UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
FORM 10-Q(Amendment No. 1)
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to |
Commission File Number 000-23357
INOTIV, INC.
(Exact(Exact name of the registrant as specified in its charter)
| | |
INDIANA
| 35-1345024
| |
| | |
2701 KENT AVENUE
| | 47906
|
| ||
|
|
(765) 463-4527
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
| | | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares | | NOTV | | NASDAQ Capital 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. YESx⌧ 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). YESx⌧ 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check):
| | | | |
Large accelerated filer ◻ | Accelerated filer ◻ | Non-accelerated filer ⌧ | Smaller Reporting Company ☒ | Emerging growth company ☐ |
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x
Smaller Reporting Company x 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 x☒
As of May 6, 2021, 15,827,839February 11, 2022, 25,459,361 of the registrant’sregistrant's common shares were outstanding.
EXPLANATORY NOTE
Inotiv, Inc. (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 (the “Amendment”) to its Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2021 originally filed with the Securities and Exchange Commission (the “SEC”) on February 16, 2021 (the “Original Report”). The Original Report includes certain information regarding the issuance of unregistered shares in two acquisitions completed during the quarter in Note 10 Business Combinations to the Condensed Consolidated Financial Statements included response to Part I, Item 1 Financial Statements of the Original Report. This Amendment amends the Original Report to include this same information and the exemptions claimed in response to Part II, Item 2 Unregistered Sales of Equity Securities and Use of Proceeds. This Amendment also includes as exhibits new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, from the Company's Chief Executive Officer and Chief Financial Officer dated as of the filing date of this Form 10-Q/A. Item 6 of Part II of the Original Report is amended to reflect the filing of these new certifications.
Except as described above, this Amendment does not amend, update or change any other items or disclosures in the Original Report and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Amendment speaks only as of the date the Original Report was filed, and we have not undertaken herein to amend, supplement or update any information contained in the Original Report to give effect to any subsequent events.
TABLE OF CONTENTS
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Page | |||
PART I | FINANCIAL INFORMATION | | |
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Item 1 | Condensed Consolidated Financial Statements: | | |
| 1 | ||
| 2 | ||
| | 3 | |
| 4 | ||
| 5 | ||
| 6 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 28 | |
| 36 | ||
|
| ||
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| 37 | ||
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| 37 | ||
| 38 | ||
| 38 | ||
| 39 | ||
| 40 |
2
i
INOTIV, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
| | | | | | | |
|
| December 31, |
| September 30, |
| ||
| | 2021 | | 2021 | | ||
| | (Unaudited) | | | | | |
Assets |
| |
|
| |
|
|
Current assets: |
| |
|
| |
|
|
Cash and cash equivalents | | $ | 42,418 | | $ | 138,924 | |
Restricted cash | |
| 436 | |
| 18,000 | |
Trade receivables and contract assets, net of allowances for doubtful accounts of $3,068 and $668, respectively | |
| 71,949 | |
| 28,364 | |
Inventories, net | |
| 36,066 | |
| 602 | |
Prepaid expenses and other current assets | |
| 23,390 | |
| 3,129 | |
Total current assets | |
| 174,259 | |
| 189,019 | |
| |
| | |
|
| |
Property and equipment, net | |
| 132,823 | |
| 47,978 | |
Operating lease right-of-use assets, net | | | 24,469 | | | 8,358 | |
Goodwill | |
| 451,810 | |
| 51,927 | |
Other intangible assets, net | |
| 215,132 | |
| 24,233 | |
Other assets | |
| 5,394 | |
| 341 | |
Total assets | | $ | 1,003,887 | | $ | 321,856 | |
| | | | |
|
| |
Liabilities, shareholders' equity and noncontrolling interest | | | | |
|
| |
Current liabilities: | | | | |
|
| |
Accounts payable | | $ | 28,141 | | $ | 6,163 | |
Accrued expenses and other liabilities | |
| 23,518 | |
| 8,968 | |
Capex line of credit | | | 0 | | | 1,749 | |
Fees invoiced in advance | | | 44,525 | | | 26,614 | |
Current portion on long-term operating lease | |
| 5,674 | |
| 1,959 | |
Current portion of long-term debt | | | 5,223 | | | 9,656 | |
Total current liabilities | |
| 107,081 | |
| 55,109 | |
Long-term operating leases, net | | | 18,705 | | | 6,554 | |
Long-term debt, less current portion, net of debt issuance costs | |
| 255,395 | |
| 154,209 | |
Other liabilities | | | 3,296 | | | 512 | |
Deferred tax liabilities, net | | | 29,007 | | | 344 | |
Total liabilities | |
| 413,484 | |
| 216,728 | |
| | | | | | | |
Contingencies (Note 14) | | | | | | | |
| |
| | |
|
| |
Shareholders’ equity and noncontrolling interest: | |
| | |
|
| |
Preferred shares, authorized 1,000,000 shares, 0 par value: | |
| | |
|
| |
Common shares, 0 par value: | |
| | | | | |
Authorized 74,000,000 shares; 24,348,594 issued and outstanding at December 31, 2021 and 15,931,485 at September 30, 2021 | |
| 6,050 | |
| 3,945 | |
Additional paid-in capital | |
| 679,261 | |
| 112,198 | |
Accumulated deficit | |
| (94,426) | |
| (11,015) | |
Accumulated other comprehensive loss | | | 137 | | | 0 | |
Total shareholders’ equity | | | 591,022 | | | 105,128 | |
Noncontrolling interest | | | (619) | | | 0 | |
Total shareholders’ equity and noncontrolling interest | |
| 590,403 | |
| 105,128 | |
Total liabilities and shareholders’ equity and noncontrolling interest | | $ | 1,003,887 | | $ | 321,856 | |
March 31, 2021 | September 30, 2020 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,186 | $ | 1,406 | ||||
Accounts receivable | ||||||||
Trade, net of allowance of $500 at March 31, 2021 and $561 at September 30, 2020 | 9,340 | 8,681 | ||||||
Unbilled revenues and other | 3,338 | 2,142 | ||||||
Inventories, net | 872 | 700 | ||||||
Prepaid expenses | 2,135 | 2,371 | ||||||
Total current assets | 17,871 | 15,300 | ||||||
Property and equipment, net | 29,353 | 28,729 | ||||||
Operating lease right-of-use assets, net | 4,105 | 4,001 | ||||||
Finance lease right-of-use assets, net | 4,710 | 4,778 | ||||||
Goodwill | 4,368 | 4,368 | ||||||
Other intangible assets, net | 3,949 | 4,261 | ||||||
Lease rent receivable | 129 | 75 | ||||||
Other assets | 86 | 81 | ||||||
Total assets | $ | 64,571 | $ | 61,593 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,967 | $ | 3,196 | ||||
Restructuring liability | 168 | |||||||
Accrued expenses | 2,932 | 2,688 | ||||||
Customer advances | 15,186 | 11,392 | ||||||
Capex line of credit | — | 2,613 | ||||||
Current portion on long-term operating lease | 1,004 | 866 | ||||||
Current portion of long-term finance lease | 4,664 | 4,728 | ||||||
Current portion of long-term debt | 8,317 | 5,991 | ||||||
Total current liabilities | 36,070 | 31,642 | ||||||
Long-term operating leases, net | 3,278 | 3,344 | ||||||
Long-term finance leases, net | 42 | 44 | ||||||
Long-term debt, less current portion, net of debt issuance costs | 17,925 | 18,826 | ||||||
Deferred tax liabilities | 180 | 141 | ||||||
Total liabilities | 57,495 | 53,997 | ||||||
Shareholders’ equity: | ||||||||
Preferred shares, authorized 1,000,000 shares, no par value: | ||||||||
No Series A shares at March 31, 2021 and 25 shares at September 30, 2020 issued and outstanding at $1,000 stated value | — | 25 | ||||||
Common shares, no par value: | ||||||||
Authorized 19,000,000 shares; 11,179,041 issued and outstanding at March 31, 2021 and 10,977,675 at September 30, 2020 | 2,756 | 2,706 | ||||||
Additional paid-in capital | 27,319 | 26,775 | ||||||
Accumulated deficit | (22,999 | ) | (21,910 | ) | ||||
Total shareholders’ equity | 7,076 | 7,596 | ||||||
Total liabilities and shareholders’ equity | $ | 64,571 | $ | 61,593 |
The accompanying notes are an integral part of the condensed consolidated financial statements
3
1
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Service revenue | | $ | 38,176 | | $ | 17,032 | |
Product revenue | |
| 46,035 | |
| 853 | |
Total revenue | | $ | 84,211 | | $ | 17,885 | |
Costs and expenses: | |
| | |
| | |
Cost of services provided | | | 24,209 | | | 11,597 | |
Cost of products sold | | | 40,677 | | | 411 | |
Selling | |
| 2,738 | |
| 625 | |
General and administrative | | | 13,252 | | | 4,882 | |
Amortization of intangible assets | | | 3,396 | | | 160 | |
Other operating expense | | | 33,580 | | | 196 | |
Operating income (loss) | | $ | (33,641) | | $ | 14 | |
Other income (expense): | | | | | | | |
Interest expense | |
| (4,828) | |
| (347) | |
Other (expense) income | |
| (57,727) | |
| - | |
Income (loss) before income taxes | | $ | (96,196) | | $ | (333) | |
Provision for income taxes | |
| 12,785 | |
| (33) | |
Consolidated net income (loss) | | $ | (83,411) | | $ | (366) | |
Less: Net income (expense) attributable to noncontrolling interests | | | (364) | | | - | |
Net income (loss) attributable to common shareholders | | $ | (83,047) | | $ | (366) | |
| | | | | | | |
Loss per common share | | | | | | | |
Net income attributable to common shareholders: | | | | | | | |
Basic and diluted | | $ | (3.93) | | $ | (0.03) | |
| | | | | | | |
Weighted-average number of common shares outstanding: | | | | | | | |
Basic and diluted | |
| 21,124 | |
| 11,016 | |
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Service revenue | $ | 17,902 | $ | 15,191 | $ | 34,934 | $ | 27,333 | ||||||||
Product revenue | 849 | 821 | 1,702 | 1,597 | ||||||||||||
Total revenue | 18,751 | 16,012 | 36,636 | 28,930 | ||||||||||||
Cost of service revenue | 11,949 | 10,207 | 23,502 | 19,118 | ||||||||||||
Cost of product revenue | 522 | 612 | 933 | 1,142 | ||||||||||||
Total cost of revenue | 12,471 | 10,819 | 24,435 | 20,260 | ||||||||||||
Gross profit | 6,280 | 5,193 | 12,201 | 8,670 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling | 1,175 | 1,447 | 2,138 | 2,665 | ||||||||||||
Research and development | 203 | 162 | 399 | 324 | ||||||||||||
General and administrative | 5,423 | 3,779 | 10,171 | 6,896 | ||||||||||||
Total operating expenses | 6,801 | 5,388 | 12,708 | 9,885 | ||||||||||||
Operating loss | (521 | ) | (195 | ) | (507 | ) | (1,215 | ) | ||||||||
Interest expense | (366 | ) | (392 | ) | (713 | ) | (703 | ) | ||||||||
Other income | 179 | 10 | 179 | 12 | ||||||||||||
Net loss before income taxes | (708 | ) | (577 | ) | (1,041 | ) | (1,906 | ) | ||||||||
Income tax expense | 15 | 11 | 48 | 108 | ||||||||||||
Net loss | $ | (723 | ) | $ | (588 | ) | $ | (1,089 | ) | $ | (2,014 | ) | ||||
Basic net loss per share | $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.10 | ) | $ | (0.19 | ) | ||||
Diluted net loss per share | $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.10 | ) | $ | (0.19 | ) | ||||
Weighted common shares outstanding: | ||||||||||||||||
Basic | 11,151 | 10,843 | 11,083 | 10,756 | ||||||||||||
Diluted | 11,151 | 10,843 | 11,083 | 10,756 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
42
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands, except share amounts)
| | | | | | |
| | Three Months Ended | ||||
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
Consolidated net income (loss) | | $ | (83,411) | | $ | (366) |
| | | | | | |
Other comprehensive income (loss), net of tax | |
| | | | |
Foreign currency translation | |
| 247 | |
| — |
Defined benefit plans: | | | | | | |
Actuarial gains (losses), net of taxes | | | (110) | | | — |
Foreign currency translation | |
| — | |
| — |
Other comprehensive income (loss), net of tax | | | 137 | | | — |
Consolidated comprehensive income (loss) | | | (83,274) | | | (366) |
Comprehensive loss attributable to non-controlling interests | |
| (364) | | �� | — |
Comprehensive income (loss) attributable to the common stockholders | | $ | (83,638) | | $ | (366) |
3
INOTIV, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST (UNAUDITED)
(In thousands, except number of shares)
Six Month Period Ended March 31, 2021 | ||||||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Preferred Shares | Common Shares | paid-in | Accumulated | shareholders’ | ||||||||||||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||||||||||||
Balance at September 30, 2020 | 25 | $ | 25 | 10,977,675 | $ | 2,706 | $ | 26,775 | $ | (21,910 | ) | $ | 7,596 | |||||||||||||||
Net loss | (366 | ) | (366 | ) | ||||||||||||||||||||||||
Stock option exercises | 23,350 | 6 | 39 | 45 | ||||||||||||||||||||||||
Stock based compensation | 116,974 | 29 | 152 | 181 | ||||||||||||||||||||||||
Balance at December 31, 2020 | 25 | $ | 25 | 11,117,999 | $ | 2,741 | $ | 26,966 | $ | (22,276 | ) | $ | 7,456 | |||||||||||||||
Net loss | (723 | ) | (723 | ) | ||||||||||||||||||||||||
Stock based compensation | 12,502 | 3 | 275 | 278 | ||||||||||||||||||||||||
Stock option exercises | 36,040 | 9 | 56 | 65 | ||||||||||||||||||||||||
Preferred stock conversion | (25 | ) | (25 | ) | 12,500 | 3 | 22 | |||||||||||||||||||||
Balance March 31, 2021 | 0 | $ | 0 | 11,179,041 | $ | 2,756 | $ | 27,319 | (22,999 | ) | $ | 7,076 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Month Period Ended December 31, 2021 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | ||
| | | | | | | | | | |
| Additional |
|
| |
| Other | | Non- | | Total | ||||
| | Preferred Shares | | Common Shares | | paid-in | | Accumulated | | Comprehensive | | Controlling | | shareholders’ | |||||||||||
|
| Number |
| Amount |
| Number |
| Amount |
| capital |
| deficit |
| Loss | | Interests | | equity | |||||||
Balance at September 30, 2021 |
| 0 | | $ | 0 |
| 15,931,485 | | $ | 3,945 | | $ | 112,198 | | $ | (11,015) | | $ | — | | $ | — | | $ | 105,128 |
Consolidated net income (loss) |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (83,411) | |
| — | |
| 364 | |
| (83,047) |
Stock issued in acquisitions | | 0 | |
| 0 |
| 8,374,138 | |
| 2,094 | |
| 459,289 | |
| 0 | |
| — | |
| — | |
| 461,383 |
Non-controlling interest related to Envigo acquisition | | 0 | |
| 0 | | 0 | |
| 0 | | | 0 | |
| 0 | | | — | | | (983) | | | (983) |
Issuance of stock under employee stock plans | | 0 | | | 0 | | 42,971 | | | 11 | | | 38 | | | 0 | | | — | | | — | | | 49 |
Stock based compensation | | 0 | | | 0 | | 0 | | | 0 | | | 19,160 | | | 0 | | | — | | | — | | | 19,160 |
Pension cost amortization | | 0 | | | 0 | | 0 | | | 0 | | | 0 | | | 0 | | | (110) | | | — | | | (110) |
Foreign currency translation adjustment | | 0 | | | 0 | | 0 | | | 0 | | | 0 | | | 0 | | | 247 | | | — | | | 247 |
Reclassification of convertible note embedded derivative to equity (Note 7) | | 0 | | | 0 | | 0 | | | 0 | | | 88,576 | | | 0 | | | — | | | — | | | 88,576 |
Balance at December 31, 2021 | | 0 | | $ | 0 | | 24,348,594 | | $ | 6,050 | | $ | 679,261 | | $ | (94,426) | | $ | 137 | | $ | (619) | | $ | 590,403 |
Six Month Period Ended March 31, 2020 | ||||||||||||||||||||||||||||
Additional | Total | |||||||||||||||||||||||||||
Preferred Shares | Common Shares | paid-in | Accumulated | shareholders’ | ||||||||||||||||||||||||
Number | Amount | Number | Amount | capital | deficit | equity | ||||||||||||||||||||||
Balance at September 30, 2019 | 35 | $ | 35 | 10,510,694 | $ | 2,589 | $ | 25,183 | $ | (17,097 | ) | $ | 10,710 | |||||||||||||||
Adoption of accounting standard | (128 | ) | (128 | ) | ||||||||||||||||||||||||
Net loss | (1,426 | ) | (1,426 | ) | ||||||||||||||||||||||||
Stock issued in acquisition | 240,000 | 60 | 1,073 | 1,133 | ||||||||||||||||||||||||
Stock based compensation | 54,363 | 14 | 67 | 81 | ||||||||||||||||||||||||
Balance at December 31, 2019 | 35 | $ | 35 | 10,805,057 | $ | 2,663 | $ | 26,323 | $ | (18,651 | ) | $ | 10,370 | |||||||||||||||
Net loss | (588 | ) | (588 | ) | ||||||||||||||||||||||||
Stock based compensation | 26,521 | 7 | 116 | 123 | ||||||||||||||||||||||||
Stock option exercises | 32,703 | 8 | 12 | 20 | ||||||||||||||||||||||||
Balance March 31, 2020 | 35 | $ | 35 | 10,864,281 | $ | 2,678 | $ | 26,451 | (19,239 | ) | $ | 9,925 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Month Period Ended December 31, 2020 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | ||
| | | | | | | | | | |
| Additional |
|
| |
| Other | | Non- | | Total | ||||
| | Preferred Shares | | Common Shares | | paid-in | | Accumulated | | Comprehensive | | Controlling | | shareholders’ | |||||||||||
|
| Number |
| Amount |
| Number |
| Amount |
| capital |
| deficit |
| Loss | | Interests | | equity | |||||||
Balance at September 30, 2020 |
| 25 | | $ | 25 |
| 10,977,675 | | $ | 2,706 | | $ | 26,775 | | $ | (21,910) | | $ | — | | $ | — | | $ | 7,596 |
Consolidated net loss | | 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (366) | | $ | 0 | | $ | 0 | |
| (366) |
Stock option exercises | | — | | | — | | 23,350 | | | 6 | | | 39 | | | 0 | | | — | | | — | | | 45 |
Stock based compensation | | 0 | | | 0 | | 116,974 | | | 29 | | | 152 | | | 0 | | | 0 | | | 0 | | | 181 |
Balance at December 31, 2020 | | 25 | | $ | 25 | | 11,117,999 | | $ | 2,741 | | $ | 26,966 | | $ | (22,276) | | $ | — | | $ | — | | $ | 7,456 |
The accompanying notes are an integral part of the consolidated financial statements.
5
4
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Operating activities: |
| |
|
| |
|
|
Net income (loss) | | $ | (83,411) | | $ | (366) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquisitions: | |
| | |
| | |
Depreciation and amortization | |
| 6,035 | |
| 1,065 | |
Undistributed earnings of noncontrolling interest | | | (364) | | | — | |
Change on operating lease | | | (229) | | | 5 | |
Employee stock compensation expense | |
| 19,159 | |
| 181 | |
Changes in deferred taxes | | | (14,281) | | | — | |
Provision for doubtful accounts | | | — | | | 72 | |
Foreign currency (gain) loss | | | 320 | | | 9 | |
Loss on fair value remeasurement of embedded derivative | | | 56,714 | | | — | |
Other non-cash operating activities | | | 2,021 | | | 37 | |
Loss on debt extinguishment | | | 877 | | | — | |
Non-cash amortization of inventory fair value step-up | | | 3,668 | | | — | |
Gain on disposal of fixed assets | | | (247) | | | — | |
Financing lease interest expense | |
| 1 | |
| 69 | |
Changes in operating assets and liabilities: | |
|
| |
|
| |
Accounts receivable | |
| 1,517 | |
| (634) | |
Inventories | |
| (3,393) | |
| (176) | |
Income tax accruals | |
| 1,438 | |
| 33 | |
Prepaid expenses and other current assets | | | (1,432) | | | (231) | |
Accounts payable | |
| 4,491 | |
| 435 | |
Accrued expenses | |
| (10,974) | |
| (1,089) | |
Customer advances | |
| 10,806 | |
| 2,242 | |
Other asset and liabilities, net | | | 6,141 | | | — | |
Net cash used in operating activities | |
| (1,143) | |
| 1,652 | |
| |
|
| |
|
| |
Investing activities: | |
|
| |
|
| |
Capital expenditures | | | (5,655) | | | (1,474) | |
Proceeds from sale of equipment | | | 284 | | | — | |
Cash paid in acquisitions | |
| (227,022) | |
| — | |
Net cash used in investing activities | |
| (232,393) | |
| (1,474) | |
| |
|
| |
|
| |
Financing activities: | |
|
| |
|
| |
Payments on finance lease liability | | | — | | | (108) | |
Payments of long-term debt | | | (37,747) | | | — | |
Payments of debt issuance costs | | | (7,102) | | | (712) | |
Payments on promissory notes | |
| (167) | |
| (40) | |
Payments on capex lines of credit | | | (1,749) | | | — | |
Borrowings on construction loans | | | 1,184 | | | — | |
Borrowings on capex lines of credit | | | — | | | 387 | |
Proceeds from issuance of senior term notes | | | 165,000 | | | — | |
Proceeds from exercise of stock options | | | 47 | | | 44 | |
Net cash provided by financing activities | |
| 119,466 | |
| (429) | |
| |
| | |
|
| |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | — | |
| | | | | | | |
Net increase in cash and cash equivalents | |
| (114,070) | |
| (251) | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 156,924 | |
| 1,406 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 42,854 | | $ | 1,155 | |
| |
| | |
| | |
Noncash financing activity: | | | | | | | |
Seller financed acquisition | | $ | 3,000 | | | — | |
| | | | | | | |
Supplemental disclosure of cash flow information: | |
| | |
| | |
Cash paid for interest | | $ | 1,351 | | $ | 256 | |
Income taxes paid, net | | $ | 163 | | $ | — | |
| | | | | | | |
Six Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating activities: | ||||||||
Net loss | $ | (1,089 | ) | $ | (2,014 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities, net of acquisition: | ||||||||
Depreciation and amortization | 2,154 | 1,673 | ||||||
Amortization finance lease | 72 | 75 | ||||||
Change on operating lease | (31 | ) | 81 | |||||
Employee stock compensation expense | 460 | 204 | ||||||
Provision for doubtful accounts | 72 | — | ||||||
Gain on disposal of property and equipment | (1 | ) | — | |||||
Unrealized foreign currency gains | 9 | 5 | ||||||
Financing lease interest expense | 137 | 133 | ||||||
Interest payment true up | (3 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,927 | ) | (1,873 | ) | ||||
Inventories | (172 | ) | (109 | ) | ||||
Income tax accruals | — | 102 | ||||||
Prepaid expenses and other assets | 178 | (723 | ) | |||||
Accounts payable | 770 | (577 | ) | |||||
Accrued expenses | 66 | (422 | ) | |||||
Customer advances | 3,831 | 3,791 | ||||||
Net cash provided by operating activities | 4,526 | 346 | ||||||
Investing activities: | ||||||||
Capital expenditures | (2,427 | ) | (3,351 | ) | ||||
Proceeds from sale of equipment | 2 | — | ||||||
Cash paid in acquisition | — | (4,000 | ) | |||||
Net cash used in investing activities | (2,425 | ) | (7,351 | ) | ||||
Financing activities: | ||||||||
Payments on finance lease liability | (206 | ) | (212 | ) | ||||
Payments of long-term debt | (1,436 | ) | (603 | ) | ||||
Payments of debt issuance costs | (41 | ) | (111 | ) | ||||
Payments on capex lines of credit | (135 | ) | — | |||||
Payments on revolving line of credit | — | (22,711 | ) | |||||
Borrowings on revolving line of credit | — | 24,263 | ||||||
Borrowings on construction loans | — | 1,089 | ||||||
Borrowings on capex lines of credit | 387 | 1,329 | ||||||
Borrowings on long-term loan | — | 3,533 | ||||||
Proceeds from exercise of stock options | 111 | 20 | ||||||
Change in finance lease | (1 | ) | — | |||||
Net cash used/provided by financing activities | (1,321 | ) | 6,597 | |||||
Net increase in cash and cash equivalents | 780 | (408 | ) | |||||
Cash, cash equivalents, and restricted cash at beginning of period | 1,406 | 606 | ||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 2,186 | $ | 198 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 520 | $ | 494 | ||||
Preclinical Research Services acquisition: | ||||||||
Assets acquired | $ | — | $ | 6,442 | ||||
Liabilities assumed | — | (1,378 | ) | |||||
Common shares issued | — | (1,133 | ) | |||||
Cash paid | $ | — | $ | 3,931 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
5
INOTIV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share data or asamounts, unless otherwise indicated)
(Unaudited)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Inotiv, Inc. and its subsidiaries and a variable interest entity (“VIE”) (“We,” “Our,” “Us,” the “Company,” and “Inotiv”) comprise a leading contract research organization specializing in nonclinical and analytical drug discovery and development services. The Company also manufactures scientific instruments for life sciences research, which it sells with related software for use by pharmaceutical companies, universities, government research centers and medical research institutions. The Company’s customers are located throughout the world.
On March 18,November 5, 2021, the Company filed Articlescompleted the acquisition of Amendment toEnvigo RMS Holding Corp. (“Envigo acquisition”) by merger of a wholly owned subsidiary of the Company with and into Envigo.
As a result of the Envigo transaction, the Company’s Second Amendedbusiness now includes breeding, importing and Restated Articlesselling research-quality animal models for use in laboratory tests, manufacturing and distributing standard and custom diets, distributing bedding and enrichment products, and providing other services associated with these products. With over 130 different species and strains, the Company is a global leader in the production and sale of Incorporation, as amended,some of the most widely used rodent research model strains, among other species. The Company maintains production and amended its Second Amendeddistribution facilities in the United States (“U.S.”), United Kingdom (“U.K.”), mainland Europe, and Restated Bylaws, as amended, to reflect a corporate name change from Bioanalytical Systems, Inc. to Inotiv, Inc.Israel.
Basis of Presentation
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”), and therefore should be read in conjunction with the Company’s audited consolidated financial statements, and the notes thereto, included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2020.2021. In the opinion of management, the condensed consolidated financial statements for the three and six months ended MarchDecember 31, 2021 and 2020 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of the Company’s financial position at MarchDecember 31, 2021. The results of operations for the three and six months ended MarchDecember 31, 2021 may not be indicative of the results for the fiscal year ending September 30, 2021.2022.
Certain prior period amountsThe acquisition of Envigo was transformational to the Company’s underlying business. As a result, certain reclassifications have been reclassifiedmade to prior periods in the unaudited condensed consolidated financial statements and accompanying notes to conform with current presentation, which more closely reflects management’s perspective of the business as it currently exists.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgements that may affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. These include, but are not limited to, management estimates in the calculation and timing of revenue recognition, pension liabilities, deferred tax assets and liabilities and the related valuation allowance. Although estimates are based upon management’s best estimate using historical experience, current events, and actions, actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
Consolidation
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company, including all subsidiaries and a VIE it consolidates in accordance with GAAP. The Company consolidates a VIE, as a result of the Envigo acquisition. The VIE does not have a material impact to net assets or net income.
The Company accounts for consistencynoncontrolling interests in accordance with Accounting Standard Codification (“ASC”) 810, “Consolidation” (“ASC 810”). ASC 810 requires companies with noncontrolling interests to disclose such interests as a portion of equity but separate from the Parent’s equity. The noncontrolling interests’ portion of net income (loss) is presented on the condensed consolidated statement of operations.
6
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for fiscal year 2021. As a result of the Envigo acquisition, certain policies have been added or adjusted to reflect our combined business.
Pension Costs
As a result of the Envigo acquisition, the Company has a defined benefit pension plan for one of its U.K. subsidiaries.
The projected benefit obligation and funded position of the defined benefit plan is estimated by actuaries and the Company recognizes the funded status of its defined benefit plan on its consolidated balance sheet and recognizes gains and losses. Prior service costs or credits that arise during the period are not recognized as components of net periodic benefit cost as a component of accumulated other comprehensive income (loss), net of tax. The Company measures plan assets and obligations as of the date of the Company’s year-end consolidated balance sheet; making assumptions to anticipate future events. The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of the unfunded defined benefit plan obligation, among other items.
Additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations are disclosed in the notes to the consolidated financial statements (see Note 13 – Defined Benefit Plan).
Comprehensive Income (Loss)
Comprehensive income (loss) for the periods presented is comprised of consolidated net income (loss) plus the change in the cumulative translation adjustment equity account and the adjustments, net of tax, for the current year presentation. These reclassifications had no effectactuarial gains (losses) in connection with the Company’s defined benefit plan.
Foreign Currencies
Transactions in currencies other than the functional currency of each entity are recorded at the rates of exchange on the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are translated at the rates of exchange on the balance sheet date and the related transaction gains and losses are reported in the consolidated statements of operations, in Operating income. The Company records gains and losses from re-measuring intercompany loans separately in Foreign exchange gain (loss) in the consolidated statement of operations.
The results of operations. operations of subsidiaries whose functional currency is other than the U.S. dollar are translated into U.S. dollars at the average exchange rate, assets and liabilities are translated at period-end exchange rates, capital accounts are translated at historical exchange rates, and retained earnings are translated at the weighted average of historical rates. Translation adjustments are excluded from the determination of net income and are recorded as a separate component of equity within accumulated other comprehensive income (loss) in the consolidated financial statements.
In March 2008,
2. EQUITY
Common Stock Offering
On April 23, 2021, we closed an underwritten public offering of 3,044,117 of our common shares, including 397,058 common shares sold pursuant to the full exercise by the underwriter of its option to purchase additional shares to cover over-allotments. All of the shares were sold at a price to the public of $17.00 per share. Net proceeds from the offering were approximately $49.0 million, after deducting the underwriting discount and estimated offering expenses.
On November 4, 2021, the Company’s shareholders approved an amendment to the 2008 Stock Option Plan (the “Plan”)Company’s Second Amended and Restated Articles of Incorporation to replaceincrease the 1997 Outside Director Stock Option Plannumber of authorized Common Shares from 20,000,000 shares, consisting of 19,000,000 Common Shares and 1,000,000 Preferred Shares, to 75,000,000 shares, consisting of 74,000,000 Common Shares and 1,000,000 Preferred Shares. Approval of this matter by the 1997 Employee Stock Option Plan. The purposeInotiv shareholders was a condition to the closing of the PlanEnvigo acquisition (described below). The amendment was to promote the Company’s long-term interests by providing a means of attracting and retaining officers, directors and key employees. The Compensation Committee administered the Plan and approved the particular officers, directors or employees eligible for grants. Under the Plan, employees were granted options to purchase common shares at an exercise price equal to the fair market value of the common shares of the end of the trading day prior to the date of the grant. Generally, options granted vest and become exercisable in three equal installments commencing one year from date of grant and expire upon the earlier of the employee’s termination of employment, or ten years from the date of grant. Restricted shares are valued as the average of the high and loweffective on the day prior to the date of the grant. The Plan is described more fully in Note 9 in the Notes to the Consolidated Financial Statements in the Company’s Form 10-K for the fiscal year ended September 30, 2020.
In March 2018,November 4, 2021. On November 4, 2021, the Company’s shareholders approved an amendment to the amendment and restatement of the Plan in the form of the Amended and RestatedCompany’s 2018 Equity Incentive Plan and in March 2020 the Company’s shareholders approved a further amendment to increase the number of shares issuable under the amended and restated planavailable for awards thereunder by 7001,500,000
7
shares and to make certain corresponding changes to the number of shares issuable as incentive options and as restricted stock or pursuant to restricted stock units (as amended, the “Equity Plan”). The Company currently grants equity awards from the Equity Plan. The purpose of the Equity Plan is to promote the Company’s long-term interests by providing a means of attracting and retaining officers, directors and key employees.plan. At MarchDecember 31, 2021, 6631,820,933 shares remained available for grants under the Equity Plan.
Stock Issued in Connection with Acquisitions
During the three months ended December 31, 2021, 8,374,138 common shares were issued in relation to acquisitions. See Note 10 for further discussion of consideration for each acquisition.
Stock Based Compensation
The Company expenses the estimated fair value of stock options over the vesting periods of the grants. The Company recognizes expense for awards subject to graded vesting using the straight-line attribution method. The Company adopted a change in accounting policy effective October 1, 2020 for forfeitures. Prior to October 1, 2020, stock-based compensation expense was reduced for estimated forfeitures, and if necessary, an adjustment was recognized in future periods if actual forfeitures differed from those estimates. The accounting change was made prospectively; therefore, stock-based compensation for equity grants subsequent to October 1, 2020, will not be reduced for estimated forfeitures as expense will be adjusted in the period that a forfeiture occurs. The Company feelsbelieves that this accounting change will more accurately account for expense relating to forfeitures. The Company has assessed the cumulative effect of this change in accounting policy and has deemed the impact to be immaterial; therefore, an adjustment has not been recorded to beginning retained earnings. Stock based compensation expense for the three and six months ended March 31,December 30, 2021 and 2020, was $278$23,932 and $460,$181, respectively. Stock basedOf the $23,932 stock compensation expense, for$23,014 relates to post-combination expense recognized in connection with the three and six months ended March 31, 2020 was $123 and $204, respectively.Envigo transaction (see Note 10 – Business Combinations), which is inclusive of $4,772 of cash.
A summary of the Company’s stock option activity for the six months ended March 31, 2021 is as follows (in thousands except for share prices):
Options (shares) | Weighted- Average Exercise Price | ||||||||
Outstanding – October 1, 2020 | 712 | $ | 2.21 | ||||||
Granted | 43 | $ | 10.12 | ||||||
Exercised | (60 | ) | $ | 1.86 | |||||
Forfeited | (22 | ) | $ | 3.99 | |||||
Expired | (2 | ) | $ | 2.02 | |||||
Outstanding – March 31, 2021 | 671 | $ | 2.69 | ||||||
Exercisable at March 31, 2021 | 392 | $ | 1.82 |
The weighted average estimated fair value of stock options granted for the six months ended March 31, 2021 and March 31, 2020 were $6.64 and $3.41, respectively. The weighted-average assumptions used to compute the fair value of the options granted in the six months ended March 31, 2021 were as follows:
As of March 31, 2021, total unrecognized compensation cost related to non-vested stock options was $592 and is expected to be recognized over a weighted-average service period of 2.1 years.
During the six months ended March 31, 2021, the Company granted a total of 132 restricted shares to members of the Company’s leadership team, including 40 restricted shares granted on December 29, 2020 to the CEO under his employment agreement. A summary of restricted share activity for the six months ended March 31, 2021 is as follows:
Restricted Shares | Weighted- Average Grant Date Fair Value | ||||||||
Outstanding – September 30, 2020 | 128 | $ | 3.88 | ||||||
Granted | 132 | $ | 8.74 | ||||||
Vested | (10 | ) | $ | 1.28 | |||||
Forfeited | (2 | ) | 6.63 | ||||||
Outstanding – March 31, 2021 | 248 | $ | 6.54 |
As of March 31, 2021, total unrecognized compensation cost related to non-vested restricted shares was $1,193 and is expected to be recognized over a weighted-average service period of 1.9 years.
The Company computes basic income (loss) per share using the weighted average number of common shares outstanding. As of March 31, 2021, the Company had two categories of dilutive potential common shares: Series A preferred shares issued in May 2011 in connection with the Company’s registered direct offering and shares issuable upon exercise of options. The Company computes diluted earnings per share using the if-converted method for preferred shares, if any, and the treasury stock method for stock options, respectively. As of December 31, 2021, the Company only had dilutive potential common shares, which related to shares issuable upon exercise of options. Shares issuable upon exercise of 6711,654,270 options were not considered in computing diluted income (loss) per share for the three months ended December 31, 2021 because they were anti-dilutive. Additionally, there are 3,040,268 shares issuable upon conversion in connection with the convertible debt entered into on September 27, 2021. The Company computes diluted earnings per share using the if-converted method for the shares issuable in connection with the convertible debt. These shares were not considered in computing diluted (loss) per share for the three months ended December 31, 2021 because they were anti-dilutive. Shares issuable upon exercise of 704,340 options and 712 common shares issuable upon conversion of preferred shares were not considered in computing diluted income (loss) per share for the three and six months ended March 31, 2021 because they were anti-dilutive. Shares issuable upon exercise of 802 options and 17 common shares issuable upon conversion of preferred shares were not considered in computing diluted income (loss) per share for the three and six months ended MarchDecember 31, 2020 because they were anti-dilutive.
8
The following table reconciles the computation of basic net loss per share to diluted loss per share:
| | | | | | | |
|
| Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Basic and diluted net income (loss) per share: |
| |
|
| |
| |
Net loss applicable to common shareholders | | $ | (83,047) | | $ | (366) | |
Weighted average common shares outstanding | | | | | | | |
Basic | | | 21,124 | | | 11,016 | |
Diluted | |
| 21,124 | |
| 11,016 | |
| | | | | | | |
Basic net loss per share | | $ | (3.93) | | $ | (0.03) | |
Diluted net loss per share | | $ | (3.93) | | $ | (0.03) | |
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Basic net loss per share: | ||||||||||||||||
Net loss applicable to common shareholders | $ | (723 | ) | $ | (588 | ) | $ | (1,089 | ) | $ | (2,014 | ) | ||||
Weighted average common shares outstanding | 11,151 | 10,843 | 11,083 | 10,756 | ||||||||||||
Basic net loss per share | $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.10 | ) | $ | (0.19 | ) |
8
4. OTHER OPERATING EXPENSE
InventoriesOther operating expense consisted of the following:
March 31, 2021 | September 30, 2020 | |||||||
Raw materials | $ | 545 | $ | 577 | ||||
Work in progress | 69 | 70 | ||||||
Finished goods | 421 | 230 | ||||||
1,035 | 877 | |||||||
Obsolescence reserve | (163 | ) | (177 | ) | ||||
$ | 872 | $ | 700 |
| | | | | | |
| | Three Months Ended | ||||
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
Acquisition costs | | $ | 7,977 | | $ | — |
Startup costs | | | 957 | | | 160 |
Remediation costs | | | 439 | | | — |
Integration costs | | | 831 | | | — |
Other costs | | | 362 | | | 36 |
Acquisition-related stock compensation costs | | | 23,014 | | | — |
| | $ | 33,580 | | $ | 196 |
| | | | | | |
5. SEGMENT INFORMATION
Due to the Envigo acquisition, the Company reports its results in 2 reportable segments – Discovery and Safety Assessment (DSA) and Research Models and Services (RMS).
The Company operates in two principal segments -DSA segment provides preclinical research services and research products. The Services segment provides research and development support on a contract basis directly to biopharma and pharmaceutical companies. The Products segmentcompanies as well as certain research products. Preclinical research services include screening and pharmacological testing, nonclinical safety testing, formulation development, regulatory compliance and quality control testing, which are services required to take a drug through the early development process including discovery services, which are non-regulated services to assist clients with the identification, screening, and selection of a lead compound for drug development, and regulated and non-regulated (GLP and non-GLP) safety assessment services. Research products provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions.
The accounting policiesCompany’s RMS reportable segment includes the research models, research model services and Teklad diet, bedding and enrichment businesses (Teklad). Research models include the commercial production and sale of these segments aresmall research models and large research models and the sameproduction and sale of certain biological products. Research model services include: Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; client-owned animal colony care; and health monitoring and diagnostics services related to research models. Teklad includes standard, custom and medicated diets as those described inwell as bedding and environmental enrichment products, which enhance the summarywelfare of significant accounting policies found in Note 2 toresearch animals.
During the Consolidated Financial Statements inthree months ended December 31, 2021, the Company’s annual report on Form 10-K forRMS segment reported intersegment revenue of $320 from the fiscal year ended September 30, 2020.DSA segment. The following table presents revenue and other financial information by reportable segment:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue: | ||||||||||||||||
Service | $ | 17,902 | $ | 15,191 | $ | 34,934 | $ | 27,333 | ||||||||
Product | 849 | 821 | 1,702 | 1,597 | ||||||||||||
$ | 18,751 | $ | 16,012 | $ | 36,636 | $ | 28,930 | |||||||||
Operating Income (Loss) | ||||||||||||||||
Service | $ | 3,794 | $ | 2,575 | $ | 6,905 | $ | 3,933 | ||||||||
Product | (26 | ) | (200 | ) | 141 | (470 | ) | |||||||||
Corporate | (4,289 | ) | (2,570 | ) | (7,553 | ) | (4,678 | ) | ||||||||
$ | (521 | ) | $ | (195 | ) | $ | (507 | ) | $ | (1,215 | ) | |||||
Interest expense | (366 | ) | (392 | ) | (713 | ) | (703 | ) | ||||||||
Other income | 179 | 10 | 179 | 12 | ||||||||||||
Loss before income taxes | $ | (708 | ) | $ | (577 | ) | $ | (1,041 | ) | $ | (1,906 | ) |
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Revenue | | | | | | | |
DSA | | $ | 32,825 | | $ | 17,885 | |
RMS | |
| 51,386 | |
| — | |
| | | | | | | |
Operating Income (Loss) | | | | | | | |
DSA | | $ | 6,042 | | $ | 3,277 | |
RMS | | | 80 | | | — | |
Unallocated Corporate | |
| (39,763) | |
| (3,263) | |
| | $ | (33,641) | | $ | 14 | |
| | | | | | | |
Interest expense | | | (4,828) | | | (347) | |
Other expense | | | (57,727) | | | — | |
Loss before income taxes | | $ | (96,196) | | $ | (333) | |
The Company uses the asset and liability method of accounting for income taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The Company measures deferred tax assets and liabilities 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 Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. The Company records valuation allowances based on a determination of the expected realization of tax assets.
9
The difference between the enacted federal statutory rate of 21% and the Company’s effective rate of (4.58)%13.3% for the sixthree months ended MarchDecember 31, 2021 is dueprimarily related to changesdeferred tax liabilities established as part of the acquisition of Envigo, which resulted in thea release of valuation allowance, as well as, the impact on its net deferred tax assets.
expense of certain book to tax differences on the deductibility of certain transaction costs and non-deductibility of the loss on fair value remeasurement of the embedded derivative component of the convertible notes.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The Company measures the amount of the accrual for which an exposure exists as the largest amount of benefit determined on a cumulative probability basis that it believes is more likely than not to be realized upon settlement of the position.
At MarchDecember 31, 2021 and September 30, 2020,2021, the Company had no0 liability for uncertain income tax positions.
The Company records interest and penalties accrued in relation to uncertain income tax positions as a component of income tax expense. Any changes in the liability for uncertain tax positions would impact the effective tax rate. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.
The Company filesis subject to income tax returnstaxes in the U.S. federal jurisdiction, and several U.S. states. Thethe various states and local jurisdictions in which it operates. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the normal course of business, the Company remainsis subject to examination by the federal, state, local and foreign taxing authorities in the jurisdictions in which it has filedauthorities. State and other income tax returns are generally subject to examination for a period of three to five years after 2014.
the filing of the respective returns The Company has open tax years for state and foreign income tax filings generally starting in 2017.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act due(the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferral of the employer portion of social security payments (FICA deferral), and expanded income tax net operating loss carryback provisions. As of December 31, 2021, the Company has a FICA deferral of approximately $916 related to the coronavirus pandemic. Among other things,Envigo acquisition. During the legislation provides tax relief for businesses. The Company is still assessing the tax benefit, if any, that it could receive under this legislation. The Company received a Payroll Protection Program (“PPP”) loan of $5,051 and applied for forgiveness of $4,851. Based on satisfaction of requirements under the CARES Act for forgiveness,three months ended December 31, 2021, the Company recorded a deferred tax asset for nondeductible expense relating topaid $916, and the PPP fundsremaining amount of $1,276 at September 30, 2020.$916 is due on December 31, 2022.
10
On December 27, 2020, the U.S. enacted the Consolidated Appropriations Act of 2021 was signed into law, clarifying that business expenses paid out(“CAA”) which extended and expanded certain tax relief measures created by the CARES Act, including, but not limited to, (1) second round of PPP forgivable loan funds may in fact be fully deductedPayroll Protection Program loans, and (2) the Employer Retention Credit for federal income tax purposes. Based on this clarification in2021.
On March 11, 2021, the bill,U.S. enacted the Company reversedAmerican Rescue Plan Act of 2021 (“ARPA”) which expands Section 162(m) to cover the $1,276 deferred tax asset related to PPP loan expenses, along with the corresponding valuation allowancenext five most highly compensated employees for the same amount, as oftaxable year, in addition to the “covered employees” effective for taxable years beginning after December 31, 2020. 2026. We continue to examine the elements of the CAA and ARPA and the impact they may have on our future business.
7. DEBT |
Credit Facility
On April 30,November 5, 2021, the Company, refinanced its credit arrangements with First Internet Bank (“FIB”) in order to, among other things, secure additional debt financing. The discussion below describes our credit arrangements with FIB ascertain of March 31, 2021. For a description of our credit arrangements with FIB assubsidiaries of the April 30, 2021 refinancing, refer to Note 13 “Subsequent Events” to these Notes to Condensed Consolidated Financial Statements.
On December 1, 2019,Company (the “Subsidiary Guarantors”), the Companylenders party thereto, and Jefferies Finance LLC, as administrative agent, entered into an Amended and Restateda Credit Agreement (as had previously been amended from time to time, the(the “Credit Agreement”) with FIB. As. The Credit Agreement provides for a term loan facility in the original principal amount of March 31, 2021,$165,000, a delayed draw term loan facility in the original principal amount of $35,000 (available to be drawn up to 18 months from the date of the Credit Agreement), and a revolving loan facility in the original principal amount of $15,000. In addition, the Credit Agreement included five term loans (the “Initial Term Loan,” “Second Term Loan,” “Third Term Loan,” “Fourth Term Loan,” and “Fifth Term Loan,” respectively), aprovides for an aggregate combined increase of the revolving line of credit (the “Revolving Facility”), a construction draw loan (the “Construction Draw Loan”), an equipment draw loan (the “Equipment Draw Loan”), and two capital expenditure instruments (the “Initial Capex Line”facility and the “Second Capex Line,” respectively).
The Initial Term Loan for $4,500 bears interest at a fixed rateterm loan facility of 3.99%, with monthly principal and interest payments of approximately $33. The Initial Term Loan matures June 23, 2022. The balance on the Initial Term Loan at March 31, 2021 was $3,622. The Company used the proceeds from the Initial Term Loan to satisfy its indebtedness with Huntington Bank and terminated the related interest rate swap.
The Second Term Loan for $5,500 was used to fund a portion of the cash consideration for the Seventh Wave acquisition. Amounts outstanding under the Second Term Loan bear interest at a fixed per annum rate of 5.06%, with monthly principal and interest payments equal to $78. The Second Term Loan matures July 2, 2023 and the balance on the Second Term Loan at March 31, 2021 was $3,634.
The Third Term Loan for $1,271 was used to fund the cash consideration for the Smithers Avanza acquisition. Amounts outstanding under the Third Term Loan bear interest at a fixed per annum rate of 4.63%. The Third Term Loan required monthly interest only payments until December 1, 2019, from which time payments of principal and interest in monthly installments of $20 are required, with all accrued but unpaid interest, cost and expenses due and payable at the maturity date. The Third Term Loan matures November 1, 2025 and the balance on the Third Term Loan at March 31, 2021 was $1,018.
The Fourth Term Loan in the principal amount of $1,500 has a maturity of June 1, 2025. Interest accrues on the Fourth Term Loan at a fixed per annum rate equal to 4%, with interest payments only having commenced January 1, 2020 through June 1, 2020, with monthly payments of principal and interest thereafter through maturity. The balance on the Fourth Term Loan at March 31, 2021 was $1,286.
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The Fifth Term loan in the principal amount of $1,939 has a maturity of December 1, 2024. Interest accrues on the Fifth Term Loan at a fixed per annum rate equal to 4%, with payments of principal and interest due monthly through maturity. The balance on the Fifth Term Loan at March 31, 2021 was $1,858. The Company entered into the Fourth Term Loan and the Fifth Term Loan in connection with the PCRS Acquisition.
The Revolving Facility provides a line of credit for up to $5,000,$35,000, which amount will be available to be drawn once the delayed draw term loan facility is no longer available. On November 5, 2021, the Company may borrow from time to time, subject toborrowed the terms of the Credit Agreement, including as may be limited by thefull amount of the Company’s outstanding eligible receivables. term loan facility, but did not borrow any amounts on the delayed draw term loan facility or the revolving loan facility.
The Revolving Facility requires monthly accrued and unpaidCompany may elect to borrow on each of the loan facilities at either an adjusted LIBOR rate of interest payments only until maturityor an adjusted prime rate of interest. Adjusted LIBOR rate loans shall accrue interest at a floating per annuman annual rate equal to the greaterLIBOR rate plus a margin of (a) 4%between 6.00% and 6.50%, or (b) the sum of the Prime Rate plus Zero Basis Points (0.0%), which rate shall change concurrently with the Prime Rate. The Company did not have an outstanding balancedepending on the Revolving Facility asCompany’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The LIBOR rate must be a minimum of March 31, 2021. On April 30, 2021,1%. The initial adjusted LIBOR rate of interest is the parties amended the Revolving Facility to extend its maturity through April 30, 2023. Refer to Note 13 “Subsequent Events” to these Notes to Condensed Consolidated Financial Statements.
The Construction Draw Loan and the Equipment Draw Loan were utilized in connection with the Evansville facility expansion and provided for borrowings up to principal amounts not to exceed $4,445 and $1,429, respectively. Amounts outstanding under theseLIBOR rate plus 6.25%. Adjusted prime rate loans bearshall accrue interest at a fixed per annum rate of 5.20%. The Construction Draw Loan and Equipment Draw Loan each mature on March 28, 2025. As of March 31, 2021, there was a $4,015 balance on the Construction Draw Loan and a $1,103 balance on the Equipment Draw Loan.
The Initial Capex Line previously provided for borrowings up to the principal amount of $1,100, which the Company could borrow from time to time, subject to the terms of the Credit Agreement. On March 27, 2020, the parties amended the Initial Capex Line to eliminate the revolving nature of the line in favor of a term loan in the principal amount of $948, equivalent to the amount of borrowings then outstanding on the Initial Capex Line. As amended, the Initial Capex Line matures on June 30, 2025, and as of March 31, 2021, had a balance of $826. Interest accrues on the principal balance of the Initial Capex Line at a fixed per annuman annual rate equal to 4%. The Initial Capex Line requires paymentsthe prime rate plus a margin of principalbetween 5.00% and interest in monthly installments equal to $17.
The Second Capex Line previously provided for borrowings up to the principal amount of $3,000, which the Company could borrow from time to time, subject to the terms of the Credit Agreement. On December 18, 2020, the parties amended the Second Capex Line to eliminate the revolving nature of the line in favor of a term loan in the principal amount of $3,000, equivalent to the amount of borrowings then outstanding on the Second Capex Line. As amended, the Second Capex Line matures on December 31, 2025. Interest accrues on the principal balance of the Second Capex Line at a fixed per annum rate equal to 4.25%. Commencing January 31, 2021, and on the last day of each monthly period thereafter until and including on the maturity date, the Second Capex Line requires payments of principal and interest in monthly installments equal to $55, and as of March 31, 2021, had a balance of $2,865.
The Company’s obligations under the Credit Agreement are guaranteed by BAS Evansville, Inc. (“BASEV”)5.50%, Seventh Wave Laboratories, LLC, BASi Gaithersburg LLC, as well as Bronco Research Services LLC (“Bronco”), each a wholly owned subsidiary of the Company (collectively, the “Guarantors”). The Company’s obligations under the Credit Agreement and the Guarantor’s obligations under their respective guaranties are secured by first priority security interests in substantially all of the assets of the Company and the Guarantors, respectively, mortgagesdepending on the Company’s BASEV’s and Bronco’s facilities in West Lafayette, Indiana, Evansville, Indiana, and Fort Collins, Colorado, respectively, and pledgesthen current Secured Leverage Ratio. The initial adjusted prime rate of interest is the prime rate plus 5.25%. Actual interest accrued at 7.25% through December 31, 2021.
The Company must pay (i) a fee based on a percentage per annum equal to 0.50% on the average daily undrawn portion of the Company’s ownership interestscommitments in respect of the revolving loan facility and (ii) a fee based on a percentage per annum equal to 1.00% on the average daily undrawn portion of the commitments in respect of the delayed drawn loan facility. In each case, such fee shall be paid quarterly in arrears.
Each of the term loan facility and delayed draw term loan facility require annual principal payments in an amount equal to 1.0% of their respective original principal amounts. The Company shall also repay the term loans on an annual basis in an amount equal to a percentage of its subsidiaries.Excess Cash Flow (as defined in the Credit Agreement), which percentage will be determined by its then current Secured Leverage Ratio. Each of the loan facilities may be repaid at any time with premium or penalty.
As amended, (i) beginning March 31, 2021, theThe Company is required to maintain an initial Secured Leverage Ratio (as defined in the Credit Agreement) of not more than 4.25 to 1.00. The maximum permitted Secured Leverage Ratio shall reduce to 3.00 to 1.00 beginning with the Company’s fiscal quarter ending March 31, 2025. The Company is required to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement), tested quarterly,which ratio shall be 1.00 to 1.00 during the first year of not less than (a) as of March 31, 2021 1.05 to 1.0, (b) as of June 30, 2021the Credit Agreement and shall be 1.10 to 1.00 from and (c)after the Credit Agreement’s first anniversary.
Each of the loan facilities is secured by all assets (other than certain excluded assets) of the Company and each of the Subsidiary Guarantors. Repayment of each of the loan facilities is guaranteed by each of the Subsidiary Guarantors.
Utilizing proceeds from the Credit Agreement on November 5, 2021, the Company repaid all indebtedness and terminated the credit agreement related to the First Internet Bank of Indiana (“FIB”) credit facility as described in Note 10 and recognized $877 loss on debt extinguishment.
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Long term debt as of September 30, 2021 and for each quarter thereafter 1.20 to 1.00 and (ii) the Company is required to maintain a Cash Flow Leverage Ratio (as defined in the Credit Agreement), tested quarterly, not to (a) as of MarchDecember 31, 2021, 5.75 to 1.00, (b) as of June 30, 2021, 5.00 to 1.00 and (c) as of September 30, 2021 and for each quarter thereafter, 4.25 to 1.00. The Fixed Charge Coverage Ratio and Cash Flow Leverage Ratio are measured on a trailing twelve (12) month basis, provided, however, that in the case of Fixed Charge Coverage Ratio calculations for the remainder of fiscal 2021 (i) the measurement period for the quarter ending March 31, 2021 includes only the quarter ending March 31, 2021, (ii) the measurement period for the quarter ending June 30, 2021 includes only the quarters ending March 31, 2021 and June 30, 2021 and (iii) the measurement period for the quarter ending September 30, 2021 includes only the quarters ending March 31, 2021, June 30, 2021 and September 30, 2021.
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2021 is detailed in the table below.
| | | | | | |
| | As of: | ||||
|
| December 31, 2021 |
| September 30, 2021 | ||
FIB Term Loans | | $ | — | | $ | 36,185 |
Seller Note – Bolder BioPath | |
| 1,455 | |
| 1,500 |
Seller Note – Smithers Avanza | |
| 175 | |
| 280 |
Seller Note – Preclinical Research Services | | | 667 | | | 685 |
Seller Note – Plato BioPharma | | | 3,000 | | | — |
EIDL Loan | | | 141 | | | — |
Convertible Senior Notes | | | 101,062 | | | 131,673 |
Senior Term Loan | | | 165,000 | | | — |
| |
| 271,500 | |
| 170,323 |
Less: Current portion | |
| (5,223) | |
| (9,656) |
Less: Debt issue costs not amortized | |
| (10,882) | |
| (6,458) |
Total Long-term debt | | $ | 255,395 | | $ | 154,209 |
Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, and defaults under other material indebtedness, FIB may cease advancing funds, increase the interest rate on outstanding balances, accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. The Company has also obtained a life insurance policy in an amount of $5,000 for its President and Chief Executive Officer and provided FIB an assignment of such life insurance policy as collateral.Acquisition-related Debt
In addition to the indebtedness under the Credit Agreement, as partcertain of the Smithers Avanza acquisition,Company’s subsidiaries have issued unsecured notes as partial payment of the Company has an unsecured promissory note payablepurchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the Smithers Avanza seller inindebtedness under the initial principal amount of $810 made by BASi Gaithersburg and guaranteed by the Company. The promissory note bears interest at 6.5% with monthly payments and a maturity date of May 1, 2022. At March 31, 2021, the balance on the note payable to the Smithers Avanza seller was $480. Credit Agreement.
As part of the PCRS Acquisition,acquisition of Plato BioPharma, which is a part of the Company also has anCompany’s Inotiv Boulder subsidiary, Inotiv Boulder, LLC, issued unsecured subordinated promissory notenotes payable to the PCRS seller in the initial principal amountformer shareholders of $800. The promissory note bears interest at 4.5% with monthly payments and a maturity date of December 1, 2024. At March 31, 2021, the balance on the note payable to the PCRS seller was $719. In connection with the Merger (as defined below), the Company has also issued seller notesPlato BioPharma in an aggregate principal amount of $1,500. Refer to Note 13 “Subsequent Events” to these$3,000. The promissory notes bear interest at a rate of 4.5% per annum, with monthly payments of principal and interest and a maturity date of June 1, 2023.
Convertible Senior Notes to Condensed Consolidated Financial Statements.
On April 23, 2020,September 27, 2021, the Company was granted a loan (the “Loan”) from Huntington National Bank in the aggregateissued $140,000 principal amount of $5,051,its 3.25% Convertible Senior Notes due 2027. The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among the Company, the BAS Evansville, as guarantor, and U.S. Bank National Association, as trustee. Pursuant to the purchase agreement between the Company and the initial purchaser of the Notes, the Company granted the initial purchaser an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes were first issued, up to an additional $15,000 principal amount of Notes. The Notes issued on September 27, 2021 include $15,000 principal amount of Notes issued pursuant to the Paycheck Protection Programfull exercise by the initial purchaser of such option. The Company used the net proceeds from the offering of Notes, together with borrowings under Division A, Title Ia new senior secured term loan facility, to fund the cash portion of the CARES Act, which was enacted March 27, 2020. The termspurchase price of the Loan call for repaymentEnvigo Acquisition and related fees and expenses, as described in Note 16.
The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s non-guarantor subsidiaries. The Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by BAS Evansville (the “Guarantor”).
The Notes accrue interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2022. The Notes will mature on October 15, 2027, unless earlier repurchased, redeemed or converted. Before April 15, 2027, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 15, 2027, noteholders may convert their Notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, its common shares or a combination of cash and its common shares, at the Company’s election. The initial conversion rate is 1.7162 common shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $46.05 per common share. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events.
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In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Notes are redeemable, in whole and not in part, at the Company’s option at any time on or after October 15, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, but only if the last reported sale price per common share of the Company exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. The redemption price is a cash amount equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling the Notes for redemption pursuant to the provisions described in this paragraph will constitute a Make-Whole Fundamental Change, which will result in an increase to the conversion rate in certain circumstances for a specified period of time.
If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common shares.
The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, are subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the LoanIndenture within specified periods of time; (iii) the failure by the Company or the Guarantor to comply with certain covenants in eighteen installmentsthe Indenture relating to the ability of $283 beginning on November 16, 2020the Company or the Guarantor to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company or the Guarantor, as applicable, and continuing monthly untilits subsidiaries, taken as a whole, to another person; (iv) a default by the final payment is due on April 16, 2022. However,Company or the bankGuarantor in its other obligations or agreements under the Indenture or the Notes if such default is not requiring paymentscured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by the Company, the Guarantor or any of principaltheir respective subsidiaries with respect to indebtedness for borrowed money of at least $20,000; (vi) the rendering of certain judgments against the Company, the Guarantor or interest pendingany of their respective subsidiaries for the loan forgiveness decision. Thepayment of at least $20,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; (vii) certain events of bankruptcy, insolvency and reorganization involving the Company, has applied for forgivenessthe Guarantor or any of their respective significant subsidiaries; and (viii) the guarantee of the loanNotes ceases to be in full force and effect (except as permitted by the Indenture) or the Guarantor denies or disaffirms its obligations under its guarantee of the Notes.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company or the Guarantor (and not solely with respect to a significant subsidiary of the Company or the Guarantor) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of $4,851.the Notes.
Long term debtIn accordance with ASC 815, at issuance, the Company evaluated the convertible feature of the Notes and determined it was required to be bifurcated as an embedded derivative and did not qualify for equity classification. The convertible feature of the Notes is subject to fair value remeasurement as of March 31, 2021each balance sheet date or until it meets equity classification requirements and September 30, 2020 is detailed invalued utilizing level three inputs as described below. The discount resulting from the table below.initial fair value of the embedded derivative will be amortized to interest expense using the effective interest method. Non-cash interest expense during the period primarily related to this discount.
As of: | ||||||||
March 31, 2021 | September 30, 2020 | |||||||
Initial Term Loan | $ | 3,622 | $ | 3,748 | ||||
Second Term Loan | 3,634 | 4,004 | ||||||
Third Term Loan | 1,018 | 1,115 | ||||||
Fourth Term Loan | 1,286 | 1,425 | ||||||
Fifth Term Loan | 1,858 | 1,891 | ||||||
Initial Capex Line | 826 | 920 | ||||||
Second Capex Line | 2,865 | — | ||||||
Subtotal Term Loans | 15,109 | 13,103 | ||||||
Construction and Equipment loans | 5,119 | 5,496 | ||||||
Seller Note – Smithers Avanza | 480 | 650 | ||||||
Seller Note – Preclinical Research Services | 719 | 752 | ||||||
Paycheck protection program loan | 5,051 | 5,051 | ||||||
26,478 | 25,052 | |||||||
Less: Current portion | (8,317 | ) | (5,991 | ) | ||||
Less: Debt issue costs not amortized | (235 | ) | (235 | ) | ||||
Total Long-term debt | $ | 17,925 | $ | 18,826 |
As partIn the first quarter of a fiscal 2012 restructuring,2022, the Company accruedearly adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06)”. The update simplifies the accounting for lease payments at the cease use date for its United Kingdom facilityconvertible debt instruments and have considered free rent, sublease rentals andconvertible preferred stock by reducing the number of days it would take to restoreaccounting models and limiting the space to its original condition prior to improvements. number of embedded conversion features separately recognized from the
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primary contract. As a result of the approval for the increase in authorized shares on November 4, 2021 (See Note 2 – Equity), the convertible note conversion rights met all equity classification criteria in ASC 815. As a result, the derivative liability was remeasured as of November 4, 2021 and reclassified out of long-term liabilities and into additional paid-in capital.
Based on these matters,upon the above, the Company hadremeasured the fair value of the embedded derivative as of November 4, 2021 which resulted in a $1,117 reservefair value measurement of $88,576 and a loss on remeasurement included in other income (loss) for lease related costs and for legal and professional fees and other coststhe three-months ended December 31, 2021 of $56,714. The embedded derivative liability of $88,576 was then reclassified to remove improvements previously made toadditional paid-in capital in accordance with ASC 815.
In connection with the facility. During the three and six months ended March 31,evaluation at November 4, 2021, the Company released allrechallenged its analysis of the remaining reserve for lease related liabilities. At March 31, 2021initial allocation of value between the embedded derivative and debt component of the convertible debt included in long-term liabilities at September 30, 2020, respectively,2021. This resulted in a change in the Company had $0allocation of the underlying long-term debt from $76,716 to $99,776 and $168 reserved for the remaining liability. The reserve was classified as a current liability onallocation of the condensed consolidated balance sheetsconversion feature from $54,922 to $31,862. These changes did not result in any change to long-term liabilities or any material changes to net income as of September 30, 2020.2021.
Fair Value
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instrument” “CECL”). ASU 2016-13 requires an allowance for expected credit losses on financial assets to be recognized as early as day one
The provisions of the instrument.Fair Value Measurements and Disclosure Topic defines fair value, establishes a consistent framework for measuring fair value and provides the disclosure requirements about fair value measurements. This ASU departsTopic also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the incurred loss model which meansCompany. Unobservable inputs are inputs that reflect the probability threshold is removed. It considers more forward-looking information and requiresCompany’s judgment about the entity to estimate its credit losses as far as it can reasonably estimate. This update became effective forassumptions market participants would use in pricing the Company on October 1, 2020. The adoption of this guidance did not have a material impactasset or liability based on the Company’s consolidated financial statements. best information available in the circumstances. The hierarchy is broken down into three levels based on the inputs as follows:
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● | Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
● | Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The embedded conversion feature of the convertible senior notes is subject to fair value measurement on a recurring basis as they include unobservable and significant inputs in determining the fair value. The Company utilized a single factor trinomial lattice model to determine the related fair value of the embedded derivative convertible feature of the notes at November 4, 2021, and the inputs used included a volatility of 40.0%, a bond yield assumption of 10.44% and a remaining maturity period of 5.95 years.
Former Credit Agreement
On October 4, 2021, the Company entered into a Third Amendment to Amended and Restated Credit Agreement, which amended the Amended and Restated Credit Agreement between the Company and First Internet Bank of Indiana (“FIB”), as amended. Pursuant to the Amendment, FIB consented to the acquisition by the Company of Plato by merger of Plato with a wholly owned subsidiary of the Company and the subsequent merger of the surviving corporation of that merger with another wholly owned subsidiary of the Company. In addition, the Amendment amended the Credit Agreement to (i) add the promissory notes to be issued to former Plato shareholders in the Plato Acquisition as permitted indebtedness, which notes will be issued by the surviving company, guaranteed by the Company and subordinated in favor of the Lender, and (ii) add references to the Plato Acquisition to certain provisions of the Credit Agreement relating to subordination agreements, representations and warranties, and certain covenants to permit the Plato Acquisition to occur. The Amendment includes agreements by the Company to obtain certain landlord waivers within 30 days of the closing of the Plato Acquisition and to deliver to the Lender signed subordination agreements.
The Company consummated the Envigo Acquisition and repaid all of its obligations under the FIB Credit Facility in November 2021, as described in Note 10.
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8. SUPPLEMENTAL BALANCE SHEET INFORMATION
Trade receivables and contract assets, net consisted of the following:
| | | | | | |
| | December 31, | | September 30, | ||
|
| 2021 |
| 2021 | ||
Trade receivables | | $ | 66,771 | | $ | 21,402 |
Unbilled revenue | |
| 8,246 | |
| 7,630 |
Total | | | 75,017 | | | 29,032 |
Less: Allowance for doubtful accounts | |
| (3,068) | |
| (668) |
Trade receivables and contract assets, net of allowances for doubtful accounts | | $ | 71,949 | | $ | 28,364 |
Inventories, net consisted of the following:
| | | | | | | |
| | December 31, | | September 30, | | ||
|
| 2021 |
| 2021 |
| ||
Raw materials | | $ | 1,455 | | $ | 513 | |
Work in progress | |
| 114 | |
| 37 | |
Finished goods | |
| 4,456 | |
| 192 | |
Animal Inventory | | | 33,682 | | | — | |
Total | | | 39,707 | | | 742 | |
Less: Obsolescence reserve | |
| (3,641) | |
| (140) | |
Inventories, net | | $ | 36,066 | | $ | 602 | |
Prepaid expenses and other current assets consisted of the following:
| | | | | | |
| | December 31, | | September 30, | ||
|
| 2021 |
| 2021 | ||
Advances to suppliers | | $ | 10,319 | | $ | — |
Income tax receivable | |
| 2,851 | |
| — |
Other | | | 8,245 | | | 1,198 |
Prepaid research models | | | 1,975 | | | 1,931 |
Prepaid expenses and other current assets | | $ | 23,390 | | $ | 3,129 |
The composition of other assets is as follows:
| | | | | | |
| | December 31, | | September 30, | ||
|
| 2021 |
| 2021 | ||
Long-term advances to suppliers | | $ | 2,144 | | $ | — |
Security deposits and guarantees | | | 2,511 | | | 51 |
Finance lease right-of-use assets, net | | | 54 | | | 60 |
Other | |
| 685 | |
| 230 |
Other assets | | $ | 5,394 | | $ | 341 |
Accrued expenses consisted of the following:
| | | | | | |
| | December 31, | | September 30, | ||
|
| 2021 |
| 2021 | ||
Accrued compensation | | $ | 11,030 | | $ | 3,528 |
Non-income taxes | | | 1,888 | | | 18 |
Accrued interest | | | 2,339 | | | 169 |
Current portion of long-term finance lease | | | 22 | | | 24 |
Other | |
| 8,072 | |
| 4,887 |
Current portion of contingent liability | | | 167 | | | 167 |
Consideration payable | | | — | | | 175 |
Accrued expenses and other liabilities | | $ | 23,518 | | $ | 8,968 |
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The composition of fees invoiced in advance is as follows:
| | | | | | | |
| | December 31, | | September 30, | | ||
|
| 2021 |
| 2021 |
| ||
Customer deposits | | $ | 12,511 | | $ | — | |
Deferred revenue | | | 32,014 | | | 26,614 | |
Fees invoiced in advance | | $ | 44,525 | | $ | 26,614 | |
Other liabilities consisted of the following:
| | | | | | |
| | December 31, | | September 30, | ||
|
| 2021 |
| 2021 | ||
Long-term customer deposits | | $ | 1,161 | | $ | — |
Accrued pension liability | | | 865 | | | — |
Long-term finance leases | | | 35 | | | 39 |
Other | | | 762 | | | — |
Long-term portion of contingent liability | | | 473 | | | 473 |
Other liabilities | | $ | 3,296 | | $ | 512 |
9. NEW ACCOUNTING PRONOUNCEMENTS
In the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06)”. The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
10. BUSINESS COMBINATIONS
The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance requires consideration given, including contingent consideration, assets acquired, and liabilities assumed to be valued at their fair market values at the acquisition date. The guidance further provides that: (1) in-process research and development will be recorded at fair value as an indefinite-lived intangible asset; (2) acquisition costs will generally be expensed as incurred, (3) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (4) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of purchase price over fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill.
PCRSHistoTox Labs acquisition
Overview
On November 8, 2019,April 30, 2021, the Company and Bronco Research Services LLC, a wholly owned subsidiarycompleted the acquisition of the Company (the “PCRS Purchaser”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Pre-Clinical Research Services, Inc., a Colorado corporation (the “PCRS Seller”), and its shareholder. Pursuant to the Purchase Agreement, on December 1, 2019, the Company indirectly acquired (the “PCRS Acquisition”) substantially all of the assets of PCRS Seller used or useful by PCRS SellerHistoTox Labs, Inc. (“HistoTox Labs”). HistoTox Labs is a provider of services in connection with PCRS Seller's provision of GLPnon-clinical consulting, laboratory and non-GLP preclinical testingstrategic support services and products related to routine and specialized histology, immunohistology, histopathology and image analysis/digital pathology. Consideration for the pharmaceuticalHistoTox Labs Acquisition consisted of $22,389 in cash, including $68 payable in net working capital adjustments.
HistoTox Labs, Bolder BioPATH and medical device industries. The total considerationPlato BioPharma (discussed below) were combined into 1 business unit and recorded combined revenues of $9,316 and combined net income of $1,830 for the PCRS Acquisition was $5,857, which consisted of $1,500 in cash, subject to certain adjustments, 240 of the Company’s common shares valued at $1,133 using the closing price of the Company’s common shares on November 29, 2019 and an unsecured promissory note in the initial principal amount of $800 made by PCRS Purchaser. The promissory note bears interest at 4.5%. The Company also purchased certain real property located in Fort Collins, Colorado, comprising the main facility for the PCRS Seller’s business and additional property located next to the facility available for future expansion, for $2,500. The Company funded the cash portion of the purchase price for the PCRS Acquisition with cash on hand and the net proceeds from the refinancing of its credit arrangements with FIB, as described in Note 7. As contemplated by the Purchase Agreement, the Company also entered into a lease arrangement for an ancillary property used by Seller’s business, located in Livermore, Colorado.
Accounting for the Transaction
Results are included in the Company’s results from the acquisition date ofthree month periods ending December 1, 2019.
31, 2021.
The Company’s allocationvaluation of the $5,857 purchase price to PCRS Purchaser’s tangible and identifiable intangible assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, intangible assets, income taxes, goodwill, among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but 0 later than one year after the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value. This business is reported as part of our DSA reportable
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segment. The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| | |
Accounts receivable | | | 982 |
Unbilled revenues | | | 337 |
Operating lease ROU asset | | | 2,239 |
Property and equipment | |
| 4,021 |
Intangible assets | | | 8,500 |
Other Assets | | | 25 |
Goodwill | | | 9,129 |
Accounts payable | | | (132) |
Accrued expenses | | | (266) |
Customer advances | | | (207) |
Operating lease liability | |
| (2,239) |
| | $ | 22,389 |
Property and equipment is mostly composed of equipment (including lab equipment, furniture and fixtures, and computer equipment). The fair value of property and equipment was determined using a combination of cost and market-based methodologies. The fair value of property and equipment as of December 31, 2021 is based on theirpreliminary assumptions which are subject to change as we complete our valuation procedures.
Intangible assets primarily relate to customer relationships and a non-compete agreement. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 8 years for customer relationships and 5 years for the non-compete agreement on a straight-line basis. The estimated fair values of identifiable intangible assets were determined using the "income approach," which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for each asset or product (including revenues, cost of services, marketing, selling and administrative expenses, and contributory asset charges), the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, the potential regulatory and commercial success risk, and competitive trends impacting the asset and each cash flow stream, as well as other factors. The fair value of intangible assets as of December 1, 2019,31, 2021 is included in the table below. based on preliminary assumptions which are subject to change as we complete our valuation procedures.
Goodwill, which is derived from the enhanced scientific expertise, expanded client base and our ability to provide broader service solutions through a comprehensive portfolio, is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and is deductible for tax purposes. The purchase price allocation as of March 31,2021 is as follows:
Allocation as of March 31, 2021 | ||||
Assets acquired and liabilities assumed: | ||||
Receivables | $ | 578 | ||
Property and equipment | 2,836 | |||
Unbilled receivables | 162 | |||
Prepaid expenses | 27 | |||
Intangible assets | 2,081 | |||
Goodwill | 751 | |||
Accounts payable | (109 | ) | ||
Accrued expenses | (118 | ) | ||
Customer advances | (351 | ) | ||
$ | 5,857 |
The allocation of the purchase price is based on valuations performed to determine the fair value of such assets and liabilities as of the acquisition date. Goodwill from this transaction is allocated to the Company’s ServicesDSA reportable segment. PCRS Purchaser
Bolder BioPATH acquisition
Overview
On May 3, 2021, the Company completed the acquisition of Bolder BioPATH in a merger of Bolder BioPATH with a wholly owned subsidiary of the Company. Bolder BioPATH is a provider of services specializing in in vivo models of rheumatoid arthritis, osteoarthritis, and inflammatory bowel disease as well as other autoimmune and inflammation models. Consideration for the Bolder BioPATH acquisition consisted of (i) $17,530 in cash, including net working capital adjustment receivable of approximately $970 and inclusive of $1,250 being held in escrow for purposes of securing any amounts payable by the selling parties on account of indemnification obligations, purchase price adjustments, and other amounts payable under the merger agreement, (ii) 1,588,235 of the Company’s common shares valued at $34,452 using the closing price of the Company’s common shares on May 3, 2021 and (iii) unsecured subordinated promissory notes payable to the former shareholders of Bolder BioPATH in an aggregate principal amount of $1,500. The promissory notes bear interest at a rate of 4.5% per annum, with monthly payments of principal and interest and a maturity date of May 1, 2026.
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In accordance with ASC 805-740, the Company established a deferred tax liability with an offset to goodwill in connection with the accounting for the opening balance sheet of the Bolder BioPATH acquisition as a result of book-to-tax differences primarily related to the customer relationship intangible and property and equipment.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, intangible assets, income taxes and goodwill, among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but 0 later than one year after the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value. This business is reported as part of our DSA reportable segment.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| |
|
Accounts receivable | | | 2,258 |
Unbilled revenues | | | 1,798 |
Prepaid expenses | |
| 6 |
Operating lease ROU asset | | | 2,750 |
Property and equipment | |
| 6,609 |
Intangible asset | | | 12,500 |
Other assets | | | 70 |
Goodwill | | | 36,223 |
Accounts payable | | | (159) |
Accrued expenses | |
| (294) |
Deferred revenue | | | (662) |
Deferred tax liability | | | (4,867) |
Operating lease liability | |
| (2,750) |
| | $ | 53,482 |
Property and equipment is mostly composed of equipment (including lab equipment, furniture and fixtures, and computer equipment). The fair value of property and equipment was determined using a combination of cost and market-based methodologies. The fair value of intangible assets as of December 31, 2021 is based on preliminary assumptions which are subject to change as we complete our valuation procedures.
Intangible assets primarily relate to customer relationships. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 8 years on a straight-line basis. The estimated fair values of identifiable intangible assets were determined using the "income approach," which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for each asset or product (including revenues, cost of $3,813services, marketing, selling and administrative expenses, and contributory asset charges), the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, the potential regulatory and commercial success risk, and competitive trends impacting the asset and each cash flow stream, as well as other factors. The fair value of intangible assets as of December 31, 2021 is based on preliminary assumptions which are subject to change as we complete our valuation procedures.
Goodwill, which is derived from the enhanced scientific expertise, expanded client base and our ability to provide broader service solutions through a comprehensive portfolio, is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and NaN is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s DSA reportable segment.
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Gateway acquisition
Overview
On August 2, 2021, the Company completed the acquisition of Gateway Pharmacology Laboratories LLC (“Gateway Laboratories”) to further expand its drug metabolism and pharmacokinetics technology and capability as well as expand service offerings to include in vitro solutions in pharmacology and toxicology early in drug discovery. Consideration for the Gateway Laboratories acquisition consisted of (i) $1,671 in cash, including working capital and subject to customary purchase price adjustments, and (ii) 45,323 of the Company’s common shares valued at $1,182 using the closing price of the Company’s common shares on August 2, 2021. This business is reported as part of our DSA reportable segment.
In accordance with ASC 805-740, the Company established a deferred tax liability with an offset to goodwill in connection with the accounting for the opening balance sheet of the Gateway Laboratories acquisition as a result of book-to-tax differences primarily related to the customer relationship intangible and property and equipment.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, intangible assets, income taxes, and goodwill, among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value.
Goodwill, which is derived from the enhanced scientific expertise, expanded client base and the Company’s ability to provide broader service solutions through a comprehensive portfolio, is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and NaN is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s DSA reportable segment.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| |
|
Accounts receivable | | | 422 |
Operating lease ROU asset | | | 120 |
Property and equipment | |
| 359 |
Intangible asset | | | 100 |
Other assets | | | 9 |
Goodwill | |
| 2,207 |
Accounts payable | | | (54) |
Accrued expenses | | | (72) |
Deferred tax liability | | | (118) |
Operating lease liability | |
| (120) |
| | $ | 2,853 |
BioReliance acquisition
Overview
On July 9, 2021, the Company completed the acquisition of certain assets of BioReliance Corporation (“BioReliance”) to further expand its service offerings to include in genetic toxicology services. The assets acquired consisted of fixed assets and an intangible asset related to customer relationships. The Company accounted for the transaction as a business combination as it was determined that the transaction included inputs and substantive processes capable of producing outputs which constitute a business. Consideration for the BioReliance acquisition consisted of (i) $175 in cash and (ii) 10% of net sales through December 2023 derived from the provision by the Company of services comprising the business to existing customers related to the intangible asset acquired. The Company estimated the fair value of 10% of net sales and recorded a contingent consideration liability of $640 in the consolidated balance sheets for the year ended September 30, 2021. The $175 consideration payable was included in accrued expenses in the consolidated balance sheets for the year ended September 30, 2021 and subsequently paid in the first quarter of fiscal 2022.
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The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment and intangible assets. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but 0 later than one year after the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value. This business is reported as part of our DSA reportable segment.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| |
|
Property and equipment | | | 175 |
Intangible asset | |
| 640 |
| | $ | 815 |
As of December 31, 2021, the Company had approximately $640 of contingent consideration related to the BioReliance acquisition that is subject to fair value measurement on a recurring basis as it includes unobservable and significant inputs in the determination of the fair value. The fair value of the contingent consideration related to BioReliance was estimated using a discounted cash flow analysis and level 3 inputs including projections representative of a market participant view for net sales through December 2023 and an estimated discount rate. The amount to be paid is calculated as a percentage of net sales as described above.
Plato BioPharma acquisition
Overview
On October 4, 2021, the Company completed the acquisition of Plato BioPharma, Inc. (“Plato”) to expand its market reach in early-stage drug discovery. Consideration for the Plato acquisition consisted of (i) $10,462 in cash, including working capital and subject to customary purchase price adjustments, (ii) 57,587 of the Company’s common shares valued at $1,776 using the closing price of the Company’s common shares on October 4, 2021 and (iii) a $3,000 seller note.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, intangible assets, income taxes, goodwill and net incomeworking capital among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but 0 later than one year after the acquisition date. Finalization of $711the valuation during the measurement period could result in a change in the amounts recorded for the six monthacquisition date fair value. This business is reported as part of our DSA reportable segment.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| |
|
Cash | | | 1,027 |
Accounts receivable | | | 842 |
Property and equipment | | | 1,148 |
Operating lease ROU asset | | | 2,582 |
Intangible asset | | | 5,100 |
Goodwill | | | 8,898 |
Operating lease liability | | | (2,566) |
Other liabilities, net | | | (242) |
Deferred tax liability | |
| (1,551) |
| | $ | 15,238 |
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Envigo RMS Holding Corp acquisition
Overview
On November 5, 2021, the Company completed the acquisition of Envigo RMS Holding Corp. (“Envigo”) by merger of a wholly owned subsidiary of the Company with and into Envigo to expand its market reach in early-stage drug discovery. The aggregate consideration paid to the holders of outstanding capital stock in Envigo in the merger consisted of cash of $218,205, including adjustments for net working capital, and 8,245,918 of the Company’s common shares valued at $439,590 using the opening price of the Company’s common shares on November 5, 2021. In addition, the Company assumed certain outstanding Envigo stock options, including both vested and unvested options, that were converted in the right to purchase 790,620 Company common shares at an exercise price of $9.93 per share. The stock options were valued at $44.80 per option utilizing a Black-Scholes option valuation model with the inputs below. The total value of options issued of $35,418, of which $18,242 was excluded from the purchase price as those options were determined to be post-combination expense. The previously vested stock options are reflected as purchase consideration of approximately $17,176.
| | | |
Stock price | | | 53.31 |
Strike price | | | 9.93 |
Volatility | | | 75.93% |
Expected term | | | 3.05 |
Risk-free rate | | | 0.62% |
The Company recognized transaction costs related to the acquisition of Envigo of $8,491 for the three months ended December 31, 2021. These costs were associated with legal and professional services related to the acquisition and are reflected within other operating expenses in the Company’s consolidated statement of operations.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, inventory, intangible assets, income taxes, goodwill, and the finalization of net working capital, among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but 0 later than one year after the acquisition date. Finalization of the valuation during the measurement period ending Marchcould result in a change in the amounts recorded for the acquisition date fair value. This business is reported as part of our RMS reportable segment.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| |
|
Cash | | | 3,287 |
Trade receivables and contract assets | | | 44,734 |
Inventory | | | 35,739 |
Prepaid expenses and other current assets | | | 18,758 |
Operating lease right-of-use assets, net | | | 7,231 |
Property and equipment | | | 80,712 |
Other assets | | | 9,078 |
Intangible asset | | | 184,000 |
Goodwill | | | 390,037 |
Accounts payable | | | (17,743) |
Fees invoiced in advance | | | (7,283) |
Current portion on long-term operating lease | | | (2,600) |
Accrued expenses and other liabilities | |
| (25,884) |
Long-term operating leases, net | | | (4,631) |
Long-term deferred tax liabilities | | | (41,379) |
Non-controlling interest | | | 915 |
| | $ | 674,971 |
21
Robinson Services, Inc. acquisition
Overview
On December 29, 2021, the Company completed the acquisition of the rabbit breeding and supply business of Robinson Services, Inc. (“RSI”). The acquisition is another step in Inotiv’s strategic plan for building its RMS business and will be reported in the RMS reporting segment. The aggregate consideration paid in the transaction consisted of cash consideration of $3,250 and 70,633 of the Company’s common shares valued at $2,898 using the closing price of the Company’s common shares on December 29, 2021.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of December 31, 2021. The purchase price allocation is preliminary and subject to change, including the valuation of intangible assets, non-compete agreement, supply agreement and goodwill. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value. This business is reported as part of our RMS reportable segment.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | December 31, 2021 | |
Assets acquired and liabilities assumed: |
| |
|
Customer relationship | | | 4,700 |
Non-complete agreement | | | 300 |
Supply agreement | | | 200 |
Goodwill | | | 948 |
| | $ | 6,148 |
Pro Forma Results
The Company’s unaudited pro forma results of operations for the sixthree months ended MarchDecember 31, 2021 and December 31, 2020, assuming the PCRS AcquisitionEnvigo acquisition had occurred as of October 1, 20192020 are presented for comparative purposes below. These amounts are based on available information of the results of operations of the PCRS Seller’sEnvigo operations prior to the acquisition date and are not necessarily indicative of what the results of operations would have been had the PCRS Acquisitionacquisitions and the merger been completed on October 1, 2019.
2020.
The unaudited pro forma information is as follows:
Six Months Ended | ||||
March 31, 2020 | ||||
Total revenues | $ | 29,847 | ||
Net loss | (1,887 | ) | ||
Pro forma basic net loss per share | $ | (0.17 | ) | |
Pro forma diluted net loss per share | $ | (0.17 | ) |
| | | | | |
| Three Months Ended | | Three Months Ended | ||
| December 31, 2021 | | December 31, 2020 | ||
Total revenues | $ | 111,025 | | $ | 89,077 |
| |
| | |
|
Net income (loss) |
| (85,841) | |
| (35,324) |
13
11. REVENUE RECOGNITION |
In accordance with Accounting Standards Codification (“ASC”) 606, the Company disaggregates its revenue from clients into threetwo revenue streams, service revenue and product revenue, and royalties.revenue. At contract inception the Company assesses the services promised in the contract with the clients to identify performance obligations in the arrangements.
Service revenue
DSA
The Company enters into contracts with clients to provide drug discovery and development services with payments based on mainly fixed-fee arrangements. The Company also offers archive storage services to its clients.
The Company’s fixed fee arrangements may involve nonclinical research services (toxicology, pathology, pharmacology), bioanalytical, and pharmaceutical method development and validation, nonclinical research services and the analysis of bioanalytical
22
and pharmaceutical samples. For bioanalytical and pharmaceutical method validation services and nonclinical research services, revenue is recognized over time using the input method based on the ratio of direct costs incurred to total estimated direct costs. For contracts that involve in-life study conduct, method development or the analysis of bioanalytical and pharmaceutical samples, revenue is recognized over time when samples are analyzed or when services are performed. The Company generally bills for services on a milestone basis. These contracts represent a single performance obligation and due to the Company’s right to payment for work performed, revenue is recognized over time. Research services contract fees received upon acceptance are deferred until earned and classified within customer advances on the condensed consolidated balance sheets. Unbilled revenues represent revenues earned under contracts in advance of billings.
Archive services provide climate controlled archiving for client’s data and samples. The archive revenue is recognized over time, generally when the service is provided. These arrangements include one performance obligation. Amounts related to future archiving or prepaid archiving contracts for clients where archiving fees are billed in advance are accounted for as deferred revenue and recognized ratably over the period the applicable archive service is performed.
RMS
The Company provides Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; client-owned animal colony care; and health monitoring and diagnostics services related to research models. For contracts that involve creation of a specific type of animal, revenue is recognized over time with each milestone as a separate performance obligation. The Company is due payment for work performed even if subsequent milestones are unable to be met. Contract breeding and client-owned animal colony care is recognized over time and are billed as per diems. Health monitoring and diagnostic services are recognized once the service is performed.
Product revenue
TheDSA
Products revenues included internally manufactured scientific instruments for life sciences research and the related software for use by pharmaceutical companies, universities, government research centers and medical research institutions under the Company’s BASi product line. These products can be sold to multiple clients and have alternative use. Both the transaction sales price and shipping terms are agreed upon in the client order. For these products, all revenue is recognized at a point in time, generally when title of the product and control is transferred to the client based upon shipping terms. These arrangements typically include only one performance obligation. Certain
RMS
Product revenues included research models, diets and bedding, bioproducts and transgenic models and services. Research models revenue represents the commercial production and sale of research models, principally purpose-bred rats and mice for use by researchers, and large-animal models. Diets and bedding revenues represent laboratory animal diets, bedding, and enrichment products have maintenance agreements available for clientsunder the Company’s Teklad product line. Bioproducts revenues represents the sale of serum and plasma, whole blood, tissues, organs and glands, embryo culture serum and growth factors. Research models and diets and bedding include freight costs associated with the delivery of the product to purchase. These are typically billed in advance and are accounted for as deferred revenue, are recognized ratably over the applicable maintenance period and are included in customer advances on the condensed consolidated balance sheet.customers.
Royalty revenue
The Company has an agreement with Teva Pharmaceuticals (formerly Biocraft Laboratories, Inc,) which manufactures and markets pharmaceutical products. The Company receives royalties in accordance with sales of certain pharmaceuticals that Teva manufactures and sells. The royalties are received on a quarterly basis and the revenue is recognized over the quarter. Royalty revenue is included in service revenue on the condensed consolidated statement of operations. Total revenue recognized was $94 and $179 in the three months ended March 31, 2021 and 2020, respectively. Total revenue recognized was $153 and $436 in the six months ended March 31, 2021 and 2020, respectively.
The following table presents changes in the Company’s contract assets and contract liabilities for the sixthree months ended MarchDecember 31, 2021.
Balance at September 30, 2020 | Additions | Deductions | Balance at March 31, 2021 | |||||||||||||
Contract Assets: Unbilled receivables | $ | 1,879 | $ | 1,371 | $ | (857 | ) | $ | 2,393 | |||||||
Contract liabilities: Customer advances | $ | 11,392 | $ | 77,700 | $ | (73,906 | ) | $ | 15,186 |
| | | | | | | | | | | | |
| | Balance at | | | | | | | | Balance at | ||
| | September 30, | | | | | | | | December 31, | ||
|
| 2021 |
| Additions |
| Deductions |
| 2021 | ||||
Contract Assets: Unbilled revenue | | $ | 6,194 | | $ | 5,362 | | $ | (3,310) | | $ | 8,246 |
Contract liabilities: Fees invoiced in advance | | $ | 26,614 | | $ | 124,057 | | $ | (106,146) | | $ | 44,525 |
12. LEASES |
The Company records a right-of-use (“ROU”) asset and lease liability for substantially all leases for which it is a lessee, in accordance with ASU 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for the leases on a straight-line basis over the lease term. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.
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The Company has various operating and finance leases for facilities and equipment. Facilities leases provide office, laboratory, warehouse, or land, the company uses to conduct its operations. Facilities leases range in duration from two to ten years, with either renewaloptions for additional terms as the initial lease term expires, or purchase options. Facilities leases are considered as either operating or financing leases.
Equipment leases provide for office equipment, laboratory equipment or services the Company uses to conduct its operations. Equipment leases range in duration from 30 to 60 months, with either subsequentannual renewals, additional terms as the initial lease term expires, or purchase options.
Right-of-use lease assets and lease liabilities that are reported in the Company’s condensed consolidated balance sheets are as follows:
| | | | | | |
| | As of | | As of | ||
|
| December 31, 2021 |
| September 30, 2021 | ||
Operating right-of-use assets, net | | $ | 24,469 | | $ | 8,358 |
| | | | | | |
Current portion of operating lease liabilities | | | 5,674 | |
| 1,959 |
Long-term operating lease liabilities | | | 18,705 | |
| 6,554 |
Total operating lease liabilities | | $ | 24,379 | | $ | 8,513 |
| | | | | | |
Finance right-of-use assets, net | | $ | 54 | | $ | 60 |
| | | | | | |
Current portion of finance lease liabilities | | | 22 | |
| 24 |
Long-term finance lease liabilities | | | 35 | |
| 39 |
Total finance lease liabilities | | $ | 57 | | $ | 63 |
As of | As of | |||||||
March 31, 2021 | September 30, 2020 | |||||||
Operating right-of-use assets, net | $ | 4,105 | $ | 4,001 | ||||
Current portion of operating lease liabilities | 1,004 | 866 | ||||||
Long-term operating lease liabilities | 3,278 | 3,344 | ||||||
Total operating lease liabilities | $ | 4,282 | $ | 4,210 | ||||
Finance right-of-use assets, net | $ | 4,710 | $ | 4,778 | ||||
Current portion of finance lease liabilities | 4,664 | 4,728 | ||||||
Long-term finance lease liabilities | 42 | 44 | ||||||
Total finance lease liabilities | $ | 4,706 | $ | 4,772 |
During the three and six months ended MarchDecember 31, 2021, the Company had operating lease amortizations of $242 and $474, respectively,$1,083 and had finance lease amortization of $35 and $72, respectively.$6. Finance lease interest recorded in the three and six months ended MarchDecember 31, 2021 was $68 and $137, respectively.
One of the operating leases contains a variable lease component based on revenue for one component of the Company. The total variable payments for this lease for the three and six months ended March 31, 2021was $69 and $145.
$1.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense related to the Company’s leases for the three and six months ended MarchDecember 31, 2021 and December 31, 2020 were:
Three months ended | Six months ended | |||||||||||||
March 31, 2021 | March 31, 2021 | |||||||||||||
| | | | | | | ||||||||
|
| Three months ended |
| Three months ended | ||||||||||
| | December 31, 2021 |
| December 31, 2020 | ||||||||||
Operating lease costs: | | |
| | |
| ||||||||
Fixed operating lease costs | $ | 242 | $ | 474 | | $ | 1,083 | | $ | 229 | ||||
Short-term lease costs | 42 | 52 | |
| 25 | |
| 10 | ||||||
Variable lease costs | | | — | | | 2 | ||||||||
Lease income | (159 | ) | (318 | ) | |
| (177) | |
| (160) | ||||
Finance lease costs: | |
| | |
| | ||||||||
Amortization of right-of-use asset expense | 35 | 72 | |
| 6 | |
| 37 | ||||||
Interest on finance lease liability | 68 | 137 | |
| 1 | |
| 69 | ||||||
Total lease cost | $ | 228 | $ | 417 | | $ | 938 | | $ | 187 |
The Company serves as lessor to a lessee in one1 facility through the end of calendar year 2024. The gross rental income and underlying lease expense are presented gross in the Company’s condensed consolidated balance sheet.sheets. The Company received rental income of $159$177 and $318$160 for the three and six months ended MarchDecember 31, 2021 and December 31, 2020, respectively.
Supplemental cash flow information related to leases was as follows:
Three months Ended | Six months Ended | |||||||
March 31, 2021 | March 31, 2021 | |||||||
Cash flows included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 240 | $ | 469 | ||||
Operating cash flows from finance leases | 68 | 137 | ||||||
Finance cash flows from finance leases | 103 | 206 | ||||||
Non-cash lease activity: | ||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 772 | $ | 1,175 | ||||
Right-of-use assets obtained in exchange for new finance lease liabilities | 9 | — |
| | | | | | |
|
| Three months ended |
| Three months ended | ||
| | December 31, 2021 |
| December 31, 2020 | ||
Cash flows included in the measurement of lease liabilities: | | |
| | |
|
Operating cash flows from operating leases | | $ | 1,096 | | $ | 229 |
Operating cash flows from finance leases | |
| 1 | |
| 69 |
Finance cash flows from finance leases | |
| 6 | |
| 108 |
Non-cash lease activity: | |
| | |
| |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 17,036 | | $ | 448 |
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The weighted average remaining lease term and discount rate for the Company’s operating and finance leases as of MarchDecember 31, 2021 and December 31, 2020 were:
| | | | | |
| | As of | | As of | |
| | December 31, 2021 | | December 31, 2020 | |
Weighted-average remaining lease term (in years) |
| |
| |
|
Operating lease |
| 6.18 |
| 4.51 |
|
Finance lease |
| 2.90 |
| 0.88 |
|
Weighted-average discount rate (in percentages) |
| |
| |
|
Operating lease |
| 5.10 | % | 5.22 | % |
Finance lease |
| 4.86 | % | 5.84 | % |
Lease duration was determined utilizing renewal options that the Company is reasonably certain to execute.
As of MarchDecember 31, 2021, maturities of operating and finance lease liabilities for each of the following five years and a total thereafter were as follows:
| | | | | | |
|
| Operating Leases |
| Finance Leases | ||
2022 (remainder of fiscal year) | | $ | 5,136 | | $ | 18 |
2023 | |
| 5,227 | |
| 18 |
2024 | |
| 4,373 | |
| 18 |
2025 | |
| 3,601 | |
| 7 |
2026 | |
| 2,937 | |
| — |
Thereafter | |
| 7,011 | |
| — |
Total minimum future lease payments | |
| 28,285 | |
| 61 |
Less interest | |
| (3,906) | |
| (4) |
Total lease liability | |
| 24,379 | |
| 57 |
Operating Leases | Finance Leases | |||||||
2021 (remainder of fiscal year) | $ | 522 | $ | 4,777 | ||||
2022 | 1,069 | 22 | ||||||
2023 | 1,113 | 16 | ||||||
2024 | 1,231 | 16 | ||||||
2025 | 393 | 5 | ||||||
Thereafter | 494 | - | ||||||
Total minimum future lease payments | 4,822 | 4,836 | ||||||
Less interest | (540 | ) | (130 | ) | ||||
Total lease liability | 4,282 | 4,706 |
13. DEFINED BENEFIT PLAN
The Company has a defined benefit plan in the U.K., the Harlan Laboratories UK Limited Occupational Pension Scheme (the "Pension Plan"), which operated through April 2012. As of April 30, 2012, the accumulation of plan benefits of employees in the Pension Plan was permanently suspended and therefore the Pension Plan was curtailed. During the year ending September 30, 2022, the Company expects to contribute $1,078 to the Pension Plan. As of December 31, 2021, the unfunded defined benefit plan obligation of $865 is included in other liabilities (non-current) in the condensed consolidated balance sheets.
The following table provides the components of net periodic benefit costs for the Pension Plan, which is included in general and administrative in the condensed consolidated statement of operations.
| | | | | | |
| | Three Months Ended | ||||
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
Components of net periodic benefit expense: | | | | | | |
Interest cost | | $ | 58 | | $ | - |
Expected return on assets | | | (109) | | | - |
Amortization of prior loss | | | 161 | | | - |
Net periodic benefit cost | | $ | 110 | | $ | - |
14. CONTINGENCIES
Litigation
Envigo is a defendant in a purported class action and a related action under California’s Private Attorney General Act of 2004 (“PAGA”) brought by Jacob Greenwell, a former employee of Envigo, on June 25, 2021 in the Superior Court of California, Alameda County. The complaints allege that Envigo violated certain wage and hour requirements under the California Labor Code. PAGA authorizes private attorneys to bring claims on behalf of the State of California and aggrieved employees for violations of California’s wage and hour laws. The class action complaint seeks certification of a class of similarly situated employees and the award of actual,
25
consequential and incidental losses and damages for the alleged violations. The PAGA complaint seeks civil penalties pursuant to the California Labor Code and attorney’s fees. The Company intends to vigorously defend these claims.
The Company is party to certain other legal actions arising out of the normal course of its business. In management's opinion, none of these actions will have a material effect on the Company's operations, financial condition or liquidity. No form of proceedings has been brought, instigated or is known to be contemplated against the Company by any government agency.
Government Investigations
During the period from July through December 2021, one of Envigo’s U.S. facilities was inspected on several occasions by the U.S. Department of Agriculture (“USDA”). USDA issued inspection reports with findings of non-compliance with certain USDA laws and regulations. Envigo formally appealed certain of the findings. USDA has indicated it intends to conduct a formal investigation. The inspections and/or the investigation could lead to enforcement action resulting in penalties that could include a temporary restraining order or injunction, civil and/or criminal penalties, and/or license suspension or revocation. As of December 31, 2021, no investigation has been initiated.
On June 15, 2021, Envigo Global Services, Inc., a subsidiary of the Company acquired in the Envigo acquisition, was served with a grand jury subpoena issued by the Department of Justice in Miami, Florida requiring the production of documents related to the importation into the United States of live non-human primates originating from or transiting through China, Cambodia and/or Vietnam from April 1, 2014 through March 28, 2019. The Company is cooperating with the Department of Justice.
15. ACCUMULATED OTHER COMPREHENSIVE LOSS
| | | | | | | | | |
| | | | | Cumulative | | | | |
| |
| | | translation | |
| | |
| | Pension |
| adjustment | | Total | |||
Balance as of September 30, 2021 | | $ | — | | $ | — | | $ | — |
Amortization of actuarial loss | | | 110 | | | — | | | 110 |
Cumulative translation adjustment | | | — | | | (247) | | | (247) |
Balance as of December 31, 2021 | | $ | 110 | | $ | (247) | | $ | (137) |
16.SUBSEQUENT EVENTS
On April 13, 2021, the CompanyJanuary 10, 2022, Inotiv, Inc. and Inotiv - Boulder HTL,Morrisville, LLC, a wholly owned subsidiary of the Company (”Inotiv – Boulder HTL”(the “ILS Purchaser”), entered into an Asseta Membership Interest Purchase Agreement (the “Purchase Agreement”) with HistoTox Labs, Inc.,Integrated Laboratory Systems Holdings, LLC, a Colorado corporationDelaware limited liability company (the “HistoTox Labs”“Seller”), and its stockholder. On April 30, 2021,Integrated Laboratory Systems, LLC, a North Carolina limited liability company ("ILS") providing for the Company closed the transactions contemplatedacquisition by the Purchase Agreement, indirectly acquiring (the “HistoTox Labs Acquisition”) substantiallyPurchaser of all of the assetsoutstanding membership interests of HistoTox Labs used or useful by HistoTox LabsILS (the "Acquisition"). ILS is a preclinical contract research organization offering a suite of toxicology testing solutions, including genetic toxicology, in connection with HistoTox Labs’ business of non-clinical consulting, laboratoryvivo and strategic supportin vitro toxicology, histology and pathology, molecular biology and bioinformatics and computational toxicology and data science services, to governmental and products related to routine and specialized histology, immunohistology, histopathology and image analysis/digital pathology.commercial clients. Consideration for the HistoTox Labs AcquisitionILS membership interests consisted of $22.0 million$38,800 in cash (after giving effect to an adjustment for estimated net working capital), subject to certain adjustments and inclusive of a $1.65 million$3,800 escrow for purposes of securing any amounts payable by the selling parties on account of indemnification obligations and other amounts payable under the Purchase Agreement.Agreement, and 429,118 of the Company's common shares having a value of $18.0 million based on the volume weighted average closing price of Company shares as reported by NASDAQ for the 20 trading-day period ending on January 6, 2022. In addition, Inotiv – Boulder HTL assumed certain specified liabilitiesorder to fund a portion of HistoTox Labs.
On April 15, 2021,the purchase price for the ILS Acquisition, on January 10, 2022, the Company entered into anborrowed the full amount of its existing $35,000 delayed draw term loan facility (the "DDTL") under the Credit Agreement, and Plan of Merger (the “Merger Agreement”) with Rock Mergeco, Inc., a Colorado corporation and a wholly-owned subsidiarydated November 5, 2021, among the Company, certain subsidiaries of the Company Inotiv Boulder, LLC, an Indiana limited liability company and a wholly-owned subsidiary of the Company (“Inotiv Boulder”(the "Subsidiary Guarantors"), Bolder BioPATH,the lenders party thereto and Jefferies Finance LLC as administrative agent (the "Credit Agreement").
On January 27, 2022, Inotiv, Inc., and Envigo Global Services Inc., a Colorado corporation (“Bolder BioPATH”), and the holders of all of the outstanding common shares of Bolder BioPATH (the “Selling Shareholders”). On April 30, 2021, the Company closed (the “Closing”) the transactions contemplated by the Merger Agreement and the merger under the Merger Agreement was consummated on May 3, 2021 (the “Merger”). Following the Merger, Inotiv Boulder, as the surviving wholly owned subsidiary of the Company serves as(the “Orient Purchaser”), entered into a contract pharmacology and pathology company specializingStock Purchase Agreement (the “Orient Purchase Agreement”) with Orient Bio, Inc., a corporation formed in in vivo modelsthe Republic of rheumatoid arthritis, osteoarthritis, and inflammatory bowel disease as well as other autoimmune and inflammation models.
AsKorea ("Orient Seller"), providing for the acquisition by the Purchaser of all of the Closing,outstanding capital stock of Orient BioResource Center, Inc. ("OBRC" and such acquisition, the Company paid consideration to"Orient Acquisition"). OBRC owns and operates a primate quarantine and holding facility located near Alice, Texas. The Orient Acquisition was consummated on January 27, 2022. Consideration for the Selling Shareholders, consistingOBRC stock consisted of (i) $18.5$28,200 million in cash, subject to customary purchase pricecertain adjustments, and inclusive677,339 of $1.25the Company's common shares having a value of $23.0 million being heldbased on the volume weighted average closing price of Company shares as reported by NASDAQ for the 20 trading-day period ending on January 24, 2022. As part of the purchase consideration, the Purchaser agreed to leave in escrow for purposesplace a payable owed by
26
OBRC to the Seller in the amount of $3,700. The payable will not bear interest and is required to be paid to Seller on the date that is 18 months after the Closing. Purchaser will have the right to set off against the payable any amounts that become payable by the selling partiesSeller on account of indemnification obligations purchase price adjustments, and other amounts payable under the Merger Agreement, (ii) 1,588,235Purchase Agreement.
On January 27, 2022, the Company, certain of subsidiaries of the Company’s common sharesCompany (the “Subsidiary Guarantors”), the lenders party thereto, and (iii) seller notesJefferies Finance LLC, as administrative agent, entered into a First Amendment (“Amendment”) to its existing Credit Agreement (the “Credit Agreement”). The Amendment provides for, among other things, an increase to the existing term loan facility in an aggregatethe amount of $40,000 (the “Incremental Term Loans”) and a new delayed draw term loan facility in the original principal amount of $1.5 million.
On April 23, 2021, the Company closed an underwritten public offering of 3,044,117 of its common shares, including 397,058 common shares sold pursuant$35,000, which amount is available to the full exercise by the underwriter of its optionbe drawn up to purchase additional shares to cover over-allotments. All of the shares were sold at a price to the public of $17.00 per share. Net proceeds to the Company24 months from the offering were approximately $49.0 million, after deducting the underwriting discount and estimated offering expenses, a portion of which net proceeds were used to fund parts of the cash consideration under the HistoTox Labs Acquisition and the Merger.
On April 30, 2021, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with First Internet Bank of Indiana (“FIB”) to, among other things, secure additional debt financing in order to fund portions of the consideration for the HistoTox Labs Acquisition and the Merger, respectively. The Credit Agreement includes eleven term loans (the “Term Loans” ), an equipment draw loan (the “Equipment Loan”), and a revolving line of credit (the “Revolving Facility”). The terms of each such loans are set forth below. The obligations of the Company under the Credit Agreement are secured by all of the assets of the Company and are guaranteed by each of its subsidiaries and secured by the assets thereof.
Included in the Credit Agreement is a requirement that the Company maintain certain financial covenants, including maintaining a senior funded debt to adjusted EBITDA ratio (as defined in the Credit Agreement) of not greater than (i) 5.25 to 1.00 as of the date of the Credit AgreementAmendment (the “DDTL”). The Incremental Term Loans and any amounts borrowed under the DDTL are referred to herein as of June 30, 2021, (ii) 4.75 to 1.00 as of September 30, 2021, (iii) 4.50 to 1.00 as of December 31, 2021, (iv) 4.25 to 1.00 as of March 31,the “Additional Term Loans”. On January 27, 2022, (v) 4.00 to 1.00 as of June 30, 2022, and (vi) 3.50 to 1.00 as of September 30, 2022 and as of each fiscal quarter end thereafter.
15
Also included in the Credit Agreement is a requirement that the Company maintain a fixed charge coverage ratio (as defined inborrowed the Credit Agreement) of not less than (i) 1.20 to 1.00, commencing as of September 30, 2021, and continuing as of each fiscal quarter end thereafter up to and including June 30, 2022, and (ii) 1.25 to 1.00 as of September 30, 2022 and as of each fiscal quarter end thereafter.
(a) Terms of the Equipment Loan.
The Company may borrower under the Equipment Loan on or before April 30, 2022 in the aggregate principal amount of up to $3.0 million (the “Equipment Loan Commitment”). The Equipment Loan Commitment shall automatically terminate upon the earlier of (x) any funding of the maximumfull amount of the Equipment Loan Commitment and (y) at 5:00 p.m., Indianapolis time, April 30, 2022. Until April 30, 2022, the Company must pay interest on the amount outstandingIncremental Term Loans, but did not borrower any amounts under the Equipment Loan at a fixed annual rateDDTL.
27
(b) Terms of the Revolving Facility.
The Revolving Facility provides a line of credit for up to $5.0 million, which the Company may borrow from time to time, subject to the terms of the Credit Agreement, including as may be limited by the amount of the Company’s outstanding eligible receivables. The Revolving Facility requires monthly accrued and unpaid interest payments only until maturity at a floating per annum rate equal to the greater of (a) 4%, or (b) the sum of the Prime Rate plus Zero Basis Points (0.0%), which rate shall change concurrently with the Prime Rate. The Company did not have an outstanding balance on the Revolving Facility as of the effective date of the Credit Agreement. Advances under the Revolving Facility shall be used for general working capital purposes of the Company.
(c) Terms of the Term Loans:
Loan Name | Principal Amount as of date of Credit Agreement | Annual Interest Rate | Monthly Payment Amount (000) | Maturity Date | Use of Proceeds | |||||||||
Term Loan 1 | $3.980 million | 5.20 | % | $ | 36 | March 28, 2025 | Funded expansion of building on real property in Mount Vernon, IN | |||||||
Term Loan 2 | $3.571 million | 5.06 | % | $ | 78 | July 2, 2023 | Funded a portion of the cash consideration for the Seventh Wave Laboratories acquisition | |||||||
Term Loan 3 | $1.076 million | 5.20 | % | $ | 32 | March 28, 2025 | Funded equipment needs associated with expansion of real property in Mount Vernon, IN | |||||||
Term Loan 4 | $1.001 million | 4.63 | % | $ | 20 | November 1, 2025 | Funded the cash consideration for the Smithers Avanza acquisition | |||||||
Term Loan 5 | $810 thousand | 4.00 | % | $ | 17 | June 30, 2025 | Funded certain capital expenditures | |||||||
Term Loan 6 | $2.865 million | 4.25 | % | $ | 56 | December 31, 2025 | Funded certain capital expenditures | |||||||
Term Loan 7 | $1.263 million | 4.00 | % | $ | 28 | June 1, 2025 | Financed aspects of the Pre-Clinical Research Services and related real property acquisitions | |||||||
Term Loan 8 | $1.853 million | 4.00 | % | $ | 12 | December 1, 2024 | Financed aspects of the Pre-Clinical Research Services and related real property acquisitions | |||||||
Term Loan 9 | $10.000 million | 3.85 | % | $ | 184 | * | April 30, 2026 | Funded a portion of the cash consideration of the Merger | ||||||
Term Loan 10 | $5.000 million | 3.85 | % | $ | 92 | * | April 30, 2026 | Funded a portion of the cash consideration of the HistoTox Labs Acquisition | ||||||
Term Loan 11 | $3.622 million | 3.99 | % | $ | 33 | June 23, 2022 | Refinanced debt with The Huntington Bank for general business purposes |
*See Mandatory Prepayments information below
16Contents
(d) Mandatory Prepayments.
Commencing with the fiscal year ending September 30, 2021 and for each fiscal year thereafter until the Term Loan 9 and/or Term Loan 10, in each case, are paid in full, the Company shall prepay Term Loan 9 and Term Loan 10 on a pro rata basis on the following January 31st, in an amount equal to 50% of the excess cash flow of the Company (as defined in the Credit Agreement) for such fiscal year (in each case, an “Excess Cash Flow Payment”), provided that for the fiscal year ending September 30, 2021 the Excess Cash Flow Payment, if any, shall be calculated only for the period from April 30, 2021 through September 30, 2021. Excess Cash Flow shall be calculated for each fiscal year based on (a) the Company’s adjusted EBITDA (as defined in the Credit Agreement), minus (b) cash interest expense, minus (c) cash taxes paid or cash distributions made for payment of taxes, minus (d) principal payments paid in respect of long-term indebtedness (excluding any principal reduction on Term Loan 9 or Term Loan 10, in each case, with respect to Excess Cash Flow and excluding principal payments on the Revolving Facility), minus (e) capital expenditures not funded by advances under the Equipment Loan as specified under the Credit Agreement.
Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, and defaults under other material indebtedness, FIB may cease advancing funds, increase the interest rate on outstanding balances, accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. The Company has also obtained a life insurance policy in an amount not less than $5.0 million for its President and Chief Executive Officer and provided FIB an assignment of such life insurance policy as collateral.
In addition to the financing arrangements described above, the Company has secured a commitment for approximately $5.0 million of additional debt financing from FIB to be used in connection with the exercise of the Company’s option to buy our St. Louis facility for approximately $4.7 million and to complete associated expansion, contingent on the Company’s receipt of related business incentives.
ITEM 2 -– MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Report and may include, but are not limited to, statements regarding our intent, belief or current expectations with respect to (i) our strategic plans; (ii) trends in the demand for our services and products; (iii) trends in the industries that consume our services and products; (iv) our ability to develop or acquire new services and products; (v) our ability to make capital expenditures and finance operations; (vi) global economic conditions, especially as they impact our markets; (vii) our cash position; (viii) our ability to successfully integrate the operations and personnel related to recent acquisitions; (ix) our ability to effectively manage current expansion efforts or any future expansion or acquisition initiatives undertaken by us; (x) our ability to develop and build infrastructure and teams to manage growth and projects; (xi) our ability to continue to retain and hire key talent; (xii) our ability to market our services and products under our corporate name and relevant brand names; (xiii) our ability to service our outstanding indebtedness, (xiv) our expectations regarding the volume of new bookings, pricing, gross profit margins and liquidity, (xv) our ability to manage recurring and non-recurring costs, (xvi) the impact of COVID-19 on the economy, demand for our services and products and our operations, including the measures taken by governmental authorities to address the pandemic, which may precipitate or exacerbate other risks and/or uncertainties, and additional risks set forth in our filings with the Securities and Exchange Commission (the “SEC”). Actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the risk factors disclosed in our reports with the SEC, many of which are beyond our control.
In addition, we have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the assumptions on which the forward-looking statements contained herein are based on are reasonable, actual events may differ from those assumptions, and as a result, the forward-looking statements based upon those assumptions may not accurately project future events. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included or incorporated by reference elsewhere in this Report. In addition to the historical information contained herein, the discussions in this Report may contain forward-looking statements that may be affected by risks and uncertainties, including those discussed in Item 1A, Risk Factors contained in our annual report on Form 10-K for the fiscal year ended September 30, 2020.2021. Our actual results could differ materially from those discussed in the forward-looking statements.
Amounts in this Item 2 are in thousands, unless otherwise indicated.
Recent Developments and Executive Summary
During the recent periods,period, we have undertaken significant internal and externalcontinued to focus on our growth initiatives. Through March 31, 2021, we acquired the business of Seventh Wave Laboratories, LLC, in July 2018 (the “Seventh Wave Acquisition”), undertook theinitiatives, which are (1) strategic acquisitions, (2) expansion of our facilities in Evansville, Indiana, which we began using for operations in Marchexisting and acquired businesses, and (3) startup of 2020, acquirednew services. As a result, the toxicology businessCompany has gained momentum on its path to being a comprehensive provider of Smithers Avanza on May 1, 2019 (the “Smithers Avanza Acquisition”), acquiredpreclinical research services, while adding a highly complementary research model platform through the preclinical testing businessstrategic acquisition of Pre-ClinicalEnvigo. Our full spectrum solutions now span two segments: Discovery and Safety Assessment, or DSA, and Research Models and Services, as well as related real property, on December 1, 2019 (the “PCRS Acquisition”), and obtained funding to support these initiatives and other improvementsor RMS. The acquisition of Envigo was transformative to our laboratories, facilities and equipment in order to support future growth and enhance our scientific capabilities, client service offerings and client experiences. In addition,Company as we have made significant investmentsgrown from 240 employees in upgrading facilities and equipment, added additional services2018 to provide our clients and filled critical leadership and scientific positions. Among other undertakings subsequent to March 31, 2021, we acquired two additional businesses and completed a public offering or our common shares and a refinancing of our credit arrangements with First Internet Bank to fund portions of the cash consideration for the business acquisitions and to support other corporate initiatives. Refer to the discussions below and in Note 13 “Subsequent Events” to the Notes to Condensed Consolidated Financial Statements.over 2,000 employees today.
Over the last year, we have also improved our infrastructure and platform to support future growth and additional potential acquisitions. These improvements included establishing our new corporate name Inotiv, Inc., installing new accounting software systems, investments in our information technology platforms, building program management functions to enhance management and communication with clients and multi-site programs, further enhancements to client services and improving the client experience. We believe these internal infrastructure initiatives, investments, acquisitions and recruiting efforts, combined with our existing team and the continuing development of our sales and marketing team, have led and will continue to lead to growth in revenue and the ability to improve the service offerings to our clients. We recognize the recent investments in growth, continuing development of a strong leadership team, improving our platform, recruiting new employees, enhancing and building our scientific strength and adding services are critical to meeting the future expectations of our clients, employees and shareholders. We believe the actions taken and investments made in recent periods form a solid foundation upon which we can build.
Significant Accomplishments during three months ended MarchDecember 31, 2021
|
● | Acquired Envigo RMS Holding Corp. (“Envigo”) |
● | Entered into a credit agreement, which includes a senior secured term loan facility of |
● | Repaid all indebtedness due to |
● | Pursuant to the Envigo Merger Agreement, we entered into a Shareholders Agreement with certain stockholders of Envigo, and our Board of Directors was expanded to seven members, including newly appointed members Nigel Brown, Ph.D. and Scott Cragg, pursuant to the terms of the Shareholders Agreement |
28
● | Opened modern drug metabolism and pharmacokinetics (DMPK) and cell & molecular biology laboratories at our St. Louis facility in November 2021 |
● | Acquired Robinson Services Inc. (“RSI”) |
Events subsequent to December 31, 2021
|
17
Events subsequent to March 31, 2021
● | Acquired Orient BioResource Center, Inc. (“OBRC), from Orient Bio, Inc. |
● | Entered into a first amendment to our existing credit agreement. which provides for an increase to the existing term loan facility in the original principal amount of $40,000 (“Incremental Term Loans”) and a new delayed draw term loan in the amount of $35,000 |
● | Borrowed the full amount of the |
Business Overview
As a result of the strategic Envigo acquisition, which added a complementary research model platform, our full spectrum solutions now span two segments: Discovery and Safety Assessment, or DSA, and Research Models and Services, or RMS.
DSA
Our financial results for the three months ended March 31, 2021 were positively impacted by increasesDSA segment specializes in salesproviding nonclinical and gross margins attributable to internal growth the Company has experienced in the Service business. During the quarter ended March 31, 2021, we saw an increase in operating expenses as a percentage of revenue compared to the same quarter in the prior year due to higher expenses for recruiting and relocation, higher compensation, including non-cash stock compensation, new systems and transaction costs related to the HistoTox Labs and Bolder BioPATH acquisitions. The financial results were positively impacted by the Products segment of the business as expense reductions were implemented in last half of fiscal year 2020 which improved margins.
Notwithstanding the COVID-19 pandemic, we have maintained our operations. As part of the “essential critical infrastructure” industry, we believe we continue to have a special responsibility to maintain business continuity and a normal work schedule to the greatest extent practicable. We are doing the important work of supporting our clients in their efforts towards drug discovery and development, including working with multiple clients, at our multiple sites, on a variety of therapy or vaccine candidates for COVID-19 and many other lifesaving medicines.
Our team has implemented measures to promote a safe working environment and mitigate risk related to COVID-19, including allowing for work-from-home arrangements where possible, while continuing to support each other and our clients. Among other initiatives related to COVID-19, the Company applied for and accepted funds from the SBA Payroll Protection Program (“PPP”) as part of the CARES Act. The PPP loan was received in April 2020 in the amount of $5,051. The funds were used over the eight weeks following the receipt of the funds for payroll, utility and rent expenses, in step with our business continuity measures and as allowed under the PPP. The Company applied for forgiveness of the PPP loan in the amount of $4,851, which represents qualified expenses. The PPP debt is recorded as a liability on the balance sheet.
We believe that the HistoTox Labs Acquisition and the Merger, along with the remaining net proceeds from our recent public offering and the refinancing of our indebtedness with First Internet Bank to be used for internal expansion initiatives, will drive significant long-term value for our customers and shareholders.
Business Overview
The Company providesanalytical drug discovery and development services to the pharmaceutical, chemical, and medical device industries, and sells analytical instruments to the pharmaceutical development and contract research industries. Our mission is to provide drug and product developers with superior scientific research and innovative analytical instrumentation in order to bring revolutionaryfocus on bringing new drugs and productsmedical devices through the discovery and preclinical phases of development, all while increasing efficiency, improving data, and reducing the cost of taking new drugs to market quicklymarket. Inotiv is committed to supporting discovery and safely.development objectives as well as helping researchers realize the full potential of their critical R&D projects, all while working together to build a healthier and safer world. Our strategy is to provide services that will generate high-quality and timely data in support of new drug and product approval or expand their use. Our clients and partners include pharmaceutical, biotechnology, biomedical device, academic and government organizations. We provide innovative technologies and products and a commitment to quality to help clients and partners accelerate the development of safe and effective drugs and products and maximize the returns on their research and development investments. We believe that we offer an efficient, variable-cost alternative to our clients’ internal drug and product development programs. Outsourcing development work to reduce overhead and speed product approvals through the U.S. Food and Drug Administration (“FDA”("FDA") and other regulatory authorities is an established alternative to in-house product development efforts. We derive our revenues from sales of our research services and instruments, both of which are focused on evaluating drug and product safety and efficacy. The Company hasWe have been involved in the research of drug and products to treat diseases in numerous therapeutic areas for over 4547 years since itsour formation as a corporation organized in Indiana in 1974.
1974, under the name Bioanalytical Systems, Inc. On March 18, 2021, we changed our name from Bioanalytical Systems, Inc. to Inotiv, Inc.
We support both the non-clinical and clinical development needs of researchers and clinicians for primarily small molecule drug candidates, but also includingprovide services to biotherapeutics and devices.device companies. We believe that our scientists have the skills in analytical instrumentation development, chemistry, computer software development, pharmacology, histology, pathology, physiology, medicine, surgery, analytical chemistry, drug metabolism, pharmacokinetics, and toxicology to make the services and products we provide increasingly valuable to our current and potential clients. Our principal clients are scientists engaged in analytical chemistry, pharmacology, drug safety evaluation, clinical trials, drug metabolism studies, pharmacokinetics and basic research from small start-upstartup biotechnology companies to some of the largest global pharmaceutical companies. We are committed to bringing scientific expertise, quality and speed to every drug discovery and development program to help our clients develop safe and effective life-changing therapies.
Developments within the industries we serve have a direct, and sometimes material, impact on our operations. Currently, many large pharmaceutical companies have major “blockbuster”"blockbuster" drugs that are nearing the end of their patent protections. This puts significant pressure on these companies to discover, acquire or develop new drugs with large market opportunity, and to re-evaluate their cost structures and the time-to-market of their products. Contract research organizations have benefited from these developments, as the
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pharmaceutical industry has turned to out-sourcingoutsourcing to both reduce fixed costs and to increase the speed of research and data development necessary for new product applications. The number of significant drugs that have reached or are nearing the end of their patent protection has also benefited the generic drug industry. Generic drug companies provide a significant source of new business for CROs as they develop, test and manufacture their generic compounds.
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A significant portion of innovation in the pharmaceutical industry is now driven by smaller, venture capital funded drug discovery companies. Many of these companies are “single-molecule”"single-molecule" entities, whose success depends on one or a few innovative compound.compounds. While several biotech companies have reached the status of major pharmaceutical companies, the industry is still characterized by numerous smaller entities. These developmental companies generally do not have the resources to perform much of their research within their organizations and are therefore increasingly dependent on the CRO industry for both their research and for guidance in preparing their regulatory submissions. These companies have provided significant new opportunities for the CRO industry, including the Company.Inotiv. We believe that the Company iswe are ideally positioned to serve these clients as they look for alternatives to the large CROs that cater primarily to the large pharmaceutical company segment of the marketplace.
RMS
Our RMS segment breeds, imports and sells research-quality animal models for use in laboratory tests, manufactures and sells standard and custom diets, distributes bedding and enrichment products, and provides other services associated with these products. We are the second largest commercial provider of research models and services globally, and our predecessors have been supplying research models since 1931. With over 130 different species and strains, we are a global leader in the production and sale of the most widely used rodent research model strains, among other species. We maintain production facilities, including barrier and isolator facilities, in the U.S., U.K., mainland Europe, and Israel.
Financial Performance Highlights
We review various metrics to evaluate our financial performance, including revenue, margins and earnings. In the sixthree months ended MarchDecember 31, 2021, total revenues increased to $36,636$84,211 from $28,930,$17,885, a 26.6%370.8% increase from the sixthree months ended MarchDecember 31, 2020. Gross profit increased to $12,201 from $8,670, a 40.7% increase. Operating expenses were higherincreased by 28.6% in the six months ended March 31, 2021 compared803.3%, or $47,103, due to the six months ended March 31, 2020. The most notable growth in operating expenses is related to our investmentacquisitions and focus to continuecost increases as we continued to build the infrastructure for growth, which included additional headcount, recruiting, and relocation expense, transaction costs relatedpost combination non-cash stock compensation expense relating to the HistoTox Labs Acquisition andassumption of certain outstanding stock options of the Merger,Envigo Equity Plan recognized in connection with the Envigo acquisition of $23,014 and investments in researchbuilding out new service offerings. Additionally, there was an increase in selling expenses due to an increase in travel cost as our sales and development, technology,marketing teams have traveled more as the COVID-19 pandemic eases and systems. During the quarter, we announced services that we are bringingan increase in house such as clinical pathology, cardiovascular safety pharmacology and investments in software solutions and human resourcescommissions due to support existing internal expertise in the area of SEND (Standard for Exchange of Nonclinical Data) data management and delivery. In addition, we announced investments being made in laboratory infrastructure and data and study management technologies through a partnership with Centric Consulting, LLC.
higher sales awards.
As of MarchDecember 31, 2021, we had $2,186$42,418 of cash and cash equivalents as compared to $1,406$138,924 of cash and cash equivalents at the end of fiscal 2020. In2021.
During the first six monthsquarter of fiscal 2021,2022, we generated $4,526obtained a credit agreement in cash from operations as comparedrelation to $346 in the same period in fiscal 2020. During the six months ended March 31, 2021, cash from operations, cash on hand,Envigo acquisition and $387 from a cap ex linerepaid our previous borrowings with First Internet Bank of credit together funded capital expenditures of $2,427 for the investment in laboratory equipment to increase capacity at all locations and facility improvements at the Fort Collins location.
As of March 31, 2021, we did not have an outstanding balance on our $5,000 available general line of credit, we had a $2,865 balance on our $3,000 capex line of credit. As described herein, we incurred indebtedness in connection with financing the Seventh Wave Acquisition, the Smithers Avanza Acquisition, the PCRS Acquisition, the HistoTox Labs Acquisition, the Merger and the expansion of facilities and services. Please referIndiana. Refer to the Liquidity and Capital Resources section herein as well as Note 13 “Subsequent Events” to the Notes to Condensed Consolidated Financial Statements for a description of our cash flows from operating, investing and financing activities and details related to our credit arrangements with First Internet Bank.arrangement, our convertible notes and the related fair value remeasurement of the embedded derivative component of our convertible notes.
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Results of Operations
The following table summarizes our condensed consolidated statement of operations as a percentage of total revenues for the periods shown:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Service revenue | 95.5 | % | 94.9 | % | 95.4 | % | 94.5 | % | ||||||||
Product revenue | 4.5 | 5.1 | 4.6 | 5.5 | ||||||||||||
Total revenue | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of Service revenue (a) | 66.7 | 67.2 | 67.3 | 69.9 | ||||||||||||
Cost of Product revenue (a) | 61.5 | 74.6 | 54.8 | 71.5 | ||||||||||||
Total cost of revenue | 66.5 | 67.6 | 66.7 | 70.0 | ||||||||||||
Gross profit | 33.5 | 32.4 | 33.3 | 30.0 | ||||||||||||
Total operating expenses | 36.3 | 33.7 | 34.7 | 34.2 | ||||||||||||
Operating income (loss) | (2.8 | ) | (1.2 | ) | (1.4 | ) | (4.2 | ) | ||||||||
Other expense | (1.0 | ) | (2.4 | ) | (1.4 | ) | (2.4 | ) | ||||||||
Loss before income taxes | (3.8 | ) | (3.6 | ) | (2.8 | ) | (6.6 | ) | ||||||||
Income taxes | 0.1 | 0.1 | 0.1 | 0.4 | ||||||||||||
Net loss | (3.9 | )% | (3.7 | )% | (2.9 | )% | (7.0 | )% |
| | | | | | | |
| | Three Months Ended | | | |||
| | December 31, | | | |||
| | 2021 | |
| 2020 |
|
|
Services revenue | | 45.3 | % | | 95.2 | % | |
Products revenue | | 54.7 | |
| 4.8 |
| |
Total revenue | | 100.0 | |
| 100.0 |
| |
| | | | | | | |
Cost of services revenue (a) | | 63.4 | |
| 68.1 |
| |
Cost of products revenue (a) | | 88.4 | |
| 48.2 |
| |
Total cost of revenue | | 77.1 | |
| 67.1 |
| |
| | | | | | | |
Operating expenses | | 62.9 | |
| 32.8 |
| |
| | | | | | | |
Operating income (loss) | | (40.0) | |
| (32.8) |
| |
| | | | | | | |
Other income (expense) | | (74.3) | |
| (1.9) |
| |
Income (loss) before income taxes | | (114.3) | |
| (34.7) |
| |
Income tax expense (benefit) | | 15.2 | |
| (0.2) |
| |
Consolidated net income (loss) | | (99.1) | % | | (2.0) | % | |
a)Percentage of service and product revenues, respectively |
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Three Months Ended MarchDecember 31, 2021 Compared to Three Months Ended MarchDecember 31, 2020
DSA and RMS Revenue
Service and Product Revenues
Revenues for the quarter ended March 31, 2021 increased 17.1% to $18,751 compared to $16,012 for the same period last fiscal year.
Our ServiceTotal revenue increased 17.8%370.8% to $17,902$84,211 from $17,885 in Q1 FY 2021, driven by a $14,940 increase in DSA revenue and $51,386 of incremental RMS revenue. The acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Pharmacology and Plato BioPharma added approximately $10,000 of service revenue and internal growth generated approximately $4,940 of service revenue in our DSA segment during Q1 FY 2022. Our acquisition of Envigo contributed $45,085 of product revenue and $6,301 of service revenue to our RMS segment during Q1 FY 2022. RMS revenue in Q1 FY 2022 reflected a partial quarter contribution from Envigo, which was acquired on November 5, 2021. We did not have any RMS revenue in the three months ended March 31, 2021 compared to $15,191 for the three months ended March 31, 2020. Nonclinical services revenues increased $1,903 due to an overall increase in the number of studies from thecomparable prior year period and increased capacity to perform studies. Other laboratory services revenues increased by $974 in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, due to internal growth.period.
Three Months Ended March 31, | ||||||||||||||||
2021 | 2020 | Change | % | |||||||||||||
Bioanalytical analysis | $ | 2,220 | $ | 2,386 | $ | (166 | ) | (7.0 | )% | |||||||
Nonclinical services | 14,157 | 12,254 | 1,903 | 15.5 | % | |||||||||||
Other laboratory services | 1,525 | 551 | 974 | 176.8 | % | |||||||||||
$ | 17,902 | $ | 15,191 | $ | 2,711 |
Sales in our Products segment increased 3.4% in the three months ended March 31, 2021 to $849 from $821 in the three months ended March 31, 2020. The increase in the second fiscal quarter of 2021 stems from higher sales of analytical instruments and other instruments, partially offset by a decrease in Culex in-vivo sampling systems.
Three Months Ended March 31, | ||||||||||||||||
2021 | 2020 | Change | % | |||||||||||||
Culex, in-vivo sampling systems | $ | 210 | $ | 230 | $ | (20 | ) | (8.7 | )% | |||||||
Analytical instruments | 561 | 532 | 29 | 5.5 | % | |||||||||||
Other instruments | 78 | 59 | 19 | 32.2 | % | |||||||||||
$ | 849 | $ | 821 | $ | 28 |
Cost of Revenues
Cost of revenues for the three months ended MarchDecember 31, 2021 was $12,471$64,886 or 66.5%77.1% of revenue, compared to $10,819,$11,842, or 67.6%66.2% of revenue for the three months ended MarchDecember 31, 2020.
Cost of Serviceservice revenue as a percentage of Service revenue decreased to 66.7%63.4% during the three months ended MarchDecember 31, 2021 from 67.2%68.1% in the three months ended MarchDecember 31, 2020, reflecting greater utilization of recently expanded capacity.
Cost of Productsproducts revenue as a percentage of Products revenue in the three months ended MarchDecember 31, 2021 decreasedincreased to 61.5%88.4% from 74.6%48.2% in the three months ended MarchDecember 31, 2020 due to expense reductions implemented inacquisition of Envigo whose products have a lower gross profit as a percent of revenue compared to the last half of fiscal 2020, which created improved margins on existing sales.historic DSA product-based revenue.
Operating Expenses
Selling expenses for the three months ended MarchDecember 31, 2021 decreased 18.8%increased 338.1% to $1,175$2,738 from $1,447$625 compared to the three months ended MarchDecember 31, 2020. This decreaseincrease is mainly due to the reduction of non-recurring costs related to the launch of the trade name Inotiv prior to the formal change of our corporate name to Inotiv, Inc., as well as a decreasean increase in trade show and travel expenses due to the COVID-19 pandemic, as our sales and marketing teams have been conducting meetings virtually.
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Researchbegun traveling more as the COVID-19 pandemic eases and development expenses for the three months ended March 31, 2021 increased 25.3% compared to the three months ended March 31, 2020 to $203 from $162. Thean increase was primarilyin commissions due to internal development investments for new services, such as clinical pathology and cardiovascular safety pharamacology.higher sales awards.
General and administrative expenses for the three months ended MarchDecember 31, 2021 increased 43.5%171.4% to $5,423$13,252 from $3,779$4,882 compared to the three months ended MarchDecember 31, 2020, as the Company increased operating expenses relatedcontinued to strategic investment in corporate general and administrative expense to support anticipated future revenuebuild the infrastructure for growth, which included additional headcount, recruiting and relocationsrelocation expense and higher compensation expense, includingcompensation.
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Amortization of intangible assets for the three months ended December 31, 2021 increased to $3,396 from $160 compared to the three months ended December 31, 2020, as the Company obtained various intangible assets related to the Gateway, HistoTox, Bolder BioPATH, Plato and Envigo acquisitions that were amortized during the three months ended December 31, 2021.
Other operating expenses for the three months ended December 31, 2021 increased to $33,580 from $196 compared to the three months ended December 31, 2020. The increase in other operating expenses reflects post combination non-cash stock compensation new systems andexpense relating to the assumption of certain outstanding stock options the Envigo Equity Plan recognized in connection with the Envigo acquisition of $23,014. The Company has also incurred transaction costs related to the HistoTox Labs Acquisitionacquisitions of Plato, Envigo and the Merger. In addition, we announced investments being madeRSI and an increase in laboratory infrastructure and data and study management technologies through a partnership with Centric Consulting, LLC andstartup costs for internal investments in software solutions and human resourcesnew service offerings. The acquisition of Envigo was transformational to support existing internal expertisethe Company’s underlying business. As a result, certain reclassifications have been made to prior periods in the areaunaudited condensed consolidated financial statements and accompanying notes to conform with current presentation, which more closely reflects management’s perspective of SEND (Standard for the Exchange of Nonclinical Data) data management and delivery.business as it currently exists.
Other Income (Expense)
Interest expense for the three months ended MarchDecember 31, 2021 decreased 6.6%increased to $366$4,828 from $392$347 compared to the three months ended MarchDecember 31, 2020. The increase in interest expense is due primarily to the convertible senior notes and the senior term loan, as well as various promissory notes, entered into subsequent to December 31, 2020. Interest expense for the three months ended December 31, 2021 includes approximately $1,659 of non-cash interest expense.
Other expense for the three months ended December 31, 2021 increased to $57,727 from $0 compared to the three months ended December 31, 2020 as the Company recognized a $56,714 fair value remeasurement of the embedded derivative component of the convertible notes issued in September 2021 and $877 loss on debt extinguishment.
Income Taxes
Our effective income tax rates for the three months ended MarchDecember 31, 2021 and 2020 were (2.09) %13.33% and (2.15) %,(9.89)% respectively. The expensebenefit (expense) recorded for each period was $15$12,785 and $11, respectively,($33), respectively. The benefit from income taxes in the first quarter of fiscal 2022 was primarily related to deferred tax liabilities established as part of the acquisition of Envigo, which resulted in a release of valuation allowance, as well as, the impact on tax expense of certain book to tax differences on the deductibility of certain transaction costs and non-deductibility of the loss on fair value remeasurement of the embedded derivative component of the convertible notes. The expense from income taxes in the first quarter of 2021 relates primarily to certain credits that arise when deferred tax liabilities that are created by indefinite-lived assets cannot be used as a source of taxable income to support the realization of deferred tax assets for valuation allowance purposes. The tax expense associated with such certain credits is required to be recorded.
Net Income/Loss
As a result of the above described factors, we had a consolidated net loss of $723$83,411 for the three months ended MarchDecember 31, 2021 as compared to a consolidated net loss of $588$366 during the three months ended MarchDecember 31, 2020.
Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020
Service and Product Revenues
Revenues for the six months ended March 31, 2021 increased 26.6% to $36,636 as compared to $28,930 for the six months ended March 31, 2020.
Our Service revenue increased 27.8% to $34,934 in the six months ended March 31, 2021 compared to $27,333 for the six months ended March 31, 2020. The increase in service revenue was due to incremental revenue of $1,500 in the first quarter of fiscal 2021 attributable to a full six months of Fort Collins, CO, related operations, combined with additional revenue as a result of organic growth.
Six Months Ended March 31, | ||||||||||||||||
2021 | 2020 | Change | % | |||||||||||||
Bioanalytical analysis | $ | 3,870 | $ | 3,712 | $ | 158 | 4.3 | % | ||||||||
Nonclinical services | 27,845 | 22,382 | 5,463 | 24.4 | % | |||||||||||
Other laboratory services | 3,219 | 1,239 | 1,980 | 159.8 | % | |||||||||||
$ | 34,934 | $ | 27,333 | $ | 7,601 |
Sales in our Product segment increased 6.6% in the first six months ended March 31, 2021 to $1,702 from $1,597 when compared to the six months ended March 31, 2020 reflecting higher sales of Culex in-vivo sampling systems and analytical instruments, partially offset by a decrease in other instruments.
Six Months Ended March 31, | ||||||||||||||||
2021 | 2020 | Change | % | |||||||||||||
Culex, in-vivo sampling systems | $ | 471 | $ | 406 | $ | 65 | 16.0 | % | ||||||||
Analytical instruments | 1,065 | 921 | 144 | 15.6 | % | |||||||||||
Other instruments | 166 | 270 | (104 | ) | (38.5 | )% | ||||||||||
$ | 1,702 | $ | 1,597 | $ | 105 |
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Cost of Revenues
Cost of revenues for the six months ended March 31, 2021 was $24,435 or 66.7% of revenue, compared to $20,260, or 70.0% of revenue compared to the six months ended March 31, 2020.
Cost of Service revenue as a percentage of Service revenue decreased to 67.3% during the six months ended March 31, 2021 from 69.9% in the six months ended March 31, 2020 reflecting operating leverage and the greater utilization of recently expanded capacity.
Cost of Product revenue as a percentage of Product revenue in the six months ended March 31, 2021 decreased to 54.8% from 71.5% in the six months ended March 31, 2020 due to expense reductions implemented in the last half of fiscal 2020, which created improved margins on existing sales.
Operating Expenses
Selling expenses for the six months ended March 31, 2021 decreased 19.8% to $2,138 from $2,665 compared to the six months ended March 31, 2020. This decrease is mainly due to the reduction of non-recurring costs of nearly $190 that was related to the launch of the trade name Inotiv prior to the formal change of our corporate name to Inotiv, Inc., as well as a decrease in trade show and travel expenses due to the COVID-19 pandemic, as our sales and marketing teams have been conducting meetings virtually.
Research and development expenses for the six months ended March 31, 2021 increased 23.1% compared to the six months ended March 31, 2020 to $399 from $324. The increase was primarily due to internal development investments for new services, such as clinical pathology and cardiovascular safety pharamacology.
General and administrative expenses for the six months ended March 31, 2021 increased 47.5% to $10,171 from $6,896 compared to the six months ended March 31, 2020 as the Company increased operating expenses related to higher strategic investment in corporate general and administrative expense to support anticipated future revenue growth, which included recruiting and relocations expense, higher compensation expense, including non-cash stock compensation, new systems and transaction costs related to the HistoTox Labs and Bolder BioPATH acquisitions. In addition, we announced investments being made in laboratory infrastructure and data and study management technologies through a partnership with Centric Consulting, LLC and investments in software solutions and human resources to support existing internal expertise in the area of SEND (Standard for the Exchange of Nonclinical Data) data management and delivery.
Other Income (Expense)
Interest expense for the six months ended March 31, 2021 increased 1.4% to $713 from $703 compared to the six months ended March 31, 2020.
Income Taxes
Our effective income tax rates for the six months ended March 31, 2021 and 2020 were (4.58)% and (5.94)%, respectively. The expense recorded for each period was $48 and $108, respectively, and relates primarily to certain credits that arise when deferred tax liabilities that are created by indefinite-lived assets cannot be used as a source of taxable income to support the realization of deferred tax assets for valuation allowance purposes. The tax expense associated with such certain credits is required to be recorded.
Net Income (Loss)
As a result of the factors described above, net loss for the six months ended March 31, 2021 amounted to $1,089, compared to net loss of $2,014 for the six months ended March 31, 2020.
Liquidity and Capital Resources
Comparative Cash Flow Analysis
At MarchDecember 31, 2021, we had cash and cash equivalents of $2,186,$42,418, compared to $1,406$138,924 at September 30, 2020.2021, exclusive of restricted cash.
Net cash provided byused in operating activities was $4,526$1,143 for the sixthree months ended MarchDecember 31, 2021 compared to net cash provided by operating activities of $346$1,652 for the sixthree months ended MarchDecember 31, 2020. Contributing factors to our cash provided byused in operations in the first sixthree months of fiscal 20212022 were noncash charges of $2,154$6,035 for depreciation and amortization, $460$19,159 for non-cash stock compensation expense, $56,714 for loss on fair value measurement of convertible senior notes, changes in deferred taxes of $14,281 and a net increase due to changes in operating assets and liabilities of $8,594 .
Included in operating activities for the three months ended December 31, 2020 are non-cash charges of $1,065 for depreciation and amortization, $181 of stock compensation expense and a net increasedecrease of $435 in customer advances of $3,831, as a result of increasing orders.accounts payable. These items were partially offset by an increase of $1,927 in accounts receivable.
Days’ sales$634 in accounts receivable decreased to 48 days at March 31, 2021 from 56 days at September 30, 2020 due to an increase in revenue. It is not unusual to see a fluctuation in the Company's pattern of days’ sales in accounts receivable. Customers may expedite or delay payments from period-to-period for a variety of reasons including, but not limited to, the timing of capital raised to fund on-going research and development projects.
Included in operating activities for the six months ended March 31, 2020 were noncash charges of $1,673 for depreciation and amortization, $204 for stock compensation expense, $75 of amortization of finance lease and a net increase in customer advances of $3,791, as a result of increasing orders. These items were partially offset by an increase of $1,873 in accounts receivable, an increase of $723 in prepaid expenses and other assets, a decrease of $422 in accrued expenses and a decrease of $577 in accounts payable.$1,089.
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Investing activities used $2,425$232,393 in the sixthree months ended MarchDecember 31, 2021 due mainly to cash paid in the acquisition of Plato, Envigo and RSI and capital expenditures of $2,427$5,655 as compared to $3,351$1,474 used in the first sixthree months of fiscal 2020.2021. The capital additions during the sixthree months ended March 31,December 30, 2021 consisted of investments in laboratory equipment to increase capacitythe renovation and improvements inexpansion of the Denver, Pennsylvania facility and continued construction of our Fort Collins facility.St. Louis facility, as well as purchases of certain lab equipment.
Financing activities used $1,321provided $119,466 in the sixthree months ended MarchDecember 31, 2021, compared to $6,597 provided during$428 used in the sixthree months ended MarchDecember 31, 2020. The use of cash provided in the first sixthree months of fiscal 20212022 included paymentsborrowings on long-term debta senior term loan of $1,436, financing lease$165,000 and borrowings on construction loans of $1,184, partially offset by payments of $206 andlong-term borrowings of $37,747, debt issuance costs of $41, which were partially offset by proceeds from the exercise$7,102 and repayment of stock optionsour previous capex line of $111.credit of $1,749. The main sources of cash in the first sixthree months of fiscal 20202021 were from borrowings on the long-term loan of $3,533, and borrowings on the Construction loans and Capexcapex lines of credit of $1,089 and $1,329, respectively, and additional borrowings against the Revolving Facility of $1,552. These items were partially offset by$387.Total long-term loan payments of $603,were $712 and finance lease paymentpayments of $212 and payment$108 contributed to the use of debt issuance cost of $111.cash.
Capital Resources
Credit Facility
On April 30,November 5, 2021, the Company, refinanced its credit arrangements with First Internet Bank (“FIB”) in order to, among other things, secure additional debt financing. The discussion below describes our credit arrangements with FIB ascertain of March 31, 2021. For a description of our credit arrangements with FIB assubsidiaries of the April 30, 2021 refinancing, refer to Note 13 “Subsequent Events” toCompany (the “Subsidiary Guarantors”), the Notes to Condensed Consolidated Financial Statements.
On December 1, 2019, welenders party thereto, and Jefferies Finance LLC, as administrative agent, entered into an Amended and Restateda Credit Agreement (as had previously been amended from time to time, the(the “Credit Agreement”) with FIB. As. The Credit Agreement provides for a term loan facility in the original principal amount of March 31, 2021,$165,000, a delayed draw term loan facility in the original principalirs amount of $25,000 (available to be drawn up to 18 months from the date of the Credit Agreement), and a revolving loan facility in the original principal amount of $15,000. In addition, the Credit Agreement included five term loans (the “Initial Term Loan,” “Second Term Loan,” “Third Term Loan,” “Fourth Term Loan,” and “Fifth Term Loan,” respectively), aprovides for an aggregate combined increase of the revolving line of credit (the “Revolving Facility”), a construction draw loan (the “Construction Draw Loan”), an equipment draw loan (the “Equipment Draw Loan”), and two capital expenditure instruments (the “Initial Capex Line”facility and the “Second Capex Line,” respectively).
The Initial Term Loan for $4,500 bears interest at a fixed rateterm loan facility of 3.99%, with monthly principal and interest payments of approximately $33. The Initial Term Loan matures June 23, 2022. The balance on the Initial Term Loan at March 31, 2021 was $3,622. We used the proceeds from the Initial Term Loan to satisfy our indebtedness with Huntington Bank and terminated the related interest rate swap.
The Second Term Loan for $5,500 was used to fund a portion of the cash consideration for the Seventh Wave Acquisition. Amounts outstanding under the Second Term Loan bear interest at a fixed per annum rate of 5.06%, with monthly principal and interest payments equal to $78. The Second Term Loan matures July 2, 2023 and the balance on the Second Term Loan at March 31, 2021 was $3,634.
The Third Term Loan for $1,271 was used to fund the cash consideration for the Smithers Avanza Acquisition. Amounts outstanding under the Third Term Loan bear interest at a fixed per annum rate of 4.63%. The Third Term Loan required monthly interest only payments until December 1, 2019, from which time payments of principal and interest in monthly installments of $20 are required, with all accrued but unpaid interest, cost and expenses due and payable at the maturity date. The Third Term Loan matures November 1, 2025 and the balance on the Third Term Loan at March 31, 2021 was $1,018.
The Fourth Term Loan in the principal amount of $1,500 has a maturity of June 1, 2025. Interest accrues on the Fourth Term Loan at a fixed per annum rate equal to 4%, with interest payments only having commenced January 1, 2020 through June 1, 2020, with monthly payments of principal and interest thereafter through maturity. The balance on the Fourth Term Loan at March 31, 2021 was $1,286.
The Fifth Term loan in the principal amount of $1,939 has a maturity of December 1, 2024. Interest accrues on the Fifth Term Loan at a fixed per annum rate equal to 4%, with payments of principal and interest due monthly through maturity. The balance on the Fifth Term Loan at March 31, 2021 was $1,858. We entered into the Fourth Term Loan and the Fifth Term Loan in connection with the PCRS Acquisition.
The Revolving Facility provides a line of credit for up to $5,000,$35,000, which amount will be available to be drawn once the delayed draw term loan facility is no longer available. On November 5, 2021, the Company may borrow from time to time, subject toborrowed the terms of the Credit Agreement, including as may be limited by thefull amount of the Company’s outstanding eligible receivables. term loan facility, but did not borrow any amounts on the delayed draw term loan facility or the revolving loan facility.
The Revolving Facility requires monthly accrued and unpaidCompany may elect to borrow on each of the loan facilities at either an adjusted LIBOR rate of interest payments only until maturityor an adjusted prime rate of interest. Adjusted LIBOR rate loans shall accrue interest at a floating per annuman annual rate equal to the greaterLIBOR rate plus a margin of (a) 4%between 6.00% and 6.50%, or (b) the sum of the Prime Rate plus Zero Basis Points (0.0%), which rate shall change concurrently with the Prime Rate. The Company did not have an outstanding balancedepending on the Revolving Facility asCompany’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The LIBOR rate must be a minimum of December 31, 2020. On April 31, 2021,1.00%. The initial adjusted LIBOR rate of interest is the parties amended the Revolving Facility to extend its maturity through April 30, 2023. Refer to Note 13 “Subsequent Events” to the Notes to Condensed Consolidated Financial Statements.
The Construction Draw Loan and the Equipment Draw Loan were utilized in connection with the Evansville facility expansion and provided for borrowings up to principal amounts not to exceed $4,445 and $1,429, respectively. Amounts outstanding under theseLIBOR rate plus 6.25%. Adjusted prime rate loans bearshall accrue interest at a fixed per annum rate of 5.20%. The Construction Draw Loan and Equipment Draw Loan each mature on March 28, 2025. As of March 31, 2021, there was a $4,015 balance on the Construction Draw Loan and a $1,103 balance on the Equipment Draw Loan.
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The Initial Capex Line previously provided for borrowings up to the principal amount of $1,100, which the Company could borrow from time to time, subject to the terms of the Credit Agreement. On March 27, 2020, the parties amended the Initial Capex Line to eliminate the revolving nature of the line in favor of a term loan in the principal amount of $948, equivalent to the amount of borrowings then outstanding on the Initial Capex Line. As amended, the Initial Capex Line matures on June 30, 2025, and as of March 31, 2021, had a balance of $826. Interest accrues on the principal balance of the Initial Capex Line at a fixed per annuman annual rate equal to 4%. The Initial Capex Line requires paymentsthe prime rate plus a margin of principalbetween 5.00% and interest in monthly installments equal to $17.
The Second Capex Line previously provided for borrowings up to the principal amount of $3,000, which the Company could borrow from time to time, subject to the terms of the Credit Agreement. On December 18, 2020, the parties amended the Second Capex Line to eliminate the revolving nature of the line in favor of a term loan in the principal amount of $3,000, equivalent to the amount of borrowings then outstanding on the Second Capex Line. As amended, the Second Capex Line matures on December 31, 2025. Interest accrues on the principal balance of the Second Capex Line at a fixed per annum rate equal to 4.25%. Commencing January 31, 2021, and on the last day of each monthly period thereafter until and including on the maturity date, the Second Capex Line requires payments of principal and interest in monthly installments equal to $55, and as of March 31, 2021, had a balance of $2,865.
The Company’s obligations under the Credit Agreement are guaranteed by BAS Evansville, Inc. (“BASEV”)5.50%, Seventh Wave Laboratories, LLC, BASi Gaithersburg LLC, as well as Bronco Research Services LLC (“Bronco”), each a wholly owned subsidiary of the Company (collectively, the “Guarantors”). The Company’s obligations under the Credit Agreement and the Guarantor’s obligations under their respective guaranties are secured by first priority security interests in substantially all of the assets of the Company and the Guarantors, respectively, mortgagesdepending on the Company’s BASEV’s and Bronco’s facilities in West Lafayette, Indiana, Evansville, Indiana, and Fort Collins, Colorado, respectively, and pledgesthen current Secured Leverage Ratio. The initial adjusted prime rate of interest is the prime rate plus 5.25%. Actual interest accrued at 7.25% through December 31, 2021.
The Company must pay (i) a fee based on a percentage per annum equal to 0.50% on the average daily undrawn portion of the Company’s ownership interestscommitments in respect of the revolving loan facility and (ii) a fee based on a percentage per annum equal to 1.00% on the average daily undrawn portion of the commitments in respect of the delayed drawn loan facility. In each case, such fee shall be paid quarterly in arrears.
Each of the term loan facility and delayed draw term loan facility require annual principal payments in an amount equal to 1.0% of their respective original principal amounts. The Company shall also repay the term loans on an annual basis in an amount equal to a percentage of its subsidiaries.Excess Cash Flow (as defined in the Credit Agreement), which percentage will be determined by its then current Secured Leverage Ratio. Each of the loan facilities may be repaid at any time with premium or penalty.
As amended, (i) beginning March 31, 2021, theThe Company is required to maintain an initial Secured Leverage Ratio (as defined in the Credit Agreement) of not more than 4.25 to 1.00. The maximum permitted Secured Leverage Ratio shall reduce to 3.00 to 1.00 beginning with the Company’s fiscal quarter ending March 31, 2025. The Company is required to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement), tested quarterly,which ratio shall be 1.00 to 1.00 during the first year of not less than (a) as of March 31, 2021 1.05 to 1.0, (b) as of June 30, 2021the Credit Agreement and shall be 1.10 to 1.00 from and (c)after the Credit Agreement’s first anniversary.
Each of the loan facilities is secured by all assets (other than certain excluded assets) of the Company and each of the Subsidiary Guarantors. Repayment of each of the loan facilities is guaranteed by each of the Subsidiary Guarantors.
Utilizing proceeds from the Credit Agreement on November 5, 2021, the Company repaid all indebtedness and terminated the credit agreement related to the First Internet Bank of Indiana (“FIB”) credit facility as described in Note 10 and recognized $877 loss on debt extinguishment.
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Long term debt as of September 30, 2021 and for each quarter thereafter 1.20 to 1.00 and (ii) the Company is required to maintain a Cash Flow Leverage Ratio (as defined in the Credit Agreement), tested quarterly, not to exceed (a) as of MarchDecember 31, 2021, 5.75 to 1.00, (b) as of June 30, 2021, 5.00 to 1.00 and (c) as of September 30, 2021 and for each quarter thereafter, 4.25 to 1.00. The Fixed Charge Coverage Ratio and Cash Flow Leverage Ratio are measured on a trailing twelve (12) month basis, provided, however, that in the case of Fixed Charge Coverage Ratio calculations for the remainder of fiscal 2021 (i) the measurement period for the quarter ending March 31, 2021 includes only the quarter ending March 31, 2021, (ii) the measurement period for the quarter ending June 30, 2021 includes only the quarters ending March 31, 2021 and June 30, 2021 and (iii) the measurement period for the quarter ending September 30, 2021 includes only the quarters ending March 31, 2021, June 30, 2021 and September 30, 2021.2021 is detailed in the table below.
| | | | | | |
| | As of: | ||||
|
| December 31, 2021 |
| September 30, 2021 | ||
FIB Term Loans | | $ | — | | $ | 36,185 |
Seller Note – Bolder BioPath | |
| 1,455 | |
| 1,500 |
Seller Note – Smithers Avanza | |
| 175 | |
| 280 |
Seller Note – Preclinical Research Services | | | 667 | | | 685 |
Seller Note – Plato BioPharma | | | 3,000 | | | — |
EIDL Loan | | | 141 | | | — |
Convertible Senior Notes | | | 101,062 | | | 131,673 |
Senior Term Loan | | | 165,000 | | | — |
| |
| 271,500 | |
| 170,323 |
Less: Current portion | |
| (5,223) | |
| (9,656) |
Less: Debt issue costs not amortized | |
| (10,882) | |
| (6,458) |
Total Long-term debt | | $ | 255,395 | | $ | 154,209 |
Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, and defaults under other material indebtedness, FIB may cease advancing funds, increase the interest rate on outstanding balances, accelerate amounts outstanding, terminate the agreement and foreclose on all collateral. The Company has also obtained a life insurance policy in an amount of $5,000 for its President and Chief Executive Officer and provided FIB an assignment of such life insurance policy as collateral.
Acquisition-related Debt
In addition to the indebtedness under ourthe Credit Agreement, as partcertain of the Smithers Avanza Acquisition, weCompany’s subsidiaries have anissued unsecured promissory note payablenotes as partial payment of the purchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the Smithers Avanza Seller inindebtedness under the initial principal amount of $810 made by BASi Gaithersburg and guaranteed by the Company. The promissory note bears interest at 6.5% with monthly payments and maturity date of May 1, 2022. At March 31, 2021, the balance on the note payable to the Smithers Avanza Seller was $480. Credit Agreement.
As part of the PCRS Acquisition, we also have anacquisition of Plato BioPharma, which is a part of the Company’s Inotiv Boulder subsidiary, Inotiv Boulder, LLC, issued unsecured subordinated promissory notenotes payable to the PCRS Seller in the initial principal amountformer shareholders of $800. The promissory note bears interest at 4.5% with monthly payments and a maturity date of December 1, 2024. At March 31, 2021, the balance on the note payable to the PCRS Seller was $719. In connection with the Merger, the Company has also issued seller notesPlato BioPharma in an aggregate principal amount of $1,500. Refer$3,000. The promissory notes bear interest at a rate of 4.5% per annum, with monthly payments of principal and interest and a maturity date of June 1, 2023.
Convertible Senior Notes
On September 27, 2021, the Company issued $140,000 principal amount of its 3.25% Convertible Senior Notes due 2027. The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among the Company, the BAS Evansville, as guarantor, and U.S. Bank National Association, as trustee. Pursuant to the purchase agreement between the Company and the initial purchaser of the Notes, the Company granted the initial purchaser an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes were first issued, up to an additional $15,000 principal amount of Notes. The Notes issued on September 27, 2021 include $15,000 principal amount of Notes issued pursuant to the full exercise by the initial purchaser of such option. The Company used the net proceeds from the offering of Notes, together with borrowings under a new senior secured term loan facility, to fund the cash portion of the purchase price of the Envigo Acquisition and related fees and expenses, as described in Note 13 “Subsequent Events”16.
The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s non-guarantor subsidiaries. The Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by BAS Evansville (the “Guarantor”).
The Notes accrue interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2022. The Notes will mature on October 15, 2027, unless earlier repurchased, redeemed or converted. Before April 15, 2027, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 15, 2027, noteholders may convert their Notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, its common shares or a combination of cash and its common shares, at the Company’s election. The initial conversion rate is 1.7162 common shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $46.05 per common share. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events.
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In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Notes are redeemable, in whole and not in part, at the Company’s option at any time on or after October 15, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, but only if the last reported sale price per common share of the Company exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. The redemption price is a cash amount equal to the principal amount of the Notes to Condensed Consolidated Financial Statements.
On April 23, 2020, we were granted a loan (the “Loan”) from Huntington National Bank inbe redeemed, plus accrued and unpaid interest, if any, to, but excluding, the aggregate amount of $5,051,redemption date. In addition, calling the Notes for redemption pursuant to the Paycheck Protection Program under Division A, Title Iprovisions described in this paragraph will constitute a Make-Whole Fundamental Change, which will result in an increase to the conversion rate in certain circumstances for a specified period of time.
If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the CARES Act,Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common shares.
The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which was enacted March 27, 2020. The termsinclude the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, are subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the failure by the Company or the Guarantor to comply with certain covenants in the Indenture relating to the ability of the Loan call for repaymentCompany or the Guarantor to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the principalassets of the Company or the Guarantor, as applicable, and accrued interestits subsidiaries, taken as a whole, to another person; (iv) a default by the Company or the Guarantor in its other obligations or agreements under the LoanIndenture or the Notes if such default is not cured or waived within 60 days after notice is given in eighteen installmentsaccordance with the Indenture; (v) certain defaults by the Company, the Guarantor or any of $283 beginningtheir respective subsidiaries with respect to indebtedness for borrowed money of at least $20,000; (vi) the rendering of certain judgments against the Company, the Guarantor or any of their respective subsidiaries for the payment of at least $20,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; (vii) certain events of bankruptcy, insolvency and reorganization involving the Company, the Guarantor or any of their respective significant subsidiaries; and (viii) the guarantee of the Notes ceases to be in full force and effect (except as permitted by the Indenture) or the Guarantor denies or disaffirms its obligations under its guarantee of the Notes.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company or the Guarantor (and not solely with respect to a significant subsidiary of the Company or the Guarantor) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes.
In accordance with ASC 815, at issuance, the Company evaluated the convertible feature of the Notes and determined it was required to be bifurcated as an embedded derivative and did not qualify for equity classification. The convertible feature of the Notes is subject to fair value remeasurement as of each balance sheet date and is valued utilizing level three inputs as described below.
In the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06)”. The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. As a result of the approval for the increase in authorized shares on November 16, 20204, 2021 (See Note 2 – Equity), the convertible note conversion rights met all equity classification criteria in ASC 815. As a result, the derivative liability was remeasured as of November 4, 2021 and continuing monthly untilreclassified out of long-term liabilities and into additional paid-in capital.
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Based upon the final payment is due on April 16, 2022. However,above, the bank is not requiring payments of principal or interest pendingCompany remeasured the loan forgiveness decision. We have applied for forgivenessfair value of the loanembedded derivative as of November 4, 2021 which resulted in a fair value measurement of $88,576 and a loss on remeasurement included in other income (loss) for the amountthree-months ended December 31, 2021 of $4,851.
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$56,714. The embedded derivative liability of $88,576 was then reclassified to additional paid-in capital in accordance with ASC 815.
On January 28, 2015, the Company entered into a lease agreement with Cook Biotech, Inc. The lease agreement has and will provide the Company with additional cash in the range of approximately $50 per month during the first year of the initial term to approximately $57 per month during the final year of the initial term.
The Company’s sources of liquidity for fiscal 2021 are expected to consist primarily of cash generated from operations, cash on-hand, additional borrowings available under our Credit Agreement, as refinanced on April 30, 2021, an additional commitment from FIB for approximately $5,000 of financing to be used in connection with the exercise of the Company’s option to buy its St. Louis facility for approximately $4,700 and to complete associated expansion, contingent on the Company’s receipt of related business incentives, and remaining net proceeds from our recent public offering. Research services are capital intensive. The investment in equipment, facilities and human capital to serve our markets is substantial and continuing. Rapid changes in automation, precision, speed and technologies necessitate a constant investment in equipment and software to meet market demands. We are also impacted by the heightened regulatory environment and the need to improve our business infrastructure to support our operations, which will necessitate additional capital investment. Our ability to generate capital to reinvest in our capabilities and to obtain additional capital if and as needed through financial transactions is critical to our success. Sustained growth will require additional investment in future periods. Positive cash flow and access to capital will be important to our ability to make such investments. Management believes that the resources described above will be sufficient to fund operations, planned capital expenditures and working capital requirements over the next twelve months.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to changes in interest rates while conducting normal business operations as a result of ongoing financing activities. As of December 31, 2021, our debt portfolio was reliant on reference rates. Based on our interest rate exposure at December 31, 2021, assumed debt levels throughout the next 12 months, a one-percentage-point increase in interest rates would result in an estimated $1,673 pre-tax reduction in net earnings over a one-year period.
Foreign Currency Exchange Rate Risk
We operate on a global basis and have exposure to some foreign currency exchange rate fluctuations for our financial position, results of operations, and cash flows.
While the financial results of our global activities are reported in U.S. dollars, our foreign subsidiaries typically conduct their operations in their respective local currency. The principal functional currencies of the Company’s foreign subsidiaries are the Euro, British Pound and Israeli Shekel.
Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our financial position, results of operations, and cash flows. As the U.S. dollar strengthens against other currencies, the value of our non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally decline when reported in U.S. dollars. The impact to net income as a result of a U.S. dollar strengthening will be partially mitigated by the value of non-U.S. expenses, which will decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally increase when reported in U.S. dollars.
A smaller reporting company is not requiredhypothetical 10% change in the foreign exchange rates applicable to provide the information requiredour business would change our December 31, 2021 cash balance by this Item 3.approximately $1,000 and our revenue by approximately $6,500.
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed timely, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management is necessarily required to use judgment in evaluating controls and procedures.
Management performs periodic evaluations to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report was performed under the supervision and with the participation of management, which resulted in a determination by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures were not effective as of MarchDecember 31, 2021.
On December 15, 2021, the Company's management and the Audit Committee of the Board of Directors concluded that, due to a failure to properly account for certain tax attributes related to an acquisition that occurred in the Company's third fiscal quarter, the Company's previously issued unaudited interim financial statements as of and for the three and nine months ended June 30, 2021 included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (the "Original Quarterly Report") should no longer be relied upon. The Company’s management, together with the Audit Committee, determined that the Company’s financial
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statements and other financial data as of and for the quarterly period ended June 30, 2021 included in the Original Quarterly Report should be restated and the Company issued restated financials for the period in the Form 10-Q/A filed on December 21, 2021. In connection with the restatement, management reevaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of June 30, 2021 and concluded that, in light of the error described above, a material weakness existed in the Company’s internal control over financial reporting and that certain of the Company’s disclosure controls and procedures were not effective as of June 30, 2021. Because the error was not discovered until after the end of the first quarter of fiscal 2022 and minimal remedial steps had been taken prior to the end of the first quarter of fiscal 2022, management concluded that the same material weakness in the Company's internal control over financial reporting and deficiency in the Company's disclosure controls and procedures that existed at September 30, 2021 continued to exist at December 31, 2021.
Management has begun and plans to continue to devote significant effort and resources to the remediation and improvement of its internal control over financial reporting and to provide processes and controls over the research and understanding of the tax impact of acquisitions that qualify as stock transactions for tax purposes. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the tax impact of acquisitions that qualify as stock transactions for tax purposes. We plan to include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding the tax impact of acquisitions that qualify as stock transactions for tax purposes. We also plan to re-assess our non-audit third-party professionals with whom we consult regarding application of accounting guidance related to the tax issues and engage more experienced advisers as appropriate. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Controls
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the secondfirst quarter of fiscal 20212022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Litigation
There wereEnvigo is a defendant in a purported class action and a related action under California’s Private Attorney General Act of 2004 (“PAGA”) brought by Jacob Greenwell, a former employee of Envigo, on June 25, 2021 in the Superior Court of California, Alameda County. The complaint alleges that Envigo violated certain wage and hour requirements under the California Labor Code. PAGA authorizes private attorneys to bring claims on behalf of the State of California and aggrieved employees for violations of California’s wage and hour laws. The class action complaint seeks certification of a class of similarly situated employees and the award of actual, consequential and incidental losses and damages for the alleged violations. The PAGA complaint seeks civil penalties pursuant to the California Labor Code and attorney's fees. The Company intends to vigorously defend these claims.
The Company is party to certain other legal actions arising out of the normal course of its business. In management's opinion, none of these actions will have a material effect on the Company's operations, financial condition or liquidity. No form of proceedings has been brought, instigated or is known to be contemplated against the Company by any government agency.
Government Investigations
During the period from July through December 2021, one of Envigo’s U.S. facilities was inspected on several occasions by the U.S. Department of Agriculture (“USDA”). USDA issued inspection reports with findings of non-compliance with certain USDA laws and regulations. Envigo formally appealed certain of the findings. USDA has indicated it intends to conduct a formal investigation. The inspections and/or the investigation could lead to enforcement action resulting in penalties that could include a temporary restraining order or injunction, civil and/or criminal penalties, and/or license suspension or revocation. As of December 31, 2021, no material changes duringinvestigation has been initiated.
On June 15, 2021, Envigo Global Services, Inc., a subsidiary of the second quarterCompany acquired in the Envigo acquisition, was served with a grand jury subpoena issued by the Department of fiscal 2021Justice in Miami, Florida requiring the production of documents related to our disclosure in Item 3the importation into the United States of our Form 10-K for fiscal 2020.live non-human primates originating from or transiting through China, Cambodia and/or Vietnam from April 1, 2014 through March 28, 2019. The Company is cooperating with the Department of Justice.
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ITEM 1A - RISK FACTORS
Before investing in our securities you should carefully consider the risks described below and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2021, including those disclosed under the heading “Risk Factors” appearing in Item 1A of Part I of the Form 10-K, as well as the information contained in our subsequent Quarterly Reports.10-K. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
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The risks described in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q from time to time are not the only risks we face. New risk factors or risks that we currently deem immaterial emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business, financial condition and operating results, or the extent to which any such risk factor or combination of risk factors may impact our business, financial condition and operating results.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The HistoTox Labs Acquisition and the Merger may present many risks, and we may not realize the strategic and financial goals that were contemplated at the time we entered into the PurchaseOn October 4, 2021, pursuant to an Agreement and Plan of Merger among the Company, Greek Merger Agreement.
Risks we may face in connection withSub, Inc., Plato BioPharma, Inc. and Shareholder Representative Services, LLC, the HistoTox Labs Acquisition and the Merger (together, the “Acquisitions”) include:
Future sales of our common shares by us or our existing shareholders could cause our share price to decline.
Sales of a substantial number of our common shares in the public market, or the perception that these sales might occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. Further, we have stock options outstanding. As of March 31, 2021, we had 11,181,506 outstanding common shares and 671,000 common shares issuable upon the exercise of outstanding stock options, of which approximately 3,200,954 shares and 240,500 shares underlying stock options are subject to restrictions on transfer under 90-day lock-up arrangements with the underwriter of our public offering. These shares will become eligible for public sale at the expiration of the lock-up period, subject to vesting requirements and volume limitations applicable to affiliates. If a substantial number of common shares, including common shares underlying outstanding stock options, are sold, or if it is perceived that they will be sold, in the public market, it could have an adverse impact on the market price of our common shares.
In addition, as part of the Merger, weCompany issued 1,588,235 common shares as consideration payable to the Bolder BioPATH equity holders. Following a one-year lock-up period from the closing of the Merger, such shares will be freely tradeable.
Furthermore, our directors and executive officers may in the future adopt written trading plans that are intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under which they may in the future contract with a broker to sell our common shares. Sales of substantial amounts of our common shares in the public markets pursuant to new Rule 10b5-1 plans, or the perception that these sales could occur, could cause the market price of our57,587 common shares to decline. We are unable to predict the effect that sales may have onformer shareholders of Plato BioPharma, Inc. The shares were issued in reliance upon the prevailing market price of our common shares.
We have incurred significant additional indebtedness during recent periods, which may impair our ability to raise further capital or impact our ability to service our debt.
We have incurred significant additional indebtedness during recent periods, including in order to financeexemption from the HistoTox Labs Acquisition and the Merger and to support other corporate endeavors. Our additional indebtedness may impair our ability to raise further capital, including to expand our business, pursue strategic investments, and take advantage of financing or other opportunities that we believe to be in the best interestsregistration requirements of the Company and our shareholders. Our additional indebtedness may also impact our ability to service our debt and to comply with financial covenants and the other terms of our relevant credit arrangements, in which case our lenders might pursue available remedies up to and including terminating our credit arrangements and foreclosing on available collateral.
We may need additional capital, and any additional capital we seek may not be available in the amount or at the time we need it.
We anticipate utilizing additional debt financing in order to fund the exerciseSecurities Act provided by Section 4(a)(2) of the Company’s optionSecurities Act and Regulation D thereunder as sales by an issuer not involving any public offering.
On December 29, 2021, pursuant to buyan Asset Purchase Agreement among Robinson Services Incorporated, the owners of Robinson Services Incorporated and Envigo Global Services, Inc., the Company issued 70,633 of its St. Louis facility for approximately $4,700 and to complete associated expansion, contingent on the Company’s receipt of related business incentives.
In general, additional capital may be raised through the sale of common shares preferred equity or convertible debt securities, entry into debt facilities or other third-party funding arrangements. The sale of equity and convertible debt securities may result in dilution to our shareholders and those securities may have rights senior to those of our common shares. Agreements entered into in connection with such capital raising activities could contain covenants that would restrict our operations or require us to relinquish certain rights. Additional capital may not be available on reasonable terms, or at all. If we cannot timely raise any needed funds, we may be forced to reduce our operating expenses, which could adversely affect our ability to implement our long-term strategic roadmap and grow our business.
Our expected financing needs are based upon management’s estimates as to future revenue and expense. Our business plan and financing needs are subject to change based upon, among other factors, our ability to increase revenues and manage expenses. If our estimates of our financing needs change, we may need additional capital more quickly than we expect or we may need a greater amount of capital.
If securities or industry analysts issue an adverse opinion regarding our common shares, our share price and trading volume could decline.
The trading market for our common shares is influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If anyone of the analysts who may cover us adversely changes its recommendation regarding our commonowners of Robinson Services, Inc. The shares or provides more favorable relative recommendations about our competitors,were issued in reliance upon the trading priceexemption from the registration requirements of our common shares could decline. Ifthe Securities Act provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any analyst who may cover us were to cease coveragepublic offering.
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Number |
| Description of Exhibits | |
(3) | 3.1 |
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| 3.2 |
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(10) | 10.1 |
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| | | |
| 10.2 | | |
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| 10.3 | | |
| | | |
| 10.4 | | |
| | | |
(31) | 31.1 |
| Certification of Principal Executive Officer (filed herewith). |
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| 31.2 |
| |
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(32) | 32.1 |
| |
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| 32.2 |
| |
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| 101 |
| Inline XBRL data file (filed herewith) |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Number | Description of Exhibits | ||
(3) | 3.1 | Second Amended and Restated Articles of Incorporation of Inotiv, Inc. (formerly known as Bioanalytical Systems, Inc.) as amended through March 18, 2021 (incorporated by reference to the Company’s Form 8-K filed March 19, 2021). | |
3.2 | Second Amended and Restated Bylaws of Inotiv, Inc. (formerly known as Bioanalytical Systems, Inc.) as amended through March 18, 2021 (incorporated by reference to the Company’s Form 8-K filed March 19, 2021) | ||
(10) | 10.1 | Offer letter from Inotiv, Inc. to John Gregory Beattie (filed herewith) | |
(31) | 31.1 | Certification of Principal Executive Officer (filed herewith). | |
31.2 | Certification of Chief Financial Officer (filed herewith). | ||
(32) | 32.1 | Written Statement of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith). | |
32.2 | Written Statement of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith). | ||
101 | XBRL data file (filed herewith) |
26
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
Date: | INOTIV, INC. | |
(Registrant) | ||
By: | /s/ Robert W. Leasure | |
Robert W. Leasure | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
Date: | By: | /s/ Beth A. Taylor |
Beth A. Taylor | ||
Chief Financial Officer and Vice President of Finance (Principal Financial Officer and Accounting Officer) | ||
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