UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended |
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 name of the registrant as specified in its charter)
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INDIANA |
| 35-1345024 |
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2701 KENT AVENUE | | 47906 |
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(765) 463-4527
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Shares | | NOTV | |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ⌧ NO ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ⌧ NO ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check):
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Large accelerated filer ◻ | Accelerated filer ◻ | Non-accelerated filer ⌧ | Smaller Reporting Company ☒ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
As of August 9, 2021, 15,914,695April 26, 2022, 25,515,239 of the registrant's common shares were outstanding.
EXPLANATORY NOTE
Inotiv, Inc. (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (the “Amendment”) to amend and restate certain financial information and related footnote and MD&A disclosure in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 originally filed with the Securities and Exchange Commission (the “SEC”) on August 13, 2021 (the “Existing Quarterly Report”). This Amendment also amends the disclosure regarding disclosure controls and procedures and internal controls over financial reporting in Item 4 of Part I of the Existing Quarterly Report, amends the disclosure regarding Risk Factors in Item 1A of Part II of the Existing Quarterly Report, and 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 Existing Quarterly Report is amended to reflect the filing of these new certifications.
Background of Restatement
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 Existing Quarterly Report should no longer be relied upon. Specifically, management and the Audit Committee concluded that, in accordance with ASC 805-740, the Company should have 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 identified in the Company’s June 30, 2021 quarterly financial statements. Subsequent to the establishment of the deferred tax liability as of the opening balance sheet, the Company should have reversed a portion of its (i.e. the acquiror) pre-existing valuation allowance and taken the income tax benefit through the statements of operations for the three and nine months ended June 30, 2021. The impact of these adjustments is to increase the amount of goodwill and deferred tax liability recorded on the June 30, 2021 balance sheet by approximately $4.9 million and to reduce the Company’s valuation allowance recorded on the June 30, 2021 balance sheet and increase income tax benefit in the statements of operations for the three and nine month periods ended June 30, 2021 by approximately $4.9 million. Each of these adjustments is a non-cash item.
As a result, the Company’s management, together with the Audit Committee, determined that the Company’s financial statements and other financial data as of and for the quarterly period ended June 30, 2021 included in the Existing Quarterly Report should be restated in this Form 10-Q/A as a result of the error. This restatement results in non-cash, non-operating financial statement corrections.
The financial information that has been previously filed or otherwise reported for this period is superseded by the information in this Form 10-Q/A, and the financial statements and related financial information contained in the Existing Quarterly Report should no longer be relied upon. On December 16, 2021, the Company filed a Current Report on Form 8-K disclosing the non-reliance on the financial statements included in the Existing Quarterly Report.
This Amendment amends and restates Items 1, 2 and 4 of Part I and Items 1A and 6 of Part II of the Existing Quarterly Report, and no other information included in the Existing Quarterly Report is amended hereby. The explanatory caption at the beginning of each item of this Amendment sets forth the nature of the revisions to that item.
All referenced amounts in this Amendment for prior periods and prior period comparisons reflect the balances and amounts on a restated basis.
Except as described above, no other information included in the Existing Quarterly Report is being amended or updated by this Amendment, and this Amendment does not purport to reflect any information or events subsequent to the Existing Quarterly Report. This Amendment continues to describe the conditions as of the date of the Existing Quarterly Report and, except as expressly contained herein, we have not updated, modified or supplemented the disclosures contained in the Existing Quarterly Report. Accordingly, this Amendment should be read in conjunction with the Existing Quarterly Report and with our filings with the SEC subsequent to the Existing Quarterly Report.
Internal Control Considerations
In connection with the restatement, management has reevaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of June 30, 2021. The Company’s management has concluded that, in light of the error described above, a material weakness exists in the Company’s internal control over financial reporting and that certain of
3
the Company’s disclosure controls and procedures were not effective as of June 30, 2021. Management plans to enhance its system of evaluating and implementing the accounting standards that apply to our financial statements, specifically as it relates to the tax impact of acquisitions that qualify as stock transactions for tax purposes, including enhanced training of our personnel and an assessment of our non-audit third-party professionals with whom we consult regarding application of accounting guidance related to the tax impact of stock transactions. For a discussion of management’s consideration of our disclosure controls and procedures, internal controls over financial reporting, and the material weakness identified, see Part I, Item 4, “Controls and Procedures” of this Form 10-Q/A.
TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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43
PART I – FINANCIAL INFORMATION
Item 1. RESTATED FINANCIAL STATEMENTS
The restated consolidated financial statements and supplementary data, including the notes to the restated condensed consolidated financial statements, set forth in this Item 1, have been revised to reflect the restatement occurring subsequent to the filing of the original Form 10-Q.
INOTIV, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As Restated, See Note 2
(In thousands, except share amounts)
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| June 30, |
| September 30, |
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| | 2021 | | 2020 | | ||
| | (Unaudited) | | | | | |
Assets |
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Current assets: |
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Cash and cash equivalents | | $ | 24,660 | | $ | 1,406 | |
Accounts receivable | |
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Trade, net of allowance of $513 at June 30, 2021 and $561 at September 30, 2020 | |
| 15,487 | |
| 8,681 | |
Unbilled revenues and other | |
| 4,472 | |
| 2,142 | |
Inventories, net | |
| 977 | |
| 700 | |
Prepaid expenses | |
| 2,466 | |
| 2,371 | |
Total current assets | |
| 48,062 | |
| 15,300 | |
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Property and equipment, net | |
| 44,678 | |
| 28,729 | |
Operating lease right-of-use assets, net | | | 8,695 | | | 4,001 | |
Finance lease right-of-use assets, net | | | 66 | | | 4,778 | |
Goodwill | |
| 50,617 | |
| 4,368 | |
Other intangible assets, net | |
| 24,336 | |
| 4,261 | |
Lease rent receivable | |
| 106 | |
| 75 | |
Other assets | |
| 180 | |
| 81 | |
Total assets | | $ | 176,740 | | $ | 61,593 | |
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Liabilities and shareholders’ equity | | | | |
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Current liabilities: | | | | |
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Accounts payable | | $ | 4,724 | | $ | 3,196 | |
Restructuring liability | |
| 0 | |
| 168 | |
Accrued expenses | |
| 4,741 | |
| 2,688 | |
Customer advances | |
| 19,969 | |
| 11,392 | |
Capex line of credit | | | 931 | | | 2,613 | |
Current portion on long-term operating lease | |
| 1,916 | |
| 866 | |
Current portion of long-term finance lease | |
| 29 | |
| 4,728 | |
Current portion of long-term debt | | | 14,752 | | | 5,991 | |
Total current liabilities | |
| 47,062 | |
| 31,642 | |
Long-term operating leases, net | | | 6,884 | | | 3,344 | |
Long-term finance leases, net | | | 39 | | | 44 | |
Long-term debt, less current portion, net of debt issuance costs | |
| 28,700 | |
| 18,826 | |
Deferred tax liabilities, net | | | 294 | | | 141 | |
Total liabilities | |
| 82,979 | |
| 53,997 | |
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Shareholders’ equity: | |
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Preferred shares, authorized 1,000,000 shares, 0 par value: | |
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NaN Series A shares at June 30, 2021 and 25 shares at September 30, 2020 issued and outstanding at $1,000 stated value | |
| 0 | |
| 25 | |
Common shares, 0 par value: | |
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Authorized 19,000,000 shares; 15,866,655 issued and outstanding at June 30, 2021 and 10,977,675 at September 30, 2020 | |
| 3,928 | |
| 2,706 | |
Additional paid-in capital | |
| 110,230 | |
| 26,775 | |
Accumulated deficit | |
| (20,397) | |
| (21,910) | |
Total shareholders’ equity | |
| 93,761 | |
| 7,596 | |
Total liabilities and shareholders’ equity | | $ | 176,740 | | $ | 61,593 | |
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| March 31, |
| September 30, |
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| | 2022 | | 2021 | | ||
| | (Unaudited) | | | | | |
Assets |
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Current assets: |
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Cash and cash equivalents | | $ | 47,042 | | $ | 138,924 | |
Restricted cash | |
| 427 | |
| 18,000 | |
Trade receivables and contract assets, net of allowances for doubtful accounts of $4,698 and $668, respectively | |
| 86,456 | |
| 28,364 | |
Inventories, net | |
| 56,775 | |
| 602 | |
Prepaid expenses and other current assets | |
| 34,883 | |
| 3,129 | |
Total current assets | |
| 225,583 | |
| 189,019 | |
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Property and equipment, net | |
| 153,179 | |
| 47,978 | |
Operating lease right-of-use assets, net | | | 23,795 | | | 8,358 | |
Goodwill | |
| 456,631 | |
| 51,927 | |
Other intangible assets, net | |
| 274,387 | |
| 24,233 | |
Other assets | |
| 5,846 | |
| 341 | |
Total assets | | $ | 1,139,421 | | $ | 321,856 | |
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Liabilities, shareholders' equity and noncontrolling interest | | | | |
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Current liabilities: | | | | |
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Accounts payable | | $ | 30,805 | | $ | 6,163 | |
Accrued expenses and other liabilities | |
| 20,690 | |
| 8,968 | |
Capex line of credit | | | — | | | 1,749 | |
Fees invoiced in advance | | | 70,238 | | | 26,614 | |
Current portion on long-term operating lease | |
| 5,356 | |
| 1,959 | |
Current portion of long-term debt | | | 5,339 | | | 9,656 | |
Total current liabilities | |
| 132,428 | |
| 55,109 | |
Long-term operating leases, net | | | 18,613 | | | 6,554 | |
Long-term debt, less current portion, net of debt issuance costs | |
| 332,274 | |
| 154,209 | |
Other liabilities | | | 1,913 | | | 512 | |
Deferred tax liabilities, net | | | 36,783 | | | 344 | |
Total liabilities | |
| 522,011 | |
| 216,728 | |
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Contingencies (Note 14) | | | | | | | |
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Shareholders’ equity and noncontrolling interest: | |
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Preferred shares, authorized 1,000,000 shares, 0 par value: | |
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Common shares, 0 par value: | |
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Authorized 74,000,000 shares; 25,495,701 issued and outstanding at March 31, 2022 and 15,931,485 at September 30, 2021 | |
| 6,336 | |
| 3,945 | |
Additional paid-in capital | |
| 713,034 | |
| 112,198 | |
Accumulated deficit | |
| (101,090) | |
| (11,015) | |
Accumulated other comprehensive loss | | | (628) | | | — | |
Total equity attributable to common shareholders | | | 617,652 | | | 105,128 | |
Noncontrolling interest | | | (242) | | | — | |
Total shareholders’ equity and noncontrolling interest | |
| 617,410 | |
| 105,128 | |
Total liabilities and shareholders’ equity and noncontrolling interest | | $ | 1,139,421 | | $ | 321,856 | |
The accompanying notes are an integral part of the condensed consolidated financial statements
54
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
As Restated, See Note 2
(In thousands, except per share amounts)
(Unaudited)
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| | Three Months Ended | | Nine Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
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| 2021 |
| 2020 |
| 2021 |
| 2020 |
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Service revenue | | $ | 21,924 | | $ | 14,852 | | $ | 56,858 | | $ | 42,185 | |
Product revenue | |
| 968 | |
| 913 | |
| 2,671 | |
| 2,510 | |
Total revenue | |
| 22,892 | |
| 15,765 | |
| 59,529 | |
| 44,695 | |
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Cost of service revenue | |
| 14,701 | |
| 10,113 | |
| 38,204 | |
| 29,119 | |
Cost of product revenue | |
| 545 | |
| 588 | |
| 1,477 | |
| 1,730 | |
Total cost of revenue | |
| 15,246 | |
| 10,701 | |
| 39,681 | |
| 30,849 | |
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Gross profit | |
| 7,646 | |
| 5,064 | |
| 19,848 | |
| 13,846 | |
Operating expenses: | |
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Selling | |
| 950 | |
| 692 | |
| 2,343 | |
| 2,672 | |
Research and development | |
| 107 | |
| 105 | |
| 290 | |
| 429 | |
Start up costs | | | 479 | | | 120 | | | 841 | | | 232 | |
General and administrative | |
| 7,813 | |
| 4,624 | |
| 18,584 | |
| 12,205 | |
Total operating expenses | |
| 9,349 | |
| 5,541 | |
| 22,058 | |
| 15,538 | |
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Operating loss | |
| (1,703) | |
| (477) | |
| (2,210) | |
| (1,692) | |
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Interest expense | |
| (449) | |
| (382) | |
| (1,163) | |
| (1,085) | |
Other income | |
| 1 | |
| 1 | |
| 180 | |
| 13 | |
Net income (loss) before income taxes | |
| (2,151) | |
| (858) | |
| (3,193) | |
| (2,764) | |
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Income tax expense (benefit) | |
| (4,753) | |
| 21 | |
| (4,706) | |
| 129 | |
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Net income (loss) | | $ | 2,602 | | $ | (879) | | $ | 1,513 | | $ | (2,893) | |
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Basic net income (loss) per share | | $ | 0.18 | | $ | (0.08) | | $ | 0.12 | | $ | (0.27) | |
Diluted net income (loss) per share | | $ | 0.17 | | $ | (0.08) | | $ | 0.12 | | $ | (0.27) | |
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Weighted common shares outstanding: | |
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Basic | |
| 14,656 | |
| 10,910 | |
| 12,274 | |
| 10,807 | |
Diluted | |
| 15,383 | |
| 10,910 | |
| 12,948 | |
| 10,807 | |
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| | Three Months Ended | | Six Months Ended | | ||||||||
| | March 31, | | March 31, | | ||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 |
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Service revenue | | $ | 49,584 | | $ | 17,902 | | $ | 87,760 | | $ | 34,934 | |
Product revenue | |
| 90,729 | |
| 849 | |
| 136,764 | |
| 1,702 | |
Total revenue | | $ | 140,313 | |
| 18,751 | | $ | 224,524 | | $ | 36,636 | |
Costs and expenses: | |
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Cost of services provided | | | 33,305 | | | 11,905 | | | 57,514 | | | 23,502 | |
Cost of products sold | | | 62,282 | | | 522 | | | 102,959 | | | 933 | |
Selling | |
| 4,647 | |
| 880 | |
| 7,385 | |
| 1,505 | |
General and administrative | | | 21,347 | | | 5,610 | | | 34,599 | | | 10,492 | |
Amortization of intangible assets | | | 6,414 | | | 152 | | | 9,810 | | | 312 | |
Other operating expense | | | 4,450 | | | 203 | | | 38,030 | | | 399 | |
Operating income (loss) | | $ | 7,868 | | $ | (521) | | $ | (25,773) | | $ | (507) | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense | |
| (7,547) | |
| (366) | |
| (12,375) | |
| (713) | |
Other (expense) income | |
| (139) | |
| 179 | |
| (57,866) | |
| 179 | |
Income (loss) before income taxes | | $ | 182 | | $ | (708) | | $ | (96,014) | | $ | (1,041) | |
Income tax (expense) benefit | |
| (6,846) | |
| (15) | |
| 5,939 | |
| (48) | |
Consolidated net (loss) | | $ | (6,664) | | $ | (723) | | $ | (90,075) | | $ | (1,089) | |
Less: Net income (expense) attributable to noncontrolling interests | | | (577) | | | — | | | (941) | | | — | |
Net (loss) attributable to common shareholders | | $ | (6,087) | | $ | (723) | | $ | (89,134) | | $ | (1,089) | |
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(Loss) per common share | | | | | | | | | | | | | |
Net (loss) attributable to common shareholders: | | | | | | | | | | | | | |
Basic and diluted | | $ | (0.24) | | $ | (0.06) | | $ | (3.84) | | $ | (0.10) | |
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Weighted-average number of common shares outstanding: | |
| | | | | | | | | | | |
Basic and diluted | |
| 25,315 | |
| 11,151 | |
| 23,197 | |
| 11,083 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
65
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
As Restated, See Note 2COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands, except number of shares)thousands)
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| | Nine Month Period Ended June 30, 2021 | |||||||||||||||||
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| Additional |
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| Total | ||
| | Preferred Shares | | Common Shares | | paid-in | | Accumulated | | shareholders’ | |||||||||
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| 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 |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (366) | |
| (366) |
Stock option exercises | | 0 | | | 0 | | 23,350 | | | 6 | | | 39 | | | 0 | | | 45 |
Stock based compensation | | 0 | | | 0 | | 116,974 | | | 29 | | | 152 | | | 0 | | | 181 |
Balance at December 31, 2020 | | 25 | | $ | 25 | | 11,117,999 | | $ | 2,741 | | $ | 26,966 | | $ | (22,276) | | $ | 7,456 |
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Net loss | | 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (723) | |
| (723) |
Stock based compensation | | 0 | | | 0 | | 12,502 | | | 3 | | | 275 | | | 0 | | | 278 |
Stock option exercises | | 0 | | | 0 | | 36,040 | | | 9 | | | 56 | | | 0 | | | 65 |
Preferred stock conversion | | (25) | | | (25) | | 12,500 | | | 3 | | | 22 | | | 0 | | | 0 |
Balance March 31, 2021 | | 0 | | $ | 0 | | 11,179,041 | | $ | 2,756 | | $ | 27,319 | | | (22,999) | | $ | 7,076 |
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Net income | | 0 | | | 0 | | 0 | | | 0 | | | 0 | | | 2,602 | | | 2,602 |
Stock based compensation |
| 0 | |
| 0 |
| 15,352 | |
| 4 | |
| 577 | |
| 0 | |
| 581 |
Stock option exercises |
| 0 | |
| 0 |
| 39,910 | |
| 10 | |
| 68 | |
| 0 | |
| 78 |
Stock issued in acquisition | | 0 | | | 0 | | 1,588,235 | | | 397 | | | 34,055 | | | 0 | | | 34,452 |
Equity raise |
| 0 | |
| 0 |
| 3,044,117 | |
| 761 | |
| 48,211 | |
| 0 | |
| 48,972 |
Balance at June 30, 2021 |
| 0 | | $ | 0 |
| 15,866,655 | | $ | 3,928 | | $ | 110,230 | | | (20,397) | | $ | 93,761 |
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| | Three Months Ended | | Six Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Consolidated net (loss) | | $ | (6,664) | | $ | (723) | | $ | (90,075) | | $ | (1,089) |
Foreign currency translation | |
| (1,114) | |
| — | |
| (867) | |
| — |
Defined benefit plans: | | | | | | | | | | | | |
Amortization of periodic benefit costs | | | 340 | | | — | | | 230 | | | — |
Other comprehensive (loss) income, net of tax | | | (774) | | | — | | | (637) | | | — |
Consolidated comprehensive (loss) | | | (7,438) | | | (723) | | | (90,712) | | | (1,089) |
Less: Comprehensive (loss) attributable to non-controlling interests | |
| (577) | |
| — | |
| (941) | | | — |
Comprehensive (loss) attributable to common stockholders | | $ | (6,861) | | $ | (723) | | $ | (89,771) | | $ | (1,089) |
| | | | | | | | | | | | | | | | | | | |
| | Nine Month Period Ended June 30, 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 |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (128) | |
| (128) |
| | | | | | | | | | | | | | | | | | | |
Net loss | | 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (1,426) | |
| (1,426) |
Stock issued in acquisition | | — | | | — | | 240,000 | | | 60 | | | 1,073 | | | 0 | | | 1,133 |
Stock based compensation | | 0 | | | 0 | | 54,363 | | | 14 | | | 67 | | | 0 | | | 81 |
Balance at December 31, 2019 | | 35 | | $ | 35 | | 10,805,057 | | $ | 2,663 | | $ | 26,323 | | $ | (18,651) | | $ | 10,370 |
| | | | | | | | | | | | | | | | | | | |
Net loss | | — | |
| — |
| 0 | |
| 0 | |
| 0 | |
| (588) | |
| (588) |
Stock based compensation | | — | | | — | | 26,521 | | | 7 | | | 116 | | | 0 | | | 123 |
Stock option exercises | | — | | | — | | 32,703 | | | 8 | | | 12 | | | 0 | | | 20 |
Balance at March 31, 2020 | | 35 | | $ | 35 | | 10,864,281 | | $ | 2,678 | | $ | 26,451 | | $ | (19,239) | | $ | 9,925 |
| | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | 0 | | | 0 | | | 0 | | | (879) | | | (879) |
Preferred stock conversion | | — | | | (10) | | 5,000 | | | 1 | | | 9 | | | 0 | | | 0 |
Stock based compensation | | — | | | — | | 40,000 | | | 11 | | | 166 | | | 0 | | | 176 |
Stock option exercises |
| — | |
| — | | 54,394 | |
| 13 | |
| (8) | |
| 0 | |
| 5 |
Balance at June 30, 2020 |
| 35 | | $ | 25 | | 10,963,675 | | $ | 2,703 | | $ | 26,617 | | $ | (20,118) | | $ | 9,227 |
The accompanying notes are an integral part of the consolidated financial statements.
76
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
As Restated, See Note 2(UNAUDITED)
(In thousands)
(Unaudited)thousands, except number of shares)
| | | | | | | |
| | Nine Months Ended | | ||||
| | June 30, | | ||||
|
| 2021 |
| 2020 |
| ||
Operating activities: |
| |
|
| |
|
|
Net income (loss) | | $ | 1,513 | | $ | (2,893) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquisitions: | |
| | |
| | |
Depreciation and amortization | |
| 4,087 | |
| 2,747 | |
Employee stock compensation expense | |
| 1,040 | |
| 380 | |
Changes in deferred taxes | | | (4,867) | | | — | |
Provision for doubtful accounts | | | 50 | | | (131) | |
Other non-cash operating activities | | | 7 | | | 3 | |
Financing lease interest expense | |
| 183 | |
| 200 | |
Changes in operating assets and liabilities: | |
|
| |
|
| |
Accounts receivable | |
| (4,010) | |
| (701) | |
Inventories | |
| (277) | |
| (395) | |
Income tax accruals | |
| — | |
| 154 | |
Accounts payable | |
| 1,306 | |
| (2,040) | |
Accrued expenses | |
| 1,594 | |
| 327 | |
Customer advances | |
| 7,451 | |
| 4,063 | |
Other asset and liabilities, net | | | (28) | | | (128) | |
Net cash provided by operating activities | |
| 8,049 | |
| 1,586 | |
| |
|
| |
|
| |
Investing activities: | |
|
| |
|
| |
Capital expenditures | | | (8,358) | | | (5,094) | |
Proceeds from sale of equipment | | | 2 | | | — | |
Cash paid in acquisitions | |
| (40,698) | |
| (4,000) | |
Net cash used in investing activities | |
| (49,054) | |
| (9,094) | |
| |
|
| |
|
| |
Financing activities: | |
|
| |
|
| |
Payments on finance lease liability | | | (277) | | | (330) | |
Payments of long-term borrowings | | | (2,620) | | | (1,157) | |
Payments of debt issuance costs | |
| (409) | |
| (111) | |
Payments on revolving line of credit | |
| — | |
| (25,326) | |
Borrowings on revolving line of credit | |
| — | |
| 24,263 | |
Borrowings on construction loans | | | — | | | 1,286 | |
Borrowings on capex lines of credit | | | 1,318 | | | 2,423 | |
Borrowings on long-term loan | | | 17,087 | | | 8,777 | |
Proceeds from exercise of stock options | | | 188 | | | 25 | |
Proceeds from issuance of common stock, net | | | 48,972 | | | — | |
Net cash provided by financing activities | |
| 64,259 | |
| 9,850 | |
| |
| | |
|
| |
Net increase in cash and cash equivalents | |
| 23,254 | |
| 2,342 | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 1,406 | |
| 606 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 24,660 | | $ | 2,948 | |
| |
| | |
| | |
Supplemental disclosure of cash flow information: | |
| | |
| | |
Cash paid for interest | | $ | 832 | | $ | 771 | |
Preclinical Research Services acquisition: | | | | | | | |
Assets acquired | | $ | — | | $ | 6,442 | |
Liabilities assumed | | | — | | | (1,378) | |
Common shares issued | | | — | | | (1,133) | |
Cash paid | | $ | — | | $ | 3,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Six Month Periods Ended March 31, 2022 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | 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 (loss) income |
| 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 |
Consolidated net (loss) income | | 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| (6,664) | | | — | | — | 577 | |
| (6,087) |
Stock issued in acquisitions | | 0 | |
| 0 |
| 1,106,457 | |
| 276 | |
| 32,599 | |
| 0 | |
| — | |
| — | |
| 32,875 |
Non-controlling interest related to Envigo acquisition | | 0 | |
| 0 | | 0 | |
| 0 | | | 0 | |
| 0 | | | — | | | (191) | | | (191) |
Issuance of stock under employee stock plans | | 0 | | | 0 | | 40,650 | | | 10 | | | 36 | | | 0 | | | — | | | — | | | 46 |
Stock based compensation | | 0 | | | 0 | | 0 | | | 0 | | | 1,138 | | | 0 | | | — | | | — | | | 1,138 |
Pension cost amortization | | 0 | | | 0 | | 0 | |
| 0 | | | 0 | | | 0 | | | 340 | | | — | | | 340 |
Foreign currency translation adjustment | | 0 | | | 0 | | 0 | | | 0 | | | 0 | | | 0 | | | (1,105) | | | (9) | | | (1,114) |
Balance March 31, 2022 | | 0 | | $ | 0 | | 25,495,701 | | $ | 6,336 | | $ | 713,034 | | | (101,090) | | $ | (628) | | $ | (242) | | $ | 617,410 |
7
INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
(UNAUDITED)
(In thousands, except number of shares)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Six Month Periods Ended March 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, 2020 |
| 25 | | $ | 25 |
| 10,977,675 | | $ | 2,706 | | $ | 26,775 | | $ | (21,910) | | $ | — | | $ | — | | $ | 7,596 |
Consolidated net (loss) income | | 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 |
Consolidated net (loss) income | | — | |
| — |
| 0 | |
| 0 | |
| 0 | |
| (723) | | | — | | | — | |
| (723) |
Stock based compensation | | — | | | — | | 12,502 | | | 3 | | | 275 | | | 0 | | | — | | | — | | | 278 |
Stock option exercises | | — | | | — | | 36,040 | | | 9 | | | 56 | | | 0 | | | — | | | — | | | 65 |
Preferred stock conversion | | (25) | | | (25) | | 12,500 | | | 3 | | | 22 | | | 0 | | | — | | | — | | | 0 |
Balance at March 31, 2021 | | — | | $ | — | | 11,179,041 | | $ | 2,756 | | $ | 27,319 | | $ | (22,999) | | $ | — | | $ | — | | $ | 7,076 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
8
INOTIV, INC.
NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
(Amounts in thousands except per share data or as otherwise indicated)In thousands)
(Unaudited)
Throughout these notes to the restated condensed consolidated financial statements, all referenced amounts for the third quarter of fiscal 2021 reflect the balances and amounts on a restated basis.
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Inotiv, Inc. and its subsidiaries (“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, 2021, the Company filed Articles of Amendment to the Company’s Second Amended and Restated Articles of Incorporation, as amended, and amended its Second Amended and Restated Bylaws, as amended, to reflect a corporate name change from Bioanalytical Systems, Inc. to Inotiv, Inc.
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. In the opinion of management, the condensed consolidated financial statements for the three and nine months ended June 30, 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 June 30, 2021. The results of operations for the three and nine months ended June 30, 2021 may not be indicative of the results for the fiscal year ending September 30, 2021.
Certain reclassifications have been made to prior periods in the unaudited condensed consolidated and combined financial statements and accompanying notes to conform with current presentation.
Costs related to the development and initiation of new service offerings that are not revenue generating at this time are shown on a new line in the condensed consolidated statements of operations identified as Startup costs. These expenses include, but are not limited to, employee compensation expenses, travel expenses, relocation fees, and recruiting expenses. While certain of these costs are one-time in nature, there are certain costs (e.g. employee compensation expenses) that will be expected to recur once the new offerings are revenue generating at which time the related costs will be reclassified on the consolidated statements of operations. Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the filing of its Form 10-Q, the Company identified an error in its accounting for certain tax attributes related to the acquisition of Bolder BioPATH, Inc. in the Company's third fiscal quarter. The Company should have established a deferred tax liability with an offset to goodwill in connection with the accounting for the opening balance sheet of the acquisition as a result of book-to-tax differences primarily related to the customer relationship intangible and property and equipment identified in the Company’s June 30, 2021 quarterly financial statements. Subsequent to the establishment of the deferred tax liability as of the opening balance sheet, the Company should have reversed a portion of its (i.e. the acquiror) pre-existing valuation allowance and taken the income tax benefit through the statements of operations for the three and nine months ended June 30, 2021.
9
| | | | | | | |
| | Six Months Ended | | ||||
| | March 31, | | ||||
|
| 2022 |
| 2021 |
| ||
Operating activities: |
| |
|
| |
|
|
Consolidated net (loss) | | $ | (90,075) | | $ | (1,089) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquisitions: | |
| | |
| | |
Depreciation and amortization | |
| 15,866 | |
| 2,154 | |
Undistributed earnings of noncontrolling interest | | | 777 | | | — | |
Employee stock compensation expense | |
| 20,300 | |
| 460 | |
Changes in deferred taxes | | | (1,907) | | | — | |
Provision for doubtful accounts | | | 381 | | | 72 | |
Unrealized foreign currency loss | | | 60 | | | 9 | |
Amortization of debt issuance costs and original issue discount | | | 1,203 | | | — | |
Noncash interest and accretion expense | | | 2,512 | | | — | |
Loss on fair value remeasurement of embedded derivative | | | 56,714 | | | — | |
Other non-cash operating activities | | | — | | | 69 | |
Loss on debt extinguishment | | | 878 | | | — | |
Non-cash amortization of inventory fair value step-up | | | 6,277 | | | — | |
Gain on disposal of property and equipment | | | (235) | | | (1) | |
Financing lease interest expense | |
| 1 | |
| 137 | |
Changes in operating assets and liabilities: | |
| | |
| | |
Trade receivables and contract assets | |
| (8,926) | |
| (1,927) | |
Inventories | |
| (14,688) | |
| (172) | |
Prepaid expenses and other current assets | | | (10,149) | | | 178 | |
Operational lease right-of-use assets and liabilities, net | | | 1,457 | | | (31) | |
Accounts payable | |
| 5,222 | |
| 770 | |
Accrued expenses and other liabilities | |
| (11,510) | |
| 66 | |
Fees invoiced in advance | |
| 28,402 | |
| 3,831 | |
Other asset and liabilities, net | | | 1,467 | | | — | |
Net cash provided by operating activities | |
| 4,027 | |
| 4,526 | |
| |
|
| |
|
| |
Investing activities: | |
|
| |
|
| |
Capital expenditures | | | (15,202) | | | (2,427) | |
Proceeds from sale of equipment | | | 283 | | | 2 | |
Cash paid in acquisitions | |
| (288,702) | |
| — | |
Net cash used in investing activities | |
| (303,621) | |
| (2,425) | |
| |
|
| |
|
| |
Financing activities: | |
|
| |
|
| |
Payments on finance lease liability | | | — | | | (207) | |
Payments of long-term debt | | | (37,746) | | | (1,436) | |
Payments of debt issuance costs | | | (9,887) | | | (41) | |
Payments on promissory notes | |
| (763) | |
| — | |
Payments on capex lines of credit | | | (1,749) | | | (135) | |
Payments on revolving credit facility | |
| (10,000) | |
| | |
Payments on senior term notes | | | (513) | | | | |
Payments on delayed draw term loan | | | (88) | | | | |
Borrowings on revolving credit facility | |
| 10,000 | |
| | |
Borrowings on construction loans | | | 1,184 | | | — | |
Borrowings on capex lines of credit | | | — | | | 387 | |
Borrowings on delayed draw term loan | | | 35,000 | | | — | |
Proceeds from issuance of senior term notes | | | 205,000 | | | — | |
Proceeds from exercise of stock options | | | 93 | | | 111 | |
Net cash provided by (used in) financing activities | |
| 190,531 | |
| (1,321) | |
| |
| | |
|
| |
Effect of exchange rate changes on cash and cash equivalents | | | (392) | | | — | |
| | | | | | | |
Net (decrease) increase in cash and cash equivalents | |
| (109,455) | |
| 780 | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 156,924 | |
| 1,406 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 47,469 | | $ | 2,186 | |
| |
| | |
| | |
Noncash financing activity: | | | | | | | |
Seller financed acquisition | | $ | 6,325 | | | — | |
| | | | | | | |
Supplemental disclosure of cash flow information: | |
| | |
| | |
Cash paid for interest | | $ | 5,989 | | $ | 520 | |
Income taxes paid, net | | $ | 614 | | $ | — | |
| | | | | | | |
The following tables summarize the effectsaccompanying notes are an integral part of the restatement on the condensed consolidated balance sheet asfinancial statements.
9
INOTIV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share amounts, 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.
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.
As a result of the Envigo transaction, the Company’s business now includes breeding, importing and selling 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 some of the most widely used rodent research model strains, among other species. The Company maintains production and distribution facilities in the United States (“U.S.”), United Kingdom (“U.K.”), mainland Europe, and 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, 2021 and on2021. In the opinion of management, the condensed consolidated financial statements for the three and six months ended March 31, 2022 and 2021 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 March 31, 2022. The results of operations for the three and ninesix months ended JuneMarch 31, 2022 may not be indicative of the results for the fiscal year ending September 30, 2021.2022.
The acquisition of Envigo was transformational to the Company’s underlying business. As a result, certain reclassifications have been made 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.
| | | | | | | | | |
|
| |
| | |||||
| | As of June 30, 2021 (unaudited) | |||||||
|
| As Previously Reported |
| Restated Adjustment |
| As Restated | |||
Balance Sheet |
| |
|
| |
|
| |
|
Total current assets | | $ | 48,062 | | $ | — | | $ | 48,062 |
Property and equipment, net | | | 44,678 | | | — | | | 44,678 |
Goodwill | | | 45,750 | | | 4,867 | | | 50,617 |
Other noncurrent assets | | | 33,383 | | | — | | | 33,383 |
Total Assets | | $ | 171,873 | | $ | 4,867 | | $ | 176,740 |
| | | | | | | | | |
Liabilities and shareholders' equity | | | | | | | | | |
Total liabilities | | $ | 82,979 | | $ | — | | $ | 82,979 |
Common shares, 0 par value | |
| 3,928 | |
| — | |
| 3,928 |
Additional paid-in-capital | | | 110,230 | | | — | | | 110,230 |
Accumulated deficit | | $ | (25,264) | | $ | 4,867 | | $ | (20,397) |
Total Liabilities and shareholders' equity | | $ | 171,873 | | $ | 4,867 | | $ | 176,740 |
Consolidation
| | | | | | | | | |
| | Three Months Ended June 30, 2021 (unaudited) | |||||||
|
| As Previously Reported |
| Restated Adjustment |
| As Restated | |||
Total revenue | | $ | 22,892 | | $ | — | | $ | 22,892 |
Total cost of revenue | | | 15,246 | | | — | | | 15,246 |
Gross profit | | | 7,646 | | | — | | | 7,646 |
Total operating expenses | | | 9,349 | | | — | | | 9,349 |
Operating income (loss) | | | (1,703) | | | — | | | (1,703) |
Interest expense | | | (449) | | | — | | | (449) |
Other income (expense) | | | 1 | | | — | | | 1 |
Income tax expense (benefit) | | | 114 | | | (4,867) | | | (4,753) |
Net income (loss) | | $ | (2,265) | | $ | 4,867 | | $ | 2,602 |
| | | | | | | | | |
Basic net income (loss) per share | | $ | (0.15) | | | | | $ | 0.18 |
Diluted net income (loss) per share | | $ | (0.15) | | | | | $ | 0.17 |
| | | | | | | | | |
Basic weighted average shares outstanding | | | 14,656 | | | — | | | 14,656 |
Diluted weighted average shares outstanding | | | 14,656 | | | 727 | | | 15,383 |
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 materially impact our net assets or net income.
| | | | | | | | | |
| | Nine Months Ended June 30, 2021 (unaudited) | |||||||
|
| As Previously Reported |
| Restated Adjustment |
| As Restated | |||
Total revenue | | $ | 59,529 | | $ | — | | $ | 59,529 |
Total cost of revenue | | | 39,681 | | | — | | | 39,681 |
Gross profit | | | 19,848 | | | — | | | 19,848 |
Total operating expenses | | | 22,058 | | | — | | | 22,058 |
Operating income (loss) | | | (2,210) | | | — | | | (2,210) |
Interest expense | | | (1,163) | | | — | | | (1,163) |
Other income (expense) | | | 180 | | | — | | | 180 |
Income tax expense (benefit) | | | 161 | | | (4,867) | | | (4,706) |
Net income (loss) | | $ | (3,354) | | $ | 4,867 | | $ | 1,513 |
| | | | | | | | | |
Basic net income (loss) per share | | $ | (0.27) | | | | | $ | 0.12 |
Diluted net income (loss) per share | | $ | (0.27) | | | | | $ | 0.12 |
| | | | | | | | | |
Basic weighted average shares outstanding | | | 12,274 | | | — | | | 12,274 |
Diluted weighted average shares outstanding | | | 12,274 | | | 674 | | | 12,948 |
The Company accounts for noncontrolling 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.
10
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, the following 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 condensed consolidated balance sheets and recognizes gains, losses and prior service costs or credits that arise during the period that 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, using assumptions to anticipate future events. The valuation of assets acquired and liabilities assumed in the Envigo acquisition had not yet been finalized as of March 31, 2022. 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 condensed 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 period actuarial 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 condensed consolidated statements of operations, in Operating income. The Company records gains and losses from re-measuring intercompany loans within Other (expense) income in the condensed consolidated statements of operations.
The results of 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 (loss) and are recorded as a separate component of equity within accumulated other comprehensive income (loss) in the condensed consolidated financial statements.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables from customers in the biopharmaceutical, contract research, academic, and governmental sectors. The Company believes its exposure to credit risk is minimal, as the majority of the customers are predominantly well established and viable. Additionally, the Company maintains allowances for potential credit losses. The Company’s exposure to credit loss in the event that payment is not received for revenue recognized equals the outstanding trade receivables and contract assets less fees invoiced in advance.
During the three and six months ended March 31, 2022, 1 customer accounted for 31.4% and 27.4% of sales, respectively. During the three and six months ended March 31, 2021, no customer accounted for more than 10% of sales. During the the three and six months ended March 31, 2022 and 2021, no supplier accounted for more than 10% of purchases of goods and services.
11
3.2. 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,$49,000, after deducting the underwriting discount and estimated offering expenses.
Stock Based CompensationIncrease in Authorized Shares and Equity Plan Reserve
In March 2008,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 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. 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 3 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 at the average of the high and low sale prices of the Company’s common shareseffective 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(the “Equity Plan”) to increase the number of shares issuable under the amended and restated planavailable for awards thereunder by 7001,500,000 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 fromcertain limitations in 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. At June 30, 2021, 413March 31, 2022, 1,250,819 shares remained available for grants under the Equity Plan.
Stock Issued in Connection with Acquisitions
During the three and six months ended March 31, 2022, 1,106,457 and 9,480,595 common shares, respectively, 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, restricted stock and restricted stock units 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 believes 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 ninesix months ended June 30,March 31, 2022 and 2021, was $581$1,138 and $1,040,$25,070 and $279 and $460, respectively. StockOf the $25,070 stock compensation expense in the six-months ended March 31, 2022, $23,014 relates to post-combination expense recognized in connection with the Envigo transaction (see Note 10 – Business Combinations), which is inclusive of $4,772 of stock based compensation expensesettled in cash.
3. NET LOSS PER SHARE
The Company computes basic income (loss) per share using the weighted average number of common shares outstanding. The Company computes diluted earnings per share using the if-converted method for preferred shares and convertible debt, if any, and the treasury stock method for stock options and restricted stock units. Shares issuable upon exercise of 1,695,070 options and shares issuable upon vesting of 682,357 restricted stock units were not considered in computing diluted income (loss) per share for the three and ninesix months ended June 30, 2020 was $176March 31, 2022 because they were anti-dilutive. Additionally, there are 3,040,268 shares of common stock 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 and $380, respectively.six months ended March 31, 2022 because they were anti-dilutive. Shares issuable upon the exercise of 671 options and 7 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.
1112
The following table reconciles the computation of basic net loss per share to diluted net loss per share:
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Six Months Ended | | ||||||||
| | March 31, | | March 31, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Basic and diluted net (loss) per share: |
| |
|
| |
|
| |
|
| |
| |
Net loss applicable to common shareholders | | $ | (6,087) | | $ | (723) | | $ | (89,134) | | $ | (1,089) | |
Weighted average common shares outstanding (in thousands) | | | | | | | | | | | | | |
Basic and diluted | | | 25,315 | | | 11,151 | | | 23,197 | | | 11,083 | |
| | | | | | | | | | | | | |
Basic and diluted net loss per share | | $ | (0.24) | | $ | (0.06) | | $ | (3.84) | | $ | (0.10) | |
4. OTHER OPERATING EXPENSE
Other operating expense consisted of the following:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Acquisition costs | | $ | 1,802 | | $ | — | | $ | 9,779 | | $ | — |
Startup costs | | | 1,474 | | | 202 | | | 2,431 | | | 362 |
Remediation costs | | | 507 | | | — | | | 946 | | | — |
Integration costs | | | 283 | | | — | | | 1,114 | | | — |
Other costs | | | 384 | | | 1 | | | 746 | | | 37 |
Acquisition-related stock compensation costs | | | — | | | — | | | 23,014 | | | — |
| | $ | 4,450 | | $ | 203 | | $ | 38,030 | | $ | 399 |
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 DSA segment provides preclinical research services on a contract basis directly to biopharma and pharmaceutical companies 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. This segment also provides research products, such as liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions.
The Company’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 small research models and large research models and the production 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 well as bedding and environmental enrichment products, which enhance the welfare of research animals.
13
A summary of the Company’s stock option activity for the nine months ended June 30, 2021 is as follows (in thousands except for share prices):
| | | | | |
|
| |
| | |
| | | | Weighted- | |
| | | | Average | |
| | Options | | Exercise | |
| | (shares) | | Price | |
Outstanding - October 1, 2020 |
| 712 | | $ | 2.21 |
Granted |
| 295 | | $ | 21.72 |
Exercised |
| (99) | | $ | 1.89 |
Forfeited |
| (34) | | $ | 3.88 |
Expired | | (5) | | $ | 2.03 |
Outstanding - June 30, 2021 |
| 869 | | $ | 8.82 |
|
| | |
|
|
Exercisable at June 30, 2021 |
| 387 | | $ | 1.93 |
The weighted average estimated fair value of stock options granted for the nine months ended June 30, 2021 and June 30, 2020 were $13.41 and $3.08, respectively. The weighted-average assumptions used to compute the fair value of the options granted in the nine months ended June 30, 2021 were as follows:
|
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
|
As of June 30, 2021, total unrecognized compensation cost related to non-vested stock options was $3,914 and is expected to be recognized over a weighted-average service period of 2.7 years.
During the nine months ended June 30, 2021, the Company granted a total of 150 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 nine months ended June 30, 2021 is as follows:
| | | | | |
| | |
| Weighted- | |
| | | | Average | |
|
| Restricted | | Grant Date | |
| | Shares | | Fair Value | |
Outstanding – September 30, 2020 |
| 128 | | $ | 3.88 |
Granted |
| 150 | | | 10.50 |
Vested | | (10) | | | 1.28 |
Forfeited |
| (5) | | | 6.63 |
Outstanding – June 30, 2021 |
| 263 | | $ | 7.70 |
As of June 30, 2021, total unrecognized compensation cost related to non-vested restricted shares was $1,360 and is expected to be recognized over a weighted-average service period of 1.7 years.
4. INCOME (LOSS) PER SHARE (Restated)
The Company computes basic income (loss) per share using the weighted average number of common shares outstanding. 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 June 30, 2021, the Company only had dilutive potential common shares, which related to shares issuable upon exercise of options. Shares issuable upon exercise of 869 options were considered in computing diluted income per share for the three and nine months ended June 30, 2021. Shares issuable upon exercise of 751 options and 12 common shares issuable upon conversion of preferred shares were not considered in computing diluted income (loss) per share for the three and nine months ended June 30, 2020 because they were anti-dilutive.
12
The following table reconciles the computation of basic net income (loss) per share to diluted income (loss) per share:
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Basic and diluted net income (loss) per share: |
| |
|
| |
|
| |
|
| |
| |
Net income (loss) applicable to common shareholders | | $ | 2,602 | | $ | (879) | | $ | 1,513 | | $ | (2,893) | |
Weighted average common shares outstanding | | | | | | | | | | | | | |
Basic | | | 14,656 | | | 10,910 | | | 12,274 | | | 10,807 | |
Diluted | |
| 15,383 | |
| 10,910 | |
| 12,948 | |
| 10,807 | |
| | | | | | | | | | | | | |
Basic net income (loss) per share | | $ | 0.18 | | $ | (0.08) | | $ | 0.12 | | $ | (0.27) | |
Diluted net income (loss) per share | | $ | 0.17 | | $ | (0.08) | | $ | 0.12 | | $ | (0.27) | |
5. INVENTORIES
Inventories consisted of the following:
| | | | | | | |
| | June 30, | | September 30, | | ||
|
| 2021 |
| 2020 |
| ||
Raw materials | | $ | 507 | | $ | 577 | |
Work in progress | |
| 77 | |
| 70 | |
Finished goods | |
| 550 | |
| 230 | |
| | | 1,134 | | | 877 | |
Obsolescence reserve | |
| (157) | |
| (177) | |
| | $ | 977 | | $ | 700 | |
6. SEGMENT INFORMATION
The Company operates in 2 principal segments - research servicesDuring the three and research products. The Servicessix months ended March 31, 2022, the RMS segment provides researchreported intersegment revenue of $1,997 and development support on a contract basis directly to pharmaceutical companies. The Products segment provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. The accounting policies of these segments are the same as those described in the summary of significant accounting policies found in Note 2$2,317, respectively, to the Consolidated Financial Statements in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2020.DSA segment. The following table presents revenue and other financial information by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | June 30, | | June 30, | | | March 31, | | March 31, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
Revenue: |
| |
|
| |
|
| |
|
| |
|
| ||||||||||||
Service | | $ | 21,924 | | $ | 14,852 | | $ | 56,858 | | $ | 42,185 | | ||||||||||||
Product | |
| 968 | |
| 913 | |
| 2,671 | |
| 2,510 | | ||||||||||||
Revenue | | | | | | | | | | | | | |||||||||||||
DSA | | $ | 39,054 | | $ | 18,751 | | $ | 71,879 | | $ | 36,636 | |||||||||||||
RMS | |
| 101,259 | |
| — | |
| 152,645 | |
| — | |||||||||||||
| | $ | 140,313 | | $ | 18,751 | | $ | 224,524 | | $ | 36,636 | |||||||||||||
| | $ | 22,892 | | $ | 15,765 | | $ | 59,529 | | $ | 44,695 | | | | | | | | | | | | | |
Operating Income (Loss) | |
| | |
| | |
| | |
| | | | | | | | | | | | | | |
Service | | $ | 3,868 | | $ | 2,460 | | $ | 10,942 | | $ | 6,393 | | ||||||||||||
Product | |
| 61 | |
| 23 | |
| 202 | |
| (447) | | ||||||||||||
Corporate | |
| (5,632) | |
| (2,960) | |
| (13,354) | |
| (7,638) | | ||||||||||||
DSA | | $ | 3,752 | | $ | 3,769 | | $ | 9,794 | | $ | 7,046 | |||||||||||||
RMS | | | 22,562 | | | — | | | 22,642 | | | — | |||||||||||||
Unallocated Corporate | |
| (18,446) | |
| (4,290) | |
| (58,209) | |
| (7,553) | |||||||||||||
| | $ | (1,703) | | $ | (477) | | $ | (2,210) | | $ | (1,692) | | | $ | 7,868 | | $ | (521) | | $ | (25,773) | | $ | (507) |
| |
| | |
| | |
| | |
| | | | | | | | | | | | | | |
Interest expense | |
| (449) | |
| (382) | |
| (1,163) | |
| (1,085) | | | | (7,547) | | | (366) | | | (12,375) | | | (713) |
Other income | |
| 1 | |
| 1 | |
| 180 | |
| 13 | | ||||||||||||
Loss before income taxes | | $ | (2,151) | | $ | (858) | | $ | (3,193) | | $ | (2,764) | | ||||||||||||
Other (expense) income | | | (139) | | | 179 | | | (57,866) | | | 179 | |||||||||||||
Income (loss) before income taxes | | $ | 182 | | $ | (708) | | $ | (96,014) | | $ | (1,041) |
Total assets by reporting segment is as follows:
| | | | | | |
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
DSA | | $ | 262,010 | | $ | 321,856 |
RMS | | | 877,411 | | | — |
| | $ | 1,139,421 | | $ | 321,856 |
Revenue by geographic area is as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
United States | | $ | 117,890 | | $ | 18,751 | | $ | 190,335 | | $ | 36,636 |
Netherlands | | | 12,119 | | | — | | | 18,655 | | | — |
Other | | | 10,304 | | | — | | | 15,534 | | | — |
| | $ | 140,313 | | $ | 18,751 | | $ | 224,524 | | $ | 36,636 |
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7.6. INCOME TAXES (Restated)
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.
The difference between the enacted federal statutory rate of 21% and the Company’s effective tax rate of 147.39%6.2% for the ninesix months ended June 30, 2021 is dueMarch 31, 2022 was primarily related to changes in thea release of valuation allowance on its netdue to deferred tax assets,liabilities established as part of the acquisition of Envigo, as well as, the impact on tax expense of certain book to tax differences inon the basisdeductibility of indefinite-lived assets. The Company acquired deferred tax liabilities from Bolder BioPATH Inc., which requiredtransaction costs, loss on fair value remeasurement of the Company to release a portionembedded derivative component of its valuation allowance discretely to the quarter.convertible notes and other permanent items.
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
14
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 June 30, 2021 and September 30, 2020,As of March 31, 2022, the Company had 0 liability forCompany’s only uncertain income tax positions.position was derived from a business combination.
The Company recordswould record interest and penalties accrued in relation to the uncertain income tax positionsposition as a component of income tax expense. Any changes in the liability for the uncertain tax positionsposition 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 foreign 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 March 31, 2022, the Company has a FICA deferral of approximately $916 related to the coronavirus pandemic. Among other things,Envigo acquisition. Payment of the legislation provides tax relief for businesses. The Companydeferral 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. Baseddue on satisfaction of requirements under the CARES Act for forgiveness, the Company recorded a deferred tax asset for nondeductible expense relating to the PPP funds of $1,276 at September 30, 2020.December 31, 2022.
On December 27, 2020, the U.S. enacted the Consolidated Appropriations Act of 2021 was signed into law, clarifying that business expenses paid out of PPP forgivable loan funds may in fact be fully deducted for federal income(“CAA”) which extended and expanded certain tax purposes. Based on this clarification inrelief measures created by the bill, the Company reversed the $1,276 deferred tax asset related to PPP loan expenses, along with the corresponding valuation allowance for the same amount, as of December 31, 2020.CARES Act.
8.On March 11, 2021, the U.S. enacted the American Rescue Plan Act of 2021 (“ARPA”) which expands Section 162(m) to cover the next five most highly compensated employees for the taxable year, in addition to the “covered employees” effective for taxable years beginning after December 31, 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, certain of subsidiaries of the Company (the “Subsidiary Guarantors”), the lenders party thereto, and Jefferies Finance LLC, as administrative agent, entered into an Amended and Restateda Credit Agreement (the “Credit Agreement”“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 of one of the Company’s wholly owned subsidiaries with Bolder BioPATH, Inc. (“Bolder BioPATH”), respectively.. The Credit Agreement included 11provides for a term loans (the “Term Loans” ), an equipmentloan facility in the original principal amount of $165,000, a delayed draw term loan (the “Equipment 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 lineloan facility in the original principal amount of credit (the “Revolving Facility”).$15,000. In addition, the Credit Agreement provides for an aggregate combined increase of the revolving loan facility and the term loan facility of up to $35,000, which amount will be available to be drawn once the delayed draw term loan facility is no longer available. On May 26,November 5, 2021, the Company and FIB entered into an amendment toborrowed the Credit Agreement to, among other things, provide a newfull amount of the term loan facility, but did not borrow any amounts on the delayed draw term loan facility or the revolving loan facility.
The Company may elect to finance the acquisition and refurbishment of the Company’s St. Louis facility, which it had previously leased. The material terms ofborrow on each of the loan facilities at either an adjusted LIBOR rate of interest or an adjusted prime rate of interest. Adjusted LIBOR rate loans undershall accrue interest at an annual rate equal to the Credit Agreement, as amended, are described below.
Included inLIBOR rate plus a margin of between 6.00% and 6.50%, depending on the Credit Agreement is a requirement that the Company maintain certain financial covenants, including maintaining a senior funded debt to adjusted EBITDA ratioCompany’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The LIBOR rate must be a minimum of not greater than1.00%. The initial adjusted LIBOR rate of interest is the LIBOR rate plus 6.25%. Adjusted prime rate loans shall accrue interest at an annual rate equal to the prime rate plus a margin of between 5.00% and 5.50%, depending on the Company’s then 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 March 31, 2022.
The Company must pay (i) 5.25a fee based on a percentage per annum equal to 1.00 as0.50% on the average daily undrawn portion of the datecommitments 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 draw 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 loan facility on an annual basis in an amount equal to a percentage of its Excess Cash Flow (as defined in the Credit Agreement and asAgreement), which percentage will be determined by its then current Secured Leverage Ratio. Each 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, 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.
the loan facilities may be repaid at any time with premium or penalty.
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Also included inThe Company is required to maintain an initial Secured Leverage Ratio of not more than 4.25 to 1.00. The maximum permitted Secured Leverage Ratio shall reduce to 3.75 to 1.00 beginning with the Credit AgreementCompany’s fiscal quarter ending September 30, 2023 and to 3.00 to 1.00 beginning with the Company’s fiscal quarter ending March 31, 2025. The Company is a requirement that the Companyrequired to maintain a fixed charge coverage ratiominimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than (i) 1.20, which ratio shall be 1.00 to 1.00 commencing asduring the first year 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.
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 obligations of the Company under the Credit Agreement areand shall be 1.10 to 1.00 from and after the Credit Agreement’s first anniversary.
Each of the loan facilities is secured by all of the assets (other than certain excluded assets) of the Company and areeach of the Subsidiary Guarantors. Repayment of each of the loan facilities is guaranteed by each of its subsidiariesthe Subsidiary Guarantors.
Utilizing proceeds from the Credit Agreement on November 5, 2021, the Company repaid all indebtedness and secured byterminated the assets thereof.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.
First Amendment to Credit Agreement
On January 27, 2022, the Company, Subsidiary Guarantors, the lenders party thereto, and Jefferies Finance LLC, as administrative agent, entered into a First Amendment (the “Amendment”) to the existing Credit Agreement. The Amendment provides for, among other things, an increase to the existing term loan facility in the amount of $40,000 (the “Incremental Term Loans”) and a new delayed draw term loan facility in the original principal amount of $35,000, which amount is available to be drawn up to 24 months from the date of the Amendment (the “DDTL”). The Incremental Term Loans and any amounts borrowed under the DDTL are referred to herein as the “Additional Term Loans”. On January 27, 2022, the Company has also obtained a life insurance policy in anborrowed the full amount of the Incremental Term Loans, but did not less than $5,000 for its President and Chief Executive Officer and provided FIB an assignment of such life insurance policy as collateral.borrow any amounts under the DDTL.
(a) Terms of the Equipment Loan.
The Company may borrow under the Equipment Loan on or before April 30, 2022 in the aggregate principal amount of up to $3,000 (the “Equipment Loan Commitment”). The Equipment Loan Commitment will automatically terminate upon the earlier of (x) any funding of the maximum amount of the Equipment Loan Commitment and (y) 5:00 p.m., Indianapolis time, on April 30, 2022. Until April 30, 2022, the Company must pay interest on the amountAmounts outstanding under the Equipment Loan at a fixed annual rate of 4.00%. On April 30, 2022, all amounts outstanding under the Equipment Loan will be converted to a term loan and repaid monthly in installments of principal based on a five (5) year amortization schedule together with the interest thatAdditional Term Loans will accrue thereon. A final installment representing the entire unpaid principal of the Equipment Loan, and all accrued and unpaid interest thereon and all fees and charges in connection therewith, will be due and payable on April 30, 2027. Advances under the Equipment Loan will be used to fund equipment needs of the Company as approved by FIB.
(b) Terms of the Revolving Facility.
The Revolving Facility provides a line of credit for up to $5,000, 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 annuman annual rate equal to the greaterLIBOR rate plus a margin of (a) 4.00%between 6.00% and 6.50%, or (b)depending on the Prime IndexCompany’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The Company did not haveinitial adjusted LIBOR rate of interest is the LIBOR rate of 1.00% plus 6.25% for a total rate of 7.25%. Actual interest accrued at 7.25% through March 31, 2022.
The Additional Term Loans require annual principal payments in an outstanding balance onamount equal to 1.0% of the Revolving Facility asoriginal principal amount. Voluntary prepayments of June 30, 2021. Advances under the Revolving FacilityAdditional Term Loans will be used for general working capital purposessubject to a 2% prepayment premium if made on or prior to November 5, 2022 and a 1% prepayment premium if made on or prior to November 5, 2023. Voluntary prepayments made after November 5, 2023 are not subject to a prepayment premium.
Each of the Company.Additional Term Loans 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 Excess Cash Flow (as defined in the Credit Agreement), which percentage will be determined by its then current Secured Leverage Ratio.
The Additional Term Loans are secured by all assets (other than certain excluded assets) of the Company and each of the Subsidiary Guarantors. Repayment of the Additional Term Loans is guaranteed by each of the Subsidiary Guarantors.
The Additional Term Loans will mature on November 5, 2026.
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Long term debt as of March 31, 2022 and September 30, 2021 is detailed in the table below.
| | | | | | |
| | As of: | ||||
|
| March 31, 2022 |
| September 30, 2021 | ||
FIB Term Loans | | $ | — | | $ | 36,185 |
Seller Note – Bolder BioPath | |
| 940 | |
| 1,500 |
Seller Note – Smithers Avanza | |
| 70 | |
| 280 |
Seller Note – Preclinical Research Services | | | 650 | | | 685 |
Seller Note – Plato BioPharma | | | 2,571 | | | — |
Seller Payable - Orient BioResource Center | | | 3,325 | | | |
Economic Injury Disaster Loan | | | 140 | | | — |
Convertible Senior Notes | | | 102,324 | | | 131,673 |
Term Loan Facility and Incremental Term Loans | | | 239,400 | | | — |
| |
| 349,420 | |
| 170,323 |
Less: Current portion | |
| (5,339) | |
| (9,656) |
Less: Debt issue costs not amortized | |
| (11,807) | |
| (6,458) |
Total Long-term debt | | $ | 332,274 | | $ | 154,209 |
Acquisition-related Debt
In addition to the indebtedness under the Credit Agreement, certain of the Company’s subsidiaries have issued unsecured notes as partial payment of the purchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the indebtedness under the Credit Agreement.
As part of the acquisition of Plato BioPharma, Inc. (“Plato”) which is a part of the Company’s Inotiv Boulder subsidiary, Inotiv Boulder, LLC, issued unsecured subordinated promissory notes payable to the former shareholders of Plato in an aggregate principal amount of $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.
As part of the acquisition of Orient BioResource Center (“OBRC”), the Company agreed to leave in place a payable owed by OBRC to the seller in the amount of $3,700, which the Company determined to have a fair value of $3,325 as of January 27, 2022. The payable does not bear interest and is required to be paid to seller on the date that is 18 months after the closing date of January 27, 2022. The Company has the right to set off against the payable any amounts that become payable by the seller on account of indemnification obligations under the purchase agreement.
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”). The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among the Company, the Company’s wholly-owned subsidiary, BAS Evansville, Inc., as guarantor (the “Guarantor”), and U.S. Bank National Association, as trustee (the “Indenture”). 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.
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 the Guarantor.
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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. 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 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 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 its 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 Indenture or the Notes if such default is not cured 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 their 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 or until it meets equity classification requirements and is valued
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utilizing Level 3 inputs as described below. The discount resulting from the 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.
In the first quarter of 2022, the Company 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 shares 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 of the increase in authorized shares on November 4, 2021 (see Note 2 – Equity), the 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 upon the above, the Company remeasured the fair value of the embedded 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 six months ended March 31, 2022 of $56,714. The embedded derivative liability of $88,576 was then reclassified to additional paid-in capital in accordance with ASC 815.
In connection with the evaluation at November 4, 2021, the Company rechallenged its analysis of the initial allocation of value between the embedded derivative and debt component of the convertible debt included in long-term liabilities at September 30, 2021. This resulted in a change in the allocation of the underlying long-term debt from $76,716 to $99,776 and the allocation of the conversion 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 (loss) as of September 30, 2021.
Fair Value
The provisions of the fair value measurements and disclosure topic define fair value, establish a consistent framework for measuring fair value and provide the disclosure requirements about fair value measurements. This topic 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 Company. Unobservable inputs are inputs that reflect the Company’s judgment about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the inputs as follows:
● | Level 1 – Valuations based on quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
● | 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. |
Up until November 4, 2021, the embedded derivative conversion feature of the Notes was subject to fair value measurement on a recurring basis as they included 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 (the “FIB Amendment”), which amended the Amended and Restated Credit Agreement between the Company and FIB, as amended (the “FIB Credit Agreement”). Pursuant to the FIB 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 FIB Amendment amended the FIB Credit Agreement to (i) add the promissory notes to be issued to former Plato shareholders in the Plato acquisition as permitted indebtedness, which notes were issued by the surviving company, guaranteed by the Company and subordinated in favor of FIB, and (ii) add references to the Plato acquisition to
19
certain provisions of the FIB Credit Agreement relating to subordination agreements, representations and warranties, and certain covenants to permit the Plato acquisition to occur. The FIB Amendment included agreements by the Company to obtain certain landlord waivers within 30 days of the closing of the Plato acquisition and to deliver to FIB signed subordination agreements.
The Company consummated the Envigo acquisition and repaid all of its obligations under the FIB Credit Agreement in November 2021, as described in Note 10.
(c) Terms8. SUPPLEMENTAL BALANCE SHEET INFORMATION
Trade receivables and contract assets, net consisted of the Term Loans:following:
| | | | | | | | | | | | |
|
| Principal Amount |
| |
| |
| |
| | ||
| | as of date of Credit | | | | Monthly | | | | | ||
| | Agreement | | Annual | | Payment | | | | | ||
| | April 30, 2021 | | Interest | | Amount | | | | | ||
Loan Name | | (000) | | Rate | | (000) | | Maturity Date | | Use of Proceeds | ||
Term Loan 1 | | $ | 3,980 |
| 5.20 | % | $ | 36 | | March 28, 2025 |
| Funded expansion of building on real property in Mount Vernon, IN |
Term Loan 2 | | $ | 3,571 |
| 5.06 | % | $ | 78 | | July 2, 2023 |
| Funded a portion of the cash consideration for the Seventh Wave Laboratories acquisition |
Term Loan 3 | | $ | 1,076 |
| 5.20 | % | $ | 32 | | March 28, 2025 |
| Funded equipment needs associated with expansion of real property in Mount Vernon, IN |
Term Loan 4 | | $ | 1,001 |
| 4.63 | % | $ | 20 | | November 1, 2025 |
| Funded the cash consideration for the Smithers Avanza acquisition |
Term Loan 5 | | $ | 810 |
| 4.00 | % | $ | 17 | | June 30, 2025 |
| Funded certain capital expenditures |
Term Loan 6 | | $ | 2,865 |
| 4.25 | % | $ | 56 | | December 31, 2025 |
| Funded certain capital expenditures |
Term Loan 7 | | $ | 1,263 |
| 4.00 | % | $ | 28 | | June 1, 2025 |
| Financed aspects of the Pre-Clinical Research Services and related real property acquisitions |
Term Loan 8 | | $ | 1,853 |
| 4.00 | % | $ | 12 | | December 1, 2024 |
| Financed aspects of the Pre-Clinical Research Services and related real property acquisitions |
Term Loan 9 | | $ | 10,000 |
| 3.85 | % | $ | 184 (a) | | April 30, 2026 |
| Funded a portion of the cash consideration of the Bolder BioPATH merger |
Term Loan 10 | | $ | 5,000 |
| 3.85 | % | $ | 92 (a) | | April 30, 2026 |
| Funded a portion of the cash consideration of the HistoTox Labs acquisition |
Term Loan 11 | | $ | 3,622 |
| 3.99 | % | $ | 33 | | June 23, 2022 |
| Refinanced debt with The Huntington Bank for general business purposes |
Term Loan 12 | | $ | 4,832 (b) |
| 3.85 | % | $ | 10 (c) | | December 26, 2026 |
| Financed the acquisition of the St. Louis facility and associated expansion |
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Trade receivables | | $ | 78,461 | | $ | 22,838 |
Unbilled revenue | |
| 12,693 | |
| 6,194 |
Total | | | 91,154 | | | 29,032 |
Less: Allowance for doubtful accounts | |
| (4,698) | |
| (668) |
Trade receivables and contract assets, net of allowances for doubtful accounts | | $ | 86,456 | | $ | 28,364 |
(a) See Mandatory Prepayments information below.
(b) Principal amount as of May 26, 2021.
(c) The monthly payment amount increases to $29 on January 1, 2022.
(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 is required to prepay Term Loan 9 and Term Loan 10 on a pro rata basis on the following January 31st, in an amount equal to 50%Inventories, net consisted of the excess cash flowfollowing:
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Raw materials | | $ | 1,896 | | $ | 513 |
Work in progress | |
| 156 | |
| 37 |
Finished goods | |
| 4,976 | |
| 192 |
Research Model Inventory | | | 53,366 | | | — |
Total | | | 60,394 | | | 742 |
Less: Obsolescence reserve | |
| (3,619) | |
| (140) |
Inventories, net | | $ | 56,775 | | $ | 602 |
Prepaid expenses and other current assets consisted of the Company (as defined in the Credit Agreement) for such fiscal year (in each case, an “following:
Excess Cash Flow Payment”), provided that, for the fiscal year ending September 30, 2021, the Excess Cash Flow Payment, if any, will be calculated only for the period from April 30, 2021 through September 30, 2021. Excess Cash Flow will 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
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Advances to suppliers | | $ | 22,107 | | $ | — |
Income tax receivable | |
| 2,639 | |
| — |
Prepaid research models | | | 396 | | | 1,931 |
Other | | | 9,741 | | | 1,198 |
Prepaid expenses and other current assets | | $ | 34,883 | | $ | 3,129 |
The composition 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 Loanother assets is as specified under the Credit Agreement.follows:
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Long-term advances to suppliers | | $ | 1,644 | | $ | — |
Security deposits and guarantees | | | 860 | | | 51 |
Finance lease right-of-use assets, net | | | 57 | | | 60 |
Debt issuance costs | | | 2,660 | | | — |
Other | |
| 625 | |
| 230 |
Other assets | | $ | 5,846 | | $ | 341 |
Acquisition-related Debt
In addition to the indebtedness under the Credit Agreement, certain of the Company’s subsidiaries have issued unsecured notes as partial payment of the purchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the indebtedness under the Credit Agreement.
As part of the Smithers Avanza acquisition, the Company’s BASi Gaithersburg subsidiary issued an unsecured subordinated promissory note payable to the Smithers Avanza seller in the initial principal amount of $810, which is guaranteed by the Company. The promissory note bears interest at a rate of 6.5% per annum with monthly payments of principal and interest and a maturity date of May 1, 2022 and is guaranteed by the Company.
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As partAccrued expenses consisted of the PCRS Acquisition, the Company’s Bronco Research Services subsidiary issued an unsecured subordinated promissory note payable to the PCRS seller in the initial principal amount of $800. The promissory note bears interest at a rate of 4.5% per annum with monthly payments of principal and interest and a maturity date of December 1, 2024.
As part of the acquisition of Boulder BioPATH, the Company’s Inotiv Boulder subsidiary, Inotiv Boulder, LLC, issued unsecured subordinated promissory notes payable to the former shareholders of Boulder 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.
PPP Loanfollowing:
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Accrued compensation | | $ | 13,428 | | $ | 3,528 |
Non-income taxes | | | 2,227 | | | 18 |
Accrued interest | | | 3,095 | | | 169 |
Current portion of long-term finance lease | | | 23 | | | 24 |
Other | |
| 160 | |
| 167 |
Current portion of contingent liability | | | — | | | 175 |
Consideration payable | | | 1,757 | | | 4,887 |
Accrued expenses and other liabilities | | $ | 20,690 | | $ | 8,968 |
On April 23, 2020, the Company was granted a loan (the “PPP Loan”) from Huntington National Bank
The composition of fees invoiced in the aggregate amount of $5,051, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The terms of the PPP Loan call for repayment of the principal and accrued interest under the Loan in 18 installments of $283 beginning on November 16, 2020 and continuing monthly until the final paymentadvance is due on April 16, 2022. However, the bank is not requiring payments of principal or interest pending the loan forgiveness decision. The Company applied for forgiveness of the loan in the amount of $4,851, and on July 16, 2021, received notice from Huntington Bank that the SBA had approved the application for forgiveness of the PPP Loan in the full amount requested.as follows:
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Customer deposits | | $ | 31,726 | | $ | — |
Deferred revenue | | | 38,512 | | | 26,614 |
Fees invoiced in advance | | $ | 70,238 | | $ | 26,614 |
Long term debt as
Other liabilities consisted of June 30, 2021 and September 30, 2020 is detailed in the table below.following:
| | | | | | |
| | As of: | ||||
|
| June 30, 2021 |
| September 30, 2020 | ||
Term Loan #1 | | $ | 3,943 | | $ | 4,230 |
Term Loan #2 | |
| 3,446 | |
| 4,004 |
Term Loan #3 | | | 1,031 | | | 1,266 |
Term Loan #4 | | | 969 | | | 1,115 |
Term Loan #5 | | | 781 | | | 920 |
Term Loan #6 | | | 2,728 | | | 0 |
Term Loan #7 | |
| 1,216 | |
| 1,425 |
Term Loan #8 | | | 1,842 | | | 1,891 |
Term Loan #9 | | | 9,850 | | | 0 |
Term Loan #10 | | | 4,925 | | | 0 |
Term Loan #11 | | | 3,559 | | | 3,748 |
Term Loan #12 | | | 2,088 | | | 0 |
Subtotal Term Loans | | | 36,378 | | | 18,599 |
Seller Note – Bolder BioPath | |
| 1,500 | |
| 0 |
Seller Note – Smithers Avanza | |
| 385 | |
| 650 |
Seller Note – Preclinical Research Services | | | 702 | | | 752 |
Paycheck protection program loan | | | 5,051 | | | 5,051 |
| |
| 44,016 | |
| 25,052 |
Less: Current portion | |
| (14,752) | |
| (5,991) |
Less: Debt issue costs not amortized | |
| (564) | |
| (235) |
Total Long-term debt | | $ | 28,700 | | $ | 18,826 |
| | | | | | |
| | March 31, | | September 30, | ||
|
| 2022 |
| 2021 | ||
Long-term customer deposits | | $ | 871 | | $ | — |
Accrued pension liability | | | 286 | | | — |
Long-term finance leases | | | 37 | | | 39 |
Long-term portion of contingent liability | | | 473 | | | 473 |
Other | | | 246 | | | — |
Other liabilities | | $ | 1,913 | | $ | 512 |
9. ACCRUED EXPENSES
As part of a fiscal 2012 restructuring, the Company accrued for lease payments at the cease use date for its United Kingdom facility and have considered free rent, sublease rentals and the number of days it would take to restore the space to its original condition prior to improvements. Based on these matters, the Company had a $1,117 reserve for lease related costs and for legal and professional fees and other costs to remove improvements previously made to the facility. During the nine months ended June 30, 2021, the Company released all of the remaining reserve for lease related liabilities. At June 30, 2021 and September 30, 2020, respectively, the Company had $0 and $168 reserved for the remaining liability. The reserve was classified as a current liability on the condensed consolidated balance sheets as of September 30, 2020.
17
10. NEW ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issuedfirst quarter of 2022, the Company early adopted ASU 2016-13 “Financial Instruments (Topic 326) Measurement2020-06. The update simplifies the accounting for convertible debt instruments and convertible preferred shares by reducing the number of Credit Losses on Financial Instrument” “CECL”). ASU 2016-13 requires an allowanceaccounting 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 expected credit losses on financial assets to be recognized as early as day oneconvertible instruments and earnings per share. See Note 7 for discussion of the instrument. This ASU departs from the incurred loss model which means the probability threshold is removed. It considers more forward-looking information and requires the entity to estimate its credit losses as far as it can reasonably estimate. This update became effective for the Company on October 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
11.10. BUSINESS COMBINATIONS (Restated)
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 and non-controlling interests 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 the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill.
PCRS acquisitionHistoTox 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 testing for the pharmaceuticalstrategic support services and medical device industries. The total consideration 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 its credit arrangements with FIB. 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.
1821
Accountingproducts related to routine and specialized histology, immunohistology, histopathology and image analysis/digital pathology. Consideration for the TransactionHistoTox Labs acquisition consisted of $22,389 in cash, including $68 payable in net working capital adjustments.
Results are included inHistoTox Labs, Bolder BioPATH and Plato (discussed below) were combined into 1 business unit and recorded combined revenues of $8,150 and $17,483 for the Company’s results fromthree and six month periods ended March 31, 2022, respectively, and recorded combined net loss of $11 and combined net income of $1,565 for the acquisition date of December 1, 2019.three and six month periods ended March 31, 2022, respectively.
The Company’s allocationHistoTox Labs business is reported as part of our DSA reportable segment. The following table summarizes the $5,857 purchase price to PCRS Purchaser’s tangible and identifiable intangiblefair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | | |
| | Allocation as of | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| | |
Accounts receivable | | | 977 |
Unbilled revenues | | | 337 |
Operating lease ROU asset | | | 2,239 |
Property and equipment | |
| 3,929 |
Intangible assets | | | 8,300 |
Goodwill | | | 9,339 |
Accounts payable | | | (150) |
Accrued expenses | | | (136) |
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.
Intangible assets 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 eight years for customer relationships and five years for the non-compete agreement on a straight-line basis. The fair values of identifiable intangible assets were determined using the "income approach," which is a valuation technique that provides the fair value of an asset based on their estimated fair values asmarket participant expectations of December 1, 2019, is includedthe cash flows an asset would generate over its remaining useful life. Some of the significant assumptions inherent in the table below. 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.
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 June 30, 2021 is as follows:
| | | |
| | Allocation as of | |
| | June 30, 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 recorded revenues of $5,191 and net income of $117 for the nine month period ending June 30, 2021.
HistoTox Labs acquisitionBolder BioPATH Acquisition
Overview
On April 30,May 3, 2021, the Company completed the acquisition of HistoTox Labs, Inc. (“HistoTox Labs”)Bolder BioPATH in a cash transaction. HistoTox Labsmerger of Bolder BioPATH with a wholly owned subsidiary of the Company. Bolder BioPATH is a provider of services specializing in connection with non-clinical consulting, laboratoryin vivo models of rheumatoid arthritis, osteoarthritis, and strategic support servicesinflammatory bowel disease as well as other autoimmune and products related to routine and specialized histology, immunohistology, histopathology and image analysis/digital pathology.inflammation models. Consideration for the HistoTox Labs AcquisitionBolder BioPATH acquisition consisted of $22,321(i) $17,530 in cash. The purchase price is preliminary and subject tocash, including a net working capital adjustment of $970, which was settled through a reduction of the seller note of $470 and customaryreceipt of $500 cash, 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 Purchase Agreement.
We recognized transaction costs relatedmerger 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 acquisitionformer shareholders of HistoTox Labs of $449 and $560 for the three and nine months ended June 30, 2021. These costs were associated with legal and professional services related to the acquisition and are reflected within general and administrative expenses in our condensed consolidated statement of operations.
HistoTox Labs and Bolder BioPATH (discussed below) were combined into 1 business unit and recorded combined revenues of $4,251 and combined net income of $585 for the three and nine month periods ending June 30, 2021.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of June 30, 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.
1922
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.
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. 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 | | Allocation as of | ||
| | June 30, 2021 | | March 31, 2022 | ||
Assets acquired and liabilities assumed: |
| |
| |
| |
Receivables | | | 1,020 | |||
Prepaid expenses | | | 40 | |||
Operating lease ROU | | | 2,239 | |||
Accounts receivable | | | 2,146 | |||
Unbilled revenues | | | 1,798 | |||
Operating lease ROU asset | | | 2,750 | |||
Property and equipment | |
| 4,021 | |
| 6,523 |
Intangible assets | | | 8,500 | |||
Other Assets | | | 35 | |||
Intangible asset | | | 12,700 | |||
Other assets | | | 34 | |||
Goodwill | | | 9,386 | | | 36,206 |
Accounts payable | | | (128) | | | (153) |
Customer advances | | | (553) | |||
Accrued expenses | |
| (243) | |||
Deferred revenue | | | (662) | |||
Deferred tax liability | | | (4,867) | |||
Operating lease liability | |
| (2,239) | |
| (2,750) |
| | $ | 22,321 | | $ | 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 June 30, 2021 is based on preliminary assumptions which are subject to change as we complete our valuation procedures.
Intangible assets primarily relate to customer relationships and a non-compete agreement.relationships. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 8eight 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 June 30, 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 $10,804NaN is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s ServicesDSA reportable segment. Goodwill is reviewed for impairment at least annually and when certain impairment indicators are present. As of June 30, 2021, there were 0 goodwill impairment losses.
Bolder BioPATH acquisitionGateway Acquisition
Overview
On May 3,August 2, 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,Gateway Pharmacology Laboratories LLC (“Gateway Laboratories”) to further expand its drug metabolism and inflammatory bowel diseasepharmacokinetics technology and capability as well as other autoimmuneexpand service offerings to include in vitro solutions in pharmacology and inflammation models.toxicology early in drug discovery. Consideration for the Bolder BioPATHGateway Laboratories acquisition consisted of (i) $18,500$1,671 in cash, including working capital and subject to customary purchase price adjustments, 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) 1,58845,323 of the Company’s common shares valued at $34,452$1,182 using the closing price of the Company’s common shares on May 3, 2021 and (iii) seller notes in an aggregate principal amountAugust 2, 2021. This business is reported as part of $1,500.our DSA reportable segment.
2023
We recognized transaction costsIn 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 acquisition of Bolder BioPATH of $450customer relationship intangible and $568 for the threeproperty and nine months ended June 30, 2021. These costs were associated with legal and professional services related to the acquisition and are reflected within general and administrative expenses in our condensed consolidated statement of operations.equipment.
The valuation of assets acquired and liabilities assumed hashad not yet been finalized as of June 30, 2021.March 31, 2022. 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 no0 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 | | Preliminary | ||
| | Allocation as of | | Allocation as of | ||
| | June 30, 2021 | | March 31, 2022 | ||
Assets acquired and liabilities assumed: |
| |
|
| |
|
Cash and cash equivalents | | $ | 124 | |||
Receivables | | | 2,278 | |||
Unbilled receivables | | | 1,867 | |||
Prepaid expenses | |
| 103 | |||
Operating lease ROU | | | 2,750 | |||
Accounts receivable | | | 422 | |||
Operating lease ROU asset | | | 120 | |||
Property and equipment | |
| 6,609 | |
| 359 |
Intangible assets | | | 12,500 | |||
Intangible asset | | | 100 | |||
Other assets | | | 70 | | | 9 |
Goodwill | | | 36,863 | |
| 2,207 |
Accounts payable | | | (93) | | | (54) |
Accrued expenses | |
| (279) | | | (72) |
Deferred revenue | | | (723) | |||
Deferred tax liability | | | (4,867) | | | (118) |
Operating lease liability | |
| (2,750) | |
| (120) |
| | $ | 54,452 | | $ | 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 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.
The valuation of assets acquired and liabilities assumed had not yet been finalized as of March 31, 2022. 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.
24
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| |
|
Property and equipment | | | 175 |
Intangible asset | |
| 640 |
| | $ | 815 |
As of March 31, 2022, the Company had approximately $632 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 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 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.
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 Plato 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 had not yet been finalized as of March 31, 2022. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, intangible assets, income taxes, goodwill and 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 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 | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| |
|
Cash | | | 1,027 |
Accounts receivable | | | 860 |
Property and equipment | | | 1,148 |
Operating lease ROU asset | | | 2,582 |
Intangible asset | | | 5,100 |
Goodwill | | | 8,880 |
Operating lease liability | | | (2,566) |
Other liabilities, net | | | (242) |
Deferred tax liability | |
| (1,551) |
| | $ | 15,238 |
Property and equipment is mostly composed of equipment (including lab equipment, furniture and fixtures, and computer equipment).equipment. The fair value of property and equipment was determined using a combinationto approximate net book value at the time of costthe acquisition based on the information
25
currently available and market-based methodologies. Thepending finalization of our fair value of intangible assets as of June 30, 2021assessment, which 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 8eight years for customer relationships on a straight-line basis. The fair values of identifiable intangible assets were determined using the "income approach," which is a valuation technique that provides 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.
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. Goodwill from this transaction is allocated to the Company’s 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 Plato acquisition as a result of book-to-tax differences primarily related to the intangible assets.
Envigo RMS Holding Corp Acquisition
Overview
On November 5, 2021, the Company completed the acquisition of 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 $217,808, 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 to 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 $454 and $8,945 for the three and six months ended March 31, 2022. These costs were associated with legal and professional services related to the acquisition and are reflected within other operating expenses in the Company’s condensed consolidated statements of operations.
The valuation of assets acquired and liabilities assumed had not yet been finalized as of March 31, 2022. 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 could result in a change in the amounts recorded for the acquisition date fair value. This business is reported as part of the Company’s RMS reportable segment.
26
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| |
|
Cash | | | 3,091 |
Restricted cash | | | 435 |
Trade receivables and contract assets | | | 44,240 |
Inventory | | | 39,138 |
Prepaid expenses and other current assets | | | 18,960 |
Operating lease ROU assets, net | | | 7,570 |
Property and equipment | | | 83,608 |
Other assets | | | 7,676 |
Intangible asset | | | 201,000 |
Goodwill | | | 356,947 |
Accounts payable | | | (17,298) |
Fees invoiced in advance | | | (7,040) |
Current portion of long-term operating lease | | | (2,729) |
Accrued expenses and other liabilities | |
| (22,382) |
Long-term operating leases, net | | | (4,631) |
Other liabilities | | | (3,834) |
Long-term debt | | | (140) |
Long-term deferred tax liabilities | | | (31,148) |
Noncontrolling interest | | | 1,111 |
| | $ | 674,574 |
Property and equipment is mostly composed of land, buildings and equipment (including lab equipment, furniture and fixtures, and computer equipment). The fair value of property and equipment was determined to approximate net book value at the time of the acquisition based on the information currently available and pending finalization of our fair value assessment, which is subject to change as we complete our valuation procedures.
Intangible assets primarily relate to customer relationships and technology associated with the ability to produce and care for the research models. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 12.5 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 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 June March 31, 2022 is based on preliminary assumptions which are subject to change as we complete our valuation procedures.
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 Envigo acquisition as a result of book-to-tax differences primarily related to the intangible assets, step up on the fair value of inventory and property and equipment. Within the deferred tax liability, $8,949 of acquired foreign net operating losses are offset by an uncertain tax benefit of $8,304.
27
Goodwill, which is derived from the expanded client base, the ability to provide products and services for the entirety of discovery and nonclinical development within one organization, and to ensure supply for internal use, 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 RMS reportable segment.
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 was another step in Inotiv’s strategic plan for building its RMS business and is reported as part of the Company’s 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 had not yet been finalized as of March 31, 2022. 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 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 the Company’s 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 | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| |
|
Customer relationship | | | 4,700 |
Non-compete agreement | | | 300 |
Supply agreement | | | 200 |
Goodwill | | | 948 |
| | $ | 6,148 |
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 7.5 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 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 March 31, 2022 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 none is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s RMS reportable segment.
Integrated Laboratory Systems, LLC acquisition
Overview
On January 10, 2022, the Company completed the acquisition of Integrated Laboratory Systems, LLC (“ILS”). ILS is a provider of services specializing in nonclinical and analytical drug discovery and development services and research models and related products
28
and services. Consideration for the ILS acquisition consisted of $38,805 in cash, including adjustments for net working capital, and inclusive of $3,800 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 and 429,118 of the Company’s common shares valued at $14,466 using the opening price of the Company’s common shares on January 10, 2022.
The valuation of assets acquired and liabilities assumed had not yet been finalized as of March 31, 2022. 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 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.
ILS recorded revenue and net income of $4,866 and $109, respectively, for the three month period ended March 31, 2022.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| |
|
Cash | | | 797 |
Trade receivables and contract assets | | | 3,841 |
Prepaid expenses and other current assets | | | 61 |
Property and equipment | | | 2,237 |
Intangible asset | | | 27,000 |
Goodwill | | | 23,206 |
Accounts payable | | | (1,039) |
Fees invoiced in advance | | | (1,696) |
Accrued expenses and other liabilities | |
| (1,136) |
| | $ | 53,271 |
Property and equipment is mostly composed of equipment (including lab equipment, furniture and fixtures, and computer equipment) and leasehold improvements. 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 March 31, 2022 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 nine 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 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 March 31, 2022 is based on preliminary assumptions which are subject to change as we complete our valuation procedures.
29
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.
Orient BioResource Center, Inc. acquisition
Overview
On January 27, 2022, the Company completed the acquisition of OBRC from Orient Bio, Inc., a preclinical contract research organization and animal model supplier based in Seongnam, South Korea (“Seller”). OBRC is a primate quarantine and holding facility. Consideration for the OBRC acquisition consisted of (i) $28,156 in cash, including certain adjustments, (ii) 677,339 of the Company’s common shares valued at $18,410 using the closing price of the Company’s common shares on January 27, 2022, (iii) the effective settlement of a preexisting relationship of $1,017 and (iv) a payable owed by OBRC to the Seller in the amount of $3,325. The preexisting relationship represents the return of fees invoiced in advance and paid to OBRC by the Company prior to the acquisition offset by the payment of trade receivables by the Company to OBRC. As these were settled at the stated value, 0 gain or loss was recorded as a result of the settlement of this preexisting relationship. The payable will not bear interest and is required to be paid to the Seller on the date that is 18 months after the closing. The Company will have the right to set off against the payable any amounts that become payable by the Seller on account of indemnification obligations under the purchase agreement.
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 OBRC acquisition as a result of book-to-tax differences primarily related to the intangible assets and property and equipment.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of March 31, 2022. The purchase price allocation is preliminary and subject to change, including the valuation of property and equipment, 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 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.
OBRC recorded revenue and net income of $7,309 and $2,393, respectively, for the three months ended March 31, 2022.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date:
| | | |
| | Preliminary | |
| | Allocation as of | |
| | March 31, 2022 | |
Assets acquired and liabilities assumed: |
| |
|
Cash | | | 5,481 |
Trade receivables and contract assets | | | 2,025 |
Inventory | | | 8,800 |
Prepaid expenses and other current assets | | | 2,609 |
Property and equipment | | | 8,790 |
Intangible asset | | | 21,700 |
Goodwill | | | 14,530 |
Accounts payable | | | (476) |
Fees invoiced in advance | | | (6,548) |
Accrued expenses and other liabilities | |
| (354) |
Long-term deferred tax liabilities | | | (5,649) |
| | $ | 50,908 |
Property and equipment is mostly composed of land, building and 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 March 31, 2022 is based on preliminary assumptions which are subject to change as we complete our valuation procedures.
30 2021
Intangible assets primarily relate to customer relationships and technology associated with the ability to produce and care for the research models. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately six 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 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 March 31, 2022 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 noneNaN is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s ServicesRMS reportable segment. Goodwill is reviewed for impairment at least annually and when certain impairment indicators are present. As of June 30, 2021, there were 0 goodwill impairment losses.
21
Pro Forma Results
The Company’s unaudited pro forma results of operations for the three and ninesix months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, assuming the PCRS and HistoTox Labs acquisitions and the merger of Bolder BioPATH 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, HistoTox Labs, and Bolder BioPATH operations prior to the acquisition date and are not necessarily indicative of what the results of operations would have been had the acquisitions and the merger been completed on October 1, 2019.2020.
The unaudited pro forma information is as follows:
| | | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | | | | | | | | ||||
| Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | | Three Months Ended | | Three Months Ended | | Six Months Ended | | Six Months Ended | ||||||||
| June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
| March 31, 2022 | | March 31, 2021 | | March 31, 2022 | | March 31, 2021 | ||||||||
Total revenues | $ | 24,786 | | $ | 21,448 | | $ | 72,789 | | $ | 62,661 | | $ | 143,023 | | $ | 109,088 | | $ | 268,337 | | $ | 217,125 |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Net income (loss) |
| (1,847) | |
| 5,242 | |
| (428) | |
| 5,863 | |
| (72,023) | |
| (24) | |
| (98,548) | |
| (23,242) |
|
|
| |
|
| |
|
| |
|
| |
12.11. REVENUE RECOGNITION
In accordance with Accounting Standards Codification (“ASC”)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 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
31
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 GEMS, which includes the performance of 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 revenue and client-owned animal colony care revenue are recognized over time and are billed as per diems. Health monitoring revenue and diagnostic services revenue are recognized once the service is performed.
Product revenue
TheDSA
DSA product revenue includes 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 products have maintenance agreements available for clients 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.
RoyaltyRMS
RMS product revenue
22
The Company has an agreementresearch models, principally purpose-bred rats and mice for use by researchers, and large-animal models. Diets and bedding revenue represents laboratory animal diets, bedding, and enrichment products under the Company’s Teklad product line. Bioproducts revenue 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 Teva Pharmaceuticals (formerly Biocraft Laboratories, Inc,) which manufactures and markets pharmaceutical products. The Company receives royalties in accordance with salesthe delivery of certain pharmaceuticals that Teva manufactures and sells. The royalties are received on a quarterly basis and the product to customers. For these products, all revenue is recognized overat a point in time, generally when title and control of the quarter. Royalty revenueproduct is included in service revenue ontransferred to the condensed consolidated statement of operations. Total revenue recognized was $102 and $131 in the three months ended June 30, 2021 and 2020, respectively. Total revenue recognized was $255 and $567 in the nine months ended June 30, 2021 and 2020, respectively.client based upon shipping terms. These arrangements typically include only one performance obligation.
The following table presents changes in the Company’s contract assets and contract liabilities for the ninesix months ended June 30, 2021.March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | | | | | | | Balance at | | Balance at | | | | | | | | Balance at | ||||
| | September 30, | | | | | | | | June 30, | | September 30, | | | | | | | | March 31, | ||||
|
| 2020 |
| Additions |
| Deductions |
| 2021 |
| 2021 |
| Additions |
| Deductions |
| 2022 | ||||||||
Contract Assets: Unbilled receivables | | $ | 1,879 | | $ | 3,963 | | $ | (1,848) | | $ | 3,994 | ||||||||||||
Contract liabilities: Customer advances | | $ | 11,392 | | $ | 125,225 | | $ | (116,648) | | $ | 19,969 | ||||||||||||
Contract Assets: Unbilled revenue | | $ | 6,194 | | $ | 17,009 | | $ | (10,510) | | $ | 12,693 | ||||||||||||
Contract liabilities: Fees invoiced in advance | | $ | 26,614 | | $ | 249,972 | | $ | (206,348) | | $ | 70,238 |
13.12. LEASES
The Company records a right-of-use (“ROU”)an 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.
The Company has various operating and finance leases for facilities and equipment. Facilities leases provide office, laboratory, warehouse, or land that the companyCompany uses to conduct its operations. Facilities leases range in duration from two to ten years, with either renewal options 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 subsequent annual 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 | ||
|
| June 30, 2021 |
| September 30, 2020 | ||
Operating right-of-use assets, net | | $ | 8,695 | | $ | 4,001 |
| | | | | | |
Current portion of operating lease liabilities | | | 1,916 | |
| 866 |
Long-term operating lease liabilities | | | 6,884 | |
| 3,344 |
Total operating lease liabilities | | $ | 8,800 | | $ | 4,210 |
| | | | | | |
Finance right-of-use assets, net | | $ | 66 | | $ | 4,778 |
| | | | | | |
Current portion of finance lease liabilities | | | 29 | |
| 4,728 |
Long-term finance lease liabilities | | | 39 | |
| 44 |
Total finance lease liabilities | | $ | 68 | | $ | 4,772 |
During the three and nine months ended June 30, 2021, the Company had operating lease amortizations of $292 and $736, respectively, and had finance lease amortization of $25 and $97, respectively. Finance lease interest recorded in the three and nine months ended June 30, 2021 was $46 and $183, respectively.
NaN of the operating leases contains a variable lease component based on revenue for 1 component of the Company. The total variable payments for this lease for the three and nine months ended June 30, 2021 were $31 and $177, respectively.
2332
ROU lease assets and lease liabilities that are reported in the Company’s condensed consolidated balance sheets are as follows:
| | | | | | |
| | As of | | As of | ||
|
| March 31, 2022 |
| September 30, 2021 | ||
Operating ROU assets, net | | $ | 23,795 | | $ | 8,358 |
| | | | | | |
Current portion of operating lease liabilities | | | 5,356 | |
| 1,959 |
Long-term operating lease liabilities | | | 18,613 | |
| 6,554 |
Total operating lease liabilities | | $ | 23,969 | | $ | 8,513 |
| | | | | | |
Finance ROU assets, net | | $ | 57 | | $ | 60 |
| | | | | | |
Current portion of finance lease liabilities | | | 23 | |
| 24 |
Long-term finance lease liabilities | | | 37 | |
| 39 |
Total finance lease liabilities | | $ | 60 | | $ | 63 |
During the three and six months ended March 31, 2022, the Company had operating lease amortization of $1,486 and $2,568, respectively, and had finance lease amortization of $6 and $12, respectively. Finance lease interest recorded in the three and six months ended March 31, 2022 was $0 and $1, respectively.
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 ninesix months ended June 30,March 31, 2022 and March 31, 2021 were:
| | | | | | | | | | | | | |||||||
| | | | | | | |
| Three Months Ended |
| Six Months Ended | ||||||||
|
| Three months ended |
| Nine months ended |
| | March 31, | | March 31, | ||||||||||
| | June 30, 2021 | | June 30, 2021 |
| | 2022 | | 2021 |
| 2022 | | 2021 | ||||||
Operating lease costs: |
| | | | |
| |
| | | | |
| | |
| | | |
Fixed operating lease costs | | $ | 292 | | $ | 736 | | | $ | 1,120 | | $ | 242 | | $ | 2,203 | | $ | 474 |
Short-term lease costs | | | 32 | |
| 66 | | | | 19 | |
| 42 | |
| 44 | | | 52 |
Variable lease costs | | | — | | | — | | | — | | | | |||||||
Lease income | | | (159) | |
| (477) | | | | (988) | |
| (159) | |
| (1,165) | | | (318) |
Finance lease costs: | | | | |
| | | | | | |
| | |
| | | | |
Amortization of right-of-use asset expense | | | 25 | |
| 97 | | ||||||||||||
Amortization of ROU asset expense | | | 6 | |
| 35 | |
| 12 | | | 72 | |||||||
Interest on finance lease liability | | | 46 | |
| 183 | | | | — | |
| 68 | |
| 1 | | | 137 |
Total lease cost | | $ | 236 | | $ | 605 | | | $ | 157 | | $ | 228 | | $ | 1,095 | | $ | 417 |
The Company serves as lessor to a lessee in 1 facility through the end of calendar year 2024.5 facilities. The gross rental income and underlying lease expense are presented grossnet in the Company’s condensed consolidated balance sheets. The Company received rental incomestatement of $159 and $477 for the three and nine months ended June 30, 2021, respectively.operations.
Supplemental cash flow information related to leases was as follows:
| | | | | | | |||||||
| | | | | | | | | Three Months Ended | | Six Months Ended | ||
|
| Three months ended |
| Nine months ended |
|
| March 31, |
| March 31, | ||||
| | June 30, 2021 | | June 30, 2021 |
| | 2022 | | 2022 | ||||
Cash flows included in the measurement of lease liabilities: |
| | | | |
| |
| | | | |
|
Operating cash flows from operating leases | | $ | 346 | | $ | 867 | | | $ | 1,626 | | $ | 2,722 |
Operating cash flows from finance leases | | | 45 | |
| 183 | | | | — | |
| 1 |
Finance cash flows from finance leases | | | 71 | |
| 277 | | | | 7 | |
| 13 |
| | | | | | | |||||||
Non-cash lease activity: | | | | |
| | | | | | |
| |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 4,990 | | $ | 6,165 | | ||||||
ROU assets obtained in exchange for new operating lease liabilities | | $ | 1,055 | | $ | 18,091 | |||||||
Right-of-use assets obtained in exchange for new finance lease liabilities | | | 8 | | | 17 | | | | 10 | | | 10 |
33
The weighted average remaining lease term and discount rate for the Company’s operating and finance leases as of June 30,March 31, 2022 and March 31, 2021 were:
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| ||
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| ||
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| ||
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| ||
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|
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|
| | | | | |
| | As of | | As of | |
| | March 31, 2022 | | March 31, 2021 | |
Weighted-average remaining lease term (in years) |
| |
| |
|
Operating lease |
| 6.11 |
| 4.49 |
|
Finance lease |
| 2.96 |
| 0.37 |
|
Weighted-average discount rate (in percentages) |
| |
| |
|
Operating lease |
| 5.01 | % | 5.24 | % |
Finance lease |
| 4.86 | % | 5.82 | % |
Lease duration was determined utilizing renewal options that the Company is reasonably certain to execute.
As of June 30, 2021,March 31, 2022, 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 |
| Operating Leases |
| Finance Leases | ||||
2021 (remainder of fiscal year) | | $ | 496 | | $ | 6 | ||||||
2022 | |
| 2,001 | |
| 24 | ||||||
2022 (remainder of fiscal year) | | $ | 3,230 | | $ | 13 | ||||||
2023 | |
| 2,022 | |
| 18 | |
| 5,519 | |
| 21 |
2024 | |
| 1,998 | |
| 18 | |
| 4,658 | |
| 21 |
2025 | |
| 1,494 | |
| 7 | |
| 3,863 | |
| 8 |
2026 | |
| 3,207 | |
| 1 | ||||||
Thereafter | |
| 1,800 | |
| 1 | |
| 7,144 | |
| — |
Total minimum future lease payments | |
| 9,811 | |
| 74 | |
| 27,621 | |
| 64 |
Less interest | |
| (1,011) | |
| (6) | |
| (3,652) | |
| (4) |
Total lease liability | |
| 8,800 | |
| 68 | |
| 23,969 | |
| 60 |
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 March 31, 2022, the unfunded defined benefit plan obligation of $286 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 | | Six Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Components of net periodic benefit expense: | | | | | | | | | | | | |
Interest cost | | $ | 79 | | $ | - | | $ | 137 | | $ | - |
Expected return on assets | | | (220) | | | - | | | (329) | | | - |
Amortization of prior loss | | | 116 | | | - | | | 277 | | | - |
Net periodic benefit cost | | $ | (25) | | $ | - | | $ | 85 | | $ | - |
24
14. SUBSEQUENT EVENTSCONTINGENCIES
On July 9, 2021, the Company closed a Purchase Agreement (the “Purchase Agreement”) between BioReliance Corporation, a Delaware corporation ("BioReliance") and BASi Gaithersburg LLC (“BASi Gaithersburg”), an Indiana limited liability company and wholly owned subsidiary of the Company. The acquisition related to certain assets of BioReliance in order to expand our genetic toxicology offering to build and lead the genetic toxicology business. Consideration for the acquisition consisted of sales royalties of 10% in connection with future net sales related to the acquisition from the date of the acquisition through December 31, 2023.Litigation
On July 15,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 the Company announced the acquisition of laboratory instrumentation to accelerate the startup and development of laboratory services pursuing cell and gene therapy as well as traditional biotherapeutics and immunotherapies. We acquired the assets for approximately $1,300.
On July 16, 2021, the Company received notice from Huntington Bank that the SBA had approved the Company’s application for forgiveness of its PPP Loan in the amountSuperior Court of $4,851.
On August 2, 2021,California, Alameda County. The complaints allege that Envigo violated certain wage and hour requirements under the Company closed the purchase of allCalifornia Labor Code. PAGA authorizes private attorneys to bring claims on behalf of the outstanding equity interest in Gateway Pharmacology Laboratories LLC,State of California and aggrieved employees for violations of California’s wage and hour laws. The class action complaint seeks certification of a Missouri company engaged inclass of similarly situated employees and the businessaward of providing drug metabolism and pharmacokinetics DMPK) technology and capability, as well as a new cell and molecular biology suite capable of delivering in vitro solutions in pharmacology and toxicology early in drug discovery. Consideration for the acquisition consisted of (i) $1,400 in cash, subject to customary purchase price adjustments, and (ii) 45,323 of the Company’s common shares valued at $1,250.
actual,
2534
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 continue 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.
Government Investigations
During the period from July 2021 through March 2022, 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, and has made multiple remediations and improvements at the facility, of which it has kept USDA apprised. 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 the 10-Q filing date, no investigation had been initiated.
On June 15, 2021, Envigo Global Services, Inc. (“EGSI”), a subsidiary of the Company acquired in the Envigo acquisition, received a grand jury subpoena requested by the U.S. Attorney’s Office for the Southern District of Florida (“USAO”) for the production of documents related to the procurement of non-human primates (“NHPs”) from foreign suppliers for the period January 1, 2018 through June 1, 2021. The subpoena relates to an earlier grand jury subpoena requested by the USAO and received by EGSI’s predecessor entity , Covance Research Products, in April 2019. Envigo acquired EGSI from Covance, Inc. (“Covance”), a subsidiary of Laboratory Corporation of America Holdings, in June 2019. The EGSI transaction agreement provides for indemnification of Envigo and its officers, directors and affiliates by Covance for any liabilities arising out of or related to the USAO’s investigation in connection with the subpoena to Covance Research Products, as well as certain other matters, subject to an overall indemnification limit for the investigation and certain other matters of $5,500.
On January 27, 2022, EGSI acquired OBRC, which owns and operates a primate quarantine and holding facility located near Alice, Texas. In 2019, OBRC received grand jury subpoenas requested by the USAO requiring the production of documents and information related to its importation of NHPs into the United States. On June 16, 2021 , OBRC received a grand jury subpoena requested by the USAO requiring the production of documents related to the procurement of NHPs from foreign suppliers for the period January 1, 2018 through June 1, 2021. The OBRC purchase agreement provides for indemnification of EGSI and its officers, directors and affiliates by the seller, Orient Bio, Inc., for liabilities resulting from actions, inactions, errors or omissions of Orient Bio, Inc. or OBRC related to any period prior to the closing date.
The Company is cooperating with the USAO.
No form of proceedings has been brought, instigated or is known to be contemplated against the Company by any government agency.
15.ACCUMULATED OTHER COMPREHENSIVE LOSS
| | | | | | | | | |
| | | | | Cumulative | | | | |
| |
| | | translation | |
| | |
| | Pension |
| adjustment | | Total | |||
Balance as of September 30, 2021 | | $ | — | | $ | — | | $ | — |
Amortization of periodic benefit costs | | | 230 | | | — | | | 230 |
Cumulative translation adjustment | | | — | | | (858) | | | (858) |
Balance as of March 31, 2022 | | $ | 230 | | $ | (858) | | $ | (628) |
16.SUBSEQUENT EVENTS
On April 25, 2022, the Company entered into an Interest Purchase Agreement with Histion, LLC, which is a strategic element of the Company’s expansion of its specialized pathology services providing for the acquisition by the Company of all of the outstanding membership interests of Histion on that date. Consideration for the Histion membership interests consisted of $800 in cash (after giving effect to an adjustment for estimated net working capital), subject to certain adjustments, a $433 seller note and a number of the Company's common shares having a value of $433 based on the volume weighted average closing price of Company shares as reported by Nasdaq for the 20 trading-day period ending on the third trading day prior to the closing date.
35
ITEM 2 -– MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this Item 2 has been revised to reflect the restatement occurring subsequent to the filing of the original Form 10-Q.
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 recent periods,Since the start of fiscal 2022, we have undertaken significant internalcontinued our momentum building Inotiv into a comprehensive provider of preclinical drug discovery and externalsafety assessment services through our strategic acquisitions of Plato, ILS and Histion and our collaboration with Synexa Life Sciences. Plato brings us important new in vivo pharmacology capabilities, ILS complements our BioReliance® assets and accelerates the buildout of our genetic toxicology offerings, and the partnership with Synexa Life Sciences enhances our biomarker platform. Histion accelerates our development and growth initiativesin the highly-specialized plastics and medical device histopathology business. Over the last few years, we’ve significantly broadened and scaled our DSA business, enabling one-stop-shop preclinical programs and quicker speed to repositionmarket, positioning Inotiv as a primary contract research provider for our Companygrowing client base.
The transformative acquisition of Envigo, which closed in the first quarter of fiscal 2022, established the foundation of our new Research Models and provide a platformServices business, or RMS, which we consider critical to the discovery and development business. Through Envigo, we secured access to critical research models essential for future growth. Our growth initiatives include (1) acquisitions, (2) expansionour clients’ success, further differentiating Inotiv from many of existing and acquired businesses, (3) startup of new services. Through June 30, 2021, we acquired the business of Seventh Wave Laboratories, LLC, in July 2018 (the “Seventh Wave Acquisition”), acquired the toxicology business of Smithers Avanza on May 1, 2019 (the “Smithers Avanza Acquisition”), acquired the preclinical testing business of Pre-Clinical Research Services, as well as related real property, on December 1, 2019 (the “PCRS Acquisition”), acquired the business of HistoTox Labs on April 30, 2021 (the “HistoTox Acquisition”) and completed a merger of one of its wholly owned subsidiaries with Bolder BioPATH on May 3, 2021 (the “Merger”).our peers. Following the endEnvigo acquisition, we took steps to leverage our existing RMS capacity with the acquisition of RSI’s rabbit breeding business and the acquisition of OBRC’s non-human primate facilities, which neighbor our Alice, Texas location. In an environment during which global research model demand outstrips supply, these moves mitigate potential supply bottlenecks as we pursue a multitude of cross-selling and growth opportunities across our integrated services.
Finally, this quarter we completed the purchaseaugmented inorganic growth with another period of allstrong internal growth, reflecting our focus on delivering superior client experiences and investing in G&A and technology to support new services and expansion. Our quarter-end DSA backlog of the outstanding equity interests in Gateway Pharmacology Laboratories on August 2, 2021. We undertook an expansion of$133,635 reinforces our facilities in Evansville, Indiana, which we began usingoptimism for operations in March of 2020, we recently completed capital improvements to our Ft. Collins facility to facilitatecontinuing robust near-term revenue growth, and in May 2021over the long-term we announced the buyout ofbelieve our St. Louis facility with the build-out of an additional 20,000 square feet of wet laboratory and office space. We announced new service offerings whichstrategy will deliver meaningfully higher operating margins as we are building internally and start up operations such as: clinical pathology; SEND data reporting; cardiovascular safety pharmacology; genetic toxicology; biotherapeutics; and medical devise histology and pathology. On April 23, 2021, we completed a public offering of our common stock and obtained funding to support these initiatives and other improvements 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, we have made other significant investments in upgrading facilities and equipment and filled critical leadership and scientific positions.
scale.
2636
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., investments in our information technology platforms, building program management functions to enhance management and communication with clients and multi-site programs, further enhancing client services and improving the client experience. We believe these internal infrastructure initiatives, investments, acquisitions, mergers 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 Accomplishmentsaccomplishments during ninethree months ended June 30, 2021March 31, 2022
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● | Announced the purchase of OBRC |
● | In connection with the purchase of OBRC, the Company entered into a first amendment to its existing credit agreement on January 27, 2022. The amendment provides for, among other things, an increase to the existing term loan facility in the original principal amount of $40,000 (“Incremental Term Loans”) and |
● | Development and integration of leadership teams and filling critical leadership positions |
Events subsequent to June 30, 2021March 31, 2022
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27
Our financial results for the three months ended June 30, 2021 were positively impacted by increases in sales and gross margins attributable to internal growth the Company has experienced in the Service business as well as the acquisitions of HistoTox Labs and Bolder BioPATH. During the quarter ended June 30, 2021, we saw an increase in operating expenses as a percentage of revenue compared to the same quarter in the prior year as we continued to build infrastructure for growth, which included additional headcount, recruiting and relocation expenses and investments in building out new service offerings. 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.
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. On July 16, 2021, the Company received notice from Huntington Bank that the SBA had approved the Company’s application for forgiveness of its PPP Loan in the amount of $4,851.
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 providesAs 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 DSA segment specializes in providing nonclinical and analytical drug discovery and development services to the pharmaceutical, chemical, governmental, academic 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 time and 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 have lost their patent protection over the past few years (e.g. Viagra) or are nearing the end of their patent protections (e.g. Januvia & Janumet).protections. This puts significant
37
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 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.
28RMS
A significant portion of innovationresearch 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 pharmaceutical industry is now driven by smaller, venture capital funded drug discovery companies. Manyproduction and sale of these companies are “single-molecule” entities, whose success depends on one innovative compound. While several biotech companies have reached the status of major pharmaceutical companies, the industry is still characterized by smaller entities. These developmental companies generally do not have the resources to perform much of theirmost widely used rodent research within their organizationsmodel strains, among other species. We maintain production facilities, including barrier and are therefore dependent on the CRO industry for both their research and for guidance in preparing their regulatory submissions. These companies, however, are able to pay for CRO Services and products after a reported seven billion dollars in private capital invested in private drug development companiesisolator facilities, in the first quarter of 2021. These companies have provided significant new opportunities for the CRO industry, including the Company. We believe that the Company is 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.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 ninethree months ended June 30, 2021,March 31, 2022, total revenues increased to $59,529$140,313 from $44,695,$18,751, a 33.2%648% increase from the ninethree months ended June 30, 2020. Gross profitMarch 31, 2021. In the six months ended March 31, 2022, total revenue increased to $19,848$224,524 from $13,614,$36,636, a 45.8% increase.513% increase from the six months ended March 31, 2021. Operating expenses were higher by 44.1%income totaled $7,868 in the ninethree months ended June 30, 2021March 31, 2022, compared to an operating loss of $521 in the ninethree months ended June 30, 2020. The most notable growthMarch 31, 2021, reflecting higher gross profit on higher revenue, offset by increase in operating expenses is relatedand higher strategic investment in unallocated corporate general and administrative (“G&A”) expense to our investment and focus to continue to build our infrastructure forsupport additional future revenue growth, which included additional headcount, recruiting and relocation expense, higher compensation expense, transaction costs related to the HistoTox Labs Acquisitionacquisitions of RSI, Histion, ILS and the Merger,OBRC, an increase in sales commissions due to higher sales awards and an increase in startup costs for internal investments in business development to build out new service offerings.
As of June 30, 2021,March 31, 2022, we had $24,660$47,042 of cash and cash equivalents as compared to $1,406$138,924 of cash and cash equivalents at September 30, 2021.
During the endsecond quarter of fiscal 2020. In the first nine months of fiscal 2021,2022, we generated $8,049 in cash from operations as compared to $1,586 in the same period in fiscal 2020. During the nine months ended June 30, 2021, cash from operations, cash on hand, $1,318 from an equipment line of credit andobtained additional borrowings on a term loan of $2,100 together funded capital expenditures of $8,358 for the investment in laboratory equipment to increase capacity at all locations, facility improvements at the Fort Collins location and the acquisition of the St. Louis facility.
As of June 30, 2021, we did not have an outstanding balance on our $5,000 available general line of credit and had $900 balance on a $3,000 equipment loan that is available until April 30 2022. 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 MergerILS and the expansion of facilities and services.OBRC acquisitions. Refer to the Liquidity and Capital Resources section herein for a description of our cash flows from operating, investing and financing activities and details related to our credit arrangements with First Internet Bank.
Resultsarrangement, the incremental term loans, our convertible notes and the related fair value remeasurement of Operations
The following table summarizesthe embedded derivative component of our condensed consolidated statement of operations as a percentage of total revenues for the periods shown:
| | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | | ||||
| | June 30, | | | June 30, | | | ||||
|
| 2021 |
| 2020 |
| | 2021 |
| 2020 |
|
|
Services revenue |
| 95.8 | % | 94.2 | % | | 95.5 | % | 94.4 | % | |
Products revenue | | 4.2 |
| 5.8 |
| | 4.5 |
| 5.6 |
| |
Total revenue | | 100 |
| 100 |
| | 100 |
| 100 |
| |
| | | | | | | | | | | |
Cost of services revenue (a) | | 67.1 |
| 68.1 |
| | 67.2 |
| 69.0 |
| |
Cost of products revenue (a) | | 56.3 |
| 64.4 |
| | 55.3 |
| 68.9 |
| |
Total cost of revenue | | 66.6 |
| 67.9 |
| | 66.7 |
| 69.5 |
| |
| | | | | | | | | | | |
Gross profit | | 33.4 |
| 31.4 |
| | 33.3 |
| 30.5 |
| |
Operating expenses | | 40.8 |
| 34.4 |
| | 37.1 |
| 34.2 |
| |
Operating income (loss) | | (7.4) |
| (3.0) |
| | (3.8) |
| (3.8) |
| |
| | | | | | | | | | | |
Other income (expense) | | (2.0) |
| (2.4) |
| | (1.7) |
| (2.4) |
| |
Income (loss) before income taxes | | (9.4) |
| (5.4) |
| | (5.5) |
| (6.2) |
| |
Income tax expense (benefit) | | (20.8) |
| 0.1 |
| | (7.9) |
| 0.3 |
| |
Net income (loss) | | 11.4 | % | (5.6) | % | | 2.5 | % | (6.5) | % | |
(a)Percentage of service and product revenues, respectivelyconvertible notes.
2938
Results of Operations
The following table summarizes our condensed consolidated statements of operations as a percentage of total revenue for the periods shown:
| | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | | | ||||
| | March 31, | | | March 31, | | | ||||
|
| 2022 |
| 2021 |
| | 2022 | | 2021 |
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|
Services revenue |
| 35.3 | % | 95.5 | % | | 39.1 | % | 95.4 | % | |
Products revenue | | 64.7 |
| 4.5 |
| | 60.9 | | 4.6 |
| |
Total revenue | | 100.0 |
| 100.0 |
| | 100.0 | | 100.0 |
| |
| | | | | | | | | | | |
Cost of services provided (a) | | 67.2 |
| 66.5 |
| | 65.5 | | 67.3 |
| |
Cost of products sold (a) | | 68.6 | | 61.5 |
| | 75.3 | | 54.8 |
| |
Total cost of revenue | | 68.1 |
| 66.3 |
| | 71.5 | | 66.7 |
| |
| | | | | | | | | | | |
Operating expenses | | 26.3 | | 36.5 |
| | 40.0 | | 34.7 |
| |
| | | | | | | | | | | |
Operating income (loss) | | 5.6 |
| (2.8) |
| | (11.5) | | (1.4) |
| |
| | | | | | | | | | | |
Other income (expense) | | (5.5) |
| (1.0) |
| | (31.3) | | (1.5) |
| |
Income (loss) before income taxes | | 0.1 |
| (3.8) |
| | (42.8) | | (2.9) |
| |
Income tax (expense) benefit | | (4.9) |
| (0.1) |
| | 2.6 | | (0.1) |
| |
Consolidated net income (loss) | | (4.8) | % | (3.9) | % | | (40.2) | % | (3.0) | % | |
(a) | Percentage of service and product revenues, respectively |
Note: Table may not foot due to rounding.
Three Months Ended June 30, 2021March 31, 2022 Compared to Three Months Ended June 30, 2020March 31, 2021
ServiceDSA and Product RevenuesRMS Revenue
Revenues for the quarter ended June 30, 2021 increased 45.2% to $22,892 compared to $15,765 for the same period last fiscal year.
Our ServiceTotal revenue increased 47.6% to $21,924$140,313 in the three months ended June 30, 2021 compared to $14,852 for the three months ended June 30, 2020. Nonclinical services revenues increased $6,190 due to internal growth year over year as well as the acquisitions of HistoTox Labs and Bolder BioPATH in the third quarter of fiscal year 2021. Other laboratory services revenues increased by $619March 31, 2022 from $18,751 in the three months ended June 30,March 31, 2021, compared todriven by a $20,303 increase in DSA revenue and $101,259 of incremental RMS revenue. The acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Pharmacology, Plato BioPharma and ILS added $12,858 of DSA revenue and internal growth generated $7,446 of service revenue in our DSA segment during the three months ended June 30, 2020, dueMarch 31, 2022. Our acquisition of Envigo and RSI along with our acquisition of OBRC contributed $78,067 and $23,192 respectively of product revenue to internal growth.
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| | Three Months Ended | | | | | | | ||||
| | June 30, | | | | | | | ||||
|
| 2021 |
| 2020 |
| Change |
| % | | |||
Bioanalytical analysis | | $ | 2,248 | | $ | 1,985 | | $ | 263 |
| 13.2 | % |
Nonclinical services | |
| 18,315 | |
| 12,125 | |
| 6,190 |
| 51.1 | % |
Other laboratory services | |
| 1,361 | |
| 742 | |
| 619 |
| 83.4 | % |
| | $ | 21,924 | | $ | 14,852 | | $ | 7,072 | | | |
Sales in our ProductsRMS segment increased 6.1% induring the three months ended June 30, 2021 to $968 from $913March 31, 2022. We did not have any RMS revenue in the three months ended June 30, 2020. The increase in the third fiscal quarter of 2021 stems from higher sales of analytical instruments, partially offset by a decrease in Culex in-vivo sampling systems and other instruments.comparable prior year period.
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| | Three Months Ended | | | | | | | ||||
| | June 30, | | | | | |
| ||||
|
| 2021 |
| 2020 |
| Change |
| % | | |||
Culex, in-vivo sampling systems | | $ | 203 | | $ | 404 | | $ | (201) |
| (49.8) | % |
Analytical instruments | |
| 653 | |
| 381 | |
| 272 |
| 71.4 | % |
Other instruments | |
| 112 | |
| 128 | |
| (16) |
| (12.5) | % |
| | $ | 968 | | $ | 913 | | $ | 55 | | | |
Cost of Revenues
Cost of revenues for the three months ended June 30, 2021March 31, 2022 was $15,246$95,587 or 66.6%68.1% of revenue, compared to $10,701,$12,427, or 67.9%66.3% of revenue for the three months ended June 30, 2020.March 31, 2021.
Cost of Service revenueservices provided as a percentage of Serviceservice revenue decreasedincreased to 67.1%67.2% during the three months ended June 30, 2021March 31, 2022 from 68.1%66.5% in the three months ended June 30, 2020, reflecting greater utilization of recently expanded capacity.March 31, 2021, due to investing in capacity to meet increased customer demand.
Cost of Products revenueproducts sold as a percentage of Productsproducts revenue in the three months ended June 30, 2021 decreasedMarch 31, 2022 increased to 56.3%68.6% from 64.4%61.5% in the three months ended June 30, 2020March 31, 2021 due to expense reductions implemented$2,609 of non-cash inventory step-up amortization in the last half of fiscal 2020, which created improved margins on existing sales.
Operating Expenses
Selling expenses for the three months ended June 30, 2021March 31, 2022 and the change in product mix.
Operating Expenses
Operating expenses, including selling, general and administrative, amortization of intangible assets and other operating expense, increased 37.3%by 438.5%, or $30,013, due to $950 from $692 comparedstrategic investment in unallocated corporate G&A expense to support additional future revenue growth, which included additional headcount, recruiting and relocation expense, higher compensation expense, transaction costs primarily related to the three months ended June 30, 2020. Thisacquisitions of RSI, ILS, OBRC and Histion, an increase is mainlyin sales commissions due to higher sales awards and an increase in startup costs for internal investments in new service offerings. Additionally, there was an increase in selling expenses due to an increase in travel expensescost as our sales and marketing teams have begun travelingtraveled more as the COVID-19 pandemic eases and an increase in commissions due to higher sales awards.
Research and development expenses for the three months ended June 30, 2021 of $107 were comparable to $105 for the three months ended June 30, 2020.
Costs related to the development and initiation of new service offerings that are not revenue generating at this time are being identified as Startup costs. In addition to 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 investments in SEND reporting, safety pharmacology and clinical pathology, during the quarter, we began investing in additional service offerings such as medical device pathology, biotherapeutics, and genetic toxicology. These expenses include, but are not limited to, employee compensation expenses, travel expenses, relocation expenses, and recruiting expenses. While certain of these costs are one-time in nature, there are
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certain costs (e.g. employee compensation expenses) that will be expected to recur once the new offerings are revenue generating at which time the related costs will be reclassified on the consolidated statement of operations. Startup costs foreases. During the three months ended June 30, 2021 were $479March 31, 2022, we continued investing in internal capabilities to provide additional service offerings such as compared to $120 for the three months ended June 30, 2020. Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.laboratory solutions, medical device pathology, biotherapeutics and genetic toxicology.
General and administrative expenses for the three months ended June 30, 2021 increased 69.0% to $7,813 from $4,624 compared to the three months ended June 30, 2020, as the Company continued to build the infrastructure for growth, which included additional headcount, recruiting and relocation expense and legal and professional costs related to the acquisition of HistoTox Labs and the Merger
Other Income (Expense)
Interest expense for the three months ended June 30, 2021March 31, 2022 increased 17.5% to $449$7,547 from $382$366 compared to the three months ended June 30, 2020.March 31, 2021. The increase in interest expense is due primarily to the convertible senior notes and the senior term loan facility and incremental loans, as well as various promissory notes. Interest expense for the three months ended March 31, 2022 includes approximately $1,257 of non-cash interest expense.
Other income (expense) for the three months ended March 31, 2022 was an expense of ($139) compared to income of $179 for the three months ended March 31, 2021.
Income Taxes
Our effective income tax rates for the three months ended June 30,March 31, 2022 and 2021 were 3,761.5% and 2020 were (220.95)(2.1)%, respectively. The expense recorded for each period was $6,846 and (2.40)%,$15, respectively. The income tax benefit recorded forexpense in the three-month period ended June 30, 2021second quarter of fiscal 2022 was $4,753 and relates primarilyrelated to a discrete change in valuation allowancethe Company’s forecasted rate primarily due to the earnings impact of acquisitions, in conjunction with the minimal change between actual year-to-date pre-tax book income (loss) as a resultof first quarter and second quarter of the Bolder BioPATH acquisitionfiscal year. The expense from income taxes in the quarter. The income tax expense recorded for the three-month period ended June 30, 2020 was $21 andsecond 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 credits is required to be recorded.
Net Income/Loss
As a result of the above described factors, and the restatement described below, we had a consolidated net incomeloss of $2,602$6,664 for the three months ended June 30, 2021March 31, 2022 as compared to a consolidated net loss of $879$723 during the three months ended June 30, 2020. Net income includesMarch 31, 2021.
Six Months Ended March 31, 2022 Compared to Six Months Ended March 31, 2021
DSA and RMS Revenue
Total revenue increased 512.9% to $224,524 in the restatement determinedsix months ended March 31, 2022, from $36,636 in the six months ended March 31, 2021, driven by a $35,243 increase in DSA revenue and $152,645 of incremental RMS revenue. The acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Pharmacology, Plato and ILS added $21,008 of DSA revenue and internal growth generated approximately $14,271 of revenue in our DSA segment during the Company’s managementsix months ended March 31, 2022. Our acquisition of Envigo and audit committeeRSI along with our acquisition of OBRC contributed $126,683 and $25,971 respectively of product revenue to our RMS segment during the six months ended March 31, 2022. RMS revenue in the six months ended March 31, 2022 reflected one partial and one full quarter contribution from Envigo, which was acquired on November 5, 2021.
Cost of Revenues
Cost of revenues for the six months ended March 31, 2022 was $160,473 or 71.5% of revenue, compared to $24,435, or 66.7% of revenue, for the six months ended March 31, 2021.
Cost of services provided as a percentage of service revenue decreased to 65.5% during the six months ended March 31, 2022 from 67.3% in the six months ended March 31, 2021, due to higher margins on acquisitions of HistoTox Labs, Bolder BioPATH and Gateway Pharmacology and greater utilization of recently expanded capacity.greater utilization of recently expanded capacity.
Cost of products sold as a percentage of products revenue in the six months ended March 31, 2022 increased to 75.3% from 54.8% in the six months ended March 31, 2021 due to $6,277 of non-cash tax benefitinventory step-up amortization, which negatively impacted the cost of $4.9 millionproducts as a percentage of revenue by 4.6% in the six months ended March 31, 2022, and the change in product mix.
Operating Expenses
Operating expenses, including selling, general and administrative, amortization of intangible assets and other operating expense, increased by 606.8%, or $77,116, due to post combination non-cash stock compensation expense relating to a partial releasethe adoption of the Company’s valuation allowance for deferred tax liabilities acquired with the acquisitions of Bolder BioPATH.
Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020
Service and Product Revenues
Revenues for the nine months ended June 30, 2021 increased 33.2% to $59,529 as compared to $44,695 for the nine months ended June 30, 2020.
Our Service revenue increased 34.8% to $56,858 in the nine months ended June 30, 2021 compared to $42,185 for the nine months ended June 30, 2020. The majority of the increase in service revenue was due to internal growth, augmented by $4,251 of incremental revenue from operations at the Boulder, CO location, which we acquiredEnvigo Equity Plan recognized in connection with the Envigo acquisition of HistoTox Labs$23,014, which is inclusive of $4,772 stock based compensation settled in cash and the Mergerhigher strategic investment in the third fiscal quarter of 2021.
| | | | | | | | | | | | |
| | Nine Months Ended | | | | | | | ||||
| | June 30, | | | | | | | ||||
|
| 2021 |
| 2020 |
| Change |
| % | | |||
Bioanalytical analysis | | $ | 6,118 | | $ | 5,899 | | $ | 219 |
| 3.7 | % |
Nonclinical services | |
| 46,160 | |
| 34,301 | |
| 11,859 |
| 34.6 | % |
Other laboratory services | |
| 4,580 | |
| 1,985 | |
| 2,595 |
| 130.7 | % |
| | $ | 56,858 | | $ | 42,185 | | $ | 14,673 | | | |
unallocated corporate G&A expense to support additional future
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Sales in our Product segment increased 6.4% in the first nine months ended June 30, 2021 to $2,671 from $2,510 when compared to the nine months ended June 30, 2020 reflecting higher sales of analytical instruments, partially offset by a decrease in Culex in-vivo sampling systems and other instruments.
| | | | | | | | | | | | |
| | Nine Months Ended | | | | | | | ||||
| | June 30, | | | | | | | ||||
|
| 2021 |
| 2020 |
| Change |
| % | | |||
Culex, in-vivo sampling systems | | $ | 675 | | $ | 808 | | $ | (133) |
| (16) | % |
Analytical instruments | |
| 1,718 | |
| 1,304 | |
| 414 |
| 31.7 | % |
Other instruments | |
| 278 | |
| 398 | |
| (120) |
| (30.2) | % |
| | $ | 2,671 | | $ | 2,510 | | $ | 161 | | | |
Cost of Revenues
Cost of revenues for the nine months ended June 30, 2021 was $39,681 or 66.7% of revenue compared to $30,849, or 69.0% of revenue compared to the nine months ended June 30, 2020.
Cost of Service revenue as a percentage of Service revenue decreased to 67.2% during the nine months ended June 30, 2021 from 69.0% in the nine months ended June 30, 2020 reflecting operating leverage and the greater utilization of recently expanded capacity.
Cost of Product revenue as a percentage of Product revenue in the nine months ended June 30, 2021 decreased to 55.3% from 68.9% in the nine months ended June 30, 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 nine months ended June 30, 2021 decreased 12.3% to $2,343 from $2,672 compared to the nine months ended June 30, 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, although travel has begun to increase during the third quarter of fiscal year 2021.
Research and development expenses for the nine months ended June 30, 2021 decreased 32.4% compared to the nine months ended June 30, 2020 to $290 from $429.
Costs related to the development and initiation of new service offerings and are not revenue generating at this time are being identified as Startup costs. During the nine months ended June 30, 2021, we invested in additional service offerings such as 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 investments in SEND reporting, safety pharmacology, clinical pathology, medical device pathology, biotherapeutics and genetic toxicology. These expenses include, but are not limited to, employee compensation expenses, travel expenses, relocation expenses and recruiting expenses. While certain of these costs are one-time in nature, there are certain costs (e.g. salaries) that will be expected to recur once the new offerings are revenue generating at which time the related costs will be reclassified on the consolidated statement of operations, respectively. Startup costs for the nine months ended June 30, 2021 were $841 as compared to $232 for the nine months ended June 30, 2020. Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
General and administrative expenses for the nine months ended June 30, 2021 increased 52.3% to $18,584 from $12,205 compared to the nine months ended June 30, 2020 as the Company continued to build the infrastructure for growth, which included additional headcount, recruiting and relocation expense, as well ashigher compensation expense, transaction costs related to the acquisition of HistoTox Labsacquisitions closed in the six months ended March 31, 2022 and Histion, an increase in sales commissions due to higher sales awards and an increase in startup costs for internal investments in new service offerings. Additionally, there was an increase in selling expenses due to an increase in travel cost as our sales and marketing teams have traveled more as the Merger. In addition,COVID-19 pandemic. During the six months ended March 31, 2022, we announced investments being madecontinued investing in internal capabilities to provide additional service offerings such as laboratory infrastructuresolutions, medical device pathology, biotherapeutics and data and study management technologies through a partnership with Centric Consulting, LLC.genetic toxicology.
Other Income (Expense)
Interest expense for the ninesix months ended June 30, 2021March 31, 2022 increased 7.2% to $1,163$12,375 from $1,085$713 compared to the ninesix months ended June 30, 2020March 31, 2021. The increase in interest expense is due primarily to higherthe convertible senior notes and the senior term loan facility amd incremental loans, as well as various promissory notes, entered into subsequent to March 31, 2021. Interest expense for the six months ended March 31, 2022 includes approximately $2,512 of non-cash interest expense.
Other income (expense) for the six months ended March 31, 2022 was an expense of $57,866 compared to income of $179 for the six months ended March 31, 2021, due primarily to the Company recognizing a $56,714 fair value remeasurement of the embedded derivative component of the convertible notes issued in September 2021 and $877 loss on debt levels.extinguishment.
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Income Taxes
Our effective income tax rates for the ninesix months ended June 30,March 31, 2022 and 2021 were 6.2% and 2020 were (147.39)(4.6)% and (4.62)%, respectively. The income tax benefit recorded for the nine months ended June 30, 2021 was $4,706 and relates primarily to a discrete change in valuation allowance as a result of the Bolder BioPATH acquisition in the quarter. The income tax(benefit) expense recorded for nineeach period was ($5,939) and $48, respectively. The benefit from income taxes for the six months ended June 30, 2020March 31, 2022 was $129primarily related to a release of valuation allowance due to deferred tax liabilities established as part of the acquisition of Envigo, as well as, the impact on tax expense of certain book to tax differences on the deductibility of transaction costs, loss on fair value remeasurement of the embedded derivative component of the convertible notes, and other permanent items. The expense from income taxes in the six months ended March 31, 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 credits is required to be recorded.
Net Income (Loss)Income/Loss
As a result of the above described factors, described above and the restatement below, net income for the nine months ended June 30, 2021 amounted to $1,513, compared towe had a consolidated net loss of $2,893$90,075 for the ninesix months ended June 30, 2020. Net income includes the restatement determined by the Company’s management and audit committee of a non-cash tax benefit of $4.9 million relatingMarch 31, 2022 as compared to a partial releaseconsolidated net loss of $1,089 during the Company’s valuation allowance for deferred tax liabilities acquired with the acquisitions of Bolder BioPATH in the third quarter.six months ended March 31, 2021.
Liquidity and Capital Resources
We believe our primary sources of liquidity are sufficient to fund our short-term and long-term existing and planned capital requirements, which include working capital obligations, capital expenditures, business development in our targeted areas, short-term and long-term debt obligations which include principal and interest payments, operating lease payments, costs associated with the integrations of our acquisitions. In addition, we have the ability to access capital markets to obtain debt refinancing for longer-term funding, if required, to service our long-term debt obligations. Further, we believe we have sufficient cash flow and liquidity to remain in compliance with our debt covenants.
Comparative Cash Flow Analysis
At June 30, 2021,March 31, 2022, we had cash and cash equivalents of $24,660,$47,042, compared to $1,406$138,924 at September 30, 2020.2021, exclusive of restricted cash.
Net cash provided by operating activities was $8,049$4,027 for the ninesix months ended June 30, 2021March 31, 2022 compared to net cash provided by operating activities of $1,586$4,526 for the ninesix months ended June 30, 2020.March 31, 2021. Contributing factors to our cash provided by operations in the first ninesix months ended March 31, 2022, were noncash charges of fiscal$15,866 for depreciation and amortization, $20,300 for non-cash stock compensation expense, $56,714 for loss on fair value measurement of convertible senior notes, changes in deferred taxes of $1,907, amortization of debt issuance costs and original issue discount of $1,203, non-cash amortization of inventory fair value step-up of $6,277 and a net decrease due to changes in operating assets and liabilities of $8,725 .
Contributing factors to our cash provided by operations for the six months ended March 31, 2021 were noncash charges of $4,087$2,154 for depreciation and amortization, $1,040$460 for stock compensation expense, a change in deferred taxes of $4,867, and a net increase in customer advances of $7,451, as a result of increasing orders and the acquisitions of HistoTox Labs and Bolder BioPATH. These items were partially offset by an increase of $1,306 in accounts payable and an increase of $1,594 in accrued expenses.
Days’ sales in accounts receivable increased to 74 days at June 30, 2021 from 56 days at September 30, 2020 due to an increase in accounts receivable from the acquisitions during the quarter. 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 nine months ended June 30, 2020 are non-cash charges of $2,747 for depreciation and amortization, $380 for stock compensation expense, $327 increase in accrued expenses and a net increase in customer advances of $4,063,$3,831, as a result of increasing orders. These items were partially offset by an increase of $701$1,927 in accounts receivable, an increase of $395 in inventories, and a decrease of $2,040 in accounts payable.
Investing activities used $49,054 in the nine months ended June 30, 2021 due mainly to cash paid in the acquisition of HistoTox and the Merger of $40,698 and capital expenditures of $8,358 as compared to $9,094 used in the first nine months of fiscal 2020. The capital additions during the nine months ended June 30, 2021 consisted of the purchase of our St. Louis facility, facility improvements in Ft. Collins and investments in laboratory equipment.
Financing activities provided $64,259 in the nine months ended June 30, 2021, compared to $9,850 provided during the nine months ended June 30, 2020. The cash provided in the first nine months of fiscal 2021 included proceeds from the issuance of common stock of $48,972 and borrowings on long-term loans of $17,087, partially offset by payments of long-term borrowings of $2,620 and debt issuance costs of $409. The main sources of cash in the first nine months of fiscal 2020 were from borrowings on the long-term loan of $3,726, funds received from the PPP loan of $5,051 and borrowings on the Construction loan and Capex lines of credit of $1,287 and $2,423, respectively. Total long-term loan payments were $1,157 and net repayments on the Revolving Credit facility were $1,063. Finance lease payments of $330 and payment of debt issuance cost of $111 also contributed to the use of cash.
Capital Resources
Credit Facilityreceivable.
On April 30, 2021, we 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 acquisition of HistoTox Labs and the Merger. The Credit Agreement included eleven term loans (the “Term Loans”), an equipment
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drawInvesting activities used $303,621 in the six months ended March 31, 2022 due mainly to $288,702 paid in the acquisitions of Plato, Envigo RSI, ILS and OBRC and capital expenditures of $15,202 as compared to $2,425 used in the six months ended March 31, 2021. The capital additions during the six months ended March 30, 2022 primarily consisted of the renovation and expansion of the Denver, Pennsylvania facility and continued construction of our St. Louis facility, as well as purchases of certain lab equipment.
Financing activities provided $190,531 in the six months ended March 31, 2022 compared to $1,321 used in the six months ended March 31, 2021. The cash provided in the six months ended March 31, 2022 included borrowings on a senior term notes of $165,000 related to the term loan (the “Equipment Loan”),facility used in the Envigo acquisition and a$40,000 related to the Amendment, which was partially used in the OBRC acquisition and partially used to repay the revolving loan facility borrowings, and included borrowings on the DDTL of $35,000, which was used in the ILS acquisition, partially offset by payments of long-term borrowings of $37,746, payments of debt issuance costs of $9,887 and repayment of our previous capex line of credit of $1,749.
Capital Resources
Credit Facility
On November 5, 2021, the Company, certain of subsidiaries of the Company (the “Revolving Facility”“Subsidiary Guarantors”). On May 26, 2021, we, the lenders party thereto, and Jefferies Finance LLC, as administrative agent, entered into an amendment to thea Credit Agreement to, among other things, provide(the “Credit Agreement”). The Credit Agreement provides for a new term loan facility to finance the acquisition and refurbishment of our Maryland Heights, Missouri, facility, which we had previously leased. The material terms of each of the loans under the Credit Agreement, as amended, are described below.
Included in the Credit Agreement isoriginal principal amount of $165,000, a requirement that we maintain certain financial covenants, including maintaining a senior funded debt to adjusted EBITDA ratio (as defineddelayed draw term loan facility in the Credit Agreement)original principal amount of not greater than (i) 5.25$35,000 (available to 1.00 as ofbe drawn up to 18 months from the date of the Credit AgreementAgreement), and asa revolving loan facility in the original principal amount 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, 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.
Also included in$15,000. In addition, the Credit Agreement is a requirement that we maintain a fixed charge coverage ratio (as defined inprovides for an aggregate combined increase of 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.
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.
Our obligations under the Credit Agreement are guaranteed by each of our subsidiaries (collectively, the “Guarantors”). Our obligations under the Credit Agreementrevolving loan facility and the Guarantors’ obligations under their respective guaranties are secured by first priority security interests in substantially all of our assets and the assets of the Guarantors, mortgages on our real property in West Lafayette, Indiana, Evansville, Indiana, Maryland Heights, Missouri, and Fort Collins, Colorado, and pledges of our ownership interests in our subsidiaries. We have also obtained a life insurance policy in the amount of $5.0 million for our President and Chief Executive Officer and provided FIB an assignment of such life insurance policy as additional collateral.
(a) Terms of the Equipment Loan.
We may borrow under the Equipment Loan on or before April 30, 2022 in the aggregate principal amountterm loan facility of up to $3.0 million (the “Equipment Loan Commitment”). The Equipment Loan Commitment$35,000, which amount will automatically terminate uponbe available to be drawn once the earlier of (x) any funding ofdelayed draw term loan facility is no longer available. On November 5, 2021, the maximumCompany borrowed the full amount of the Equipment Loan Commitment and (y) 5:00 p.m., Indianapolis time, on April 30, 2022. Until April 30, 2022, we must pay interestterm loan facility, but did not borrow any amounts on the amount outstanding underdelayed draw term loan facility or the Equipment Loanrevolving loan facility.
The Company may elect to borrow on each of the loan facilities at a fixed annualeither an adjusted LIBOR rate of 4.00%. On April 30, 2022, all amounts outstanding under the Equipment Loan will be converted to a term loan and repaid monthly in installmentsinterest or an adjusted prime rate of principal based on a five (5) year amortization schedule together with the interest thatinterest. Adjusted LIBOR rate loans shall accrue thereon. A final installment representing the entire unpaid principal of the Equipment Loan, and all accrued and unpaid interest thereon and all fees and charges in connection therewith, will be due and payable on April 30, 2027. Advances under the Equipment Loan will be used to fund our equipment needs as approved by FIB.
(b) Terms of the Revolving Facility.
The Revolving Facility provides a line of credit for up to $5.0 million, which we may borrow from time to time, subject to the terms of the Credit Agreement, including as may be limited by the amount of our outstanding eligible receivables. The Revolving Facility requires monthly accrued and unpaid interest payments only until maturity at a floating per annuman annual rate equal to the greaterLIBOR rate plus a margin of (a) 4.00%between 6.00% and 6.50%, or (b)depending on the Prime IndexCompany’s then current Secured Leverage Ratio (as defined in the Credit Agreement). We did not haveThe LIBOR rate must be a minimum of 1.00%. The initial adjusted LIBOR rate of interest is the LIBOR rate plus 6.25%. Adjusted prime rate loans shall accrue interest at an outstanding balanceannual rate equal to the prime rate plus a margin of between 5.00% and 5.50%, depending on the Revolving Facility asCompany’s then current Secured Leverage Ratio. The initial adjusted prime rate of June 30, 2021. Advances underinterest is the Revolving Facilityprime rate plus 5.25%. Actual interest accrued at 7.25% through March 31, 2022.
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 commitments 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 draw 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 loan facility on an annual basis in an amount equal to a percentage of its Excess Cash Flow (as defined in the Credit Agreement), which percentage will be useddetermined by its then current Secured Leverage Ratio. Each of the loan facilities may be repaid at any time with premium or penalty.
The Company is required to maintain an initial Secured Leverage Ratio of not more than 4.25 to 1.00. The maximum permitted Secured Leverage Ratio shall reduce to 3.75 to 1.00 beginning with the Company’s fiscal quarter ending September 30, 2023 and 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), which ratio shall be 1.00 to 1.00 during the first year of the Credit Agreement and shall be 1.10 to 1.00 from and 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.
First Amendment to Credit Agreement
On January 27, 2022, the Company, Subsidiary Guarantors, the lenders party thereto, and Jefferies Finance LLC, as administrative agent, entered into a First Amendment (“Amendment”) to the existing Credit Agreement. The Amendment provides for, general working capital purposes.
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(c) Termsamong other things, an increase to the existing term loan facility in the amount of $40,000 (the “Incremental Term Loans”) and a new delayed draw term loan facility in the original principal amount of $35,000, which amount is available to be drawn up to 24 months from the date of the Amendment (the “DDTL”). The Incremental Term Loans:
| | | | | | | | | | | | | | | |
|
| Principal Amount | |
| | | |
| | |
| |
| | |
| | as of date of Credit | | | | | | Monthly | | | | | |||
| | Agreement | | Balance | | Annual | | Payment | | | | | |||
| | April 30, 2021 | | June 30, 2021 | | Interest | | Amount | | | | | |||
Loan Name | | (000) | | (000) | | Rate | | (000) | | Maturity Date | | Use of Proceeds | |||
Term Loan 1 | | $ | 3,980 | | $ | 3,943 | | 5.20 | % | $ | 36 | | March 28, 2025 |
| Funded expansion of building on real property in Mount Vernon, IN |
Term Loan 2 | | $ | 3,571 | | $ | 3,446 | | 5.06 | % | $ | 78 | | July 2, 2023 |
| Funded a portion of the cash consideration for the Seventh Wave Laboratories acquisition |
Term Loan 3 | | $ | 1,076 | | $ | 1,031 | | 5.20 | % | $ | 32 | | March 28, 2025 |
| Funded equipment needs associated with expansion of real property in Mount Vernon, IN |
Term Loan 4 | | $ | 1,001 | | $ | 969 | | 4.63 | % | $ | 20 | | November 1, 2025 |
| Funded the cash consideration for the Smithers Avanza acquisition |
Term Loan 5 | | $ | 810 | | $ | 781 | | 4.00 | % | $ | 17 | | June 30, 2025 |
| Funded certain capital expenditures |
Term Loan 6 | | $ | 2,865 | | $ | 2,728 | | 4.25 | % | $ | 56 | | December 31, 2025 |
| Funded certain capital expenditures |
Term Loan 7 | | $ | 1,263 | | $ | 1,216 | | 4.00 | % | $ | 28 | | June 1, 2025 |
| Financed aspects of the Pre-Clinical Research Services and related real property acquisitions |
Term Loan 8 | | $ | 1,853 | | $ | 1,842 | | 4.00 | % | $ | 12 | | December 1, 2024 |
| Financed aspects of the Pre-Clinical Research Services and related real property acquisitions |
Term Loan 9 | | $ | 10,000 | | $ | 9,850 | | 3.85 | % | $ | 184 (a) | | April 30, 2026 |
| Funded a portion of the cash consideration of the Merger |
Term Loan 10 | | $ | 5,000 | | $ | 4,925 | | 3.85 | % | $ | 92 (a) | | April 30, 2026 |
| Funded a portion of the cash consideration of the HistoTox Labs Acquisition |
Term Loan 11 | | $ | 3,622 | | $ | 3,559 | | 3.99 | % | $ | 33 | | June 23, 2022 |
| Refinanced debt with The Huntington Bank for general business purposes |
Term Loan 12 | | $ | 4,832 (b) | | $ | 2,088 | | 3.85 | % | $ | 10 (c) | | December 26, 2026 |
| Financed the acquisition of the St. Louis facility and associated expansion |
Loans and any amounts borrowed under the DDTL are referred to herein as the “Additional Term Loans”. On January 27, 2022, the Company borrowed the full amount of the Incremental Term Loans, but did not borrow any amounts under the DDTL.
(a) See Mandatory Prepayments information below.
(b) Principal amount asAmounts outstanding under the Additional Term Loans will accrue interest at an annual rate equal to the LIBOR rate plus a margin of May 26, 2021.
(c)between 6.00% and 6.50%, depending on the Company’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The monthly payment amount increases to $29 on January 1,initial adjusted LIBOR rate of interest is the LIBOR rate of 1.00% plus 6.25% for a total rate of 7.25%. Actual interest accrued at 7.25% through March 31, 2022.
(d) Mandatory Prepayments.
Commencing with the fiscal year ending September 30, 2021 and for each fiscal year thereafter until theThe Additional Term Loan 9 and/or Term Loan 10, in each case, are paid in full, we must prepay Term Loan 9 and Term Loan 10 on a pro rata basis on the following January 31st,Loans require annual principal payments in an amount equal to 50%1.0% of our excess cash flow (as definedthe original principal amount. Voluntary prepayments of the Additional Term Loans will be subject to a 2% prepayment premium if made on or prior to November 5, 2022 and a 1% prepayment premium if made on or prior to November 5, 2023. Voluntary prepayments made after November 5, 2023 are not subject to a prepayment premium.
Each of the Additional Term Loans require annual principal payments in an amount equal to 1.0% of their respective original principal amounts. The Company shall also repay the Credit Agreement) for such fiscal year (in each case,term loans on an “Excess Cash Flow Payment”), provided that for the fiscal year ending September 30, 2021 theannual basis in an amount equal to a percentage of its Excess Cash Flow Payment, if any, will be calculated only for the period from April 30, 2021 through September 30, 2021. Excess cash flow will be calculated for each fiscal year based on (a) our adjusted EBITDA (as defined in the Credit Agreement), minus (b) cash interest expense, minus (c) cash taxes paid or cash distributions made for paymentwhich percentage will be determined by its then current Secured Leverage Ratio.
The Additional Term Loans are secured by all assets (other than certain excluded assets) of taxes, minus (d) principal payments paidthe Company and each of the Subsidiary Guarantors. Repayment of the Additional Term Loans is guaranteed by each of the Subsidiary Guarantors.
The Additional Term Loans will mature on November 5, 2026.
Long term debt as of March 31, 2022 and September 30, 2021 is detailed 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.table below.
| | | | | | |
| | As of: | ||||
|
| March 31, 2022 |
| September 30, 2021 | ||
FIB Term Loans | | $ | — | | $ | 36,185 |
Seller Note – Bolder BioPath | |
| 940 | |
| 1,500 |
Seller Note – Smithers Avanza | |
| 70 | |
| 280 |
Seller Note – Preclinical Research Services | | | 650 | | | 685 |
Seller Note – Plato BioPharma | | | 2,571 | | | — |
Seller Payable - Orient BioResource Center | | | 3,325 | | | |
Economic Injury Disaster Loan | | | 140 | | | — |
Convertible Senior Notes | | | 102,324 | | | 131,673 |
Term Loan Facility and Incremental Term Loans | | | 239,400 | | | — |
| |
| 349,420 | |
| 170,323 |
Less: Current portion | |
| (5,339) | |
| (9,656) |
Less: Debt issue costs not amortized | |
| (11,807) | |
| (6,458) |
Total Long-term debt | | $ | 332,274 | | $ | 154,209 |
Acquisition-related Debt
In addition to the indebtedness under the Credit Agreement, certain of ourthe Company’s subsidiaries have issued unsecured notes as partial payment of the purchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the indebtedness under the Credit Agreement.
As part of the Smithers Avanza acquisition our BASi Gaithersburg subsidiary issued an unsecured subordinated promissory note payable to the Smithers Avanza seller in the initial principal amount of $810,Plato, which we guaranteed. The promissory note bears interest atis a rate of 6.5% per annum, with monthly payments of principal and interest and a maturity date of May 1, 2022. At June 30, 2021, the balance on the note payable to the Smithers Avanza seller was $385.
As part of the PCRS Acquisition, our Bronco Research Services subsidiary issued an unsecured subordinated promissory note payable to the PCRS seller in the initial principal amount of $800. The promissory note bears interest at a rate of 4.5% per annum with
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monthly payments of principal and interest and a maturity date of December 1, 2024. At June 30, 2021, the balance on the note payable to the PCRS seller was $702.
As part of the acquisition of Boulder BioPATH, ourCompany’s Inotiv Boulder subsidiary, Inotiv Boulder, LLC, issued unsecured subordinated promissory notes payable to the former shareholders of Boulder BioPATHPlato in an aggregate principal amount of $1,500.$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 MayJune 1, 2026. At June 30, 2021,2023.
As part of the balance onacquisition of OBRC, the notesCompany agreed to leave in place a payable owed by OBRC to the former Boulder BioPATH shareholders was $1,500.
PPP Loan
On April 23, 2020, we were granted a loan (the “Loan”) from Huntington National Bank in the aggregate amount of $5,051, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The terms of the Loan call for repayment of the principal and accrued interest under the Loan in eighteen installments of $283 beginning on November 16, 2020 and continuing monthly until the final payment is due on April 16, 2022. However, the bank is not requiring payments of principal or interest pending the loan forgiveness decision. We applied for forgiveness of the loanseller in the amount of $4,851. $3,700, which the Company determined to have a fair value of $3,325 as of January 27, 2022. The payable will not bear interest and is required to be paid to seller on the date that is 18 months after the closing date of January 27, 2022. The Company has the right to set
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off against the payable any amounts that become payable by the seller on account of indemnification obligations under the purchase agreement.
Convertible Senior Notes
On July 16,September 27, 2021, we received notice from Huntingtonthe Company issued $140,000 principal amount of its 3.25% Convertible Senior Notes due 2027 (the “Notes”). The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among the Company, the Company’s wholly owned subsidiary, BAS Evansville, Inc., as guarantor (the “Guarantor”), and U.S. Bank thatNational Association, as trustee (the “Indenture”). Pursuant to the SBA had approved our application for forgivenesspurchase agreement between the Company and the initial purchaser of the PPP Loan inNotes, 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 amount requested.
On January 28, 2015, we entered into a lease agreement with Cook Biotech, Inc. The lease agreement has and will provide us with additional cash in the range of approximately $50 per month during the first year ofexercise by the initial term to approximately $57 per month during the final yearpurchaser of the initial term.
On April 23, 2021, we closed an underwritten public offering of 3,044 of our common shares. 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, a portion of which net proceeds weresuch option. The Company used to fund a portion of the cash consideration paid in the acquisitions of HistoTox Labs and the Merger. The remainder of the net proceeds from the offering remain available for general corporate purposes,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.
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 capital expenditurestrade payables, and potential future acquisitions.(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 the Guarantor.
Sources
The Notes accrue interest at a rate of liquidity for fiscal 2021 are expected3.25% 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 consist primarilyconvert 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 generated from operations,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. 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 on-hand (includingamount equal to the remaining net proceedsprincipal 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 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 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 its 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 Indenture or
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the Notes if such default is not cured 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 their 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 or until it meets equity classification requirements and is valued utilizing Level 3 inputs as described below. The discount resulting from the April public offering) and additional borrowings available under our Credit Agreement. 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 byinitial fair value of 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 capitalembedded derivative will be importantamortized to our abilityinterest expense using the effective interest method. Non-cash interest expense during the period primarily related to make such investments. Management believes thatthis discount.
In the resources describedfirst quarter of 2022, the Company 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 shares 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 of the increase in authorized shares on November 4, 2021 (see Note 2 – Equity), the 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 upon the above, will be sufficientthe Company remeasured the fair value of the embedded 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 six months ended March 31, 2022 of $56,714. The embedded derivative liability of $88,576 was then reclassified to fund operations, plannedadditional paid-in capital expenditures and working capital requirements over the next twelve months.in accordance with ASC 815.
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 March 31, 2022, our debt portfolio was reliant on reference rates. Based on our interest rate exposure at March 31, 2022, assumed debt levels throughout the next 12 months, a one-percentage-point increase in interest rates would result in an estimated $2.4 million 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.
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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 March 31, 2022 cash balance by this Item 3.approximately $1 million and our revenue by approximately $6.85 million.
ITEM 4 - CONTROLS AND PROCEDURES
Information pertaining to controls and procedures in this Item 4 has been updated for events and developments occurring subsequent to the filing of the original Form 10-Q related to the third quarter of fiscal 2021.
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
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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 initially resulted in a determination by our Chief Executive Officer and Chief Financial Officer that our disclosure controls and procedures were not effective as of June 30, 2021.March 31, 2022.
In lightOn December 15, 2021, the Company's management and the Audit Committee of the restatementBoard of our financial statements for the period covered by this reportDirectors concluded that, due to a failure to properly account for certain tax attributes related to the Bolder BioPATHan acquisition that occurred in the Company's third fiscal quarter of 2021, 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, hastogether with the Audit Committee, determined that the Company’s financial 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 certain of the Company’s disclosure controls and procedures and internal controlscontrol over financial reporting as of June 30, 2021. Based on this reevaluation, our Chief Executive Officer2021 and Chief Financial Officer have concluded that, duringin light of the period covered by this report,error described above, a material weakness existed in the Company’s internal control over financial reporting and that certain of ourthe Company’s disclosure controls and procedures were not effective due to a material weakness in internal controls over financial reporting, specifically as it relates to the tax impact of acquisitions that qualify as stock transactions for tax purposes.June 30, 2021.
To address this material weakness, management46
Management has devoted,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 have re-assessed our non-audit third-party professionals with whom we consult regarding application of accounting guidance related to the tax issues and have engaged more experienced advisers. 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.
Other than this issue, our Management has performed an analysis of the consolidated tax process, identifying material risks and formalizing key controls to address the related material risks. Management plans to perform testing over these key controls beginning in the third fiscal quarter and into the fourth fiscal quarter. Until management has adequately tested the applicable key controls and confirmed that they are working as designed, 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 were effectivethat existed at a reasonable assurance level and, accordingly, provided reasonable assurance that the information requiredSeptember 30, 2021 continued to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.exist at March 31, 2022.
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 thirdsecond quarter of fiscal 20212022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting as the circumstances that led to the material weakness described above had not yet been identified. We are in the process of implementing changes to our internal control over financial reporting to remediate the material weakness, as more fully described above. 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.
reporting.
PART II
ITEM 1 – LEGAL PROCEEDINGS
There wereLitigation
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, 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 continue 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.
Government Investigations
During the period from July 2021 through March 2022, 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, and has made multiple remediations and improvements at the facility, of which it has kept USDA apprised. 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 the 10-Q filing date, no material changes duringinvestigation had been initiated.
On June 15, 2021, Envigo Global Services, Inc. (“EGSI”), a subsidiary of the third quarterCompany acquired in the Envigo acquisition, received a grand jury subpoena requested by the U.S. Attorney’s Office for the Southern District of fiscalFlorida (“USAO”) for the production of documents related to the procurement of non-human primates (“NHPs”) from foreign suppliers for the period January 1, 2018 through June 1, 2021. The subpoena relates to an earlier grand jury subpoena requested by the USAO and received by EGSI’s predecessor entity , Covance Research Products, in April 2019. Envigo acquired EGSI from Covance, Inc. (“Covance”), a subsidiary of Laboratory Corporation of America Holdings, in June 2019. The EGSI transaction agreement provides for indemnification of Envigo and its officers, directors and affiliates by Covance for any liabilities arising out of or related to the USAO’s investigation in connection with the subpoena to Covance Research Products, as well as certain other matters, subject to an overall indemnification limit for the investigation and certain other matters of $5.5 million.
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On January 27, 2022, EGSI acquired Orient BioResource Center, Inc. (“OBRC”), which owns and operates a primate quarantine and holding facility located near Alice, Texas. In 2019, OBRC received grand jury subpoenas requested by the USAO requiring the production of documents and information related to its importation of NHPs into the United States. On June 16, 2021 , OBRC received a grand jury subpoena requested by the USAO requiring the production of documents related to our disclosure in Item 3the procurement of our Form 10-KNHPs from foreign suppliers for fiscal 2020.the period January 1, 2018 through June 1, 2021. The OBRC purchase agreement provides for indemnification of EGSI and its officers, directors and affiliates by the seller, Orient Bio, Inc., for liabilities resulting from actions, inactions, errors or omissions of Orient Bio, Inc. or OBRC related to any period prior to the closing date.
The Company is cooperating with the USAO.
No form of proceedings has been brought, instigated or is known to be contemplated against the Company by any government agency.
ITEM 1A - RISK FACTORS
Information pertaining to our risk factors has been updated in connection with the restated financials noted herein.
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. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.
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
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results, or the extent to which any such risk factor or combination of risk factors may impact our business, financial condition and operating results.
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 Purchase
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On 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:
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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 June 30, 2021, we had 15,866,655 outstanding common shares and 868,550 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
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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 utilized 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.
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.to one of the owners of Robinson Services, Inc. The saleshares were issued in reliance upon the exemption from the registration requirements of equity and convertible debt securities may result in dilution to our shareholders and those securities may have rights senior to thosethe Securities Act provided by Section 4(a)(2) 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 maythe Securities Act as sales by an issuer not be available on reasonable terms, or at all. If we cannot timely raiseinvolving 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.public offering..
In connection with the recent restatement of our financial statements, our management has concluded that certain of our disclosure controls and procedures were not effective as of June 30, 2021 due
On January 10, 2022, pursuant to a material weaknessMembership Interest Purchase Agreement among Inotiv Morrisville, LLC, Integrated Laboratory Systems Holdings, LLC, Inotiv, Inc., and Integrated Laboratory Systems, LLC, the Company issued 429,118 common shares to Integrated Laboratory Systems Holdings, LLC. The shares were issued in internal control over financial reporting solely related to our accounting forreliance upon the tax impact of acquisitions that qualify as stock transactions for tax purposes. If we are unable to maintain an effective system of disclosure controls and procedures and internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and financial results.
Management andexemption from the Audit Committeeregistration requirements of the BoardSecurities Act provided by Section 4(a)(2) of Directors concluded that it was appropriate to restate the Company’s previously issued unaudited interim financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 13, 2021, due toSecurities Act as sales by an error in accounting for certain tax attributes related to an acquisition completed by the Company in the third quarter of fiscal 2021. As part of such process, we identified a material weakness in our internal control over financial reporting, solely related to our accounting for the tax impact of acquisitions that qualify as stock transactions for tax purposes.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements willissuer not be prevented or detected and corrected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We expect to take steps to remediate the material weakness, but there is no assurance thatinvolving any remediation efforts will ultimately have the intended effects.
If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.public offering.
On January 27, 2022, pursuant to a Stock Purchase Agreement among Envigo Global Services, Inc., Inotiv, Inc. and Orient Bio, Inc., the Company issued 677,339 common shares to Orient Bio, Inc. The shares were issued in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any public offering.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5 – OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS
Number | Number |
| Description of Exhibits | Number |
| Description of Exhibits |
| 3.1 |
| 2.1 | | ||
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| 2.2 | | ||||
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(3) | 3.1 |
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(10) | 10.1 |
| 10.1 |
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| 10.2 | | 10.2 | | ||
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| 10.3 | | 10.3 | | ||
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| 10.4 | | 10.4 | | ||
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| 10.5 | | Consent and Waiver letter, dated May 5, 2021, from First Internet Bank of Indiana (filed herewith) | |||
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(31) | 31.1 |
| Certification of Principal Executive Officer (filed herewith).* | 31.1 |
| Certification of Principal Executive Officer (filed herewith). |
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| 31.2 |
| 31.2 |
| Certification of Principal Financial Officer (filed herewith). | |
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(32) | 32.1 |
| 32.1 |
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| 32.2 |
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| 101 |
| Inline XBRL data file (filed herewith) | 101 |
| Inline XBRL data file (filed herewith) |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| | | *The certifications have been updated and no other changes were made. |
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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) | |
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| By: | /s/ Robert W. Leasure |
| Robert W. Leasure | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
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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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