s
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36415
QUOTIENT LIMITED
(Exact name of registrant as specified in its charter)
Jersey, Channel Islands |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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Business Park Terre Bonne, Route de Crassier 13, 1262 Eysins, Switzerland |
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Not Applicable |
(Address of principal executive offices) |
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(Zip Code) |
011-41-22-716-9800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
Ordinary Shares, nil par value |
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QTNT |
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The Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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|||
Non-accelerated filer |
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☒ |
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Smaller reporting company |
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☒ |
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Emerging growth company |
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☐ |
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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 5, 2022, there were 135,802,201 Ordinary Shares, nil par value, of Quotient Limited outstanding.
TABLE OF CONTENTS
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Page |
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3 |
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3 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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17 |
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23 |
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23 |
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24 |
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24 |
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24 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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24 |
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24 |
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24 |
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24 |
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24 |
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25 |
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- i -
Cautionary note regarding forward-looking statements
This Quarterly Report on Form 10-Q, and exhibits thereto, contains estimates, predictions, opinions, projections and other statements that may be interpreted as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 2: "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and are also contained elsewhere in this Quarterly Report. Forward-looking statements can be identified by words such as "strategy," "objective," "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "contemplate," "might," "design" and other similar expressions, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain, and are subject to numerous known and unknown risks and uncertainties.
Forward-looking statements include statements about:
- 1 -
You should also refer to the various factors identified in this and other reports filed by us with the Securities and Exchange Commission, or SEC, including but not limited to those discussed in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended March 31, 2022, for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report represent our views only as of the date of this Quarterly Report. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward-looking statements, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.
Available Information
Access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed with or furnished to the SEC, may be obtained through the investor section of our website at www.quotientbd.com as soon as reasonably practical after we electronically file or furnish these reports. We do not charge for access to and viewing of these reports. Information on our website, including in the investor section, is not part of this Quarterly Report on Form 10-Q or any of our other securities filings unless specifically incorporated herein or therein by reference. In addition, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.
- 2 -
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(Expressed in thousands of U.S. Dollars — except for share data and per share data)
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June 30, |
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March 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
46,153 |
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$ |
65,059 |
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Short-term investments |
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2,480 |
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|
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2,626 |
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Trade accounts receivable, net |
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5,056 |
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6,272 |
|
Inventories |
|
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22,082 |
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|
|
22,036 |
|
Prepaid expenses and other current assets |
|
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10,918 |
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5,761 |
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Total current assets |
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86,689 |
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101,754 |
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Restricted cash |
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8,724 |
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8,744 |
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Long-term investments |
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14,604 |
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15,467 |
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Property and equipment, net |
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31,118 |
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33,242 |
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Operating lease right-of-use assets |
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28,494 |
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29,411 |
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Intangible assets, net |
|
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465 |
|
|
|
520 |
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Deferred income taxes |
|
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123 |
|
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|
123 |
|
Other non-current assets |
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4,373 |
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|
4,728 |
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Total assets |
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$ |
174,590 |
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$ |
193,989 |
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
5,504 |
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$ |
4,524 |
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Accrued compensation and benefits |
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6,507 |
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8,503 |
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Accrued expenses and other current liabilities |
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12,815 |
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15,729 |
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Current portion of operating lease liability |
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3,689 |
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3,535 |
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Current portion of finance lease obligation |
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406 |
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|
537 |
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Total current liabilities |
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28,921 |
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32,828 |
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Long-term debt, less current portion |
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236,348 |
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|
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233,313 |
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Derivative liabilities |
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2,733 |
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|
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13,515 |
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Operating lease liability, less current portion |
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27,845 |
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28,753 |
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Finance lease obligation, less current portion |
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358 |
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|
|
388 |
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Deferred income taxes |
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1,857 |
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1,988 |
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Defined benefit pension plan obligation |
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4,818 |
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4,777 |
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7% Cumulative redeemable preference shares |
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22,788 |
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22,525 |
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Total liabilities |
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325,668 |
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338,087 |
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Shareholders' equity (deficit): |
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Ordinary shares par value) 135,683,559 and 102,611,397 issued and outstanding at June 30, 2022 and March 31, 2022 respectively |
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558,639 |
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540,736 |
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Additional paid in capital |
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48,033 |
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46,399 |
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Accumulated other comprehensive loss |
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6,160 |
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(6,191 |
) |
Accumulated deficit |
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(763,910 |
) |
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(725,042 |
) |
Total shareholders' equity (deficit) |
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(151,078 |
) |
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(144,098 |
) |
Total liabilities and shareholders' equity (deficit) |
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$ |
174,590 |
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$ |
193,989 |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
- 3 -
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(Expressed in thousands of U.S. Dollars — except for share data and per share data)
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Quarter ended |
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2022 |
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2021 |
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Revenue: |
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Product sales |
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$ |
8,814 |
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$ |
9,041 |
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Other revenues |
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— |
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48 |
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Total revenue |
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8,814 |
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9,089 |
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Cost of revenue |
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(6,120 |
) |
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(4,777 |
) |
Gross profit |
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2,694 |
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4,312 |
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Operating expenses: |
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Sales and marketing |
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(3,306 |
) |
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(2,493 |
) |
Research and development, net of government grants |
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(14,146 |
) |
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(13,531 |
) |
General and administrative expense: |
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Compensation expense in respect of share |
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(1,634 |
) |
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(1,823 |
) |
Other general and administrative expenses |
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(9,403 |
) |
|
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(8,353 |
) |
Total general and administrative expense |
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|
(11,037 |
) |
|
|
(10,176 |
) |
Total operating expense |
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(28,489 |
) |
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(26,200 |
) |
Operating loss |
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(25,795 |
) |
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(21,888 |
) |
Other income (expense): |
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Interest expense, net |
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(8,574 |
) |
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(3,002 |
) |
Other, net |
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(4,366 |
) |
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(1,732 |
) |
Other income (expense), net |
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(12,940 |
) |
|
|
(4,734 |
) |
Loss before income taxes |
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(38,735 |
) |
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(26,622 |
) |
Provision for income taxes |
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(133 |
) |
|
|
(670 |
) |
Net loss |
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$ |
(38,868 |
) |
|
$ |
(27,292 |
) |
Other comprehensive income (loss): |
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Change in fair value of effective portion of |
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$ |
— |
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|
$ |
(112 |
) |
Change in unrealized gain on short-term investments |
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7 |
|
|
|
(121 |
) |
Foreign currency gain |
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12,330 |
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|
|
158 |
|
Provision for pension benefit obligation |
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14 |
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15 |
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Other comprehensive income (loss), net |
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12,351 |
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(60 |
) |
Comprehensive loss |
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$ |
(26,517 |
) |
|
$ |
(27,352 |
) |
Net loss available to ordinary shareholders - basic and diluted |
|
$ |
(38,868 |
) |
|
$ |
(27,292 |
) |
Loss per share - basic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.27 |
) |
Weighted-average shares outstanding - basic and diluted |
|
|
104,591,840 |
|
|
|
101,390,749 |
|
The accompanying notes form an integral part of these condensed consolidated financial statements.
- 4 -
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (unaudited)
(Expressed in thousands of U.S. Dollars — except for share data)
|
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Ordinary shares |
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Additional paid in |
|
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Accumulated |
|
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Accumulated |
|
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Total Shareholders' |
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|||||||||
|
|
Shares |
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Amount |
|
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capital |
|
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Loss |
|
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Deficit |
|
|
Equity (Deficit) |
|
||||||
March 31, 2022 |
|
|
102,611,397 |
|
|
$ |
540,736 |
|
|
$ |
46,399 |
|
|
$ |
(6,191 |
) |
|
$ |
(725,042 |
) |
|
$ |
(144,098 |
) |
Issue of shares and pre-funded warrants, net of issue costs of $2,097 |
|
|
32,458,336 |
|
|
|
17,903 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,903 |
|
Issue of shares upon exercise of incentive share options and vesting of RSUs |
|
|
613,826 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(38,868 |
) |
|
|
(38,868 |
) |
Change in unrealized gain on short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
Foreign currency gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,330 |
|
|
|
— |
|
|
|
12,330 |
|
Provision for pension benefit obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
12,351 |
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|
|
|
|
|
12,351 |
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Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,634 |
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|
|
— |
|
|
|
— |
|
|
|
1,634 |
|
June 30, 2022 |
|
|
135,683,559 |
|
|
$ |
558,639 |
|
|
$ |
48,033 |
|
|
$ |
6,160 |
|
|
$ |
(763,910 |
) |
|
$ |
(151,078 |
) |
|
|
Ordinary shares |
|
|
Additional paid in |
|
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Accumulated |
|
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Accumulated |
|
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Total Shareholders' |
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|||||||||
|
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Shares |
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Amount |
|
|
capital |
|
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Loss |
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Deficit |
|
|
Deficit |
|
||||||
March 31, 2021 |
|
|
101,264,412 |
|
|
$ |
540,813 |
|
|
$ |
38,116 |
|
|
$ |
(14,598 |
) |
|
$ |
(599,912 |
) |
|
$ |
(35,581 |
) |
Issue of shares upon exercise of incentive share options and vesting of RSUs |
|
|
262,776 |
|
|
|
(79 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(79 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,292 |
) |
|
|
(27,292 |
) |
Change in the fair value of foreign currency cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(112 |
) |
|
|
— |
|
|
|
(112 |
) |
Change in unrealized gain on short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(121 |
) |
|
|
— |
|
|
|
(121 |
) |
Foreign currency gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
158 |
|
|
|
— |
|
|
|
158 |
|
Provision for pension benefit obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
(60 |
) |
||||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,823 |
|
|
|
— |
|
|
|
— |
|
|
|
1,823 |
|
June 30, 2021 |
|
|
101,527,188 |
|
|
$ |
540,734 |
|
|
$ |
39,939 |
|
|
$ |
(14,658 |
) |
|
$ |
(627,204 |
) |
|
$ |
(61,189 |
) |
The accompanying notes form an integral part of these condensed consolidated financial statements.
- 5 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Expressed in thousands of U.S. Dollars)
|
|
Quarter ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(38,868 |
) |
|
$ |
(27,292 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation, amortization and loss on disposal of fixed assets |
|
|
1,464 |
|
|
|
1,930 |
|
Share-based compensation |
|
|
1,634 |
|
|
|
1,823 |
|
Increase in deferred lease rentals |
|
|
387 |
|
|
|
176 |
|
Swiss pension obligation |
|
|
223 |
|
|
|
188 |
|
Amortization of debt discount and unrealized foreign currency loss (gains) on debt |
|
|
21,855 |
|
|
|
(1,641 |
) |
Impairment of investments |
|
|
995 |
|
|
|
— |
|
Change in fair value of derivative instruments |
|
|
(10,844 |
) |
|
|
1,984 |
|
Accrued preference share dividends |
|
|
263 |
|
|
|
263 |
|
Provision for income taxes |
|
|
133 |
|
|
|
502 |
|
Net change in assets and liabilities: |
|
|
|
|
|
|
||
Trade accounts receivable, net |
|
|
834 |
|
|
|
893 |
|
Inventories |
|
|
(1,122 |
) |
|
|
(834 |
) |
Accounts payable and accrued liabilities |
|
|
(920 |
) |
|
|
(2,382 |
) |
Accrued compensation and benefits |
|
|
(1,457 |
) |
|
|
(4,181 |
) |
Other assets and liabilities |
|
|
(10,094 |
) |
|
|
(3,482 |
) |
Net cash used in operating activities |
|
|
(35,518 |
) |
|
|
(32,053 |
) |
INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Increase in short-term investments |
|
|
— |
|
|
|
(4,500 |
) |
Realization of short-term investments |
|
|
— |
|
|
|
18,551 |
|
Purchase of property and equipment |
|
|
(835 |
) |
|
|
(1,405 |
) |
Net cash (used in) from investing activities |
|
|
(835 |
) |
|
|
12,646 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Repayment of finance leases |
|
|
(165 |
) |
|
|
(213 |
) |
Proceeds from issuance of long-term debt |
|
|
— |
|
|
|
104,222 |
|
Debt issuance costs |
|
|
— |
|
|
|
(3,732 |
) |
Repayment of long-term debt |
|
|
— |
|
|
|
(12,083 |
) |
Proceeds from (cost of) issuance of ordinary shares and warrants |
|
|
17,903 |
|
|
|
(79 |
) |
Net cash generated from financing activities |
|
|
17,738 |
|
|
|
88,115 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
(311 |
) |
|
|
(552 |
) |
Change in cash and cash equivalents |
|
|
(18,926 |
) |
|
|
68,156 |
|
Beginning cash and cash equivalents |
|
|
73,803 |
|
|
|
54,697 |
|
Ending cash and cash equivalents |
|
$ |
54,877 |
|
|
$ |
122,853 |
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
46,153 |
|
|
$ |
114,547 |
|
Restricted cash |
|
$ |
8,724 |
|
|
$ |
8,306 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
54,877 |
|
|
$ |
122,853 |
|
The accompanying notes form an integral part of these condensed consolidated financial statements.
- 6 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. Dollars — except for share data and per share data, unless otherwise stated)
Note 1. Description of Business and Basis of Presentation
Description of Business
The principal activity of Quotient Limited (the "Company") and its subsidiaries (the "Group") is the development, manufacture and sale of products for the global transfusion diagnostics market. Products manufactured by the Group are sold to hospitals, blood banking operations and other diagnostics companies worldwide.
Basis of Presentation
The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and are unaudited. In accordance with those rules and regulations, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The March 31, 2022 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the audited consolidated financial statements at and for the year ended March 31, 2022 included in the Company’s Annual Report on Form 10-K for the year then ended. The results of operations for the three month period ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending March 31, 2023 and any future period.
The Company has incurred net losses and negative cash flows from operations in each year since it commenced operations in 2007 and had an accumulated deficit of $763.9 million as of June 30, 2022. At June 30, 2022, the Company had available cash holdings and investments of $63.2 million.
The Company has expenditure plans over the twelve months from the date these financial statements are issued that exceed its current cash and investment balances, raising substantial doubt about its ability to continue as a going concern. The Company expects to fund its operations, including the ongoing development of MosaiQ through successful field trial completion, achievement of required regulatory authorizations and commercialization, from existing available cash and investment balances, the sale of rights and other assets, and the issuance of new equity or debt. The Company’s Directors are confident in the availability of these funding sources and accordingly have prepared the financial statements on the going concern basis. However, there can be no assurance the Company will be able to obtain adequate financing when necessary and the terms of any financing may not be advantageous to the Company and may result in dilution to its shareholders.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes.
As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to further update estimates, judgments or revise the carrying value of any assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.
- 7 -
Note 2. Summary of Significant Accounting Policies
Restricted Cash
Restricted cash comprised $8.0 million at June 30, 2022 and March 31, 2022, held in a cash reserve account pursuant to the indenture governing the Company’s 12% Senior Secured Notes ("the Secured Notes") and $0.7 million held at June 30, 2022 and March 31, 2022, held in a restricted account as security for the property rental obligations of the Company’s Swiss subsidiary.
Concentration of Credit Risks and Other Uncertainties
The Company evaluated the investments in the CSAM managed funds for impairment, in accordance with ASC 321-10-35, Investments – Equity Securities, and determined that its investment in two of the funds were impaired. During the quarter ended June 30, 2022, we determined that a further impairment of $1.0 million was required related to litigation costs expected to be incurred by Credit Suisse which Credit Suisse communicated would be deducted from investor recoveries.
The Company views the liquidation of the supply chain finance funds as a fluid situation with a significant amount of valuation uncertainty. The Company will closely monitor the situation and in the event that new information is released that provides valuation clarity, it will evaluate the accounting implications accordingly. The Company believes, and has advised Credit Suisse, that any losses on the supply chain funds should be borne by Credit Suisse. The Company will pursue all available options to recoup the full amount of its investment in the supply chain funds prior to liquidation.
The Company’s main financial institutions for banking operation held all of the Company’s cash and cash equivalents as of June 30, 2022 and March 31, 2022.
Revenue Recognition
In the three month period ended June 30, 2022, revenue recognized from performance obligations related to prior periods was not material. Other than those described in Note 1 to the audited annual Consolidated Financial statements for the year ended March 31, 2022, there were no other material revenues to be recognized in future periods related to remaining performance obligations at June 30, 2022.
The Company’s other significant accounting policies are described in Note 1 to the audited annual Consolidated Financial Statements for the year ended March 31, 2022 included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.
There have been no significant changes to these policies that have had a material impact on the Company's condensed consolidated financial statements and related notes.
Recently Issued Pronouncements
There are no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements.
Note 3. Debt
Total debt comprises:
|
|
June 30, |
|
|
March 31, |
|
||
Secured Notes |
|
$ |
132,917 |
|
|
$ |
132,917 |
|
Debt discount, net of amortization |
|
|
(12,679 |
) |
|
|
(13,854 |
) |
Deferred debt costs, net of amortization |
|
|
(2,420 |
) |
|
|
(2,678 |
) |
Carrying value Secured Notes |
|
|
117,818 |
|
|
|
116,385 |
|
|
|
|
|
|
|
|
||
Royalty liability |
|
|
40,343 |
|
|
|
40,076 |
|
|
|
|
|
|
|
|
||
Convertible Notes |
|
|
105,000 |
|
|
|
105,000 |
|
Debt discount, net of amortization |
|
|
(23,801 |
) |
|
|
(24,968 |
) |
Deferred debt costs, net of amortization |
|
|
(3,012 |
) |
|
|
(3,180 |
) |
Carrying value Convertible Notes |
|
|
78,187 |
|
|
|
76,852 |
|
Total Debt |
|
$ |
236,348 |
|
|
$ |
233,313 |
|
The Company’s debt at June 30, 2022 and March 31, 2022 comprises the Secured Notes, the royalty liability, and the Convertible Notes.
Secured Notes
- 8 -
On October 14, 2016, the Company completed the private placement of up to $120 million aggregate principal amount of the Secured Notes and entered into an indenture governing the Secured Notes with the guarantors party thereto and U.S. Bank National Association, a national banking association, as trustee and collateral agent. The Company issued $84 million aggregate principal amount of the Secured Notes on October 14, 2016 and an additional $36 million aggregate principal amount of the Secured Notes on June 29, 2018. On December 18, 2018, the Company also completed certain amendments to the indenture governing the Secured Notes. The amendments included an increase to the aggregate principal amount of Secured Notes that can be issued under the indenture from $120 million to up to $145 million following the European CE Marking of the Company’s initial MosaiQ IH Microarray. On April 30, 2019, the Company was notified that it had received the European CE Marking of the initial MosaiQ IH Microarray and, on May 15, 2019, the Company issued the additional $25 million of Secured Notes.
The obligations of the Company under the indenture and the Secured Notes are unconditionally guaranteed on a secured basis by the guarantors, which include all the Company’s subsidiaries, and the indenture governing the Secured Notes contains customary events of default. The Company and its subsidiaries must also comply with certain customary affirmative and negative covenants, including a requirement to maintain six-months of interest in a cash reserve account maintained with the collateral agent. Upon the occurrence of a Change of Control, subject to certain conditions, or certain Asset Sales (each, as defined in the indenture), holders of the Secured Notes may require the Company to repurchase for cash all or part of their Secured Notes at a repurchase price equal to 101% or 100%, respectively, of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to the date of repurchase.
Interest on the Secured Notes accrues at a rate of 12% per annum and is payable semi-annually on April 15 and October 15 of each year commencing on April 15, 2017. On April 15, 2021, the Company made a $12.1 million principal payment on the Secured Notes. Additionally, principal payments were due on each April 15 and October 15 until April 15, 2024 pursuant to a fixed amortization schedule.
The Company paid $8.7 million of the total proceeds of the three issuances into the cash reserve account maintained with the collateral agent under the terms of the indenture. Following the April 15, 2021 repayment of the Secured Notes the balance held in the cash reserve account was reduced to $8.0 million.
On October 13, 2021, the Company received consents from all of the holders (the "Consenting Holders") of its Secured Notes issued pursuant to the Indenture, dated as of October 14, 2016 (as subsequently amended, the "Indenture"), by and among the Company, the guarantors party thereto and U.S. Bank National Association, a national banking association, as trustee and collateral agent, to certain amendments to the indenture governing the Secured Notes (the "Indenture Amendments") pursuant to the fourth supplemental indenture, dated as of October 13, 2021 (the "Fourth Supplemental Indenture").
The Indenture Amendments included an 18-month extension of the final maturity of the Secured Notes to October 2025 and a revision of the Notes’ principal amortization schedule. The Indenture Amendments also changed the redemption prices for Notes redeemed pursuant to the optional redemption provisions of the Indenture. The Secured Notes may be redeemed from and after October 14, 2021 at redemption prices beginning at 106% of par and declining over time to 100.0% for redemptions occurring from and after April 14, 2024.
The interest rate on the Secured Notes and the financial and other covenants in the Indenture remained unchanged.
In consideration for the Consenting Holders’ consents to the Indenture Amendments, the Company agreed among other things to issue them (i) an aggregate of 932,772 of the Company’s ordinary shares, par value per share (the "Consent Shares") and (ii) 5-year warrants to purchase an aggregate of 1,844,020 of the Company’s ordinary shares for $4 per share (the "Consent Warrants"). The Company filed a registration statement with the SEC covering resales of the Consent Shares and the shares issuable on exercise of the Consent Warrants. The fair value of Consent Shares not yet issued are included in accrued expenses and other current liabilities and the fair value of Consent Warrants is included in derivative liabilities within our condensed consolidated balance sheet. Changes in fair value are recognized within Other, net in the accompanying consolidated financial statements.
On July 6, 2022, the Company received consents from the Consenting Holders of its Secured Notes issued pursuant to the Indenture, dated as of October 14, 2016, by and among the Company, the guarantors party thereto and U.S. Bank National Association, a national banking association, as trustee and collateral agent, to Indenture Amendments pursuant to the sixth supplemental indenture, dated as of July 6, 2022 (the "Sixth Supplemental Indenture").
The Sixth Supplemental Indenture includes a change to the amortization payment schedule of the Secured Notes from requiring semi-annual payments ranging from $12.1 million to $24.2 million beginning in April 2023, to requiring quarterly payments of $2.5 million beginning on July 15, 2024 and ending on July 15, 2025, with the remaining principal balance due on October 15, 2025, which will reduce expected amortization payments by $93.0 million over the next 36 months prior to the payment of the remaining principal balance at maturity. It removes the requirement that we maintain a cash reserve account for the benefit of holders of the Secured Notes, and adds a covenant that we maintain a minimum liquidity of at least $8.0 million, comprised of cash and certain other eligible investments, as of the end of each fiscal quarter. Provides that 40% of the net cash proceeds from a sale of all or a material portion of our Alba business, subject to certain exceptions, will be applied to repay Senior Secured Notes and the remaining 60% may be used by us to fund operating expenses, capital expenditures and other investments permitted by the Sixth Supplemental Indenture. We have
- 9 -
also agreed that the holders of the Secured Notes will be entitled to appoint an observer to our board of directors. In addition, the debt incurrence covenant in the indenture governing our Convertible Notes has been amended to reduce our ability to incur indebtedness under certain baskets by the amount of any repayment of the Secured Notes as described above.
In consideration for the Consenting Holders’ consents to the Indenture Amendments, the Company agreed among other things to issue them 5-year warrants to purchase an aggregate of 8,494,595 of the Company’s ordinary shares for $0.75 per share (the "Consent Warrants"). The Company plans to file a registration statement with the SEC covering resales of the shares issuable on exercise of the Consent Warrants.
The new principal amortization schedule of the Secured Notes is as follows:
Payment Date |
|
Amount |
|
|
July 15, 2024 |
|
$ |
2,500 |
|
October 15, 2024 |
|
|
2,500 |
|
January 1, 2025 |
|
|
2,500 |
|
April 15, 2025 |
|
|
2,500 |
|
July 15, 2025 |
|
|
2,500 |
|
October 15, 2025 |
|
The principal balance then outstanding |
|
|
Royalty liability
In connection with the three issuances of the Secured Notes as well as the December 2018 amendment of the related indenture, the Company has entered into royalty rights agreements, pursuant to which the Company has agreed to pay 3.4% of the aggregate net sales of MosaiQ instruments and consumables made in the donor testing market in the United States and the European Union. The royalties will be payable beginning on the date that the Company or its affiliates makes its first sale of MosaiQ consumables in the donor testing market in the European Union or the United States and will end on the last day of the calendar quarter in which the eighth anniversary of the first sale date occurs. The royalty rights agreements are treated as sales of future revenues that meet the requirements of Accounting Standards Codification Topic 470 "Debt" to be treated as debt. The future cash outflows under the royalty rights agreements were estimated at $71.8 million at June 30, 2022, and $76.8 million at March 31, 2022. The decrease in value of the future cash outflows under the royalty rights agreement at June 30, 2022, is driven by a change in the expected first date of sales to be made in Europe and the United States, to an earlier date, while not modifying our forecast for later periods. The royalty rights agreements are accounted for separately as freestanding financial instruments. Consideration received for the debt and royalty rights was allocated to each component on a relative fair value basis. The difference between the relative fair value of the royalty rights agreements and the principle on the Secured Notes is accounted for as debt discount and amortized through non-cash interest expense over the life of the Secured Notes. Estimating the future cash outflows under the royalty rights agreements requires the Company to make certain estimates and assumptions about future sales of MosaiQ products. These estimates of the magnitude and timing of MosaiQ sales are subject to significant variability due to the current status of development of MosaiQ products, and thus are subject to significant uncertainty. Therefore, the estimates are likely to change as the Company gains experience of marketing MosaiQ, which may result in future adjustments to the accretion of the interest expense and amortized cost based carrying value of the royalty liability.
Convertible Notes
On May 26, 2021 the Company issued $95.0 million aggregate principal amount of convertible senior notes and on June 2, 2021, the Company issued an additional $10.0 million aggregate principal amount of convertible senior notes in connection with the original $95.0 million (collectively the "Convertible Notes"). The Convertible Notes bear interest at an annual rate of 4.75%. The Convertible Notes will mature on May 26, 2026. Accrued interest of $635 and $469 is included in accrued expenses and other current liabilities in the accompanying consolidated financial statements at June 30, 2022 and June 30, 2021 respectively.
At any time before the close of business on the second business day immediately before the maturity date, holders of the Convertible Notes can convert the Convertible Notes either in whole or in part into the Company’s ordinary shares at an initial conversion rate of 176.3668 ordinary shares per $ principal amount of the Convertible Notes, subject to customary anti-dilution adjustments.
The Convertible Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options ("ASC 470-20") and ASC 815-40, Contracts in Entity’s Own Equity ("ASC 815-40"). Based upon the Company’s analysis, it was determined the Convertible Notes contain embedded features that need to be separately accounted for as a derivative liability component. The proceeds received from the issuance of the convertible debt instruments were bifurcated and recorded as a liability within derivative liabilities in the consolidated balance sheet. The convertible loan derivative is measured at fair value and changes are recognized within the accompanying consolidated financial statements within Other, net.
The Company incurred approximately $3.7 million of debt issuance costs relating to the issuance of the Convertible Notes, which were recorded as a reduction to the Convertible Notes on the consolidated balance sheet, none of the issuance costs were attributable
- 10 -
to the derivative component. The debt issuance costs and the debt discount are being amortized and recognized as additional interest expense over the expected life of the Convertible Notes using the effective interest rate method. We determined the expected life of the debt is equal to the five-year term of the Convertible Notes. The effective interest rate on the Convertible Notes is 12.9%. For the three month period ended June 30, 2022, the total interest expense was $2.6 million with coupon interest of $1.2 million and the amortization of debt discount and issuance costs of $1.4 million. For the three month period ended June 30, 2021, the total interest expense was $0.9 million with coupon interest of $0.5 million and the amortization of debt discount and issuance costs of $0.4 million.
Note 4. Consolidated Balance Sheet Detail
Inventory
The following table summarizes inventory by category for the dates presented:
|
|
June 30, |
|
|
March 31, |
|
||
Raw materials |
|
$ |
9,873 |
|
|
$ |
10,228 |
|
Work in progress |
|
|
7,207 |
|
|
|
7,154 |
|
Finished goods |
|
|
5,002 |
|
|
|
4,654 |
|
Total inventories |
|
$ |
22,082 |
|
|
$ |
22,036 |
|
Inventory at June 30, 2022 included $6,916 of raw materials, $4,511 of work in progress and $3,619 of finished goods related to the MosaiQ project. Inventory at March 31, 2022, included $6,761 of raw materials, $4,252 of work in progress and $2,758 of finished goods related to the MosaiQ project. Included in other accrued expenses at June 30, 2022, is $478 of projected losses on firm purchase commitments recorded in other accrued expenses.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
June 30, |
|
|
March 31, |
|
||
Accrued legal and professional fees |
|
$ |
3,198 |
|
|
$ |
1,254 |
|
Accrued interest |
|
|
4,001 |
|
|
|
9,235 |
|
Goods received not invoiced |
|
|
2,415 |
|
|
|
1,304 |
|
Accrued capital expenditure |
|
|
318 |
|
|
|
193 |
|
Other accrued expenses |
|
|
2,883 |
|
|
|
3,743 |
|
Total accrued expenses and other current liabilities |
|
$ |
12,815 |
|
|
$ |
15,729 |
|
Note 5. Fair value measurement
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
|
|
June 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension plan assets(1) |
|
$ |
— |
|
|
$ |
24,911 |
|
|
$ |
— |
|
|
$ |
24,911 |
|
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
24,911 |
|
|
$ |
— |
|
|
$ |
24,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Convertible loan derivatives(2) |
|
|
— |
|
|
|
2,297 |
|
|
|
— |
|
|
|
2,297 |
|
Debt related Consent Warrants(3) |
|
|
— |
|
|
|
436 |
|
|
|
— |
|
|
|
436 |
|
Debt related Consent Shares |
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
Total liabilities measured at fair value |
|
$ |
15 |
|
|
$ |
2,733 |
|
|
$ |
— |
|
|
$ |
2,748 |
|
- 11 -
|
|
March 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension plan assets(1) |
|
$ |
— |
|
|
$ |
24,778 |
|
|
$ |
— |
|
|
$ |
24,778 |
|
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
24,778 |
|
|
$ |
— |
|
|
$ |
24,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Convertible loan derivatives(2) |
|
|
— |
|
|
|
11,858 |
|
|
|
— |
|
|
|
11,858 |
|
Debt related Consent Warrants(3) |
|
|
— |
|
|
|
1,657 |
|
|
|
— |
|
|
|
1,657 |
|
Debt related Consent Shares |
|
|
77 |
|
|
|
— |
|
|
|
— |
|
|
|
77 |
|
Total liabilities measured at fair value |
|
$ |
77 |
|
|
$ |
13,515 |
|
|
$ |
— |
|
|
$ |
13,592 |
|
On March 12, 2021, the Company announced that two funds managed by CSAM in which the Company had invested an aggregate of approximately $110.35 million had suspended redemptions. The investments into these funds were made in accordance with the Company’s investment policy of making individual investments with a minimum of an A rating from a leading credit-rating agency. Each fund holds short-term credit obligations of various obligors. According to a press release issued by CSAM, redemptions in the funds were suspended because "certain part of the Subfunds’ assets is currently subject to considerable uncertainties with respect to their accurate valuation." CSAM subsequently began a liquidation of the funds. Pursuant to the liquidation, the Company has already received cash distributions of approximately $89.0 million. Credit Suisse has advised that the credit assets held by the funds are covered by insurance that potentially will be available to cover losses the funds would incur if any of the obligors on the funds’ credit assets were to default.
On April 22, 2021, Credit Suisse published its FY 2021 Q1 press release with commentary related to the Credit Suisse Supply Chain Finance Investment Grade Fund and the Credit Suisse (Lux) Supply Chain Finance Fund. Notably, Credit Suisse indicated that investors in the funds should assume losses will be incurred. Additionally on April 4, 2022, Credit Suisse indicated in its Annual General Meeting that they expected that litigation will be necessary to reinforce claims against individual debtors and insurance companies and recovery is not expected to occur over the next 12 months for one of our funds. Therefore, we determined that one of our two funds should be classified as long-term as of March 31, 2022 and we have maintained that classification in June 30, 2022.
In the year-ended March 31, 2021, Credit Suisse’s decision to liquidate funds in which the Company held investments served as a trigger to evaluate the investments for impairment and each quarter the Company evaluates information from Credit Suisse to determine whether there are further triggering events. Through March 31, 2022, the Company recorded $3.3 million in impairments associated with these funds. We recorded $1.0 million in impairment expenses in the quarter ended June 30, 2022 based on information shared by Credit Suisse to CSAM investors on July 18, 2022, which included updated estimates of litigation costs incurred or to be incurred by Credit Suisse which Credit Suisse communicated would be deducted from investor recoveries.
No impairment expense was recorded in the quarter ended June 30, 2021.
The Company views the liquidation of the supply chain finance funds as a fluid situation with a significant amount of valuation uncertainty. The Company will closely monitor the situation and in the event that new information is released that provides valuation clarity, it will evaluate the accounting implications accordingly. The Company believes, and has advised Credit Suisse, that any losses on the supply chain funds, including recovery costs, should be borne by Credit Suisse. The Company will pursue all available options to recoup the full amount of its investment in the supply chain funds prior to liquidation.
The total unrealized gains on the short-term investments were $258 and $359 in the three month periods ended June 30, 2022 and June 30, 2021, respectively. The amount of these unrealized gains reclassified to earnings were $7 and $121 in the three month periods ended June 30, 2022 and June 30, 2021, respectively.
- 12 -
Note 6. Ordinary and Preference Shares
Ordinary shares
The Company’s issued and outstanding ordinary shares were as follows:
|
|
Shares Issued |
|
|
|
|
||||||
|
|
June 30, |
|
|
March 31, |
|
|
Par value |
|
|||
Ordinary shares |
|
|
135,683,559 |
|
|
|
102,611,397 |
|
|
$ |
|
|
Total |
|
|
135,683,559 |
|
|
|
102,611,397 |
|
|
$ |
|
|
During the quarter ended June 30, 2022, the Company issued 32,458,336 ordinary shares in a public offering of shares at $0.30 per share.
Preference shares
The Company’s issued and outstanding preference shares consist of the following:
|
|
Shares Issued |
|
|
Liquidation |
|
||||||||||
|
|
June 30, |
|
|
March 31, |
|
|
June 30, |
|
|
March 31, |
|
||||
7% Cumulative Redeemable |
|
|
666,665 |
|
|
|
666,665 |
|
|
$ |
34.18 |
|
|
$ |
32.21 |
|
Total |
|
|
666,665 |
|
|
|
666,665 |
|
|
|
|
|
|
|
||
The 7% Cumulative Redeemable Preference shares were issued to Ortho-Clinical Diagnostics Finco S.A.R.L., an affiliate of Ortho on January 29, 2015 at a subscription price of $22.50 per share. These preference shares are redeemable at the request of the shareholder on the "Redemption Trigger Date" which is currently the date of the ninth anniversary of the date of issue of the preference shares, but the Company may further extend the redemption date in one year increments up to the tenth anniversary of the date of issue. Because the 7% Cumulative Redeemable Preference shares are redeemable at the option of the shareholders, they are shown as a liability in the unaudited condensed consolidated balance sheet.
Note 7. Share-Based Compensation
The Company records share-based compensation expense in respect of options and restricted share units ("RSUs") issued under its share incentive plans. Share-based compensation expense amounted to $1,634 and $1,823 in the quarters ended June 30, 2022 and June 30, 2021, respectively.
Share option activity
The following table summarizes share option activity:
|
|
Number |
|
|
Weighted |
|
|
Weighted |
|
|||
Outstanding — March 31, 2022 |
|
|
2,850,548 |
|
|
$ |
4.88 |
|
|
|
90 |
|
Granted |
|
|
572,122 |
|
|
|
1.41 |
|
|
|
120 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
(394,436 |
) |
|
|
7.58 |
|
|
|
— |
|
Outstanding — June 30, 2022 |
|
|
3,028,234 |
|
|
$ |
3.87 |
|
|
|
95 |
|
Exercisable — June 30, 2022 |
|
|
989,250 |
|
|
$ |
6.45 |
|
|
|
61 |
|
The closing price of the Company’s ordinary shares on the Nasdaq Global Market at June 30, 2022 was $0.24.
- 13 -
The following table summarizes the options granted in the three month period ended June 30, 2022 with their exercise prices, the fair value of ordinary shares as of the applicable grant date, and the intrinsic value, if any:
Grant Date |
|
Number of |
|
|
Exercise Price |
|
|
Ordinary |
|
|
Per Share |
|
||||
April 1, 2022 |
|
|
504,882 |
|
|
$ |
1.20 |
|
|
$ |
1.20 |
|
|
$ |
0.79 |
|
May 1, 2022 |
|
|
67,240 |
|
|
|
0.58 |
|
|
|
0.58 |
|
|
|
0.39 |
|
Determining the fair value of share options
The fair value of each grant of share options was determined by the Company using the Black Scholes option pricing model. The total fair value of option awards in the three months ended June 30, 2022 and June 30, 2021 amounted to $0.4 and $2.4 million, respectively.
Assumptions used in the option pricing models are discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.
Expected volatility. The expected volatility was based on the historical share price volatility of the Company’s shares over a period equal to the expected terms of the options.
Fair value of ordinary shares. The fair value of ordinary shares is based on the share price of the Company’s shares on the Nasdaq Global Market immediately prior to the grant of the options concerned.
Risk-Free Interest Rate. The risk-free interest rate is based on the 10-year U.S. Treasury rate at time of grant.
Expected term. The expected term is determined after giving consideration to the contractual terms of the share-based awards, graded vesting schedules ranging from to three years and expectations of future employee behavior as influenced by changes to the terms of its share-based awards.
Expected dividend. According to the terms of the awards, the exercise price of the options is adjusted to take into account any dividends paid. As a result, dividends are not required as an input to the model, as these reductions in the share price are offset by a corresponding reduction in exercise price.
A summary of the weighted-average assumptions applicable to the share options issued during the three month period ended June 30, 2022 is as follows:
Risk-free interest rate |
|
|
2.46 |
% |
Expected lives (years) |
|
|
6 |
|
Volatility |
|
|
73.96 |
% |
Dividend yield |
|
|
— |
|
Grant date fair value (per share) |
|
$ |
1.13 |
|
Number granted |
|
|
572,122 |
|
A summary of the RSUs in issue at June 30, 2022 is as follows:
|
|
Number |
|
|
RSUs subject to time based vesting |
|
|
2,265,195 |
|
RSUs subject to milestone and performance based vesting |
|
|
2,173,500 |
|
At June 30, 2022, 2,265,195 RSUs were subject to time-based vesting and the weighted average remaining vesting period was 15 months. In addition, 24,552 RSUs were subject to vesting based on the achievement of various business milestones related mainly to the development, approval and marketing of MosaiQ. 2,148,948 RSUs were subject to vesting based on the achievement of financial objectives in the year 2024 and 2025 assuming a 100% payout of applicable targets. If the maximum payout ratio of these awards were to be achieved of 150%, 3,223,422 shares would be awarded.
- 14 -
Note 8. Income Taxes
A reconciliation of the income tax expense at the statutory rate to the provision for income taxes is as follows:
|
|
Quarter ended June 30 |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Income tax expense at statutory rate |
|
$ |
— |
|
|
$ |
— |
|
Tax rate change |
|
|
— |
|
|
|
(335 |
) |
Foreign tax rate differential |
|
|
746 |
|
|
|
583 |
|
Increase in valuation allowance against deferred |
|
|
(879 |
) |
|
|
(918 |
) |
Provision for income tax |
|
$ |
(133 |
) |
|
$ |
(670 |
) |
Note 9. Defined Benefit Pension Plans
The Company’s Swiss subsidiary has a fully insured pension plan managed by AXA LPP Foundation Suisse Romande. The costs of this plan were:
|
|
Quarter ended June 30 |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Employer service cost |
|
$ |
706 |
|
|
$ |
626 |
|
Interest cost |
|
|
100 |
|
|
|
22 |
|
Expected return on plan assets |
|
|
(112 |
) |
|
|
(76 |
) |
Amortization of prior service credit |
|
|
14 |
|
|
|
15 |
|
Amortization of net loss |
|
|
— |
|
|
|
— |
|
Net pension cost |
|
$ |
708 |
|
|
$ |
587 |
|
The employer contributions for the three month periods ended June 30, 2022 and 2021 were $485 and $398, respectively. The estimated employer contributions for the fiscal year ending March 31, 2023 are $1,948.
Note 10. Net Loss Per Share
In accordance with Accounting Standards Codification Topic 260 "Earnings Per Share", basic earnings available to ordinary shareholders per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted earnings available to ordinary shareholders per share is computed based on the weighted average number of ordinary shares outstanding during each period, plus potential ordinary shares considered outstanding during the period, as long as the inclusion of such shares is not anti-dilutive. Potential ordinary shares consist of the incremental ordinary shares issuable upon the exercise of share options (using the treasury shares method), the warrants to acquire ordinary shares, the ordinary shares issuable upon vesting of the RSUs, and the ordinary shares issuable on conversion of Convertible Notes.
The following table sets forth the computation of basic and diluted loss per ordinary share:
|
|
Quarter ended |
|
|||||
|
|
June 30 |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss available to ordinary shareholders - basic and diluted |
|
$ |
(38,868 |
) |
|
$ |
(27,292 |
) |
Denominator: |
|
|
|
|
|
|
||
Weighted average ordinary shares outstanding |
|
|
103,840,009 |
|
|
|
101,390,749 |
|
Assumed exercise of pre-funded warrants |
|
|
751,831 |
|
|
|
— |
|
Weighted-average shares outstanding - basic and diluted |
|
|
104,591,840 |
|
|
|
101,390,749 |
|
Loss per share - basic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.27 |
) |
The 34,208,331 pre-funded warrants issued during the quarter ended June 30, 2022, are assumed to be exercised for the calculation of basic and diluted loss per share as the exercise price of $0.001 was deemed to be a non-substantive exercise price compared to the pre-funded cost of $0.299 per share and the fair value of our ordinary shares. These are treated as permanent equity for both basic and
- 15 -
diluted earnings per share calculations. Pre-funded warrants are not included in shares outstanding in our statement of stockholders equity or balance sheet, however the proceeds have been included in the value of share capital therein.
The following table sets out the numbers of ordinary shares excluded from the above computation of earnings per share at June 30, 2022 and June 30, 2021 as their inclusion would have been anti-dilutive:
|
|
June 30, |
|
|
June 30, |
|
||
Ordinary shares issuable on conversion of Convertible Notes |
|
|
18,518,514 |
|
|
|
18,518,514 |
|
Restricted share units awarded |
|
|
4,438,695 |
|
|
|
2,196,595 |
|
Ordinary shares issuable on exercise of options to purchase ordinary |
|
|
3,028,234 |
|
|
|
1,421,792 |
|
Ordinary shares issuable on exercise of warrants at $16.14 per share |
|
|
111,525 |
|
|
|
111,525 |
|
Ordinary shares issuable on exercise of warrants at $9.375 per share |
|
|
64,000 |
|
|
|
64,000 |
|
Ordinary shares issuable on exercise of Consent Warrants at $4.00 per share |
|
|
1,844,020 |
|
|
|
— |
|
Consent Shares not yet issued |
|
|
64,330 |
|
|
|
— |
|
Total |
|
|
28,069,318 |
|
|
|
22,312,426 |
|
- 16 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the corresponding section of our Annual Report on Form 10-K for the year ended March 31, 2022 filed with the SEC on June 28, 2022.
The information set forth and discussed below for the quarters ended June 30, 2022 and June 30, 2021 is derived from the condensed consolidated financial statements included under Part I, Item 1 "Financial Statements" above. The financial information set forth and discussed below is unaudited but includes all normal and recurring adjustments that our management considers necessary for a fair presentation of the financial position and the operating results and cash flows for those periods. Our results of operations for a particular quarter may not be indicative of the results that may be expected for other quarters or the entire year.
In addition to historical financial information, the following discussion contains forward looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report, and our Annual Report on Form 10-K for the year ended March 31, 2022, particularly in "Risk Factors."
Overview
We were incorporated in Jersey, Channel Islands on January 18, 2012. On February 16, 2012, we acquired the entire issued share capital of Alba Bioscience Limited (or Alba), Quotient Biodiagnostics, Inc. (or QBDI) and QBD (QSIP) Limited (or QSIP) from Quotient Biodiagnostics Group Limited (or QBDG), our predecessor.
Our Business
We are a commercial-stage diagnostics company committed to reducing healthcare costs and improving patient care through the provision of innovative tests within established markets. Our initial focus is on blood grouping and donor disease screening, which is commonly referred to as transfusion diagnostics. Blood grouping involves specific procedures performed at donor or patient testing laboratories to characterize blood, which includes antigen typing and antibody detection. Disease screening involves the screening of donor blood for unwanted pathogens using two different methods, a serological approach (testing for specific antigens or antibodies) and a molecular approach (testing for DNA or RNA).
We have over 30 years of experience developing, manufacturing and commercializing conventional reagent products used for blood grouping within the global transfusion diagnostics market. We are developing MosaiQ, our proprietary technology platform, to better address the comprehensive needs of this large and established market. We believe MosaiQ has the potential to transform transfusion diagnostics, significantly reducing the cost of blood grouping in the donor and patient testing environments, while improving patient outcomes.
We currently operate as one business segment with 437 employees in the United Kingdom, Switzerland and the United States, as of June 30, 2022. Our principal markets are the United States, Europe and Japan. Based on the location of the customer, revenues outside the United States accounted for 45% of total revenue during the three month period ended June 30, 2022 and 44% during the three month period ended June 30, 2021.
We have incurred net losses and negative cash flows from operations in each year since we commenced operations in 2007. As of June 30, 2022, we had an accumulated deficit of $763.9 million. We expect our operating losses to continue for at least the remainder of the fiscal year ending March 31, 2023 as we continue our investment in the commercialization of MosaiQ. For the three month period ended June 30, 2022, our total revenue was $8.8 million and our net loss was $38.9 million.
From our incorporation in 2012 to March 31, 2022, we have raised $160.0 million of gross proceeds through the private placement of our ordinary and preference shares and warrants, $433.0 million of gross proceeds from public offerings of our ordinary shares and issuances of ordinary shares upon exercise of warrants, $145.0 million of gross proceeds from the issuance of 12% Senior Secured Notes due 2025 (which we refer to as the Secured Notes) and $105 million of gross proceeds from the issuance of 4.75% Convertible Notes due 2026 (which we refer to as the Convertible Notes). In addition, on March 23, 2018, we raised $20.9 million from the sale and leaseback of our conventional reagents manufacturing facility near Edinburgh, Scotland, which we refer to as the Allan Robb Campus, or ARC, facility.
During the quarter ended June 30, 2022, we raised gross proceeds of approximately $20.0 million from a public offering of 32,458,336 of our ordinary shares and, in lieu of ordinary shares to certain investors, pre-funded warrants exercisable for an aggregate of 34,208,331 ordinary shares at an exercise price of $0.001 per share.
As of June 30, 2022, we had available cash, cash equivalents and investments of $63.2 million and $8.7 million of restricted cash held as part of the arrangements relating to our Secured Notes and the lease of our property in Eysins, Switzerland.
- 17 -
Regulatory and Commercial Milestones
You should read the following regulatory and commercial milestones update in conjunction with the discussion included under the sections "Item 1. Business" and "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended March 31, 2022 filed with the SEC on June 28, 2022.
IH Extended and Patient Microarrays
SDS and MDS Microarrays
CDS Microarrays
Revenue
We generate product sales revenue from the sale of conventional reagent products directly to hospitals, donor collection agencies and independent testing laboratories in the United States, the United Kingdom and to distributors in Europe and the rest of the world, and indirectly through sales to our original equipment manufacturer (or OEM) customers. We recognize revenues in the form of product sales when the goods are shipped. We also provide product development services to our OEM customers. We recognize revenue from these contractual relationships in the form of product development fees, which are included in other revenues.
Our revenue is denominated in multiple currencies. Sales in the United States and to certain of our OEM customers are denominated in U.S. Dollars. Sales in Europe and the rest of the world are denominated primarily in U.S. Dollars, Pounds Sterling or Euros. Our expenses are generally denominated in the currencies in which our operations are located, which are primarily in the United Kingdom, Switzerland and the United States. We operate globally and therefore changes in foreign currency exchange rates may become material to us in the future due to factors beyond our control.
Cost of revenue and operating expenses
Cost of revenue consists of direct labor expenses, including employee benefits, overhead expenses, material costs and freight costs, along with the depreciation of manufacturing equipment and leasehold improvements. Our gross profit represents total revenue less the cost of revenue, gross margin represents gross profit expressed as a percentage of total revenue, and gross margin on product sales represents gross margin excluding other revenues as a percentage of revenues excluding other revenues. We expect our overall cost of revenue to increase in absolute U.S. Dollars as we continue to increase our product sales volumes. However, we also believe that we can achieve efficiencies in our manufacturing operations, primarily through increasing production volumes.
Our sales and marketing expenses include costs associated with our sales organization for conventional reagent products, including our direct sales force, as well as our marketing and customer service personnel and the costs of the MosaiQ commercial team. These expenses consist principally of salaries, commissions, bonuses and employee benefits, as well as travel and other costs related to our sales and product marketing activities. We expense all sales and marketing costs as incurred. We expect sales and marketing expense to increase in absolute U.S. Dollars, primarily as a result of commissions on increased product sales in the United States and as we grow the MosaiQ commercial team.
- 18 -
Our research and development expenses include costs associated with performing research, development, field trials and our regulatory activities, as well as production costs incurred in advance of the commercial launch of MosaiQ. Research and development expenses include research personnel-related expenses, fees for contractual and consulting services, travel costs, laboratory supplies and depreciation of laboratory equipment.
We expense all research and development costs as incurred, net of government grants received and tax credits. Our UK subsidiary claims certain tax credits on its research and development expenditures and these are included as an offset to our research and development expenses. Our research and development efforts are focused on developing new products and technologies for the global transfusion diagnostics market. We expect our costs associated with field trials and regulatory approvals will increase at the same time as our development costs with MosaiQ decrease. As we move to commercialization of MosaiQ in the donor testing market, we expect our overall research and development expense to decrease.
Our general and administrative expenses include costs for our executive, accounting and finance, legal, corporate development, information technology and human resources functions. We expense all general and administrative expenses as incurred. These expenses consist principally of salaries, bonuses and employee benefits for the personnel performing these functions, including travel costs. These expenses also include share-based compensation, professional service fees (such as audit, tax and legal fees), costs related to our Board of Directors, and general corporate overhead costs, which include depreciation and amortization. We expect our general and administrative expenses to increase as our business develops and also due to the costs of operating as a public company, such as additional legal, accounting and corporate governance expenses, including expenses related to compliance with the Sarbanes-Oxley Act, directors’ and officers’ insurance premiums and investor relations expenses.
Net interest expense consists primarily of interest charges on our Secured Notes and Convertible Notes and the amortization debt discount and debt issuance costs (which includes amortization of the one-time consent payment of $3.9 million paid to holders of our Secured Notes in December 2018), as well as accrued dividends on the 7% cumulative redeemable preference shares issued in January 2015. We amortize debt issuance costs over the life of the instrument and report them as interest expense in our statements of operations. Net interest also includes the expected costs of the royalty rights agreements we entered into in October 2016, June 2018, December 2018 and May 2019 with the purchasers and consenting holders, as applicable, of our Secured Notes. See Note 3, "Debt" and Note 6, "Ordinary and Preference Shares" to our condensed consolidated financial statements included in this Quarterly Report for additional information.
Other income (expense), net consists of the change in fair value of our convertible debt derivative, warrant liabilities and the impact of exchange rate fluctuations. See Note 3, "Debt" and Note 5, "Fair value measurement" to our condensed consolidated financial statements included in this Quarterly Report for additional information. Exchange rate fluctuations include realized exchange fluctuations resulting from the settlement of transactions in currencies other than the functional currencies of our businesses. Monetary assets and liabilities that are denominated in foreign currencies are measured at the period-end closing rate with resulting unrealized exchange fluctuations. The functional currencies of our legal entities are Pounds Sterling, Swiss Francs, Euros, and U.S. Dollars depending on the entity.
Provision for income taxes in the three month periods ended June 30, 2022 and 2021, reflected the taxes chargeable on the taxable income of our subsidiaries.
- 19 -
Results of Operations
Comparison of the Quarters ended June 30, 2022 and 2021
The following table sets forth, for the periods indicated, the amounts of certain components of our statements of operations and the percentage of total revenue represented by these items, showing period-to-period changes.
|
|
Quarter Ended June 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||||||||||||||
|
|
Amount |
|
|
% of revenue |
|
|
Amount |
|
|
% of revenue |
|
|
Amount |
|
|
% |
|
||||||
|
|
(in thousands, except percentages) |
|
|||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Product sales |
|
$ |
8,814 |
|
|
|
100 |
% |
|
$ |
9,041 |
|
|
|
99 |
% |
|
$ |
(227 |
) |
|
|
-3 |
% |
Other revenues |
|
|
— |
|
|
|
0 |
% |
|
|
48 |
|
|
|
1 |
% |
|
|
(48 |
) |
|
|
-100 |
% |
Total revenue |
|
|
8,814 |
|
|
|
100 |
% |
|
|
9,089 |
|
|
|
100 |
% |
|
|
(275 |
) |
|
|
-3 |
% |
Cost of revenue |
|
|
6,120 |
|
|
|
69 |
% |
|
|
4,777 |
|
|
|
53 |
% |
|
|
1,343 |
|
|
|
28 |
% |
Gross profit |
|
|
2,694 |
|
|
|
31 |
% |
|
|
4,312 |
|
|
|
47 |
% |
|
|
(1,618 |
) |
|
|
-38 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales and marketing |
|
|
3,306 |
|
|
|
38 |
% |
|
|
2,493 |
|
|
|
27 |
% |
|
|
813 |
|
|
|
33 |
% |
Research and development |
|
|
14,146 |
|
|
|
160 |
% |
|
|
13,531 |
|
|
|
149 |
% |
|
|
615 |
|
|
|
5 |
% |
General and administrative |
|
|
11,037 |
|
|
|
125 |
% |
|
|
10,176 |
|
|
|
112 |
% |
|
|
861 |
|
|
|
8 |
% |
Total operating expenses |
|
|
28,489 |
|
|
|
323 |
% |
|
|
26,200 |
|
|
|
288 |
% |
|
|
2,289 |
|
|
|
9 |
% |
Operating loss |
|
|
(25,795 |
) |
|
|
-293 |
% |
|
|
(21,888 |
) |
|
|
-241 |
% |
|
|
(3,907 |
) |
|
|
18 |
% |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense, net |
|
|
(8,574 |
) |
|
|
-97 |
% |
|
|
(3,002 |
) |
|
|
-33 |
% |
|
|
(5,572 |
) |
|
|
186 |
% |
Other, net |
|
|
(4,366 |
) |
|
|
-50 |
% |
|
|
(1,732 |
) |
|
|
-19 |
% |
|
|
(2,634 |
) |
|
|
152 |
% |
Total other expense, net |
|
|
(12,940 |
) |
|
|
-147 |
% |
|
|
(4,734 |
) |
|
|
-52 |
% |
|
|
(8,206 |
) |
|
|
173 |
% |
Loss before income taxes |
|
|
(38,735 |
) |
|
|
-439 |
% |
|
|
(26,622 |
) |
|
|
-293 |
% |
|
|
(12,113 |
) |
|
|
46 |
% |
Provision for income taxes |
|
|
(133 |
) |
|
|
— |
|
|
|
(670 |
) |
|
|
— |
|
|
|
537 |
|
|
|
-80 |
% |
Net loss |
|
$ |
(38,868 |
) |
|
|
-441 |
% |
|
$ |
(27,292 |
) |
|
|
-300 |
% |
|
$ |
(11,576 |
) |
|
|
42 |
% |
Revenue
Total revenue for the quarter ended June 30, 2022 decreased by 3% to $8.8 million compared with $9.1 million for the quarter ended June 30, 2021. The decrease in product sales relates primarily to reduced orders from an OEM customer in our conventional reagent business. Other revenues for the quarter ended June 30, 2021 related to a small development project for an OEM customer.
Cost of revenue and gross margin
Cost of revenue increased by 28% to $6.1 million for the quarter ended June 30, 2022 compared with $4.8 million for the quarter ended June 30, 2021. The increase in costs was driven by $0.2 million of write-downs of certain raw materials and work in process inventory associated with MosaiQ to net realizable value. There were also higher costs in our conventional reagent business due to inventory write-downs and write-offs of certain products due to expiration of products and quality control tests, higher production costs associated with inflation, and higher costs associated with sales mix in the quarter ended June 30, 2022.
Gross profit on total revenue for the quarter ended June 30, 2022 was $2.7 million, a decrease of 38% when compared with $4.3 million for the quarter ended June 30, 2021. Total gross profit on sales was 31% in the quarter ended June 30, 2022 compared to 47% in the quarter ended June 30, 2021.
Sales and marketing expenses
Sales and marketing expenses were $3.3 million for the quarter ended June 30, 2022, compared with $2.5 million for the quarter ended June 30, 2021. This increase was attributable to greater personnel and other expenses related to the planned commercial launch of MosaiQ and travel related costs. As a percentage of total revenue, sales and marketing expenses were 38% for the quarter ended June 30, 2022 compared to 27% for the quarter ended June 30, 2021.
Research and development expenses
Research and development expenses increased by 5% to $ 14.1 million for the quarter ended June 30, 2022 compared with $13.5 million for the quarter ended June 30, 2021. The increase in research and development expenses is driven by additional employee and third party expenses to support upcoming field trials and product development.
General and administrative expenses
General and administrative expenses increased by 8% to $11.0 million for the quarter ended June 30, 2022, compared with $10.2 million for the quarter ended June 30, 2021. This increase was primarily attributable to fees incurred to refinance our debt which was
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completed on July 6, 2022. We recognized $1.6 million of stock compensation expense in the quarter ended June 30, 2022 compared with $1.8 million in the quarter ended June 30, 2021. As a percentage of total revenue, general and administrative expenses were 125% for the quarter ended June 30, 2022 compared to 112% for the quarter ended June 30, 2021.
Other (expense) income
Net interest expense was $8.6 million for the quarter ended June 30, 2022 compared with $3.0 million for the quarter ended June 30, 2021. Interest expense in the quarter ended June 30, 2022 included $5.7 million of interest charges on our Secured Notes and royalty liabilities compared with $1.9 million for the quarter ended June 30, 2021. The lower expense recognized in the prior year was a result in a significant change in the royalty cost estimates while no significant changes to estimates occurred in the quarter ended June 30, 2022. Interest expense for the quarter ended June 30, 2022 also included $2.6 million of interest charges related to the Convertible Notes compared to $0.9 million for the quarter ended June 30, 2021. The Convertible Notes were issued in the quarter ended June 30, 2021 which is why there is a significant increase in expense in the current year. Net interest expense also included $0.3 million of dividends accrued on the 7% cumulative redeemable preference shares in each of the quarters ended June 30, 2022 and June 30, 2021. In addition, in the quarter ended June 30, 2021 we realized gains of $0.1 million on our short-term money market investments while no gains were recognized in June 30, 2022.
Other, net was $4.4 million expense for the quarter ended June 30, 2022 compared with $1.7 million in expense for the quarter ended June 30, 2021. For the quarter ended June 30, 2022 this comprised a $10.8 million gain related to the change in fair value associated with derivative liabilities, a $1.0 million impairment related to the change in estimated fair value of CSAM funds and $14.2 million in foreign exchange losses arising on monetary assets and liabilities denominated in foreign currencies. In the quarter ended June 30, 2021 we recorded 2.0 million of expense related to the change in fair value associated with the Convertible loan derivative and $0.3 million in foreign exchange gains arising on monetary assets and liabilities denominated in foreign currencies.
Provision for income taxes
Provision for income taxes in the quarter ended June 30, 2022 and 2021, reflected the taxes chargeable on the taxable income of our subsidiaries.
Quarterly Results of Operations
Our quarterly product sales can fluctuate depending upon the shipment cycles for our red blood cell-based products, which account for approximately two-thirds of our current product sales. For these products, we typically experience 13 shipping cycles per year. This equates to three shipments of each product per quarter, except for one quarter per year when four shipments occur. Not all products ship on the same day so quarters where four shipments occur do not always align. In fiscal 2022 we experienced additional shipments in the third and fourth quarters. In fiscal 2023, the greatest impact of extra product shipments is expected to occur in our third quarter. The timing of shipment of bulk antisera products to our OEM customers may also move revenues from quarter to quarter. We also experience some seasonality in demand around holiday periods in both Europe and the United States. As a result of these factors, we expect to continue to see seasonality and quarter-to-quarter variations in our product sales.
The timing of product development fees included in other revenues is mostly dependent upon the achievement of pre-negotiated project milestones.
Liquidity and Capital Resources
Since our commencement of operations in 2007, we have incurred net losses and negative cash flows from operations. As of June 30, 2022, we had an accumulated deficit of $763.9 million. During the three month period ended June 30, 2022, we incurred a net loss of $38.9 million and used $35.5 million of cash in operating activities. As described under results of operations, our use of cash during the three month period ended June 30, 2022 was primarily attributable to our investment in the development of MosaiQ and corporate costs, including costs related to being a public company.
From our incorporation in 2012 to March 31, 2022, we have raised $160.0 million of gross proceeds through the private placement of our ordinary and preference shares and warrants, $433.0 million of gross proceeds from public offerings of our ordinary shares and issuances of ordinary shares upon exercise of warrants, $145.0 million of gross proceeds from the issuance of the Secured Notes and $105 million of gross proceeds from the issuance of the Convertible Notes. In addition, on March 23, 2018, we raised $20.9 million from the sale and leaseback of the Allan Robb Campus.
During the quarter ended June 30, 2022, we raised gross proceeds of approximately $20.0 million from a public offering of 32,458,336 of our ordinary shares and, in lieu of ordinary shares to certain investors, pre-funded warrants exercisable for an aggregate of 34,208,331 ordinary shares at an exercise price of $0.001 per share.
On July 6, 2022, the Company completed the Sixth Supplemental Indenture to the Secured Notes which includes a change to the amortization payment schedule of the Secured Notes from requiring semi-annual payments ranging from $12.1 million to $24.2 million beginning in April 2023, to requiring quarterly payments of $2.5 million beginning on July 15, 2024 and ending on July 15, 2025, with the remaining principal balance due on October 15, 2025, which will reduce expected amortization payments by $93.0 million over the next 36 months prior to the payment of the remaining principal balance at maturity. It eliminates the requirement that
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we maintain a cash reserve account for the benefit of holders of the Secured Notes, and adds a covenant that we maintain a minimum liquidity of at least $8.0 million, comprised of cash and certain other eligible investments, as of the end of each fiscal quarter. See Note 3 to the financial statements for additional information.
We expect to fund our operations in the near-term, including the ongoing development of MosaiQ through successful field trial completion, achievement of required regulatory authorizations and commercialization from a combination of funding sources. These expected funding sources include the use of existing available cash and investment balances, the sale of rights and other assets, and the issuance of new equity or debt.
As of June 30, 2022, we had available cash, cash equivalents and short-term investments of $63.2 million and $8.7 million of restricted cash held as part of the arrangements relating to our Secured Notes and the lease of our property in Eysins, Switzerland.
Cash Flows for the quarter ended June 30, 2022 and 2021
Operating activities
Net cash used in operating activities was $35.5 million during the three month period ended June 30, 2022, which included net losses of $38.9 million offset by non-cash items of $16.1 million. Non-cash items were depreciation and amortization expense of $1.5 million, share-based compensation expense of $1.6 million, an decrease from the change in fair value of loan derivatives of $10.8 million, Swiss pension costs of $0.2 million, amortization of debt discounts and unrealized foreign currency loss on debt of $21.8 million, impairment of investments of $1.0 million, accrued preference share dividends of $0.3 million, deferred lease rentals of $0.4 million and income taxes of $0.1 million. We also experienced a net cash outflow of $12.8 million from changes in operating assets and liabilities during the period, consisting of a $1.5 million decrease in accrued compensation and benefits, a $1.1 million increase in inventories, a decrease of $10.1 million from a net change in other assets and liabilities, a $0.9 million reduction in accounts payable and accrued liabilities, and a $0.8 million decrease in accounts receivables.
Net cash used in operating activities was $32.1 million during the three month period ended June 30, 2021, which included net losses of $27.3 million offset by non-cash items of $5.2 million. Non-cash items were depreciation and amortization expense of $1.9 million, share-based compensation expense of $1.8 million, change in fair value of convertible loan derivatives of $2.0 million, Swiss pension costs of $0.2 million, a credit related to amortization of deferred debt issue costs and royalties of $1.6 million, accrued preference share dividends of $0.3 million, deferred lease rentals of $0.2 million and a credit to deferred income taxes of $0.4 million. We also experienced a net cash outflow of $10.0 million from changes in operating assets and liabilities during the period, consisting of a $4.2 million reduction in accrued compensation and benefits, a $0.8 million increase in inventories, a $3.5 million increase in other assets and a $2.4 million reduction in accounts payable and accrued liabilities, offset by a $0.9 million reduction in accounts receivables.
Investing activities
Net cash (used in) provided by investing activities was $0.8 million for the quarter ended June 30, 2022 compared to $12.6 million for the quarter ended June 30, 2021.
We spent $0.8 million on purchases of property and equipment in the quarter ended June 30, 2022 compared to $1.4 million in the quarter ended June 30, 2021. Property and equipment purchased in both quarters mainly related to MosaiQ instruments and investments in our IT infrastructure. In the quarter ended June 30, 2021, we also received distributions on our short-term money market investments of $18.5 million from CSAM in the quarter and invested $4.5 million in other short-term money market investments.
Financing activities
Net cash provided by financing activities was $17.7 million during the quarter ending June 30, 2022, consisting of $17.9 million of proceeds related to the issuance of ordinary shares and warrants after deducting issuance costs and $0.2 million of repayments on finance leases.
Net cash provided by (used in) financing activities was $88.1 million during the quarter ended June 30, 2021, consisting of $100.5 million generated from the issuance of the Convertible Notes, net of debt issue costs, offset by $12.1 million repayment of the Secured Notes, expenses related to restricted stock units vested of $0.1 million and $0.2 million of repayments on finance leases.
Operating and Capital Expenditure Requirements
We have not achieved profitability on an annual basis since we commenced operations in 2007 and we expect our operating losses to continue for at least the remainder of the fiscal year ending March 31, 2023. As we launch MosaiQ in the donor testing market, we expect our operating expenses during the year ended March 31, 2023 to be similar to those of the year ended March 31, 2022.
As of June 30, 2022, we had $63.2 million of available cash, cash equivalents, and investments and $8.7 million of restricted cash held as part of the arrangements relating to our Secured Notes and the lease of our properties in Eysins, Switzerland.
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Our future capital requirements will depend on many factors, including:
We expect to fund our operations in the near-term, including the ongoing development of MosaiQ through successful field trial completion, achievement of required regulatory authorizations and commercialization from a combination of funding sources. These expected funding sources include the use of existing available cash and short-term investment balances, the sale of rights and other assets, and the issuance of new equity or debt.
Critical Accounting Policies and Significant Judgments and Estimates
We have prepared our condensed consolidated financial statements in accordance with U.S. GAAP. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.
For a detailed discussion of our critical accounting policies, see Note 1, "Organization and Summary of Significant Accounting Policies." to our Annual Report on Form 10-K for the year ended March 31, 2022. For a detailed description of our significant judgements and estimates, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended March 31, 2022.
Recent Accounting Pronouncements
We did not adopt any other new accounting pronouncements during the three month period ended June 30, 2022 that had a significant effect on our condensed consolidated financial statements included in this Quarterly Report.
Item 3. Reserved
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently party to any pending legal or governmental proceedings that we believe could have a material adverse effect on our business or financial condition. However, we may be subject to various claims and legal actions arising in the ordinary course of business from time to time.
Item 1A. Risk Factors
There have been no material changes in the risk factors described in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended March 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:
Exhibit No. |
|
Description |
4.1 |
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31.1 |
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31.2 |
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32.1 |
|
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32.2 |
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101 |
|
The following financial information from Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 filed with the SEC, formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Comprehensive Loss (unaudited), (iii) Condensed Consolidated Statements of Changes in Shareholders’ Deficit (unaudited), (iv) Condensed Consolidated Statements of Cash Flows (unaudited) and (v) Notes to Condensed Consolidated Financial Statements. |
104 |
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Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101).
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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.
|
|
QUOTIENT LIMITED |
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|
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Date: August 9, 2022 |
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/s/ Manuel O. Méndez |
|
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Manuel O. Méndez Chief Executive Officer |
Date: August 9, 2022 |
|
/s/ Ali Kiboro |
|
|
Ali Kiboro Chief Financial Officer |
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Exhibit 4.1
SIXTH SUPPLEMENTAL INDENTURE
This Sixth Supplemental Indenture (this “Supplemental Indenture”), is entered into as of July 6, 2022, among Quotient Limited, a public limited liability no par value company formed under the laws of Jersey, Channel Islands (the “Issuer”), the Guarantors party hereto, and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”) and as collateral agent (the “Collateral Agent”).
W I T N E S S E T H:
WHEREAS, the Issuer, the Guarantors party thereto, the Trustee and the Collateral Agent executed and delivered an Indenture, dated as of October 14, 2016 (the “Original Indenture”), pursuant to which, on October 14, 2016, the Issuer issued an initial US$84,000,000 aggregate principal amount of the Issuer's 12% Senior Secured Notes due 2023 (the “Original Securities”);
WHEREAS, on December 4, 2018, March 5, 2021, May 24, 2021, October 13, 2021, and June 2, 2022, the Issuer, the Guarantors, the Trustee and the Collateral Agent entered into the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, and the Fifth Supplemental Indenture, respectively, to reflect certain amendments to the Original Indenture (such supplemental indentures, together with the Original Indenture, the “Indenture”);
WHEREAS, pursuant to the terms of the Original Indenture, on June 29, 2018, the Issuer issued an additional US$36,000,000 aggregate principal amount of the Issuer's 12% Senior Secured Notes due 2023, and, pursuant to the terms of the Original Indenture as amended and supplemented by the First Supplemental Indenture, on May 15, 2019, the Issuer issued an additional US$25,000,000 aggregate principal amount of the Issuer's 12% Senior Secured Notes due 2023 (collectively, the “Additional Securities” and, together with the Original Securities, the “Securities”);
WHEREAS, Section 9.02 of the Indenture provides that the Issuer, the Collateral Agent, the Guarantors and the Trustee may make certain amendments and supplements to the Indenture and the Securities only with the consent of each Holder of an outstanding Security affected (the “Requisite Unanimous Consent”);
WHEREAS, the owners or beneficial owners of all the outstanding Securities (the “Consenting Holders”) have consented to certain amendments to the Indenture and the Securities, in each case, by executing a form of consent substantially in the form attached hereto as Exhibit A (each, a "Consent" and, collectively, the "Consents") and have authorized and directed the Trustee and the Collateral Agent to execute and deliver this Supplemental Indenture;
WHEREAS, the Issuer and the Guarantors have done all things necessary to make this Supplemental Indenture a valid agreement of the Issuer, the Guarantors, the Trustee and the Collateral Agent in accordance with the terms of the Indenture and have satisfied all other conditions required under Article 9 of the Indenture; and
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WHEREAS, pursuant to Section 9.02 of the Indenture, each of the Trustee and the Collateral Agent is authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the premises and covenants and agreements contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the Guarantors, the Trustee and the Collateral Agent mutually covenant and agree for the equal and ratable benefit of the parties hereto and the Holders of the Securities as follows:
Article 1
DEFINITIONS
Section 1.01. Capitalized Terms. All capitalized terms contained in this Supplemental Indenture shall, except as specifically provided for herein and except as the context may otherwise require, have the meanings given to such terms in the Indenture. In the event of any inconsistency between the Indenture and this Supplemental Indenture, this Supplemental Indenture shall govern. The words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof.
Section 1.02. Section References. Section references contained in this Supplemental Indenture (other than in Article 2 hereof) are to sections in this Supplemental Indenture unless the context requires otherwise.
Article 2
AMENDMENTS
Section 2.01. Amendments.
(a) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent:
(i) Section 1.01 of the Indenture is hereby amended by adding the following definition in its relevant alphabetical order:
““Alba” shall mean Alba Bioscience Limited, a limited company formed under the law of Scotland, and any successor thereto.”
(ii) Section 1.01 of the Indenture is hereby amended by adding the following paragraph at the end of the definition of “Asset Sale” following clause (r) thereof:
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“For the avoidance of doubt, (i) any disposition (including by way of a Sale/Leaseback Transaction) of any of the business, property or assets of Alba or its subsidiaries, or (ii) any issuance or sale, directly or indirectly, of Equity Interests of Alba or any of its Subsidiaries (but not an issuance or dispositions of Equity Interests of Quotient Limited or of any successor entity or other ultimate holding company and other than (x) any issuance or disposition of directors’ qualifying shares or shares issued to foreign nationals or other third parties to the extent required by applicable law, or (y) any issuance or disposition of Equity Interests to the Issuer or another Restricted Subsidiary of the Issuer), in each case whether in a single transaction or series of related transactions (an “Alba Disposition”) shall constitute an “Asset Sale” hereunder, irrespective of, and notwithstanding, clauses (1) and (2) and clauses (b) through (h), (j), (m) through (o), and (q) hereunder, except to the extent excluded therefrom pursuant to clauses (a), (i), (k), (l), (p) or (r) hereunder and except that sales of products to customers in the ordinary course are not “Asset Sales” or “Alba Dispositions.”
(b) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent, Section 4.01(b) of the Indenture is hereby amended by replacing the first and second paragraphs of Section 4.01(b) (including the table contained therein) in their entirety with the following paragraph and table:
“On each Payment Date, commencing July 15, 2024, or on the succeeding Business Day if any such date is not a Business Day, the Issuer shall pay an installment of principal of the Securities (subject to adjustment in accordance with the following paragraph) in an amount set forth below corresponding to such Payment Date:
Payment Date |
Amount |
July 15, 2024 |
$2,500,000.00 |
October 15, 2024 |
$2,500,000.00 |
January 15, 2025 |
$2,500,000.00 |
April 15, 2025 |
$2,500,000.00 |
July 15, 2025 |
$2,500,000.00 |
October 15, 2025 |
The principal balance then outstanding” |
(c) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent,
(i) Section 4.06(b)(ii) of the Indenture is hereby amended and restated in its entirety as follows:
“(ii) except with respect to the Net Proceeds of an MosaiQ™ Intellectual Property Sale (which Net Proceeds, for the avoidance of doubt, will be applied pursuant to Section 4.06(c) without regard to such 365-day period), to (A) make an Investment in any one or more businesses (provided that if such Investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of the Issuer or, if such Person is a Restricted Subsidiary of the Issuer, in an increase in the percentage ownership of such
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Person by the Issuer or any Restricted Subsidiary of the Issuer), non-current assets, or non-current property, in each case (x) used or useful in a Similar Business or (y) that replace the properties and assets that are the subject of such Asset Sale, (B) make capital expenditures, or (C) fund operating expenses of the Issuer and its Restricted Subsidiaries; provided that any such Investment, assets, property or capital expenditures, to the extent acquired with Net Proceeds of an Asset Sale of Notes Collateral, shall be pledged as Notes Collateral (including any assets held by a Person acquired using Net Proceeds, which shall not be ABL Collateral even if such assets or property are of a type that would otherwise be ABL Collateral).”
(ii) Section 4.06 of the Indenture is hereby amended by adding the following new Section (i) thereto following Section (h) thereof:
“(i) Notwithstanding anything herein to the contrary, 40% of any proceeds from an Alba Disposition shall automatically and immediately be deemed Notes Collateral Excess Proceeds (without regard to the 365-day period described in this Section 4.06), shall not be available to be applied by the Issuer pursuant to Section 4.06(b), and the Issuer shall, once such proceeds exceed $1, make a Notes Collateral Asset Sale Offer only to all Holders of Securities to purchase the maximum principal amount of Securities that may be purchased out of such Notes Collateral Excess Proceeds in accordance with and in compliance with the procedures set forth in section 4.06(c) as modified by this Section 4.06(i).”
(d) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent,
(i) Section 4.19 of the Indenture is hereby amended and restated as follows:
“SECTION 4.19. Minimum Liquidity. The Issuer and its Restricted Subsidiaries, on a consolidated basis, shall maintain, as of the last day of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022, an amount of aggregate Cash Equivalents equal to at least $8,000,000 (the “Liquidity Amount”); provided, however, that up to fifty percent (50%) of the Liquidity Amount may be comprised of the Issuer’s Investments in the Credit Suisse Supply Chain Finance Investment Grade Fund and the Credit Suisse (Lux) Supply Chain Finance Fund (which shall be valued for this purpose of this Section 4.19 at cost and without regard to any reserves or deductions taken by the Issuer against the carrying value of such Investments for financial accounting purposes).”
(ii) The definitions of “Additional Cash Reserve Amount”, “Cash Reserve Account”, “Cash Reserve Amount”, “CE Marking Cash Reserve Amount” and “Initial Cash Reserve Amount” in the Indenture and references to such terms throughout the Indenture shall be deleted in their entirety; and
(iii) As promptly as reasonably practicable after the date of this Supplemental Indenture, the Trustee shall immediately remit any and all amounts deposited in the Cash Reserve Account to, or at the written direction of, the Issuer.
(e) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent, a new Section 4.21 of the Indenture is hereby added as follows:
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“SECTION 4.21. Board Observer. The beneficial owners of the Securities (as a group) shall be entitled to designate one person as an observer (and not as a director) to the Board of Directors of the Issuer (and its committees), which designation shall be made in writing to the Issuer, and who shall be entitled to attend (but not to participate in) the meetings of the Board of Directors of the Issuer (and its committees) at which business may be conducted (such attendance to be in person, by telephone or by video conference, at the discretion of such observer, but such person shall be entitled to attend in person only if other participants in the meeting are together in person for the meeting), without voting rights or other authority to act on behalf of the Issuer, and to receive all materials provided to the Board of Directors of the Issuer (and its committees) in respect of any such meeting at the same time and in the same manner as the directors of the Board of Directors of the Issuer; provided, however, that the Issuer reserves the right to exclude such observer from access to any material or meeting or portion thereof if the Issuer determines in good faith, upon advice of counsel, that such exclusion is reasonably necessary (1) to preserve the attorney-client privilege, or (2) to protect highly confidential proprietary information of the Issuer and the Issuer may require the person designated as an observer to agree in writing to keep confidential and not disclose any material nonpublic information acquired in such person’s capacity as an observer, to refrain from trading or causing any other Person to trade while in possession of any such material nonpublic information, and to refrain from making any audio or video recording of any meeting attended by such person. Subject to the proviso set forth in the preceding sentence, such observer shall be invited (at the same time and in the same manner as the directors of the Board of Directors of the Issuer) and entitled to attend (but not to participate in) all meetings of the Board of Directors of the Issuer (and its committees).”
(f) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent, the first sentence of Section 8.01(e) is hereby amended and restated as follows:
“Subject to Section 8.01(d) and Section 8.02, the Issuer at any time may terminate (i) all its obligations under the Securities and this Indenture (with respect to such Securities) (“legal defeasance option”) or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.10, 4.11, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20 and 4.21 and the operation of Section 4.08, Section 5.01 and Sections 6.01(c), 6.01(d), 6.01(e) (with respect to Restricted Subsidiaries of the Issuer only), 6.01(f) (with respect to Restricted Subsidiaries of the Issuer only), 6.01(g), 6.01(h), 6.01(i), 6.01(j), 6.01(k) and 6.01(l) (“covenant defeasance option”).”
(g) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent, the introductory paragraph of each of the Securities is hereby amended by (i) replacing the phrase “Payment Dates: April 15 and October 15 (each, a “Payment Date”)” with the phrase “Payment Dates: January 15, April 15, July 15 and October 15 (each, a “Payment Date”)” and (ii) replacing the phrase “Record Dates: April 1 and October 1 (each, a “Record Date”)” with the phrase “Record Dates: January 1, April 1, July 1 and October 1 (each, a “Record Date”)”.
(h) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent, Section 1(b) of each of the Securities is hereby amended by replacing the first sentence of Section 1(b) in its entirely with the following:
“The Issuer shall pay interest quarterly in arrears on each Payment Date, commencing July 15, 2022, or on the succeeding Business Day if any such date is not a Business Day.”
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(i) Pursuant to the terms of the Consents and the receipt of the Requisite Unanimous Consent, Section 1(d) of each of the Securities is hereby amended by replacing the second sentence of the first paragraph (including the table contained therein) and the second paragraph of Section 1(d) in their entirety with the following sentence and table:
“On each Payment Date, commencing July 15, 2024, or on the succeeding Business Day if any such date is not a Business Day, the Issuer shall pay an installment of principal of the Securities (subject to adjustment in accordance with the following paragraph) in an amount set forth below corresponding to such Payment Date:
Payment Date |
Amount |
July 15, 2024 |
$2,500,000.00 |
October 15, 2024 |
$2,500,000.00 |
January 15, 2025 |
$2,500,000.00 |
April 15, 2025 |
$2,500,000.00 |
July 15, 2025 |
$2,500,000.00 |
October 15, 2025 |
The principal balance then outstanding” |
Article 3
EFFECT
Section 3.01. Effect. This Supplemental Indenture shall become effective and binding on the Issuer, the Guarantors, the Trustee, the Collateral Agent and every Holder of the Securities heretofore or hereafter authenticated and delivered under the Indenture, upon the execution and delivery by the parties to this Supplemental Indenture; provided, however, that the amendments set forth in Article 2 of this Supplemental Indenture shall only become operative upon (i) receipt of a DTC Proxy and Consent (as defined in the Consents) in respect of the DTC Securities (as defined in the Consents) beneficially owned by each Consenting Holder, (ii) the execution and delivery by the Issuer and each Consenting Holder of the applicable Consent Warrant (as defined in the Consents) and the Registration Rights Agreement (as defined in the Consents), in each case under clauses (i) and (ii), in accordance with the terms and conditions of the Consents, and (iii) delivery of the Equity Offering Officers’ Certificate (as defined in the Consents). The date on which the amendments set forth in Article 2 of this Supplemental Indenture become operative is referred to herein as the “Operative Date”. The Issuer shall promptly inform the Trustee and the Collateral Agent in writing (which may be by email) of the occurrence of the Operative Date, which notice shall be accompanied by an Officers’ Certificate (which may be a .pdf copy) confirming that each of the conditions described in this Section 3.01 has been satisfied.
Article 4
MISCELLANEOUS
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Section 4.01. Ratification of Indenture. The Indenture, as supplemented and amended by this Supplemental Indenture, is ratified and confirmed, and this Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. The Indenture, as supplemented and amended by this Supplemental Indenture, shall be read, taken and construed as one and the same instrument. If any provision of this Supplemental Indenture is inconsistent with a provision of the Indenture or the Securities, the terms of this Supplemental Indenture shall govern.
Section 4.02. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) EXCEPT TO THE EXTENT THAT LOCAL LAW GOVERNS THE CREATION, PERFECTION, PRIORITY OR ENFORCEMENT OF SECURITY INTERESTS.
Section 4.03. No Recourse Against Others. No director, officer, employee, manager, member, partner, incorporator or holder of any Equity Interests in the Issuer or in any Guarantor, as such, shall have any liability for any obligations of the Issuer or the Guarantors under this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or its creation.
Section 4.04. Electronic Means. The parties agree that the transaction described herein may be conducted and related documents may be stored by electronic means. Copies, telecopies, facsimiles, electronic files and other reproductions of original executed documents shall be deemed to be authentic and valid counterparts of such original documents for all purposes, including the filing of any claim, action or suit in the appropriate court of law.
Section 4.05. Entire Agreement. This Supplemental Indenture, together with the Indenture as amended hereby, contains the entire agreement of the parties, and supersedes all other representations, warranties, agreements and understandings between the parties, oral or otherwise, with respect to the matters contained herein and therein.
Section 4.06. Provisions of Supplemental Indenture for the Sole Benefit of Parties and Holders of Securities. Nothing in this Supplemental Indenture, express or implied, shall give to any Person other than the parties hereto and their successors hereunder and the Holders of the Securities any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture or the Securities.
Section 4.07. Multiple Originals. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Supplemental Indenture. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes. All notices, approvals, consents, requests and any communications
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hereunder must be in writing (provided that any communication sent to the Trustee or the Collateral Agent hereunder must be in the form of a document that is signed manually or by way of a digital signature provided by DocuSign or Adobe Sign (or such other digital signature provider as specified in writing to the Trustee or the Collateral Agent by the authorized representative), in English. The Issuer and Guarantors each agrees to assume all risks arising out of the use of using digital signatures and electronic methods to submit communications to the Trustee or the Collateral Agent, including without limitation the risk of the Trustee or the Collateral Agent acting on unauthorized instructions, and the risk of interception and misuse by third parties.
Section 4.08. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
Section 4.09. Trustee's Disclosure. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Supplemental Indenture, and it shall not be responsible for any statement of the Issuer or any Guarantor in this Supplemental Indenture. All of the provisions contained in the Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this Supplemental Indenture as fully and with like effect as if set forth herein in full.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
Very truly yours,
QUOTIENT LIMITED
By: /s/ Manuel O. Méndez
Name: Manuel O. Méndez
Title: Chief Executive Officer
QBD (QS IP) LIMITED, as Guarantor
By: /s/ Ali Kiboro
Name: Ali Kiboro
Title: Director
QUOTIENT BIODIAGNOSTICS, INC., as Guarantor
By: /s/ Mohammad El Khoury
Name: Mohammad El Khoury
Title: Director
ALBA BIOSCIENCE LIMITED, as Guarantor
By: /s/ Ali Kiboro
Name: Ali Kiboro
Title: Director
QUOTIENT SUISSE SA, as Guarantor
By: /s/ Ali Kiboro
Name: Ali Kiboro
Title: Administrateur
QUOTIENT IBERIA, S.L.U., as Guarantor
By: /s/ Mohammad El Khoury
Name: Mohammad El Khoury
Title: Director
Quotient Middle-East and Africa FZ LLC, as Guarantor
By: /s/ Mohammad El Khoury
Name: Mohammad El Khoury
Title: Director
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee
By: /s/ Alison D.B. Nadeau
Name: Alison D.B. Nadeau
Title: Vice President
U.S. BANK TRUST COMPANY NATIONAL ASSOCIATION, as Collateral Agent
By: /s/ Alison D.B. Nadeau
Name: Alison D.B. Nadeau
Title: Vice President
Exhibit A
FORM OF CONSENT
See Attached
1
IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" 4856-4693-8150.v3" "" 4856-4693-8150.v3
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80-40590118 |
SCHEDULE 1
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Depository Trust Company Participant |
Principal Amount |
Original Securities CUSIP No. |
Principal Amount |
Additional Securities CUSIP No. |
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1
IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" 4856-4693-8150.v3" "" 4856-4693-8150.v3
24004022968-v2 |
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80-40590118 |
EXHIBIT A
FORM OF SUPPLEMENTAL INDENTURE
See Attached
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EXHIBIT B
FORM OF WARRANT
See Attached
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EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
See Attached
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Exhibit 31.1
CERTIFICATION
I, Manuel O. Méndez, certify that:
Date: August 9, 2022 |
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/s/ Manuel O. Méndez |
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Manuel O. Méndez |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Ali Kiboro, certify that:
Date: August 9, 2022 |
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/s/ Ali Kiboro |
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Ali Kiboro |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Quotient Limited, a company incorporated under the laws of Jersey, Channel Islands (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report for the quarter ended June 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2022 |
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/s/ Manuel O. Méndez |
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Manuel O. Méndez |
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Chief Executive Officer |
This certification is being furnished and not filed, and shall not be incorporated into any document for any purpose, under the Securities Exchange Act of 1934 or the Securities Act of 1933.
Exhibit 32.2
CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Quotient Limited, a company incorporated under the laws of Jersey, Channel Islands (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report for the quarter ended June 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2022 |
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/s/ Ali Kiboro |
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Ali Kiboro |
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Chief Financial Officer |
This certification is being furnished and not filed, and shall not be incorporated into any document for any purpose, under the Securities Exchange Act of 1934 or the Securities Act of 1933.