SEC Info - Avid Bioservices, Inc. - ‘10-Q/A’ for 10/31/23

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		Alternative Formats (Word, et al.) Condensed Consolidated Financial Statements (Unaudited) Controls And Procedures Exhibits Financial Information Legal Proceedings Management's Discussion and Analysis of Financial Condition And Results of Operations Other Information Part I -- Financial Information Part Ii -- Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Table of Contents
1	1st Page – Filing Submission
"	Table of Contents
"	Part I -- Financial Information
"	Condensed Consolidated Financial Statements (Unaudited)
"	Management's Discussion and Analysis of Financial Condition And Results of Operations
"	Quantitative and Qualitative Disclosures About Market Risk
"	Controls And Procedures
"	Part Ii -- Other Information
"	Legal Proceedings
"	Risk Factors
"	Exhibits
"	Signatures

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

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

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. i Yes ☒ No ☐

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). i Yes ☒ No ☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i ☒

Avid Bioservices, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amended Report”) to amend and restate its unaudited condensed consolidated financial statements and related footnote information as of October 31, 2023 and for the three and six months ended October 31, 2023 (the “Restated Financial Statements”), previously included in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on December 7, 2023 (the “Original Report”). This Amended Report also amends certain other information in the Original Report, as listed in “Items Amended in this Amended Report” below.

As previously reported in a Current Report on Form 8-K, filed by the Company with the SEC on March 6, 2024, on February 29, 2024, the Company received an acceleration notice (the “Acceleration Notice”) from a holder of its 1.250% Exchangeable Senior Notes due 2026 (the “2026 Notes”). The Acceleration Notice stipulated, among other things, that (i) the Company did not remove the restrictive legend on the 2026 Notes by March 17, 2022 as required under the indenture governing the 2026 Notes (the “2026 Notes Indenture”), (ii) due to such failure, additional interest accrued thereafter at a rate of 0.50% per annum (the “Additional Interest”), (iii) such Additional Interest had not been paid by the Company as of the date of the Acceleration Notice, which constituted an event of default under the 2026 Notes Indenture (the “Event of Default”), and (iv) such holder was the beneficial owner of at least 25% in aggregate principal amount of the outstanding 2026 Notes and therefore had the right to accelerate all of the 2026 Notes. As a result of the Event of Default, such holder declared 100% of the principal amount of, and accrued and unpaid interest on, the 2026 Notes to be due and payable immediately.

Following the receipt of the Acceleration Notice and a re-evaluation of the accounting for its 2026 Notes, the Company determined that the 2026 Notes should have been classified as a current liability following the Event of Default, resulting in an understatement of current liabilities on the Company’s consolidated balance sheet.

On March 11, 2024, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) determined, based on management’s recommendation, that as a result of the classification of the 2026 Notes as long-term liabilities, the consolidated financial statements included in the Original Report should no longer be relied upon.

The Company also determined that its interest expense for the three and six months ended October 31, 2023 was understated as a result of the failure to reflect the Additional Interest. This and other related adjustments to correct certain related misstatements pertaining to the three and six months ended October 31, 2023 that the Company has determined to be immaterial, both individually and in the aggregate, are reflected in the restated unaudited condensed consolidated financial statements included in this Amended Report.

This Amended Report presents the Original Report, amended and restated in its entirety, with modifications as necessary to the following items to reflect the foregoing restatement and Note 10, Subsequent Events:

References to our Annual Report on Form 10-K for the fiscal year ended April 30, 2023 have also been updated in this Amended Report to refer to Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended April 30, 2023, as filed with the SEC on April 24, 2024.

In addition, in accordance with applicable SEC rules, this Amended Report includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from our principal executive officer and principal financial officer dated as of the filing date of this Amended Report.

Except as described above and in Note 10, Subsequent Events, this Amended Report does not amend, update or change any other items or disclosures in the Original Report and does not purport to reflect any information or events subsequent to the filing thereof. As such, except as described above and in Note 10, Subsequent Events, this Amended Report speaks only as of the date the Original Report was filed, and we have not undertaken herein to amend, supplement or update any information contained in the Original Report to give effect to any subsequent events. Among other things, forward-looking statements made in the Original Report have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Report. Accordingly, this Amended Report should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Report.

As a result of the information described above, management has concluded that the Company’s disclosure controls and procedures were not effective at the reasonable assurance level and the Company’s internal control over financial reporting was not effective as of the end of each of the periods covered by the restatement in this Amended Report. In connection with the restatement, the Company has identified a material weakness in the operation of internal control over financial reporting with respect to the review of information related to the 2026 Notes. For additional detail regarding the material weakness identified and a discussion of management’s evaluation of our disclosure controls and procedures and internal control over financial reporting, see Part I, Item 4, “Controls and Procedures” of this Amended Report.

As used in this Amended Report, 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 subsidiary.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

The following discussion and analysis of the financial condition and results of our operations should be read together with the unaudited condensed consolidated financial statements and related notes of Avid Bioservices, Inc. included in Part I Item 1 of this Amended Report and with our audited consolidated financial statements and the related notes included in Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended April 30, 2023, as filed with the SEC on April 24, 2024 (the “Amended Form 10-K”).

This Amended Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results of operations to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Amended Report 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 the Amended Form 10-K, as filed with the SEC on April 24, 2024, those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Amended Report, 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.

The following information has been adjusted to reflect the restatement of our unaudited condensed consolidated financial statements as described in the "Explanatory Note" at the beginning of this Amended Report and in Note 1 of the notes to the unaudited condensed consolidated financial statements included herein. In addition, the information under the captions “Liquidity and Capital Resources” and “Cash Requirements” takes into account the events described in Note 10 of the notes to the unaudited condensed consolidated financial statements included herein.

We are a dedicated contract development and manufacturing organization (“CDMO”) that provides a comprehensive range of services from process development to Current Good Manufacturing Practices (“CGMP”) clinical and commercial manufacturing of biologics for the biotechnology and biopharmaceutical industries. With 30 years of experience producing biologics, our services include clinical and commercial product manufacturing, bulk packaging, release and stability testing and regulatory submissions support. We also provide a variety of process development services, including upstream and downstream development and optimization, analytical methods development, cell line development, testing and characterization.

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

The following summarizes select highlights from our second quarter ended October 31, 2023:

During fiscal year 2022, we announced plans to expand our CDMO service offerings into viral vector development and manufacturing services for the rapidly growing cell and gene therapy (“CGT”) market. This expansion consisted of a two-phased approach to the construction of a world-class, single purpose-built CGT development and CGMP manufacturing facility in Costa Mesa, California (the “CGT Facility”). In June 2022, we completed the first phase with the opening of our new analytical and process development laboratories. In October 2023, we completed the second phase with the build out of CGMP manufacturing suites, as scheduled. The newly launched CGMP manufacturing suites are currently undergoing final environmental monitoring and performance qualification.

With the completion of this expansion project, we estimate that our combined facilities will have the potential to bring our total revenue generating capacity to up to approximately $400 million annually, depending on the mix of future customer projects.

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 (loss), selling, general and administrative expenses, operating income (loss), interest expense, other income (expense), net, and income tax expense (benefit).

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

Gross profit (loss) 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 compensation, benefits, recruiting fees, and stock-based compensation within the manufacturing, process and analytical development, quality assurance, quality control, validation, supply chain, project management and facilities functions. Overhead costs primarily include the rent, common area maintenance, utilities, property taxes, security, materials and supplies, software, small equipment and deprecation costs incurred at all of our manufacturing and laboratory locations.

Selling, general and administrative (“SG&A”) expenses are composed of corporate-level expenses, including compensation, benefits, recruiting fees, and stock-based compensation of corporate functions such as executive management, finance and accounting, business development, legal, human resources, information technology, and other centralized services. SG&A expenses also include corporate legal fees, audit and accounting fees, investor relation expenses, non-employee director fees, corporate facility related expenses, and other expenses relating to our general management, administration, and business development activities.

Interest expense consists of interest costs related to our outstanding convertible senior notes, revolving credit facility and finance leases, including amortization of debt issuance costs.

Other income, net primarily consists of interest earned on our cash and cash equivalents, net of gains (losses) from the disposal of long-live assets.

We are subject to taxation in the United States and various states jurisdictions in which we conduct our business. We prepare our income tax provision based on our interpretation of the income tax accounting rules and each jurisdiction’s enacted tax laws and regulations. For additional information refer to Note 7, Income Taxes, of the notes to unaudited condensed consolidated financial statements.

The following table compares the results of our operations for the three months ended October 31, 2023 and 2022 (in thousands):

Revenues for the three months ended October 31, 2023 were $25.4 million compared to $34.8 million for the same period in the prior year, a decrease of $9.4 million, or 27%. The decrease in revenues was primarily attributed to decreases in manufacturing runs and process development services from early-stage programs, combined with a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved. The following table compares revenues by revenue stream for the three months ended October 31, 2023 and 2022 (in thousands):

Gross loss for the three months ended October 31, 2023 was $4.7 million (negative 18% gross margin) compared to a gross profit of $4.1 million (12% gross margin) for the same period in the prior year. The decrease in gross margin percentage during the three months ended October 31, 2023, as compared to the same prior year period was primarily driven by lower manufacturing volumes and costs related to expansions of both our capacity and our technical capabilities. This included adding staff and associated overhead, including depreciation expense, that we believe will provide critical capacity for near and medium-term growth. Margins during the current year period were also impacted by the decision to defer a customer’s PPQ campaign until after our annual maintenance shut-down that occurred during the quarter combined with a reduction of revenues for changes in estimated variable consideration under a contract where uncertainties have been resolved.

SG&A expenses were $6.6 million for the three months ended October 31, 2023 compared to $6.8 million for the same period in the prior year, a decrease of approximately $0.3 million, or 4%. The net decrease in SG&A expenses was attributed to the following components:

As a percentage of revenues, SG&A expenses for the three months ended October 31, 2023 and 2022 were 26% and 20%, respectively.

Operating loss was $11.2 million for the three months ended October 31, 2023 compared to $2.7 million for the same period in the prior year. This $8.5 million increase in year-over-year operating loss can be attributed to the $8.8 million decrease in gross profit described above, offset by the $0.3 million decrease in SG&A expenses described above.

Interest expense was $0.8 million for the three months ended October 31, 2023 compared to $0.9 million for the same period in the prior year. This $0.1 million decrease can primarily be attributed to a $0.1 million decrease in interest expense associated with our 2026 Notes. For further information regarding the 2026 Notes, see Note 3 of the notes to unaudited condensed consolidated financial statements.

Income tax benefit was $2.4 million for the three months ended October 31, 2023 compared to $2.9 million for the same period in the prior year. This $0.5 million decrease in income tax benefit can primarily be attributed to our pre-tax net loss for the current year period. Our effective tax rate for the current year period was approximately 20.0% and was computed based on the U.S. federal statutory rate of 21% adjusted primarily for the tax impact of stock-based compensation, non-deductible officers’ compensation, and transportation fringe benefits.

The following table compares the results of our operations for the six months ended October 31, 2023 and 2022 (in thousands):

Revenues for the six months ended October 31, 2023 were $63.1 million compared to $71.4 million for the same period in the prior year, a decrease of $8.3 million, or 12%. The decrease in revenues was primarily attributed to decreases in manufacturing runs and process development services from early-stage programs, combined with a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved. The following table compares revenues by revenue stream for the six months ended October 31, 2023 and 2022 (in thousands):

Gross loss for the six months ended October 31, 2023 was $0.6 million (negative 1% gross margin) compared to a gross profit of $13.3 million (19% gross margin) for the same period in the prior year. The decrease in gross margin percentage during the six months ended October 31, 2023, as compared to the same prior year period was primarily driven by lower manufacturing volumes and costs related to expansions of both our capacity and our technical capabilities. This included adding staff and associated overhead, including depreciation expense, that we believe will provide critical capacity for near and medium-term growth. Margins during the current year period were also impacted by (i) the decision to defer a customer’s PPQ campaign until after our annual maintenance shut-down that occurred during the quarter, (ii) a reduction of revenues for changes in estimated variable consideration under a contract where uncertainties have been resolved, (iii) a terminated project relating to the insolvency of one of our smaller customers, and (iv) a delay in our ability to recognize revenues of a customer product pending the implementation of a process change.

SG&A expenses were $12.8 million for the six months ended October 31, 2023 compared to $13.2 million for the same period in the prior year, a decrease of approximately $0.4 million, or 3%. The net decrease in SG&A expenses was attributed to the following components:

As a percentage of revenues, SG&A expenses for the six months ended October 31, 2023 and 2022 were 20% and 18%, respectively. 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.

Operating loss was $13.4 million for the six months ended October 31, 2023 compared to operating income of $0.1 million for the same period in the prior year. This decrease of approximately $13.4 million in year-over-year operating income (loss) can be attributed to the $13.8 million decrease in gross profit described above, offset by the $0.4 million decrease in SG&A expenses described above.

Interest expense was $1.7 million for the six months ended October 31, 2023 compared to $1.7 million for the same period in the prior year.

Other income, net was $0.4 million for the six months ended October 31, 2023 compared to $0.2 million for the same period in the prior year, an increase of $0.2 million. This year-over-year increase in other income, net can primarily be attributed to an increase in interest income of $0.2 million.

Income tax benefit was $3.0 million for the six months ended October 31, 2023 compared to $2.3 million for the same period in the prior year. This $0.7 million increase in income tax benefit can primarily be attributed to our pre-tax net loss for the current year period. Our effective tax rate for the current year period was approximately 20.5% and was computed based on the U.S. federal statutory rate of 21% adjusted primarily for the tax impact of stock-based compensation, non-deductible officers’ compensation, and transportation fringe benefits.

Our principal sources of liquidity are our existing cash and cash equivalents on hand. As of October 31, 2023, we had cash and cash equivalents of $31.4 million. Further, as of October 31, 2023, there was $143.8 million aggregate principal outstanding on our 2026 Notes, which due to an Event of Default (as further described in Note 1 of the notes to unaudited condensed consolidated financial statements), are classified as a current liability on the consolidated balance sheets at October 31, 2023 and April 30, 2023.

On February 29, 2024, a holder of at least 25% of the 2026 Notes declared 100% of the principal amount of, and accrued and unpaid interest on, the 2026 Notes to be due and payable immediately (as further described in Note 1 of the notes to unaudited condensed consolidated financial statements).

On March 12, 2024, we completed a private offering (the “Offering”) of $160.0 million aggregate principal amount of 7.00% convertible senior notes due 2029 (the “2029 Notes”) to qualified institutional buyers pursuant to Section 4(a)(2) of the Securities Act (as further described in Note 10 of the notes to unaudited condensed consolidated financial statements). We received net proceeds from the Offering of approximately $153.5 million, after deducting placement agent’s commissions and other debt issuance related expenses of approximately $6.5 million.

Subsequent to the closing of the Offering, during March 2024, we used approximately $146.1 million of the net proceeds to (i) repurchase for cash, $141.0 million aggregate principal amount of the 2026 Notes in privately negotiated transactions with certain holders of the 2026 Notes plus accrued and unpaid principal of $2.3 million, and (ii) repay in full, the remaining outstanding 2026 Notes balance by depositing the required payoff amount of $2.8 million, representing principal and accrued and unpaid interest, with the trustee under the indenture for the 2026 Notes, following which no 2026 Notes remained outstanding (as further described in Note 10 of the notes to unaudited condensed consolidated financial statements).

As a result, we believe that our existing cash and cash equivalents on hand and our anticipated cash flows from operating activities will be sufficient to fund our operations for at least the next 12 months from the date of this Amended Report.

If our existing cash and cash equivalents on hand and our anticipated cash flows from operations are not sufficient to support our operations or capital requirements, then we may, in the future, draw on our existing revolving credit facility (which was amended on March 12, 2024 to, among other things, waive the events of default under the revolving credit facility as a result of the aforementioned acceleration of the 2026 Notes), which is subject to covenant compliance and availability (as described in Note 3 of the notes to unaudited condensed consolidated financial statements) and/or obtain additional debt or equity financing to fund our future operations. We may raise these funds at the appropriate time, accessing the form of capital that we determine is most appropriate considering the markets available to us and their respective costs of capital, such as through the issuance of debt or through the public offering of securities. These financings may not be available on acceptable terms, or at all. Our ability to raise additional capital in the equity and debt markets is dependent on several factors including, but not limited to, the market demand for our common stock. The market demand or liquidity of our common stock is subject to a number of risks and uncertainties including, but not limited to, our financial results, economic and market conditions, and global financial crises and economic downturns, which may cause extreme volatility and disruptions in capital and credit markets. In addition, even if we are able to raise additional capital, it may not be at a price or on terms that are favorable to us, or it may contain restrictions on the operations of our business.

The following table compares our cash flow activities for the six months ended October 31, 2023 and 2022 (in thousands):

Net cash provided by operating activities for the six months ended October 31, 2023 was a result of an $11.6 million net loss, offset by non-cash adjustments to net loss of $7.9 million primarily related to depreciation and amortization expense, stock-based compensation, amortization of debt issuance costs, and deferred income taxes, and an increase in working capital as a result of a net change in operating assets and liabilities of $9.7 million.

Net cash used in operating activities for the six months ended October 31, 2022 was a result of net income of $0.8 million combined with non-cash adjustments to net income of approximately $6.2 million primarily related to stock-based compensation, depreciation and amortization expense, amortization of debt issuance costs and deferred income taxes, offset by a net change in operating assets and liabilities of approximately $16.0 million.

Net cash used in investing activities for the six months ended October 31, 2023 and 2022 consisted of $21.6 million and $41.3 million, respectively, used to acquire property and equipment primarily related to the expansion of our mammalian facilities and the construction of our cell and gene therapy facility.

Net cash provided by financing activities for the six months ended October 31, 2023 consisted of $7.4 million in proceeds from an equipment finance lease and $1.0 million in net proceeds from the issuance of common stock under our equity compensation plans, offset by $0.3 million in principal payments on a finance lease.

Net cash provided by financing activities for the six months ended October 31, 2022 consisted of $1.6 million in net proceeds from the issuance of common stock under our equity compensation plans, offset by $0.2 million in principal payments on a finance lease.

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

In March 2024, we completed the Offering of $160.0 million aggregate principal amount of 2029 Notes. We received net proceeds from the Offering of approximately $153.5 million, after deducting placement agent’s commissions and other debt issuance related expenses of approximately $6.5 million.

The 2029 Notes are senior unsecured obligations and accrue interest at a rate of 7.00% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024. The 2029 Notes mature on March 1, 2029, unless earlier repurchased by us or converted at the option of the holders. The 2029 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election in the manner and subject to the terms and conditions provided in the indenture governing the 2029 Notes.

We may not redeem the 2029 Notes prior to the March 1, 2029 maturity date. For additional information regarding our 2029 Notes, see Note 10 of the notes to unaudited condensed consolidated financial statements.

We lease certain office, manufacturing, laboratory, and warehouse space located in Orange County, California under operating lease agreements. Our leased facilities have original lease terms ranging from 7 to 12 years, contain multi-year renewal options, and scheduled rent increases of 3% on either an annual or biennial basis. We also lease certain manufacturing equipment under finance lease agreements that have terms ranging from 5 to 7 years. As of October 31, 2023, we had outstanding lease payment obligations of approximately $86.2 million, of which $3.0 million is payable in the remainder of fiscal 2024, $6.0 million is payable in fiscal 2025, $6.1 million is payable in fiscal 2026, $6.0 million is payable in fiscal 2027, $5.4 million is payable in fiscal 2028, and $59.7 million is payable thereafter.

Our fiscal year 2024 capital expenditures primarily relate to our facility expansions. During the six months ended October 31, 2023, our capital expenditures were $21.6 million, and $8.1 million were incurred and accrued as of October 31, 2023, for a total of $29.7 million. We currently anticipate that our total capital expenditures for fiscal year 2024 will be approximately $32 million.

In March 2023, we entered into a credit agreement with Bank of America, N.A., as administrative agent and letter of credit issuer, which was subsequently amended on October 27, 2023 and March 12, 2024 (as amended, the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the “Revolving Credit Facility”) in an amount equal to the lesser of (i) $50 million and (ii) a borrowing base calculated as the sum of (a) 80% of the value of certain of our eligible accounts receivable, plus (b) up to 100% of the value of eligible cash collateral. The Revolving Credit Facility will mature on October 25, 2024, and is secured by substantially all of our assets. As of October 31, 2023, there were no outstanding loans under the Revolving Credit Facility.

Loans under the Revolving Credit Facility will bear interest at either a term Secured Overnight Financing Rate (“SOFR”) rate for a specified interest period plus a SOFR adjustment (equal to 0.10%) plus a margin of 1.60% or base rate plus a margin of 0.60% at our option. Interest on any outstanding loans is due and payable monthly and the principal balance is due at maturity. In addition, we pay a quarterly unused revolving line facility fee of 0.25% per annum on the average unused facility.

The Credit Agreement includes certain customary affirmative and negative covenants, including limitations on mergers, consolidations and sales of assets, limitations on liens, limitations on certain restricted payments and investments, limitations on transactions with affiliates and limitations on incurring additional indebtedness. In addition, the Credit Agreement requires maintenance of a minimum consolidated EBITDA, as defined in the Credit Agreement, of $15 million for the most recently completed four fiscal quarters as measured at the end of each fiscal quarter. As of October 31, 2023, we were in compliance with the Credit Agreement’s financial covenant.

The Credit Agreement also provides for certain customary events of defaults, including, among others, failure to make payments, breach of representations and warranties, and default of covenants. For additional information regarding our Credit Agreement, see Note 3 of the notes to unaudited condensed consolidated financial statements.

Our discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. We review our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. During the six months ended October 31, 2023, there were no significant changes in our critical accounting policies as previously disclosed by us in Part II, Item 7 of the Amended Form 10-K.

For a discussion of recent accounting pronouncements applicable to us, please refer to Note 2, Summary of Significant Accounting Policies, in the accompanying notes to our unaudited condensed consolidated financial statements.

Our backlog represents, as of a point in time, expected future revenue from contracted work not yet completed. As of October 31, 2023, our backlog was approximately $199 million, as compared to approximately $191 million as of April 30, 2023. While we anticipate a significant amount of our backlog will be recognized as revenue over the next five fiscal quarters, our backlog is subject to a number of risks and uncertainties, including but not limited to: (i) the risk that a customer timely cancels its commitments prior to our initiation of 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; (ii) the risk that a customer may experience delays in its program(s) or otherwise, which could result in the postponement of anticipated services; (iii) the risk that we may not successfully execute on all customer projects; and (iv) the risk that commencement of customer projects may be postponed due to supply chain delays, any of which could have a negative impact on our liquidity, reported backlog and future revenues and profitability.

During the six months ended October 31, 2023, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosures About Market Risk” section of the Amended Form 10-K.

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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2023, the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of October 31, 2023, as a result of the material weakness described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified a material weakness in our internal control over financial reporting related to the lack of an effectively designed control activity in accounting for debt and related interest. Specifically, our debt internal controls did not include the periodic review of covenants, acceleration clauses, events of default, and other pertinent information in our debt agreements as of October 31, 2023.

Management, under the oversight of the Audit Committee, has designed the necessary controls to remediate the foregoing material weakness. These controls include the initial and periodic review of covenants, acceleration clauses, events of default, and other pertinent information in our debt agreements to enable management to assess whether any of these provisions impact our financial reporting.

Except for the material weakness described above, there were no significant changes in our internal control over financial reporting, during the quarter ended October 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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 and cash flows. For a detailed discussion of the risks that affect our business, please refer to Part I, Item 1A, “Risk Factors” in the Amended Form 10-K, as filed with the SEC on April 24, 2024. Refer to our disclosure under the “Items Amended in this Amended Report” heading in the forepart of this Amended Report.

During the three months ended October 31, 2023, none of our directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, as such terms are defined under Item 408(a) of Regulation S-K.

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.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
i Common Stock, $0.001 par value per share	i CDMO	The i NASDAQ Stock Market LLC

	·	Part I, Item 1. Condensed Consolidated Financial Statements (Unaudited);
	·	Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations;
	·	Part I, Item 4. Controls and Procedures; and
	·	Part II, Item 6. Exhibits.


	October 31, 2023			April 30, 2023
		(as restated)			(as restated)
ASSETS
Current assets:
Cash and cash equivalents	$	i 31,424		$	i 38,542
Accounts receivable, net		i 13,379			i 18,298
Contract assets		i 10,847			i 9,609
Inventory		i 38,583			i 43,908
Prepaid expenses and other current assets		i 9,972			i 2,094
Total current assets		i 104,205			i 112,451
Property and equipment, net		i 187,874			i 177,770
Operating lease right-of-use assets		i 41,973			i 42,772
Deferred tax assets		i 116,760			i 113,751
Other assets		i 4,673			i 4,473
Restricted cash		i –			i 350
Total assets	$	i 455,485		$	i 451,567
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	i 22,784		$	i 24,593
Accrued compensation and benefits		i 4,244			i 8,780
Contract liabilities		i 46,437			i 37,352
Convertible senior notes, net		i 141,154			i 140,623
Current portion of operating lease liabilities		i 1,263			i 1,358
Other current liabilities		i 3,394			i 2,440
Total current liabilities		i 219,276			i 215,146
Operating lease liabilities, less current portion		i 45,036			i 45,690
Finance lease liabilities, less current portion		i 7,840			i 1,562
Total liabilities		i 272,152			i 262,398

Commitments and contingencies		–			–

Stockholders’ equity:
Preferred stock, $ i i 0.001 / par value; i i 5,000 / shares authorized; i i i i no / / / shares issued and outstanding at respective dates		i –			i –
Common stock, $ i i 0.001 / par value; i i 150,000 / shares authorized; i i 63,234 / and i i 62,692 / shares issued and outstanding at respective dates		i 63			i 63
Additional paid-in capital		i 626,031			i 620,224
Accumulated deficit		( i 442,761	)		( i 431,118	)
Total stockholders’ equity		i 183,333			i 189,169
Total liabilities and stockholders’ equity	$	i 455,485		$	i 451,567


	Six Months Ended October 31,
	2023			2022
	(as restated)			(as restated)
Cash flows from operating activities:
Net income (loss)	$	( i 11,643	)	$	i 841
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		i 5,433			i 3,409
Stock-based compensation		i 4,809			i 4,683
Amortization of debt issuance costs		i 639			i 520
Deferred income taxes		( i 3,009	)		( i 2,495	)
Loss on disposal of property and equipment		i 46			i 70
Changes in operating assets and liabilities:
Accounts receivable, net		i 4,919			( i 33	)
Contract assets		( i 1,238	)		( i 1,159	)
Inventory		i 5,325			( i 12,999	)
Prepaid expenses and other assets		( i 7,909	)		( i 127	)
Accounts payable		i 4,344			i 5,346
Accrued compensation and benefits		( i 4,536	)		( i 2,411	)
Contract liabilities		i 8,808			( i 5,352	)
Other accrued expenses and liabilities		i 20			i 781
Net cash provided by (used in) operating activities		i 6,008			( i 8,926	)

Cash flows from investing activities:
Purchase of property and equipment		( i 21,624	)		( i 41,277	)
Net cash used in investing activities		( i 21,624	)		( i 41,277	)

Cash flows from financing activities:
Proceeds from issuance of common stock under equity compensation plans		i 998			i 1,578
Proceeds from finance lease		i 7,412			i –
Principal payments on finance lease		( i 262	)		( i 249	)
Net cash provided by financing activities		i 8,148			i 1,329

Net decrease in cash, cash equivalents and restricted cash		( i 7,468	)		( i 48,874	)
Cash, cash equivalents and restricted cash, beginning of period		i 38,892			i 126,516
Cash, cash equivalents and restricted cash, end of period	$	i 31,424		$	i 77,642

Supplemental disclosures of cash flow information:
Cash paid for interest	$	i 593		$	i 750
Cash paid for income taxes	$	i 14		$	i 220

Supplemental disclosures of non-cash investing activities:
Unpaid purchases of property and equipment	$	i 8,084		$	i 8,584

Schedule of revenues
	Three Months Ended October 31,				Six Months Ended October 31,
	2023		2022		2023		2022
Manufacturing revenues	$	i 20,128	$	i 27,614	$	i 53,548	$	i 59,095
Process development revenues		i 5,267		i 7,143		i 9,573		i 12,354
Total revenues	$	i 25,395	$	i 34,757	$	i 63,121	$	i 71,449

Avid Bioservices, Inc. – ‘10-Q/A’ for 10/31/23

On: Wednesday, 4/24/24, at 5:00pm ET · For: 10/31/23 · Accession #: 1683168-24-2660 · File #: 1-32839

Previous ‘10-Q’: ‘10-Q/A’ on 4/24/24 for 7/31/23 · Next & Latest: ‘10-Q’ on 4/24/24 for 1/31/24 · 1 Reference: To: Avid Bioservices, Inc. – ‘8-K’ on 11/2/23 for 10/27/23

Amendment to Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q/A’ — Form 10-Q for 10/31/23 (Amendment 1)

Document Table of Contents

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Dates Referenced Herein and Documents Incorporated by Reference

1 Previous Filing that this Filing References

i Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	i ☐
		Emerging growth company	i ☐

PART I - FINANCIAL INFORMATION		5
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls And Procedures	40
PART II - OTHER INFORMATION		41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 5.	Other Information	41
Item 6.	Exhibits	41
SIGNATURES		42

Schedule of estimated useful lives of property
Description		Estimated Useful Life
Leasehold improvements		i Shorter of estimated useful life or lease term
Laboratory and manufacturing equipment		i 5 – 15 years
Computer equipment and software		i 3 – 5 years
Furniture, fixtures and office equipment		i 5 – 10 years

Schedule of property and equipment
	October 31, 2023			April 30, 2023
		(as restated)			(as restated)
Leasehold improvements	$	i 101,572		$	i 97,514
Laboratory and manufacturing equipment		i 43,336			i 35,501
Computer equipment and software		i 5,170			i 5,028
Furniture, fixtures and office equipment		i 1,910			i 1,681
Construction-in-progress		i 71,562			i 68,414
Total property and equipment, gross		i 222,350			i 208,138
Less: accumulated depreciation and amortization		( i 35,676	)		( i 30,368	)
Total property and equipment, net	$	i 187,874		$	i 177,770

·	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.

Schedule of net carrying amount of the debt component
	October 31, 2023			April 30, 2023
Principal	$	i 143,750		$	i 143,750
Unamortized issuance costs		( i 2,596	)		( i 3,127	)
Net carrying amount	$	i 141,154		$	i 140,623

Schedule of balance sheet classification of leases
Leases	Classification	October 31, 2023		April 30, 2023
Assets
Operating	Operating lease right-of-use assets	$	i 41,973	$	i 42,772
Finance	Property and equipment, net		i 9,803		i 2,529
Total leased assets		$	i 51,776	$	i 45,301

Liabilities
Current:
Operating	Current portion of operating lease liabilities	$	i 1,263	$	i 1,358
Finance	Other current liabilities		i 1,403		i 531
Non-current:
Operating	Operating lease liabilities, less current portion		i 45,036		i 45,690
Finance	Finance lease liabilities, less current portion		i 7,840		i 1,562
Total lease liabilities		$	i 55,542	$	i 49,141

Schedule of operating and finance leases
Weighted average remaining lease term (years):
Operating leases	i 16.2	i 16.6
Finance leases	i 6.2	i 3.7
Weighted average discount rate:
Operating leases	i 6.0%	i 6.0%
Finance leases	i 6.4%	i 5.3%

Schedule of supplemental cash flow information related to leases
	Six Months Ended October 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	i 2,149	$	i 2,063
Operating cash flows from finance leases		i 52		i 65
Financing cash flows from finance leases		i 262		i 249

Schedule of stock option activity
	Stock Options		Grant Date Weighted Average Exercise Price
		(in thousands)
Outstanding at May 1, 2023		i 2,079		$ i 6.76
Granted		i –		$ i –
Exercised		( i 62)		$ i 7.65
Canceled or expired		( i 16)		$ i 11.99
Outstanding at October 31, 2023		i 2,001		$ i 6.69

Schedule of RSU activity
	Shares		Weighted Average Grant Date Fair Value
		(in thousands)
Outstanding at May 1, 2023		i 1,006		$ i 16.83
Granted		i 673		$ i 14.00
Vested		( i 274)		$ i 13.73
Forfeited		( i 40)		$ i 16.98
Outstanding at October 31, 2023		i 1,365		$ i 16.05

Schedule of PSU activity
	Shares		Weighted Average Grant Date Fair Value
		(in thousands)
Outstanding at May 1, 2023		i 522		$ i 19.70
Granted		i 613		$ i 13.92
Vested		i –		$ i –
Forfeited		i –		$ i –
Outstanding at October 31, 2023		i 1,135		$ i 16.58

Schedule of share-based compensation expense
	Three Months Ended October 31,				Six Months Ended October 31,
	2023		2022		2023		2022
Cost of revenues	$	i 1,107	$	i 1,045	$	i 2,061	$	i 1,732
Selling, general and administrative		i 1,359		i 1,741		i 2,748		i 2,951
Total stock-based compensation	$	i 2,466	$	i 2,786	$	i 4,809	$	i 4,683

	·	Invest in additional manufacturing capacity, capabilities and resources required for us to achieve our long-term growth strategy and meet the growth-demand of our customers’ programs, moving from development through to commercial manufacturing;
	·	Broaden our market awareness through a diversified yet flexible marketing strategy;
	·	Continue to expand our customer base and programs with existing customers for both process development and manufacturing service offerings;
	·	Explore strategic opportunities both within our core business as well as in adjacent and/or synergistic service offerings in order to enhance and/or broaden our capabilities; and
	·	Increase our operating profit margin to best-in-class within our industry.

	·	Expanded our customer base and programs with existing customers and ended the quarter with a backlog of approximately $199 million compared to $147 million at the end of the same quarter in fiscal 2023; and
	·	Announced the completion of construction of CGMP manufacturing suites in our cell and gene therapy facility. This milestone marked the completion of our two-phased approach to the construction of a world-class, single purpose-built cell and gene therapy development and CGMP manufacturing facility.

	Three Months Ended October 31,
	2023			2022			$ Change
	(as restated)			(as restated)
Revenues	$	25,395		$	34,757		$	(9,362	)
Cost of revenues		30,060			30,610			(550	)
Gross profit (loss)		(4,665	)		4,147			(8,812	)
Operating expenses:
Selling, general and administrative		6,557			6,831			(274	)
Total operating expenses		6,557			6,831			(274	)
Operating loss		(11,222	)		(2,684	)		(8,538	)
Interest expense		(827	)		(877	)		50
Other income, net		140			145			(5	)
Net loss before income taxes		(11,909	)		(3,416	)		(8,493	)
Income tax benefit		(2,388	)		(2,896	)		508
Net loss	$	(9,521	)	$	(520	)	$	(9,001	)

	$ millions
Decrease in compensation and benefit related expenses	$	(0.3	)
Decrease in consulting and other professional fees		(0.2	)
Net increase in all other SG&A expenses		0.2
Total decrease in SG&A expenses	$	(0.3	)

	$ millions
Decrease in consulting and other professional fees	$	(0.4	)
Decrease in legal and accounting fees		(0.2	)
Net increase in all other SG&A expenses		0.2
Total decrease in SG&A expenses	$	(0.4	)

	10.1	Amendment No. 1 to Credit Agreement, dated as of October 27, 2023, among Avid Bioservices, Inc., as the Borrower, the Lenders party hereto, and Bank of America, N.A., as Administrative Agent. ⁽¹⁾
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*
	32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
	101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).*
	101.SCH	Inline XBRL Taxonomy Extension Schema Document.*
	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.*
	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.*
	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
	104	Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101).*

	(1)	Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2023.
	*	Filed herewith.