,247

 

 

 

59,216

 

 

Loss from operations

 

 

(41,550

)

 

 

(36,722

)

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

 

44

 

 

 

74

 

 

Other (expense) income, net

 

 

(520

)

 

 

878

 

 

Net and comprehensive loss

 

$

(42,026

)

 

$

(35,770

)

 

Net loss per share of Class A and Class B common stock attributable to common stockholders, basic and diluted:

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.25

)

 

$

(0.38

)

 

Weighted-average shares used to compute net loss per share:

 

 

 

 

 

 

 

Basic and diluted

 

 

168,191,762

 

 

 

93,577,307

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

23ANDME HOLDING CO.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders'
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

Deficit

 

 

(Deficit)

 

Balance as of March 31, 2021

 

 

91,198,378

 

 

$

837,351

 

 

 

54,292,140

 

 

$

 

 

$

381,619

 

 

$

(977,238

)

 

$

(595,619

)

Recapitalization

 

 

117,983,477

 

 

 

 

 

 

70,237,644

 

 

 

12

 

 

 

(12

)

 

 

 

 

 

 

Balance as of March 31, 2021

 

 

209,181,855

 

 

 

837,351

 

 

 

124,529,784

 

 

 

12

 

 

 

381,607

 

 

 

(977,238

)

 

 

(595,619

)

Preferred stock conversion

 

 

(209,181,855

)

 

 

(837,351

)

 

 

209,181,855

 

 

 

21

 

 

 

837,330

 

 

 

 

 

 

837,351

 

Issuance of common stock upon Merger (net of transaction costs of $29,071)

 

 

 

 

 

 

 

 

46,901,747

 

 

 

5

 

 

 

200,574

 

 

 

 

 

 

200,579

 

Issuance of PIPE shares (related party amount of $25,000)

 

 

 

 

 

 

 

 

25,000,000

 

 

 

3

 

 

 

249,997

 

 

 

 

 

 

250,000

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

818,479

 

 

 

 

 

 

2,553

 

 

 

 

 

 

2,553

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,704

 

 

 

 

 

 

9,704

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,026

)

 

 

(42,026

)

Balance as of June 30, 2021

 

 

 

 

$

 

 

 

406,431,865

 

 

$

41

 

 

$

1,681,765

 

 

$

(1,019,264

)

 

$

662,542

 

 

 

 

Redeemable Convertible
Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

Deficit

 

 

Deficit

 

Balance as of March 31, 2020

 

 

86,443,341

 

 

$

755,083

 

 

 

44,318,298

 

 

$

 

 

$

172,736

 

 

$

(793,619

)

 

$

(620,883

)

Recapitalization

 

 

111,831,592

 

 

 

 

 

 

57,334,501

 

 

 

9

 

 

 

(9

)

 

 

 

 

 

 

Balance as of March 31, 2020

 

 

198,274,933

 

 

 

755,083

 

 

 

101,652,799

 

 

 

9

 

 

 

172,727

 

 

 

(793,619

)

 

 

(620,883

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

676,618

 

 

 

 

 

 

1,139

 

 

 

 

 

 

1,139

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,241

 

 

 

 

 

 

4,241

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,454

 

 

 

 

 

 

11,454

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

 

(35,770

)

 

 

(35,770

)

Balance as of June 30, 2020

 

 

198,274,933

 

 

$

755,083

 

 

 

102,329,417

 

 

$

9

 

 

$

189,561

 

 

$

(829,389

)

 

$

(639,819

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

23ANDME HOLDING CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) 

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

 

 

2021

 

 

2020

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(42,026

)

 

$

(35,770

)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,093

 

 

 

5,058

 

 

Amortization and impairment of internal-use software

 

 

545

 

 

 

474

 

 

Stock-based compensation expense

 

 

9,637

 

 

 

11,361

 

 

Changes in fair value of warrant liabilities

 

 

534

 

 

 

 

 

Gain on lease termination

 

 

(15

)

 

 

(876

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,923

)

 

 

1,881

 

 

Inventories

 

 

(9,033

)

 

 

2,846

 

 

Deferred cost of revenue

 

 

(638

)

 

 

(542

)

 

Prepaid expenses and other current assets

 

 

(1,057

)

 

 

4,529

 

 

Operating lease right-of-use assets

 

 

1,812

 

 

 

5,021

 

 

Other assets

 

 

101

 

 

 

162

 

 

Accounts payable (related party amounts of $2,182 and $(4,231) for the three months ended June 30, 2021 and 2020, respectively)

 

 

5,721

 

 

 

(6,724

)

 

Accrued expenses and other current liabilities (related party amounts of $(134) and $(1,744) for the three months ended June 30, 2021 and 2020, respectively)

 

 

(286

)

 

 

(6,929

)

 

Deferred revenue (related party amounts of $(11,209) and $(11,827) for the three months ended June 30, 2021 and 2020, respectively)

 

 

(5,152

)

 

 

(10,409

)

 

Operating lease liabilities

 

 

(1,868

)

 

 

(3,008

)

 

Other liabilities

 

 

22

 

 

 

21

 

 

Net cash used in operating activities

 

 

(44,533

)

 

 

(32,905

)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(666

)

 

 

(3,539

)

 

Proceeds from sale of property and equipment

 

 

 

 

 

606

 

 

Capitalized internal-use software costs

 

 

(721

)

 

 

(1,015

)

 

Net cash used in investing activities

 

 

(1,387

)

 

 

(3,948

)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

2,720

 

 

 

1,026

 

 

Payments of deferred offering costs

 

 

(29,071

)

 

 

 

 

Proceeds from issuance of common stock upon Merger

 

 

309,720

 

 

 

 

 

Proceeds from PIPE (related party amounts of $25,000 and $0 for the three months ended June 30, 2021 and 2020, respectively)

 

 

250,000

 

 

 

 

 

Net cash provided by financing activities

 

 

533,369

 

 

 

1,026

 

 

Net increase (decrease) in cash and restricted cash

 

 

487,449

 

 

 

(35,827

)

 

Cash and restricted cash—beginning of period

 

 

290,862

 

 

 

216,316

 

 

Cash and restricted cash—end of period

 

 

778,311

 

 

 

180,489

 

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

Purchases of property and equipment during the period included in accounts payable and accrued expenses

 

 

777

 

 

 

12

 

 

Stock-based compensation capitalized for internal-use software costs

 

 

168

 

 

 

143

 

 

Reclassification of deferred offering costs

 

 

3,971

 

 

 

 

Vesting of related party early exercised stock options

 

 

 

 

4,241

 

 

Assumption of merger warrants liability

 

 

75,415

 

 

 

 

Deferred offering costs during the period included in accounts payable and accrued expenses

 

 

1,571

 

 

 

 

 

Conversion of redeemable convertible preferred stock to common stock

 

 

837,351

 

 

 

 

Reconciliation of cash and restricted cash within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows above:

 

 

 

 

 

 

 

Cash

 

 

769,938

 

 

 

172,116

 

 

Restricted cash, current

 

 

1,399

 

 

 

1,399

 

 

Restricted cash, noncurrent

 

 

6,974

 

 

 

6,974

 

 

Total cash and restricted cash

 

$

778,311

 

 

$

180,489

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.  

7


 

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.      Organization and Description of Business

23andMe Holding Co. (the “Company”) is dedicated to helping people access, understand, and benefit from the human genome. The Company pioneered direct-to-consumer genetic testing through its Personal Genome Service products and services. Consumers receive reports that provide them with information on their genetic health risks, their ancestry, and their traits, based on genetic testing of a saliva sample they send to the Company in an easy-to-use “spit kit” the Company provides. Consumers have the option to participate in the Company’s research programs. The Company analyzes consenting consumers’ genotypic and phenotypic data to discover new insights into genetics. The Company uses these insights to generate new Personal Genome Service® (“PGS”) reports, and, through its therapeutics business and collaborations with pharmaceutical companies and universities, to discover and advance new therapies for unmet medical needs. 23and Me, Inc., the Company's accounting predecessor, was incorporated in Delaware in 2006. The Company currently is headquartered in Sunnyvale, California.

On June 16, 2021 (the “Closing Date”), the Company consummated the transactions contemplated by the Agreement and Plan of Merger, dated February 4, 2021, as amended on February 13, 2021 and March 25, 2021, among VG Acquisition Corp., a blank check company incorporated as a Cayman Islands exempted company in 2020 (“VGAC”), Chrome Merger Sub, and 23andMe, Inc. (the "Merger"). In connection with the Merger, VGAC changed its jurisdiction of incorporation from the Cayman Islands to the State of Delaware and changed its name to 23andMe Holding Co. (the "Domestication"). On the Closing Date, Merger Sub merged with and into 23andMe, Inc., with 23andMe, Inc. being the surviving corporation and a wholly owned subsidiary of the Company (together with the Merger and the Domestication, the “Business Combination”).

The transaction is accounted for as a reverse recapitalization with 23andMe, Inc. being the accounting acquirer and VGAC as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of 23andMe, Inc. and its wholly owned subsidiary. The shares and net loss per common share prior to the Merger have been retroactively restated as shares reflecting the exchange ratio established in the Merger (each outstanding share of 23andMe, Inc. Class A common stock was exchanged for 2.293698169 shares of the Company’s Class A common stock, and each outstanding share of 23andMe, Inc. Class B common stock, including all shares of 23andMe, Inc. preferred stock (which were converted to shares of 23andMe, Inc. Class B common stock immediately prior to the Merger), was exchanged for 2.293698169 shares of the Company’s Class B common stock).

Prior to the Business Combination, VGAC’s units, public shares, and public warrants were listed on the New York Stock Exchange under the symbols “VGAC.U,” “VGAC,” and “VGAC WS,” respectively. On June 17, 2021, the Company's Class A common stock and public warrants began trading on The Nasdaq Global Select Market (“Nasdaq”), under the symbols “ME” and “MEUSW,” respectively. See Note 3, "Recapitalization" for additional details. 

2.      Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

There have been no changes to the Company's significant accounting policies described in the audited consolidated financial statements for the year ended March 31, 2021, that have had a material impact on these condensed consolidated financial statements and related notes.

8


 

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated financial statements as of June 30, 2021 and for the three months ended June 30, 2021 and 2020 and accompanying notes, are unaudited. These unaudited interim condensed consolidated financial statements (the "condensed consolidated financial statements") have been prepared in accordance with U.S. GAAP applicable to interim financial statements. These financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. As such, the information included herein should be read in conjunction with the consolidated financial statements and accompanying notes as of and for the year ended March 31, 2021 (the “audited consolidated financial statements”) that was included in the Company’s Form 8-K filed on June 21, 2021. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of June 30, 2021 and its condensed consolidated results of operations and cash flows for the three months ended June 30, 2021 and 2020. The results of operations for the three months ended June 30, 2021 are not necessarily indicative of the results expected for the year ending March 31, 2022 or any other future interim or annual periods.

As a result of the Merger, prior period share and per share amounts presented in the accompanying condensed consolidated financial statements and these related notes have been retroactively converted.

Fiscal Year

The Company’s fiscal year ends on March 31. References to fiscal year 2022 and 2021, refer to the fiscal years ending and ended March 31, 2022 and 2021, respectively.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period and the accompanying notes. Significant items subject to such estimates and assumptions include, but are not limited to, the determination of standalone selling price for various performance obligations; the estimated expected benefit period for the rate and recognition pattern of breakage revenue for purchases where a saliva collection kit is never returned for processing; the fair value of financial assets and liabilities; the capitalization and estimated useful life of internal use software; the useful life of long-lived assets; the timing and costs associated with asset retirement obligations; the incremental borrowing rate for operating leases; the fair value of private warrants; stock-based compensation including the determination of the fair value of the Company’s common stock and stock options prior to the Closing Date; and the valuation of deferred tax assets and uncertain tax positions. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from these estimates, and such differences could be material to the condensed consolidated financial statements.

The novel coronavirus (“COVID-19”) pandemic has created significant global economic uncertainty and resulted in the slowdown of economic activity. COVID-19 has disrupted the Company’s general business operations since March 2020 and the Company expects that such disruption will continue for an unknown period. The Company is not aware of any specific event or circumstance that would require revisions to estimates, updates to judgments, or adjustments to the carrying value of assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the condensed consolidated financial statements.

Concentration of Supplier Risk

Certain of the raw materials, components and equipment associated with the deoxyribonucleic acid (“DNA”) microarrays and saliva collection kits (“Kits”) used by the Company in the delivery of its services are available only from third-party suppliers. The Company also relies on a third-party laboratory service for the processing of its customer samples. Shortages and slowdowns could occur in these essential materials, components, equipment and laboratory services due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components, equipment or laboratory services at acceptable prices, it would be required to reduce its laboratory operations, which could have a material adverse effect on its results of operations.

9


 

A single supplier accounted for 100% of the Company’s total purchases of microarrays and a separate single supplier accounted for 100% of the Company’s total purchases of Kits for the three months ended June 30, 2021 and 2020. One laboratory service provider accounted for 100% of the Company’s processing of customer samples for the three months ended June 30, 2021 and 2020.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk include cash and accounts receivable. The Company maintains its cash with high-quality financial institutions in the United States, the composition and maturities of which are regularly monitored by the Company. The Company’s revenue and accounts receivable are derived primarily from the United States. See Revenue Recognition within Note 2, “Summary of Significant Accounting Policies,” for additional information regarding geographical disaggregation of revenue. The Company grants credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers and does not require collateral. The Company regularly monitors the aging of accounts receivable balances.

Significant customer information is as follows:

 

 

 

June 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

Percentage of accounts receivable:

 

 

 

 

 

 

Customer C

 

 

95

%

 

 

35

%

Customer D

 

 

0

%

 

 

40

%

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

Percentage of revenue:

 

 

 

 

 

 

Customer C

 

 

14

%

 

 

13

%

Customer B

 

 

19

%

 

 

25

%

 

Revenue Recognition

The Company generates revenue from its Consumer & Research Services segment, which includes revenue from PGS and research services, and its Therapeutics segment. In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration that the Company expects to receive in exchange for these goods or services.  

The Company sells through multiple channels, including direct to consumer via the Company’s website and through online retailers. If the customer does not return the Kit, services cannot be completed by the Company, potentially resulting in unexercised rights (“breakage”) revenue. To estimate breakage, the Company applies the practical expedient available under ASC 606 to assess its customer contracts on a portfolio basis as opposed to individual customer contracts, due to the similarity of customer characteristics, at the sales channel level. The Company recognizes the breakage amounts as revenue, proportionate to the pattern of revenue recognition of the returning kits in these respective sales channel portfolios. The Company estimates breakage for the portion of Kits not expected to be returned using an analysis of historical data and considers other factors that could influence customer Kit return behavior. The Company updates its breakage rate estimate periodically and, if necessary, adjusts the deferred revenue balance accordingly. If actual return patterns vary from the estimate, actual breakage revenue may differ from the amounts recorded. The Company recognized breakage revenue from unreturned Kits of $4.5 million, and $4.5 million for the three months ended June 30, 2021, and 2020, respectively.

Fees paid to certain sales channel partners include, in part, compensation for obtaining PGS contracts. Such contracts have an amortization period of one year or less, and the Company has applied the practical expedient to recognize these costs as sales and marketing expenses when incurred. These costs were $3.1 million, and $0.7 million for the three months ended June 30, 2021, and 2020 respectively.

10


 

Disaggregation of Revenue

The following table presents revenue by category:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Amount

 

 

Percentage
of Revenue

 

 

Amount

 

 

Percentage
of Revenue

 

 

 

(in thousands, except percentages)

 

Consumer services

 

$

47,850

 

 

 

81

%

 

$

34,730

 

 

 

72

%

Research services

 

 

11,389

 

 

 

19

%

 

 

13,279

 

 

 

28

%

Therapeutics

 

 

 

 

 

0

%

 

 

48

 

 

 

0

%

Total

 

$

59,239

 

 

 

100

%

 

$

48,057

 

 

 

100

%

 

Substantially all consumer services revenue is recognized at the point in time of the initial transfer of reports to the consumer, and substantially all research services revenue is recognized over time as services are performed. Substantially all therapeutics revenue is recognized at the point in time intellectual property is transferred.

The following table summarizes revenue by region based on the shipping address of customers or the location where the services are delivered:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Amount

 

 

Percentage
of Revenue

 

 

Amount

 

 

Percentage
of Revenue

 

 

 

(in thousands, except percentages)

 

United States

 

$

40,352

 

 

 

68

%

 

$

32,360

 

 

 

67

%

United Kingdom

 

 

13,906

 

 

 

23

%

 

 

13,215

 

 

 

28

%

Canada

 

 

3,240

 

 

 

6

%

 

 

1,609