UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 20, 2021
INOTIV, INC. |
(Exact name of registrant as specified in its charter) |
Indiana | 0-23357 | 35-1345024 | ||
(State or other
jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification
No.) |
2701 KENT AVENUE WEST LAFAYETTE, INDIANA |
47906-1382 |
|
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (765) 463-4527
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Ticker symbol(s) |
Name of each exchange on which
registered |
Common Shares | NOTV | NASDAQ Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 Results of Operations and Financial Condition.
On April 20, 2021, Inotiv, Inc. (the “Company”) issued a press release furnished as Exhibit 99.1 to this Current Report on Form 8-K (the “Press Release”) that, among other things, announced certain preliminary financial and operating results of the Company for the quarter and six months ended March 31, 2021.
The Company’s preliminary financial and operating results in the Press Release are estimates and subject to the completion of the Company’s financial closing procedures and any adjustments that may result from the completion of the review of the Company’s financial statements. The preliminary figures in the Press Release may differ materially from the actual results that will be reflected in the Company’s financial statements when they are completed and publicly disclosed.
The information in this Item 2.02 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 8.01 Other Events.
As previously announced, the Company has entered into an Agreement and Plan of Merger to acquire Bolder BioPATH, Inc. and an Asset Purchase Agreement to acquire the business of HistoTox Labs, Inc. Exhibits 99.2 and 99.3 hereto provide certain historical financial statements for Bolder BioPATH, Inc. and HistoTox Labs, Inc., respectively. In addition, the Company has disclosed the following non-GAAP financial figures which are based on the GAAP figures shown below:
GAAP figures: | Fiscal 2020 | Quarter ended December 31 | ||||||||||
2019 | 2020 | |||||||||||
Company Net Loss | $ | (4,685,000 | ) | $ | (1,426,000 | ) | $ | (366,000 | ) | |||
Histotox Labs Operating Income | $ | 2,267,000 | ||||||||||
Bolder BioPATH Operating Income | $ | 1,591,000 |
· | Adjusted EBITDA of the Company for the twelve-month period ended December 31, 2020 of $3.4 million with an approximately 5.1% margin. |
· | EBITDA of Bolder BioPATH, Inc. and HistoTox Labs, Inc. for the twelve months ended December 31, 2020 of $2.6 million and $2.9 million, respectively. |
· | Combined Adjusted EBITDA of the Company, Bolder BioPATH, Inc. and HistoTox Labs, Inc. for the twelve months ended December 31, 2020 of approximately $8.9 million with a greater than 10% combined Adjusted EBITDA margin. |
The above figures constitute financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). For the Company, the non-GAAP financial measure is Adjusted EBITDA for the twelve-month period ended December 31, 2020. Adjusted EBITDA as reported herein refers to a financial performance measure that excludes from net income (loss) income statement line items interest expense and income taxes (benefit) expense, as well as non-cash charges for depreciation and amortization, stock option (benefit) expense, United Kingdom lease liability reversal benefit, non-recurring acquisition and integration costs and other non-recurring third party costs, such as recruiting costs, consulting fees related to the adoption of two accounting standards, and expenses for rebranding and new website launch.
For Bolder BioPATH, Inc. and Histotox Labs, Inc (collectively, the “Targets”), the non-GAAP financial measures consist of the sum of operating income and depreciation and amortization expense for the year ended December 31, 2020. These sums are then added to the Adjusted EBITDA of the Company and shown as combined EBITDA of the three entities for the twelve months ended December 31, 2020.
The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management, however, believes that the Company's Adjusted EBITDA and the non-GAAP information presented for the Targets, when used in conjunction with the results presented in accordance with GAAP, may provide a more complete understanding of the Company's results and may facilitate a fuller analysis of the Company's results particularly in evaluating performance from one period to another, as well as the impact of the acquisitions of the Targets on the Company's EBITDA.
Management has chosen to provide this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of our results and to illustrate our results giving effect to the non-GAAP adjustments shown in the reconciliation. Management strongly encourages investors to review the consolidated financial statements of the Company and the Targets and the Company's publicly filed reports in their entirety and cautions investors that the non-GAAP measures used by the Company may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
Non-GAAP to GAAP Reconciliation
Fiscal Year
Ended |
Quarter Ended | |||||||||||
September | December 31, | |||||||||||
30, 2020 | 2019 | 2020 | ||||||||||
Company GAAP Net loss | $ | (4,685,000 | ) | $ | (1,426,000 | ) | $ | (366,000 | ) | |||
Add back: Interest expense | 1,490,000 | 311,000 | 347,000 | |||||||||
Income taxes expense | 147,000 | 97,000 | 33,000 | |||||||||
Depreciation and amortization | 4,074,000 | 749,000 | 1,101,000 | |||||||||
Stock option expense | 540,000 | 97,000 | 181,000 | |||||||||
United Kingdom lease liability reversal benefit | (180,000 | ) | (60,000 | ) | — | |||||||
Acquisition and integration costs | 339,000 | 270,000 | — | |||||||||
Other non-recurring, third party costs | 823,000 | 443,000 | — | |||||||||
Company Adjusted EBITDA | $ | 2,548,000 | $ | 481,000 | $ | 1,296,000 |
Company Adjusted EBITDA for FY 2020 | $ | 2,548,000 | ||
Company Adjusted EBITDA for Q1 FY 2019 | (481,000 | ) | ||
Company Adjusted EBITDA for Q1 FY 2020 | 1,296,000 | |||
Company Adjusted EBITDA for LTM ended December 31, 2020 | $ | 3,363,000 | ||
HistoTox Labs for FY 2020: | ||||
Operating Income for FY 2020 | $ | 2,267,000 | ||
Depreciation and Amortization | 669,000 | |||
HistoTox Labs EBITDA for FY 2020 | $ | 2,936,000 | ||
Bolder BioPATH for FY 2020: | ||||
Operating Income for FY 2020 | $ | 1,591,000 | ||
Depreciation and Amortization | 996,000 | |||
Bolder BioPATH EBITDA for FY 2020 | $ | 2,587,000 | ||
Combined Adjusted EBITDA | $ | 8,886,000 |
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
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 hereunto duly authorized.
Inotiv, Inc. | ||
Date: April 20, 2021 | By: | /s/ Beth A. Taylor |
Beth A. Taylor | ||
Chief Financial Officer and Vice President - Finance |
Exhibit 23.1
Consent of Independent Accounting Firm
To the Directors of Inotiv, Inc.
We consent to the incorporation by reference in the Registration Statement (No. 333-253309) on Form S-3 and in the Registration Statements (Nos. 333-153734, 333-228747 and 333-237580) on Form S-8 of Inotiv, Inc. of our report dated March 24, 2021 (April 6, 2021 with respect to Note 13), relating to the financial statements of Bolder BioPATH, Inc., appearing in the Form 8-K of Inotiv, Inc. to which this consent is included as an exhibit.
We also consent to the reference to our firm under the heading "Experts" in the prospectus which is part of such Registration Statement on Form S-3.
We have not audited or reviewed any financial statement of Bolder BioPATH, Inc. for any period subsequent to December 31, 2020. Therefore, we are unable to and do not express any opinion or assurance on the financial position, results of operations, or cash flows subsequent to December 31, 2020.
/s/ Soukup Bush & Associates, CPAs, P.C.
Fort Collins, Colorado
April 20, 2021
Exhibit 23.2
Consent of Independent Accounting Firm
To the Directors of Inotiv, Inc.
We consent to the incorporation by reference in the Registration Statement (No. 333-253309) on Form S-3 and in the Registration Statements (Nos. 333-153734, 333-228747 and 333-237580) on Form S-8 of Inotiv, Inc. of our report dated March 22, 2021, relating to the financial statements of HistoTox Labs, Inc., appearing in the Form 8-K of Inotiv, Inc. to which this consent is included as an exhibit.
We also consent to the reference to our firm under the heading "Experts" in the prospectus which is part of such Registration Statement on Form S-3.
We have not audited or reviewed any financial statement of HistTox Labs, Inc. for any period subsequent to December 31, 2020. Therefore, we are unable to and do not express any opinion or assurance on the financial position, results of operations, or cash flows subsequent to December 31, 2020.
/s/ Soukup Bush & Associates, CPAs, P.C.
Fort Collins, Colorado
April 20, 2021
Exhibit 23.3
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (No.’s 333-153734, 333-228747, and 333-237580) on Form S-8 of Inotiv, Inc.(f/k/a Bioanalytical Systems, Inc.) and on Form S-3 of Inotiv, Inc.(f/k/a Bioanalytical Systems, Inc.) of our report dated December 22, 2020, relating to the consolidated financial statements of Bioanalytical Systems, Inc., appearing in the Annual Report on Form 10-K of Bioanalytical Systems, Inc. for the year ended September 30, 2020.
We also consent to the reference to our firm under the heading "Experts" in the Registration Statement.
/s/ RSM US LLP
Indianapolis, Indiana
April 20, 2021
Exhibit 99.1
Inotiv, Inc. Announces Select Preliminary Unaudited
Financial Results for
Second Quarter and Year to Date Fiscal 2021
WEST LAFAYETTE, IN, April 20, 2021 – Inotiv, Inc. (NASDAQ:NOTV) (the “Company”, “We”, “Our” or “Inotiv”), a leading contract research organization specializing in nonclinical and analytical drug discovery and development services, today announced select preliminary unaudited financial results for the second quarter and six months ended March 31, 2021.
The Company expects to report:
· | Total revenue of between $18.5 million and $18.8 million for the second quarter ended March 31, 2021, a year over year increase of 16.6% at the midpoint of the range. |
· | Total revenue of between $36.3 million and $36.6 million for the six months ended March 31, 2021, a year over year increase of 26.1% at the midpoint of the range. |
· | For its services business, a book-to-bill ratio of approximately 1.5x for the quarter ended March 31, 2021 and approximately 1.3x for the six months ended March 31, 2021. |
· | Backlog of $53.9 million as of March 31, 2021, compared to $45.3 million as of December 31, 2020. |
Inotiv’s President and Chief Executive Officer, Robert Leasure, Jr., commented, “We reported strong preliminary second quarter revenue combined with a robust preliminary book-to-bill ratio and quarter-ending backlog, positioning us for continuing growth in the second half of fiscal 2021. In the coming days, we look forward to sharing our full financial results for the second quarter and providing an update on our previously announced agreements to purchase HistoTox Labs, Inc. and Bolder BioPATH, Inc.”
The Company will announce the date and time of its second quarter fiscal 2021 financial results conference call in a separate press release.
These total revenue amounts and the book-to-bill ratio and backlog information are preliminary, have not been audited and are subject to change in connection with the completion of our financial statements for the three and six months ended March 31, 2021. In addition, our independent registered public accounting firm does not express an opinion or any other form of assurance with respect thereto. The preliminary figures may differ materially from the actual results that will be reflected in the Company’s financial statements when they are completed and publicly disclosed. Accordingly, you should not place undue reliance on this information. Additional information and disclosures would be required for a more complete understanding of our financial position and results of operations as of, and for the period ended on, March 31, 2021.
About the Company
Inotiv, Inc., is a pharmaceutical development company providing contract research services and monitoring instruments to emerging pharmaceutical companies and the world's leading drug development companies and medical research organizations. The Company focuses on developing innovative services supporting its clients’ discovery and development objectives for improved decision-making and accelerated goal attainment. The Company’s products focus on increasing efficiency, improving data, and reducing the cost of taking new drugs to market. Visit inotivco.com for more information about the Company.
This release contains forward-looking statements that are subject to risks and uncertainties including, but not limited to, risks and uncertainties related to changes in the market and demand for our products and services, the development, marketing and sales of products and services, changes in technology, industry and regulatory standards, the timing of acquisitions and the successful closing, integration and business and financial impact thereof, the impact of the COVID-19 pandemic on the economy, demand for our services and products and our operations, including the measures taken by governmental authorities to address the pandemic, which may precipitate or exacerbate other risks and/or uncertainties and various other market and operating risks, including those detailed in the Company's filings with the U.S. Securities and Exchange Commission.
Company Contact | Investor Relations |
Inotiv, Inc. | The Equity Group Inc. |
Beth A. Taylor, Chief Financial Officer | Kalle Ahl, CFA |
(765) 497-8381 | (212) 836-9614 |
btaylor@inotivco.com | kahl@equityny.com |
Devin Sullivan | |
(212) 836-9608 | |
dsullivan@equityny.com |
Exhibit 99.2
Bolder BioPATH, Inc.
Financial Statements and Independent
Auditor's Report
December 31, 2020 and 2019
Table of Contents
Page | ||
Independent Auditor's Report | 1 | |
Financial Statements: | ||
Balance Sheets | 3 | |
Statements of Operations | 4 | |
Statements of Changes in Stockholders' Equity | 5 | |
Statements of Cash Flows | 6 | |
Notes to the Financial Statements | 7-18 |
Independent Auditor's Report
To the Stockholders
Bolder BioPATH, Inc.
Boulder,
CO
Report on the Financial Statements
We have audited the accompanying financial statements of Bolder BioPATH, Inc. (the "Company") (an S Corporation), which comprise the balance sheets as of December 31, 2020 and 2019, and the related statements of operations, changes in stockholders' equity, and cash flows for the years then ended, and the notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
To the Stockholders
Bolder BioPATH, Inc.
Page 2
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bolder BioPATH, Inc. as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As described in Note 13 to the financial statements, subsequent to the issuance of the Company's 2020 and 2019 financial statements and our report dated March 24, 2021, management determined an error as it relates to the calculation of the Company's contract assets, liabilities, and revenues on contracts in progress. In our original report, we expressed an unmodified opinion on the 2020 and 2019 financial statements, and our opinion on the revised statements, as expressed herein, remains unmodified.
Fort Collins, CO
March 24, 2021
(except for Note 13, as to which
the date is April
6, 2021)
Bolder BioPATH, Inc.
Balance Sheets
December 31, 2020 and 2019
Restated
2020 |
Restated
2019 |
|||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 41,398 | $ | 110,362 | ||||
Accounts receivable, net | 2,886,869 | 3,351,126 | ||||||
Right of use asset - operating | 1,845,438 | - | ||||||
Unbilled revenue | 1,456,126 | 1,392,672 | ||||||
Prepaid expenses | 45,326 | 45,311 | ||||||
Total current assets | 6,275,157 | 4,899,471 | ||||||
Property and equipment, net | 5,094,384 | 4,537,254 | ||||||
Security deposit | 69,637 | 69,637 | ||||||
Total long-term assets | 5,164,021 | 4,606,891 | ||||||
Total assets | $ | 11,439,178 | $ | 9,506,362 | ||||
Liabilities and Stockholders' Equity |
||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 147,113 | $ | 601,367 | ||||
Accrued liabilities | 199,599 | 232,112 | ||||||
Deferred revenue | 777,775 | 252,597 | ||||||
Deferred rent, current portion | - | 99,757 | ||||||
Lease liability - operating, current portion | 328,984 | - | ||||||
Long-term debt - related party, current portion | 1,439,632 | 555,220 | ||||||
Long-term debt, current portion | 196,114 | 31,754 | ||||||
Total current liabilities | 3,089,217 | 1,772,807 | ||||||
Deferred rent, non-current portion | - | 730,880 | ||||||
Lease liability - operating, non-current portion | 2,307,174 | - | ||||||
Long-term debt - related party, non-current portion | - | 1,444,780 | ||||||
Long-term debt, non-current portion | 173,672 | 50,182 | ||||||
Total liabilities | 5,570,063 | 3,998,649 | ||||||
Common stock, $0.01 par value: 100,000 shares authorized, issued and outstanding | 1,000 | 1,000 | ||||||
Retained earnings | 5,868,115 | 5,506,713 | ||||||
Total stockholders' equity | 5,869,115 | 5,507,713 | ||||||
Total liabilities and stockholders' equity | $ | 11,439,178 | $ | 9,506,362 |
See accompanying notes to the financial statements and independent auditor's report.
3
Bolder BioPATH, Inc.
Statements of Operations
For the Years Ended December 31, 2020 and 2019
Restated
2020 |
Restated
2019 |
|||||||
Revenues, net | $ | 12,932,434 | $ | 12,985,335 | ||||
Cost of revenues | 7,165,258 | 6,078,476 | ||||||
Gross profit | 5,767,176 | 6,906,859 | ||||||
Operating expenses | ||||||||
General and administrative | 1,836,934 | 1,634,138 | ||||||
Salaries, wages, and employee benefits | 1,343,646 | 1,082,465 | ||||||
Depreciation expense | 995,623 | 344,152 | ||||||
Total operating expenses | 4,176,203 | 3,060,755 | ||||||
Income from operations | 1,590,973 | 3,846,104 | ||||||
Other income (expense) | ||||||||
(Loss) on disposal of property and equipment | (4,883 | ) | - | |||||
Other income | 10,000 | 6,258 | ||||||
Interest (expense) | (95,599 | ) | (36,624 | ) | ||||
Total other (expense) | (90,482 | ) | (30,366 | ) | ||||
Net income | $ | 1,500,491 | $ | 3,815,738 |
See accompanying notes to the financial statements and independent auditor's report.
4
Bolder BioPATH, Inc.
Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2020 and 2019
Common Stock |
Restated
Retained |
Restated
Stockholders' |
||||||||||||||
Shares | Amount | Earnings | Equity | |||||||||||||
Balances at December 31, 2018 | ||||||||||||||||
Restated | 100,000 | $ | 1,000 | $ | 4,845,564 | $ | 4,846,564 | |||||||||
Distributions to stockholders | - | - | (3,154,589 | ) | (3,154,589 | ) | ||||||||||
Net income | - | - | 3,815,738 | 3,815,738 | ||||||||||||
Balances at December 31, 2019 | ||||||||||||||||
Restated | 100,000 | $ | 1,000 | $ | 5,506,713 | $ | 5,507,713 | |||||||||
Distributions to stockholders | - | - | (1,139,089 | ) | (1,139,089 | ) | ||||||||||
Net income | - | - | 1,500,491 | 1,500,491 | ||||||||||||
Balances at December 31, 2020 | ||||||||||||||||
Restated | 100,000 | $ | 1,000 | $ | 5,868,115 | $ | 5,869,115 |
See accompanying notes to the financial statements and independent auditor's report.
5
Bolder BioPATH, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2020 and 2019
Restated 2020 | Restated 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,500,491 | $ | 3,815,738 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss on disposal of property and equipment | 4,883 | - | ||||||
Bad debt expense | 36,035 | 108,226 | ||||||
Depreciation expense | 995,623 | 344,152 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 428,222 | (1,123,063 | ) | |||||
Unbilled revenue | (63,454 | ) | 488,214 | |||||
Prepaid expenses | (15 | ) | 1,283 | |||||
Accounts payable | (454,254 | ) | 450,910 | |||||
Accrued liabilities | (72,430 | ) | 978,379 | |||||
Deferred revenue | 525,178 | (228,962 | ) | |||||
Net cash provided by operating activities | 2,900,279 | 4,834,877 | ||||||
Cash flows from investing activities: | ||||||||
Cash paid for the purchase of property and equipment | (1,459,116 | ) | (3,551,992 | ) | ||||
Proceeds from disposal of property and equipment | 18,000 | - | ||||||
Net cash (used in) investing activities | (1,441,116 | ) | (3,551,992 | ) | ||||
Cash flows from financing activities: | ||||||||
Principal payments on line of credit | (2,308,076 | ) | - | |||||
Proceeds from line of credit | 2,308,076 | - | ||||||
Principal payments on long-term debt related party | (560,368 | ) | - | |||||
Principal payments on long-term debt | (53,134 | ) | (33,467 | ) | ||||
Proceeds from long-term debt | 224,464 | 2,000,000 | ||||||
Distributions to stockholders | (1,139,089 | ) | (3,154,589 | ) | ||||
Net cash (used in) financing activities | (1,528,127 | ) | (1,188,056 | ) | ||||
Net change in cash during the year | (68,964 | ) | 94,829 | |||||
Cash - beginning of year | 110,362 | 15,533 | ||||||
Cash - end of year | $ | 41,398 | $ | 110,362 | ||||
Non-cash investing and financing activities: | ||||||||
Purchase of fixed assets through promissory notes | $ | 116,519 | $ | - | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest expense | $ | 99,511 | $ | 41,859 |
See accompanying notes to the financial statements and independent auditor's report.
6
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Bolder BioPATH, Inc. (the "Company") conform to accounting principles generally accepted in the United States of America. The following summary of significant accounting policies is presented to assist the reader in evaluating the Company's financial statements.
Business Activity - The Company, incorporated on May 14, 2002, is headquartered in Boulder, Colorado and provides contract pharmacology, toxicology, and pathology services specializing in In Vivo models of rheumatoid arthritis, osteoarthritis, and cancer as well as other autoimmune and inflammation models with the goal of providing pre-clinical data to support advancing proteins and small molecules to investigational new drug or new drug application ("IND/NDA") stage.
Basis of Accounting - The Company maintains its accounting records on the accrual basis of accounting. This method is based on the matching concept of accounting principles generally accepted in the United States of America. As a result, revenues are recognized when they are earned and expenses are recognized when they are incurred.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - For purposes of the balance sheets and cash flow statements, cash and cash equivalents include all bank accounts of the Company that have maturities of three months or less.
Accounts receivable - Accounts receivable include customer obligations due under normal trade terms for amounts billed pursuant to the agreed upon billing schedule for each respective study. The Company records accounts receivable at their net realizable value, which requires management to estimate the collectability of the Company's receivables. Judgment is required in assessing the realization of these receivables, including the credit worthiness of each counterparty and the related aging of past due balances.
7
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 1 - Summary of Significant Accounting Policies (continued)
Accounts receivable continued - Management evaluates all accounts and a reserve is established based on the best facts available based on management's assessment of their collectability. After all attempts to collect a receivable have failed, the receivable is written off through the allowance for doubtful accounts. The allowance for doubtful accounts is estimated by analyzing the payment history of customers and current economic conditions. The allowance for doubtful accounts was $51,058 and $53,027 as of December 31, 2020 and 2019, respectively.
Property and Equipment - Property and equipment are stated at cost net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for major renewals and betterments that extend the useful lives of equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. All tangible personal property with a useful life of more than one year and a unit acquisition cost of $1,500 or more is capitalized and depreciated over its useful life using the straight-line method. The Company expenses the full acquisition cost of tangible personal property below this threshold in the year of purchase. Estimated useful lives on property and equipment are as follows:
Years | ||||
Leasehold improvements | 5-11 years | |||
Machinery and equipment | 5 years | |||
Vehicles | 5 years | |||
Computer equipment | 5 years | |||
Furniture and fixtures | 7 years |
Leasehold improvements are amortized over the shorter of the lease term or useful life of the asset.
Depreciation expense was $995,623 and $344,152 for the years ended December 31, 2020 and 2019, respectively.
Long-Lived Assets - The Company evaluates its long-lived assets in accordance with Accounting Standards Codification ("ASC") 360-10-50, “Accounting for the Impairment or Disposal of Long-lived Assets,” which requires reviewing long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be reasonable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds fair market value and is recorded in the year the determination was made. There was no impairment of long-lived assets as of December 31, 2020 or 2019, respectively.
8
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue Recognition - In accordance with the Accounting Standards Update (“ASU”)2014-09, “Revenue from Contracts with Customers” (Topic 606), the Company recognizes revenue upon the transfer of goods and services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company earns revenue through service contracts, which are generally fixed price arrangements subject to pricing adjustments based on changes in scope. In cases where performance spans multiple accounting periods, revenue is recognized as the respective clinical study progresses. The total contract value, or total contractual payments, represents the aggregate contracted price for each of the agreed upon services to be provided. Changes in the scope of work are common and generally result in a change in contract value.
When a customer has agreed to a change in scope and renegotiated pricing terms, the contract value is amended with revenue recognized as described above. Revenue is recognized as services are performed, generally using an output method based on milestones specific to each respective contract, multiplied by the total contract value. The Company believes that this method used reasonably depict the progress of the Company towards completing its obligations.
Billing schedules and payment terms are generally negotiated on a contract-by-contract basis. The Company bills the customer for the total contract value in progress-based installments as certain non-contingent billing milestones are reached over the contract duration, such as contract signing, completion of the study, and delivery of the report. The term "billing milestone" relates only to a billing trigger in a contract whereby amounts become billable and payable in accordance with a negotiated predetermined billing schedule throughout the term of the project. These billing milestones are generally not performance- based (i.e., there is no potential additional consideration tied to specific deliverables or performance).
In other cases, services may be provided and revenue recognized before the customer is invoiced. In these cases, revenue recognized will exceed amounts billed and represents a contract asset on the balance sheet. Once the customer is invoiced, the contract asset is reduced for the amount billed and a corresponding accounts receivable is recorded.
In some cases, payments received are in excess of revenue recognized. Payments received in advance of services being provided are deferred as unearned revenue on the balance sheet. As the contracted services are subsequently performed and the associated revenue is recognized, the unearned revenue balance is reduced by the amount of revenue recognized during the period.
9
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 1 - Summary of Significant Accounting Policies (continued)
Advertising - The Company expenses advertising costs as incurred. Advertising expenses charged to operations were $9,687 and $64,996 for the years ended December 31, 2020 and 2019, respectively.
Research and Development Costs - Costs and expenses that can be clearly identified as research and development are charged to expense.
Concentration of Credit Risk - The Company's operations are concentrated in the preclinical Contract Research Organization ("CRO") industry. As such, the Company's trade accounts receivable, payables and operations are concentrated in this industry.
The Company extends trade credit, with no interest charged, to its customers on terms that are generally standard practice in the industry and performs ongoing evaluations of its customers' financial condition. Management believes any credit risk is minimal. For the years ended December 31, 2020 and 2019, one customer totaled approximately 15% and 36% of accounts receivable and 16% and 25% of sales, respectively.
The Company maintains cash accounts which, at times, may exceed the federally insured limit. Federal Deposit Insurance Corporation ("FDIC") insures accounts up to $250,000. As of December 31, 2020, cash balances in excess of federally insured limits were $372,578. There were no cash balances in excess of federally insured limits as of December 31, 2019.
Income Taxes - The Company operates as a Subchapter S Corporation. As such, income and expenses of the Company are reported on the stockholders' individual income tax return. The Company is subject to certain state and local taxes.
The Company accounts for uncertain tax positions in accordance with ASC 740-10, "Income Taxes." ASC 740-10, "Income Taxes," provides several clarifications related to uncertain tax positions. Most notably, a "more-likely-than-not" standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 740-10, "Income Taxes," applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must determine whether any amount of tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be recognized for tax positions that qualify for recognition. No additional liabilities have been recognized. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.
10
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value Measurements - The Company adopted the provisions of ASC 820, “Fair Value Measurements” for financial assets and financial liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosure about fair value measurements. ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:
• | Level 1 Inputs - Unadjusted: quoted prices in active markets for identical assets or liabilities. |
• | Level 2 Inputs - Observable: inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
• | Level 3 Inputs - Unobservable: inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
The carrying amounts of cash, accounts receivable, prepaid expenses, account payable and other accruals approximate their fair values because of the short-term maturities or expected settlement dates of these instruments. All other significant financial assets or liabilities of the Company are either recognized or disclosed in the financial statements together with information relevant for making a reasonable assessment of future cash flows, interest rate risk, and credit risk.
Leases - In February 2016, the FASB issued ASU 2016-02, "Leases," (Topic 842) (“ASU 2016-02”), which supersedes the guidance in former ASC 840, "Leases." The new accounting guidance requires recognition of all long-term lease assets and lease liabilities by lessees and sets forth new disclosure requirements for those lease assets and liabilities. It requires lessees to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements with a term of greater than 12 months regardless of the classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.
11
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 1 - Summary of Significant Accounting Policies (continued)
Leases (continued) - The Company adopted this new standard on January 1, 2020 using the required modified retrospective approach and utilizing the effective date as its date of initial application.
The Company determines if a contract contains a lease at the inception of the contract. The Company currently has a lease related to its facility leased for office and laboratory space, which is classified as an operating lease. The lease results in an operating right-of-use asset, current operating lease liability, and non-current lease liability in the Company’s balance sheet. The Company does not have any financing leases.
ASU 2016-02 provides a number of optional practical expedients in transition. The Company elected to adopt the 'package of practical expedients', which permits the Company (i) not to reassess whether expired existing contracts are or contain leases, (ii) not to reassess the classification of expired or existing leases, and (iii) not to reassess initial direct costs for any existing leases. The Company will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance. Adoption of this standard resulted in the recognition of a right-of-use asset and a lease liability on the Company’s January 1, 2020 balance sheet of $2,109,204 and $2,939,162, respectively. There was no material impact resulting from the adoption on the Company’s statement of operations for the year ended December 31, 2020. Lease liabilities represent an obligation to make lease payments arising from the lease and ROU assets represent the right to use the underlying asset identified in the lease for the lease term. Lease liabilities are measured at the present value of the lease payments not yet paid discounted using the discount rate for the lease established at the lease commencement date. To determine the present value, the implicit rate is used when readily determinable.
For leases where the implicit rate is not provided, the Company determines an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. ROU assets are measured at the present value of the lease payments and also include any prepaid lease payments made and any other indirect costs incurred, and exclude any lease incentives received. Lease expense is recognized on a straight-line basis over the lease term. In transition to ASC 842, the Company utilized the remaining lease term of its lease in determining the appropriate incremental borrowing rate. The application of the new standard required netting of unamortized balance of lease incentives and deferred lease obligation to right-of-use asset at the adoption date. The Company’s operating lease includes rental escalation clauses that are factored into the determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts.
12
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 2 - Property and Equipment
Property and equipment consists of the following as of December 31:
2020 | 2019 | |||||||
Leasehold improvements | $ | 6,992,809 | $ | 5,775,802 | ||||
Machinery and equipment | 306,278 | 117,777 | ||||||
Vehicles | 252,422 | 185,829 | ||||||
Computer equipment | 97,106 | 45,009 | ||||||
Furniture and fixtures | 17,215 | 15,704 | ||||||
7,665,830 | 6,140,121 | |||||||
Less: accumulated depreciation | (2,571,446 | ) | (1,602,867 | ) | ||||
Property and equipment, net | $ | 5,094,384 | $ | 4,537,254 |
Note 3 - Accrued Liabilities
Accrued liabilities consists of the following as of December 31:
2020 | 2019 | |||||||
Stockholder payable | $ | 136,339 | $ | 41,795 | ||||
Accrued payroll and benefits | 36,534 | - | ||||||
Accrued bonuses | - | 148,832 | ||||||
Use taxes | 23,734 | 38,495 | ||||||
Other | 2,992 | 2,990 | ||||||
Total accrued liabilities | $ | 199,599 | $ | 232,112 |
Note 4 - Line of Credit
The Company has a revolving line of credit with a maximum amount available of $1,000,000. The line of credit bears interest at variable rate equal to the annual prime rate plus an applicable percentage of 2.00%. The effective interest rates were 5.25% and 6.75% as of December 31, 2020 and 2019, respectively. The line of credit calls for monthly interest only payments with all unpaid principal and interest due at maturity on April 16, 2021. The line is secured by substantially all assets of the Company. The Company had no principal amounts outstanding as of December 31, 2020 or 2019, respectively, and through the date of issuance of these financial statements.
13
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 5 - Long-term Debt
The Company regularly purchases vehicles through promissory notes in the ordinary course of operations. As of December 31, 2020, and 2019, the notes bear interest at fixed rates ranging from 1.90% to 3.74%, respectively. The notes require monthly principal and interest payments of $965 to $2,374 and $3,604 to $68,886 with maturity dates ranging from May 2020 to September 2023 and November 2022 to April 2026 as of December 31, 2020, and 2019, respectively. The notes are secured by the underlying asset, as defined in each respective note agreement. The principal amounts due on the vehicle loans were $145,322 and $81,936 as of December 31, 2020, and 2019, respectively.
PPP Loan
On April 20, 2020, the Organization entered into a Paycheck Protection Program ("PPP") loan agreement with an original principal balance of $224,464 and a fixed interest rate of 1.00%. The loan requires monthly principal payments of $12,634 beginning November 20, 2020 with all principal and unpaid interest due at maturity on April 20, 2022. The Company accounted for the PPP loan in accordance with ASC 470, "Debt," which requires the Company to record the proceeds from the loan as a liability until it has been forgiven, either wholly or in part, and the Company is legally released from the obligation by the government. Once released, the Company will reduce the liability by the amount forgiven and record a gain extinguishment in accordance with ASC 450-30, "Gain contingencies." As of December 31, 2020, the outstanding principal balance was $224,464.
Maturities of the long-term debt are as follows for the years ended December 31:
PPP Loan | Third Party | Total | |||||||||||
2021 | $ | 151,613 | $ | 44,501 | $ | 196,114 | |||||||
2022 | 72,851 | 39,128 | 111,979 | ||||||||||
2023 | - | 18,738 | 18,738 | ||||||||||
2024 | - | 19,422 | 19,422 | ||||||||||
2025 | - | 20,132 | 20,132 | ||||||||||
Thereafter | - | 3,401 | 3,401 | ||||||||||
$ | 224,464 | $ | 145,322 | $ | 369,786 |
14
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 6 - Related Party Note Payable
On August 1, 2019 the Company entered into an unsecured note payable agreement with the owners of the Company with an original principal amount not to exceed $2,000,000 to assist with the expansion cost of the Company’s facility. The Company borrowed $1,000,000 on the effective date of the agreement and an additional $1,000,000 on November 1, 2019. The related party note payable bore interest at a fixed rate of 8.00% per annum through December 31, 2019 and decreased to 5.00% on January 1, 2020. The fixed rate is subject to change at the demand of the owners, however will not exceed 8.00% per annum, as defined in the agreement. The related party note payable requires, at minimum, monthly interest payments in addition to an undefined amount of principal. All unpaid amount of principal and interest are due at maturity on August 1, 2021. The principal amounts due on the related party note payable was $1,439,632 and $2,000,000 as of December 31, 2020, and 2019, respectively.
Note 7 - EIDL Advance
On May 1 2020, the Company received an Economic Injury Disaster Loan Advance ("EIDL Advance") of $10,000 from the United States Small Business Administration (the "SBA") under its Economic Disaster Loan assistance program in light of the impact of the coronavirus ("COVID-19") pandemic on the Company's business. The advance is not repayable and is recorded as other income in the accompanying statements of operations.
Note 8 - Related Party Transactions
The Company receives report writing services from Report Right, LLC ("Report Right"), a related entity owned by a direct relative of a stockholder. Amounts paid to Report Right totaled $312,796 and $331,095 for the years ended December 31, 2020 and 2019, respectively. There were no amounts due to Report Right as of December 31, 2020 or 2019, respectively.
Note 9 - Leases
The Company is obligated under a non-cancelable lease agreement for its office and laboratory facility in Boulder, Colorado. This operating lease requires escalating rental payments and expires on November 30, 2026.
As of December 31, 2020, future undiscounted minimum contractual payments under the Company’s operating lease were $3,267,182. The discount rate for the operating lease liability was 6.75% which was the Company’s incremental borrowing rate at the ASC 842 adoption date as the discount rate implicit in the lease could not be readily determined.
15
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 9 - Leases (continued)
In addition to fixed lease payments, the Company also has variable lease costs that requires the Company to pay its pro-rata share of real estate taxes and operating costs. The components of lease expense are as follows related to the Company's leases for the year ended December 31, 2020:
Fixed operating lease costs | $ | 428,268 | ||
Variable lease costs | 239,054 | |||
Total lease cost | $ | 667,322 |
Future fixed minimum rental payments required under the non-cancelable operating lease agreements are as follows for the years ending December 31:
2021 | $ | 495,585 | |||
2022 | 511,831 | ||||
2023 | 528,573 | ||||
2024 | 545,890 | ||||
2025 | 607,841 | ||||
Thereafter | 577,462 | ||||
Total undiscounted lease payments | 3,267,182 | ||||
Less: imputed interest | (631,024 | ) | |||
Total lease liability | $ | 2,636,158 |
Other information: | ||||
Operating cash flows used for operating lease | $ | 704,305 | ||
Weighted average remaining lease term (in years) | 5.9 | |||
Weighted-average discount rate | 6.75 | % |
Under the prior lease accounting guidance, minimum rental commitments under non-cancelable leases as were as follows as of December 31 2019:
2020 | $ | 451,523 | |||
2021 | 495,585 | ||||
2022 | 511,831 | ||||
2023 | 528,573 | ||||
2024 | 545,890 | ||||
Thereafter | 1,185,303 | ||||
Total minimum lease payments | $ | 3,718,705 |
16
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 10 - Retirement Plan
The Company sponsors an Internal Revenue Code Section 401(k) safe harbor profit sharing plan covering substantially all of its employees. The Company provides a matching contribution equal to i) 100% up to the first 3% plus ii) 50% on the next 2% of eligible compensation. Company contributions totaled $119,790 and $77,805 for the years ended December 31, 2020 and 2019, respectively.
Note 11 - Risks and Uncertainties
The new strain of COVID-19 in 2020 and the efforts to contain it have negatively impacted the global economy, disrupted manufacturing operations and global supply chains and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The Company believes the estimates and assumptions underlying the financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared. However, uncertainty over the impact COVID-19 will have on the global economy and the Company in particular makes many of the estimates and assumptions reflected in the 2020 financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.
Note 12 - Subsequent Events
In accordance with ASC 855, "Subsequent Events," management has evaluated all material events or transactions that occurred after December 31, 2020, the balance sheet date, through March 24, 2021, the date the financial statements were available to be issued, except Note 13 which is through April 6, 2021. Management has determined there are no events or transactions which would impact the financial statements for the year ended December 31, 2020, except as follows:
In March 2021, the Company paid $400,000 towards the balance due on the related party note payable.
17
Bolder BioPATH, Inc.
Notes to the Financial Statements
December 31, 2020 and 2019
Note 13 - Revisions to Previously Issued Financial Statements
Subsequent to the issuance of the Company's 2020 and 2019 financial statements, management determined an error in the calculation of its contract assets, liabilities, and revenues, as it relates to the Company's contracts in progress resulting in the following adjustments as of and for the years ended:
December 31, 2020 |
As Previously
Reported |
Restated | ||||||
Unbilled revenue | $ | 1,084,308 | $ | 1,456,126 | ||||
Deferred revenue | $ | 698,560 | $ | 777,775 | ||||
Retained earnings | $ | 5,575,512 | $ | 5,868,115 | ||||
Revenues, net | $ | 12,945,469 | $ | 12,932,434 | ||||
Net income | $ | 1,513,526 | $ | 1,500,491 |
December 31, 2019 |
As Previously
Reported |
Restated | ||||||
Unbilled revenue | $ | 1,036,397 | $ | 1,392,672 | ||||
Deferred revenue | $ | 201,960 | $ | 252,597 | ||||
Retained earnings | $ | 5,201,075 | $ | 5,506,713 | ||||
Revenues, net | $ | 13,444,792 | $ | 12,985,335 | ||||
Net income | $ | 4,275,195 | $ | 3,815,738 |
18
Exhibit 99.3
HistoTox Labs, Inc.
Financial Statements and Independent
Auditor's Report
December 31, 2020
Table of Contents
Page | |
Independent Auditor's Report | 1 |
Financial Statements: | |
Balance Sheet | 3 |
Statement of Operations | 4 |
Statement of Changes in Stockholder's Equity | 5 |
Statement of Cash Flows | 6 |
Notes to the Financial Statements | 7-17 |
Independent Auditor's Report
To the Stockholder
HistoTox Labs, Inc.
Boulder, Colorado
Report on the Financial Statements
We have audited the accompanying financial statements of HistoTox Labs, Inc. (the "Company") (an S Corporation), which comprise the balance sheet as of December 31, 2020, and the related statements of operations, changes in stockholder's equity, and cash flows for the year then ended, and the notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
To the Stockholder
HistoTox Labs, Inc.
Page 2
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HistoTox Labs, Inc. as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Fort Collins, CO
March 22, 2021
HistoTox Labs, Inc.
Balance Sheet
December 31, 2020
Assets | ||||
Current assets: | ||||
Cash | $ | 923,781 | ||
Accounts receivable | 1,157,426 | |||
Right of use asset - operating | 1,218,109 | |||
Unbilled revenue | 8,562 | |||
Total current assets | 3,307,878 | |||
Long-term assets: | ||||
Property and equipment, net | 3,130,010 | |||
Security deposit | 25,124 | |||
Total long-term assets | 3,155,134 | |||
Total assets | $ | 6,463,012 | ||
Liabilities and Stockholder's Equity | ||||
Current liabilities: | ||||
Accounts payable | $ | 262,356 | ||
Accrued liabilities | 380,355 | |||
Deferred revenue | 457,646 | |||
Lease liability - operating, current portion | 214,348 | |||
Long-term debt, current portion | 497,980 | |||
Total current liabilities | 1,812,685 | |||
Lease liability - operating, non-current portion | 1,486,746 | |||
Long-term debt, non-current portion | 400,696 | |||
Total liabilities | 3,700,127 | |||
Common stock, no par value: 10 shares authorized, issued and outstanding | 10 | |||
Retained earnings | 2,762,875 | |||
Total stockholder's equity | 2,762,885 | |||
Total liabilities and stockholder's equity | $ | 6,463,012 |
See accompanying notes to the financial statements and independent auditor's report.
3
HistoTox Labs, Inc.
Statement of Operations
For the Year Ended December 31, 2020
Revenues, net | $ | 9,116,058 | ||
Cost of revenues | 3,986,194 | |||
Gross profit | 5,129,864 | |||
Operating expenses | ||||
Salaries, wages, and employee benefits | 1,089,192 | |||
General and administrative | 1,059,663 | |||
Depreciation and amortization expense | 669,179 | |||
Selling expenses | 44,408 | |||
Total operating expenses | 2,862,442 | |||
Income from operations | 2,267,422 | |||
Other income (expense) | ||||
Other income | 6,000 | |||
Interest (expense) | (43,591 | ) | ||
Total other (expense) | (37,591 | ) | ||
Net income | $ | 2,229,831 |
See accompanying notes to the financial statements and independent auditor's report.
4
HistoTox Labs, Inc.
Statement of Changes in Stockholder's Equity
For the Year Ended December 31, 2020
Common Stock | Retained | Stockholder's | ||||||||||||||
Shares | Amount | Earnings | Equity | |||||||||||||
Balance, December 31, 2019 | 10 | $ | 10 | $ | 2,421,455 | $ | 2,421,465 | |||||||||
Distributions to stockholder | - | - | (1,888,411 | ) | (1,888,411 | ) | ||||||||||
Net income | - | - | 2,229,831 | 2,229,831 | ||||||||||||
Balance, December 31, 2020 | 10 | $ | 10 | $ | 2,762,875 | $ | 2,762,885 |
See accompanying notes to the financial statements and independent auditor's report.
5
HistoTox Labs, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2020
Cash flows from operating activities: | ||||
Net income | $ | 2,229,831 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization expense | 669,179 | |||
Changes in assets and liabilities: | ||||
Accounts receivable | 38,303 | |||
Unbilled revenue | 16,290 | |||
Accounts payable | 68,602 | |||
Accrued liabilities | 83,321 | |||
Deferred revenue | 322,082 | |||
Net cash provided by operating activities | 3,427,608 | |||
Cash flows from investing activities: | ||||
Cash paid for the purchase of property and equipment | (905,961 | ) | ||
Net cash (used in) investing activities | (905,961 | ) | ||
Cash flows from financing activities: | ||||
Principal payments on long-term debt | (625,410 | ) | ||
Proceeds from long-term debt | 357,500 | |||
Distributions to stockholder | (1,888,411 | ) | ||
Net cash (used in) financing activities | (2,156,321 | ) | ||
Net change in cash during the year | 365,326 | |||
Cash - beginning of year | 558,455 | |||
Cash - end of year | $ | 923,781 | ||
Non-cash investing and financing activities: | ||||
Purchase of fixed assets through promissory notes | $ | 472,651 | ||
Supplemental information: | ||||
Cash paid for interest expense | $ | 43,591 |
See accompanying notes to the financial statements and independent auditor's report.
6
HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of HistoTox Labs, Inc. (the "Company") conform to accounting principles generally accepted in the United States of America. The following summary of significant accounting policies is presented to assist the reader in evaluating the Company's financial statements.
Business Activity - The Company, incorporated on March 27, 2003, is headquartered in Boulder, Colorado and is a Good Laboratory Practices ("GLP") compliant contract histology laboratory providing routing and specialized histology and histopathology, immunohistochemistry ("IHC"), whole-slide scanning (Aperio AT2), and digital image analysis services. The Company specializes in areas of preclinical toxicology, cancer, fibrosis, bone histology and a variety of inflammation models.
Basis of Accounting - The Company maintains its accounting records on the accrual basis of accounting. This method is based on the matching concept of accounting principles generally accepted in the United States of America. As a result, revenues are recognized when they are earned and expenses are recognized when they are incurred.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - For purposes of the balance sheet and cash flow statement, cash and cash equivalents include all bank accounts of the Company that have maturities of three months or less.
Accounts receivable - Accounts receivable include customer obligations due under normal trade terms for amounts billed pursuant to the agreed upon billing schedule for each respective study. The Company records accounts receivable at their net realizable value, which requires management to estimate the collectability of the Company's receivables. Judgment is required in assessing the realization of these receivables, including the credit worthiness of each counterparty and the related aging of past due balances.
7
HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 1 - Summary of Significant Accounting Policies (continued)
Accounts receivable (continued) - Management evaluates all accounts and a reserve is established based on the best facts available based on management's assessment of their collectability. After all attempts to collect a receivable have failed, the receivable is written off through the allowance for doubtful accounts. The allowance for doubtful accounts is estimated by analyzing the payment history of customers and current economic conditions. Based on this analysis, the Company determined no allowance was necessary as of December 31, 2020.
Property and Equipment - Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for major renewals and betterments that extend the useful lives of equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. All tangible personal property with a useful life of more than one year and a unit acquisition cost of $1,500 or more is capitalized and depreciated over its useful life using the straight-line method. The Company expenses the full acquisition cost of tangible personal property below this threshold in the year of purchase. Estimated useful lives on property and equipment are as follows:
Years | |
Lab equipment | 3-7 years |
Leasehold improvements | 6-12 years |
Computers and software | 3-5 years |
Furniture and fixtures | 7 years |
Vehicles | 5 years |
Leasehold improvements are amortized over the shorter of the lease term or useful life of the asset.
Depreciation and amortization expense was $669,179 for the year ended December 31, 2020.
Long-Lived Assets - The Company evaluates its long-lived assets in accordance with Accounting Standards Codification ("ASC") 360-10-50, “Accounting for the Impairment or Disposal of Long-lived Assets,” which requires reviewing long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be reasonable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds fair market value and is recorded in the year the determination was made. There was no impairment of long-lived assets as of December 31, 2020.
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HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue Recognition - In accordance with the Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606), the Company recognizes revenue upon the transfer of goods and services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company earns revenue through service contracts, which generally are fixed price arrangements subject to pricing adjustments based on changes in scope. In cases where performance spans multiple accounting periods, revenue is recognized as the respective clinical study progresses. The total contract value, or total contractual payments, represents the aggregate contracted price for each of the agreed upon services to be provided. Changes in the scope of work are common and generally result in a change in contract value.
The method to measure progress towards completion requires judgment and is based on the nature of services to be provided depending on the transfer of value to the customer. Revenue is recognized as services are performed, generally using an output method based on discrete service, such as slides tested. The Company believes that the method used reasonably depicts the progress of the Company towards completing its obligations.
Generally, the Company bills the total contract value before the agreed upon services are provided. These billings are not performance-based (i.e., there is no potential additional consideration tied to specific deliverables or performance). Accordingly, payments received are in excess of revenue recognized. Payments received in advance of services being provided are deferred as contract liabilities on the balance sheet. As the services are performed and the associated revenue is recognized, the contract liability is reduced by the amount of revenue recognized during the period.
Services may be provided and revenue recognized before the customer is invoiced. In these cases, revenue recognized will exceed amounts billed and represents a contract asset on the balance sheet. Once the customer is invoiced, the contract asset is reduced for the amount billed and a corresponding accounts receivable is recorded.
Advertising - The Company expenses advertising costs as incurred. Advertising expenses charged to operations was $44,408 for the year ended December 31, 2020.
Research and Development Costs - Costs and expenses that can be clearly identified as research and development are charged to expense.
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HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 1 - Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk - The Company's operations are concentrated in the preclinical Contract Research Organization ("CRO") industry. As such, the Company's accounts receivable, payables and operations are concentrated in this industry.
The Company extends trade credit, with no interest charged, to its customers on terms that are generally standard practice in the industry and performs ongoing evaluations of its customers' financial condition. Management believes any credit risk is minimal. For the year ended December 31, 2020, two vendors totaled approximately 29% of purchased services, however these vendors can be replaced with alternative vendors should the need arise.
The Company maintains cash accounts which, at times, may exceed the federally insured limit. Federal Deposit Insurance Corporation ("FDIC") insures accounts up to $250,000. As of December 31, 2020, cash balances in excess of federally insured limits were $970,458.
Income Taxes - The Company operates as a Subchapter S Corporation. As such, income and expenses of the Company are reported on the stockholder's individual income tax return. The Company is subject to certain state and local taxes.
The Company accounts for uncertain tax positions in accordance with ASC 740-10, "Income Taxes." ASC 740-10, "Income Taxes," provides several clarifications related to uncertain tax positions. Most notably, a "more-likely-than-not" standard for initial recognition of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 740-10, "Income Taxes," applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must determine whether any amount of tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be recognized for tax positions that qualify for recognition. No additional liabilities have been recognized. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions.
Fair Value Measurements - The Company adopted the provisions of ASC 820, “Fair Value Measurements” for financial assets and financial liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosure about fair value measurements. ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
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HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value Measurements (continued) - ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:
• Level 1 Inputs - Unadjusted: quoted prices in active markets for identical assets or liabilities.
• Level 2 Inputs - Observable: inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
• Level 3 Inputs - Unobservable: inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The carrying amounts of cash, accounts receivable, account payable and other accruals approximate their fair values because of the short-term maturities or expected settlement dates of these instruments. All other significant financial assets or liabilities of the Company are either recognized or disclosed in the financial statements together with information relevant for making a reasonable assessment of future cash flows, interest rate risk, and credit risk.
Leases - In February 2016, the FASB issued ASU 2016-02, "Leases," (Topic 842) (“ASU 2016-02”), which supersedes the guidance in former ASC 840, "Leases." The new accounting guidance requires recognition of all long-term lease assets and lease liabilities by lessees and sets forth new disclosure requirements for those lease assets and liabilities. It requires lessees to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements with a term of greater than 12 months regardless of the classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The Company adopted this new standard on January 1, 2020 using the required modified retrospective approach and utilizing the effective date as its date of initial application.
The Company determines if a contract contains a lease at the inception of the contract. The Company currently has a lease related to its facility leased for office and laboratory space, which is classified as an operating lease. The lease results in an operating right-of-use asset, current operating lease liability, and non-current lease liability in the Company’s balance sheet. The Company does not have any financing leases.
11
HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 1 - Summary of Significant Accounting Policies (continued)
Leases (continued) - ASU 2016-02 provides a number of optional practical expedients in transition. The Company elected to adopt the 'package of practical expedients', which permits the Company (i) not to reassess whether expired existing contracts are or contain leases, (ii) not to reassess the classification of expired or existing leases, and (iii) not to reassess initial direct costs for any existing leases. The Company will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance. Adoption of this standard resulted in the recognition of a right-of-use asset and a lease liability on the Company’s January 1, 2020 balance sheet of $1,386,030 and $1,871,124, respectively. There was no material impact resulting from the adoption on the Company’s statement of operations for the year ended December 31, 2020. Lease liabilities represent an obligation to make lease payments arising from the lease and ROU assets represent the right to use the underlying asset identified in the lease for the lease term. Lease liabilities are measured at the present value of the lease payments not yet paid discounted using the discount rate for the lease established at the lease commencement date. To determine the present value, the implicit rate is used when readily determinable.
For leases where the implicit rate is not provided, the Company determines an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. ROU assets are measured at the present value of the lease payments and also include any prepaid lease payments made and any other indirect costs incurred, and exclude any lease incentives received. Lease expense is recognized on a straight-line basis over the lease term. In transition to ASC 842, the Company utilized the remaining lease term of its lease in determining the appropriate incremental borrowing rate. The application of the new standard required netting of unamortized balance of lease incentives and deferred lease obligation to right-of-use asset at the adoption date. The Company’s operating lease includes rental escalation clauses that are factored into the determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts.
12
HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 2 - Property and Equipment
Property and equipment consists of the following as of December 31, 2020:
Lab equipment | $ | 2,749,916 | ||
Leasehold improvements | 1,490,050 | |||
Computers and software | 390,355 | |||
Furniture and fixtures | 253,785 | |||
Vehicles | 84,488 | |||
4,968,594 | ||||
Less: accumulated depreciation and amortization | (1,838,584 | ) | ||
Property and equipment, net | $ | 3,130,010 |
Note 3 - Accrued Liabilities
Accrued liabilities consists of the following as of December 31, 2020:
Accrued payroll and benefits | $ | 171,660 | ||
Accrued paid time off | 134,638 | |||
Accrued taxes | 74,057 | |||
Total accrued liabilities | $ | 380,355 |
Note 4 - Line of Credit
The Company has a revolving line of credit with a maximum amount available of $100,000. The line of credit bears interest at variable rate equal to the annual prime rate plus an applicable percentage of 2.00%. The effective interest rate was 5.25% as of December 31, 2020. The line of credit calls for monthly interest only payments with all unpaid principal and interest due at maturity on July 30, 2021. The line is secured by substantially all assets of the Company. The Company had no principal amounts outstanding as of December 31, 2020 and through the date of the issuance of these financial statements.
13
HistoTox Labs, Inc. Notes to the Financial Statements December 31, 2020 |
Note 5 - Long-term Debt
The Company finances the purchase of various vehicles and equipment in the ordinary course of operations. As of December 31, 2020, the notes bore interest at fixed rates ranging from 4.95% to 7.99%. The notes require monthly principal and interest payments ranging from $1,439 to $26,621 with maturity dates ranging from May 2021 to December 2026, respectively, as of December 31, 2020. The notes are secured by the underlying asset, as defined in each respective note agreement. The principal amounts due on the equipment and vehicle notes were $898,676 as of December 31, 2020.
PPP Loan
On April 15, 2020, the Company entered into a Paycheck Protection Program ("PPP") loan agreement with an original principal balance of $357,500 and a fixed interest rate of 1.00%. The loan requires monthly principal payments of $20,102 beginning October 15, 2020 with all principal and unpaid interest due at maturity on April 15, 2022. The Company accounted for the PPP loan in accordance with ASC 470, "Debt," which requires the Company to record the proceeds from the loan as a liability until it has been forgiven, either wholly or in part, and the Company is legally released from the obligation by the government. Once released, the Company will reduce the liability by the amount forgiven and record a gain extinguishment in accordance with ASC 450-30, "Gain contingencies." As of December 31, 2020, the outstanding principal balance was $357,500. On February 23, 2021, all outstanding principal and accrued interest was forgiven by the government and was recorded as a gain in the statement of operations (Note 10).
Maturities of the long-term debt are as follows for the years ended December 31:
2021 | $ | 497,980 | ||
2022 | 219,049 | |||
2023 | 59,154 | |||
2024 | 56,554 | |||
2025 | 48,097 | |||
Thereafter | 17,842 | |||
$ | 898,676 |
Note 6 - Related Party Transactions
The Company outsources services from HTL Clinical, LLC ("HTL"), a company related through common ownership. Services provided to the Company by HTL totaled approximately $52,475 for the year ended December 31, 2020. Amounts due to HTL were $34,026 as of December 31, 2020, which is included in accounts payable in the accompanying balance sheet.
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HistoTox Labs, Inc.
Notes to the Financial Statements
December 31, 2020
Note 6 - Related Party Transactions (continued)
Effective August 19, 2019, the Company and HTL entered into promissory note agreement with an original principal amount of $350,000. Accordingly, the Company is jointly and severally liable with HTL on amounts due to the lender. The promissory note bears interest at a fixed rate of 6.00% per annum and calls for monthly principal and interest payments of $9,274 through maturity on February 19, 2023. Amounts due as of December 31, 2020 are recorded in the financial records of HTL. Under this joint and several liability, the total amount of the obligation is enforceable to both the Company and HTL and each party is considered primarily responsible for the entire obligation. As of December 31, 2020 and through the issuance of these financial statements, the Company has not paid, and does not expect to pay, any amount related to this liability and accounts for these transactions through HTL. Effective March 19, 2021, the promissory note agreement with the lender was amended and the Company was removed as a co-obligor and accordingly, has no future obligation related to this arrangement (Note 10).
Note 7 - Leases
The Company is obligated under a non-cancelable lease agreement for its office and laboratory facility in Boulder, Colorado. This operating lease requires escalating rental payments and expires on October 31, 2026.
As of December 31, 2020, future undiscounted minimum contractual payments under the Company’s operating lease were $2,042,695. The discount rate for the operating lease liability was 6.04% which was the Company’s incremental borrowing rate at the ASC 842 adoption date as the discount rate implicit in the lease could not be readily determined.
In addition to fixed lease payments, the Company also has variable lease costs that requires the Company to pay its pro-rata share of real estate taxes and operating costs. The components of lease expense are as follows related to the Company's lease for the year ended December 31, 2020:
Fixed operating lease costs | $ | 267,311 | ||
Variable lease costs | 196,776 | |||
Total lease cost | $ | 464,087 |
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HistoTox Labs, Inc. Notes to the Financial Statements December 31, 2020 |
Note 7 - Leases (continued)
Future fixed minimum rental payments required under the non-cancelable operating lease agreements are as follows for the years ending December 31:
2021 | $ | 311,679 | ||
2022 | 320,733 | |||
2023 | 330,371 | |||
2024 | 347,156 | |||
2025 | 394,660 | |||
Thereafter | 338,096 | |||
Total undiscounted lease payments | 2,042,695 | |||
Less: imputed interest | (341,601 | ) | ||
Total lease liability | $ | 1,701,094 |
Other information: | ||||
Operating cash flows used for operating leases | $ | 456,872 | ||
Weighted average remaining lease term (in years) | 5.8 | |||
Weighted-average discount rate | 6.04 | % |
Effective December 3 2020, the Company entered into an amendment to the lease to add HTL Clinical as a tenant and expand the leased premises for an additional 4,845 of rentable square feet. The lease term will commence at the earlier of i) April 1, 2021, ii) when tenant improvements are substantially complete, or iii) when tenant occupies the space for business use. As of December 31, 2020 and through the issuance of these financial statements, the landlord has not yet delivered the space to the Company and accordingly, the commencement date has not yet occurred.
Note 8 - Retirement Plan
The Company sponsors an Internal Revenue Code Section 401(k) safe harbor profit sharing plan covering substantially all of its employees. The Company provides a matching contribution equal to i) 100% up to the first 3% plus ii) 50% on the next 2% of eligible compensation. Company contributions totaled $59,685 for the year ended December 31, 2020.
16
HistoTox Labs, Inc. Notes to the Financial Statements December 31, 2020 |
Note 9 - Risks and Uncertainties
The new strain of coronavirus ("COVID-19") in 2020 and the efforts to contain it have negatively impacted the global economy, disrupted manufacturing operations and global supply chains and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The Company believes the estimates and assumptions underlying the financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared. However, uncertainty over the impact COVID-19 will have on the global economy and the Company in particular makes many of the estimates and assumptions reflected in the 2020 financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.
Note 10 - Subsequent Events
In accordance with ASC 855, "Subsequent Events," management has evaluated all material events or transactions that occurred after December 31, 2020, the balance sheet date, through March 22, 2021, the date the financial statements were available to be issued. Management has determined there are no events or transactions which would impact the financial statements for the year ended December 31, 2020, except as follows:
On February 23, 2021, all unpaid principal and interest related to the PPP loan was forgiven by the government (Note 5).
On March 19, 2021 the Company amended the promissory note agreement with HTL to be removed as a co-obligor (Note 6).
17