UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July~~January 31, ~~2019~~2020

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)

______________________________

Delaware

(State or other jurisdiction of incorporation or organization)

95-3698422

(I.R.S. Employer Identification No.)

2642 Michelle Drive, Suite 200, Tustin, California 92780

(Address of principal executive offices and zip code)

(714) 508-6100

(Registrant’s telephone number, including area code)

______________________________

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	CDMO	The NASDAQ Stock Market LLC
~~Preferred Stock Purchase Rights~~	—	—
10.50% Series E Convertible Preferred Stock, $0.001 par value per share	CDMOP	The NASDAQ Stock Market LLC

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. Yes ý 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 such files). Yesý Noo

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.

Large accelerated filer o	Accelerated filer ý	Non-accelerated filer o	Smaller reporting company ý
			Emerging growth company o

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso No ý

As of ~~August 31, 2019,~~March 2, 2020, the number of shares of registrant’s common stock outstanding was ~~56,237,674.~~

56,482,154.

AVID BIOSERVICES, INC.

Form 10-Q

For The Quarter Ended ~~July~~January 31, ~~2019~~2020

TABLE OF CONTENTS

	Page No.
PART I - FINANCIAL INFORMATION	1

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1

Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	1519

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2027

Item 4.	Controls And Procedures	20
		28
PART II - OTHER INFORMATION	2129

Item 1.	Legal Proceedings	2129

Item 1A.	Risk Factors	2129

Item 6. Exhibits	~~Exhibits~~	21
		29
SIGNATURES	2230

As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, thethe terms “we,” “us,” “our,” and the “Company” refer to Avid Bioservices, Inc. and its consolidated subsidiaries.

PART I—FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

avid bioservices, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)

January 31,
2020

April 30,
2019

ASSETS
Current assets:
Cash and cash equivalents $ 30,687 $ 32,351
Accounts receivable 10,151 7,374
Contract assets 6,111 4,327
Inventory 9,565 6,557
Prepaid expenses and other current assets 763 709
Total current assets 57,277 51,318
Property and equipment, net 26,850 25,625
Operating lease right-of-use assets 20,437 –
Restricted cash 350 1,150
Other assets 302 302
Total assets $ 105,216 $ 78,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,332 $ 4,352
Accrued payroll and related costs 2,985 3,540
Contract liabilities 26,355 14,651
Operating lease liabilities 1,172 –
Other current liabilities 710 619
Total current liabilities 36,554 23,162

Operating lease liabilities, less current portion 21,584 –
Deferred rent, less current portion – 2,072
Other long-term liabilities – 93
Total liabilities 58,138 25,327

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; 1,648 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively 2 2
Common stock, $0.001 par value; 150,000 shares authorized; 56,479 and 56,136 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively 56 56
Additional paid-in capital 613,323 613,615
Accumulated deficit (566,303 ) (560,605 )
Total stockholders’ equity 47,078 53,068
Total liabilities and stockholders’ equity $ 105,216 $ 78,395
See accompanying notes to condensed consolidated financial statements.
1
avid bioservices, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS and comprehensive loss
(Unaudited) (In thousands, except per share information)

Three Months Ended
January 31,

Nine Months Ended
January 31,

2020 2019 2020 2019

Revenues $ 13,585 $ 13,781 $ 47,152 $ 36,548
Cost of revenues 12,800 11,731 41,921 32,972
Gross profit
785 2,050 5,231 3,576

Operating expenses:
Selling, general and administrative 2,996 3,242 10,989 9,273
Loss on lease termination – – 355 –
Total operating expenses 2,996 3,242 11,344 9,273

Operating loss (2,211 ) (1,192 ) (6,113 ) (5,697 )
Interest and other income, net 107 9 415 190
Loss from continuing operations before income taxes (2,104 ) (1,183 ) (5,698 ) (5,507 )
Income tax benefit – 44 – 217
Loss from continuing operations, net of tax (2,104 ) (1,139 ) (5,698 ) (5,290 )
Income from discontinued operations, net of tax – – – 739
Net loss $ (2,104 ) $ (1,139 ) $ (5,698 ) $ (4,551 )

Comprehensive loss $ (2,104 ) $ (1,139 ) $ (5,698 ) $ (4,551 )

Series E preferred stock accumulated dividends (1,442 ) (1,442 ) (3,604 ) (3,604 )

Net loss attributable to common stockholders $ (3,546 ) $ (2,581 ) $ (9,302 ) $ (8,155 )

Basic and diluted net (loss) income per common share attributable to common stockholders:
Continuing operations $ (0.06 ) $ (0.05 ) $ (0.17 ) $ (0.16 )
Discontinued operations – – – 0.01
Net loss per share attributable to common stockholders $ (0.06 ) (0.05 ) $ (0.17 ) $ (0.15 )

Weighted average basic and diluted shares outstanding
56,404 56,069 56,275 55,949
See accompanying notes to condensed consolidated financial statements.
2

~~PART I - FINANCIAL INFORMATION~~
~~Item 1.~~ ~~Condensed Consolidated Financial Statements (Unaudited)~~

avid bioservices, INC.
CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS of STOCKHOLDERs’ EQUITY
~~(In~~(Unaudited) (In thousands, except ~~par value)~~per share information)
Three Months Ended January 31, 2020
Preferred Stock Common Stock
Additional
Paid-In
Accumulated
Total
Stockholders’

Shares Amount Shares Amount Capital
Deficit
Equity
Balance at October 31, 2019 1,648 $ 2 56,338 $ 56 $ 613,325 $ (564,199 ) $ 49,184
Series E preferred stock dividends paid
($0.65625 per share) – – – – (1,081 ) – (1,081 )
Exercise of stock options – – 120 – 484 – 484
Vesting of restricted stock units – – 21 – – – –
Stock-based compensation expense – – – – 595 – 595
Net loss – – – – – (2,104 ) (2,104 )
Balance at January 31, 2020 1,648 $ 2 56,479 $ 56 $ 613,323 $ (566,303 ) $ 47,078

July 31,
2019

April 30,
2019

ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 28,944 $ 32,351
Accounts receivable 8,223 7,374
Contract assets 5,589 4,327
Inventory 8,031 6,557
Prepaid expenses and other current assets 777 709
Total current assets 51,564 51,318
Property and equipment, net 26,453 25,625
Operating lease right-of-use assets 22,601 –
Restricted cash 1,150 1,150
Other assets 302 302
Total assets $ 102,070 $ 78,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,458 $ 4,352
Accrued payroll and related costs 3,230 3,540
Contract liabilities 18,104 14,651
Operating lease liabilities 1,382 –
Other current liabilities 761 619
Total current liabilities 28,935 23,162

Operating lease liabilities, less current portion 23,451 –
Deferred rent, less current portion – 2,072
Other long-term liabilities – 93

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; 1,648 shares issued and outstanding at July 31, 2019 and April 30, 2019, respectively 2 2
Common stock, $0.001 par value; 150,000 shares authorized; 56,238 and 56,136 shares issued and outstanding at July 31, 2019 and April 30, 2019, respectively 56 56
Additional paid-in capital 613,395 613,615
Accumulated deficit (563,769 ) (560,605 )
Total stockholders’ equity 49,684 53,068
Total liabilities and stockholders’ equity $ 102,070 $ 78,395
~~See accompanying notes to condensed consolidated financial statements.~~
Three Months Ended January 31, 2019
Preferred Stock Common Stock Additional Paid-In Accumulated
Total
Stockholders’

Shares Amount Shares Amount Capital
Deficit
Equity
Balance at October 31, 2018 1,648 $ 2 56,063 $ 56 $ 614,541 $ (559,802 ) $ 54,797
Series E preferred stock dividends paid
($0.65625 per share) – – – – (1,081 ) – (1,081 )
Exercise of stock options – – 9 – 29 – 29
Stock-based compensation expense – – – – 458 – 458
Net loss – – – – – (1,139 ) (1,139 )
Balance at January 31, 2019 1,648 $ 2 56,072 $ 56 $ 613,947 $ (560,941 ) $ 53,064

3

avid bioservices, INC.
CONDENSED CONSOLIDATED STATEMENTS ~~OF OPERATIONS and comprehensive loss (UNAUDITED)~~of STOCKHOLDERs’ EQUITY (Continued)
~~(In~~(Unaudited) (In thousands, except per share information)
Nine Months Ended January 31, 2020
Preferred Stock Common Stock Additional
Paid-In Accumulated Total
Stockholders’
Shares Amount Shares Amount Capital
Deficit
Equity
Balance at April 30, 2019 1,648 $ 2 56,136 $ 56 $ 613,615 $ (560,605 ) $ 53,068
Series E preferred stock dividends paid
($1.96875 per share) – – – – (3,244 ) – (3,244 )
Common stock issued under employee stock purchase plan – – 47 – 187 – 187
Exercise of stock options – – 247 – 916 – 916
Vesting of restricted stock units – – 49 – – – –
Stock-based compensation expense – – – – 1,849 – 1,849
Net loss – – – – – (5,698 ) (5,698 )
Balance at January 31, 2020 1,648 $ 2 56,479 $ 56 $ 613,323 $ (566,303 ) $ 47,078

Three Months Ended
July 31,

2019 2018
Revenues $ 15,254 $ 12,589
Cost of revenues 14,168 11,397
Gross profit 1,086 1,192
Operating expenses:
Selling, general and administrative 4,459 3,215
Operating loss (3,373 ) (2,023 )
Interest and other income, net 209 62
Net loss $ (3,164 ) $ (1,961 )

Comprehensive loss $ (3,164 ) $ (1,961 )

Series E preferred stock accumulated dividends (1,442 ) (1,442 )
Net loss attributable to common stockholders $ (4,606 ) $ (3,403 )

Basic and diluted net loss per common share attributable to common stockholders $ (0.08 ) $ (0.06 )

Weighted average basic and diluted shares outstanding 56,167 55,770
Nine Months Ended January 31, 2019
Preferred Stock Common Stock
Additional
Paid-In
Accumulated
Total
Stockholders’

Shares Amount Shares Amount Capital
Deficit
Equity
Balance at April 30, 2018 1,648 $ 2 55,689 $ 55 $ 614,810 $ (559,129 ) $ 55,738
Series E preferred stock dividends paid
($1.96875 per share) – – – – (3,244 ) – (3,244 )
Cumulative-effect adjustment pursuant to adoption of ASC 606 – – – – – 2,739 2,739
Common stock issued under employee stock purchase plan – – 40 – 114 – 114
Exercise of stock options – – 343 1 1,187 – 1,188
Stock-based compensation expense – – – – 1,080 – 1,080
Net loss – – – – – (4,551 ) (4,551 )
Balance at January 31, 2019 1,648 $ 2 56,072 $ 56 $ 613,947 $ (560,941 ) $ 53,064

See accompanying notes to condensed consolidated financial statements.

4

avid bioservices, INC.
CONDENSED CONSOLIDATED STATEMENTS ~~of STOCKHOLDERs’ EQUITY (UNAUDITED)~~OF CASH FLOWS
~~(In~~(Unaudited) (In thousands)

Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders’
Shares Amount Shares Amount Capital
Deficit
Equity
Balance at April 30, 2019 1,648 $ 2 56,136 $ 56 $ 613,615 $ (560,605 ) $ 53,068
Series E preferred stock dividends paid ($0.65625 per share) – – – – (1,081 ) – (1,081 )
Exercise of stock options – – 74 – 258 – 258
Vesting of restricted stock units – – 28 – – – –
Stock-based compensation expense – – – – 603 – 603
Net loss – – – – – (3,164 ) (3,164 )
Balance at July 31, 2019 1,648 $ 2 56,238 $ 56 $ 613,395 $ (563,769 ) $ 49,684

Nine Months Ended
January 31,

2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,698 ) $ (4,551 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 2,276 2,006
Stock-based compensation 1,849 1,080
Loss on lease termination 355 –
Loss on disposal of assets 13 104
Gain on sale of research and development assets – (1,000 )
Changes in operating assets and liabilities:
Accounts receivable (2,777 ) (4,131 )
Contract assets (1,784 ) (1,024 )
Inventory (3,008 ) (402 )
Prepaid expenses and other assets (54 ) 114
Accounts payable 491 993
Accrued payroll and related expenses (555 ) (15 )
Contract liabilities 11,704 (5,402 )
Other accrued expenses and current liabilities (32 ) (590 )
Assets and liabilities of discontinued operations – (4,425 )
Net cash provided by (used in) operating activities 2,780 (17,243 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,025 ) (1,248 )
Proceeds from sale of research and development assets – 6,000
Net cash (used in) provided by investing activities (3,025 ) 4,752

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 916 1,188
Proceeds from issuance of common stock under employee stock purchase plan 187 114
Dividends paid on preferred stock (3,244 ) (3,244 )
Principal payments on finance lease (78 ) (74 )
Net cash used in financing activities (2,219 ) (2,016 )

Net decrease in cash, cash equivalents and restricted cash (2,464 ) (14,507 )
Cash, cash equivalents and restricted cash, beginning of period 33,501 43,415
Cash, cash equivalents and restricted cash, end of period $ 31,037 $ 28,908

Supplemental disclosures of non-cash activities:
Decapitalization of right-of-use assets upon lease termination and/or modification $ 1,469 $ –
Unpaid purchases of property and equipment $ 489 $ 14
Property and equipment acquired under finance lease $ – $ 245
Preferred Stock Common Stock AdditionalPaid-In Accumulated Total Stockholders’
Shares Amount Shares Amount Capital
Deficit
Equity
Balance at April 30, 2018 1,648 $ 2 55,689 $ 55 $ 614,810 $ (559,129 ) $ 55,738
Series E preferred stock dividends paid ($0.65625 per share) – – – – (1,081 ) – (1,081 )
Cumulative-effect adjustment pursuant to adoption of ASC 606 – – – – – 2,739 2,739
Exercise of stock options – – 301 – 1,014 – 1,014
Stock-based compensation expense – – – – 297 – 297
Net loss – – – – – (1,961 ) (1,961 )
Balance at July 31, 2018 1,648 $ 2 55,990 $ 55 $ 615,040 $ (558,351 ) $ 56,746

See accompanying notes to condensed consolidated financial statements.

5

avid bioservices, INC.
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)~~
~~(In thousands)~~

Three Months Ended
July 31,

2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,164 ) $ (1,961 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 726 642
Stock-based compensation 603 297
Changes in operating assets and liabilities:
Accounts receivable (849 ) 803
Contract assets (1,262 ) (1,887 )
Inventory (1,474 ) (910 )
Prepaid expenses and other current assets (68 ) 153
Accounts payable (410 ) 1,151
Accrued payroll and related expenses (310 ) (534 )
Contract liabilities 3,453 (2,028 )
Other liabilities 287 (579 )
Assets and liabilities of discontinued operations – (2,595 )
Net cash used in operating activities (2,468 ) (7,448 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (38 ) (192 )
Proceeds from sale of research and development assets – 3,000
Net cash (used in) provided by investing activities (38 ) 2,808

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 258 1,014
Dividends paid on preferred stock (1,081 ) (1,081 )
Principal payments on finance lease (78 ) (74 )
Net cash used in financing activities (901 ) (141 )

Change in cash, cash equivalents and restricted cash (3,407 ) (4,781 )

Cash, cash equivalents and restricted cash, beginning of period 33,501 43,415

Cash, cash equivalents and restricted cash, end of period $ 30,094 $ 38,634

Cash and cash equivalents, end of period 28,944 37,484
Restricted cash, end of period 1,150 1,150
Cash, cash equivalents and restricted cash, end of period $ 30,094 $ 38,634

Supplemental disclosures of non-cash activities:
Unpaid purchases of property and equipment $ 1,516 $ 62
Property and equipment acquired under finance lease $ – $ 245

~~See accompanying notes to condensed consolidated financial statements.~~
6
~~avid bioservices, INC.~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(unaudited)~~(UNAUDITED)

Note 1 – Description of Company and Basis of Presentation

Avid Bioservices, Inc. is a contract development and manufacturing organization (“CDMO”) that provides a comprehensive range of services from process development to Current Good Manufacturing Practices (“CGMP”) commercial manufacturing focused on biopharmaceutical products derived from mammalian cell culture for biotechnology and pharmaceutical companies.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to quarterly reports on Form 10-Q, and accordingly, they do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, as filed with the SEC on June 27, 2019. The ~~condensed consolidated balance sheet at April 30, 2019 has been derived from audited financial statements at that date. The~~ unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. Results of operations for interim periods covered by this Quarterly Report on Form 10-Q may not necessarily be indicative of results of operations for the full fiscal year or any other interim period.

The unaudited condensed consolidated financial statements include the accounts of Avid Bioservices, Inc., and its subsidiaries. All intercompany accounts and transactions among the consolidated entities have been eliminated in the unaudited condensed consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts, as well as disclosures of commitments and contingencies in the financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions.

Certain prior period amounts within the accompanying unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect our financial position, net loss, cash flows as of and for the periods presented.
Discontinued Operations
For all periods presented, the operating results of our former research and development segment have been excluded from continuing operations and reported as income from discontinued operations, net of tax, in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss (Note 7).

Note 2 – Summary of Significant Accounting Policies

Information regarding our significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, of the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

6
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Revenue Recognition

Revenue is recognized from ~~contract manufacturing~~ services provided under our customer contracts, which we have disaggregated into manufacturing and process development revenue ~~streams:~~streams.

Manufacturing revenue

Manufacturing revenue generally represents revenue from the manufacturing of customer ~~product(s) derived from mammalian cell culture~~products recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation. Under a manufacturing contract, a quantity of manufacturing runs are ordered and the product is manufactured according to the customer’s specifications and typically only one performance obligation is included. Each manufacturing run represents a distinct service that is sold separately and has stand-alone value to the customer. The ~~product(s)~~products are manufactured exclusively for a specific customer and have no alternative use. The customer retains control of ~~their~~its product during the entire manufacturing process and can make changes to the process or specifications at ~~their~~its request. Under these agreements, we are entitled to consideration for progress to date that includes an element of profit margin.

7
~~avid bioservices, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
Process development revenue

Process development revenue generally represents revenue from ~~non-manufacturing related~~ 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 ~~their~~its specifications and typically only one performance obligation is included. Each process represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of ~~their~~its product as the product is being created or enhanced by our services and can make changes to ~~their~~its process or specifications upon request.

The following table summarizes our manufacturing and process development revenue streams for the three and nine months ended January 31, 2020 and 2019 (in thousands):

Three Months Ended July 31,
Three Months Ended
January 31,

Nine Months Ended
January 31,

2019 2018 2020 2019 2020 2019
Manufacturing revenue $ 12,908 $ 10,300 $ 11,525 $ 10,770 $ 40,422 $ 28,313
Process development revenue 2,346 2,289 2,060 3,011 6,730 8,235
Total revenues $ 15,254 $ 12,589 $ 13,585 $ 13,781 $ 47,152 $ 36,548

The timing of revenue recognition, billings and cash collections results in billed trade receivables, contract assets (unbilled receivables), and contract liabilities (customer deposits and deferred revenue). Contract assets are recorded when our right to consideration is conditioned on something other than the passage of time. Contract assets are reclassified to accounts receivable on the balance sheet when our rights become unconditional. Contract liabilities represent customer deposits and deferred revenue billed and/or received in advance of our fulfillment of performance obligations. Contract liabilities convert to revenue as we perform our obligations under the contract.
7
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the three and nine months ended ~~July~~January 31, ~~2019 and 2018,~~2020, we recognized revenue of ~~$6,245~~$0.6 million and ~~$6,962,~~$13.2 million, respectively, for which the contract liability was recorded in a prior ~~year~~period.
During the three and nine months ended January 31, 2019, we recognized revenue of $2.2 million and $12.2 million, respectively, for which the contract liability was recorded in a prior period.

We apply the practical expedient available under ASC 606 that permits us not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. In addition, we ~~currently~~ do not have any unsatisfied performance obligations for contracts greater than one ~~year.~~
year as of January 31, 2020.

Leases

On May 1, 2019, we adopted the Accounting Standards Update (“ASU”) No. 2016-02,Leases (“ASC 842”) using the modified retrospective approach. Accordingly, prior period financial information and disclosures have not been adjusted and will continue to be reported in accordance with our ~~historic~~historical accounting under the previous lease standard. In addition, we elected the package of practical expedients available for existing contracts, which allowed us to ~~carryforward~~carry forward our historical assessments of lease identification, lease classification, and initial direct costs. As a result of adopting ASC 842, we recognized right-of-use assets and lease liabilities of $23.3 million and $25.5 million, respectively, on May 1, 2019, which are primarily related to our facility operating leases (Note 3). The difference between the right-of-use assets and lease liabilities is primarily attributed to the elimination of deferred rent. There was no adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.

We determine if an arrangement is or contains a lease at inception. Our operating leases with a term greater than one year are included in operating lease right-of-use assets, operating lease liabilities and operating lease liabilities, less current portion in our condensed consolidated balance sheet at ~~July~~January 31, ~~2019.~~2020. Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use our incremental borrowing rate which represents an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

Our operating leases may include options to extend the lease which are included in the lease term when it is reasonably certain that we will exercise a renewal option(s). Operating lease expense is recognized on a straight-line basis over the expected lease term.

8
~~avid bioservices, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
We elected the post-transition practical expedient to not separate lease components from non-lease components for all existing leases. We also elected a policy to not apply the recognition requirements of ASC 842 for short-term leases.

Restricted Cash
Under the terms of three separate operating leases related to our facilities (Note 3), we are required to maintain, as collateral, letters of credit. During the quarter ended October 31, 2019, $0.8 million of restricted cash that was pledged as collateral under two such letters of credit was released back to us. Accordingly, as of January 31, 2020 and April 30, 2019, restricted cash of $0.4 million and $1.2 million, respectively, was pledged as collateral under these letter(s) of credit.
8
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):

January 31,
2020

April 30,
2019

January 31,
2019

April 30,
2018

Cash and cash equivalents $ 30,687 $ 32,351 $ 27,758 $ 42,265
Restricted cash 350 1,150 1,150 1,150
Total cash, cash equivalents and restricted cash $ 31,037 $ 33,501 $ 28,908 $ 43,415
Inventory

Inventory consists of raw materials inventory and ~~are~~is valued at the lower of cost, ~~or net realizable value,~~ determined by the first-in, first-out ~~method.~~method, or net realizable value. We periodically review raw materials inventory for potential impairment and adjust inventory to its net realizable value based on the estimate of future use and reduce the carrying value of inventory as deemed necessary.

Property and Equipment

Property and equipment is recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related ~~asset,~~assets, generally ranging from three to ten years. Amortization of leasehold improvements is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term. Construction-in-progress, which represents direct costs related to the construction of various equipment and leasehold improvements primarily associated with our manufacturing facilities, ~~are~~is not depreciated until the asset is completed and placed into service. No interest was incurred or capitalized as construction-in-progress as of ~~July~~January 31, ~~2019~~2020 and April 30, 2019.

All of our property and equipment are located in the U.S. Property and equipment consist of the following (in thousands):

July 31, 2019 April 30, 2019 January 31, 2020 April 30, 2019
Leasehold improvements $ 20,574 $ 20,574 $ 21,130 $ 20,574
Laboratory and manufacturing equipment 12,983 12,858 14,968 12,858
Computer equipment and software 4,662 4,644 4,931 4,644
Furniture, fixtures and office equipment 528 528 685 528
Construction-in-progress 3,001 1,590 1,963 1,590
Total property and equipment, gross $ 41,748 $ 40,194 $ 43,677 $ 40,194
Less: accumulated depreciation and amortization (15,295 ) (14,569 ) (16,827 ) (14,569 )
Total property and equipment, net $ 26,453 $ 25,625 $ 26,850 $ 25,625

Depreciation and amortization expense for the three and nine months ended ~~July~~January 31, ~~2019~~2020 was $0.8 million and ~~2018~~$2.3 million, respectively.
Depreciation and amortization expense for the three and nine months ended January 31, 2019 was $0.7 million and ~~$0.6~~$2.0 million, respectively.
9
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Impairment

Long-lived assets are reviewed for impairment in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. Long-lived assets are reported at the lower of carrying amount or fair value less cost to ~~sell.~~sell if impairment indicators exist. For the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 and ~~2018,~~2019, there were no indicators of impairment of the value of our long-lived ~~assets.~~assets and no cumulative impairment losses recognized as of January 31, 2020.

Stock-Based Compensation

We account for stock options, restricted stock units and other stock-based awards granted under our equity compensation plans in accordance with the authoritative guidance for stock-based compensation. The estimated fair value of stock options granted to employees in exchange for services is measured at the grant date, using a fair value based method, such as a Black-Scholes option valuation model, and is recognized as expense on a straight-line basis over the requisite service periods. The fair value of restricted stock units is measured at the grant date based on the closing market price of our common stock on the date of grant, and is recognized as expense on a straight-line basis over the period of vesting. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. As of ~~July~~January 31, ~~2019,~~2020, there were no outstanding stock-based awards with market or performance conditions.
9
~~avid bioservices, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

Comprehensive Loss

Comprehensive loss is the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss is equal to our net loss for all periods presented.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance prioritizes the inputs used in measuring fair value into the following hierarchy:

· Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
· Level 2 – Observable inputs other than quoted prices included in Level 1, such as assets or liabilities whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.
· Level 3 – Unobservable inputs that are supported by little or no market activity and significant to the overall fair value measurement of the assets or liabilities; therefore, requiring the company to develop its own valuation techniques and assumptions.

As of ~~July~~January 31, ~~2019~~2020 and April 30, 2019, we do not have any Level 2 or Level 3 financial assets or liabilities and our cash equivalents, which are primarily invested in money market funds with one major commercial bank, are carried at fair value based on quoted market prices for identical securities (Level 1 input). In addition, there were no transfers between any Levels of the fair value hierarchy during the ~~three~~nine months ended ~~July~~January 31, 2020 and 2019.
10
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Income Taxes
The income tax benefit recognized in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss during the three and nine months ended January 31, 2019 resulted from the “Intraperiod Tax Allocation” rules under ASC 740:Income Taxes, which requires the allocation of an entity’s total annual income tax provision among continuing operations and, ~~2018.~~in our case, discontinued operations. Accordingly, a tax benefit was recorded in continuing operations with an offsetting tax expense recorded in discontinued operations for the nine months ended January 31, 2019 (Note 7).

Recent Accounting Standards Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard update requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326),Derivatives and Hedging (Topic 815) and Leases (Topic 842):Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. As a smaller reporting company, ASU 2016-13 will now be effective for our fiscal year ~~2021~~2024 beginning May 1, ~~2020;~~2023; however, early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2016-13 on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, primarily surrounding Level 3 fair value measurements and transfers between Level 1 and Level 2. ASU 2018-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, which will be our fiscal year 2021 beginning May 1, 2020. Early adoption is permitted for any removed or modified disclosures. We are currently evaluating the new guidance and do not expect the adoption of ASU 2018-13 to have a material impact on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):Simplifying the Accounting for Income Taxes,which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, which will be our fiscal year 2022 beginning May 1, 2021. Early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2019-12 on our consolidated financial statements and related disclosures.

1011

avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(unaudited)~~
(UNAUDITED)

Note 3 – Leases

We currently lease office, manufacturing and warehouse space in ~~five~~four buildings under ~~four~~three separate non-cancellable operating lease agreements. All of our leased facilities are located in close proximity in Tustin, California, have original lease terms ranging from 7 to 12 years, contain two multi-year renewal options, and scheduled rent increases of 3% on either an annual or biennial basis. With respect to multi-year renewal options, a multi-year renewal option was ~~used~~included in determining the right-of-use asset and lease liability for two of our leases as we considered it reasonably certain that we would exercise such renewal options. In addition, ~~three~~two of our leases provide for periods of free rent, lessor improvements and tenant improvement allowances, of which, certain of these improvements have been classified as leasehold improvements and are being amortized over the shorter of the estimated useful life of the improvements or the remaining life of the lease. As collateral for three of our leases we are required to maintain letters of credit, which in aggregate is $1,150 and is included in restricted cash in the accompanying condensed consolidated balance sheets as of July 31, 2019 and April 30, 2019. The operating lease right-of-use assets and liabilities on our ~~July~~January 31, ~~2019~~2020 condensed consolidated balance ~~sheets~~sheet primarily relate to these facility leases.

~~Our~~In September 2019, we entered into a lease amendment to terminate an operating lease ~~expense~~ for one of our non-manufacturing facilities that was primarily utilized for warehouse space. The lease termination was primarily driven by our efforts to reduce costs by leveraging available warehouse space in our other facilities, which in aggregate will save us approximately $1.3 million over a period of four years. In connection with the ~~three months ended July 31, 2019 was $0.9~~termination of this lease, we removed the corresponding operating lease right-of-use asset and liability balances from our balance sheet and recognized a loss of $0.4 million, ~~and was~~which is included in ~~our~~loss on lease termination in the accompanying unaudited condensed consolidated statements of ~~operations.~~ operations and comprehensive loss for the nine months ended January 31, 2020. Additionally, the lease termination released $0.3 million of restricted cash that was pledged as collateral under a letter of credit required by the terminated lease.
Certain of our facility leases require us to pay property taxes, insurance and common area maintenance. While these payments are not included as part of our lease liabilities, they are recognized as variable lease cost in the period they are incurred.
The components of lease cost, which are included in our accompanying unaudited condensed consolidated statements of operations and comprehensive loss as either cost of revenues or selling, general and administrative expense, depending on the leased asset, were as follows (in thousands):

Three Months Ended
January 31, 2020

Nine Months Ended
January 31, 2020

Operating lease cost $ 798 $ 2,570
Short-term lease cost 83 83
Variable lease cost 155 488
Total lease cost $ 1,036 $ 3,141
Cash paid for amounts included in the measurement of lease liabilities for the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 was ~~$0.8~~$2.3 million and ~~was~~is included in net cash used in operating activities in our accompanying unaudited condensed consolidated statements of cash flows.

12
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of ~~July~~January 31, ~~2019,~~2020, the maturities of our operating lease liabilities were as follows (in thousands):

Fiscal Year Ending April 30, Total Total
2020 (remaining period) $ 2,489 $ 735
2021 3,391 2,972
2022 3,422 2,995
2023 3,445 3,010
2024 3,341 3,086
Thereafter 22,020 21,938
Total lease payments $ 38,108 $ 34,736
Less: imputed interest (13,275 ) (11,980 )
Total operating lease liabilities $ 24,833 $ 22,756

The balance sheet classification of our operating lease liabilities was as follows (in thousands):

July 31, 2019 January 31, 2020
Operating lease liabilities $ 1,382 $ 1,172
Operating lease liabilities, less current portion 23,451 21,584
Total operating lease liabilities $ 24,833 $ 22,756

As of ~~July~~January 31, ~~2019,~~2020, the weighted average remaining lease term and weighted average discount rate of our operating leases was ~~10.8~~10.7 years and 8.0%, respectively.
11
~~avid bioservices, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

Note 4–Stockholders’ Equity

~~Series E~~Termination of Rights Agreement (Series D Preferred ~~Stock Dividend~~Stock)

On ~~June 5, 2019,~~March 16, 2006, we entered into a Rights Agreement with Rights Agent named therein, which agreement was subsequently amended and restated on March 16, 2016 (as amended, the “Rights Agreement”). The Rights Agreement was designed to strengthen the ability of our Board of Directors to protect the interests of our stockholders against potential abusive or coercive takeover tactics and to enable all stockholders to receive the full and fair value of their investment in the event that an unsolicited attempt is made to acquire us. Under the Rights Agreement, our Board of Directors declared a ~~quarterly cash~~ dividend of ~~$0.65625~~one preferred share purchase right (the “Right”) for each share of our common stock held by our stockholders of record as of the close of business on March 27, 2006, each of which Right entitled the holder thereof to purchase a fraction of a share of our Series D Participating Preferred Stock, par value $0.001 per share, at the price specified in the Rights Agreement. The Rights were only exercisable if a person or group acquired 15% or more of our outstanding common stock or announced a tender offer or exchange offer which, if consummated, would have resulted in ownership by a person or group of 15% or more of our outstanding stock.
13
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On September 23, 2019, the Rights Agreement was further amended to accelerate the scheduled expiration date of the Rights Agreement from the close of business on ~~our~~March 16, 2021 to the close of business on September 23, 2019, and effectively terminate the Rights Agreement and the Rights granted thereunder as of such expiration date. Our Board of Directors elected to terminate the Rights Agreement and the Rights granted thereunder based on their recent evaluation of the effectiveness of, and the need for, a stockholder rights plan and consideration of current corporate governance practices and proxy advisory guidelines. In connection with the termination of the Rights Agreement, we filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities Exchange Act on Form 25 with the SEC on September 23, 2019, in order to withdraw the Rights from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended, which deregistration was effective 90 days after the filing date.
Series E Preferred Stock
Each share of issued and outstanding 10.50% Series E Convertible Preferred Stock ~~(the “Series~~$0.001 par value per share (“Series E Preferred Stock”). The dividend payment is equivalent to an annualized 10.50% per share, based on the $25.00 per share stated liquidation preference, accruing from April 1, 2019 through June 30, 2019. The cash dividend of $1.1 million was paid on July 1, 2019 to holders of the Series E Preferred Stock of record on June 17, 2019.
~~Each share of Series E Preferred Stock~~ is convertible into a ~~whole~~ number of shares of our common stock determined by dividing the liquidation preference of $25.00 per share Series E Preferred Stock by the then-current conversion price per share, currently $21.00 per ~~share.~~share, rounded down to the nearest whole number. As of ~~July~~January 31, ~~2019,~~2020, if all of our issued and outstanding shares of Series E Preferred Stock were converted at the conversion price of $21.00 per share, ~~conversion price,~~ the holders of our Series E Preferred Stock would receive an aggregate of 1,961,619 shares of our common stock. However, because the conversion price of our Series E Preferred Stock is subject to adjustment from time to time in accordance with the applicable provisions of our certificate of incorporation, we have reserved the maximum number of shares of our common stock that could be issued upon the conversion of our Series E Preferred Stock upon a change of control event assuming our shares of common stock are acquired for consideration of $5.985 per share or less. In this scenario, each outstanding share of our Series E Preferred Stock ~~could~~would be converted into 4.14 shares of our common stock, or 6,826,435 shares in the aggregate.
Dividends
Holders of our Series E Preferred Stock are entitled to receive cumulative dividends at the rate of 10.50% per annum based on the liquidation preference of $25.00 per share, or $2.625 per annum per share, which dividends are payable quarterly in cash, on or about the 1^st day of each January, April, July and October. For the three and nine months ended January 31, 2020 and 2019, we paid aggregate cash dividends of $1.1 million and $3.2 million, respectively, for issued and outstanding shares of our Series E Preferred Stock.

Note 5–Equity Compensation Plans

Stock Incentive Plans

As of ~~July~~January 31, ~~2019,~~2020, we had an aggregate of ~~7,161,429~~6,944,895 shares of our common stock reserved for issuance under our stock incentive plans, of which ~~3,908,148~~3,686,129 shares were subject to outstanding stock options and restricted stock units (“RSUs”) and ~~3,253,281~~3,258,766 shares were available for future grants of stock-based awards.
14
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stock Options

The following summarizes our stock option transaction activity for the ~~three~~nine months ended ~~July~~January 31, ~~2019:~~2020:

Stock Options Grant Date Weighted Average Exercise Price Stock Options Grant Date Weighted Average Exercise Price
(in thousands) (in thousands)
Outstanding at May 1, 2019 3,274 $ 7.51 3,274 $ 7.51
Granted 564 $ 5.79 845 $ 5.95
Exercised (74 ) $ 3.50 (247 ) $ 3.72
Canceled or expired (217 ) $ 3.71 (931 ) $ 10.45
Outstanding at July 31, 2019 3,547 $ 7.56
Outstanding at January 31, 2020 2,941 $ 6.45
12
~~avid bioservices, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
Restricted Stock Units ~~(“RSUs”)~~

The following summarizes our RSUs transaction activity for the ~~three~~nine months ended ~~July~~January 31, ~~2019:~~2020:

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value
(in thousands) (in thousands)
Outstanding at May 1, 2019 200 $ 4.32 200 $ 4.32
Granted 194 $ 5.91 194 $ 5.91
Vested (27 ) $ 3.62 (49 ) $ 4.30
Forfeited (6 ) $ 4.31 (27 ) $ 5.15
Outstanding at July 31, 2019 361 $ 5.23
Outstanding at January 31, 2020 318 $ 5.22

Employee Stock Purchase Plan

The Avid Bioservices, Inc. 2010 Employee Stock Purchase Plan (the “ESPP”) is a stockholder-approved plan under which eligible employees are allowed to purchase shares of our common stock through payroll deductions at a price equal to 85% of the lower of the fair market value our common stock as of the first trading day of the offering period or on the last trading day of the six-month offering period. Employee participants are limited to purchase no more than $25,000 of stock in any one calendar year. NoOn October 9, 2019, our stockholders approved an amendment to the ESPP to extend its term for an additional five years to October 21, 2025 and to change the commencement dates of the offering periods from May 1 and November 1 of each year, to January 1 and July 1 of each year.
During the nine months ended January 31, 2020, 47,526 shares of our common stock were purchased under the ESPP ~~during the three months ended July 31, 2019 as the current six-month offering period ends on October 31, 2019.~~at a purchase price of $3.94 per share. As of ~~July~~January 31, ~~2019,~~2020, we had ~~1,196,261~~1,148,735 shares of our common stock reserved for issuance under the ESPP.

15
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock-Based Compensation

Stock-based compensation expense for the three and nine months ended ~~July~~January 31, ~~2019~~2020 and ~~2018~~2019 was comprised of the following (in thousands):

Three Months Ended July 31,
Three Months Ended
January 31,

Nine Months Ended
January 31,

2019 2018 2020 2019 2020 2019
Cost of revenues $ 187 $ 85 $ 248 $ 147 $ 679 $ 317
Selling, general and administrative 416 212 347 311 1,170 763
Total stock-based compensation $ 603 $ 297 $ 595 $ 458 $ 1,849 $ 1,080

As of ~~July~~January 31, ~~2019,~~2020, the total estimated unrecognized compensation cost related to non-vested employee stock options and non-vested RSUs was ~~$4.9~~$4.6 million and ~~$1.8~~$1.4 million, respectively. These costs are expected to be recognized over weighted average vesting periods of ~~3.03~~2.82 years and ~~3.55~~3.06 years, respectively.
13
~~avid bioservices, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

Note 6 – Net Loss Per Common Share

Basic net loss per common share is computed by dividing our net loss attributable to common stockholders by the weighted average number of shares of common stock ~~outstanding during the period, excluding the dilutive effects of stock options, unvested RSUs, shares of common stock expected to be issued under our ESPP, warrants, and Series E Preferred Stock~~ outstanding during the period. Diluted net loss per common share is computed by dividing our net loss attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding during the period plus the potential dilutive effects of stock options, unvested RSUs, shares of common stock expected to be issued under our ESPP, warrants, and Series E Preferred Stock outstanding during the period.
Net loss attributable to common stockholders represents our net loss plus Series E Preferred Stock accumulated dividends. Series E Preferred Stock accumulated dividends include dividends declared for the period (regardless of whether or not the dividends have been paid) and dividends accumulated for the period (regardless of whether or not the dividends have been declared).

The potential dilutive effect of stock options, unvested RSUs, shares of common stock expected to be issued under our ESPP, and warrants outstanding during the period are calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. The potential dilutive effect of our Series E Preferred Stock outstanding during the period ~~was~~is calculated using the if-converted method assuming the conversion of Series E Preferred Stock as of the earliest period reported or at the date of issuance, if later, but are excluded if their effect is anti-dilutive. ~~However, because~~Since the impact of ~~stock options, unvested RSUs, shares of common stock expected to be issued under our ESPP, warrants, and Series E Preferred Stock are~~potentially dilutive securities is anti-dilutive during periods of net loss, there was no difference between basic and diluted loss per common share amounts for the three and nine months ended ~~July~~January 31, ~~2019~~2020 and ~~2018.~~2019.
16
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The calculation of weighted average diluted shares outstanding excludes the dilutive effect of the following weighted average outstanding stock options, unvested RSUs and shares of common stock expected to be issued under our ESPP as their impact is anti-dilutive during periods of net loss (in thousands):

Three Months Ended July 31,
Three Months Ended
January 31,

Nine Months Ended
January 31,

2019 2018 2020 2019 2020 2019
Stock options 107 102 245 117 152 161
RSUs 46 7 102 38 73 33
ESPP 2 3 – 1 7 10
Total 155 112 347 156 232 204

The calculation of weighted average diluted shares outstanding also excludes the following weighted average outstanding stock options, unvested RSUs, warrants, and Series E Preferred Stock (assuming the if-converted method), as their exercise prices or conversion price were greater than the average market price of our common stock during the respective periods, resulting in an anti-dilutive effect (in thousands):

Three Months Ended July 31,
Three Months Ended
January 31,

Nine Months Ended
January 31,

2019 2018 2020 2019 2020 2019
Stock options 2,858 2,695 2,106 2,779 2,721 2,659
RSUs 42 – – 47 8 16
Warrants – 39 – – – 17
Series E Preferred Stock 1,979 1,979 1,979 1,979 1,979 1,979
Total 4,879 4,713 4,085 4,805 4,708 4,671
Note 7 – Discontinued Operations
As a result of the sale of our PS-targeting and r84 technologies in February 2018 and September 2018, respectively (as described in Note 10 of the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019), the abandonment of our remaining research and development assets, and the strategic shift in our corporate direction to focus solely on our CDMO business, the operating results of our former research and development segment have been excluded from continuing operations and reported as income from discontinued operations, net of tax, in the accompanying unaudited condensed consolidated financial statements for all periods presented.
17
avid bioservices, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
There were no operating results from discontinued operations for the three and nine months ended January 31, 2020. The following table is a reconciliation of the pre-tax income from discontinued operations to the income from discontinued operations, net of tax, as presented in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss for the nine months ended January 31, 2019 (in thousands):
Gain on sale of research and development assets before income taxes⁽¹⁾ $ 1,000
Income tax expense (261 )
Income from discontinued operations, net of tax $ 739
_____________
⁽¹⁾ The gain on sale of research and development assets before income taxes was recorded in connection with the $1.0 million we received from Oncologie, Inc. (“Oncologie”) under the September 2018 Asset Assignment and Purchase Agreement pursuant to which we sold to Oncologie our r84 technology, which included the assignment of certain licenses, patents and other assets useful and/or necessary for the potential commercialization of the r84 technology.

Note 78 – Subsequent Events

On ~~September~~March 4, ~~2019,~~2020, our Board of Directors declared a quarterly cash dividend of $0.65625 per share on our outstanding Series E Preferred Stock. The dividend payment is equivalent to an annualized 10.50% per share, based on the $25.00 per share stated liquidation preference, accruing from ~~July~~January 1, ~~2019~~2020 through ~~September 30, 2019.~~March 31, 2020. The cash dividend is payable on ~~October~~April 1, ~~2019~~2020 to holders of the Series E Preferred Stock of record on ~~September~~March 16, ~~2019.~~2020.

1418

Item 2. Management’s Discussion and Analysis of Financial Condition And Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Avid Bioservices, Inc. included in Part I Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results of operations to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, and in other filings we may make with the Securities and Exchange Commission from time to time. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements and, except as required by law, assume no obligation and do not intend to update these forward-looking statements.

Overview

We are a dedicated CDMO that provides a comprehensive range of services from process development to CGMP commercial manufacturing focused on biopharmaceutical products derived from mammalian cell culture. With over 25 years of experience producing monoclonal antibodies and recombinant proteins in batch, fed-batch and perfusion modes, our services include CGMP clinical and commercial product manufacturing, purification, bulk packaging, stability testing and regulatory submissions and support. We also provide a variety of process development services, including cell line development and optimization, cell culture and feed optimization, analytical methods development and product characterization.

Strategic Objectives

We have established and are currently executing on the following ~~near-term~~ strategic objectives:

· Expand existing customer relationships and diversify our customer base by securing additional customers to support our future potential revenue growth;
· Continue to invest in manufacturing facilities and infrastructure to maximize our facility utilization and support our customers’ development and clinical and commercial manufacturing requirements; and
· Broaden our sales force by hiring sales representatives to execute our business development initiatives in key markets.

1519

~~First~~Third Quarter Highlights

The following summarizes select highlights from our ~~first~~third quarter ended ~~July~~January 31, ~~2019:~~2020:

· ~~Entered into a new contract manufacturing agreement~~Appointed Timothy Compton as our Chief Commercial Officer. Mr. Compton is an accomplished professional with ~~one~~more than 20 years of commercial operations and sales team management experience. In this role, Mr. Compton will focus on driving the ~~world’s leading pharmaceutical companies to provide process transfer~~continued growth of our CDMO business, including the ongoing expansion of our commercial and clinical ~~manufacturing services to support the development of a novel therapeutic candidate;~~client base;
· ~~Expanded our relationship~~Added one new customer and expanded the scope of work with anmultiple existing ~~customer under a new contract~~customers to increase the number of manufacturing ~~agreement to provide process development and clinical manufacturing services to support the development of a novel drug candidate;~~batches; and
· ~~Appointed Catherine Mackey, Ph.D.~~Advanced the planning and design stages to both enhance our ~~board~~Myford facility, and support its future expansion. These near-term facility improvements include, installing a pharmaceutical grade water system, and upgrading key IT systems and general infrastructure. We expect the installation and validation of ~~directors as an independent member. Dr. Mackey is an experienced leader, director and advisor with more than 30 years of research and development and operations experience in~~ the pharmaceutical ~~biotechnology~~grade water system to take place in late calendar year 2020 and ~~agricultural industries.~~certain IT system enhancements and general infrastructure upgrades to complete by the end of fiscal 2021.
We are also currently in the process of expanding and optimizing our process development capabilities and laboratory space, which includes expanding our total available process development laboratory space, upgrading the infrastructure and equipment within our existing process development laboratories, and implementing new state-of-the-art technologies and equipment designed to facilitate efficient, high-throughput development of innovative upstream and downstream manufacturing processes. We are strategically conducting this work in phases to avoid disruption to current customer programs.

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

Revenues

Revenues are derived from ~~contract manufacturing~~ services provided under our customer contracts and are disaggregated into manufacturing and process development revenue streams. The manufacturing revenue stream generally represents revenue from the manufacturing of customer ~~product(s)~~products derived from mammalian cell culture covering clinical through commercial manufacturing runs. The process development revenue stream generally represents revenue from ~~non-manufacturing related~~ 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 costs within the manufacturing, process development, quality assurance, quality control, validation, supply chain and facilities functions. Overhead costs include the rent, common area maintenance, utilities, property taxes, security, materials and supplies, software, small equipment and deprecation costs of all manufacturing and laboratory locations.

We regularly analyze the components of gross profit as well as gross profit as a percentage of revenues. Specifically we look at the gross profit margins of our manufacturing revenue and process development revenue, and the effects of idle capacity, if any, on these revenue streams.
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Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses are composed of corporate-level expenses including personnel and support costs of corporate functions such as executive management, accounting, business development, legal, human resources, information technology, project management, and other centralized services. SG&A expenses include corporate legal fees, audit and accounting fees, investor relation expenses, non-employee director fees, 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.

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Results of Operations

The following table compares the unaudited condensed consolidated statements of operations from our continuing operations for the three and nine months ended ~~July~~January 31, ~~2019~~2020 and ~~2018~~2019 (in thousands):

Three Months Ended July 31,
Three Months Ended
January 31,

Nine Months Ended
January 31,

2019 2018 $ Change 2020 2019 $ Change 2020 2019 $ Change
Revenues $ 15,254 $ 12,589 $ 2,665 $ 13,585 $ 13,781 $ (196 ) $ 47,152 $ 36,548 $ 10,604
Cost of revenues 14,168 11,397 2,771 12,800 11,731 1,069 41,921 32,972 8,949
Gross profit 1,086 1,192 (106 ) 785 2,050 (1,265 ) 5,231 3,576 1,655

Operating expenses:
Selling, general and administrative 4,459 3,215 1,244 2,996 3,242 (246 ) 10,989 9,273 1,716
Loss on lease termination – – – 355 – 355
Total operating expenses 2,996 3,242 (246 ) 11,344 9,273 2,071
Operating loss (3,373 ) (2,023 ) (1,350 ) (2,211 ) (1,192 ) (1,019 ) (6,113 ) (5,697 ) (416 )
Interest and other income, net 209 62 147 107 9 98 415 190 225
Net loss $ (3,164 ) $ (1,961 ) $ (1,203 )
Loss from continuing operations before income taxes (2,104 ) (1,183 ) (921 ) (5,698 ) (5,507 ) (191 )
Income tax benefit – 44 (44 ) – 217 (217 )
Loss from continuing operations, net of tax $ (2,104 ) $ (1,139 ) $ (965 ) $ (5,698 ) $ (5,290 ) $ (408 )
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Three Months Ended ~~July~~January 31, ~~2019~~2020 Compared to Three Months Ended ~~July~~January 31, ~~2018~~2019

Revenues

Revenues for the three months ended ~~July~~January 31, ~~2019~~2020 were ~~$15.3~~$13.6 million compared to ~~$12.6~~$13.8 million for the same period in the prior year, a decrease of $0.2 million, or 1%. The decrease in revenues can primarily be attributed to a decrease in process development revenue, which was largely offset by an increase in the number of in-process and completed manufacturing runs in the current-year period. The following table provides the net change in revenues by our revenue streams:
$ millions
Net increase in manufacturing revenue $ 0.8
Net decrease in process development revenue (1.0 )
Total decrease in revenues $ (0.2 )
Additionally, growth in manufacturing revenue during the current-year period was impacted by a production interruption related to a problem with a specific piece of equipment, which resulted in the termination of certain in-process manufacturing runs and the postponement of other manufacturing runs scheduled to commence during the current-year period. We are currently in the process of implementing what we believe to be the necessary corrections for the specific piece of equipment that resulted in the production interruption, however, we expect that this interruption will continue to have a negative impact on our revenues and gross profit for the remainder of fiscal 2020.
Gross Profit
Gross profit for the three months ended January 31, 2020 was $0.8 million compared to $2.1 million for the same period in the prior year, a decrease of approximately $1.3 million, where gross margins for such periods were 6% and 15%, respectively. The $1.3 million decrease in gross profit for the current-year period was primarily attributed to the costs associated with the production interruption described above, increased depreciation expense from the acquisition of new equipment, and a net decrease in revenues.
Selling, General and Administrative Expenses
SG&A expenses were $3.0 million for the three months ended January 31, 2020 compared to $3.2 million for the same period in the prior year, a decrease of approximately $0.2 million, or 8%. As a percentage of revenue, SG&A expenses for the three months ended January 31, 2020 and 2019 were 22% and 24%, respectively. The decrease in SG&A expenses was attributed to the following components:
$ millions
Decrease in accrued bonus expenses $ (0.7 )
Increase in separation related expenses 0.2
Net increase in all other SG&A expenses 0.3
Total decrease in SG&A expenses $ (0.2 )
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Operating Loss
Operating loss was $2.2 million, or a negative 16% of revenue, for the three months ended January 31, 2020 compared to an operating loss of $1.2 million, or a negative 9% of revenue, for the same period in the prior year. Of this $1.0 million change in year-over-year operating loss, approximately $1.3 million was attributable to a gross profit decrease, which was partially offset by a decrease in SG&A expenses of approximately $0.2 million.
Nine Months Ended January 31, 2020 Compared to Nine Months Ended January 31, 2019
Revenues
Revenues for the nine months ended January 31, 2020 were $47.2 million compared to $36.5 million for the same period in the prior year, an increase of ~~$2.7~~approximately $10.6 million, or ~~21%~~29%. The increase in revenues can primarily be attributed to an increase in the number of manufacturing runs in-process and/or completed in the current-year period compared to the prior-year period as a result of growing manufacturing demand from a more diversified customer ~~base.~~base, which increase was offset by a decrease in process development revenue. The increase in revenues was attributed to the following components of our revenue streams:

$ millions $ millions
Net increase in manufacturing revenue $ 2.6 $ 12.1
Net increase in process development revenue 0.1
Net decrease in process development revenue (1.5 )
Total increase in revenues $ 2.7 $ 10.6
Additionally, growth in manufacturing revenue during the current-year period was impacted by a production interruption related to a problem with a specific piece of equipment, which resulted in the termination of certain in-process manufacturing runs and the postponement of other manufacturing runs scheduled to commence during the current-year period. We are currently in the process of implementing what we believe to be the necessary corrections for the specific piece of equipment that resulted in the production interruption, however, we expect that this interruption will continue to have a negative impact on our revenues and gross profit for the remainder of fiscal 2020.

Gross Profit

Gross profit for the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 was ~~$1.1~~$5.2 million compared to $1.2 million for the same period in the prior year, a decrease of $0.1 million, where gross margins were 7% and 9%, respectively. Despite increased revenue during the first quarter of 2020, gross profit was impacted by hiring personnel to accommodate growth in production demand, a realignment of the company's compensation structure to secure our existing workforce, and equipment repairs, which in aggregate negatively impacted gross profit by eight percentage points. This decrease was partially offset by increased revenue on customer contracts, which positively impacted gross profit by seven percentage points.
~~Selling, General and Administrative Expenses~~
~~SG&A expenses were $4.5 million for the three months ended July 31, 2019 compared to $3.2~~$3.6 million for the same period in the prior year, an increase of approximately ~~$1.2~~$1.7 million, where gross margins for such periods were 11% and 10%, respectively. The $1.7 million increase in gross profit for the current-year period was primarily attributed to increased revenues, which was partially offset by costs associated with payroll and related costs, higher facility and equipment related costs primarily associated with the production interruption described above, increased depreciation expense from the acquisition of new equipment, and general equipment repairs and maintenance costs.
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Selling, General and Administrative Expenses
SG&A expenses were $11.0 million for the nine months ended January 31, 2020 compared to $9.3 million for the same period in the prior year, an increase of approximately $1.7 million, or ~~39%~~19%. As a percentage of revenue, SG&A expenses for the ~~three~~nine months ended ~~July~~January 31, 2020 and 2019 were 23% and ~~2018 were 29% and 26%~~25%, respectively. The increase in SG&A expenses was attributed to the following components:

$ millions $ millions
Increase in separation related expenses $ 0.6 $ 0.8
Increase in payroll and benefit costs 0.4 0.5
Increase in stock-based compensation expense 0.2 0.4
Decrease in accrued bonus expenses (0.3 )
Net increase in all other SG&A expenses 0.3
Total increase in SG&A expenses $ 1.2 $ 1.7

Loss on Lease Termination

In September 2019, we entered into a lease amendment to terminate an operating lease for one of our non-manufacturing facilities that was primarily utilized for warehouse space. The lease termination was primarily driven by our efforts to reduce costs by leveraging available warehouse space in our other facilities, which in aggregate will save us approximately $1.3 million over a period of four years. In connection with the termination of this lease, we removed the corresponding operating lease right-of-use asset and liability balances from our balance sheet and recognized a loss of $0.4 million. 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.
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Operating Loss

Operating loss was ~~$3.4~~$6.1 million, or a negative ~~22%~~13% of revenue, for the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 compared to an operating loss of ~~$2.0~~$5.7 million, or a negative 16% of revenue, for the same period in the prior year. Of this ~~$1.4~~$0.4 million change in year-over-year operating loss, approximately ~~$0.1~~$1.7 million was attributable to an increase in SG&A expenses and $0.4 million was attributable to a loss recognized in connection with the termination of an operating lease, which were partially offset by an increase in gross profit ~~decrease and a SG&A increase~~ of approximately ~~$1.2~~$1.7 million.
Income Tax Benefit
In September 2018, we recognized a $1.0 million gain in discontinued operations, before taxes, for the sale of our r84 technology (as described in Note 7 to the accompanying unaudited condensed consolidated financial statements). In accordance with the “Intraperiod Tax Allocation” rules under ASC 740:Income Taxes, which requires the allocation of an entity’s total annual income tax provision among continuing operations and, in our case, discontinued operations for the nine months ended January 31, 2019, we recorded a tax benefit in continuing operations of $0.2 million with an offsetting tax expense of $0.3 million in discontinued operations. The remaining deferred tax benefit of $0.1 million was allocated proportionally to continuing operations throughout the remainder of fiscal year 2019.
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Discontinued Operations
As a result of the sale of our PS-targeting and r84 technologies in February 2018 and September 2018, respectively (as described in Note 10 to the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019), the abandonment of our remaining research and development assets, and the strategic shift in our corporate direction to focus solely on our CDMO business, the operating results of our former research and development segment have been excluded from continuing operations and reported as income from discontinued operations, net of tax, in the accompanying unaudited condensed consolidated financial statements for all periods presented. The gain of $1.0 million that was recorded in connection with the sale of our r84 technology in September 2018 is included in income from discontinued operations, net of tax, in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss for the nine months ended January 31, 2019. There were no operating results from discontinued operations during the three and nine months ended January 31, 2020.

Liquidity and Capital Resources

At ~~July~~January 31, ~~2019,~~2020, we had ~~$28.9~~$30.7 million in cash and cash equivalents. Our ability to fund our operations is dependent on the amount of cash on hand and our ability to generate positive cash flow to sustain our current operations. If we are unable to generate sufficient revenue to generate positive cash flow from operations, we will experience negative cash flows from operations. We plan to fund our operations using our existing cash and cash equivalents and cash generated from services provided under our customer contracts. As of ~~July~~January 31, ~~2019,~~2020, we performed an analysis and concluded that our cash and cash equivalents as of ~~July~~January 31, ~~2019~~2020 together with cash expected to be generated from services provided under our customer contracts will be sufficient to support our operations for at least one year from the issuance date of this Quarterly Report.

In the event we are unable to secure sufficient additional manufacturing services projects to support our current operations, we may need to raise additional capital ~~in the~~through a combination of equity ~~markets~~offerings and debt financings in order to fund our future operations. There can be no assurance that, ~~equity~~in the event we require additional financing, such financing will be available on acceptable terms or at all. Our ability to raise additional capital in the equity 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 and economic and market conditions. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as making capital expenditures or incurring additional debt. If we are unable to fund our continuing operations through these sources, we may need to further restructure, or cease, our operations. In addition, even if we are able to raise additional capital, it may not be at a price or on terms that are favorable to us. Any of these actions could materially harm our business, results of operations, and future prospects.

Cash Flow Analysis

Significant components of the changes in cash flows from operating, investing and financing activities for the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 and ~~2018~~2019 are as follows (in thousands):

Three Months Ended July 31, Nine Months Ended January 31,
2019 2018 2020 2019
Net cash used in operating activities $ (2,468 ) $ (7,448 )
Net cash provided by (used in) operating activities $ 2,780 $ (17,243 )
Net cash (used in) provided by investing activities (38 ) 2,808 (3,025 ) 4,752
Net cash used in financing activities (901 ) (141 ) (2,219 ) (2,016 )

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Net Cash ~~Used In~~Provided By (Used In) Operating Activities

Net cash ~~used in~~provided by (used in) operating activities represents our net loss, as ~~reported, adjustments~~adjusted to reconcile our net loss to net cash ~~used in~~provided by (used in) operating activities and net changes in the timing of cash flows as reflected by the changes in operating assets and liabilities.

Net cash ~~used in~~provided by operating activities for the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 was primarily attributable to a net loss of ~~$3.2~~$5.7 million, offset by adjustments to exclude noncash charges for depreciation and amortization, ~~and~~ stock-based compensation ~~for~~and loss on lease termination in an aggregate ~~adjustment~~amount of ~~$1.3~~$4.5 million, and ~~net~~include cash flows from the net change in operating assets and liabilities of ~~$0.6~~$4.0 million. The net change in operating assets and liabilities was primarily due to the timing of cash receipts and expenditures associated with working capital.

18
Net cash used in operating activities for the ~~three~~nine months ended ~~July~~January 31, ~~2018~~2019 was primarily attributable to a net loss of ~~$2.0~~$4.6 million, ~~offset by noncash charges for depreciation~~as negatively adjusted to exclude a $1.0 million gain on the sale of certain research and ~~amortization~~development assets and ~~stock-based compensation for an aggregate adjustment of $0.9 million, cash outflow of $2.6~~$4.4 million related to the change in assets and liabilities of discontinued operations, and partially offset by positive adjustments to exclude noncash charges for depreciation and amortization and stock-based compensation of $3.1 million, in aggregate, and net cash outflows from the net change in certain other operating assets and liabilities of ~~$3.8~~$10.5 million. The net change in operating assets and liabilities was primarily due to the timing of cash receipts and expenditures associated with working capital.

Net Cash (Used In) Provided By Investing Activities

~~Investing~~Our investing activities consist of capital expenditures for our manufacturing and development operations and with respect to the prior year period, proceeds from the sale of certain research and development assets associated with our discontinued research and development segment (as described in Note 10 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019).

Net cash used in investing activities during the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 consisted of property and equipment acquisitions of ~~less than $0.1 million.~~$3.0 million primarily related to our manufacturing and development operations.

Net cash provided by investing activities for the ~~three~~nine months ended ~~July~~January 31, ~~2018~~2019 consisted of proceeds of ~~$3.0~~$6.0 million related to the sale of certain research and development assets associated with our discontinued research and development segment, offset by property and equipment acquisitions of ~~$0.2~~$1.2 million.

Net Cash Used In Financing Activities

~~Financing~~Our financing activities primarily consist of cash dividends paid on our preferred stock and proceeds from the exercise of stock ~~options.~~options and the issuance of common stock under our ESPP.

Net cash used in financing activities for the ~~three~~nine months ended ~~July~~January 31, ~~2019~~2020 was ~~$0.9~~$2.2 million. This included ~~$1.1~~$3.2 million in dividends paid on our preferred stock and $0.1 million of principal finance lease payments, offset by ~~$0.3~~$0.9 million of proceeds from the exercise of stock ~~options.~~options and $0.2 million of proceeds from the issuance of common stock under our ESPP.

Net cash used in financing activities for the ~~three~~nine months ended ~~July~~January 31, ~~2018~~2019 was ~~$0.1~~$2.0 million. This included ~~$1.1~~$3.2 million in dividends paid on our preferred stock and $0.1 million of principal lease payments, offset by ~~$1.0~~$1.2 million of proceeds from the exercise of stock ~~options.~~options and $0.1 million of proceeds from the issuance of common stock under our ESPP.
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Contractual Obligations
Except as set forth below, during the nine months ended January 31, 2020, there were no material changes in our contractual obligations and commitments, as described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.
In September 2019, we entered into an amendment of one of our facility operating lease agreements (as described in Note 3 to the accompanying unaudited condensed consolidated financial statements), pursuant to which the term of the lease was shortened from August 2023 to September 2019, which effectively terminated the lease and thereby reduced our future minimum lease payments under all non-cancelable operating leases by approximately $1.0 million.

Critical Accounting Policies and Estimates

Our discussion and analysis of our consolidated financial position 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. During the ~~three~~nine months ended ~~July~~January 31, ~~2019,~~2020, there were no significant changes in our critical accounting policies as previously disclosed by us in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

Recent Accounting Pronouncements

Refer to Note 2,Summary of Significant Accounting Policies, in the accompanying notes to ~~the~~our unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements, including ASC 842, the new standard related to accounting for leases, which we adopted on May 1, 2019.

Backlog

Our backlog represents, as of a point in time, future ~~contract manufacturing~~ revenue from work not yet completed under signed contracts. As of ~~July~~January 31, ~~2019,~~2020, our backlog was approximately ~~$61~~$58 million, as compared to approximately $46 million as of ~~our fiscal year ended~~ April 30, 2019. While we anticipate the majority of our backlog will be recognized as revenue ~~during fiscal year 2020,~~over the next twelve (12) months, our backlog is subject to a number of risks and uncertainties, including 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; the risk that a customer may experience delays in its program(s) or otherwise, which could result in the postponement of anticipated manufacturing services; and, the risk that we may not successfully execute on all customer projects, any of which could have a negative impact on our liquidity, reported backlog and future revenue.

19
Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the ~~three~~nine months ended ~~July~~January 31, ~~2019,~~2020, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosures About Market Risk” section of our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

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Item 4. Controls And Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation, under the supervision and with the participation of management, including our ~~principle~~principal executive officer and ~~principle~~principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~July~~January 31, ~~2019,~~2020, the end of the period covered by this Quarterly Report. Based on that evaluation, our ~~principle~~principal executive officer and ~~principle~~principal financial officer concluded that our disclosure controls and procedures were effective as of ~~July~~January 31, ~~2019.~~2020.

Changes in Internal Control over Financial Reporting

There were no significant changes in our internal control over financial reporting, during the quarter ended ~~July~~January 31, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, we are at times subject to various legal proceedings and disputes. We make provisions for liabilities when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such provisions, if any, are reviewed at least quarterly and adjusted to reflect the impact of any settlement negotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations or financial ~~position~~position.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, results of operations, financial condition or cash flows. For a detailed discussion of the risks that affect our business, please refer to Part I, Item IA, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019. There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form ~~10-K.~~10-K, except as follows:
Outbreaks of communicable infections, such as the global coronavirus, could cause disruptions in our business.
The recent global outbreak of the coronavirus could have a negative impact on our revenues and operating results. This outbreak could result in disruptions and damage to our business, caused by both the negative impact to our ability to obtain raw materials, supplies and component parts necessary to operate our CDMO business and the negative impact on our ability to operate our manufacturing facilities should the coronavirus spread more broadly within Southern California thereby creating an increased risk of exposure to our manufacturing workforce which cannot operate our facilities remotely. While we continue to develop plans to help mitigate the negative impact of the coronavirus to our business, the efforts will not completely prevent our business from being adversely affected, and the longer the outbreak impacts supply and demand and the more broadly the outbreak spreads the more negative the impact it will have on our business, revenues and operating results, and the more limited our ability will be to try and make up for delayed or lost revenues.

Item 6. Exhibits

(a) Exhibits:

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. * *

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. * *

32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * *

101.INS XBRL Taxonomy Extension Instance Document. *

101.SCH XBRL Taxonomy Extension Schema Document. *

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *

101.DEF XBRL Taxonomy Extension Definition Linkbase Document. *

101.LAB XBRL Taxonomy Extension Label Linkbase Document. *

101.PRE XBRL Presentation Extension Linkbase Document. *
__________________
* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AVID BIOSERVICES, INC.

Date:~~September 5, 2019~~March 10, 2020 By:/s/ Richard B. Hancock
Richard B. Hancock
Interim President and Chief Executive Officer

Date:~~September 5, 2019~~March 10, 2020 By:/s/ Daniel R. Hart
Daniel R. Hart
Chief Financial Officer
(signed both as an officer duly authorized to sign on behalf of the Registrant and principal financial officer and chief accounting officer)

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	January 31, 2020			April 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	30,687		$	32,351
Accounts receivable		10,151			7,374
Contract assets		6,111			4,327
Inventory		9,565			6,557
Prepaid expenses and other current assets		763			709
Total current assets		57,277			51,318
Property and equipment, net		26,850			25,625
Operating lease right-of-use assets		20,437			–
Restricted cash		350			1,150
Other assets		302			302
Total assets	$	105,216		$	78,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,332		$	4,352
Accrued payroll and related costs		2,985			3,540
Contract liabilities		26,355			14,651
Operating lease liabilities		1,172			–
Other current liabilities		710			619
Total current liabilities		36,554			23,162

Operating lease liabilities, less current portion		21,584			–
Deferred rent, less current portion		–			2,072
Other long-term liabilities		–			93
Total liabilities		58,138			25,327

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; 1,648 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively		2			2
Common stock, $0.001 par value; 150,000 shares authorized; 56,479 and 56,136 shares issued and outstanding at January 31, 2020 and April 30, 2019, respectively		56			56
Additional paid-in capital		613,323			613,615
Accumulated deficit		(566,303	)		(560,605	)
Total stockholders’ equity		47,078			53,068
Total liabilities and stockholders’ equity	$	105,216		$	78,395

	Three Months Ended January 31,						Nine Months Ended January 31,
	2020			2019			2020			2019

Revenues	$	13,585		$	13,781		$	47,152		$	36,548
Cost of revenues		12,800			11,731			41,921			32,972
Gross profit		785			2,050			5,231			3,576

Operating expenses:
Selling, general and administrative		2,996			3,242			10,989			9,273
Loss on lease termination		–			–			355			–
Total operating expenses		2,996			3,242			11,344			9,273

Operating loss		(2,211	)		(1,192	)		(6,113	)		(5,697	)
Interest and other income, net		107			9			415			190
Loss from continuing operations before income taxes		(2,104	)		(1,183	)		(5,698	)		(5,507	)
Income tax benefit		–			44			–			217
Loss from continuing operations, net of tax		(2,104	)		(1,139	)		(5,698	)		(5,290	)
Income from discontinued operations, net of tax		–			–			–			739
Net loss	$	(2,104	)	$	(1,139	)	$	(5,698	)	$	(4,551	)

Comprehensive loss	$	(2,104	)	$	(1,139	)	$	(5,698	)	$	(4,551	)

Series E preferred stock accumulated dividends		(1,442	)		(1,442	)		(3,604	)		(3,604	)

Net loss attributable to common stockholders	$	(3,546	)	$	(2,581	)	$	(9,302	)	$	(8,155	)

Basic and diluted net (loss) income per common share attributable to common stockholders:
Continuing operations	$	(0.06	)	$	(0.05	)	$	(0.17	)	$	(0.16	)
Discontinued operations		–			–			–			0.01
Net loss per share attributable to common stockholders	$	(0.06	)		(0.05	)	$	(0.17	)	$	(0.15	)

Weighted average basic and diluted shares outstanding		56,404			56,069			56,275			55,949

	Three Months Ended January 31, 2020
	Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at October 31, 2019		1,648	$	2		56,338	$	56	$	613,325		$	(564,199	)	$	49,184
Series E preferred stock dividends paid ($0.65625 per share)		–		–		–		–		(1,081	)		–			(1,081	)
Exercise of stock options		–		–		120		–		484			–			484
Vesting of restricted stock units		–		–		21		–		–			–			–
Stock-based compensation expense		–		–		–		–		595			–			595
Net loss		–		–		–		–		–			(2,104	)		(2,104	)
Balance at January 31, 2020		1,648	$	2		56,479	$	56	$	613,323		$	(566,303	)	$	47,078

	July 31, 2019			April 30, 2019
ASSETS		*(unaudited)*
Current assets:
Cash and cash equivalents	$	28,944		$	32,351
Accounts receivable		8,223			7,374
Contract assets		5,589			4,327
Inventory		8,031			6,557
Prepaid expenses and other current assets		777			709
Total current assets		51,564			51,318
Property and equipment, net		26,453			25,625
Operating lease right-of-use assets		22,601			–
Restricted cash		1,150			1,150
Other assets		302			302
Total assets	$	102,070		$	78,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,458		$	4,352
Accrued payroll and related costs		3,230			3,540
Contract liabilities		18,104			14,651
Operating lease liabilities		1,382			–
Other current liabilities		761			619
Total current liabilities		28,935			23,162

Operating lease liabilities, less current portion		23,451			–
Deferred rent, less current portion		–			2,072
Other long-term liabilities		–			93

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; 1,648 shares issued and outstanding at July 31, 2019 and April 30, 2019, respectively		2			2
Common stock, $0.001 par value; 150,000 shares authorized; 56,238 and 56,136 shares issued and outstanding at July 31, 2019 and April 30, 2019, respectively		56			56
Additional paid-in capital		613,395			613,615
Accumulated deficit		(563,769	)		(560,605	)
Total stockholders’ equity		49,684			53,068
Total liabilities and stockholders’ equity	$	102,070		$	78,395

	Three Months Ended January 31, 2019
	Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at October 31, 2018		1,648	$	2		56,063	$	56	$	614,541		$	(559,802	)	$	54,797
Series E preferred stock dividends paid ($0.65625 per share)		–		–		–		–		(1,081	)		–			(1,081	)
Exercise of stock options		–		–		9		–		29			–			29
Stock-based compensation expense		–		–		–		–		458			–			458
Net loss		–		–		–		–		–			(1,139	)		(1,139	)
Balance at January 31, 2019		1,648	$	2		56,072	$	56	$	613,947		$	(560,941	)	$	53,064

	Nine Months Ended January 31, 2020
	Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at April 30, 2019		1,648	$	2		56,136	$	56	$	613,615		$	(560,605	)	$	53,068
Series E preferred stock dividends paid ($1.96875 per share)		–		–		–		–		(3,244	)		–			(3,244	)
Common stock issued under employee stock purchase plan		–		–		47		–		187			–			187
Exercise of stock options		–		–		247		–		916			–			916
Vesting of restricted stock units		–		–		49		–		–			–			–
Stock-based compensation expense		–		–		–		–		1,849			–			1,849
Net loss		–		–		–		–		–			(5,698	)		(5,698	)
Balance at January 31, 2020		1,648	$	2		56,479	$	56	$	613,323		$	(566,303	)	$	47,078

	Three Months Ended July 31,
	2019			2018
Revenues	$	15,254		$	12,589
Cost of revenues		14,168			11,397
Gross profit		1,086			1,192
Operating expenses:
Selling, general and administrative		4,459			3,215
Operating loss		(3,373	)		(2,023	)
Interest and other income, net		209			62
Net loss	$	(3,164	)	$	(1,961	)

Comprehensive loss	$	(3,164	)	$	(1,961	)

Series E preferred stock accumulated dividends		(1,442	)		(1,442	)
Net loss attributable to common stockholders	$	(4,606	)	$	(3,403	)

Basic and diluted net loss per common share attributable to common stockholders	$	(0.08	)	$	(0.06	)

Weighted average basic and diluted shares outstanding		56,167			55,770

	Nine Months Ended January 31, 2019
	Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at April 30, 2018		1,648	$	2		55,689	$	55	$	614,810		$	(559,129	)	$	55,738
Series E preferred stock dividends paid ($1.96875 per share)		–		–		–		–		(3,244	)		–			(3,244	)
Cumulative-effect adjustment pursuant to adoption of ASC 606		–		–		–		–		–			2,739			2,739
Common stock issued under employee stock purchase plan		–		–		40		–		114			–			114
Exercise of stock options		–		–		343		1		1,187			–			1,188
Stock-based compensation expense		–		–		–		–		1,080			–			1,080
Net loss		–		–		–		–		–			(4,551	)		(4,551	)
Balance at January 31, 2019		1,648	$	2		56,072	$	56	$	613,947		$	(560,941	)	$	53,064

	Preferred Stock				Common Stock				AdditionalPaid-In			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance at April 30, 2018		1,648	$	2		55,689	$	55	$	614,810		$	(559,129	)	$	55,738
Series E preferred stock dividends paid ($0.65625 per share)		–		–		–		–		(1,081	)		–			(1,081	)
Cumulative-effect adjustment pursuant to adoption of ASC 606		–		–		–		–		–			2,739			2,739
Exercise of stock options		–		–		301		–		1,014			–			1,014
Stock-based compensation expense		–		–		–		–		297			–			297
Net loss		–		–		–		–		–			(1,961	)		(1,961	)
Balance at July 31, 2018		1,648	$	2		55,990	$	55	$	615,040		$	(558,351	)	$	56,746

	Three Months Ended July 31,				Three Months Ended January 31,				Nine Months Ended January 31,
	2019		2018		2020		2019		2020		2019
Manufacturing revenue	$	12,908	$	10,300	$	11,525	$	10,770	$	40,422	$	28,313
Process development revenue		2,346		2,289		2,060		3,011		6,730		8,235
Total revenues	$	15,254	$	12,589	$	13,585	$	13,781	$	47,152	$	36,548

	January 31, 2020		April 30, 2019		January 31, 2019		April 30, 2018
Cash and cash equivalents	$	30,687	$	32,351	$	27,758	$	42,265
Restricted cash		350		1,150		1,150		1,150
Total cash, cash equivalents and restricted cash	$	31,037	$	33,501	$	28,908	$	43,415

	July 31, 2019			April 30, 2019			January 31, 2020			April 30, 2019
Leasehold improvements	$	20,574		$	20,574		$	21,130		$	20,574
Laboratory and manufacturing equipment		12,983			12,858			14,968			12,858
Computer equipment and software		4,662			4,644			4,931			4,644
Furniture, fixtures and office equipment		528			528			685			528
Construction-in-progress		3,001			1,590			1,963			1,590
Total property and equipment, gross	$	41,748		$	40,194		$	43,677		$	40,194
Less: accumulated depreciation and amortization		(15,295	)		(14,569	)		(16,827	)		(14,569	)
Total property and equipment, net	$	26,453		$	25,625		$	26,850		$	25,625

	Three Months Ended January 31, 2020		Nine Months Ended January 31, 2020
Operating lease cost	$	798	$	2,570
Short-term lease cost		83		83
Variable lease cost		155		488
Total lease cost	$	1,036	$	3,141

Fiscal Year Ending April 30,	Total			Total
2020 (remaining period)	$	2,489		$	735
2021		3,391			2,972
2022		3,422			2,995
2023		3,445			3,010
2024		3,341			3,086
Thereafter		22,020			21,938
Total lease payments	$	38,108		$	34,736
Less: imputed interest		(13,275	)		(11,980	)
Total operating lease liabilities	$	24,833		$	22,756

	Stock Options			Grant Date Weighted Average Exercise Price		Stock Options			Grant Date Weighted Average Exercise Price
		*(in thousands)*					*(in thousands)*
Outstanding at May 1, 2019		3,274		$	7.51		3,274		$	7.51
Granted		564		$	5.79		845		$	5.95
Exercised		(74	)	$	3.50		(247	)	$	3.72
Canceled or expired		(217	)	$	3.71		(931	)	$	10.45
Outstanding at July 31, 2019		3,547		$	7.56
Outstanding at January 31, 2020							2,941		$	6.45

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
		*(in thousands)*					*(in thousands)*
Outstanding at May 1, 2019		200		$	4.32		200		$	4.32
Granted		194		$	5.91		194		$	5.91
Vested		(27	)	$	3.62		(49	)	$	4.30
Forfeited		(6	)	$	4.31		(27	)	$	5.15
Outstanding at July 31, 2019		361		$	5.23
Outstanding at January 31, 2020							318		$	5.22

Gain on sale of research and development assets before income taxes⁽¹⁾	$	1,000
Income tax expense		(261	)
Income from discontinued operations, net of tax	$	739

	$ millions
Net increase in manufacturing revenue	$	0.8
Net decrease in process development revenue		(1.0	)
Total decrease in revenues	$	(0.2	)

	$ millions
Decrease in accrued bonus expenses	$	(0.7	)
Increase in separation related expenses		0.2
Net increase in all other SG&A expenses		0.3
Total decrease in SG&A expenses	$	(0.2	)

	Three Months Ended July 31,						Nine Months Ended January 31,
	2019			2018			2020			2019
Net cash used in operating activities	$	(2,468	)	$	(7,448	)
Net cash provided by (used in) operating activities							$	2,780		$	(17,243	)
Net cash (used in) provided by investing activities		(38	)		2,808			(3,025	)		4,752
Net cash used in financing activities		(901	)		(141	)		(2,219	)		(2,016	)

	AVID BIOSERVICES, INC.



Date:~~September 5, 2019~~March 10, 2020	By:/s/ Richard B. Hancock
	Richard B. Hancock
	Interim President and Chief Executive Officer



Date:~~September 5, 2019~~March 10, 2020	By:/s/ Daniel R. Hart
	Daniel R. Hart
	Chief Financial Officer
	(signed both as an officer duly authorized to sign on behalf of the Registrant and principal financial officer and chief accounting officer)