NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1
– Description of Company and Basis of Presentation
Avid Bioservices, Inc. is 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.
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles
(“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”)
related to quarterly reports on Form 10-Q, and accordingly, they do not include all of the information and disclosures required
by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements and notes thereto should
be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended April 30, 2019, as filed with the SEC on June 27, 2019. The unaudited financial information for
the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation
of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal
recurring adjustments. Results of operations for interim periods covered by this Quarterly Report on Form 10-Q may not necessarily
be indicative of results of operations for the full fiscal year or any other interim period.
The unaudited condensed
consolidated financial statements include the accounts of Avid Bioservices, Inc. and its subsidiaries. All intercompany accounts
and transactions among the consolidated entities have been eliminated in the unaudited condensed consolidated financial statements.
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts,
as well as disclosures of commitments and contingencies in the financial statements and accompanying notes. Actual results could
differ materially from those estimates and assumptions.
Certain prior period
amounts within the accompanying unaudited condensed consolidated financial statements have been reclassified to conform to the
current period presentation. These reclassifications did not affect our financial position, net loss, cash flows as of and for
the periods presented.
Discontinued Operations
For all periods presented,
the operating results of our former research and development segment have been excluded from continuing operations and reported
as income from discontinued operations, net of tax, in the accompanying unaudited condensed consolidated statements of operations
and comprehensive loss (Note 7).
Note 2 – Summary of Significant Accounting Policies
Information regarding our significant accounting
policies is contained in Note 2, “Summary of Significant Accounting Policies”, of the consolidated financial statements
in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Revenue Recognition
Revenue is recognized from services provided
under our customer contracts, which we have disaggregated into manufacturing and process development revenue streams.
Manufacturing revenue
Manufacturing revenue generally represents
revenue from the manufacturing of customer products 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 a manufacturing
contract, a quantity of manufacturing runs are ordered and the product is manufactured according to the customer’s specifications
and typically only one performance obligation is included. Each manufacturing run represents a distinct service that is sold separately
and has stand-alone value to the customer. The products are manufactured exclusively for a specific customer and have no alternative
use. The customer retains control of its product during the entire manufacturing process and can make changes to the process or
specifications at its request. Under these agreements, we are entitled to consideration for progress to date that includes an element
of profit margin.
Process development revenue
Process development revenue generally represents
revenue from services associated with the custom development of a manufacturing process and analytical methods for a customer’s
product. Process development revenue is 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 a process development contract,
the customer owns the product details and process, which has no alternative use. These process development projects are customized
to each customer to meet its specifications and typically only one performance obligation is included. Each process represents
a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its
product as the product is being created or enhanced by our services and can make changes to its process or specifications upon
request.
The following table summarizes our manufacturing
and process development revenue streams for the three and nine months ended January 31, 2020 and 2019 (in thousands):
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Manufacturing revenue
|
|
$
|
11,525
|
|
|
$
|
10,770
|
|
|
$
|
40,422
|
|
|
$
|
28,313
|
|
Process development revenue
|
|
|
2,060
|
|
|
|
3,011
|
|
|
|
6,730
|
|
|
|
8,235
|
|
Total revenues
|
|
$
|
13,585
|
|
|
$
|
13,781
|
|
|
$
|
47,152
|
|
|
$
|
36,548
|
|
The timing of revenue recognition, billings
and cash collections results in billed trade receivables, contract assets (unbilled receivables), and contract liabilities (customer
deposits and deferred revenue). Contract assets are recorded when our right to consideration is conditioned on something other
than the passage of time. Contract assets are reclassified to accounts receivable on the balance sheet when our rights become unconditional.
Contract liabilities represent customer deposits and deferred revenue billed and/or received in advance of our fulfillment of performance
obligations. Contract liabilities convert to revenue as we perform our obligations under the contract.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the three and nine months ended
January 31, 2020, we recognized revenue of $0.6 million and $13.2 million, respectively, for which the contract liability was recorded
in a prior period.
During the three and nine months ended
January 31, 2019, we recognized revenue of $2.2 million and $12.2 million, respectively, for which the contract liability was recorded
in a prior period.
We apply the practical expedient available
under ASC 606 that permits us not to disclose the value of unsatisfied performance obligations for contracts with an original expected
length of one year or less. In addition, we do not have any unsatisfied performance obligations for contracts greater than one
year as of January 31, 2020.
Leases
On May 1, 2019, we adopted the Accounting
Standards Update (“ASU”) No. 2016-02, Leases (“ASC 842”) using the modified retrospective approach.
Accordingly, prior period financial information and disclosures have not been adjusted and will continue to be reported in accordance
with our historical accounting under the previous lease standard. In addition, we elected the package of practical expedients available
for existing contracts, which allowed us to carry forward our historical assessments of lease identification, lease classification,
and initial direct costs. As a result of adopting ASC 842, we recognized right-of-use assets and lease liabilities of $23.3 million
and $25.5 million, respectively, on May 1, 2019, which are primarily related to our facility operating leases (Note 3). The difference
between the right-of-use assets and lease liabilities is primarily attributed to the elimination of deferred rent. There was no
adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.
We determine if an arrangement is or contains
a lease at inception. Our operating leases with a term greater than one year are included in operating lease right-of-use assets,
operating lease liabilities and operating lease liabilities, less current portion in our condensed consolidated balance sheet at
January 31, 2020. Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities
represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are
recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the
net present value of lease payments, we use our incremental borrowing rate which represents an estimated rate of interest that
we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.
Our operating leases may include options
to extend the lease which are included in the lease term when it is reasonably certain that we will exercise a renewal option(s).
Operating lease expense is recognized on a straight-line basis over the expected lease term.
We elected the post-transition practical
expedient to not separate lease components from non-lease components for all existing leases. We also elected a policy to not apply
the recognition requirements of ASC 842 for short-term leases.
Restricted Cash
Under the terms of three separate operating
leases related to our facilities (Note 3), we are required to maintain, as collateral, letters of credit. During the quarter ended
October 31, 2019, $0.8 million of restricted cash that was pledged as collateral under two such letters of credit was released
back to us. Accordingly, as of January 31, 2020 and April 30, 2019, restricted cash of $0.4 million and $1.2 million, respectively,
was pledged as collateral under these letter(s) of credit.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table provides a reconciliation
of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of
the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
|
|
January 31,
2020
|
|
|
April
30,
2019
|
|
|
January 31,
2019
|
|
|
April 30,
2018
|
|
Cash and cash equivalents
|
|
$
|
30,687
|
|
|
$
|
32,351
|
|
|
$
|
27,758
|
|
|
$
|
42,265
|
|
Restricted cash
|
|
|
350
|
|
|
|
1,150
|
|
|
|
1,150
|
|
|
|
1,150
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
31,037
|
|
|
$
|
33,501
|
|
|
$
|
28,908
|
|
|
$
|
43,415
|
|
Inventory
Inventory consists of raw materials inventory
and is valued at the lower of cost, determined by the first-in, first-out method, or net realizable value. We periodically review
raw materials inventory for potential impairment and adjust inventory to its net realizable value based on the estimate of future
use and reduce the carrying value of inventory as deemed necessary.
Property and Equipment
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 assets, 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 primarily associated with our manufacturing facilities, is not depreciated until the asset is completed and placed
into service. No interest was incurred or capitalized as construction-in-progress as of January 31, 2020 and April 30, 2019.
All of our property and
equipment are located in the U.S. Property and equipment consist of the following (in thousands):
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
Leasehold improvements
|
|
$
|
21,130
|
|
|
$
|
20,574
|
|
Laboratory and manufacturing equipment
|
|
|
14,968
|
|
|
|
12,858
|
|
Computer equipment and software
|
|
|
4,931
|
|
|
|
4,644
|
|
Furniture, fixtures and office equipment
|
|
|
685
|
|
|
|
528
|
|
Construction-in-progress
|
|
|
1,963
|
|
|
|
1,590
|
|
Total property and equipment, gross
|
|
$
|
43,677
|
|
|
$
|
40,194
|
|
Less: accumulated depreciation and amortization
|
|
|
(16,827
|
)
|
|
|
(14,569
|
)
|
Total property and equipment, net
|
|
$
|
26,850
|
|
|
$
|
25,625
|
|
Depreciation and amortization
expense for the three and nine months ended January 31, 2020 was $0.8 million and $2.3 million, respectively.
Depreciation and amortization
expense for the three and nine months ended January 31, 2019 was $0.7 million and $2.0 million, respectively.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 if impairment indicators exist. For the nine
months ended January 31, 2020 and 2019, there were no indicators of impairment of the value of our long-lived assets and no cumulative
impairment losses recognized as of January 31, 2020.
Stock-Based Compensation
We account for stock
options, restricted stock units and other stock-based awards granted under our equity compensation plans in accordance with the
authoritative guidance for stock-based compensation. The estimated fair value of stock options granted 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 restricted stock units
is measured at the grant date based on the closing market price of our common stock on the date of grant, and is recognized as
expense on a straight-line basis over the period of vesting. Forfeitures are recognized as a reduction of stock-based compensation
expense as they occur. As of January 31, 2020, there were no outstanding stock-based awards with market or performance conditions.
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.
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 January 31, 2020
and April 30, 2019, 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 nine
months ended January 31, 2020 and 2019.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Income Taxes
The income tax benefit recognized in the
accompanying unaudited condensed consolidated statements of operations and comprehensive loss during the three and nine months
ended January 31, 2019 resulted from the “Intraperiod Tax Allocation” rules under ASC 740: Income Taxes, which
requires the allocation of an entity’s total annual income tax provision among continuing operations and, in our case, discontinued
operations. Accordingly, a tax benefit was recorded in continuing operations with an offsetting tax expense recorded in discontinued
operations for the nine months ended January 31, 2019 (Note 7).
Recent Accounting
Standards Not Yet Adopted
In June 2016, the Financial Accounting
Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement
of Credit Losses on Financial Instruments. This standard update requires that certain financial assets be measured at amortized
cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash
collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an
allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based
on all relevant information including historical information, current conditions and reasonable and supportable forecasts that
affect the collectability of the amounts. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU
2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller
reporting companies. As a smaller reporting company, ASU 2016-13 will now be effective for our fiscal year 2024 beginning May 1,
2023; however, early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2016-13 on our consolidated
financial statements.
In August 2018, the FASB
issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement, which modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements
related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new
disclosure requirements, primarily surrounding Level 3 fair value measurements and transfers between Level 1 and Level 2. ASU 2018-13
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, which will be our
fiscal year 2021 beginning May 1, 2020. Early adoption is permitted for any removed or modified disclosures. We are currently evaluating
the new guidance and do not expect the adoption of ASU 2018-13 to have a material impact on our consolidated financial statements
and related disclosures.
In December 2019, the
FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify
various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic
740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2020, which will be our fiscal year 2022 beginning May 1,
2021. Early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2019-12 on our consolidated
financial statements and related disclosures.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 3 – Leases
We currently lease office, manufacturing
and warehouse space in four buildings under three separate non-cancellable operating lease agreements. All of our leased facilities
are located in close proximity in Tustin, California, have original lease terms ranging from 7 to 12 years, contain two multi-year
renewal options, and scheduled rent increases of 3% on either an annual or biennial basis. With respect to multi-year renewal options,
a multi-year renewal option was included in determining the right-of-use asset and lease liability for two of our leases as we
considered it reasonably certain that we would exercise such renewal options. In addition, two of our leases provide for periods
of free rent, lessor improvements and tenant improvement allowances, of which, certain of these improvements have been 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 lease. The operating lease right-of-use assets and liabilities on our January 31, 2020 condensed consolidated balance
sheet primarily relate to these facility leases.
In September 2019, we entered into a
lease amendment to terminate an operating lease for one of our non-manufacturing facilities that was primarily utilized for
warehouse space. The lease termination was primarily driven by our efforts to reduce costs by leveraging available warehouse
space in our other facilities, which in aggregate will save us approximately $1.3 million over a period of four
years. In connection with the termination of this lease, we removed the corresponding operating lease right-of-use asset and
liability balances from our balance sheet and recognized a loss of $0.4 million, which is included in loss on lease
termination in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss for the nine
months ended January 31, 2020. Additionally, the lease termination released $0.3 million of restricted cash that was pledged
as collateral under a letter of credit required by the terminated lease.
Certain of our facility leases require
us to pay property taxes, insurance and common area maintenance. While these payments are not included as part of our lease liabilities,
they are recognized as variable lease cost in the period they are incurred.
The components of lease cost, which are
included in our accompanying unaudited condensed consolidated statements of operations and comprehensive loss as either cost of
revenues or selling, general and administrative expense, depending on the leased asset, were as follows (in thousands):
|
|
Three
Months Ended
January 31, 2020
|
|
|
Nine
Months Ended
January 31, 2020
|
|
Operating lease cost
|
|
$
|
798
|
|
|
$
|
2,570
|
|
Short-term lease cost
|
|
|
83
|
|
|
|
83
|
|
Variable lease cost
|
|
|
155
|
|
|
|
488
|
|
Total lease cost
|
|
$
|
1,036
|
|
|
$
|
3,141
|
|
Cash paid for amounts included in the measurement
of lease liabilities for the nine months ended January 31, 2020 was $2.3 million and is included in net cash used in operating
activities in our accompanying unaudited condensed consolidated statements of cash flows.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of January 31, 2020, the maturities
of our operating lease liabilities were as follows (in thousands):
Fiscal Year Ending April 30,
|
|
|
Total
|
|
2020 (remaining period)
|
|
|
$
|
735
|
|
2021
|
|
|
|
2,972
|
|
2022
|
|
|
|
2,995
|
|
2023
|
|
|
|
3,010
|
|
2024
|
|
|
|
3,086
|
|
Thereafter
|
|
|
|
21,938
|
|
Total lease payments
|
|
|
$
|
34,736
|
|
Less: imputed interest
|
|
|
|
(11,980
|
)
|
Total operating lease liabilities
|
|
|
$
|
22,756
|
|
The balance sheet classification of our operating lease liabilities
was as follows (in thousands):
|
|
January 31, 2020
|
|
Operating lease liabilities
|
|
$
|
1,172
|
|
Operating lease liabilities, less current portion
|
|
|
21,584
|
|
Total operating lease liabilities
|
|
$
|
22,756
|
|
As of January 31, 2020, the weighted average
remaining lease term and weighted average discount rate of our operating leases was 10.7 years and 8.0%, respectively.
Note
4 – Stockholders’ Equity
Termination of Rights
Agreement (Series D Preferred Stock)
On March 16, 2006, we
entered into a Rights Agreement with Rights Agent named therein, which agreement was subsequently amended and restated on March
16, 2016 (as amended, the “Rights Agreement”). The Rights Agreement was designed to strengthen the ability of our Board
of Directors to protect the interests of our stockholders against potential abusive or coercive takeover tactics and to enable
all stockholders to receive the full and fair value of their investment in the event that an unsolicited attempt is made to acquire
us. Under the Rights Agreement, our Board of Directors declared a dividend of one preferred share purchase right (the “Right”)
for each share of our common stock held by our stockholders of record as of the close of business on March 27, 2006, each of which
Right entitled the holder thereof to purchase a fraction of a share of our Series D Participating Preferred Stock, par value $0.001
per share, at the price specified in the Rights Agreement. The Rights were only exercisable if a person or group acquired 15% or
more of our outstanding common stock or announced a tender offer or exchange offer which, if consummated, would have resulted in
ownership by a person or group of 15% or more of our outstanding stock.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On September 23, 2019,
the Rights Agreement was further amended to accelerate the scheduled expiration date of the Rights Agreement from the close of
business on March 16, 2021 to the close of business on September 23, 2019, and effectively terminate the Rights Agreement and the
Rights granted thereunder as of such expiration date. Our Board of Directors elected to terminate the Rights Agreement and the
Rights granted thereunder based on their recent evaluation of the effectiveness of, and the need for, a stockholder rights plan
and consideration of current corporate governance practices and proxy advisory guidelines. In connection with the termination of
the Rights Agreement, we filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities
Exchange Act on Form 25 with the SEC on September 23, 2019, in order to withdraw the Rights from registration under Section 12(b)
of the Securities Exchange Act of 1934, as amended, which deregistration was effective 90 days after the filing date.
Series E Preferred
Stock
Each share of issued
and outstanding 10.50% Series E Convertible Preferred Stock $0.001 par value per share (“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
Series E Preferred Stock by the then-current conversion price per share, currently $21.00 per share, rounded down to the nearest
whole number. As of January 31, 2020, if all of our issued and outstanding shares of Series E Preferred Stock were converted at
the conversion price of $21.00 per share, the holders of our Series E Preferred Stock would receive an aggregate of 1,961,619 shares
of our common stock. However, because the conversion price of our Series E Preferred Stock is subject to adjustment from time to
time in accordance with the applicable provisions of our certificate of incorporation, we have reserved the maximum number of shares
of our common stock that could be issued upon the conversion of our Series E Preferred Stock 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 would be converted into 4.14 shares of our common stock, or 6,826,435 shares in the aggregate.
Dividends
Holders of our Series
E Preferred Stock are entitled to receive cumulative dividends at the rate of 10.50% per annum based on the liquidation preference
of $25.00 per share, or $2.625 per annum per share, which dividends are payable quarterly in cash, on or about the 1st
day of each January, April, July and October. For the three and nine months ended January 31, 2020 and 2019, we paid aggregate
cash dividends of $1.1 million and $3.2 million, respectively, for issued and outstanding shares of our Series E Preferred Stock.
Note
5 – Equity Compensation Plans
Stock Incentive Plans
As of January 31, 2020,
we had an aggregate of 6,944,895 shares of our common stock reserved for issuance under our stock incentive plans, of which 3,686,129
shares were subject to outstanding stock options and restricted stock units (“RSUs”) and 3,258,766 shares were available
for future grants of stock-based awards.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock Options
The following summarizes
our stock option transaction activity for the nine months ended January 31, 2020:
|
|
Stock Options
|
|
|
Grant Date Weighted Average Exercise Price
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Outstanding at May 1, 2019
|
|
|
3,274
|
|
|
$
|
7.51
|
|
Granted
|
|
|
845
|
|
|
$
|
5.95
|
|
Exercised
|
|
|
(247
|
)
|
|
$
|
3.72
|
|
Canceled or expired
|
|
|
(931
|
)
|
|
$
|
10.45
|
|
Outstanding at January 31, 2020
|
|
|
2,941
|
|
|
$
|
6.45
|
|
Restricted Stock Units
The following summarizes
our RSUs transaction activity for the nine months ended January 31, 2020:
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Outstanding at May 1, 2019
|
|
|
200
|
|
|
$
|
4.32
|
|
Granted
|
|
|
194
|
|
|
$
|
5.91
|
|
Vested
|
|
|
(49
|
)
|
|
$
|
4.30
|
|
Forfeited
|
|
|
(27
|
)
|
|
$
|
5.15
|
|
Outstanding at January 31, 2020
|
|
|
318
|
|
|
$
|
5.22
|
|
Employee Stock Purchase Plan
The Avid Bioservices,
Inc. 2010 Employee Stock Purchase Plan (the “ESPP”) is a stockholder-approved plan under which eligible employees are
allowed to purchase shares of our common stock through payroll deductions at a price equal to 85% of the lower of the fair market
value our common stock as of the first trading day of the offering period or on the last trading day of the six-month offering
period. Employee participants are limited to purchase no more than $25,000 of stock in any one calendar year. On October 9, 2019,
our stockholders approved an amendment to the ESPP to extend its term for an additional five years to October 21, 2025 and to change
the commencement dates of the offering periods from May 1 and November 1 of each year, to January 1 and July 1 of each year.
During the nine months
ended January 31, 2020, 47,526 shares of our common stock were purchased under the ESPP at a purchase price of $3.94 per share.
As of January 31, 2020, we had 1,148,735 shares of our common stock reserved for issuance under the ESPP.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock-Based Compensation
Stock-based compensation expense for the
three and nine months ended January 31, 2020 and 2019 was comprised of the following (in thousands):
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
$
|
248
|
|
|
$
|
147
|
|
|
$
|
679
|
|
|
$
|
317
|
|
Selling, general and administrative
|
|
|
347
|
|
|
|
311
|
|
|
|
1,170
|
|
|
|
763
|
|
Total stock-based compensation
|
|
$
|
595
|
|
|
$
|
458
|
|
|
$
|
1,849
|
|
|
$
|
1,080
|
|
As of January 31, 2020, the total estimated
unrecognized compensation cost related to non-vested employee stock options and non-vested RSUs was $4.6 million and $1.4 million,
respectively. These costs are expected to be recognized over weighted average vesting periods of 2.82 years and 3.06 years, respectively.
Note 6 – 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. 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, unvested RSUs, 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, unvested RSUs, 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 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. Since the impact of potentially dilutive securities is anti-dilutive during periods
of net loss, there was no difference between basic and diluted loss per common share amounts for the three and nine months ended
January 31, 2020 and 2019.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The calculation of weighted
average diluted shares outstanding excludes the dilutive effect of the following weighted average outstanding stock options, unvested
RSUs and shares of common stock expected to be issued under our ESPP as their impact is anti-dilutive during periods of net loss
(in thousands):
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
|
245
|
|
|
|
117
|
|
|
|
152
|
|
|
|
161
|
|
RSUs
|
|
|
102
|
|
|
|
38
|
|
|
|
73
|
|
|
|
33
|
|
ESPP
|
|
|
–
|
|
|
|
1
|
|
|
|
7
|
|
|
|
10
|
|
Total
|
|
|
347
|
|
|
|
156
|
|
|
|
232
|
|
|
|
204
|
|
The calculation of weighted
average diluted shares outstanding also excludes the following weighted average outstanding stock options, unvested RSUs, 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 (in thousands):
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
|
2,106
|
|
|
|
2,779
|
|
|
|
2,721
|
|
|
|
2,659
|
|
RSUs
|
|
|
–
|
|
|
|
47
|
|
|
|
8
|
|
|
|
16
|
|
Warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
17
|
|
Series E Preferred Stock
|
|
|
1,979
|
|
|
|
1,979
|
|
|
|
1,979
|
|
|
|
1,979
|
|
Total
|
|
|
4,085
|
|
|
|
4,805
|
|
|
|
4,708
|
|
|
|
4,671
|
|
Note 7 – Discontinued Operations
As a result of the sale
of our PS-targeting and r84 technologies in February 2018 and September 2018, respectively (as described in Note 10 of the Notes
to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019),
the abandonment of our remaining research and development assets, and the strategic shift in our corporate direction to focus solely
on our CDMO business, the operating results of our former research and development segment have been excluded from continuing operations
and reported as income from discontinued operations, net of tax, in the accompanying unaudited condensed consolidated financial
statements for all periods presented.
avid bioservices, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
There were no operating
results from discontinued operations for the three and nine months ended January 31, 2020. The following table is a reconciliation
of the pre-tax income from discontinued operations to the income from discontinued operations, net of tax, as presented in the
accompanying unaudited condensed consolidated statements of operations and comprehensive loss for the nine months ended January
31, 2019 (in thousands):
Gain on sale of research and development assets before income taxes (1)
|
|
$
|
1,000
|
|
Income tax expense
|
|
|
(261
|
)
|
Income from discontinued operations, net of tax
|
|
$
|
739
|
|
_____________
(1)
The gain on sale of research and development assets before income taxes was recorded in connection with the $1.0 million we received
from Oncologie, Inc. (“Oncologie”) under the September 2018 Asset Assignment and Purchase Agreement pursuant to which
we sold to Oncologie our r84 technology, which included the assignment of certain licenses, patents and other assets useful and/or
necessary for the potential commercialization of the r84 technology.
Note 8 – Subsequent
Events
On March 4, 2020, our
Board of Directors declared a quarterly cash dividend of $0.65625 per share on our outstanding 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 January 1, 2020 through March 31, 2020. The cash dividend is payable on April 1, 2020 to holders of the Series E Preferred
Stock of record on March 16, 2020.