Also 8K
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
As previously reported in a Current Report on Form 8-K filed by Avid Bioservices, Inc. (the “Company”) with the Securities and Exchange Commission on March 6, 2024, on February 29, 2024, the Company received an acceleration notice from a holder of its 1.250% Exchangeable Senior Notes due 2026 (the “2026 Notes”). The acceleration notice stipulated, among other things, that (i) the Company did not remove the restrictive legend on the 2026 Notes by March 17, 2022 as required under the indenture governing the 2026 Notes (the “2026 Notes Indenture”), (ii) due to such failure, additional interest has accrued thereafter at a rate of 0.50% per annum (the “Additional Interest”), (iii) such Additional Interest had not been paid by the Company as of the date of the Acceleration Notice, which constituted an event of default under the 2026 Notes Indenture (the “Event of Default”), and (iv) such holder is the beneficial owner of at least 25% in aggregate principal amount of the outstanding 2026 Notes and therefore has the right to accelerate all of the 2026 Notes. As a result of the Event of Default, such holder declared 100% of the principal of, and accrued and unpaid interest on, the 2026 Notes to be due and payable immediately.
The Company did not receive any notices and was not otherwise made aware of the Event of Default prior to receipt of the Acceleration Notice, and did not have an opportunity to cure the Event of Default at the time of receipt of the Acceleration Notice.
In connection with the Event of Default, the Company undertook an evaluation as to whether certain of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the quarterly fiscal periods ended October 31, 2022, January 31, 2023, July 31, 2023 and October 31, 2023, and in its Annual Report on Form 10-K for the fiscal year ended April 30, 2023 (the “FY 2023 10-K” and collectively with the foregoing Form 10-Qs, the “Relevant Reports” and the periods covered by the Relevant Reports, the “Relevant Periods”) should no longer be relied upon as a result of:
• the classification of the 2026 Notes as long-term liabilities on the applicable balance sheets within the Relevant Reports following the Event of Default; and
• the failure to reflect the Additional Interest in such financial statements (which Additional Interest, in the aggregate, was approximately $1.4 million through February 29, 2024).
The Company’s management also evaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting and the impact of the foregoing on the Company’s available cash resources, in each case as of the end of the Relevant Periods.
On March 11, 2024, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) determined, based on management’s recommendation and after consultation with Ernst & Young LLP, the Company’s independent registered public accounting firm, that as a result of the classification of the 2026 Notes as long-term liabilities, the consolidated financial statements included in the Relevant Reports should no longer be relied upon.
As a result of the information described above, the Company’s management has concluded that the Company’s disclosure controls and procedures were not effective at the reasonable assurance level and the Company’s internal control over financial reporting was not effective as of the end of each of the periods covered by the Relevant Reports, and the “Management’s Report on Internal Control Over Financial Reporting” included under Part II, Item 9A of the FY 2023 10-K should be revised to reflect this updated determination.
In connection with the above, the Company has identified a material weakness in internal control over financial reporting related to this matter. The Company’s remediation plan will be described in more detail in an amendment to the FY 2023 10-K.
2
The Company currently plans to present restated financials for certain of the Relevant Periods in an amendment to the FY 2023 10-K and to restate impacted financials for the subsequent Relevant Periods as soon as reasonably practicable.
The Audit Committee has discussed the matters described in this Form 8-K with its independent registered accounting firm, Ernst & Young LLP.
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