Table of Contents

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 31, 20192020

 

or

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

For the transition period from _____ to _____

 

Commission file number:001-32839

 

AVID BIOSERVICES, INC.

(Exact name of Registrant as specified in its charter)

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:

_______________________________

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

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareCDMOThe NASDAQ Stock Market LLC
Preferred Stock Purchase Rights——
10.50% Series E Convertible Preferred Stock, $0.001 par value per shareCDMOPThe 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 oAccelerated filer ýoNon-accelerated filer oýSmaller 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, 2019,24, 2020, the number of shares of registrant’s common stock outstanding was 56,237,674.56,602,792.

 

 

 

   

 

AVID BIOSERVICES, INC.

 

Form 10-Q

For The Quarter Ended July 31, 20192020

 

TABLE OF CONTENTS

Page
No.

Page
No.
PART I - FINANCIAL INFORMATION1
Item 1.Condensed Consolidated Financial Statements (Unaudited)1
Item 2.Management’s Discussion and Analysis of Financial Condition And Results of Operations1516
Item 3.Quantitative and Qualitative Disclosures About Market Risk2021
Item 4.Controls And Procedures20
21
PART II - OTHER INFORMATION2123
Item 1.Legal Proceedings2123
Item 1A.Risk Factors2123
Item 6.   ExhibitsExhibits21
23
SIGNATURES2224

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

 

 

 

 2i 

 

PART I - I—FINANCIAL INFORMATION

 

Item 1.Condensed Consolidated Financial Statements (Unaudited)

 

avid bioservices, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In(Unaudited) (In thousands, except par value)

  

July 31,

2020

  

April 30,

2020

 
ASSETS        
Current assets:        
Cash and cash equivalents $28,211  $36,262 
Accounts receivable  14,311   8,606 
Contract assets  4,317   3,300 
Inventory  9,610   10,883 
Prepaid expenses  569   712 
Total current assets  57,018   59,763 
Property and equipment, net  28,134   27,105 
Operating lease right-of-use assets  19,757   20,100 
Restricted cash  350   350 
Other assets  302   302 
Total assets $105,561  $107,620 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $5,724  $5,926 
Accrued payroll and related costs  3,405   3,019 
Contract liabilities  27,123   29,120 
Operating lease liabilities  1,268   1,228 
Note payable  –   4,379 
Other current liabilities  591   808 
Total current liabilities  38,111   44,480 
         
Operating lease liabilities, less current portion  20,911   21,244 
Total liabilities  59,022   65,724 
         
Commitments and contingencies        
         
Stockholders’ equity:        
Preferred stock, $0.001 par value; 5,000 shares authorized;
   1,648 shares issued and outstanding at July 31, 2020 and April 30, 2020, respectively		  2   2 
Common stock, $0.001 par value; 150,000 shares authorized;
   56,601 and 56,483 shares issued and outstanding at July 31, 2020 and April 30, 2020,
   respectively		  56   56 
Additional paid-in capital  612,822   612,909 
Accumulated deficit  (566,341)  (571,071)
Total stockholders’ equity  46,539   41,896 
Total liabilities and stockholders’ equity $105,561  $107,620 

See accompanying notes to condensed consolidated financial statements.

1

avid bioservices, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS and comprehensive INCOME (loss)

(Unaudited) (In thousands, except per share information)

 

 

  

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

July 31,

 
  2020  2019 
       
Revenues $25,392  $15,254 
Cost of revenues  16,848   14,168 
Gross profit
  8,544   1,086 
         
Operating expenses:        
Selling, general and administrative  3,825   4,459 
Operating income (loss)  4,719   (3,373)
Interest and other income, net  11   209 
Net income (loss) $4,730  $(3,164)
         
Comprehensive income (loss) $4,730  $(3,164)
         
Series E preferred stock accumulated dividends  (1,442)  (1,442)
         
Net income (loss) attributable to common stockholders $3,288  $(4,606)
         
         
Net income (loss) per share attributable to common stockholders:        
Basic $0.06  $(0.08)
Diluted $0.06  $(0.08)
         
Weighted average common shares outstanding:        
Basic  56,523   56,167 
Diluted  56,892   56,167 

 

See accompanying notes to condensed consolidated financial statements.

2

avid bioservices, INC.

CONDENSED CONSOLIDATED STATEMENTS of STOCKHOLDERs’ EQUITY

(Unaudited) (In thousands, except per share information)

  Three Months Ended July 31, 2020 
  Preferred Stock  Common Stock  Additional Paid-In  Accumulated  Total Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  

Deficit

  Equity 
Balance at April 30, 2020  1,648  $2   56,483  $56  $612,909  $(571,071) $41,896 
Series E preferred stock dividends paid ($0.65625 per share)  –   –   –   –   (1,081)  –   (1,081)
Common stock issued under Employee
Stock Purchase Plan		  –   –   32   –   179   –   179 
Exercise of stock options  –   –   20   –   85   –   85 
Vesting of restricted stock units  –   –   66   –   –   –   – 
Stock-based compensation expense  –   –   –   –   730   –   730 
Net income  –   –   –   –   –   4,730   4,730 
Balance at July 31, 2020  1,648  $2   56,601  $56  $612,822  $(566,341) $46,539 

  Three Months Ended July 31, 2019 
  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 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 3 

 

avid bioservices, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS and comprehensive loss (UNAUDITED)CASH FLOWS

(In thousands, except per share information)(Unaudited) (In thousands)

 

 

 

 

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 
  

 

Three Months Ended

July 31,

 
  2020  2019 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss) $4,730  $(3,164)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation and amortization  830   726 
Stock-based compensation  730   603 
Changes in operating assets and liabilities:        
Accounts receivable  (5,705)  (849)
Contract assets  (1,017)  (1,262)
Inventory  1,273   (1,474)
Prepaid expenses  143   (68)
Accounts payable  (1,572)  (410)
Accrued payroll and related costs  386   (310)
Contract liabilities  (1,997)  3,453 
Other accrued expenses and liabilities  (74)  287 
Net cash used in operating activities  (2,273)  (2,468)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment  (489)  (38)
Net cash used in investing activities  (489)  (38)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of common stock under employee stock purchase plan  179   – 
Proceeds from exercise of stock options  85   258 
Repayment of note payable  (4,379)  – 
Dividends paid on preferred stock  (1,081)  (1,081)
Principal payments on finance lease  (93)  (78)
Net cash used in financing activities  (5,289)  (901)
         
Net decrease in cash, cash equivalents and restricted cash  (8,051)  (3,407)
Cash, cash equivalents and restricted cash, beginning of period  36,612   33,501 
Cash, cash equivalents and restricted cash, end of period $28,561  $30,094 
         
Supplemental disclosures of non-cash activities:        
Unpaid purchases of property and equipment $1,370  $1,516 

 

See accompanying notes toThe following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated financial statements.

balance sheets that sum to the total of the same amounts shown above:

 

  

July 31,
2020

  

April 30,
2020

  July 31,
2019		  

April 30,
2019

 
Cash and cash equivalents $28,211  $36,262  $28,944  $32,351 
Restricted cash  350   350   1,150   1,150 
Total cash, cash equivalents and restricted cash $28,561  $36,612  $30,094  $33,501 

 

4

avid bioservices, INC.

CONDENSED CONSOLIDATED STATEMENTS of STOCKHOLDERs’ EQUITY (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 

  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.

 

 

 54 

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. isWe are a dedicated contract development and manufacturing organization (“CDMO”) that provides a comprehensive range of services from process development to Current Good Manufacturing Practices (“CGMP”) clinical and commercial manufacturing, focused on biopharmaceutical productsdrug substances 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, 2019,2020, 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.2020. 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.

 

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, 2019.2020.

 

Revenue Recognition

 

Revenue is recognized from contract manufacturing services provided under our customer contracts which we haveare 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 cultureproducts 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 theirits product during the entire manufacturing process and can make changes to the process or specifications at theirits request. Under these agreements, we are entitled to consideration for progress to date that includes an element of profit margin.

 

 

 

 75 

 

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(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 theirits 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 theirits product as the product is being created or enhanced by our services and can make changes to theirits process or specifications upon request. Under these agreements, we are entitled to consideration for progress to date that includes an element of profit margin.

 

The following table summarizes our manufacturing and process development revenue streams (in thousands):

 

  Three Months Ended July 31, 
  2019  2018 
Manufacturing revenue $12,908  $10,300 
Process development revenue  2,346   2,289 
Total revenues $15,254  $12,589 
  Three Months Ended July 31, 
  2020  2019 
Manufacturing revenues $24,063  $12,908 
Process development revenues  1,329   2,346 
Total revenues $25,392  $15,254 

 

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.

During the three months ended July 31, 20192020 and 2018,2019, we recognized revenue of $6,245$16.4 million and $6,962,$6.2 million, respectively, for which the contract liability was recorded in a prior year period.

The transaction price for services provided under our customer contracts reflects our best estimates of the amount of consideration to which we are entitled in exchange for providing goods and services to our customers. In determining the transaction price, we considered the different sources of variable consideration including, but not limited to, discounts, credits, refunds, price concessions or other similar items. We have included in the transaction price some or all of an amount of variable consideration, utilizing the most likely method, only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The actual amount of consideration ultimately received may differ.

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

 

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

6

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Restricted Cash

Under the terms of an operating lease related to our facilities (Note 4), we are required to maintain, as collateral, a letter of credit, during the term of such lease. At July 31, 2020 and April 30, 2020, restricted cash of $0.4 million was pledged as collateral under the letter of credit.

 

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 accounting under the previous lease standard. In addition, we elected the package of practical expedients available for existing contracts, which allowed us to carryforward 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 31, 2019.sheets. 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).option. Operating lease expense is recognized on a straight-line basis over the expected lease term.

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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.

 

Inventory

 

Inventory consists of raw materials inventory and areis 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, which are 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. as follows:

DescriptionEstimated Useful Life
Leasehold improvementsShorter of estimated useful life or lease term
Laboratory and manufacturing equipment5 – 10 years
Furniture, fixtures and office equipment5 – 10 years
Computer equipment and software3 – 5 years

Construction-in-progress, which represents direct costs related to the construction of various equipment and leasehold improvements primarily associated with our manufacturing facilities, areis not depreciated until the asset is completed and placed into service. No interest was incurred or capitalized as construction-in-progress as of July 31, 20192020 and April 30, 2019.

2020. 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  July 31, 2020  April 30, 2020 
Leasehold improvements $20,574  $20,574  $21,130  $21,130 
Laboratory and manufacturing equipment  12,983   12,858   15,414   15,033 
Computer equipment and software  4,662   4,644   5,350   5,334 
Furniture, fixtures and office equipment  528   528   685   685 
Construction-in-progress  3,001   1,590   4,026   2,564 
Total property and equipment, gross $41,748  $40,194  $46,605  $44,746 
Less: accumulated depreciation and amortization  (15,295)  (14,569)  (18,471)  (17,641)
Total property and equipment, net $26,453  $25,625  $28,134  $27,105 

 

Depreciation and amortization expense for the three months ended July 31, 2020 and 2019 was $0.8 million and 2018 was $0.7 million, and $0.6 million, respectively.

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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 months ended July 31, 20192020 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 July 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 31, 2019,2020 and April 30, 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 Income (Loss)

 

Comprehensive Loss

Comprehensive lossincome (loss) is the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive lossincome (loss) is equal to our net lossincome (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 31, 20192020 and April 30, 2019,2020, 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 months ended July 31, 2019 and 2018.

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avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Recent Accounting Standards Not Yet AdoptedPronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Instruments – Credit Losses (Topic 326): , Measurement of Credit Losses onof Financial Instruments.Instruments This(“ASU 2016-13”). The standard update requires that certain financial assets be measured at amortized cost net of an allowancechanges the methodology for estimatedmeasuring credit losses on financial instruments and the timing of when 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.are recorded. As a smaller reporting company, ASU 2016-13 isand its subsequent updates are effective for fiscal years, and interim periods within those years beginning after December 15, 2019,2022, which will be our fiscal year 20212024 beginning May 1, 2020;2023; however, early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2016-13this standard will have on our condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820):Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement(“ASU 2018-13”), which eliminates, adds and modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to theof fair value hierarchy, modifying existing disclosure requirements relatedmeasurements. Entities will no longer be required to measurement uncertaintydisclose the amount of and adding new disclosure requirements, primarily surrounding Level 3 fair value measurements andreasons for transfers between Level 1 and Level 2.2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. We adopted ASU 2018-13 on May 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirement for capitalizing implementation costs incurred to develop or obtain internal-use-software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 14, 2019. We adopted ASU 2018-15 on May 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions and improving consistent application in certain areas of Topic 740. 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 20212022 beginning May 1, 2020.2021. Early adoption is permitted for any removed or modified disclosures.permitted. We are currently evaluating the new guidancetiming and do not expect the adoptionimpact of adopting ASU 2018-13 to have a material impact2019-12 on our condensed consolidated financial statements and related disclosures.

 

Note 3 – Note Payable

 

On April 17, 2020, we entered into a promissory note (the “Note”) with City National Bank, the lender, evidencing an unsecured loan pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) of approximately $4.4 million (the “PPP Loan”). We applied for and received the PPP Loan pursuant to the then published PPP qualification and certification requirements.

10

 

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance that created uncertainty regarding the qualification requirements for a PPP Loan (the “New Guidance”). In light of the New Guidance, we determined it appropriate to pay off the entire amount of the PPP Loan. Accordingly, on May 12, 2020, we paid off in full the principal and interest on the PPP Loan, resulting in the termination of the Note.

 

Note 34 – Leases

 

We currently lease office, manufacturing, laboratory and warehouse space in fivefour buildings under fourthree 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, aA multi-year renewal option was usedincluded 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, threetwo 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 onincluded in our July 31, 2019accompanying condensed consolidated balance sheets primarily relate to these facility leases.

 

Our operatingCertain 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 expenseliabilities, they are recognized as variable lease cost in the period they are incurred.

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avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The components of lease cost included in our accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three months ended July 31, 2020 and 2019 was $0.9 millionwere as follows (in thousands):

  Three Months Ended July 31, 
  2020  2019 
Operating lease cost $788  $892 
Variable lease cost  121   156 
Short-term lease cost  92   – 
Total lease cost $1,001  $1,048 

Supplemental consolidated balance sheet and was included inother information related to our condensed consolidated statementsoperating leases as of operations. July 31, 2020 and April 30, 2020 were as follows (in thousands, expect weighted average data):

  July 31, 2020  April 30, 2020 
Assets        
Operating lease right-of-use assets $19,757  $20,100 
Liabilities        
Operating lease liabilities $1,268  $1,228 
Operating lease liabilities, less current portion  20,911   21,244 
Total operating lease liabilities $22,179  $22,472 
Weighted average remaining lease term  10.3 years   10.5 years 
Weighted average discount rate  8.0%   8.0% 

Cash paid for amounts included in the measurement of lease liabilities for the three months ended July 31, 2020 and 2019 was $0.7 million and $0.8 million, respectively, and wasis included in net cash used in operating activities in our accompanying unaudited condensed consolidated statements of cash flows.

 

As of July 31, 2019,2020, the maturities of our operating lease liabilities, which includes those derived from lease renewal options that we considered it reasonably certain that we would exercise, were as follows (in thousands):

 

Fiscal Year Ending April 30,  Total 
2020 (remaining period)  $2,489 
2021   3,391 
2022   3,422 
2023   3,445 
2024   3,341 
Thereafter   22,020 
Total lease payments  $38,108 
Less: imputed interest   (13,275)
Total operating lease liabilities  $24,833 

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

  July 31, 2019 
Operating lease liabilities $1,382 
Operating lease liabilities, less current portion  23,451 
Total operating lease liabilities $24,833 

As of July 31, 2019, the weighted average remaining lease term and weighted average discount rate of our operating leases was 10.8 years and 8.0%, respectively.

Fiscal Year Ending April 30, Total 
2021 (remaining period) $2,233 
2022  2,995 
2023  3,010 
2024  3,086 
2025  3,171 
Thereafter  18,767 
Total lease payments $33,262 
Less: imputed interest  (11,083)
Total operating lease liabilities $22,179 

 

 

 

 1110 

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)(UNAUDITED)

 

 

Note 45 –Stockholders’ Equity

 

Series E Preferred Stock Dividend

 

On June 5, 2019, our BoardEach share of Directors declared a quarterly cash dividend of $0.65625 per share on ourissued 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 onconvertible at any time, at 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 holdersoption of the Series E Preferred Stock of record on June 17, 2019.

Each share of Series E Preferred Stock is convertibleholder, 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, plus any accrued and unpaid dividends (whether or not earned or declared), by the then-current conversion price per share, currently $21.00 per share.share, rounded down to the nearest whole number. As of July 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 1,961,6191,978,783 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 couldwould be converted into 4.14 shares of our common stock, or 6,826,435 shares in the aggregate.

The Series E Preferred Stock has no stated maturity date or mandatory redemption and is senior to all of our other securities. We may redeem the Series E Preferred Stock for cash, in whole or in part, by paying the redemption price of $25.00 per share, plus any accrued and unpaid dividends to the redemption date. Holders of the Series E Preferred Stock have no voting rights, except as defined in the Certificate of Designations of Rights and Preferences filed with the Secretary of State of the State of Delaware on February 12, 2014.

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, and are payable quarterly in cash, on or about the first day of each January, April, July and October. For each of the three months ended July 31, 2020 and 2019, we paid aggregate cash dividends of $1.1 million for issued and outstanding shares of our Series E Preferred Stock.

 

Note 56 –Equity Compensation Plans

 

Stock Incentive Plans

 

As of July 31, 2019,2020, we had an aggregate of 7,161,4296,853,052 shares of our common stock reserved for issuance under our stock incentive plans, of which 3,908,1484,190,908 shares were subject to outstanding stock options and restricted stock units (“RSUs”) and 3,253,2812,662,144 shares were available for future grants of stock-based awards.

 

11

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stock Options

 

The following summarizes our stock option transaction activity for the three months ended July 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 
Outstanding at May 1, 2020  2,896  $6.20 
Granted  564  $5.79   770  $6.97 
Exercised  (74) $3.50   (20) $4.33 
Canceled or expired  (217) $3.71   (30) $7.67 
Outstanding at July 31, 2019  3,547  $7.56 
Outstanding at July 31, 2020  3,616  $6.36 

 

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 months ended July 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 
Outstanding at May 1, 2020  307  $5.23 
Granted 194  $5.91   337  $7.09 
Vested (27) $3.62   (68) $5.10 
Forfeited  (6) $4.31   (1) $4.77 
Outstanding at July 31, 2019  361  $5.23 
Outstanding at July 31, 2020  575  $6.34 

12

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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 tocan purchase shares of our common stock, through payroll deductions atbased on a percentage of their compensation, subject to certain limits. The purchase price per share is equal to 85%the lower of the lower85% of the fair market value of our common stock as ofon 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 $25,000During the three months ended July 31, 2020, a total of stock in any one calendar year. No32,197 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 $5.58 per share. As of July 31, 2019,2020, we had 1,196,2611,116,538 shares of our common stock reserved for issuance under the ESPP.

 

Stock-Based Compensation

 

Stock-based compensation expense for the three months ended July 31, 20192020 and 20182019 was comprised of the following (in thousands):

 

 Three Months Ended July 31,  Three Months Ended July 31, 
 2019  2018  2020  2019 
Cost of revenues $187  $85  $278  $187 
Selling, general and administrative  416   212   452   416 
Total stock-based compensation $603  $297  $730  $603 

 

As of July 31, 2019,2020, the total estimated unrecognized compensation cost related to non-vested employee stock options and non-vested RSUs was $4.9$6.9 million and $1.8$3.5 million, respectively. These costs are expected to be recognized over weighted average vesting periods of 3.033.02 years and 3.553.39 years, respectively.

 

13

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 67 – Net LossIncome (Loss) Per Common Share

 

Basic net lossincome (loss) per common share is computed by dividing our net lossincome (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 lossincome (loss) per common share is computed by dividing our net lossincome (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 lossincome (loss) attributable to common stockholders represents our net lossincome (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).

 

13

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The potential dilutive effect of stock options, unvested RSUs, and 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 wasis 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, becauseA reconciliation of the impactnumerators and the denominators of stock options, unvested RSUs, shares of common stock expected to be issued under our ESPP, warrants, and Series E Preferred Stock are anti-dilutive during periods of net loss, there was no difference betweenthe basic and diluted lossdilutive net income (loss) per common share amountscomputations for the three months ended July 31, 2020 and 2019, and 2018.are as follows (in thousands, expect per share amounts):

  Three Months Ended July 31, 
  2020  2019 
Numerator      
Net income (loss) $4,730  $(3,164)
Series E preferred stock accumulated dividends  (1,442)  (1,442)
Net income (loss) attributable to common stockholders $3,288  $(4,606)
         
Denominator        
Weighted average common shares outstanding, basic  56,523   56,167 
Effect of dilutive securities:        
Stock options  264   – 
RSUs  101   – 
ESPP  4   – 
Weighted average common shares outstanding, dilutive  56,892   56,167 
Net income (loss) per share, basic $0.06  $(0.08)
Net income (loss) per share, diluted $0.06  $(0.08)

 

The following table presents the securities excluded from the calculation of weighted average diluted shares outstanding excludesnet income (loss) per share for the dilutivethree months ended July 31, 2020 and 2019, as the 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 isinclusion would have been anti-dilutive during periods of net loss (in thousands):

 

 Three Months Ended July 31,  Three Months Ended July 31, 
 2019  2018  2020  2019 
Stock options  107   102   2,064   2,965 
RSUs  46   7   48   88 
ESPP  2   3   –   2 
Series E Preferred Stock  1,979   1,979 
Total  155   112   4,091   5,034 

 

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):

14

avid bioservices, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  Three Months Ended July 31, 
  2019  2018 
Stock options  2,858   2,695 
RSUs  42   – 
Warrants  –   39 
Series E Preferred Stock  1,979   1,979 
Total  4,879   4,713 

Note 8 – Commitments and Contingencies

In March 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) outbreak a pandemic and recommended containment and mitigation measures worldwide. Since the announcement we have been monitoring this closely, and although the COVID-19 pandemic has not had a significant impact on our operations to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and our business is highly uncertain. Accordingly, we cannot provide any assurance that the COVID-19 pandemic will not have a material adverse impact on our operations or future results. The extent to which the COVID-19 pandemic may impact our future business, strategic initiatives, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and resurgence of the COVID-19 pandemic, the effects of the COVID-19 pandemic on our customers, vendors, and employees and the remedial actions and stimulus measures adopted by local and federal governments, and the extent to which normal economic and operating conditions can resume.

 

Note 79 – Subsequent Events

 

On September 4, 2019,August 31, 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 1, 20192020 through September 30, 2019.2020. The cash dividend is payable on October 1, 20192020 to holders of the Series E Preferred Stock of record on September 16, 2019.14, 2020.

 

 

 

 1415 

 

 

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, 2019.2020.

 

Cautionary Statement Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements, including the anticipated future impact of the ongoing COVID-19 global pandemic on our business operations, 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, 2019,2020, 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 clinical and commercial manufacturing, focused on biopharmaceutical productsdrug substances derived from mammalian cell culture. With over 2527 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, release and stability testing and regulatory submissions and support. We also provide a variety of process development services, including cell lineupstream and downstream development and optimization, cell culture and feed optimization, analytical methods development, testing and product characterization.

 

Strategic Objectives

 

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

 

·Expand existing customer relationshipsInvest in additional manufacturing capacity and diversifyresources required for us to achieve our customer base by securing additional customerslong-term growth strategy and meet the growth-demand of our customers’ programs, moving from development through to supportcommercial manufacturing;
·Broaden our future potential revenue growth;market awareness through a diversified yet flexible marketing strategy;
·Continue to invest in manufacturing facilitiesexpand our customer base and infrastructure to maximize our facility utilization and support our customers’programs with existing customers for both process development and clinical and commercial manufacturing requirements;service offerings; and
·BroadenIncrease our sales force by hiring sales representativesoperating profit margin to execute our business development initiativesbest in key markets.class industry standards.

 

 

 

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First Quarter Highlights

 

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

 

·Entered into a new contract manufacturing agreement with oneReported revenues of $25.4 million, an increase of 66%, or $10.1 million, compared to the world’s leading pharmaceutical companies to provide process transfer and clinical manufacturing services to support the development of a novel therapeutic candidate;same prior year period;
·Expanded our relationshipReported net income attributable to common stockholders of $3.3 million, or $0.06 per basic and diluted share;
·Appointed Nicholas (Nick) Green as President and Chief Executive Officer. Mr. Green has more than 30 years of experience in the global pharmaceutical and healthcare services industry with an existing customer under a newsignificant expertise in the contract manufacturing agreementof novel pharmaceutical products;
·Increased our customer base with the addition of three new customers to providewhom we are initially providing for a range of services including technical transfer, process development and clinicalscale-up, with a view towards anticipated future manufacturing servicesservices;
·Validated remediation to support the developmentspecific piece of a novel drug candidate;equipment that caused an interruption of production in the second half of fiscal 2020. The validation process entailed the completion of multiple successful revenue-generating production campaigns using this equipment. All batches deferred from fiscal 2020 have now been completed resulting in first quarter fiscal 2021 revenues of $4.3 million; and
·Appointed Catherine Mackey, Ph.D.Continued to our board of directors as an independent member. Dr. Mackeyadvance the pre-engineering, design and permitting work required to allow us to break ground on a facility expansion when we determine it is an experienced leader, director and advisor with more than 30 years of research and development and operations experience in the pharmaceutical, biotechnology and agricultural industries.appropriate;

 

We are also currentlyImpact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) outbreak a pandemic. To date, the COVID-19 pandemic has not had a significant impact on our operations, as we have been able to continue to operate our manufacturing facilities and provide essential services to our customers. Additionally, in an effort to protect the processhealth and safety of expandingour employees and optimizing our process development capabilitiesin compliance with state regulations, we have instituted a work-from-home policy for employees who can perform their job functions offsite, implemented social distancing requirements and laboratory space, which includes expanding our total available process development laboratory space, upgrading the infrastructureother measures to allow manufacturing and equipmentother personnel essential to production to continue work within our existing process development laboratories,manufacturing facilities, and implementingsuspended all non-essential employee travel.

The full extent to which COVID-19 will directly or indirectly impact our business, financial condition, and results of operations will depend on future developments that are highly uncertain and cannot be accurately predicted, including new state-of-the-art technologiesinformation that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and equipment designedthe economic impact on local, regional, national and international markets. We will continue to facilitate efficient, high-throughput developmentassess the potential impact of innovative upstreamthe COVID-19 pandemic on our business, financial condition, and downstream manufacturing processes.  We are strategically conducting this workresults of operations. For a further discussion of potential risks to our business from the COVID-19 pandemic, please refer to “Part I, Item 1A—Risk Factors” in phases to avoid disruption to current customer programs.our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.

 

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.

��

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

 

Revenues

 

Revenues are derived from 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.

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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 and analytical 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.

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, finance and 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, corporate facility related expenses, and other expenses relating to our general management, administration, project management, and business development activities. SG&A expenses are generally not directly proportional to revenues, but we expect such expenses to increase over time to support the needs of our growing company.

 

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Results of Operations

 

The following table compares the unaudited condensed consolidated statements of operations from our operations for the three months ended July 31, 20192020 and 20182019 (in thousands):

 

 Three Months Ended July 31,  Three Months Ended July 31,    
 2019  2018  $ Change  2020  2019  $ Change 
Revenues $15,254  $12,589  $2,665  $25,392  $15,254  $10,138 
Cost of revenues  14,168   11,397   2,771   16,848   14,168   2,680 
Gross profit  1,086   1,192   (106)  8,544   1,086   7,458 
Operating expenses:                        
Selling, general and administrative  4,459   3,215   1,244   3,825   4,459   (634)
Operating loss  (3,373)  (2,023)  (1,350)
Operating income (loss)  4,719   (3,373)  8,092 
Interest and other income, net  209   62   147   11   209   (198)
Net loss $(3,164) $(1,961) $(1,203)
Net income (loss) $4,730  $(3,164) $7,894 

 

Three Months Ended July 31, 20192020 Compared to Three Months Ended July 31, 20182019

 

Revenues

 

Revenues for the three months ended July 31, 20192020 were $15.3$25.4 million compared to $12.6$15.3 million for the same period in the prior year, an increase of $2.7$10.1 million, or 21%66%. The increase in revenues can primarily be attributed to growingan $11.1 million increase in manufacturing demandrevenues primarily due to an increase in the number and scale of manufacturing runs in-process and/or completed in the current year period compared to the prior year period, partially offset by a decrease in process development revenues. In addition, the current-year period increase in manufacturing revenues includes $3.1 million in fees received from a more diversified customer base.that had reached its inventory requirements with fewer manufacturing runs than expected, therefore not utilizing all their reserved capacity that had been scheduled for the third quarter of fiscal 2021. The increase in revenues was attributed to the following components of our revenue streams:

 

  $ millions 
Net increase in manufacturing revenue $2.6 
Net increase in process development revenue  0.1 
Total increase in revenues $2.7 
  $ millions 
Net increase in manufacturing revenues $11.1 
Net decrease in process development revenues  (1.0)
Total increase in revenues $10.1 

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Additionally, growth in manufacturing revenues during the current-year period was supplemented by $4.3 million from the completion of certain manufacturing runs that had been previously postponed during the second half of fiscal 2020 as a result of a previously disclosed production interruption related to a problem with a specific piece of equipment. Further, the remediation activities that we implemented during the fourth quarter of fiscal 2020 to resolve this equipment issue were validated during the current-year period with the successful completion of multiple revenue-generating production campaigns using such equipment.

 

Gross Profit

 

Gross profit for the three months ended July 31, 20192020 was $1.1$8.5 million compared to $1.2$1.1 million for the same period in the prior year, a decreasean increase of $0.1approximately $7.5 million, whereand gross margins for such periods were 7%34% and 9%7%, respectively. Despite increased revenue during the first quarter of 2020,The $7.5 million increase in gross profit was impacted by hiring personnelfor the current-year period can primarily be attributed to accommodate growth in production demand,increased revenues, which includes the aforementioned fees associated with a realignmentcustomer’s unused capacity 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$3.1 million, partially offset by planned growth costs associated with payroll and benefits, and increased revenue on customer contracts, which positively impacted gross profit by seven percentage points.facility and equipment related costs.

 

Selling, General and Administrative Expenses

 

SG&A expenses were $4.5$3.8 million for the three months ended July 31, 20192020 compared to $3.2$4.5 million for the same period in the prior year, an increasea decrease of approximately $1.2$0.6 million, or 39%14%. As a percentage of revenue, SG&A expenses for the three months ended July 31, 2020 and 2019 were 15% and 2018 were 29% and 26%, respectively. The increasenet decrease in SG&A expenses was attributed to the following components:

 

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

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Operating LossIncome (Loss)

 

Operating lossincome was $3.4$4.7 million or a negative 22% of revenue, for the three months ended July 31, 20192020 compared to an operating loss of $2.0$3.4 million or a negative 16% of revenue, for the same period in the prior year. Of this $1.4This $8.1 million changeimprovement in year-over-year operating loss, approximately $0.1 million was attributableincome (loss) can primarily be attributed to a $7.5 million increase in gross profit combined with a decrease and ain SG&A increaseexpense of approximately $1.2$0.6 million.

 

Liquidity and Capital Resources

 

At July 31, 2019, we had $28.9 million inOur principal sources of liquidity are our existing cash and cash equivalents. As of July 31, 2020, we had cash and cash equivalents of $28.2 million. 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 31, 2019, we performed an analysis and concludedcurrently anticipate that our cash and cash equivalents as of July 31, 2019 together2020, combined with our anticipated collection of existing accounts receivable and projected cash expectedreceipts from services to be generated from services providedrendered under our existing customer contracts, will be sufficient to supportfund our operations for at least one yearthe next 12 months from the issuance date of this Quarterly Report.

 

In the event we are unable to securegenerate sufficient additional manufacturing services projectscash flow to support our current operations, we may need to raise additional capital in the equity markets in order to fund our future operations. We may raise funds through the issuance of debt or through the public offering of securities. There can be no assurance that equity financingthese financings will be available on acceptable terms, or at all. Our ability to raise additional capital in the equity and debt markets is dependent on a number of factors including, but not limited to, the market demand for our common stock. The market demand or liquidity of our common stock is subject to a number of risks and uncertainties including, but not limited to, our financial results, and economic and market conditions.conditions, and global financial crises and economic downturns, including those caused by widespread public health crises such as the COVID-19 pandemic, which may cause extreme volatility and disruptions in capital and credit markets. 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, financial condition, results of operations, and future prospects.

 

Cash Flow Analysis

 

Significant components of the changes in

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The following table presents our cash flows from operating, investing and financing activities for the three months ended July 31, 20192020 and 2018 are as follows2019 (in thousands):

 

 Three Months Ended July 31,  Three Months Ended July 31, 
 2019  2018  2020  2019 
Cash, cash equivalents and restricted cash (1) $28,561  $30,094 
Net cash used in operating activities $(2,468) $(7,448)  (2,273)  (2,468)
Net cash (used in) provided by investing activities  (38)  2,808 
Net cash used in investing activities  (489)  (38)
Net cash used in financing activities  (901)  (141)  (5,289)  (901)

___________

(1)As of July 31, 2020 and 2019, cash, cash equivalents and restricted cash included $0.4 million and $1.2 million, respectively, that was restricted from general use, related to cash that was pledged as collateral under letters of credit under the terms of certain facility lease agreements.

Net Cash Used In Operating Activities

During the three months ended July 31, 2020, net cash used in operating activities decreased by $0.2 million to $2.3 million from $2.5 of net cash used in operating activities during the three months ended July 31, 2019.

 

Net cash used in operating activities represents ourfor the three months ended July 31, 2020 was a result of a net loss, as reported, adjustments to reconcile net loss to net cash used in operating activities and net changes in the timing of cash flows as reflected by the changeschange in operating assets and liabilities.liabilities of $8.6 million, offset by $4.7 million of net income and non-cash adjustments to net income of $1.6 million related to depreciation and amortization and stock-based compensation.

 

Net cash used in operating activities for the three months ended July 31, 2019 was primarily attributablea result of a $3.2 million net loss, offset by non-cash adjustments to a net loss of $3.2$1.3 million offset by noncash charges forrelated to depreciation and amortization and stock-based compensation, for an aggregate adjustment of $1.3 million, and net cash flows from the net change in operating assets and liabilities of $0.6 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 Investing Activities

 

During the three months ended July 31, 2020, net cash used in investing activities increased by $0.5 million to $0.5 million from a nominal amount of net cash used in investing activities during the three months ended July 31, 2019.

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Net cash used in operatinginvesting activities for the three months ended July 31, 2018 was2020 consisted of $0.5 million used to acquire property and equipment primarily attributable to a net loss of $2.0 million, offset by noncash charges for depreciation and amortization and stock-based compensation for an aggregate adjustment of $0.9 million, cash outflow of $2.6 million related to the change in assets and liabilities of discontinued operations, and net cash outflows from the net change in operating assets and liabilities of $3.8 million. The net change in operating assets and liabilities was primarily due to the timing of cash receipts and expenditures associated with working capital.

Cash (Used In) Provided By Investing Activities

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).operations.

 

Net cash used in investing activities duringfor the three months ended July 31, 2019 consisted of property and equipment acquisitions of less than $0.1 million.

 

Net Cash Used In Financing Activities

During the three months ended July 31, 2020, net cash used in financing activities increased by $4.4 million to $5.3 million from $0.9 million of net cash used in financing activities during the three months ended July 31, 2019.

Net cash provided by investingused in financing activities for the three months ended July 31, 20182020 consisted primarily of proceeds$4.4 million of $3.0 million relatedcash used to repay in full a promissory note issued pursuant to the salePaycheck Protection Program (as further described in Note 3 of certain researchthe Notes to the Condensed Consolidated Financial Statements) and development assets associated with$1.1 million of cash used to pay preferred dividends to holders of our discontinued research and development segment,Series E Preferred Stock, partially offset by property and equipment acquisitionsproceeds from the issuance of common stock under our employee stock purchase plan of $0.2 million.

 

Cash Used In Financing Activities

 

Financing activities primarily consist of cash dividends paid on preferred stock and proceeds from the exercise of stock options.

20

 

Net cash used in financing activities for the three months ended July 31, 2019 was $0.9 million. This includedconsisted primarily of cash used to pay preferred dividends to holders of our Series E Preferred Stock of $1.1 million, in dividends paid on preferred stock and $0.1 million of principal finance lease payments,partially offset by $0.3 million of proceeds from the exercise of stock options.options of $0.3 million.

 

Net cash used in financing activities forContractual Obligations

During the three months ended July 31, 2018 was $0.1 million. This included $1.1 million2020, there were no material changes in dividends paidour contractual obligations and commitments, as described in Part II, Item 7 of our Annual Report on preferred stock and $0.1 million of principal lease payments, offset by $1.0 million of proceeds fromForm 10-K for the exercise of stock options.fiscal year ended April 30, 2020.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our consolidated financial positioncondition 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 months ended July 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, 2019.2020.

 

Recent Accounting Pronouncements

 

ReferFor a discussion of recent accounting pronouncements applicable to us, please refer to Note 2,Summary of Significant Accounting Policies, in the accompanying notes to theour unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements, including ASC 842, the new standard related to accounting for leases adopted on May 1, 2019.statements.

 

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 31, 2019,2020, our backlog was approximately $61$60 million, as compared to approximately $46$65 million as of our fiscal year ended April 30, 2019.2020. 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.

 

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

During the three months ended July 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, 2019.2020.

 

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.

 

21

We carried out an evaluation, under the supervision and with the participation of management, including our principleprincipal executive officer and principleprincipal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2019,2020, the end of the period covered by this Quarterly Report. Based on that evaluation, our principleprincipal executive officer and principleprincipal financial officer concluded that our disclosure controls and procedures were effective as of July 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 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 2022 

 

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 financial condition or results of operations or financial positionoperations.

 

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, financial condition, results of operations financial condition orand 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, 2019.2020. There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K.

 

Item 6.Exhibits

 

(a)Exhibits:

10.8Employment Agreement by and between Avid Bioservices, Inc. and Nicholas S. Green, effective July 30, 2020. †*

 

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

 

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

 

32Certification 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.INSXBRL Taxonomy Extension Instance Document. *

 

101.SCHXBRL Taxonomy Extension Schema Document. *

 

101.CALXBRL Taxonomy Extension Calculation Linkbase Document. *

 

101.DEFXBRL Taxonomy Extension Definition Linkbase Document. *

 

101.LABXBRL Taxonomy Extension Label Linkbase Document. *

 

101.PREXBRL Presentation Extension Linkbase Document. *

 

†Indicates management contract or compensatory plan.

*

*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, 20191, 2020By:/s/ Richard B. HancockNicholas S. Green
 Richard B. HancockNicholas S. Green
 Interim President and Chief Executive Officer
 (Principal Executive Officer)
  
  
Date:  September 5, 20191, 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 officerPrincipal Financial Officer and chief accounting officer)Principal Accounting Officer)

 

 

 

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