Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-K

(Mark One)

x☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30 2021, 2022

or

o ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 001-32839

AVID BIOSERVICES, INC.

(Exact name of Registrant as specified in its charter)

(714)508-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yesx☒   No o☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes o☐Nox☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yesx☒   No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yesx☒   No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o☐Nox☒

The aggregate market value of the shares of common stock held by non-affiliates of the registrant as of October 31, 2020,2021, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $409.3 million,$1.9 billion, calculated based on the closing price of the registrant’s common stock as reported by The NASDAQ Capital Market.

As of June 18, 2021, the number of61,834,710 shares of registrant’s common stock were outstanding was 61,097,671.as of June 17, 2022.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates certain information by reference from the registrant’s proxy statement for the annual meeting of stockholders, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year to which this report relates.

AVID BIOSERVICES, INC.

Form 10-K

For the Fiscal Year Ended April 30, 20212022

TABLE OF CONTENTS

Cautionary Note on Forward-Looking Statements

In this Annual Report on Form 10-K (this “Annual Report”), unless the context otherwise indicates, the terms “we,” “us,” “our,” “Company” and “Avid” refer to Avid Bioservices, Inc. and its consolidated subsidiaries. In addition to historical information, this Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties. The inclusion of forward-looking statements should not be regarded as a representation by us or any other person that the objectives or plans will be achieved because our actual results may differ materially from any forward-looking statement. The words “may,” “should,” “plans,” “believe,” “anticipate,” “estimate,” “expect,” their opposites and similar expressions are intended to identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. We caution readers that such statements are not guarantees of future performance or events and are subject to a number of factors that may tend to influence the accuracy of the statements including, but not limited to, those risk factors outlined in the section titled, “Risk Factors,” as well as those discussed elsewhere in this Annual Report. You should not unduly rely on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Annual Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports that we file from time to time with the Securities and Exchange Commission (“SEC”) after the date of this Annual Report.

Avid Bioservices® is a registered trademark of Avid Bioservices, Inc. All other brand names or trademarks appearing in this Annual Report are the property of their respective holders.

PART I

PART I

Overview

We are a dedicated contract development and manufacturing organization (“CDMO”) that provides a comprehensive range of services from process development to Current Good Manufacturing Practices (“CGMP”) clinical and commercial manufacturing, focused on biopharmaceutical drug substances derived from mammalian cell culture. With 2829 years of experience producing monoclonal antibodies and recombinant proteins, our services include CGMP clinical and commercial drug substance manufacturing, bulk packaging, release and stability testing and regulatory submissions support. We also provide a variety of process development services, including upstream and downstream development and optimization, analytical method development, testing and characterization. All

In October 2021, we announced plans to expand our servicesCDMO service offerings into the rapidly growing cell and gene therapy market. As part of this expansion, we are available as either stand-alone or bundled for fullin the process of constructing a world-class, purpose-built cell and gene therepy development and CGMP manufacturing programs.facility within a building we are leasing in Costa Mesa, California as further discussed in the “Our Facilities” section below. In June 2022, we completed the first phase of our two-phase construction plan of our cell and gene therapy facility, with the opening of our new analytical and process development laboratories. The second phase of construction includes the build out of the CGMP manufacturing suites for our cell and gene therapy facility and is expected to be online in mid calendar 2023.

Business Strategy

We havecontinue to execute on a growth strategy that seeks to align with the growth of the biopharmaceutical drug substance contract services market. That strategy encompasses the following continuing objectives:

Our Competitive Strengths

We believe that we are well positioned to address the market for outsourced development and manufacturing of biopharmaceuticals derived from mammalian cell culture, due to the following factors:

Our Growth Strategy

We believe we have a significant opportunity to continue to drive organic growth by leveraging our strengths, broadening our capabilities, increasing our capacity and improving our market visibility.

Our Facilities

Our Myford Facilityfacility, located in Orange County, California, currently consists of 42,000 square feet of leased space designed to utilizewithin the north side of the Myford facility (“Myford North”) utilizing single-use equipment up to the 2,000-liter manufacturing scale to accommodate a fully disposable biomanufacturing process for products from clinical development to commercial supply. Our Myford FacilityNorth facility includes single-use bioreactors (200-liter to 2,000-liter), two downstream processing suites, quality control labs for environmental and analytical testing, warehousing and material storage (including two walk-in cold rooms) and cell bank cryofreezers. We also lease an additional 42,000 square feet of space within the building housingsouth side of our Myford Facility in which our second phase of expansion, discussed below, is currently being constructed.

Duringfacility (“Myford South”). As we announced during fiscal 2021, we announced plans for a two-phased expansionare in the process of our Myford Facility. The first phase, which was initiated during the second quarter of fiscal 2021 and is anticipated to be online during fiscal 2022, expands the production capacity of our existing Myford North facility by adding a second downstream processing suite. The second phase, which was initiated during the fourth quarter of fiscal 2021and anticipated to be online during calendar 2022, is designed to further expand our capacity through the build out ofconstructing a second manufacturing train in Myford South, including both upstream and downstream processing suites, within our Myford South facility.warehousing and material storage (including walk-in cold rooms). We estimateexpect that the total cost to complete these two phases of expansion will be approximately $60 to $70 million. Upon completion, we estimate that the first and second phases of this expansion will result in a total revenue generating capacitycome online during the first calendar quarter of up to $270 million annually depending on the mix of products.2023.

Our 12,000 square-foot Franklin Facility,facility, which is located adjacent to our Myford Facility and our headquarters in Tustin, California,facility, includes stainless steel bioreactors (100-liter to 1,000-liter) and single-use bioreactors (200-liter to 1,000-liter), water-for-injection, an autoclave and depyrogenation oven, material storage (including a walk-in cold room) and cell bank cryofreezerscryofreezers.

In October 2021, we announced plans to expand our CDMO service offerings into viral vector development and manufacturing services for the rapidly growing cell and gene therapy market. As part of this expansion, we are constructing a world-class, purpose-built cell and gene therapy development and CGMP manufacturing facility within a building we are leasing in Costa Mesa, California (the “Cell and Gene Therapy Facility”). Based on current projections, we expect the entire build out to take up to 18 months at an estimated cost of approximately $65 to $75 million. In June 2022, we completed the first phase of our two-phase construction plan of the Cell and Gene Therapy Facility, with the opening of our new analytical and process development laboratories. The second phase of construction includes the build out of CGMP manufacturing suites, which are expected to be online in mid calendar 2023.

Manufacturing and Raw Materials

We manufacture CGMP pharmaceutical-grade products for our customers. The process for manufacturing generally uses commercially available raw materials from multiple suppliers, and in some instances, from a single source supplier. See “Risk Factors—Risks Related to Our Business” for additional discussion of raw materials supplied by third party vendors for the products we manufacture for our customers. We rely on third parties to supply most of the necessary raw materials and supplies for the products we manufacture on behalf of our customers and our inability to obtain such raw materials or supplies may adversely impact our business, financial condition, and results of operations. See “Risk Factors—Risks Related to Our Business” for additional discussion of raw materials supplied by third party vendors for the products we manufacture for our customers.

Regulatory Matters

We have a strong and proven regulatory track record, including 1819 years of inspection history with no significant impact to our business.history. To date, we have been successfully audited and qualified by large and small and domestic and foreign biotechnology companies interested in the production of biologic material for clinical and commercial use. Additionally, we have been successfully audited by several regulatory agencies, including the FDA, the European Medicines Agency (“EMA”), the Brazilian Health Surveillance Agency (“ANVISA”), the Canadian Health Authority (“Health Canada”), the California Department of Health and the Australian Department of Health.

We are required to comply with the regulatory requirements of various local, state, national and international regulatory bodies having jurisdiction in the countries or localities where we manufacture products or where our customers’ products are distributed. In particular, we are subject to laws and regulations concerning research and development, testing, manufacturing processes, equipment and facilities, including compliance with CGMPs, labeling and distribution, import and export, and product registration and listing. As a result, our facilities are subject to regulation by the FDA, as well as regulatory bodies of other jurisdictions where our customers have marketing approval for their products including, but not limited to, the EMA, ANVISA, Health Canada, and the Australian Department of Health. We are also required to comply with environmental, health and safety laws and regulations, as discussed in “Environmental and Safety Matters” below. These regulatory requirements impact many aspects of our operations, including manufacturing, developing, labeling, packaging, storage, distribution, import and export and record keeping related to customers’ products. Noncompliance with any applicable regulatory requirements can result in government refusal to approve facilities for manufacturing products or products for commercialization.

Our customers’ products must undergo pre-clinical and clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic products. The regulatory authorities having jurisdiction in the countries in which our customers intend to market their products may delay or put on hold clinical trials, delay approval of a product or determine that the product is not approvable. The FDA or other regulatory agencies can delay approval of a drug if our manufacturing facilities are not able to demonstrate compliance with CGMPs, pass other aspects of pre-approval inspections (i.e., compliance with filed submissions) or properly scale up to produce commercial supplies. The FDA and comparable government authorities having jurisdiction in the countries in which our customers intend to market their products have the authority to withdraw product approval or suspend manufacture if there are significant problems with raw materials or supplies, quality control and assurance or the product is deemed adulterated or misbranded. If new legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, we may be required to obtain additional approvals or operate according to different manufacturing or operating standards or pay additional fees. This may require a change in our manufacturing techniques or additional capital investments in our facilities.

The costs associated with complying with the various applicable local, state, national and international regulations could be significant and the failure to comply with such legal requirements could have an adverse effect on our financial condition and results of operations. See “Risk Factors—Risks Related to Our Business” for additional discussion of the costs associated with complying with the various regulations. Failure to comply with existing and future regulatory requirements could adversely affect our business, financial condition and results of operations.

Environmental and Safety Matters

Certain products manufactured by us involve the use, storage and transportation of toxic and hazardous materials. Our operations are subject to extensive laws and regulations relating to the storage, handling, emission, transportation and discharge of materials into the environment and the maintenance of safe working conditions. We maintain environmental and industrial safety and health compliance programs and training at our facilities.

Prevailing legislation tends to hold companies primarily responsible for the proper disposal of their waste even after transfer to third party waste disposal facilities. Other future developments, such as increasingly strict environmental, health and safety laws and regulations, and enforcement policies, could result in substantial costs and liabilities to us and could subject the handling, manufacture, use, reuse or disposal of substances or pollutants at our facilities to more rigorous scrutiny than at present.

Intellectual Property

We do not currently own any patents and do not have any patent applications pending in the United States or any foreign countries. However, we have acquired and developed and continue to acquire and develop knowledge and expertise (“know-how”) and trade secrets in the provision of process development and manufacturing services. Our know-how and trade secrets may not be patentable, but they are valuable in that they enhance our ability to provide high-quality services to our customers. We typically place restrictions in our agreements with third-parties, which contractually restrict their right to use and disclose any of our proprietary technology with which they may be involved. In addition, we have internal non-disclosure safeguards, including confidentiality agreements, with our employees.

We also own trademarks to protect the names of our services. Trademark protection continues in some countries as long as the trademark is used, and in other countries, as long as the trademark is registered. Trademark registration is for fixed terms and can be renewed indefinitely.

Segment Information

Our business is organized into one reportable operating segment, our contract manufacturing and development services segment. In addition, we had no foreign-based operations and no long-lived assets located in foreign countries as of and for the fiscal years ended April 30, 2022, 2021 2020 and 2019.2020.

Customers

Revenues have historically been derived from a small customer base. For the fiscal years ended April 30, 2022, 2021 2020 and 2019,2020, we derived approximately 76%60%, 63%76% and 64%63% of our revenues from our top three customers, respectively. WeAlthough we continue to beexpand our customer base, we remain dependent on a limited number of customers for a substantial majority of our revenue. In addition, the duration of our fulfillment of customer contracts varies from a few months to more than 24 months, due to the nature and size of each customer’s requirements.revenues. The loss of, or a significant reduction of business from, any of our primary customers could have a material adverse effect on our business, financial condition and results of operations. Refer to Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for additional financial information regarding our customer concentration, including the name of significant customers, and geographic location of customers.

Seasonality

Our business is not subject to seasonality. However, the timing of customer orders, the scale, scope, mix, and the duration of our fulfillment of such customer orders can result in variability in our quarterlyperiodic revenues.

Backlog

Our backlog represents, as of a point in time, future revenue from work not yet completed under signed contracts. As of April 30, 2021,2022, our backlog was approximately $118$153 million, as compared to approximately $65$118 million as of April 30, 2020.2021. While we anticipate the majority of our backlog will be recognized during fiscal year 2022,2023, our backlog is subject to a number of risks and uncertainties, including but not limited to;to: the risk that a customer timely cancels its commitments prior to our initiation of manufacturing services, in which case we may be required to refund some or all of the amounts paid to us in advance under those canceled commitments; and the risk that a customer may experience delays in its program(s) or otherwise, which could result in the postponement of anticipated manufacturing services; the risk that we may not successfully execute on all customer projects; and the risk of a potential negative impact from the COVID-19 global pandemic, any of which could have a negative impact on our liquidity, reported backlog and future revenuerevenues and profitability.

Competition

Our competition in the CDMO market includes a number of full-service contract manufacturers and large pharmaceutical companies offering third-party manufacturing servicesthat have the ability to fill their excess capacity.insource manufacturing. Also, largesome pharmaceutical companies have been seeking to divest all or portions of their manufacturing capacity, and any such divested businessesassets may compete with us in the future.be acquired by our competitors. Some of our significantly larger and global competitors have substantially greater financial, marketing, technical and other resources than we do. Moreover, additional competition may emerge and may, among other things, create downward pricing pressure, which would affectcould negatively impact our financial condition and results of operations.

Discontinued Operations

During the fourth quarter of fiscal 2018, we transitioned our business to a dedicated CDMO and ceased our research and development activities. As part of our transition, we: (i) amended our Certificate of Incorporation to change our corporate name to Avid Bioservices, Inc., effective January 5, 2018, and adopted the “CDMO” as our ticker symbol on The NASDAQ Capital Market; (ii) sold our phosphatidylserine (“PS”)-targeting and r84 technologies in fiscal 2018 and 2019, respectively, under two separate Asset Assignment and Purchase Agreements (as described in Note 11 of the Notes to Consolidated Financial Statements) and abandoned our remaining research and development assets; and (iii) closed an underwritten public offering of our common stock in February 2018 for aggregate net proceeds of $21.5 million. Accordingly, the operating results of our former research and development segment have been excluded from continuing operations and reported separately as income from discontinued operations, net of tax, in the accompanying consolidated financial statements for fiscal 2019 of this Annual Report. There were no operating results from discontinued operations for fiscal years 2021 or 2020.

Human Capital

As of April 30, 2021,2022, we had 252321 full-time employees and 56 part-time employees. All of our employees are based out of our headquarters in Tustin,Orange County, California, with the exception of small number of employees within our commercial sales, and marketing team and one supply chain employee.functions. None of our employees are represented by labor unions or are covered by a collective bargaining agreement with respect to their employment. We have not experienced any work stoppages, and we consider our relationship with our employees to be good.

We consider talent acquisition, development, engagement and retention a key driver to our business success and are committed to developing a comprehensive, cohesive and positive company culture focused on quality and a commitment to the safety and health of our employees, customers and the general public. We accomplish these initiatives through the following:

Talent Acquisition and Retention

We recognize that our employees largely contribute to our success. To this end, we support business growth by seeking to attract and retain top talent. While the Southern California employment market is extremely competitive, particularly for employees with STEM skills (science, technology, engineering and mathematics) due to the large number of pharmaceutical, biotechnology and medical device companies in the region,Southern California and nationally, our talent acquisition team uses internal and external resources and tools to recruit highly skilled candidates. These include an ongoing and robust employee referral program, a strong and visible reputation in the community and collaborative relationships with local universities and colleges for identifying talented graduates and new graduates, as well as partnering with a regional biotechnology certification program.

Such resources and tools have been essential in our ability to attract and retain key personnel throughout all levels of our organization that we believe will play an important role in our success and future growth. Our ability to attract and retain superior talent is measured by our below industry turnover rate and increasing employee service tenure.

Total Rewards

We have implemented a total rewards program which we believe allows us to compete for top talent in the Southern California market. Our total rewards philosophy has been to create investment in our workforce by offering competitive compensation and benefits package. We provide all full-time employees with compensation packages that include base salary, annual discretionary incentive bonuses, and long-term equity awards. We also offer comprehensive employee benefits, including life, disability, and health insurance (including medical, dental and vision), dependent care and flexible spending accounts, paid time off, leaves (including medical, maternity and paternity leaves), Employee Stock Purchase Program, a 401(k) plan and educational assistance. It is our expressed intent to be an employer of choice in our industry by providing market-competitive compensation and benefits package.

Health, Safety, and Wellness

The health, safety, and wellness of our employees is a priority in which we have always invested and will continue to do so. We provide our employees and their families with access to a variety of innovative, flexible, and convenient health and wellness programs. Program benefits are intended to provide protection and security, so employees can have peace of mind concerning events that may require time away from work or that may impact their financial well-being. These programs are highlighted in our quarterly human resources newsletters. In addition, we host an annual wellness day sponsored by our health insurance provider, which includes biometric testing and educational games.

These investments and the prioritization of employee health, safety, and wellness took on particular significance in 2020 in light of the COVID-19 pandemic. Topandemic and have remained a continued focus. In response to the global pandemic, in order to protect and support our employees, we promptly implemented health and safety measures that included maximizing personal workspaces, limiting in-person meetings, modifying shift schedules, providing personal protective equipment, and instituting mandatory temperature screening before commencing work. We have also supported access to testing by holding voluntary on-site testing clinics for employees. In response to local stay-at-home orders and in alignment with the recommendations of the Centers for Disease Control and Prevention, we implemented remote-work options for employees who are not essential to our on-site manufacturing operations and restricted non-essential employee travel. We also implemented a diligent track and trace program to identify and temporarily quarantine, with continued pay, employees with actual or suspected exposure to individuals with confirmed or suspected cases of COVID-19. We are monitoring this rapidly evolving situation and will continue to seek programsmonitor and respond to educatechanges in the federal, California and assist employees whenever possible.local guidelines and recommendations.

Diversity, Equity, and Inclusion

We believe a diverse workforce is critical to our success and we are fundamentally committed to creating and maintaining a work environment in which employees are treated fairly, with dignity, decency, respect and in accordance with all applicable laws. We strive to create a professional work environment that is free from all forms of harassment, discrimination and bullying in the workplace, including sexual harassment and any form of retaliation. We are an equal opportunity employer and we strive to administer all human resources actions and policies without regard to race, color, religion, sex, national origin, ethnicity, age, disability, sexual orientation, gender identification or expression, past or present military or veteran status, marital status, familial status, or any other status protected by applicable law. Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace. All employees must adhere to a code of business conduct and ethics and our employee handbook, which combined, define standards for appropriate behavior and are annually trained to help prevent, identify, report, and stop any type of discrimination and harassment. Our recruitment, hiring, development, training, compensation, and advancement is based on qualifications, performance, skills, and experience without regard to gender, race, or ethnicity.

Training and Development

We believe in encouraging employees in becoming lifelong learners by providing ongoing learning and leadership training opportunities. As part of onboarding of new employees, we provide comprehensive training regarding CGMP, environmental, health and safety practices, as well as job function specific training. Many of these training programs are repeated annually and are supplemented by other periodic training programs to maintain and improve employee awareness of safety and other issues. Several times per year we provide supervisory training to newly promoted, or soon to be promoted employees, as well as sponsor more senior employees’ participation in external leadership programs. Additionally, we recentlyhave applied for training funds through a State of California program supporting the biotechnology industry through the development of future biotech workers. If we are approved, this program will provide us with additional funds to help supplement our training programs through June 2022.programs.

WhileWe have a formal annual review process not only to determine pay and equity adjustments tied to individual contributions, but to identify areas where training and development may be needed. In addition, we strive to provide real-time recognition of employee performance, including through a web-based portal where employees can be nominated for various levels of spot awards and accumulate points towards the purchase of gifts. We have a formal annual review process not only to determine pay and equity adjustments tied to individual contributions, but to identify areas where training and development may be needed.

Company Culture

We are committed to instilling a company culture that is focused on integrity, transparency, quality and respect. We expect our employees to observe the highest levels of business ethics, integrity, mutual respect, tolerance and inclusivity. Our employee handbook and Code of Business Conduct and Ethics set forth policies reflecting these values and provide direction for registering complaints in the event of any violation of our policies. We maintain an “open door” policy at all levels of our organization and any form of retaliation against an employee is strictly prohibited.

Employee Engagement

We believe that in order to be successful, we must build and maintain a relationship with our employees that focuses on transparency and listening to their needs, criticisms and ideas.recommendations. We proactively communicate through employee communication newsletters and hold all-employee meetings on a quarterly basis.meetings. Employee input regarding our organizational climate is solicited at least annually through surveys solicited from all employees. Most recently we used an independent Best Places to Work (BPW) survey and, after assessing the results, followed it up with our own survey to drill down and obtain more data on those areas which the BPW survey indicated we could improve in order to better understand the concerns of our employees. The data from the follow-up survey was then used to develop and implement action items to address the identified key areas for improvement.

Corporate Responsibility and Sustainability

In fiscal 2022 we engaged a third-party consultant to assist us with our establishment of a more formal environmental, social, governance (“ESG”) and sustainability program. Working with the consultant, and under the oversight of the Corporate Governance Committee, we have embarked on a comprehensive initiative to assess, benchmark and prioritize our ESG and sustainability practices. We anticipate that this work with the consultant will continue and we intend to continue to evolve our disclosures to provide our stockholders and other stakeholders increased visibility into our ESG and sustainability activities.

Company Information

We were originally incorporated in the State of California in June 1981 and reincorporated in the State of Delaware on September 25, 1996. Our principal executive offices are located at 2642 Michelle Drive, Suite 200, Tustin, California, 92780 and our telephone number is (714) 508-6100. Our principal website address is www.avidbio.com. The information on, or that can be accessed through, our website is not part of this Annual Report.

Available Information

This Annual Report, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and our proxy statements, and all amendments to those reports filed with or furnished to the SEC are available, free of charge, through the SEC’s website at www.sec.gov and our website at www.avidbio.comas soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The information on, or that can be accessed through, our website is not part of this Annual Report.

You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Annual report on Form 10-K,Report, including our consolidated financial statements and the related notes thereto, before making a decision to invest in our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are not material, also may become important factors that affect us and impair our business operations. The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact on our business, financial condition, results of operations and cash flows and, in such case, our future prospects would likely be materially and adversely affected.

Risks Related to the COVID-19 Pandemic

Our business, financial condition, and results of operations may be adversely affected by global health events, such asepidemics, including the COVID-19 pandemic.

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a global pandemic. COVID-19 has spread across the globe and is affecting worldwide economic activity. Any public health epidemic, including the COVID-19 pandemic, may affect our operations and those of third parties on which we rely, including our customers and suppliers. Our business, financial condition, and results of operations may be affected by: disruptions in our customers’ abilities to fund, develop, or bring to market products as anticipated; delays in or disruptions to the conduct of clinical trials by our customers; cancellations of contracts or confirmed orders from our customers; customers’ inability to maintain agreed upon payment terms; and the inability, difficulty, or additional cost or delays in obtaining key raw materials, components, and other supplies from our existing supply chain as distribution of such items is being prioritized by the federal government (such as under the United States Defense Production Act) to those companies producing therapeutics or vaccines for COVID-19;chain; among other factors caused by a public health epidemic, including the COVID-19 pandemic. Our

While the COVID-19 pandemic has not had a material negative effect on our overall business, financial condition or results of operations could be disrupted ifto date, our customers and suppliers have in some cases experienced negative impacts due to disruptions in supply chains and disruptions to the operations of the FDA and other drug regulatory authorities, which resulted in, among other things, delays of inspections, reviews, and approvals of our employees become ill or are otherwise absentcustomers’ products, as well as the volume and timing of orders from work as a result ofthese customers. Such impacts may affect our business in the future. Governmental restrictions related to the COVID-19 pandemic. Additionally, governmental restrictions,pandemic, which continue to evolve, including travel restrictions, quarantines, shelter-in-place orders, curfews, business closures, new safety requirements or regulations, or restrictions on the import or export of certain materials, or other operational issues related to the COVID-19 pandemic may have an adverse effect on our business and results of operations.

We continue to monitor our operations and governmental recommendations and have made modifications for an indefinite perioddevelopments related to our normal operations because of the COVID-19 pandemic including requiring most non-production related employees to work remotely which may increase cyber security risks or create data accessibility concerns.

To date, the COVID-19 pandemic has not had a material impactand its effects on our business, operations, and financial condition, or resultscondition. For purposes of operations.our operational and financial planning, we have made, and update when appropriate, certain assumptions regarding the duration, severity, and economic impact of the pandemic. However, despite careful planning, our assumptions may not be accurate, as the extent to which COVID-19 may affect our future results will depend on future developments that are highly uncertain, includingincluding: the duration of the pandemic, newpandemic; emerging information that may emerge concerning the severity and incidence of the virus and its variants; the emergence of additional virus variants; regional resurgences of the virus globally; the safety, efficacy, and availability of vaccines and treatments for COVID-19 (including its variants); the rate at which the population globally becomes vaccinated against COVID-19; the global economic impact of the pandemic; the actions of governments and regulatory authorities to contain the pandemic; and the actions the biotechnology and pharmaceutical industry,industries, competitors, suppliers, customers, patients, and others may take to contain or address itsthe pandemic’s direct and indirect effects. The COVID-19 pandemic and associated mitigation measures may also have an adverse impact on healthcare systems, global economic conditions, or economic conditions in one or more regions where we or our customers operate, which could have an adverse effect on our business and financial condition.

In addition, the impact of the COVID-19 pandemic or any other public health epidemic could exacerbate other risks we face, including those described elsewhere in this Annual Report."Risk Factors."

The demand for our development and manufacturing services depends in part on our customers’ research and development and the clinical and market success of their products. Our business, financial condition, and results of operations may be harmed if our customers spend less on, or are less successful in, these activities. In addition, customer spending may be affected by, among other things, the COVID-19 pandemic or recessionary economic conditions caused in whole or in part by the pandemic.

Our customers are engaged in research, development, production, and marketing of pharmaceutical and biotechnology products. The amount of customer spending on research, development, production, and marketing, as well as the outcomes of such research, development, and marketing activities, have a large impact on our revenues and profitability, particularly the amount our customers choose to spend on our services. Available resources, the need to develop new products, and consolidation in the industries in which our customers operate may have an impact on such spending. Our customers finance their research and development spending from private and public sources. A reduction in spending by our customers, which may be influenced by the recent sharp downturn in available private and public funding for small and emerging biotechnology companies, and the continuing direct and indirect effects of the COVID-19 pandemic, could have a material adverse effect on our business, financial condition, and results of operations. If our customers are not successful in attaining or retaining product sales due to market conditions, reimbursement issues, or other factors, our results of operations may be materially adversely affected.

Risks Related to Our Business

A significant portion of our revenuerevenues comes from a limited number of customers.

Our revenue hasrevenues have historically been derived from a smalllimited number of customers. For example, for the fiscal years ended April 30, 2022, 2021 2020 and 2019,2020, we derived approximately 76%60%, 63%76% and 64%63% of our revenues from our top three customers, respectively. WeAlthough we continue to beexpand our customer base, we remain dependent on a limited number of customers for a substantial majority of our revenue.revenues. The loss of, or a significant reduction of business from, any of our majorprimary customers could have a material adverse effect on our business, financial condition, and results of operations.

We generally do not have long-term customer contracts and our backlog cannot be relied upon as a future indicator of sales.revenues.

We generally do not have long-term contracts with our customers, and existing contracts and purchase commitments may be canceled under certain circumstances. As a result, we are exposed to market and competitive price pressures on every order, and our agreements with customers do not provide assurance of future sales.revenues. Our customers are not required to make minimum purchases and, in certain circumstances, may cease using our services at any time without penalty. Our backlog should not be relied on as a measure of anticipated demand or future revenue, because the orders constituting our backlog may be subject to changes in delivery schedules or cancellation without significant penalty to the customer. Any reductions, cancellations or deferrals in customer orders would negatively impact our business.

We are making a significant investment by expanding our CDMO service offering into the development and manufacture of viral vectors which will subject us to a number of risks and uncertainties that could adversely affect our operations and financial results.

Our announced expansion in October 2021 of our CDMO service offering into viral vector development and manufacturing services for the cell and gene therapy market involves a number of risks that could adversely affect our operations and financial results, including the following risks: 

In addition to the foregoing, we are commencing a service offering that is currently dominated by a small number of larger organizations with established viral vector operations and significantly greater financial resources with whom we may experience difficulties in competing for talent and customers. If we are unable to manage these risks, our business and operating results could be materially harmed.

We are presently making a significant capital investment in our Myford facility in order to meet potential future mammalian cell culture development and manufacturing needs and, as a result, the we depend on the success of attracting new and retaining existing customers’ business.

We recentlyIn fiscal 2021, we initiated two phases of expansion in our Myford Facility which representfacility. The first phase was completed in January 2022 and expands the production capacity of our existing north side of our Myford facility by adding an additional downstream processing suite. The second phase is anticipated to be online during the first calendar quarter of 2023 and will further expand our capacity through the build out of a second manufacturing train, including both upstream and downstream processing suites, within the south side of our Myford facility. This expansion represents a substantial investment in our manufacturing capabilities. Ascapabilities, and as a result, our fixed cost will be significantly increasing. If, upon completion of the two phases of expansion, we are not able to utilize the additional capacity, our margins could be adversely affected. Further, there can be no assurance that our future revenuerevenues will be sufficient to ensure the economical operation of this expanded capacity, in which case, our results of operations could be adversely affected.

Our rapid growth during fiscal yearyears 2021 and 2022 may not be indicative of our future growth, and if we continue to grow rapidly, we may fail to manage our growth effectively.

Revenues forFor the fiscal yearyears ended April 30, 2022, 2021 and 2020, our revenues were $119.6 million, $95.9 million and $59.7 million, respectively, representing ayear-over-year growth of 25% and 61% increase over revenues for the fiscal year ended April 30, 2020 of $59.7 million., respectively. We believe our ability to continue to experience revenue growth will depend on a number of factors, including our ability to:

Moreover, we continue to expand our headcount and operations. We grew from 227 employees as of April 30, 2020 to 257327 employees as of April 30, 2021.2022. We anticipate that we will continue to expand our operations and headcount in the near term and beyond. This potential future growth could place a significant strain on our management, administrative, operational and financial resources, company culture and infrastructure. Our success will depend in part on our ability to manage this growth effectively while retaining personnel. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Failure to effectively manage growth could result in difficulty or delays in adding new clients, maintaining our strong quality systems, declines in quality or client satisfaction, increases in costs, system failures, difficulties in introducing new features or solutions, the need for more capital than we anticipate or other operational difficulties, and any of these difficulties could harm our business performance and results of operations.

We rely on third parties to supply most of the necessary raw materials and supplies for the products we manufacture on behalf of our customers and our inability to obtain such raw materials or supplies may adversely impact our business, financial condition, and results of operations.

Our operations require various raw materials, including proprietary media, resins, buffers, and filters, in addition to numerous additional raw materials supplied primarily by third parties. We or our customers specify the raw materials and other items required to manufacture their product and, in some cases, specify the suppliers from whom we must purchase these raw materials. In certain instances, the raw materials and other items can only be supplied by a limited number of suppliers and, in some cases, a single source, or in limited quantities. If third-party suppliers do not supply raw materials or other items on a timely basis, it may cause a manufacturing run to be delayed or canceled which would adversely impact our financial condition and results of operations. Additionally, we do not have long-term supply contracts with any of our single source suppliers. If we experience difficulties acquiring sufficient quantities of required materials or products from our existing suppliers, or if our suppliers are found to be non-compliant with the FDA’s quality system regulation, CGMPs or other applicable laws or regulations, we would be required to find alternative suppliers. If our primary suppliers become unable or unwilling to perform, any resulting delays or interruptions in the supply of raw materials required to support our manufacturing of CGMP pharmaceutical-grade products would ultimately delay our manufacture of products for our customers, which could materially and adversely affect our financial condition and operating results. Furthermore, third-party suppliers may fail to provide us with raw materials and other items that meet the qualifications and specifications required by us or our customers. If third-party suppliers are not able to provide us with raw materials that meet our or our customers’ specifications on a timely basis, we may be unable to manufacture their product or it could prevent us from delivering products to our customers within required timeframes. Any such delay in delivering our products may create liability for us to our customers for breach of contract or cause us to experience order cancellations and loss of customers. In the event that we manufacture products with inferior quality components and raw materials, we may become subject to product liability claims caused by defective raw materials or components from a third-party supplier or from a customer, or our customer may be required to recall its products from the market.

All of our manufacturing facilities are situated in a single location inOrange County, California, which increases our exposure to significant disruption to our business as a result of unforeseeable developments in a single geographic area.

We operate our manufacturing facilities in Tustin,Orange County, California. It is possible that we could experience prolonged periods of reduced production due to unforeseen catastrophic events occurring in or around our facilities. It is also possible that operations could be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, earthquakes or accidents. As a result, we may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet customer shipment needs or address other severe consequences that may be encountered, and we may suffer damage to our reputation. Our financial condition and results of our operations could be materially adversely affected were such events to occur.

Our manufacturing services are highly complex, and if we are unable to provide quality and timely services to our customers, our business could suffer.

The manufacturing services we offer are highly complex, due in part to strict regulatory requirements. A failure of our quality control systems in our facilities could cause problems to arise in connection with facility operations for a variety of reasons, including equipment malfunction, viral contamination, failure to follow specific manufacturing instructions, protocols and standard operating procedures, problems with raw materials or environmental factors. Such problems could affect production of a single manufacturing run or a series of runs, requiring the destruction of products, or could halt manufacturing operations altogether. In addition, our failure to meet required quality standards may result in our failure to timely deliver products to our customers which, in turn, could damage our reputation for quality and service. Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers for lost drug substance, damage to and possibly termination of existing customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other manufacturing runs. With respect to our commercial manufacturing, if problems are not discovered before the product is released to the market, we may be subject to regulatory actions, including product recalls, product seizures, injunctions to halt manufacture and distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such issues could subject us to litigation, the cost of which could be significant.

If we do not enhance our existing, or introduce new, service offerings in a timely manner, our offerings may become obsolete or noncompetitive over time, customers may not buy our offerings and our revenues and profitability may decline. 

Demand for our manufacturing services may change in ways that we may not anticipate due to evolving industry standards and customer needs that are increasingly sophisticated and varied, as well as the introduction by others of new offerings and technologies that provide alternatives to our offerings. In the event we are unable to offer or enhance our service offerings or expand our manufacturing infrastructure to accommodate requests from our customers and potential customers, our offerings may become obsolete or noncompetitive over time, in which case our revenue and operating results would suffer. For example, if we are unable to respond to changes in the nature or extent of the technological or other needs of our customers through enhancing our offerings, our competition may develop offerings that are more competitive than ours and we could find it more difficult to renew or expand existing agreements or obtain new agreements. Potential innovations intended to facilitate enhanced or new offerings generally will require a substantial capital investment before we can determine their commercial viability, and we may not have financial resources sufficient to fund all desired innovations. Even if we succeed in creating enhanced or new offerings, however, they may still fail to result in commercially successful offerings or may not produce revenue in excess of our costs of development, and they may be rendered obsolete by changing customer preferences or the introduction by our competitors of offerings embodying new technologies or features. Finally, the marketplace may not accept our innovations due to, among other things, existing patterns of clinical practice, the need for regulatory clearance and/or uncertainty over market access or government or third-party reimbursement.

If we use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our contract manufacturing operations involve the controlled use of hazardous materials and chemicals. We are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of hazardous materials and chemicals. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials or chemicals. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our contract manufacturing operations, which could materially harm our business, financial condition and results of operations.

Potential product liability claims, errors and omissions claims in connection with services we perform and potential liability under indemnification agreements between us and our officers and directors could adversely affect us.

We manufacture products intended for use in humans. These activities could expose us to risk of liability for personal injury or death to persons using such products. We seek to reduce our potential liability through measures such as contractual indemnification provisions with customers (the scope of which may vary by customer, and the performances of which are not secured) and insurance maintained by us and our customers. We could be materially adversely affected if we are required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnification agreements, if the indemnity, although applicable, is not performed in accordance with its terms or if our liabilities exceed the amount of applicable insurance or indemnity. In addition, we could be held liable for errors and omissions in connection with the services we perform. Although we currently maintain product liability and errors and omissions insurance with respect to these risks, such coverage may not be adequate or continue to be available on terms acceptable to us.

We also indemnify our officers and directors for certain events or occurrences while the officer or director is serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. Although we have a director and officer insurance policy that covers a portion of any potential exposure, we could be materially and adversely affected if we are required to pay damages or incur legal costs in connection with a claim above such insurance limits.

Any claims beyond our insurance coverage limits, or that are otherwise not covered by our insurance, may result in substantial costs and a reduction in our available capital resources.

We maintain property insurance, employer’s liability insurance, product liability insurance, general liability insurance, business interruption insurance, and directors’ and officers’ liability insurance, among others. Although we maintain what we believe to be adequate insurance coverage, potential claims may exceed the amount of insurance coverage or may be excluded under the terms of the policy, which could cause an adverse effect on our business, financial condition and results from operations. Generally, we would be at risk for the loss of inventory that is not within customer specifications. These amounts could be significant. In addition, in the future we may not be able to obtain adequate insurance coverage or we may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage.

Third parties may claim that our services or our customer’s products infringe on or misappropriate their intellectual property rights.

Any claims that our services infringe the rights of third parties, including claims arising from any of our customer engagements, regardless of their merit or resolution, could be costly and may divert the efforts and attention of our management and technical personnel. We may not prevail in such proceedings, given the complex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could be required, among other things, to pay substantial damages, discontinue the use of the infringing technology, expend significant resources to develop non-infringing technology, license such technology from the third party claiming infringement (which license may not be available on commercially reasonable terms or at all) and/or cease the manufacture, use or sale of the infringing processes or offerings, any of which could have a material adverse effect on our business.

In addition, our customers’ products may be subject to claims of intellectual property infringement and such claims could materially affect our business if their products cease to be manufactured and they have to discontinue the use of the infringing technology which we may provide. Any of the foregoing could affect our ability to compete or could have a material adverse effect on our business, financial condition and results of operations.

We depend on key personnel and the loss of key personnel could harm our business and results of operations.

We depend on our ability to attract and retain qualified scientific and technical employees, as well as a number of key executives. These employees may voluntarily terminate their employment with us at any time. We may not be able to retain key personnel, or attract and retain additional qualified employees. We do not maintain key-man or similar policies covering any of our senior management or key personnel. Our inability to attract and retain key personnel would have a material adverse effect on our business.

We have federal and state net operating loss, or NOL, carry forwards which, if we were to become profitable, could be used to offset/defer federal and state income taxes. Our ability to use such carry forwards to offset future taxable income may be subject to certain limitations related to changes in ownership of our stock and decisions by California and other states to limit or suspend NOL carry forwards.

As of April 30, 2021,2022, we had federal and state NOL carry forwards of approximately $407$384 million and $272$312 million, respectively. These NOL carry forwards could potentially be used to offset certain future federal and state income tax liabilities. The federal net operating loss carry forwards generated prior to January 1, 2018 expire in fiscal years 20212024 through 2038. The federal net operating loss generated after January 1, 2018 of $19.6 million can be carried forward indefinitely. Utilization of net operating losses generated subsequent to 2020 are limited to 80% of future taxable income. However, utilization of NOL carry forwards may be subject to a substantial annual limitation pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions due to ownership changes that have occurred previously or that could occur in the future. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. A Section 382 analysis has been completed through the fiscal year ended April 30, 2021,2022, which it was determined that no such change in ownership had occurred. However, ownership changes occurring subsequent to April 30, 20212022 may impact the utilization of our NOL carry forwards and other tax attributes. Additionally, states may impose other limitations on the use of state NOL carry forwards. We are subject to California’s recent suspension of NOL carry forwards for the taxable years beginning in 2020 and lasting through 2022. Any limitation may result in expiration of a portion of the carry forwards before utilization. If we were not able to utilize our carry forwards, we would be required to use our cash resources to pay taxes that would otherwise have been offset, thereby reducing our liquidity.

We have recorded significant deferred tax assets, and we might never realize their full value, which would result in a change against our earnings.

As of April 30, 2022, we had deferred tax assets of $115.1 million. Realization of our deferred tax assets is dependent upon our generating sufficient taxable income in future years to realize the tax benefit from those assets. Deferred tax assets are reviewed on a periodic basis for realizability. A charge against our earnings would result if, based on the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized beyond our existing valuation allowance, if any. This could be caused by, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the services provided by our business and a variety of other factors.

If a deferred tax asset net of our valuation allowance, if any, was determined to be not realizable in a future period, the charge to earnings would be recognized as an expense in our results of operations in the period the determination is made.  Additionally, if we are unable to utilize our deferred tax assets, our cash flow available to fund operations could be adversely affected. Depending on future circumstances, it is possible that we might never realize the full value of our deferred tax assets. Any future impairment charges related to a significant portion of our deferred tax assets could have an adverse effect on our financial condition and results of operations.

We may be subject to various litigation claims and legal proceedings.

We, as well as certain of our directors and officers, may be subject to claims or lawsuits during the ordinary course of business. Regardless of the outcome, these lawsuits may result in significant legal fees and expenses and could divert management’s time and other resources. If the claims contained in these lawsuits are successfully asserted against us, we could be liable for damages and be required to alter or cease certain of our business practices. Any of these outcomes could cause our business, financial performance and cash position to be negatively impacted.

We have become increasingly dependent on information technology and any breakdown, interruption or breach of our information technology systems could subject us to liability or interrupt the operation of our business, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are increasingly dependent upon sophisticated information technology systems and infrastructure in connection with the conduct of our business. We must constantly update our information technology infrastructure and our various current information technology systems throughout the organization may not continue to meet our current and future business needs. Furthermore, modification, upgrade or replacement of such systems may be costly. In addition, due to the size and complexity of these systems, any breakdown, interruption, corruption or unauthorized access to or cyber-attack on these systems could create system disruptions, shutdowns or unauthorized disclosure of confidential information. While we attempt to take appropriate security and cyber-security measures to protect our data and information technology systems and to prevent such breakdowns and unauthorized breaches and cyber-attacks, these measures may not be successful and these breakdowns and breaches in, or attacks on, our systems and data may not be prevented. Such breakdowns, breaches or attacks may cause business interruption and could have a material adverse effect on our business, financial condition, results of operations and cash flows and could cause the market value of our shares of common sharesstock to decline, and we may suffer financial damage or other loss, including fines or criminal penalties because of lost or misappropriated information.

Increasing attention to environmental, social and governance matters may impact our business, financial results or stock price. 

Companies across all industries are facing increasing scrutiny from stakeholders related to their environmental, social and governance (“ESG”) practices and disclosures, including practices and disclosures related to climate change, diversity and inclusion and governance standards. Investor advocacy groups, certain institutional investors, lenders, investment funds and other influential investors are also increasingly focused on ESG practices and disclosures and in recent years have placed increasing importance on the implications and social cost of their investments. In addition, government organizations are enhancing or advancing legal and regulatory requirements specific to ESG matters. The heightened stakeholder focus on ESG issues related to our business requires the continuous monitoring of various and evolving laws, regulations, standards and expectations and the associated reporting requirements. A failure to adequately meet stakeholder expectations may result in noncompliance, the loss of business, reputational impacts, diluted market valuation, an inability to attract customers and an inability to attract and retain top talent. In addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional investments that could have an adverse effect on our results of operations.

We may seek to grow our business through acquisitions of complementary businesses, and the failure to manage acquisitions, or the failure to integrate them with our existing business, could harm our financial condition and operating results.

From time to time, we may consider opportunities to acquire other companies, products or technologies that may enhance our manufacturing capabilities, expand the breadth of our markets or customer base, or advance our business strategies. Potential acquisitions involve numerous risks, including: problems assimilating the acquired service offerings, products or technologies; issues maintaining uniform standards, procedures, quality control and policies; unanticipated costs associated with acquisitions; diversion of management’s attention from our existing business; risks associated with entering new markets in which we have limited or no experience; increased legal and accounting costs relating to the acquisitions or compliance with regulatory matters; and unanticipated or undisclosed liabilities of any target.

We have no current commitments with respect to any acquisition. We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired service offerings, products or technologies. Our potential inability to integrate any acquired service offerings, products or technologies effectively may adversely affect our business, operatingfinancial condition, and results and financial condition.of operations.

Risks Related to Our Customers

The consumers of the products we manufacture for our customers may significantly influence our business, financial condition, and results of operations.

We depend on, and have no control over, consumer demand for the products we manufacture for our customers. Consumer demand for our customers’ products could be adversely affected by, among other things, delays in health regulatory approval, the inability of our customers to demonstrate the efficacy and safety of their products, the loss of patent and other intellectual property rights protection, the emergence of competing or alternative products, including generic drugs, the degree to which private and government payment subsidies for a particular product offset the cost to consumers and changes in the marketing strategies for such products and the outbreak of a pandemic such as the COVID-19 pandemic. Additionally, if the products we manufacture for our customers do not gain market acceptance, our revenues and profitability may be adversely affected.

We believe that continued changes to the healthcare industry, including ongoing healthcare reform, adverse changes in government or private funding of healthcare products and services, legislation or regulations governing the privacy of patient information or patient access to care, or the delivery, pricing or reimbursement of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to purchase fewer services from us or influence the price that others are willing to pay for our services. Changes in the healthcare industry’s pricing, selling, inventory, distribution or supply policies or practices could also significantly reduce our revenue and profitability.

If production volumes of key products that we manufacture for our customers decline, our financial condition and results of operations may be adversely affected.

Our customers’ failure to receive or maintain regulatory approval for their product candidates could negatively impact our revenues and profitability.

Our success depends upon the regulatory approval of the products we manufacture. As such, if our customers experience a delay in, or failure to receive, approval for any of their product candidates or fail to maintain regulatory approval of their products and we are not able to manufacture these products, our revenue and profitability could be adversely affected. Additionally, if the FDA or a comparable foreign regulatory authority does not approve of our facilities for the manufacture of a customer product or if it withdraws such approval in the future, our customers may choose to identify alternative manufacturing facilities and/or relationships, which could significantly impact our ability to expand our manufacturing capacity and capabilities and achieve profitability.

We depend on spending and demand from our customers for our contract manufacturing and development services and any reduction in spending or demand could have a material adverse effect on our business.

The amount that our customers spend on the development and manufacture of their products or product candidates, particularly the amount our customers choose to spend on outsourcing these services to us, substantially impacts our revenue and profitability. The outcomes of our customers’ research, development and marketing also significantly influence the amount that our customers choose to spend on our services and offerings. Our customers determine the amounts that they will spend on our services based upon, among other things, the clinical and market success of their products, available resources, access to capital and their need to develop new products which, in turn, depend upon a number of other factors, including their competitors’ research, development and product initiatives and the anticipated market for any new products, as well as clinical and reimbursement scenarios for specific products and therapeutic areas. Further, increasing consolidation in the pharmaceutical industry may impact such spending, particularly in the event that any of our customers choose to develop or acquire integrated manufacturing operations. Any reduction in customer spending on biologics development and related services as a result of these and other factors could have a material adverse effect on our business, financial condition, and results of operations.

If we are unable to protect the confidentiality of our customers’ proprietary information, we may be subject to claims.

Many of the formulations used and processes developed by us in the manufacture of our customers’ products are subject to trade secret protection, patents or other intellectual property protections owned or licensed by such customer. While we make significant efforts to protect our customers’ proprietary and confidential information, including requiring our employees to enter into agreements protecting such information, if any of our employees breaches the non-disclosure provisions in such agreements, or if our customers make claims that their proprietary information has been disclosed, our reputation may suffer damage and we may become subject to legal proceedings that could require us to incur significant expense and divert our management’s time, attention and resources.

Risks Related to the Industry in Which We Operate

Failure to comply with existing and future regulatory requirements could adversely affect our business, financial condition, and results of operations.

Our industry is highly regulated. We are required to comply with the regulatory requirements of various local, state, provincial, national and international regulatory bodies having jurisdiction in the countries or localities in which we manufacture products or in which our customers’ products are distributed. In particular, we are subject to laws and regulations concerning development, testing, manufacturing processes, equipment and facilities, including compliance with CGMPs, import and export, and product registration and listing, among other things. As a result, most of our facilities are subject to regulation by the FDA, as well as regulatory bodies of other jurisdictions where our customers have marketing approval for their products including, but not limited to, the EMA, ANVISA and/or Health Canada, depending on the countries in which our customers market and sell the products we manufacture on their behalf. As we expand our operations, we may be exposed to more complex and new regulatory and administrative requirements and legal risks, any of which may require expertise in which we have little or no experience. It is possible that compliance with new regulatory requirements could impose significant compliance costs on us. Such costs could have a material adverse effect on our business, financial condition and results of operations.

These regulatory requirements impact many aspects of our operations, including manufacturing, developing, storage, distribution, import and export and record keeping related to customers’ products. Noncompliance with any applicable regulatory requirements can result in government refusal to approve: (i) facilities for testing or manufacturing products or (ii) products for commercialization. The FDA and other regulatory agencies can delay, limit or deny approval for many reasons, including:

In addition, if new legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, we may be required to obtain additional approvals or operate according to different manufacturing or operating standards. This may require a change in our development and manufacturing techniques or additional capital investments in our facilities. Any related costs may be significant. If we fail to comply with applicable regulatory requirements in the future, then we may be subject to warning letters and/or civil or criminal penalties and fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, restrictions on the import and export of our products, debarment, exclusion, disgorgement of profits, operating restrictions and criminal prosecution and the loss of contracts and resulting revenue losses. Inspections by regulatory authorities that identify any deficiencies could result in remedial actions, production stoppages or facility closure, which would disrupt the manufacturing process and supply of product to our customers. In addition, such failure to comply could expose us to contractual and product liability claims, including claims by customers for reimbursement for lost or damaged active pharmaceutical ingredients or recall or other corrective actions, the cost of which could be significant.

In addition, certain products we manufacture must undergo pre-clinical and clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic products. The regulatory authorities having jurisdiction in the countries in which our customers intend to market their products may delay or put on hold clinical trials or delay approval of a product or determine that the product is not approvable. The FDA or other regulatory agencies can delay approval of a drug if our manufacturing facility, including any newly commissioned facility, is not able to demonstrate compliance with CGMPs, pass other aspects of pre-approval inspections or properly scale up to produce commercial supplies. The FDA and comparable government authorities having jurisdiction in the countries in which we or our customers intend to market their products have the authority to withdraw product approval or suspend manufacture if there are significant problems with raw materials or supplies, quality control and assurance or the product we manufacture is adulterated or misbranded. If our manufacturing facilities and services are not in compliance with FDA and comparable government authorities, we may be unable to obtain or maintain the necessary approvals to continue manufacturing products for our customers, which would materially adversely affect our financial condition and results of operations.

We operate in a highly competitive market and competition may adversely affect our business.

We operate in a market that is highly competitive. Our competition in the contract manufacturing market includes full-service contract manufacturers and large pharmaceutical companies offering third-party manufacturing services to fill their excess capacity. We may also compete with the internal operations of those pharmaceutical companies that choose to source their product offerings internally. In addition, most of our competitors may have substantially greater financial, marketing, technical or other resources than we do. Moreover, additional competition may emerge, particularly in lower-cost jurisdictions such as India and China, which could, among other things, result in a decrease in the fees paid for our services, which may adversely affect our financial condition and results of operations.

Risks Related to the Ownership of Our Common Stock 

Our issuance of additional capital stock pursuant to our equitystock incentive plans,plan, or in connection with financings, acquisitions, or otherwise will dilute the interests of other security holders and may depress the price of our common stock.

We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors and consultants under our equitystock incentive plans.plan. We may also raise capital through equity financings in the future. As part of our growth strategy, we may seek to acquire companies and issue equity securities to pay for any such acquisition. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline. Furthermore, if we issue additional equity or convertible debt securities, the new equity securities could have rights senior to those of our common stock. For example, if we elect to settle our conversion obligation under our 1.250% Convertible Senior Notes due 2026 or our 2026 Notes,(“Convertible Notes”) in shares of our common stock or a combination of cash and shares of our common stock, the issuance of such common stock may dilute the ownership interests of our stockholders and sales in the public market could adversely affect prevailing market prices.

Our highly volatile stock price may adversely affect the liquidity of our common stock.

The market price of our common stock has generally been highly volatile and is likely to continue to be highly volatile. For instance, the market price of our common stock has ranged from $3.02 to $22.14$34.51 per share over the last three fiscal years ended April 30, 2021.2022.

The market price of our common stock may be significantly impacted by many factors including the following:

These and other external factors have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of our common stock, and may otherwise negatively affect the liquidity of our common stock.

Anti-takeover provisions in our certificate of incorporation, amended and restated bylaws, the Indenture, as well as provisions of Delaware law could prevent or delay a change in control of our company, even if such change in control would be beneficial to our stockholders.

Provisions of our certificate of incorporation and amended and restated bylaws could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our stockholders. These include: authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; no provision for the use of cumulative voting for the election of directors; limiting the ability of stockholders to call special meetings; requiring all stockholder actions to be taken at a meeting of our stockholders (i.e. no provision for stockholder action by written consent); and establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Further, in connection with our 2026Convertible Notes issuances, we entered into an indenture dated as of March 12, 2021 as amended by a first supplemental indenture dated April 30, 2021 (as amended or supplemented, the “Indenture”) with U.S. Bank National Association, as trustee. Certain provisions in the Indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the 2026Convertible Notes will have the right to require us to repurchase their 2026Convertible Notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their 2026Convertible Notes in connection with such takeover. In either case, and in other cases, our obligations under the 2026Convertible Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

In addition, Section 203 of the Delaware General Corporation Law prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets or business combinations with any stockholder or group of stockholders who owns at least 15% of our common stock.

Our bylaws, as amended, provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our bylaws, as amended, provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of a fiduciary duty owed by any of our directors, officers, or other employees to us, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.

We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.

We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of the trading price of our common stock.

If securities or industry analysts do not publish research reports about us, or if they issue adverse opinions about our business, our stock price and trading volume could decline.

The research and reports that industry or securities analysts publish about us or our business will influence the market for our common stock. If one or more analysts who cover us issues an adverse opinion about us, our stock price would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets which, in turn, could cause our stock price or trading volume to decline. Further, if we fail to meet the market expectations of analysts who follow our stock, our stock price likely would decline.

Risks Related to Our Outstanding 2026Convertible Notes

We may not have sufficient cash flow from our business to make payments on our significant debt when due, and we may incur additional indebtedness in the future.

In March 2021, we issued the 2026Convertible Notes in a private offering to qualified institutional buyers pursuant to Rule 144 under the Securities Act. We may be required to use a substantial portion of our cash flows from operations to pay interest and principal on our indebtedness. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2026Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

In addition, we may incur substantial additional debt in the future, subject to the restrictions contained in our future debt agreements, some of which may be secured debt. We are not restricted under the terms of the Indenture governing the 2026Convertible Notes, from incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt or taking a number of other actions that are not limited by the terms of the Indenture governing the 2026Convertible Notes that could have the effect of diminishing our ability to make payments on the 2026Convertible Notes when due.

The conditional conversion feature of our 2026Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the 2026Convertible Notes is triggered, holders of the 2026Convertible Notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their 2026Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their 2026Convertible Notes when these conversion triggers are satisfied, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the 2026 Notes, could have a material effect on our reported financial results.

In May 2008, the Financial Accounting Standards Board (“FASB”), issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification (“ASC”) Subtopic 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20. Under ASC 470-20, an entity must separately account for the debt and equity components of convertible debt instruments (such as the 2026 Notes) that may be settled entirely or partially in cash. After the initial carrying amount of the liability component is determined the remaining proceeds are allocated to the equity component. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The equity component associated with the 2026 Notes was recorded as additional paid-in capital within the stockholders’ equity section on our consolidated balance sheet, which resulted in a discount being recorded to the carrying value of the 2026 Notes. As a result, we will be required to recognize a greater amount of non-cash interest expense in our consolidated statements of operations in the current and future periods presented as a result of the amortization of the discounted carrying value of the 2026 Notes to their principal amount over their terms. We will report lower net income or larger net losses in our consolidated financial results because ASC 470-20 will require interest to include both the current period’s amortization of the original issue discount and the instrument’s coupon interest rate. This could adversely affect our reported or future consolidated financial results.

In August 2020, FASB published an Accounting Standards Update, which we refer to as ASU 2020-06, eliminating the separate accounting for the debt and equity components as described above and therefore reducing the non-cash interest expense we expect to recognize. ASU 2020-06 will also require the application of the “if-converted” method for presenting diluted earnings per share. Under that method, diluted earnings per share will generally be calculated assuming that all the 2026 Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per share. These amendments will be effective for public companies for fiscal years beginning after December 15, 2021, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements and related disclosures and the timing of adoption.

The capped call transactions may affect the value of our 2026Convertible Notes and our common stock.

In connection with the pricing of the 2026Convertible Notes, we entered into capped call transactions with the option counterparties. The capped call transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of our common stock that initially underlie the 2026Convertible Notes. The capped call transactions are expected generally to reduce the potential dilution to our common stock as a result of conversion of the 2026Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted 2026Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates may have purchased shares of common stock and/or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the 2026Convertible Notes, including with certain investors in the 2026Convertible Notes.

In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the 2026Convertible Notes and prior to the maturity of the 2026Convertible Notes. They are likely to do so on each exercise date for the capped call transactions, which are expected to occur during each 40 trading day period beginning on the 41st scheduled trading day prior to the maturity date of the 2026Convertible Notes, or following any termination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the 2026Convertible Notes. This activity could also cause or prevent an increase or decrease in the price of our common stock or the 2026Convertible Notes. The potential effect, if any, of these transactions on the price of our common stock or the 2026Convertible Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock.

We are subject to counterparty risk with respect to the capped call transactions.

The counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default, fail to perform or exercise their termination rights under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If a counterparty to the capped call transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our common stock increases. In addition, upon a default, failure to perform or a termination of the capped call transactions by a counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock.

Not applicable.

Our corporate offices and manufacturingCDMO facilities are all located in close proximity in Tustin,Orange County, California. We currently lease an aggregate of approximately 158,000239,000 square feet of office, manufacturing, laboratory and warehouse space in fourfive buildings under threefour separate lease agreements.

We lease approximately 26,000 square feet for our corporate headquarters under a non-cancellable operating lease agreementagreements that began April 2016expire on various dates between August 2023 and expires in August 2023. The lease contains two separate option periodsMay 2032. These leases contain renewal options that could extend theour lease termterms to between August 2035.

We lease approximately 48,000 square feet of office, manufacturing2035 and laboratory space under a non-cancellable operating lease agreement that began December 1998 and expires in December 2027. The lease contains two separate option periods that could extend the lease term to December 2037.

We lease approximately 84,000 square feet of manufacturing and laboratory space under a non-cancellable operating lease agreement that began July 2014 and expires in January 2027. The lease contains two separate option periods that could extend the lease term to January 2037.May 2042.

We believe that the spacefacilities we lease isare adequate to meet our current needs and that, if necessary, additional space would be available to accommodate any future growth.

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 financial condition or results of operations.

Not applicable.

PART II

Market Information

Our common stock is listed on The NASDAQ Capital Market under the trading symbol “CDMO.”

Holders of Common Stock

As of June 18, 2021,17, 2022, we had 449548 stockholders of record of our common stock. This number does not include beneficial owners whose shares are held in street name.

Recent Sales of Unregistered Securities

None.

Dividend Policy

Common Stock

We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.

Series E Preferred Stock

On April 12, 2021 (the “Redemption Date”), we redeemed our outstanding shares of 10.50% Series E Convertible Preferred Stock (the “Series E Preferred Stock”) at a per share price equal to the $25.00 liquidation amount plus accrued and unpaid dividends up to, but excluding, the Redemption Date, in the amount of $0.08021 per share of Series E Preferred Stock (as described in Note 5 of the Notes to Consolidated Financial Statements). In connection with the completed redemption, we incurred a charge of $3.4 million related to the excess of the redemption value paid upon redemption over the carrying value of our Series E Preferred Stock which is included in impact of preferred stock redemption in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended April 30, 2021. As a result of the completed redemption, our Series E Preferred Stock is no longer issued and outstanding.

Prior to the redemption of the Series E Preferred Stock, the holders thereof were entitled to receive, when and as declared by our board of directors out of funds legally available for the payment of distributions, cumulative preferential cash dividends, payable in cash, at a rate of 10.50% per annum on the stated value of $25.00 per share, or $2.625 per share per annum, and such dividends were payable quarterly in arrears on or about the first day of each January, April, July, and October. For the fiscal years ended April 30, 2021, 2020, and 2019, we paid aggregate cash dividends of approximately $4.5 million, $4.3 million and $4.3 million, respectively, to the holders of our Series E Preferred Stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Performance Graph

Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be “soliciting material” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and it shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.

The following chart shows the performance from April 30, 20162017 through April 30, 20212022 of Avid Bioservices, Inc. common stock, compared with an investment in the stocks represented in the NASDAQ U.S. Benchmark Pharmaceuticals TR Index and the NASDAQ U.S. Benchmark TR Index assuming the investment of $100 at the beginning of the period and the reinvestment of dividends, if any. The total return data for the comparative indexes were prepared by NASDAQ OMX Global Indexes.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
VALUE OF INVESTMENT OF $100 ON APRIL 30, 2016

The underlying data for the preceding graph is as follows:

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
VALUE OF INVESTMENT OF $100 ON APRIL 30, 2017

The underlying data for the preceding graph is as follows:

The selected consolidated financial data set forth below as of April 30, 2021 and 2020, and for the fiscal years ended April 30, 2021, 2020 and 2019, are derived from our audited consolidated financial statements included elsewhere in this Annual Report. This information should be read in conjunction with those consolidated financial statements, the notes thereto, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected consolidated financial data set forth below as of April 30, 2019, 2018 and 2017, and for the fiscal years ended April 30, 2018 and 2017, are derived from our audited consolidated financial statements that are contained in Annual Reports previously filed with the SEC, not included herein.

____________

The following discussion and analysis should be read in conjunction with “Item 6—Selected Financial Data” and our audited Consolidated Financial Statements and the related notes thereto set forth in “Item 8—Financial Statements and Supplementary Data”. In addition to historical information, this discussion and analysis contains forward-looking statements, including statements regarding the anticipated impact of the ongoing COVID-19 global pandemic on our business operations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those set forth under “Item 1A—Risk Factors” and elsewhere in this Annual Report.

For discussion related to changes in financial condition and our results of operations for fiscal year 20202021 compared to fiscal year 2019,2020, refer to “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020,2021, which was filed with the SEC on June 30, 2020.29, 2021.

Overview

We are a dedicated contract development and manufacturing organization (“CDMO”) that provides a comprehensive range of services from process development to Current Good Manufacturing Practices (“CGMP”) clinical and commercial manufacturing, focused on development and CGMP manufacturing of biologics for the biotechnology and biopharmaceutical drug substances derived from mammalian cell culture.industries. With 2829 years of experience producing monoclonal antibodies and recombinant proteins, our services include CGMP clinical and commercial product manufacturing, bulk packaging, release and stability testing and regulatory submissions support. We also provide a variety of process development services, including upstream and downstream development and optimization, analytical methods development, testing and characterization.  

Strategic Objectives

We have a growth strategy that seeks to align with the growth of the biopharmaceutical drug substance contract services market. That strategy encompasses the following objectives:

Fiscal Year 20212022 Highlights

The following summarizes select highlights from our fiscal year ended April 30, 2021:2022:

Facility Expansion

During fiscal year 2021, we announced plans for a two-phased expansion of our Myford Facility.facility. The first phase, which was initiated during the second quarter of fiscal 2021 and is anticipated to be online during fiscalcompleted in January 2022, expands the production capacity of our existing north side of our Myford North facility (“Myford North”) by adding a secondan additional downstream processing suite. This phase is now operational and we have been generating revenue from this new suite since the fourth quarter of fiscal 2022. The second phase, which was initiated during the fourth quarter of fiscal 2021 and is anticipated to be online during the first calendar 2022, is designed toquarter of 2023, will further expand our capacity through the build out of a second manufacturing train, including both upstream and downstream processing suites, within the south side of our Myford South facility.facility (“Myford South”). We estimate that the totalremaining cost to complete these two phasesour second phase of expansion will be approximately $60$35 to $70$40 million.

In October 2021, we announced plans to expand our CDMO service offerings into viral vector development and manufacturing services for the rapidly growing cell and gene therapy market. As part of this expansion, we are in the process of constructing a world-class, purpose-built cell and gene therapy development and CGMP manufacturing facility within a building we are leasing in Costa Mesa, California (the “Cell and Gene Therapy Facility”). Based on current projections, we expect the entire build out of our new Cell and Gene Therapy Facility will take up to 18 months at an estimated cost of approximately $65 to $75 million. In June 2022, we completed the first phase of our two-phase construction plan of our Cell and Gene Therapy Facility, with the opening of our new analytical and process development laboratories. The second phase of construction includes the build out of the CGMP manufacturing suites, which are expected to be online in mid calendar 2023.

In June 2022, we announced plans to further expand the process development capacity of our mammailian cell culture services, by adding new suites within our existing process development laboratory space that will double its capacity. This expansion is expected to be completed by the end of calendar 2022 at an estimated cost of approximately $6 million.

Upon completion, we estimate that all of these expansions, combined with our existing facilities, has the first and second phases of this expansion will result in apotential to bring our total revenue generating capacity ofto up to $270approximately $400 million annually, depending on the mix of projects.

During December 2020, we completed an underwritten public offering of 3,833,335 shares of our common stock at the public offering price of $9.00 per share, including 500,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. Net proceeds from the offering were $32.1 million, after deducting underwriting discounts and commissions and other offering related expenses. We are using the net proceeds from the offering for these expansions.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a global pandemic. To date, the COVID-19 pandemic has not had a significant impact on our operations, as we have been able to continue to operate our manufacturing facilities and provide essential services to our customers. Additionally, in an effort to protect the health and safety of our employees and in compliance with state regulations, we have instituted a work-from-home policyimplemented precautionary measures, including providing remote-working arrangements for employees who can perform their job functions offsite, implemented daily temperature checking, socialre-emphasized good hygiene practices, reorganized our workflows where permitted to maximize physical distancing, requirementslimited employee travel and other measures to allow manufacturing and other personnel essential to production to continue work within our manufacturing facilities, and suspended all non-essential employee travel.facilities.

The full extent to which COVID-19 will directly or indirectly impact our business, financial condition, and results of operations will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We will continue to assess the potential impact of the COVID-19 pandemic on our business, financial condition, and results of operations. For a further discussion of potential risks to our business from the COVID-19 pandemic, see “Part I, Item 1A—Risk Factors” of this Annual Report.

Performance and Financial Measures

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenues, gross profit, selling, general and administrative expenses, operating income and operating income.interest expense. 

We intend for this discussion to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements from period to period and the primary factors that accounted for those changes.

Revenues

Revenues are derived from services provided under our customer contracts and are disaggregated into manufacturing and process development revenue streams. The manufacturingManufacturing revenue stream generally represents revenue from the manufacturing of customer products derived from mammalian cell culture covering clinical through commercial manufacturing runs. The processProcess development revenue stream generally represents revenue from services associated with the custom development of a manufacturing process and analytical methods for a customer’s product.

Gross Profit

Gross profit is equal to revenues less cost of revenues. Cost of revenues reflects the direct cost of labor, overhead and material costs. Direct labor costs include personnel costscompensation, benefits, recruiting fees, and stock-based compensation within the manufacturing, process and analytical development, quality assurance, quality control, validation, supply chain, project management and facilities functions. Overhead costs primarily include the rent, common area maintenance, utilities, property taxes, security, materials and supplies, software, small equipment and deprecation costs incurred at all of allour manufacturing and laboratory locations.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses are composed of corporate-level expenses, including personnelcompensation, benefits, recruiting fees, and support costsstock-based compensation of corporate functions such as executive management, finance and accounting, business development, legal, human resources, information technology, project management, and other centralized services. SG&A expenses also include corporate legal fees, audit and accounting fees, investor relation expenses, non-employee director fees, corporate facility related expenses, and other expenses relating to our general management, administration, project management, and business development activities. SG&A expenses are generally not directly proportional to revenues, but we expect such expenses to increase over time to support the needs of our growing company.

Results of Operations

The following table compares the operating results from our continuing operations for the fiscal years ended April 30, 2021 and 2020 (in thousands):

Fiscal Year 2021 Compared to Fiscal Year 2020

Revenues

Revenues were $95.9 million in fiscal 2021, compared to $59.7 million in fiscal 2020, an increase of approximately $36.2 million or 61%. The increase in revenues can be attributed to a $31.7 million increase in manufacturing revenues primarily due to an increase in the number and scope of manufacturing runs completed or in-process during fiscal 2021 compared to fiscal 2020, combined with a $4.5 million increase in process development revenues. In addition, the fiscal 2021 increase in manufacturing revenues includes: (i) $3.1 million in fees recorded during the first quarter of fiscal 2021 from a customer that had reached its inventory requirements with fewer manufacturing runs than expected, therefore not utilizing all their reserved capacity that had been scheduled for the third quarter of fiscal 2021, and (ii) the recognition of $1.1 million from changes in estimated variable revenue consideration as a result of completing performance obligations for certain projects during the second quarter of fiscal 2021, therefore increasing revenue recognized for those projects during the period. The increase in revenues was attributed to the following components of our revenue streams:

Additionally, growth in manufacturing revenues during fiscal 2021 was supplemented by $4.3 million from the completion of certain manufacturing runs during the first quarter of fiscal 2021 that had been postponed during the second half of fiscal 2020 as a result of a previously disclosed production interruption.

Results of Operations

The following table compares the operating results of our operations for the fiscal years ended April 30, 2022 and 2021 (in thousands):

Fiscal Year 2022 Compared to Fiscal Year 2021

Revenues

Revenues were $119.6 million in fiscal 2022, compared to $95.9 million in fiscal 2021, an increase of approximately $23.7 million or 25%. The increase in revenues can primarily be attributed to increases in the scope of in-process and completed manufacturing runs during fiscal 2022 compared to fiscal 2021, unutilized capacity fees, and process development revenues primarily associated with services provided to new customers. The increase in revenues was attributed to the following components of our revenue streams:

Gross Profit

Gross profit was $36.6 million in fiscal 2022, compared to $29.3 million in fiscal 2021, compared to $3.9 million in fiscal 2020, an increase of approximately $25.4$7.3 million, and gross margins for fiscal 20212022 and fiscal 20202021 were both 31% and 7%, respectively.. The increase in gross profit for fiscal 20212022 can primarily be attributed to increased revenues, which includes the aforementioned fees associated with a customer’s unused capacity of $3.1 million and the $1.1 millionpartially offset by increases in costs associated with the change in variable revenue consideration, partially offset by an increase in payrollgrowth of our business and our facility expansions including compensation and benefit related costsexpenses, and increased facility and equipment related costs. ExcludingWe expect our gross profit will be impacted in the $3.1 million fees associated with a customer’s unusedshort-term by these and future costs as we continue to increase the hiring of personnel and incur additional facility and equipment related costs to support our rapidly growing capacity and the $1.1 million in additional variable revenue consideration, gross margin for fiscal 2021 was approximately 27%. Additionally, fiscal 2020 gross profit was impacted by certain costs associated with the production interruption described above, which costs were not incurred during fiscal 2021.expanded CDMO service offerings.

Selling, General and Administrative Expenses

SG&A expenses were $21.2 million in fiscal 2022, compared to $17.1 million in fiscal 2021, compared to $14.5 million in fiscal 2020, an increase of approximately $2.5$4.2 million, or 18%24%. As a percentage of revenue, SG&A expenses for the fiscal years 2022 and 2021 and 2020 were both 18% and 24%, respectively.. The net increase in SG&A expenses was attributed to the following components:

Loss on Lease TerminationOperating Income

In fiscal 2020, we terminated 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. In connection with the termination of this lease, we removed the corresponding operating lease right-of-use asset and liability balances from our consolidated balance sheet and recognized a loss of $0.4 million. 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.

Operating Income (Loss)

Operating income was $15.4 million for fiscal 2022, compared to $12.2 million for fiscal 2021, compared to an operating loss of $10.9 million for fiscal 2020.2021. This $23.2$3.2 million improvement in year-over-year operating income (loss) was primarily attributable to a $25.4$7.3 million increase in gross profit, combined with the absence of the loss on lease termination recognized in fiscal 2020, as discussed above, partially offset by an increase in SG&A expense of $2.5approximately $4.2 million.

Interest Expense

Interest expense was $2.7 million in fiscal 2022 compared to $1.2 million in fiscal 2021 compared to an inconsequential amount in fiscal 2020.2021. The increase of $1.2$1.5 million can primarily be attributed to interest expense related to our outstanding Convertible Notes issued in Marchduring the fourth quarter of fiscal 2021 (as described in Note 3 of the Notesnotes to Consolidated Financial Statements)consolidated financial statements).

Discontinued OperationsIncome Tax Benefit

In connection withfiscal 2022, we recorded a $115.0 million non-cash income tax benefit due to the salerelease of our PS-targeting and r84 technologiesvaluation allowance during the fourth quarter of fiscal 2022 (as described in fiscal 2018 and fiscal 2019, respectively ,Note 7 of the abandonment of our remaining research and development assets, and the strategic shift in our corporate directionnotes 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 consolidated financial statements for the fiscal year ended April 30, 2019. There were no operating results from discontinued operations during the fiscal years ended April 30, 2021 and 2020. For additional information refer to Note 11 of the Notes to Consolidated Financial Statements.statements).

Critical Accounting Policies and Estimates

Our discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We review our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. While our significant accounting policies are more fully described in Note 2 of the Notesnotes to Consolidated Financial Statements,consolidated financial statements, we believe the following accounting policies to be critical to the assumptions and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

On May 1, 2018, we adopted Accounting Standards Codification (“ASC”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and its subsequent updates (“ASC 606”), to all contracts that had not been completed as of May 1, 2018 using the modified retrospective method. The cumulative effect of adopting ASC 606 resulted in a one-time adjustment of $2.7 million to the opening balance of accumulated deficit as of May 1, 2018 which is reflected in the accompanying Consolidated Statements of Stockholders’ Equity for the fiscal year ended April 30, 2019.

Under ASC 606, weWe recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation.

Revenue recognized from services provided under our customer contracts are 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 at a specified scale with prescribed delivery dates, where the product is manufactured according to the customer’s specifications and typically includes only one performance obligation. 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 includes only one performance obligation. 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. Under these agreements, we are entitled to consideration for progress to date that includes an element of profit margin.

The timing of revenue recognition, billings and cash collections results in billed accounts 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 consolidated 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.

The transaction price for services provided under our customer contracts generally reflects our best estimates of the amount of consideration to which we are entitled in exchange for providing goods and services to our customers. For contracts with multiple performance obligations, we allocate transaction price to each performance obligation identified in a contract on a relative standalone selling price basis. We generally determine relative standalone selling prices based on the price observed in the customer contract for each distinct performance obligation. If observable standalone selling prices are not available, we may estimate the applicable standalone selling price based on the pricing of other comparable services or on a price that we believe the market is willing to pay for the applicable service.

In determining the transaction price, we also considered the different sources of variable consideration including, but not limited to, discounts, credits, refunds, price concessions or other similar items. We have included in the transaction price some or all of an amount of variable consideration, utilizing the most likely method, only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The actual amount of consideration ultimately received may differ.

In addition, our customer contracts generally include provisions entitling us to a cancellation or postponement fee when a customer cancels or postpones its commitments prior to our initiation of services. The determination of such cancellation and postponement fees are based on the terms stated in the related customer contract but are generally considered substantive for accounting purposes and create an enforceable right and obligation due to us when the cancellation or postponement occurs. Accordingly, we recognize such fees, subject to variable consideration, as revenue upon the cancellation or postponement date utilizing the most likely method.

Management may be required to exercise judgement in estimating revenue to be recognized. Judgement is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations, estimating variable consideration, and estimating the progress towards the satisfaction of performance obligations. If actual results in the future vary from our estimates, the estimates will be adjusted, which will affect revenues in the period that such variances become known.

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. As of April 30, 2021, we do not have any unsatisfied performance obligations for contracts greater than one year.

Stock-based Compensation

We accountmaintain equity compensation plans, which provide the ability for us to grant stock options, restricted stock units, performance stock units and other forms of stock-based awards granted under our equity compensation plans in accordance with ASC 718, Compensation – Stock Compensation.awards. 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, which is generally the vesting period. The fair value of restricted stock units and performance stock units is measured at the grant date based on the closing market price of our common stock on the date of grant andgrant. For restricted stock units, the fair value is recognized as expense on a straight-line basis over the periodrequisite service periods. For performance stock units, which are subject to performance conditions, the fair value is recognized as expense on a straight-line basis over the requisite service periods when the achievement of vesting.such performance condition is determined to be probable. If a performance condition is not determined to be probable or is not met, no stock-based compensation expense is recognized, and any previously recognized expense is reversed. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. As of April 30, 2021, there were no outstanding stock-based awards with market or performance conditions.

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.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operating activities as well as our cash and cash equivalents on hand.

In addition, during fiscal 2021 we raised additional funds under two separate financing transactions.

During December 2020, we completed an underwritten public offering of 3,833,335 shares of our common stock at the public offering price of $9.00 per share, including 500,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares. Net proceeds realized from the offering were $32.1 million, after deducting underwriting discounts and commissions and other offering related expenses. We are using the net proceeds from the offering for the expansion of our Myford Facility.

During March 2021, we issued $143.8 million in aggregate principal amount of 1.250% convertible senior notes due 2026 (the “Convertible Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, including the $18.8 million issued pursuant to the initial purchasers’ full exercise of their option to purchase additional principal amount of Convertible Notes. The Convertible Notes accrue interest at a rate of 1.250% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Convertible Notes mature on March 15, 2026, unless earlier redeemed or repurchased by us or converted at the option of the holders. Net proceeds realized from the issuance of Convertible Notes were $138.5 million, after deducting initial purchaser discounts and other debt issuance related expenses.

In connection withValuation Allowance

We utilize the issuanceliability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Significant judgement is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax assets, which are based on complex and evolving tax regulation. We provide a valuation allowance when it is more likely than not that our deferred tax assets will not be realized. On a periodic basis, we reassess the valuation allowance on our deferred tax assets, weighing positive and negative evidence to assess the recoverability of the Convertible Notes,deferred tax assets. In the fourth quarter of fiscal 2022, we entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institutions counterparties. We used $12.8 millionreassessed the valuation allowance noting the shift of positive evidence outweighing negative evidence, including significant revenue growth, continued profitability, and expectations regarding future profitability. After assessing both the positive evidence and negative evidence, we determined it was more likely than not our deferred tax assets would be realized and therefore fully released our valuation allowance related to federal and state deferred tax assets as of April 30, 2022 (as described in Note 7 of the net proceeds from the issuance of the Convertible Notesnotes to pay for the cost of the Capped Calls. Refer to Note 3, Debt, of the Notes to Consolidated Financial Statements included in this Annual Report for more information related to the Convertible Notes and Capped Calls. In addition, on April 12, 2021, we used approximately $40.5 million of the net proceeds from the issuance of Convertible Debt to redeem our outstanding shares of 10.50% Series E Convertible Preferred Stock. We intend to use the remaining proceeds for the expansion of our Myford Facility, working capital and other general corporate purposes.consolidated financial statements).

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents on hand and cash flows generated from operations. As of April 30, 2021,2022, we had cash and cash equivalents of $169.9$126.2 million. We believe that our existing cash on hand and our anticipated cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months from the date of this Annual Report.

We currently expect to finance our operations with our existing cash on hand and our anticipated cash flows from operations. If cash flows from operations are not sufficient to support our operations or capital requirements, including our ongoing two phases of expansion to our Myford facility and the ongoing construction of our Cell and Gene Therapy Facility, then we may need to obtain additional equity or debt financing to fund our future operations.operations and/or such expansions. We may raise these funds at the appropriate time, accessing the form of capital that we determine is most appropriate considering the markets available to us and their respective costs of capital, such as through the issuance of debt or through the public offering of securities. These financings may not be available on acceptable terms, or at all. Our ability to raise additional capital in the equity and debt markets 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, our financial results, economic and market conditions, and global financial crises and economic downturns, including those caused by widespread public health crises such as the COVID-19 pandemic, which may cause extreme volatility and disruptions in capital and credit markets. 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.

Cash Flows

The following table presentscompares our cash flows from operating, investing and financingflow activities for the fiscal years ended April 30, 2021, 20202022 and 20192021 (in thousands):

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Net Cash Provided by Operating Activities

During fiscal 2021, net cash provided by operating activities increased by $25.4 million to $31.2 million from $5.8 million of net cash provided by operating activities during fiscal 2020.

Net cash provided by operating activities during fiscal 20212022 was a result of net income of $11.2$127.7 million, combined withoffset by net non-cash adjustments to net income of $8.2$101.8 million, relatedwhich was primarily due to depreciation and amortization, stock-based compensation and amortizationdeferred income taxes of debt discount and issuance costs,$115.1 million associated with the release of our valuation allowance during the fourth quarter of fiscal 2022, and cash flows from the net change in operating assets and liabilities of $11.7$16.4 million.

Net cash provided by operating activities during fiscal 2020 was a result of an $10.5 million net loss, as increased to account for non-cash adjustments to net loss of $5.6 million primarily related to depreciation and amortization and stock-based compensation, and cash flows from the net change in operating assets and liabilities of $10.7 million.

Net Cash Used in Investing Activities

During fiscal 2021, net cash used in investing activities increased by $6.1 million to $9.9 million from $3.8 million of net cash used in investing activities during fiscal 2020.

Net cash used in investing activities during fiscal years 2021 and 20202022 consisted of $9.9$56.4 million and $3.8 million, respectively, used to acquire property and equipment primarily related to two ongoing projects, the expansion of our manufacturingMyford facility and development operations.the construction of our Cell and Gene Therapy Facility.

Net Cash Provided by Financing Activities

During fiscal 2021, net cash provided by financing activities increased by $111.2 million to $112.3 million from $1.1 million of net cash provided by financing activities during fiscal 2020.

Net cash provided by financing activities during fiscal 20212022 consisted primarily of $138.5 million of net proceeds from the issuance of Convertible Notes, $32.1$3.4 million in net proceeds from the issuance of our common stock pursuant to an underwritten public offering completed in December 2020 and $4.0 million of proceeds from the issuance of common stock under our equity compensation plans, offset by $40.5$0.2 million in principal payments on a finance lease.

Cash Requirements

Our material cash requirements include the following contractual and other obligations.

Convertible Senior Notes

In March 2021, we issued $143.8 million in aggregate principal amount of 1.25% exchangeable senior notes due 2026 (“Convertible Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds we received from the issuance of Convertible Notes was $138.5 million, after deducting initial purchaser discounts and other debt issuance related expenses of $5.3 million.

The Convertible Notes are senior unsecured obligations and accrue at a rate of 1.25% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Convertible Notes mature on March 15, 2026, unless earlier redeemed or repurchased by us or converted at the option of the holders. The Convertible Notes are convertible into cash, shares of our common stock or a combination of cash used in connection with the full redemptionand shares of our Series E Preferred Stock, $12.8 million used forcommon stock, at our election in the purchasemanner and subject to the terms and conditions provided in the indenture governing the Convertible Notes.

As of Capped Calls related toApril 30, 2022, the aggregate principal amount outstanding or our Convertible Notes $4.5 million used to pay preferred dividends to holders of our Series E Preferred Stock and $4.4 million used to repay in full a promissory note issued pursuant towas $143.8 million. For additional information regarding the Paycheck Protection Program.

Net cash provided by financing activities during fiscal 2020 consisted primarily of $4.4 million of loan proceeds received in April 2020 pursuant to the Paycheck Protection Program (which loan was subsequently repaid in full in May 2020, as described inConvertible Notes, see Note 3 of the Notesnotes to Consolidated Financial Statements) and $1.1 million from the issuance of common stock under our compensation plans, offset by $4.3 million of cash used to pay preferred dividends to holders of our Series E Preferred Stock.consolidated financial statements.

Capital ExpendituresLeases

Our capital expenditures were $9.9 million during fiscal 2021, which includedWe lease certain office, manufacturing, laboratory, and warehouse space located in Orange County, California under operating lease agreements. Our leased facilities have original lease terms ranging from 7 to 12 years, contain multi-year renewal options, and scheduled rent increases of 3% on either an annual or biennial basis. We also lease certain manufacturing equipment software and enhancements, and enhancements to our laboratory and manufacturing facilities. We expect our capital expenditures for fiscal 2022 to be approximately $50 to $60 million, primarily related to the expansion of our Myford Facility

Contractual Obligations

The following table summarizes our contractual obligations asunder a 5-year finance lease that expires in December 2026. As of April 30, 2021 (in thousands):2022, we had outstanding lease obligations of $52.5 million, of which $4.9 million is payable in fiscal 2023, $4.8 million is payable in fiscal 2024, $4.7 million is payable in fiscal 2025, $4.8 million is payable in fiscal 2026, $4.6 million is payable in fiscal 2027, and $28.7 million is payable thereafter.

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Off-Balance Sheet Arrangements.

Capital Expenditures

As of April 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K,We currently anticipate that have or are reasonably likely to have a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,our capital expenditures or capital resources that is materialfor fiscal 2023 to investors.be approximately $85 to $95 million, primarily related to the ongoing expansion of our Myford facility, the construction of our Cell and Gene Therapy Facility, and the planned expansion of our process development capacity as further discussed in the “Facility Expansions” section above.

Recently Issued Accounting Pronouncements

For a discussion of recent accounting pronouncements applicable to us, please see Note 2, Summary of Significant Accounting Policies, of the Notesnotes to Consolidated Financial Statements.consolidated financial statements.

Our cash and cash equivalents are primarily invested in money market funds with one major commercial bank with the primary objective to preserve our principal balance. Our deposits held with this bank exceed the amount of government insurance limits provided on our deposits and, therefore, we are exposed to credit risk in the event of default by the major commercial bank holding our cash balances. However, these deposits may be redeemed upon demand and, therefore, bear minimal risk. In addition, while changes in U.S. interest rates would affect the interest earned on our cash balances at April 30, 2021,2022, such changes would not have a material adverse effect on our financial condition or results of operations, based on historical movements in interest rates.

Our Convertible Notes bear interest at a fixed rate of 1.250% per year and therefore would not be affected by changes in U.S. interest rates.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Avid Bioservices, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Avid Bioservices, Inc. (the Company) as of April 30, 20212022 and 2020,2021, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended April 30, 2021,2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2021,2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 30, 2021,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated June 29, 20212022 expressed an unqualified opinion thereon.

Adoption of ASU No. 2020-06

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible instruments effective May 1, 2021 due to the adoption of Accounting Standards Update (ASU) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit MatterMatters

The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit mattermatters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinion on the critical audit mattermatters or on the account or disclosure to which it relates.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1999.

Irvine, California

June 29, 2021 2022

AVID BIOSERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

See accompanying notes to consolidated financial statements.

AVID BIOSERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)BALANCE SHEETS

(in thousands, except per share information)par value)

See accompanying notes to consolidated financial statements.

AVID BIOSERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYOPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share information)