NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION AND BUSINESS DESCRIPTION
|
We are a contract development
and manufacturing organization (“CDMO”) that provides a comprehensive range of services from process development to
current Good Manufacturing Practices (“cGMP”) commercial manufacturing focused on biopharmaceutical products derived
from mammalian cell culture for biotechnology and pharmaceutical companies.
Corporate Name Change
– Effective January 5, 2018, we changed our name from Peregrine Pharmaceuticals, Inc. to
Avid Bioservices, Inc. in connection with our decision to cease our research and development activities and transition our business
to a dedicated CDMO. Except where specifically noted or the context otherwise requires, references to “Avid,” “the
Company,” “we,” “us,” and “our,” in this Annual Report refer to Avid Bioservices, Inc.
and its consolidated subsidiaries.
Sale of Research
and Development Assets
– On February 12, 2018, we entered into an Asset Assignment and Purchase Agreement (“Purchase
Agreement”) with Oncologie, Inc. pursuant to which we sold the majority of our research and development assets to Oncologie,
Inc., which included the assignment of certain exclusive licenses related to our former phosphatidylserine (PS)-targeting program
(Note 9). As a result of (i) the sale of our PS-targeting program, (ii) the held for sale classification of our R84 technology,
(iii) the abandonment of our remaining research and development assets (including our intent to return the exosome technology back
to the original licensor), and (iv) the strategic shift in our corporate direction to focus solely on our CDMO business, the operating
results and related assets and liabilities from our research and development segment are reported as a loss from discontinued operations
in the accompanying consolidated statements of operations and comprehensive loss for all periods presented. In addition, assets
and liabilities related to that segment are reported as assets and liabilities of discontinued operations in the accompanying consolidated
balance sheets at April 30, 2018 and 2017 (Note 2).
Reverse Stock Split
– On July 7, 2017, we effected a reverse stock split of our outstanding shares of common stock at a ratio of one-for-seven
pursuant to our filed Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of
Delaware. The reverse stock split took effect with the opening of trading on July 10, 2017. The primary purpose of the reverse
stock split, which was approved by our stockholders at our 2016 Annual Meeting on October 13, 2016, was to enable us to regain
compliance with the $1.00 minimum bid price requirement for continued listing on The NASDAQ Capital Market. Pursuant to the reverse
stock split, every seven shares of our issued and outstanding shares of common stock were automatically combined into one issued
and outstanding share of common stock, without any change in the par value per share of our common stock. All share and per share
amounts of our common stock included in the accompanying consolidated financial statements have been retrospectively adjusted to
give effect to the reverse stock split for all periods presented, including reclassifying an amount equal to the reduction in par
value to additional paid-in capital. No fractional shares were issued in connection with the reverse stock split. Any fractional
share of common stock created by the reverse stock split was rounded up to the nearest whole share. The number of authorized shares
of our common stock remained unchanged. The reverse stock split affected all issued and outstanding shares of our common stock,
as well as the shares of common stock underlying our stock options, employee stock purchase plan, warrants and the general conversion
right with respect to our 10.50% Series E Convertible Preferred Stock (the “Series E Preferred Stock”).
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
–
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (“U.S. GAAP”) and include the accounts of Avid Bioservices, Inc. and its subsidiaries. All intercompany
balances and transactions have been eliminated.
Use of Estimates
–
The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could
differ materially from these estimates.
Discontinued
Operations –
As of January 31, 2018, our research and development segment met all the conditions required in order
to be classified as a discontinued operation (Note 1). Accordingly, the operating results of our research and development
segment are reported as a loss from discontinued operations in the accompanying consolidated financial statements for all
periods presented. In addition, the assets and liabilities related to our research and development segment are reported as
assets and liabilities of discontinued operations in the accompanying consolidated balance sheets at April 30, 2018 and 2017.
For additional information, see Note 9, “Sale of Research and Development Assets”.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Segment Reporting
–
Historically, our business had been organized into two reportable operating segments: (i) our research and development
segment, and (ii) our contract manufacturing services segment. However, due to changes in our organizational structure associated
with the aforementioned classification of our research and development segment as a discontinued operation,
management
has determined that the Company now operates in one operating segment with one reporting segment.
The accounting policies
of our one reportable segment are the same as those described in this Note 2.
Going Concern –
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments
relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should it be determined
that we are unable to continue as a going concern.
At April 30, 2018,
we had $42,265,000 in cash and cash equivalents. Our ability to fund our operations is dependent on the amount of cash on hand
and our ability to generate sufficient revenue to cover our operations. We have expended substantial funds on our contract manufacturing
business and, historically, on the research and development of pharmaceutical product candidates. As a result, we have experienced
losses and negative cash flows from operations since our inception, and although we have discontinued our research and development
segment (Note 1), we expect negative cash flows from operations to continue until we can generate sufficient revenue to generate
positive cash flow from operations.
In the event we are
unable to secure sufficient business to support our operations, we may need to raise additional capital in the future. Our ability
to raise additional capital in the equity markets to fund our obligations in future periods is dependent on a number of factors,
including, but not limited to, the market demand for our common stock. The market demand or liquidity of our common stock is subject
to a number of risks and uncertainties, including but not limited to, negative economic conditions, adverse market conditions,
and adverse financial results. If we are unable to either raise sufficient capital in the equity markets or generate additional
revenue, we may need to further restructure, or cease, our operations. In addition, even if we are able to raise additional capital,
it may not be at a price or on terms that are favorable to us.
As a result, we have
concluded that there is substantial doubt about our ability to continue as a going concern within one year after the date that
our financial statements are issued.
Reclassification
– Certain prior year amounts related to construction-in-progress included in other assets have been reclassified to property
and equipment in our accompanying consolidated balance sheet for the fiscal year ended April 30, 2017 and in our accompanying
consolidated statement of cash flows for the fiscal years ended April 30, 2017 and 2016 to conform to the current period presentation.
This reclassification had no effect on previously reported net loss.
In addition, certain
amounts related to corporate overhead costs that were allocated to the research and development segment have been reclassified
from research and development expense to selling, general and administrative expense in our accompanying consolidated statements
of operations and comprehensive loss for all periods presented (Note 9). This reclassification had no effect on previously reported
net loss.
Restructuring
– Restructuring charges consist of one-time termination benefits, including severance and other employee-related costs related
to a workforce reduction pursuant to a restructuring plan we implemented in August 2017 (Note 8). One-time termination benefits
are expensed at the date we notified the employee, unless the employee was required to provide future service, in which case the
benefits are expensed ratably over the future service period.
Cash and Cash Equivalents
– We consider all short-term investments readily convertible to cash with an initial maturity of three months or less to
be cash equivalents.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Cash
– Under the terms of three separate operating leases related to our facilities, we are required to maintain, as collateral,
letters of credit during the terms of such leases (Note 3). At April 30, 2018 and 2017, restricted cash of $1,150,000 was pledged
as collateral under these letters of credit.
Trade and
Other Receivables
– Trade receivables represent amounts billed for contract manufacturing services and are recorded
at the invoiced amount net of an allowance for doubtful accounts, if necessary. Other receivables are reported at amounts
expected to be collected net of an allowance for doubtful accounts, if necessary. Trade and other receivables consist of the
following at April 30,:
|
|
2018
|
|
|
2017
|
|
Trade receivables
|
|
$
|
3,539,000
|
|
|
$
|
7,274,000
|
|
Other receivables
|
|
|
215,000
|
|
|
|
468,000
|
|
Trade and other receivables
|
|
$
|
3,754,000
|
|
|
$
|
7,742,000
|
|
Allowance for Doubtful
Accounts
– We continually monitor our allowance for doubtful accounts for all receivables. We apply judgment in assessing
the ultimate realization of our receivables and we estimate an allowance for doubtful accounts based on various factors, such as
the aging of accounts receivable balances, historical experience, and the financial condition of our customers. Based on our analysis
of our receivables as of April 30, 2018 and 2017, we determined no allowance for doubtful accounts was necessary.
Inventories
– Inventories are recorded at the lower of cost or market (net realizable value) and primarily include raw materials, work-in-process
(comprised of raw materials, direct labor and overhead costs associated with in-process manufacturing services), and finished goods
(representing manufacturing services completed and ready for shipment) associated with contract manufacturing services. Overhead
costs allocated to work-in-process inventory are based on the normal capacity of our production facilities and do not include costs
from abnormally low production or idle capacity, which are expensed directly to cost of contract manufacturing in the period incurred.
During the fiscal year ended April 30, 2018, we expensed $13,966,000 in idle capacity costs directly to cost of contract manufacturing
in the accompanying consolidated financial statements. No idle capacity costs were incurred during the fiscal years ended April
30, 2017 and 2016. Cost is determined by the first-in, first-out method. Inventories consist of the following at April 30,:
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
8,165,000
|
|
|
$
|
11,304,000
|
|
Work-in-process
|
|
|
7,964,000
|
|
|
|
13,755,000
|
|
Finished goods
|
|
|
–
|
|
|
|
8,040,000
|
|
Total inventories
|
|
$
|
16,129,000
|
|
|
$
|
33,099,000
|
|
Property and Equipment,
net
– Property and equipment is recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of the related asset, generally ranging from three
to ten years. Amortization of leasehold improvements is calculated using the straight-line method over the shorter of the estimated
useful life of the asset or the remaining lease term. Construction-in-progress, which represents direct costs related to the construction
of various equipment and leasehold improvements associated with our manufacturing facilities, are not depreciated until the asset
is completed and placed into service. No interest was incurred or capitalized as construction-in-progress as of April 30, 2018
and 2017. In addition, all of our property and equipment are located in the U.S.
Concentrations of
Credit Risk and Customer Base
– Financial instruments that potentially subject us to a significant concentration of credit
risk consist of cash and cash equivalents, restricted cash and trade receivables. We maintain our cash and restricted cash balances
primarily with one major commercial bank and our deposits held with the bank exceed the amount of government insurance limits provided
on our deposits. We are exposed to credit risk in the event of default by the major commercial bank holding our cash and restricted
cash balances to the extent of the cash and restricted cash amounts recorded on the accompanying consolidated balance sheet.
Our trade receivables
from amounts billed for contract manufacturing services have historically been derived from a small customer base. Most contracts
require up-front payments and installment payments during the service period. We perform periodic evaluations of the financial
condition of our customers and generally do not require collateral, but we can terminate any contract if a material default occurs.
At April 30, 2018 and 2017, approximately 93% of our trade receivables were due from six or fewer customers.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Our contract
manufacturing revenue has historically been derived from a small customer base. Historically, these customers have not
entered into long-term contracts because their need for drug supply depends on a variety of factors, including a
product’s stage of development, the timing of regulatory filings and approvals, the product needs of their
collaborators, if applicable, their financial resources and the market demand with respect to a commercial product.
The percentages below
represent revenue derived from each customer (and geographical location) as a percentage of total contract manufacturing revenue
during the fiscal years ended April 30, 2018, 2017 and 2016:
|
|
Geographic
|
|
|
|
|
|
|
|
|
|
Customer
|
|
Location
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Halozyme Therapeutics, Inc.
|
|
U.S.
|
|
|
55%
|
|
|
|
58%
|
|
|
|
69%
|
|
Coherus BioSciences, Inc.
|
|
U.S.
|
|
|
22
|
|
|
|
26
|
|
|
|
26
|
|
Other customers
|
|
U.S./non-U.S.
|
|
|
23
|
|
|
|
16
|
|
|
|
5
|
|
Total
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
We attribute contract
manufacturing revenue to the individual countries where the customer is headquartered. For fiscal year ended April 30, 2018, contract
manufacturing revenue derived from U.S. based customers was 99% of total contract manufacturing revenue. For fiscal years ended
April 30, 2017 and 2016, contract manufacturing revenue was derived solely from U.S. based customers.
Comprehensive Loss
– Comprehensive loss is the change in equity during a period from transactions and other events and circumstances from
non-owner sources. Comprehensive loss is equal to our net loss for all periods presented.
Impairment
– Long-lived assets are reviewed for impairment in accordance with authoritative guidance for impairment or disposal
of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances that indicate that their carrying
value may not be recoverable. Long-lived assets are reported at the lower of carrying amount or fair value less cost to sell.
For the fiscal years ended April 30, 2018 and 2017, there were no indicators of impairment of the value of our long-lived assets.
Fair Value of Financial
Instruments
– The carrying amounts in the accompanying consolidated balance sheet for cash and cash equivalents, restricted
cash, trade and other receivables, accounts payable and accrued liabilities approximate their fair values due to their short-term
maturities.
Fair Value Measurements
– Fair value is defined 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. The guidance prioritizes the inputs used in measuring fair value
into the following hierarchy:
|
·
|
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical
assets or liabilities.
|
|
·
|
Level 2 – Observable inputs other than quoted prices included in Level 1, such as assets
or liabilities whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are
based on quoted prices of instruments with similar attributes in active markets.
|
|
·
|
Level 3 – Unobservable inputs that are supported by little or no market activity and significant
to the overall fair value measurement of the assets or liabilities; therefore, requiring the company to develop its own valuation
techniques and assumptions.
|
As of April 30, 2018
and 2017, we do not have any Level 2 or Level 3 financial assets or liabilities and our cash equivalents, which are primarily invested
in money market funds with one major commercial bank, are carried at fair value based on quoted market prices for identical securities
(Level 1 input). In addition, there were no transfers between any Levels of the fair value hierarchy during the fiscal years ended
April 30, 2018 and 2017.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Customer Deposits
– Customer deposits primarily represents advance billings and/or payments received for services or raw materials from
our customers prior to the initiation of contract manufacturing services.
Deferred Rent
–
Rent expense is recorded on a straight-line basis over the initial term of our operating lease agreements and the difference between
rent expense and the amounts paid is recorded as a deferred rent liability. Incentives granted under our operating leases, including
tenant improvements and landlord-funded lease incentives, are recorded as a deferred rent liability, which is amortized as a reduction
to rent expense over the term of the operating lease (Note 3).
Revenue Recognition
– We derive revenue from contract manufacturing services provided to our third-party customers. For the three years ended
April 30, 2018, we have recognized revenue in accordance with the authoritative guidance for revenue recognition when all of the
following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been
rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.
We also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple elements.
Revenue arrangements
with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered
element has stand-alone value to the customer. When deliverables are separable, consideration received is allocated among the separate
units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate
units, which may require the use of significant judgement. Deliverables are considered separate units of accounting if (1) the
delivered item(s) has value to the customer on a stand-alone basis and (2) the arrangement includes a general right of return relative
to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control.
Arrangement consideration
is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The
relative selling price for each deliverable is determined using vendor specific objective evidence (“VSOE”) of selling
price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price
exists, we use our best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is
limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting,
and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales
price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized
under any agreement.
On
occasion, we receive requests from customers to hold product that we have manufactured on a “bill-and-hold” basis.
Revenue is recognized for these “bill-and-hold” arrangements in accordance with the authoritative guidance, which requires,
among other things, the existence of a valid business purpose for the arrangement; the “bill-and-hold” arrangement
is at the request of the customer; title and risk of ownership must pass to the customer; the product is complete and ready for
shipment; a fixed
delivery date that is reasonable and consistent with
the customer’s business practices; the product has been separated from our inventory; and no further performance obligations
by us exist.
In addition, we also
follow the authoritative guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when
we act as an agent. For transactions in which we act as a principal, have discretion to choose suppliers, bear credit and inventory
risk and perform a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated
with these reimbursements are reflected as a component of cost of sales for contract manufacturing services.
Any amounts received
prior to satisfying our revenue recognition criteria are recorded as deferred revenue or customer deposits in the accompanying
consolidated financial statements. We also record a provision for estimated contract losses, if any, in the period in which they
are determined.
Share-based Compensation
– We account for stock options and other share-based awards granted under our equity compensation plans in accordance with
the authoritative guidance for share-based compensation. The estimated fair value of share-based payments to employees in exchange
for services is measured at the grant date, using a fair value based method, such as a Black-Scholes option valuation model, and
is recognized as expense on a straight-line basis over the requisite service periods. The fair value of modifications to share-based
awards, if any, is generally estimated using a Black-Scholes option valuation model, unless a lattice model is required. Forfeitures
are recognized as a reduction of share-based compensation expense as they occur. As of April 30, 2018, there were no outstanding
share-based awards with market or performance conditions.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
– We utilize the liability method of accounting for income taxes in accordance with authoritative guidance for accounting
for income taxes. Under the liability method, deferred taxes are determined based on the differences between the consolidated financial
statements and tax basis of assets and liabilities using enacted tax rates. A valuation allowance is provided when it is more likely
than not that some portion or the entire deferred tax asset will not be realized (Note 7). In addition, we recognize the impact
of an uncertain tax position only when it is more likely than not the tax position will be sustained upon examination by the tax
authorities. We are also required to file federal, state and foreign income tax returns in various jurisdictions. The preparation
of these returns requires us to interpret the applicable tax laws in effect in such jurisdictions, which could affect the amount
paid by us.
Basic and Dilutive
Net Loss Per Common Share
– Basic net loss per common share is computed by dividing our net loss attributable to common
stockholders by the weighted average number of shares of common stock outstanding during the period excluding the dilutive effects
of stock options, shares of common stock expected to be issued under our Employee Stock Purchase Plan (the “ESPP”),
warrants, and Series E Preferred Stock outstanding during the period. Diluted net loss per common share is computed by dividing
our net loss attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding
during the period plus the potential dilutive effects of stock options, shares of common stock expected to be issued under our
ESPP, warrants, and Series E Preferred Stock outstanding during the period. Net loss attributable to common stockholders represents
our net loss plus Series E Preferred Stock accumulated dividends. Series E Preferred Stock accumulated dividends include dividends
declared for the period (regardless of whether or not the dividends have been paid) and dividends accumulated for the period (regardless
of whether or not the dividends have been declared).
The potential dilutive
effect of stock options, shares of common stock expected to be issued under our ESPP, and warrants outstanding during the period
are calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. The potential dilutive
effect of our Series E Preferred Stock outstanding during the period is calculated using the if-converted method assuming the conversion
of our Series E Preferred Stock as of the earliest period reported or at the date of issuance, if later, but are excluded if their
effect is anti-dilutive. However, because the impact of stock options, shares of common stock expected to be issued under our ESPP,
warrants, and Series E Preferred Stock are anti-dilutive during periods of net loss, there was no difference between basic and
diluted loss per common share amounts for the three years ended April 30, 2018.
The calculation of
weighted average diluted shares outstanding excludes the dilutive effect of the following weighted average outstanding stock options
and shares of common stock expected to be issued under our ESPP since their impact are anti-dilutive during periods of net loss:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
53,978
|
|
|
|
–
|
|
|
|
252,098
|
|
ESPP
|
|
|
1,972
|
|
|
|
45,767
|
|
|
|
37,862
|
|
Total
|
|
|
55,950
|
|
|
|
45,767
|
|
|
|
289,960
|
|
The calculation of
weighted average diluted shares outstanding also excludes the following weighted average outstanding stock options, warrants, and
Series E Preferred Stock (assuming the if-converted method), as their exercise prices or conversion price were greater than the
average market price of our common stock during the respective periods, resulting in an anti-dilutive effect:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
3,636,699
|
|
|
|
4,156,421
|
|
|
|
2,740,922
|
|
Warrants
|
|
|
39,040
|
|
|
|
39,040
|
|
|
|
39,040
|
|
Series E Preferred Stock
|
|
|
1,978,783
|
|
|
|
1,955,588
|
|
|
|
1,893,122
|
|
Total
|
|
|
5,654,522
|
|
|
|
6,151,049
|
|
|
|
4,673,084
|
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Adopted
Accounting Pronouncements
Effective May 1, 2017,
we adopted Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330):
Simplifying the Measurement of Inventory
.
ASU 2015-11 requires that inventory should be measured at the lower of cost and net realizable value for entities that measure
inventory using the first-in, first-out method. ASU 2015-11 defines net realizable value as the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The adoption of
ASU 2015-11 did not have a material impact on our consolidated financial statements.
Effective May
1, 2017, we adopted ASU 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes
. Under
existing standards, deferred taxes for each tax-paying jurisdiction are presented as a net current asset or liability and
net long-term asset or liability. To simplify presentation, the new guidance will require that all deferred tax assets
and liabilities, along with related valuation allowances, be classified as long-term on the balance sheet. As a result,
each tax-paying jurisdiction will now only have one net long-term deferred tax asset or liability. The new guidance does
not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred
tax assets of another jurisdiction. Due to the full valuation allowance on our U.S. deferred tax assets, the adoption of
ASU 2015-17 did not have a material impact on our consolidated financial statements. No prior year periods were
retrospectively adjusted.
Effective May 1,
2017, we adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
.
ASU 2016-09 changes certain aspects of accounting for share-based payments to employees and involves several aspects of the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. Specifically, ASU 2016-09 requires that all income tax effects of share-based
awards be recognized as income tax expense or benefit in the reporting period in which they occur. Additionally, ASU 2016-09 amends
existing guidance to allow forfeitures of share-based awards to be recognized as they occur. Previous guidance required that share-based
compensation expense include an estimate of forfeitures. Upon adoption of ASU 2016-09, we made a policy election to recognize forfeitures
as they occur. The adoption of ASU 2016-09 did not have a material impact and the cumulative effect of adoption is reflected in
the accompanying consolidated statements of stockholders’ equity for the fiscal year ended April 30, 2018.
Pending Adoption
of Recent Accounting Pronouncements
In May 2014,
the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic
606):
Revenue from Contracts with Customers
, which, along with subsequent amendments issued in 2015 and 2016, will replace
substantially all current U.S. GAAP revenue recognition guidance. ASU 2014-09, as amended, is based on the principle that revenue
is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services utilizing a new five-step revenue recognition model. The
new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. ASU 2014-09, as amended, is effective for our annual reporting period beginning May 1, 2018, including
interim periods within that reporting period. The new guidance permits adoption either by using (i) a full retrospective approach
for all periods presented in the period of adoption or (ii) a modified retrospective approach where the new standard is applied
in the financial statements starting with the year of adoption. Under both approaches, cumulative impact of the adoption is reflected
as an adjustment to retained earnings (accumulated deficit) as of the earliest date presented in accordance with the new standard.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On May 1, 2018,
we adopted ASU 2014-09, as amended, for all contracts not completed as of the adoption date using the modified retrospective method.
In assessing the impact, we have identified and implemented appropriate changes to our business policies, processes, and controls
to support the adoption, recognition and disclosures under the new standard. We have reviewed the related critical terms and conditions
of our existing contracts with customers and assessed the differences in accounting for such contracts under the new standard
compared with current standards including the identification of performance obligations related to revenue generating activities,
and determined the appropriate timing and measurement of revenue related to the performance obligations. Additionally, we have
identified our significant revenue streams; manufacturing revenue and process development revenue. Based on our analysis, we have
concluded that the new standard will have a significant impact on our revenue streams as it relates to the timing of the recognition
of contract manufacturing revenue associated with goods or services provided to customers with no alternative use, that were previously
recognized upon completion, as such revenue will now be recognized over time utilizing an input method that compares the cost
of cumulative work in process to date to the most current estimates for the entire cost of the performance obligation. Under these
customer agreements the customer retains control of the product as it is being created or enhanced by our services and/or we are
entitled to compensation for progress to date that includes an element of profit margin. Contract manufacturing revenue of approximately
$9,000,000 to $12,000,000, which would have otherwise been reflected in the consolidated statements of operations for the fiscal
year ended April 30, 2019, will be recorded in equity as part of a cumulative effect adjustment as of May 1, 2018. The cumulative
impact of adopting the new standard and recognizing revenue and related cost over time will result in a one-time adjustment to
the opening balance of accumulated deficit of approximately $2,000,000 to $4,000,000 as of May 1, 2018. Additionally, we will
include expanded disclosures in the notes to financial statements, including the disaggregation of revenue, significant judgments
made with regard to revenue recognition, and the reconciliation of contract balances, among other disclosures.
The estimated impact
of adopting ASU 2014-09, as amended, is based on our best estimates at the time of the preparation of this Annual Report. The
actual impact is subject to change prior to our first quarterly filing of our fiscal year 2019.
In February 2016,
the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-2 requires an entity to recognize right-of-use assets and lease liabilities
on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance
for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative
information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty
of cash flows arising from leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2018, which will be our fiscal year 2020 beginning May 1, 2019. Early adoption is permitted. We are currently
in the process of evaluating the impact of adoption of ASU 2016-02 on our consolidated financial statements and related disclosures.
In November 2016,
the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash
, which addresses diversity in
practice related to the classification and presentation of changes in restricted cash on the statement of cash flows. ASU
2016-18 will require that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which will be our
fiscal year 2019 beginning May 1, 2018. Based on our restricted cash balance of $1,150,000 at April 30, 2018 and 2017, we do
not expect the adoption of ASU 2016-18 to have on material impact on our consolidated financial statements and related
disclosures.
In May 2017, the FASB
issued ASU 2017-09, Compensation - Stock Compensation (Topic 718):
Scope of Modification Accounting,
which provides guidance
about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017, which will be our
fiscal year 2019 beginning May 1, 2018. We do not expect the adoption of ASU 2016-09 to have a material impact on our consolidated
financial statements and related disclosures.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
3.
|
COMMITMENTS AND CONTINGENCIES
|
Operating Leases
– Our corporate offices and manufacturing facilities are all located in close proximity in Tustin, California. We currently
lease office, warehouse and manufacturing space in five buildings under four separate lease agreements, as summarized in the following
table:
Lease
#
|
Original Lease
Execution Date
|
# of Buildings Occupied
|
Initial
Lease Term
Expiration Date
|
# of Options
to Extend
Lease
|
Extended
Lease Term
Expiration Date
(1)
|
1
|
December 1998
|
2
|
12/31/27
|
2
|
12/31/37
|
2
|
July 2014
|
1
|
1/31/27
|
2
|
1/31/37
|
3
|
April 2016
|
1
|
8/31/23
|
2
|
8/31/35
|
4
|
April 2016
|
1
|
8/31/23
|
2
|
8/31/35
|
______________
|
(1)
|
Extended lease term expiration date assumes we execute all available option(s) to extend lease
in accordance with the terms of the lease agreement.
|
The following represents
additional information for each of the lease agreements included in the above table:
In December 1998, we
entered into our first lease agreement (the “First Lease”) with an original lease term of 12 years with two 5-year
renewal options and includes scheduled rental increases of approximately 3% every two years. In December 2005, we entered into
an amendment to the First Lease that extended the original lease term for seven additional years to expire on December 31, 2017.
In November 2016, we entered into a second amendment to the First Lease that extends the lease term through December 31, 2027,
while also maintaining our two 5-year renewal options that could extend the lease term to December 31, 2037.
In July 2014, we entered
into a second lease agreement (the “Second Lease”) to expand our manufacturing capacity (the “Myford Facility”).
The Second Lease includes an option to extend the lease term in two 5-year periods to extend the lease to July 31, 2031 and includes
scheduled annual rent increases of approximately 3%. In addition, the Second Lease provided for 12.5 months of free rent, lessor
improvements of $250,000 and a tenant improvement allowance of $365,000. Upon completion of the Myford Facility build-out during
fiscal year 2016, certain of these improvements were classified as leasehold improvements and are being amortized over the shorter
of the estimated useful life of the improvements or the remaining life of the Second Lease, as amended.
In February 2017,
we entered into a lease amendment to the Second Lease (the “Second Lease Amendment”), pursuant to which we secured
additional vacant warehouse space (the “Expansion Space”) within the same building as our existing Myford Facility.
The purpose of the Expansion Space was to expand our biomanufacturing capacity, which we believe could support the growth of our
contract manufacturing business. The Second Lease Amendment extends the initial lease term to January 31, 2027 and maintains our
two 5-year renewal options that could extend the lease term to January 31, 2037. Our scheduled annual rent increases of approximately
3% are also maintained under the Second Lease Amendment. In addition, with respect to the Expansion Space, the Second Lease Amendment
provided for eight (8) months of free rent and a tenant improvement allowance of $1,269,000, which is subject to certain performance
contingencies, as defined in the Second Lease Amendment. As a result, the tenant improvement allowance, is accounted for as contingent
rent and will be recorded when the tenant improvement allowance is received. Additionally, under the terms of the Second Lease
Amendment, we are required to maintain, as collateral for the lease, a letter of credit in the amount of $550,000 during the entire
term of the Second Lease, as amended, which amount is included in restricted cash in the accompanying consolidated balance sheets
as of April 30, 2018 and 2017.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2016, we entered
into a third lease agreement (the “Third Lease”) to lease additional office space. The Third Lease includes two separate
option periods to extend the lease term to August 31, 2035 and includes annual scheduled rent increases of approximately 3%. In
addition, the Third Lease provided for four months of free rent and a tenant improvement allowance of $562,000. The tenant improvements
classified as leasehold improvements are being amortized over the shorter of the estimated useful life of the improvements or the
remaining life of the Third Lease Additionally, under the terms of the Third Lease, we are required to maintain, as collateral
for the lease, a letter of credit in the amount of $350,000 during the entire term of the Third Lease, which amount is included
in restricted cash in the accompanying consolidated balance sheets as of April 30, 2018 and 2017.
In April 2016, we entered
into a fourth lease agreement (the “Fourth Lease”) to support our manufacturing operations. The Fourth Lease includes
two separate option periods to extend the lease term to August 31, 2035 and includes annual scheduled rent increases of approximately
3%. In addition, under the terms of the Fourth Lease, we are required to maintain, as collateral for the lease, a letter of credit
in the amount of $250,000 during the entire term of the Fourth Lease, which amount is included in restricted cash in the accompanying
consolidated balance sheets as of April 30, 2018 and 2017.
Under each of the aforementioned
facility operating leases, we record rent expense on a straight-line basis over the initial term of the lease. The difference between
rent expense and the amounts paid under the operating leases is recorded as a deferred rent liability in the accompanying consolidated
financial statements. Annual rent expense under facility operating lease agreements totaled $2,935,000, $2,180,000, and $1,265,000
for the fiscal years ended April 30, 2018, 2017, and 2016, respectively.
At April 30, 2018,
future minimum lease payments under all non-cancelable operating leases are as follows:
Year ending April 30,:
|
|
Minimum Lease Payments
|
|
2019
|
|
$
|
3,006,000
|
|
2020
|
|
|
3,036,000
|
|
2021
|
|
|
3,116,000
|
|
2022
|
|
|
2,789,000
|
|
2023
|
|
|
2,730,000
|
|
Thereafter
|
|
|
8,632,000
|
|
|
|
$
|
23,309,000
|
|
Legal Proceedings
- In the ordinary course of business, we are at times subject to various legal proceedings and disputes. We make provisions for
liabilities when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Such provisions, if any, are reviewed at least quarterly and adjusted to reflect the impact of any settlement negotiations, judicial
and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. We
currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or
in the aggregate
, would have a material adverse effect on our consolidated results of operations
or financial position.
On October 10,
2013, a derivative and class action complaint, captioned
Michaeli v. Steven W. King, et al.
, C.A. No. 8994-VCL, was filed
in the Court of Chancery of the State of Delaware (the “Court”), purportedly on behalf of the Company, which was named
a nominal defendant, against certain of our current and former executive officers and our three former non-employee directors (collectively,
the “Defendants”). On December 1, 2015, the plaintiffs filed an amended and supplemental derivative and class action
complaint (the “Amended Complaint”). The Amended Complaint alleged that the Defendants breached their respective fiduciary
duties in connection with certain purportedly improper compensation decisions made by our former board of directors during the
past four fiscal years ended April 30, 2015 and that our former board of directors breached their fiduciary duty of candor by filing
and seeking stockholder action on the basis of an allegedly materially false and misleading proxy statement for our 2013 annual
meeting of stockholders. On May 15, 2017, the parties filed with the Court a Stipulation and Agreement of Compromise, Settlement
and Release (the “Settlement”) setting forth the terms of the proposed settlement of the claims in the Amended Complaint.
At a hearing on July 27, 2017, the Court issued an order approving the Settlement, which provided, among other things, that the
three former non-employee directors agreed to pay or cause to be paid $1,500,000 to us, which amount is included as a reduction
to selling, general and administrative expense in the accompanying consolidated financial statements for the fiscal year ended
April 30, 2018. We received such payment in full in August 2017.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Stockholder
Rights Agreement
On March 16, 2006,
our Board of Directors adopted a Stockholder Rights Agreement, which was amended and restated on March 16, 2016 (the “Rights
Agreement”), that is designed to strengthen the ability of the Board of Directors to protect the interests of our stockholders
against potential abusive or coercive takeover tactics and to enable all stockholders the full and fair value of their investment
in the event that an unsolicited attempt is made to acquire Avid. The Rights Agreement is not intended to prevent an offer the
Board of Directors concludes is in the best interest of Avid and its stockholders.
Under the Rights Agreement,
the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each share of our
common stock held by stockholders of record as of the close of business on March 27, 2006. Each Right entitles holders of each
share of our common stock to buy seven one thousandths (7/1,000th) of a share of Avid’s Series D Participating Preferred
Stock, par value $0.001 per share, at an exercise price of $77.00 per share, subject to adjustment. The Rights are neither exercisable
nor traded separately from our common stock. The Rights will become exercisable and will detach from the common shares if a person
or group acquires 15% or more of our outstanding common stock, without prior approval from our Board of Directors, or announces
a tender or exchange offer that would result in that person or group owning 15% or more of our common stock. Each Right, when exercised,
entitles the holder (other than the acquiring person or group) to receive our common stock (or in certain circumstances, voting
securities of the acquiring person or group) with a value of twice the Rights’ exercise price upon payment of the exercise
price of the Rights.
Avid will be entitled
to redeem the Rights at $0.007 per Right at any time prior to a person or group achieving the 15% threshold. The Rights will expire
on March 16, 2021.
Sales
of Common Stock
During the three fiscal
years ended April 30, 2018, we issued shares of our common stock under various financing transactions, as summarized in the following
table:
Description of Financing Transaction
|
|
Shares of
Common Stock
Issued
|
|
|
Gross
Proceeds
Raised
|
|
Fiscal Year 2016
|
|
|
|
|
|
|
|
|
At Market Issuance Sales Agreement dated June 13, 2014
|
|
|
1,232,821
|
|
|
$
|
11,456,000
|
|
At Market Issuance Sales Agreement dated August 7, 2015
|
|
|
964,523
|
|
|
$
|
7,447,000
|
|
Equity Distribution Agreement dated August 7, 2015
|
|
|
1,210,328
|
|
|
$
|
6,969,000
|
|
Common Stock Purchase Agreement dated October 30, 2015
|
|
|
2,645,503
|
|
|
$
|
20,000,000
|
|
|
|
|
6,053,175
|
|
|
$
|
45,872,000
|
|
Fiscal Year 2017
|
|
|
|
|
|
|
|
|
At Market Issuance Sales Agreement dated August 7, 2015
|
|
|
6,137,403
|
|
|
$
|
18,246,000
|
|
Equity Distribution Agreement dated August 7, 2015
|
|
|
3,750,323
|
|
|
$
|
13,031,000
|
|
|
|
|
9,887,726
|
|
|
$
|
31,277,000
|
|
Fiscal Year 2018
|
|
|
|
|
|
|
|
|
At Market Issuance Sales Agreement dated August 7, 2015
|
|
|
1,051,259
|
|
|
$
|
4,304,000
|
|
Public Offering dated on February 14, 2018
|
|
|
10,294,445
|
|
|
$
|
23,163,000
|
|
|
|
|
11,345,704
|
|
|
$
|
27,467,000
|
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The following represents
additional information for each of the financing transactions included in the above table:
June 2014 AMI Sales
Agreement
– On June 13, 2014, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC (“MLV”),
as amended on April 13, 2015 (“June 2014 AMI Sales Agreement”), pursuant to which we were able to sell shares of our
common stock through MLV, as agent, for aggregate gross proceeds of up to $25,000,000 in registered transactions from our shelf
registration statement on Form S-3 (File No. 333-201245), which was declared effective by the Securities and Exchange Commission
(“SEC”) on January 15, 2015 (“January 2015 Shelf”). Sales of our common stock through MLV were made by
any method that was deemed an “at the market offering” as defined in Rule 415 of the Securities Act. We paid MLV a
commission equal to 2.5% of the gross proceeds from the sale of our common stock pursuant to the June 2014 AMI Sales Agreement.
As of April 30, 2016, we had raised the full amount of gross proceeds available to us under the June 2014 AMI Sales Agreement.
August 2015 AMI
Sales Agreement
– On August 7, 2015, we entered into an At Market Issuance Sales Agreement (“August 2015 AMI Sales
Agreement”) with MLV, pursuant to which we were able to sell shares of our common stock through MLV, as agent, for aggregate
gross proceeds of up to $30,000,000, in registered transactions from our January 2015 Shelf. Sales of our common stock through
MLV were made by any method that was deemed an “at the market offering” as defined in Rule 415 of the Securities Act.
We paid MLV a commission equal to 2.5% of the gross proceeds from the sale of our common stock pursuant to the August 2015 AMI
Sales Agreement. As of April 30, 2018, we had raised the full amount of gross proceeds available to us under the August 2015 AMI
Sales Agreement.
Equity Distribution
Agreement
– On August 7, 2015, we entered into an Equity Distribution Agreement, with Noble International Investments,
Inc., doing business as Noble Life Science Partners, a division of Noble Financial Capital Markets (“Noble”), pursuant
to which we were able to sell shares of our common stock through Noble, as agent, for aggregate gross proceeds of up to $20,000,000,
in registered transactions from our January 2015 Shelf. Sales of our common stock through Noble were made by any method that was
deemed an “at the market offering” as defined in Rule 415 of the Securities Act. We paid Noble a commission equal to
2.5% of the gross proceeds from the sale of our common stock pursuant to the Equity Distribution Agreement. As of April 30, 2017,
we had raised the full amount of gross proceeds available to us under the Equity Distribution Agreement.
Common Stock Purchase
Agreement
– On October 30, 2015, we entered into a Common Stock Purchase Agreement with Eastern Capital Limited, pursuant
to which we issued and sold 2,645,503 shares of our common stock, at a purchase price of $7.56 per share for aggregate gross proceeds
of $20,000,000 before deducting issuance costs of $1,000. These shares of common stock were sold under our January 2015 Shelf pursuant
to a prospectus supplement filed with the SEC on October 30, 2015.
February 2018
Public Offering
– On February 14, 2018, we entered into an underwriting agreement (the “Underwriting
Agreement”) with Wells Fargo Securities, LLC, as representative for the underwriters identified therein (collectively,
the “Underwriters”), relating to the issuance and sale in an underwritten public offering of 9,000,000 shares of
our common stock, par value $0.001 per share, at a public offering price of $2.25 per share (the “Offering”). In
addition, pursuant to the Underwriting Agreement, we also granted the Underwriters a 30-day option to purchase up to an
additional 1,350,000 shares of our common stock under this Offering at the public offering price of $2.25 per share less the
underwriting discounts and commissions to cover over-allotments, if any (the “Over-allotment Option”).
On February 20, 2018,
we completed the Offering pursuant to which we sold 10,294,445 shares of our common stock, including 1,294,445 shares sold pursuant
to the Underwriter’s Over-allotment Option at the public offering price of $2.25 per share. The aggregate gross proceeds we
received from the Offering, including the shares sold pursuant to the Over-allotment Option, was $23,163,000, before deducting underwriting
discounts and commissions and other offering related expenses of $1,669,000.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The Offering was made
pursuant to a prospectus supplement filed with the SEC on February 14, 2018 to our shelf registration statement on Form S-3 (File
No. 333-222548), which was declared effective by the SEC on January 25, 2018 (“January 2018 Shelf”). As of April 30,
2018, aggregate gross proceeds of up to $101,837,000 remained available to us under the January 2018 Shelf.
Sales
of Series E Preferred Stock
On June 13, 2014,
we entered into an At Market Issuance Sales Agreement (“Series E AMI Sales Agreement”) with MLV, pursuant to
which we may sell shares of our Series E Preferred Stock through MLV, as agent, for aggregate gross proceeds of up to
$30,000,000, in registered transactions from our shelf registration statement on Form S-3 (File No. 333-193113), which was
declared effective by the SEC on January 16, 2014 (“January 2014 Shelf”). Sales of our Series E Preferred Stock
through MLV were be made by any method that was deemed an “at the market offering” as defined in Rule 415 of the
Securities Act. We paid MLV a commission of up to 5% of the gross proceeds from the sale of our Series E Preferred Stock
pursuant to the Series E AMI Sales Agreement. During the fiscal years ended April 30, 2017 and 2016, we sold 70,320 and 2,676
shares of our Series E Preferred Stock, respectively, at market prices under the Series E AMI Sales Agreement, for aggregate
gross proceeds of $1,634,000 and $60,000, respectively. During January 2017, the underlying January 2014 Shelf expired, and
therefore, we do not plan to issue and sell any additional shares of our Series E Preferred Stock under the Series E AMI
Sales Agreement.
Series E Preferred
Stock Rights and Preferences
On February 12, 2014,
we filed with the Secretary of State of the State of Delaware a Certificate of Designations of Rights and Preferences (the “Certificate
of Designations”) to designate the Series E Preferred Stock. The Certificate of Designations designated 2,000,000 shares
of Series E Preferred Stock out of our 5,000,000 shares of authorized but unissued shares of preferred stock. In addition, the
Series E Preferred Stock is classified as permanent equity in accordance with FASB Accounting Standards Codification Topic 480,
Distinguishing Liabilities from Equity
. Certain terms of the Series E Preferred Stock include:
(i) The holders are
entitled to receive a 10.50% per annum cumulative quarterly dividend, payable in cash, on or about the 1
st
day of each
of January, April, July, and October;
(ii) The dividend may
increase to a penalty rate of 12.50% if: (a) we fail to pay dividends for any four consecutive or nonconsecutive quarterly dividend
periods, or (b) once the Series E Preferred Stock becomes initially eligible for listing on a national securities exchange, we
fail, for 180 or more consecutive days, to maintain such listing;
(iii) Following a change
of control of the Company (as defined in the Certificate of Designations) by a person or entity, we (or the acquiring entity) may,
at our option, redeem the Series E Preferred Stock, in whole but not in part, within 120 days after the date on which the change
of control has occurred for cash, at the redemption price;
(iv) On and after February
11, 2017, we may redeem the Series E Preferred Stock for cash at our option, from time to time, in whole or in part, at the redemption
price;
(v) The redemption
price is $25.00 per share, plus any accrued and unpaid dividends (whether or not earned or declared) to, but excluding, the redemption
date;
(vi) The liquidation
preference is $25.00 per share, plus any accrued and unpaid dividends (whether or not earned or declared);
(vii) The Series E
Preferred Stock has no stated maturity date or mandatory redemption and is senior to all of the Company’s other securities;
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(viii) There is a general
conversion right with respect to the Series E Preferred Stock with a current conversion price of $21.00 (as adjusted to reflect
the 1-for-7 reverse stock split of our issued and outstanding common stock, which took effect on July 10, 2017), a special conversion
right upon a change of control, and a market trigger conversion at our option in the event of Market Trigger (as defined in the
Certificate of Designations); and
(ix) The holders of
the Series E Preferred Stock have no voting rights, except as defined in the Certificate of Designations.
Series E Preferred Stock Dividends
The following table summarizes
the Series E Preferred Stock quarterly dividend payments during the three fiscal years ended April 30, 2018:
Declaration
Date
|
|
Record
Date
|
|
Payment
Date
|
|
Dividends
Paid
|
|
|
Dividend
Per Share
|
|
Fiscal Year 2016
|
|
|
|
|
|
|
|
|
|
|
6/5/2015
|
|
6/19/2015
|
|
7/1/2015
|
|
$
|
1,034,000
|
|
|
$
|
0.65625
|
|
9/8/2015
|
|
9/18/2015
|
|
10/1/2015
|
|
$
|
1,035,000
|
|
|
$
|
0.65625
|
|
12/7/2015
|
|
12/18/2015
|
|
1/4/2016
|
|
$
|
1,035,000
|
|
|
$
|
0.65625
|
|
3/7/2016
|
|
3/18/2016
|
|
4/1/2016
|
|
$
|
1,035,000
|
|
|
$
|
0.65625
|
|
|
|
|
|
|
|
$
|
4,139,000
|
|
|
$
|
2.62500
|
|
Fiscal Year 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
6/2/2016
|
|
6/17/2016
|
|
7/1/2016
|
|
$
|
1,036,000
|
|
|
$
|
0.65625
|
|
9/6/2016
|
|
9/16/2016
|
|
10/3/2016
|
|
$
|
1,081,000
|
|
|
$
|
0.65625
|
|
12/6/2016
|
|
12/16/2016
|
|
1/3/2017
|
|
$
|
1,081,000
|
|
|
$
|
0.65625
|
|
3/9/2017
|
|
3/20/2017
|
|
4/3/2017
|
|
$
|
1,081,000
|
|
|
$
|
0.65625
|
|
|
|
|
|
|
|
$
|
4,279,000
|
|
|
$
|
2.62500
|
|
Fiscal Year 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
6/6/2017
|
|
6/19/2017
|
|
7/3/2017
|
|
$
|
1,081,000
|
|
|
$
|
0.65625
|
|
9/5/2017
|
|
9/18/2017
|
|
10/2/2017
|
|
$
|
1,081,000
|
|
|
$
|
0.65625
|
|
12/7/2017
|
|
12/18/2017
|
|
1/2/2018
|
|
$
|
1,081,000
|
|
|
$
|
0.65625
|
|
3/7/2018
|
|
3/19/2018
|
|
4/2/2018
|
|
$
|
1,082,000
|
|
|
$
|
0.65625
|
|
|
|
|
|
|
|
$
|
4,325,000
|
|
|
$
|
2.62500
|
|
Shares of Common Stock Authorized and Reserved
For Future Issuance
We are authorized to
issue up to 500,000,000 shares of our common stock. As of April 30, 2018, 55,689,222 shares of our common stock were issued and
outstanding. In addition, our common stock outstanding as of April 30, 2018 excluded the following shares of common stock reserved
for future issuance:
|
·
|
5,316,526 shares of common stock reserved for issuance under outstanding option grants and available
for issuance under our stock incentive plans;
|
|
·
|
1,271,409 shares of common stock reserved for and available for issuance under our ESPP;
|
|
·
|
39,040 shares of common stock issuable upon exercise of outstanding warrants; and
|
|
·
|
6,826,435 shares of common stock issuable upon conversion of our outstanding Series E Preferred
Stock
(1)
.
|
_____________
|
(1)
|
The Series E Preferred Stock is convertible into a number of shares of our common stock determined
by dividing the liquidation preference of $25.00 per share by the conversion price, currently $21.00 per share. If all of our outstanding
Series E Preferred Stock were converted at the $21.00 per share conversion price, the holders of our Series E Preferred Stock would
receive an aggregate of 1,961,619 shares of our common stock. However, we have reserved the maximum number of shares of our common
stock that could be issued upon a change of control event assuming our shares of common stock are acquired for consideration of
$5.985 per share or less. In this scenario, each outstanding share of our Series E Preferred Stock could be converted into 4.18
shares of our common stock, representing the Share Cap.
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
5.
|
EQUITY COMPENSATION PLANS
|
Stock Incentive
Plans
We currently maintain
six stock incentive plans referred to as the 2011 Plan, the 2010 Plan, the 2009 Plan, the 2005 Plan, the 2003 Plan, and the 2002
Plan (collectively referred to as the “Stock Plans”). The 2011, 2010, 2009, 2005 and 2003 Plans were approved by our
stockholders while the 2002 Plan was not submitted for stockholder approval. The Stock Plans provide for the granting of stock
options, restricted stock awards and other forms of share-based awards to purchase shares of our common stock at exercise prices
not less than the fair market value of our common stock at the date of grant.
As of April 30, 2018,
we had an aggregate of 5,316,526 shares of our common stock reserved for issuance under the Stock Plans, of which, 3,597,738 shares
were subject to outstanding options and 1,718,788 shares were available for future grants of share-based awards.
Stock Options
–
Stock options granted under our Stock Plans are granted at an exercise price not less than the fair market value of our common
stock on the date of grant. The options generally vest over a two to four year period and expire ten years from the date of grant,
if unexercised. However, certain option awards provide for accelerated vesting if there is a change in control (as defined in the
Stock Plans).
The estimated fair
value of stock options are measured at the grant date, using a fair value based method, such as a Black-Scholes option valuation
model, and is amortized as compensation expense on a straight-line basis over the requisite service period of the award, which
is generally the vesting period. The use of a valuation model requires us to make certain estimates and assumptions with respect
to selected model inputs. The expected volatility is based on the daily historical volatility of our common stock covering the
estimated expected term. The expected term of options granted reflects actual historical exercise activity and assumptions regarding
future exercise activity of unexercised, outstanding options. The risk-free interest rate is based on U.S. Treasury notes with
terms within the contractual life of the option at the time of grant. The expected dividend yield assumption is based on our expectation
of future dividend payouts. We have never declared or paid any cash dividends on our common stock and currently do not anticipate
paying such cash dividends. The fair value of stock options on the date of grant and the weighted-average assumptions used to estimate
the fair value of the stock options using the Black-Scholes option valuation model for fiscal years ended April 30, 2018, 2017
and 2016, were as follows:
|
|
Fiscal Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
2.21%
|
|
|
|
1.32%
|
|
|
|
1.66%
|
|
Expected life (in years)
|
|
|
6.19
|
|
|
|
6.12
|
|
|
|
5.96
|
|
Expected volatility
|
|
|
110.43%
|
|
|
|
111.30%
|
|
|
|
104.74%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
The following summarizes
our stock option transaction activity for fiscal year ended April 30, 2018:
Stock Options
|
|
Shares
|
|
|
Weighted
Average
Exercisable
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(1)
|
|
Outstanding, May 1, 2017
|
|
|
4,081,548
|
|
|
$
|
8.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
686,097
|
|
|
$
|
4.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(222,255
|
)
|
|
$
|
3.38
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
(947,652
|
)
|
|
$
|
8.90
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2018
|
|
|
3,597,738
|
|
|
$
|
8.74
|
|
|
|
4.12
|
|
|
$
|
335,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable and expected to vest
|
|
|
3,597,738
|
|
|
$
|
8.74
|
|
|
|
4.11
|
|
|
$
|
335,000
|
|
Exercisable, April 30, 2018
|
|
|
2,891,282
|
|
|
$
|
9.86
|
|
|
|
2.87
|
|
|
$
|
219,000
|
|
______________
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise
price of an option and the closing market price of our common stock on April 30, 2018, which was $3.67 per share.
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average
grant date fair value of options granted to employees during the fiscal years ended April 30, 2018, 2017 and 2016 was $3.50, $2.86
and $7.09 per share, respectively.
The aggregate intrinsic
value of stock options exercised during the fiscal years ended April 30, 2018, 2017 and 2016 was $173,000, $11,000 and $93,000,
respectively. Cash received from stock options exercised during fiscal years ended April 30, 2018, 2017 and 2016, totaled $752,000,
$31,000 and $138,000, respectively.
We issue shares of
common stock that are reserved for issuance under the Stock Plans upon the exercise of stock options, and we do not expect to repurchase
shares of common stock from any source to satisfy our obligations under our compensation plans.
As of April 30, 2018,
the total estimated unrecognized compensation cost related to non-vested employee stock options was $2,232,000. This cost is expected
to be recognized over a weighted average vesting period of 2.63 years based on current assumptions.
Employee Stock
Purchase Plan
We have reserved a
total of 2,142,857 shares of our common stock to be purchased under our Employee Stock Purchase Plan (the “ESPP”),
of which 1,271,409 shares remained available to purchase at April 30, 2018, and are subject to adjustment as provided in the ESPP
for stock splits, stock dividends, recapitalizations and other similar events. Under the ESPP, we sell shares to participants at
a price equal to the lesser of 85% of the fair market value of our common stock at the (i) beginning of a six-month offering period,
or (ii) end of the six-month offering period. The ESPP provides for two six-month offering periods each fiscal year; the first
offering period begins on the first trading day on or after each May 1; the second offering period begins on the first trading
day on or after each November 1. During the fiscal years ended April 30, 2018, 2017 and 2016, 88,327, 270,075 and 147,769 shares
of our common stock were purchased, respectively, under the ESPP at a weighted average purchase price per share of $3.59, $1.95
and $3.65, respectively.
The fair value of the
shares purchased under the ESPP were determined using a Black-Scholes option pricing model (see explanation of valuation model
inputs above under “Stock Options”), and is recognized as expense on a straight-line basis over the requisite service
period (or six-month offering period). The weighted average grant date fair value of purchase rights under the ESPP during fiscal
years ended April 30, 2018, 2017 and 2016 was $1.65, $1.07 and $2.40, respectively, based on the following Black-Scholes option
valuation model inputs:
|
|
Fiscal Year Ended April 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
1.10%
|
|
|
|
0.46%
|
|
|
|
0.18%
|
|
Expected life (in years)
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
0.50
|
|
Expected volatility
|
|
|
75.18%
|
|
|
|
105.27%
|
|
|
|
46.14%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Share-based Compensation
Expense
Total share-based compensation
expense related to share-based awards issued under our equity compensation plans for the fiscal years ended April 30, 2018, 2017
and 2016 was comprised of the following:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Cost of contract manufacturing
|
|
$
|
378,000
|
|
|
$
|
108,000
|
|
|
$
|
41,000
|
|
Selling, general and administrative
|
|
|
820,000
|
|
|
|
1,553,000
|
|
|
|
2,599,000
|
|
Discontinued operations
|
|
|
340,000
|
|
|
|
1,702,000
|
|
|
|
2,258,000
|
|
Total
|
|
$
|
1,538,000
|
|
|
$
|
3,363,000
|
|
|
$
|
4,898,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1,402,000
|
|
|
$
|
3,094,000
|
|
|
$
|
4,720,000
|
|
ESPP
|
|
|
136,000
|
|
|
|
269,000
|
|
|
|
178,000
|
|
|
|
$
|
1,538,000
|
|
|
$
|
3,363,000
|
|
|
$
|
4,898,000
|
|
Due to our net loss
position, no tax benefits have been recognized in the consolidated statements of cash flows.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
No warrants were issued
or exercised during fiscal years ended April 30, 2018, 2017 and 2016. As of April 30, 2018, warrants to purchase 39,040 shares
of our common stock at an exercise price of $17.29 were outstanding and are exercisable through August 30, 2018.
We are primarily subject
to U.S. federal and California state jurisdictions. To our knowledge, all tax years remain open to examination by U.S. federal
and state authorities.
In addition, in accordance
with authoritative guidance, we are required to recognize the impact of an uncertain tax position in the consolidated financial
statements when it is more likely than not the position will be sustained upon examination by the tax authorities. An uncertain
tax position will not be recognized if it has less than a 50% likelihood of being sustained upon examination by the tax authorities.
We had no unrecognized tax benefits from uncertain tax positions as of April 30, 2018 and 2017. It is also our policy, in accordance
with authoritative guidance, to recognize interest and penalties related to income tax matters in interest and other expense in
our consolidated statements of operations and comprehensive loss. We did not recognize interest or penalties related to income
taxes for fiscal years ended April 30, 2018, 2017, and 2016, and we did not accrue for interest or penalties as of April 30, 2018
and 2017.
At April 30, 2018,
we had net deferred tax assets of $123,555,000. Due to uncertainties surrounding our ability to generate future taxable income
to realize these tax assets, a full valuation has been established to offset our net deferred tax assets. Additionally, the future
utilization of our net operating loss carry forwards to offset future taxable income may be subject to an annual limitation, pursuant
to Internal Revenue Code Section 382, as a result of ownership changes that may have occurred previously or that could occur in
the future. A Section 382 analysis was completed as of the fiscal year ended April 30, 2018 and it was determined that no change
in ownership had occurred. Ownership changes occurring subsequent to April 30, 2018 may impact the utilization of net operating
loss carry forwards and other tax attributes.
At April 30, 2018,
we had federal net operating loss carry forwards of approximately $433,705,000. The net operating loss carry forwards expire in
fiscal years 2019 through 2037. We also have California state net operating loss carry forwards of approximately $273,091,000 at
April 30, 2018, which begin to expire in fiscal year 2029.
On May 1, 2018, we
adopted ASU 2016-09 (Note 2). Upon adoption, we have excess tax benefits for which a benefit could not previously be recognized
of approximately $2.4 million. The balance of the unrecognized excess tax benefits has been reversed with the impact recorded to
retained earnings including any change to the valuation allowance as a result of the adoption. Due to the full valuation allowance
on the U.S. deferred tax assets, there was no impact to the accompanying consolidated financial statements as a result of adopting
ASU 2016-09 other than what is reflected in the accompanying consolidated statements of stockholders’ equity for the fiscal
year ended April 30, 2018.
The provision for income
taxes on our loss from continuing operations consists of the following for the three years ended April 30,:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Federal income taxes at statutory rate
|
|
$
|
(6,112,000
|
)
|
|
$
|
475,000
|
|
|
$
|
1,223,000
|
|
State income taxes
|
|
|
155,000
|
|
|
|
309,000
|
|
|
|
413,000
|
|
Expiration and adjustments of deferred tax assets
|
|
|
1,840,000
|
|
|
|
1,693,000
|
|
|
|
1,580,000
|
|
Change in valuation allowance
|
|
|
(57,599,000
|
)
|
|
|
(2,616,000
|
)
|
|
|
(3,511,000
|
)
|
Share-based compensation
|
|
|
1,584,000
|
|
|
|
–
|
|
|
|
–
|
|
Other, net
|
|
|
6,000
|
|
|
|
139,000
|
|
|
|
295,000
|
|
Tax Cuts and Jobs Act
|
|
|
60,126,000
|
|
|
|
–
|
|
|
|
–
|
|
Income tax (expense) benefit
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes
reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and deferred tax liabilities
at April 30, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
Share-based compensation
|
|
$
|
4,828,000
|
|
|
$
|
9,583,000
|
|
Deferred revenue
|
|
|
2,852,000
|
|
|
|
12,157,000
|
|
Deferred rent
|
|
|
568,000
|
|
|
|
738,000
|
|
Other
|
|
|
879,000
|
|
|
|
2,984,000
|
|
Net operating losses
|
|
|
115,236,000
|
|
|
|
154,030,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
124,363,000
|
|
|
|
179,492,000
|
|
Less valuation allowance
|
|
|
(123,555,000
|
)
|
|
|
(178,400,000
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
$
|
808,000
|
|
|
$
|
1,092,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(808,000
|
)
|
|
|
(1,092,000
|
)
|
Total deferred tax liabilities
|
|
|
(808,000
|
)
|
|
|
(1,092,000
|
)
|
Net deferred tax assets
|
|
$
|
–
|
|
|
$
|
–
|
|
In December 2017,
the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act includes a number of changes to existing U.S. tax
laws that impact us, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years.
The rate reduction is effective on January 1, 2018. However, as our fiscal year end is April 30, 2018, the statutory corporate
tax rate for the fiscal year ended April 30, 2018 will be prorated to 29.73% with the statutory rate for fiscal year 2019 and
beyond at 21%.
We measure deferred
tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected
to be recovered or paid. Accordingly, our deferred tax assets and liabilities were remeasured to reflect the reduction in the
U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a provisional $60.1 million increase in tax expense
for the fiscal year ended April 30, 2018 and a corresponding provisional $60.1 million decrease in net deferred tax assets as
of April 30, 2018. The impact was fully offset by a valuation allowance.
On December 22, 2017,
the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant
does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete
the accounting for certain income tax effects of the Tax Act. As discussed above, for the fiscal year ended April 30, 2018, we
recognized provisional tax impacts related to the revaluation of deferred tax assets and liabilities, which amounts were fully
offset by a valuation allowance. The ultimate impact may differ from these provisional amounts, due to among other things, additional
analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions
we may take as a result of the Tax Act. The accounting is expected to be complete when our 2017 U.S. corporate income tax return
is filed in calendar year 2018.
On August 9, 2017,
our Board of Directors approved, and our management implemented, a restructuring plan intended to reduce operating costs and improve
cost efficiencies while we pursued strategic options for our research and development assets and focused our efforts on growing
our CDMO business. Under this restructuring plan, which we completed in October 2017, we reduced our overall workforce by 57 employees.
As a result, during the fiscal quarter ended October 31, 2017, we incurred an aggregate of $1,588,000 in restructuring costs consisting
of one-time termination benefits, including severance, and other employee-related costs, of which $330,000 related to our discontinued
research and development segment and $1,258,000 related to our contract manufacturing services segment. The restructuring costs
associated with our discontinued research and development segment are included in loss from discontinued operations in the accompanying
consolidated financial statements for the fiscal year ended April 30, 2018 (Note 9). The restructuring costs associated with our
contract manufacturing services segment are included in operating expenses in the accompanying consolidated financial statements
for the fiscal year ended April 30, 2018. All restructuring costs were paid as of the fiscal quarter ended January 31, 2018.
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
9.
|
SALE OF RESEARCH AND DEVELOPMENT ASSETS
|
Asset Assignment
and Purchase Agreement
On February 12, 2018,
we entered into an Asset Assignment and Purchase Agreement (the “Purchase Agreement”) with Oncologie, Inc. (“Oncologie”)
pursuant to which we sold to Oncologie the majority of our research and development assets, which included the assignment of certain
exclusive licenses related to our former PS-targeting program, as well as certain other licenses and assets useful and/or necessary
for the potential commercialization of bavituximab.
Pursuant to the Purchase
Agreement, we are entitled to receive an aggregate of $8 million from Oncologie, payable in three installments over a period of
approximately six and one-half months following the date of the Purchase Agreement, of which $3 million was received in March 2018
(first installment) and $3 million was received in June 2018 (second installment). We are also eligible to receive up to an additional
$95 million in the event that Oncologie achieves certain development, regulatory and commercialization milestones with respect
to bavituximab. In addition, we are eligible to receive royalties on net sales that are upward tiering into the mid-teens in the
event that Oncologie commercializes and sells products utilizing bavituximab or the other transferred assets. As of April 30, 2018,
no development, regulatory and commercialization milestones as defined in the Purchase Agreement have been achieved by Oncologie.
Oncologie is responsible for all future research, development and commercialization of bavituximab, including all related intellectual
property costs and all other future liabilities and obligations arising out of the ownership of the transferred assets (i.e., we
remain obligated for all liabilities associated with the research and development assets associated with the Purchase Agreement
incurred or arising prior to February 13, 2018). In addition, during May 2018, we entered into a separate services agreement with
Oncologie to provide contract development and manufacturing services, at our commercial rates, in support of the research and development
assets sold under the Purchase Agreement. To date no services have been committed to under the separate services agreement.
Discontinued Operations
As a result of
(i) the sale of our PS-targeting program, (ii) the held for sale classification of our R84 technology, (iii) the abandonment
of our remaining research and development assets (including our intent to return the exosome technology back to the original
licensor), and (iv) the strategic shift in our corporate direction to focus solely on our CDMO business that will have a
major effect on our operations and financial results, the operating results from our research and development segment are
reported as a loss from discontinued operations in the accompanying consolidated statements of operations and comprehensive
loss for all periods presented (Note 1). Accordingly, the accompanying consolidated financial statements for the fiscal years
ended April 30, 2018, 2017 and 2016 reflect the operations and related assets and liabilities of our research and development
segment as a discontinued operation. During the fiscal quarter ended April 30, 2018, we recorded a gain of $8 million upon
the completion of the Purchase Agreement, which amount is included in loss from discontinued operations in the accompanying
consolidated statements of operations and comprehensive loss for the fiscal year ended April 30, 2018. The results of
operations presented below include certain allocations that management believes fairly reflect the utilization of services to
the research and development segment. The allocations do not include amounts related to general corporate administrative
expenses or interest expense. Therefore, the results of operations from the research and development segment do not
necessarily reflect what the results of operations would have been had the research and development segment operated as a
stand-alone segment.
The following table
summarizes the results of discontinued operations for the fiscal years ended April 30, 2018, 2017 and 2016:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
License revenue
|
|
$
|
25,000
|
|
|
$
|
–
|
|
|
$
|
329,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,782,000
|
|
|
|
27,992,000
|
|
|
|
58,660,000
|
|
Selling, general and administrative
|
|
|
2,163,000
|
|
|
|
1,560,000
|
|
|
|
1,516,000
|
|
Restructuring charges
|
|
|
330,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,275,000
|
|
|
|
29,552,000
|
|
|
|
60,176,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
598,000
|
|
Gain on sale of research and development assets
|
|
|
8,000,000
|
|
|
|
–
|
|
|
|
–
|
|
Loss from discontinued operations
|
|
$
|
(1,250,000
|
)
|
|
$
|
(29,552,000
|
)
|
|
$
|
(59,249,000
|
)
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The following table
summarizes the assets and liabilities of discontinued operations as of April 30, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
$
|
5,000,000
|
|
|
$
|
–
|
|
Prepaid expenses
|
|
|
–
|
|
|
|
652,000
|
|
Property and equipment, net
|
|
|
–
|
|
|
|
470,000
|
|
Other assets
|
|
|
–
|
|
|
|
304,000
|
|
Total assets of discontinued operations
|
|
$
|
5,000,000
|
|
|
$
|
1,426,000
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
32,000
|
|
|
$
|
2,779,000
|
|
Accrued clinical trial and related fees
|
|
|
3,613,000
|
|
|
|
4,558,000
|
|
Accrued payroll and related costs
|
|
|
614,000
|
|
|
|
1,029,000
|
|
Other liabilities
|
|
|
291,000
|
|
|
|
357,000
|
|
Total liabilities of discontinued operations
|
|
$
|
4,550,000
|
|
|
$
|
8,723,000
|
|
The carrying value
of the assets and liabilities deemed a component of the discontinued research and development segment were not classified as “held
for sale” in the accompanying consolidated balance sheets at April 30, 2018 and 2017 as Oncologie did not purchase or assume
any of the reported assets or liabilities under the Purchase Agreement.
During fiscal year
1997, we adopted a 401(k) benefit plan (the “Plan”) for all full-time employees who are at least the age of 21 and
have three or more months of continuous service. The Plan provides for employee contributions of up to 100% of their compensation
on a tax deferred basis up to the maximum amount permitted by the Internal Revenue Code. We are not required to make matching contributions
under the Plan, and prior to January 2010, we did not make any matching contributions from the Plan’s inception. Presently,
we have voluntarily agreed to match 50% of employee contributions of up to 6% of their annual eligible compensation, subject to
certain IRS limitations.
Under the Plan, each
participating employee is fully vested in his or her contributions to the Plan and our contributions to the Plan will fully vest
after six years of service. The expense related to our matching contributions to the Plan was $564,000, $845,000, and $543,000
for the fiscal years ended April 30, 2018, 2017, and 2016, respectively.
11.
|
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
Selected quarterly
financial information for each of the two most recent fiscal years is as follows:
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 31,
2017
|
|
|
October 31,
2017
|
|
|
January 31,
2018
|
|
|
April 30,
2018
|
|
Contract manufacturing revenue
|
|
$
|
27,077,000
|
|
|
$
|
12,782,000
|
|
|
$
|
6,819,000
|
|
|
$
|
6,943,000
|
|
Gross profit (loss) (a)
|
|
$
|
6,629,000
|
|
|
$
|
(3,460,000
|
)
|
|
$
|
(4,132,000
|
)
|
|
$
|
(1,961,000
|
)
|
Income (loss) from continuing operations
|
|
$
|
2,800,000
|
|
|
$
|
(8,301,000
|
)
|
|
$
|
(8,928,000
|
)
|
|
$
|
(6,134,000
|
)
|
Income (loss) from discontinued operations (b)(c)
|
|
$
|
(4,005,000
|
)
|
|
$
|
(4,323,000
|
)
|
|
$
|
(2,076,000
|
)
|
|
$
|
9,154,000
|
|
Net income (loss)
|
|
$
|
(1,205,000
|
)
|
|
$
|
(12,624,000
|
)
|
|
$
|
(11,004,000
|
)
|
|
$
|
3,020,000
|
|
Series E preferred stock accumulated dividends (d)
|
|
$
|
(1,442,000
|
)
|
|
$
|
(1,442,000
|
)
|
|
$
|
(1,442,000
|
)
|
|
$
|
(1,442,000
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
(2,647,000
|
)
|
|
$
|
(14,066,000
|
)
|
|
$
|
(12,446,000
|
)
|
|
$
|
1,578,000
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
44,773,727
|
|
|
|
45,097,474
|
|
|
|
45,225,804
|
|
|
|
53,360,424
|
|
Basic and diluted net income (loss) per common share attributable to common stockholders (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.03
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.14
|
)
|
Discontinued operations
|
|
$
|
(0.09
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.17
|
|
Net income (loss) per common share attributable to common stockholders
|
|
$
|
(0.06
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
0.03
|
|
avid bioservices, inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Quarter Ended
|
|
|
|
July 31,
2016
|
|
|
October 31,
2016
|
|
|
January 31,
2017
|
|
|
April 30,
2017
|
|
Contract manufacturing revenue
|
|
$
|
5,609,000
|
|
|
$
|
23,370,000
|
|
|
$
|
10,747,000
|
|
|
$
|
17,904,000
|
|
Gross profit
|
|
$
|
2,547,000
|
|
|
$
|
7,929,000
|
|
|
$
|
2,773,000
|
|
|
$
|
6,122,000
|
|
Income (loss) from continuing operations
|
|
$
|
(2,018,000
|
)
|
|
$
|
3,303,000
|
|
|
$
|
(1,569,000
|
)
|
|
$
|
1,677,000
|
|
Loss from discontinued operations (b)
|
|
$
|
(9,039,000
|
)
|
|
$
|
(7,359,000
|
)
|
|
$
|
(6,205,000
|
)
|
|
$
|
(6,949,000
|
)
|
Net loss
|
|
$
|
(11,057,000
|
)
|
|
$
|
(4,056,000
|
)
|
|
$
|
(7,774,000
|
)
|
|
$
|
(5,272,000
|
)
|
Series E preferred stock accumulated dividends (d)
|
|
$
|
(1,380,000
|
)
|
|
$
|
(1,442,000
|
)
|
|
$
|
(1,442,000
|
)
|
|
$
|
(1,442,000
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(12,437,000
|
)
|
|
$
|
(5,498,000
|
)
|
|
$
|
(9,216,000
|
)
|
|
$
|
(6,714,000
|
)
|
Basic and diluted weighted average common shares outstanding
|
|
|
34,227,870
|
|
|
|
34,973,681
|
|
|
|
37,258,794
|
|
|
|
42,141,720
|
|
Basic and diluted net income (loss) per common share attributable to common stockholders (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.10
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.01
|
|
Discontinued operations
|
|
$
|
(0.26
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.17
|
)
|
Net income (loss) per common share attributable to common stockholders
|
|
$
|
(0.36
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.16
|
)
|
___________________
|
(a)
|
Gross profit (loss) for the first, second, third, and fourth quarters of fiscal year 2018 includes
idle capacity costs of $900,000, $4,938,000, $5,344,000 and $2,784,000, respectively, which amounts were expensed directly to cost
of contract manufacturing. No idle capacity costs were incurred during the same prior year periods.
|
|
(b)
|
As of January 31, 2018, our research and development segment
met all the conditions required in order to be classified as a discontinued operation (Note 2). Accordingly, the operating
results of
our research and
development segment are reported as income (loss) from discontinued operations for all periods
presented.
|
|
(c)
|
Income from discontinued operations for the quarter ended April 30, 2018 includes a gain
on sale of research and development assets of $8,000,000 (Note 9).
|
|
(d)
|
Series E preferred stock accumulated dividends include dividends declared for the period (regardless
of whether or not the dividends have been paid) and dividends accumulated for the period (regardless of whether or not the dividends
have been declared).
|
|
(e)
|
Basic and diluted net income (loss) per common share attributable to common stockholders calculations
for each of the quarters are based on the basic and diluted weighted average common shares outstanding for each period. As such,
the sum of the quarters may not necessarily equal the basic and diluted net income (loss) per common share amount for the fiscal
year.
|
On June 6, 2018,
our Board of Directors declared a quarterly cash dividend of $0.65625 per share on our Series E Preferred Stock. The
dividend payment is equivalent to an annualized 10.50% per share, based on the $25.00 per share stated liquidation
preference, accruing from April 1, 2018 through June 30, 2018. The cash dividend of $1,081,000 was paid on July 2, 2018
to holders of the Series E Preferred Stock of record on June 18, 2018.