NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited)
1. ORGANIZATION
AND BUSINESS
We are a
biopharmaceutical company committed to improving the lives of patients by manufacturing pharmaceutical products through our
wholly-owned subsidiary Avid Bioservices, Inc. (“Avid”), a contract development and manufacturing organization
(“CDMO”) and through advancing and licensing our novel, development-stage immunotherapy products.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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. Accordingly, they do not include all of the information and disclosures required by
U.S. GAAP for a complete set of 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 year ended April 30, 2016. The condensed consolidated balance sheet at April 30, 2016 has been derived
from audited financial statements at that date. The unaudited financial information for the interim periods presented herein reflects
all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results
of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. Results of operations
for interim periods covered by this Quarterly Report on Form 10-Q may not necessarily be indicative of results of operations for
the full fiscal year or any other interim period.
The unaudited condensed
consolidated financial statements include the accounts of Peregrine and Avid. 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.
Liquidity and Financial Condition
At January 31, 2017,
we had $41,528,000 in cash and cash equivalents. We have expended substantial funds on the research and development of our product
candidates, and funding the operations of Avid. As a result, we have historically experienced negative cash flows from operations
since our inception and we expect negative cash flows from operations to continue until at least the fiscal year ending April 30,
2018 before we believe we can generate sufficient revenue from Avid’s contract manufacturing services to achieve profitability.
Therefore, unless and until we are able to generate sufficient revenue from Avid’s contract manufacturing services or from
the sale or licensing of our product candidates under development, we expect such losses to continue through at least the fiscal
year ending April 30, 2018.
Our ability to continue
to fund our operations is highly dependent on the amount of cash and cash equivalents on hand combined with our ability to raise
additional capital to support our future operations through one or more methods, including but not limited to, (i) raising additional
capital in the equity markets, (ii) generating additional revenue from Avid, or (iii) licensing or partnering our product candidates
in development.
Historically, we have
funded a significant portion of our operations through the issuance of equity. During the nine months ended January 31, 2017, we
raised $11,944,000 in aggregate gross proceeds from the sale of shares of our common stock and raised an additional $1,634,000
in aggregate gross proceeds from the sale of shares of our 10.5% Series E Convertible Preferred Stock (the “Series E Preferred
Stock”) (Note 6). Subsequent to January 31, 2017 and through March 13, 2017, we raised an additional $13,341,000 in aggregate
gross proceeds from the sale of shares of our common stock (Note 11). As of March 13, 2017, $77,970,000 remained available to us
under our effective shelf registration statement, which allows us from time to time to offer and sell shares of our common stock,
in one or more offerings, either individually or in combination.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
Our ability to raise
additional capital in the equity markets to fund our obligations in future periods 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, negative economic conditions, adverse market conditions, adverse
financial results, and negative research and development results. Furthermore, our ability to raise additional capital in the equity
markets has been significantly impacted by the decline in the market price of our common stock following our announcement in February
2016 that we were discontinuing the Phase III SUNRISE trial. As a result, we have experienced a substantial decline in the amount
of additional capital that we have been able to raise from the sale of shares of our common stock as compared to recent fiscal
years. If the market price of our common stock does not improve significantly, we may not be able to rely on the sale of shares
of our common stock to fund our operations to the extent we have in prior years. If we are unable to either (i) raise sufficient
capital in the equity markets, (ii) generate additional revenue from Avid, or (iii) license or partner our products in development,
or any combination thereof, we may need to delay, scale back, or eliminate some or all our research and development efforts, or
restructure our operations, which may include delaying the planned expansion of our contract manufacturing business. In addition,
even if we are able to raise additional capital, it may not be at a price or on terms that are favorable to us.
Cash and Cash Equivalents
We consider all short-term
investments readily convertible to cash with an initial maturity of three months or less to be cash equivalents.
Restricted Cash
Under the terms of
two separate operating leases related to our facilities, we are required to maintain, as collateral, letters of credit during the
terms of such leases. At January 31, 2017 and April 30, 2016, we had restricted cash of $600,000, in aggregate, under these letters
of credit.
Concentrations of Credit Risk and Customer
Base
Financial instruments
that potentially subject us to a significant concentration of credit risk consist of cash and cash equivalents, restricted cash
and trade receivables. We maintain our cash and restricted cash balances primarily with one major commercial bank and our deposits
held with the bank exceed the amount of government insurance limits provided on our deposits. We are exposed to credit risk in
the event of default by the major commercial bank holding our cash and restricted cash balances to the extent of the cash and restricted
cash amounts recorded on the accompanying interim unaudited condensed consolidated balance sheet.
Our trade receivables
from amounts billed for contract manufacturing services provided by Avid have historically been derived from a small customer base.
Most contracts require up-front payments and installment payments during the service period. We perform periodic evaluations of
the financial condition of our customers and generally do not require collateral, but we can terminate any contract if a material
default occurs. At January 31, 2017 and April 30, 2016, approximately 98% of our trade receivables were due from four customers.
In addition, contract
manufacturing revenue generated by Avid has historically been derived from a small customer base (Note 9). These customers typically
do not enter into long-term contracts because their need for drug supply depends on a variety of factors, including the drug’s
stage of development, their financial resources, and, with respect to commercial drugs, demand for the drug in the market. Our
future results of operations could be adversely affected if revenue from any one of our primary customers is significantly reduced
or eliminated.
Revenue Recognition
We currently derive
revenue from our contract manufacturing services provided by Avid. We recognize revenue in accordance with the authoritative guidance
for revenue recognition when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery
(or passage of title) has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable,
and (iv) collectability is reasonably assured. We also comply with the authoritative guidance for revenue recognition regarding
arrangements with multiple elements.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
Revenue arrangements
with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered
element has stand-alone value to the customer or licensing partner. When deliverables are separable, consideration received is
allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied
to each of the separate units, which may require the use of significant judgement. Deliverables are considered separate units of
accounting if (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) the arrangement includes a general
right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and
substantially in our control.
Arrangement consideration
is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The
relative selling price for each deliverable is determined using vendor specific objective evidence (“VSOE”) of selling
price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price
exists, we use our best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is
limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting,
and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales
price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized
under any agreement.
Contract Manufacturing
Revenue
Revenue associated
with contract manufacturing services provided by Avid is recognized when all four of the aforementioned revenue recognition criteria
have been met. For arrangements that include multiple elements, we follow the authoritative guidance for revenue recognition regarding
arrangements with multiple deliverables, as described above.
On
occasion, we receive requests from customers to hold product manufactured by Avid on a “bill-and-hold” basis. Revenue
is recognized for such “bill-and-hold” arrangements in accordance with the authoritative guidance, which requires,
among other things, the existence of a valid business purpose for the arrangement; the “bill-and-hold” arrangement
is at the request of the customer; title and risk of ownership must pass to the customer; the product is complete and ready for
shipment; a fixed
delivery date that is reasonable and consistent with
the customer’s business practices; the product has been separated from our inventory; and no further performance obligations
by us exist.
In addition, we also
follow the authoritative guidance when reporting revenue as gross when we act as a principal versus reporting revenue as net when
we act as an agent. For transactions in which we act as a principal, have discretion to choose suppliers, bear credit and inventory
risk and perform a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated
with these reimbursements are reflected as a component of cost of sales for contract manufacturing services.
Any amounts received
prior to satisfying our revenue recognition criteria are recorded as deferred revenue or customer deposits in the accompanying
unaudited condensed consolidated financial statements. We also record a provision for estimated contract losses, if any, in the
period in which they are determined.
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, which 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. For the nine months ended January 31, 2017
and 2016, there was no impairment of the value of our long-lived assets.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
Fair Value Measurements
Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The guidance prioritizes the inputs used in measuring fair value into the following hierarchy:
|
·
|
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical
assets or liabilities.
|
|
·
|
Level 2 – Observable inputs other than quoted prices included in Level 1, such as assets
or liabilities whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are
based on quoted prices of instruments with similar attributes in active markets.
|
|
·
|
Level 3 – Unobservable inputs that are supported by little or no market activity and significant
to the overall fair value measurement of the assets or liabilities; therefore, requiring the company to develop its own valuation
techniques and assumptions.
|
As of January 31, 2017
and April 30, 2016, 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).
Customer Deposits
Customer deposits primarily
represent advance billings and/or payments received from Avid’s third-party customers prior to the initiation of contract
manufacturing services.
Research and Development Expenses
Research and development
expenses primarily include (i) payroll and related costs, including share-based compensation associated with research and development
personnel, (ii) costs related to clinical trials and preclinical testing of our technologies under development, (iii) costs to
develop and manufacture the product candidates, including raw materials and supplies, product testing, depreciation, and facility
related expenses, (iv) expenses for research services provided by universities and contract laboratories, including sponsored research
funding, and (v) other research and development expenses. Research and development expenses are charged to expense as incurred
when these expenditures relate to our research and development efforts and have no alternative future uses.
Clinical trial costs
are a significant component of our research and development expenses. We have a history of contracting with third parties that
perform various clinical trial activities on our behalf in the ongoing development of our product candidates. The financial terms
of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. Expenses
related to clinical trials are accrued based on our estimates and/or representations from third parties (including clinical research
organizations) regarding services performed. If the contracted amounts are modified (for instance, as a result of changes in the
clinical trial protocol or scope of work to be performed), we modify our accruals accordingly on a prospective basis. Revisions
in the scope of a contract are charged to expense in the period in which the facts that give rise to the revision become reasonably
certain. There were no material adjustments for a change in estimate to research and development expenses in the accompanying unaudited
condensed consolidated financial statements for the three and nine months ended January 31, 2017 and 2016.
Under certain research
and development agreements, we are obligated to make certain advance payments, including nonrefundable amounts, for goods or services
that will be used or rendered for future research and development activities and are deferred and capitalized as prepaid research
and development expenses. These advance payments are recognized as an expense in the period the related goods are delivered or
the related services are performed. We assess our prepaid research and development expenses for impairment when events or changes
in circumstances indicate that the carrying amount of the prepaid expense may not be recoverable or provide future economic benefit.
In addition, under
certain in-licensing agreements associated with the research and development of our product candidates, we are obligated to pay
certain milestone payments based on potential clinical development and regulatory milestones. These milestone payments have no
alternative future uses (in other research and development projects or otherwise) and therefore have no separate economic values
and are expensed as research and development costs at the time the costs are incurred. We have no in-licensed product candidates
that have alternative future uses in research and development projects or otherwise.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
Share-based Compensation
We account for stock
options and other share-based awards granted under our equity compensation plans in accordance with the authoritative guidance
for share-based compensation. The estimated fair value of share-based payments 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 modifications to share-based awards, if any, is
generally estimated using a Black-Scholes option valuation model, unless a lattice model is required. Share-based compensation
expense recognized during the period is based on the value of the portion of the share-based payment that is ultimately expected
to vest during the period. As of January 31, 2017, there were no outstanding share-based awards with market or performance conditions.
Periodically, we grant
stock options and other share-based awards to non-employee consultants, which we account for in accordance with the authoritative
guidance for share-based compensation. The cost of non-employee services received in exchange for share-based awards are measured
based on either the fair value of the consideration received or the fair value of the share-based award issued, whichever is more
reliably measurable. In addition, guidance requires share-based compensation related to unvested options and awards issued to non-employees
to be recalculated at the end of each reporting period based upon the fair market value on that date until the share-based award
has vested, and any cumulative catch-up adjustment to share-based compensation resulting from the re-measurement is recognized
in the current period (Note 7).
Basic and Dilutive Net Loss Per Common
Share
Basic net loss per
common share is computed by dividing our net loss attributable to common stockholders by the weighted average number of shares
of common stock outstanding during the period excluding the dilutive effects of stock options, shares of common stock expected
to be issued under our Employee Stock Purchase Plan (the “ESPP”), warrants, and Series E Preferred Stock outstanding
during the period. Diluted net loss per common share is computed by dividing our net loss attributable to common stockholders by
the sum of the weighted average number of shares of common stock outstanding during the period plus the potential dilutive effects
of stock options, shares of common stock expected to be issued under our ESPP, warrants, and Series E Preferred Stock outstanding
during the period. Net loss attributable to common stockholders represents our net loss plus Series E Preferred Stock accumulated
dividends. Series E Preferred Stock accumulated dividends include dividends declared for the period (regardless of whether or not
the dividends have been paid) and dividends accumulated for the period (regardless of whether or not the dividends have been declared).
The potential dilutive
effect of stock options, 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 Series E Preferred Stock outstanding during the period was calculated using the if-converted method assuming the conversion
of Series E Preferred Stock as of the earliest period reported or at the date of issuance, if later, but are excluded if their
effect is anti-dilutive. However, because the impact of stock options, 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 between basic and
diluted loss per common share amounts for the three and nine months ended January 31, 2017 and 2016.
The calculation of
weighted average diluted shares outstanding for the three and nine-month periods ended January 31, 2017 and 2016 excludes the dilutive
effect of the following weighted average outstanding stock options and shares of common stock expected to be issued under our ESPP
as their impact are anti-dilutive during periods of net loss:
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
–
|
|
|
|
2,012,239
|
|
|
|
–
|
|
|
|
2,189,915
|
|
ESPP
|
|
|
36,384
|
|
|
|
16,932
|
|
|
|
193,627
|
|
|
|
61,817
|
|
Total
|
|
|
36,384
|
|
|
|
2,029,171
|
|
|
|
193,627
|
|
|
|
2,251,732
|
|
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
The calculation of
weighted average diluted shares outstanding for the three and nine-month periods ended January 31, 2017 and 2016 also excludes
the following weighted average outstanding stock options, 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:
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
29,617,509
|
|
|
|
19,129,031
|
|
|
|
29,095,476
|
|
|
|
15,800,281
|
|
Warrants
|
|
|
273,280
|
|
|
|
273,280
|
|
|
|
273,280
|
|
|
|
273,280
|
|
Series E Preferred Stock
|
|
|
13,851,483
|
|
|
|
13,260,355
|
|
|
|
13,636,759
|
|
|
|
13,249,024
|
|
Total
|
|
|
43,742,272
|
|
|
|
32,662,666
|
|
|
|
43,005,515
|
|
|
|
29,322,585
|
|
Subsequent to January
31, 2017 and through March 13, 2017, we sold an aggregate of 26,581,596 shares of our common stock (Note 11), which are not included
in the calculation of basic and dilutive net loss per common share for the three and nine months ended January 31, 2017.
Pending Adoption of
Recent Accounting Pronouncements
In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from
Contracts with Customers (Topic 606):
Revenue from Contracts with Customers
, which amends the guidance in former ASC 605,
Revenue
Recognition
, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and will supersede most current revenue recognition guidance. ASU No. 2014-09 is based on the principle that revenue
is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes
in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 is effective for annual
reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and entities can transition
to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. In August 2015, the FASB
issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which defers
the effective date of ASU No. 2014-09 by one year, but permits entities to adopt one year earlier if they choose (i.e., the original
effective date). As such, ASU No. 2014-09 will be effective for annual reporting periods ending after December 15, 2017, which
will be our fiscal year 2019 beginning May 1, 2018.
In March, April, May
and December 2016, the FASB issued ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20, respectively, which provide
further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and
narrow-scope improvements and practical expedients.
We are currently in the process of evaluating the impact of adoption
of ASU No. 2014-09, as amended by ASU No. 2016-08,
ASU No. 2016-10, ASU
No. 2016-12 and ASU No. 2016-20
, on our consolidated financial statements and related disclosures, including which transition
method will be elected.
In August 2014, the
FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40):
Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern
. ASU No. 2014-15 is intended to define management’s responsibility
to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant
conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations
as they become due within one year after the date that the financial statements are issued (or available to be issued). ASU No.
2014-15 provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity
in the timing and content of disclosures that are commonly provided by organizations in the financial statement footnotes. ASU
No. 2014-15 is effective for annual reporting periods ending after December 15, 2016, which will be our fiscal year ending April
30, 2017, and to annual and interim periods thereafter. Early adoption is permitted. We have not yet determined the effect that
the adoption of this guidance will have on the disclosures included in our consolidated financial statements as our analysis regarding
our ability to continue as a going concern will be performed in conjunction with the preparation of our Annual Report on Form 10-K
for the fiscal year ending April 30, 2017.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
In July 2015, the FASB
issued ASU No. 2015-11, Inventory (Topic 330):
Simplifying the Measurement of Inventory
. ASU 2015-11 requires
that for entities that measure inventory using the first-in, first-out method, inventory should be measured at the lower of cost
and net realizable value. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning
after December 15, 2016, which will be our fiscal year 2018 beginning May 1, 2017, and interim periods within those fiscal years.
The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting
period. We are currently in the process of evaluating the impact of adoption of ASU No. 2015-11 on our consolidated financial statements
and related disclosures.
In November 2015, the
FASB issued ASU No. 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes
. Under existing standards,
deferred taxes for each tax-paying jurisdiction are presented as a net current asset or liability and net long-term asset or liability.
To simplify presentation, the new guidance will require that all deferred tax assets and liabilities, along with related valuation
allowances, be classified as long-term on the balance sheet. As a result, each tax-paying jurisdiction will now only have one net
long-term deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting
deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. ASU No. 2015-17 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2016, which will be our fiscal year 2018
beginning May 1, 2017. We do not expect the adoption of ASU No. 2015-17 to have a material impact on our consolidated financial
statements and related disclosures.
In February 2016, the
FASB issued ASU No. 2016-02,
Leases
(Topic 842). ASU No. 2016-2 requires an entity to recognize right-of-use assets and
lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific
accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative
and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing
and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2018, which will be our fiscal year 2020 beginning May 1, 2019. Early adoption is permitted.
We are currently in the process of evaluating the impact of adoption of ASU No. 2016-02 on our consolidated financial statements
and related disclosures.
In March 2016, FASB
issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). ASU No. 2016-09 changes certain aspects of accounting for
share-based payments to employees and involves several aspects of the accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. Specifically, ASU No. 2016-09 requires that all income tax effects of share-based awards be recognized as income tax expense
or benefit in the reporting period in which they occur. Additionally, ASU No. 2016-09 amends existing guidance to allow forfeitures
of share-based awards to be recognized as they occur. Previous guidance required that share-based compensation expense include
an estimate of forfeitures. ASU No. 2016-09 is effective for annual and interim periods beginning after December 15, 2016,
which will be our fiscal year 2018 beginning May 1, 2017. Early adoption is permitted. We are currently evaluating
the impact the adoption of ASU No. 2016-09 will have on our consolidated financial statements and related disclosures.
In November 2016, FASB
issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash
, which addresses diversity in practice related
to the classification and presentation of changes in restricted cash on the statement of cash flows. ASU No. 2016-18 will require
that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted
cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2017, which will be our fiscal year 2019 beginning May 1, 2018. Early adoption is permitted. We are
currently evaluating the impact the adoption of ASU No. 2016-18 will have on our consolidated financial statements and related
disclosures.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
3. Trade
and other RECEIVABLEs
Trade receivables are
recorded at the invoiced amount net of an allowance for doubtful accounts, if necessary. Other receivables are reported at amounts
expected to be collected net of an allowance for doubtful accounts, if necessary. Trade and other receivables consist of the following:
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
Trade receivables
(1)
|
|
$
|
5,645,000
|
|
|
$
|
2,494,000
|
|
Other receivables
|
|
|
238,000
|
|
|
|
365,000
|
|
Total trade and other receivables
|
|
$
|
5,883,000
|
|
|
$
|
2,859,000
|
|
______________
(1)
Represents amounts billed for contract manufacturing services provided by Avid.
We continually monitor
our allowance for doubtful accounts for all receivables. We apply judgment in assessing the ultimate realization of our receivables
and we estimate an allowance for doubtful accounts based on various factors, such as, the aging of accounts receivable balances,
historical experience, and the financial condition of our customers. Based on our analysis of our receivables as of January 31,
2017 and April 30, 2016, we determined that no allowance for doubtful accounts was necessary with respect to our trade and other
receivables.
4. 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, 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.
Property and equipment,
net, consists of the following:
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
Leasehold improvements
|
|
$
|
20,048,000
|
|
|
$
|
19,610,000
|
|
Laboratory equipment
|
|
|
10,740,000
|
|
|
|
10,257,000
|
|
Furniture, fixtures, office equipment and software
|
|
|
4,684,000
|
|
|
|
4,045,000
|
|
Total property and equipment
|
|
|
35,472,000
|
|
|
|
33,912,000
|
|
Less accumulated depreciation and amortization
|
|
|
(11,329,000
|
)
|
|
|
(9,610,000
|
)
|
Total property and equipment, net
|
|
$
|
24,143,000
|
|
|
$
|
24,302,000
|
|
Depreciation and amortization
expense for the three and nine months ended January 31, 2017 was $631,000 and $1,850,000, respectively. Depreciation and amortization
expense for the three and nine months ended January 31, 2016 was $464,000 and $921,000, respectively.
5. INVENTORIES
Inventories are recorded
at the lower of cost or market (net realizable value) and primarily include raw materials, direct labor and overhead costs (work-in-process)
associated with our wholly-owned subsidiary, Avid. Cost is determined by the first-in, first-out method. Inventories consist of
the following:
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
Raw materials
|
|
$
|
13,263,000
|
|
|
$
|
10,911,000
|
|
Work-in-process
|
|
|
20,566,000
|
|
|
|
5,275,000
|
|
Total inventories
|
|
$
|
33,829,000
|
|
|
$
|
16,186,000
|
|
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
6. STOCKHOLDERS’
EQUITY
Sales of Common Stock and Preferred Stock
Our ability to continue
to fund our operations is highly dependent on the amount of cash and cash equivalents on hand combined with our ability to raise
additional capital to support our future operations through one or more methods, including but not limited to, issuing additional
equity.
Sale of Common Stock
During the nine months
ended January 31, 2017, we issued shares of our common stock under the following agreements:
AMI Sales Agreement
- On August 7, 2015, we entered into an At Market Issuance Sales Agreement (“AMI Sales Agreement”) with MLV & Co.
LLC (“MLV”), pursuant to which we may sell shares of our common stock through MLV, as agent, for aggregate gross proceeds
of up to $30,000,000, in registered transactions from our shelf registration statement on Form S-3 (File No. 333-201245), which
was declared effective by the SEC on January 15, 2015 (“January 2015 Shelf”). Sales of our common stock through MLV
may be made by any method that is deemed an “at the market offering” as defined in Rule 415 of the Securities Act.
We pay MLV a commission equal to 2.5% of the gross proceeds from the sale of our common stock pursuant to the AMI Sales Agreement.
During the nine months ended January 31, 2017, we sold 23,167,349 shares of our common stock at market prices under the AMI Sales
Agreement, for aggregate gross proceeds of $8,028,000 before deducting commissions and other issuance costs of $228,000. As of
January 31, 2017, aggregate gross proceeds of up to $14,525,000 remained available to us under the AMI Sales Agreement.
Equity Distribution
Agreement
- On August 7, 2015, we entered into an Equity Distribution Agreement, with Noble International Investments, Inc.,
doing business as Noble Life Science Partners, a division of Noble Financial Capital Markets (“Noble”), pursuant to
which we may sell shares of our common stock through Noble, as agent, for aggregate gross proceeds of up to $20,000,000, in registered
transactions from our January 2015 Shelf. Sales of our common stock through Noble may be made by any method that is deemed an “at
the market offering” as defined in Rule 415 of the Securities Act. We pay Noble a commission equal to 2.5% of the gross proceeds
from the sale of our common stock pursuant to the Equity Distribution Agreement. During the nine months ended January 31, 2017,
we sold 10,082,597 shares of our common stock at market prices under the Equity Distribution Agreement for aggregate gross proceeds
of $3,916,000 before deducting commissions and other issuance costs of $112,000. As of January 31, 2017, aggregate gross proceeds
of up to $9,115,000 remained available to us under the Equity Distribution Agreement.
Sale of Series E
Preferred Stock
Series E AMI Sales
Agreement
- On June 13, 2014, we entered into an At Market Issuance Sales Agreement (“Series E AMI Sales Agreement”)
with MLV, pursuant to which we may issue and sell shares of our Series E Preferred Stock through MLV, as agent, for aggregate gross
proceeds of up to $30,000,000, in registered transactions from our shelf registration statement on Form S-3 (File No. 333-193113),
which was declared effective by the SEC on January 16, 2014. Sales of our Series E Preferred Stock through MLV may be made by any
method that is deemed an “at the market offering” as defined in Rule 415 of the Securities Act. We paid MLV a commission
of up to 5% of the gross proceeds from the sale of our Series E Preferred Stock pursuant to the Series E AMI Sales Agreement. During
the nine months ended January 31, 2017, we sold 70,320 shares of our Series E Preferred Stock at market prices under the Series
E AMI Sales Agreement for aggregate gross proceeds of $1,634,000 before deducting commissions and other issuance costs of $58,000.
During January 2017, the underlying registration statement on Form S-3 (File No. 333-193113) expired, and therefore, we do not
plan to issue and sell any additional shares of our Series E Preferred Stock under the Series E AMI Sales Agreement.
PEREGRINE PHARMACEUTICALS, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
JANUARY 31, 2017 (unaudited) (continued)
We are authorized to
issue up to 500,000,000 shares of our common stock. As of January 31, 2017, 271,068,464 shares of our common stock were issued
and outstanding. In addition, our common stock outstanding as of January 31, 2017 excluded the following shares of our common stock
reserved for future issuance:
As of January 31, 2017,
we had an aggregate of 39,500,077 shares of our common stock reserved for issuance under our stock incentive plans, of which, 29,467,870
shares were subject to outstanding options and 10,032,207 shares were available for future grants of share-based awards.
The following summarizes
our stock option transaction activity for the nine months ended January 31, 2017:
We have reserved a
total of 15,000,000 shares of our common stock to be purchased under our ESPP, of which 10,520,626 shares remained available to
purchase at January 31, 2017. The ESPP allows eligible employees on a voluntary basis to purchase shares of our common stock directly
from us. Under the ESPP, we sell shares to participants at a price equal to the lesser of 85% of the fair market value of our common
stock at the (i) beginning of a six-month offering period, or (ii) end of the six-month offering period. The ESPP provides for
two six-month offering periods each year; the first offering period begins on the first trading day on or after each November 1;
the second offering period begins on the first trading day on or after each May 1. During the nine months ended January 31, 2017,
888,033 shares of our common stock were purchased under the ESPP at a purchase price of $0.29 per share.
As of January 31, 2017,
the total estimated unrecognized compensation cost related to non-vested employee stock options was $3,032,000. This cost is expected
to be recognized over a weighted average vesting period of 1.56 years based on current assumptions.
No warrants were issued
or exercised during the three and nine months ended January 31, 2017. As of January 31, 2017, warrants to purchase 273,280 shares
of our common stock at an exercise price of $2.47 were outstanding and are exercisable through August 30, 2018.
Our business is organized
into two reportable operating segments and both operate in the U.S. Peregrine is engaged in the research and development of monoclonal
antibodies for the treatment of cancer. Avid is engaged in providing contract manufacturing services for third-party customers
on a fee-for-service basis while also supporting our internal drug development efforts.
The accounting policies
of the operating segments are the same as those described in Note 2. We evaluate the performance of our contract manufacturing
services segment based on gross profit or loss from third-party customers. However, our products in the research and development
segment are not evaluated based on gross profit or loss, but rather based on scientific progress of the technologies. As such,
gross profit or loss is only provided for our contract manufacturing services segment in the below table. All revenues shown below
are derived from transactions with third-party customers.
Revenue generated from
our contract manufacturing services segment was derived from a limited number of customers. The percentages below represent revenue
derived from each customer as a percentage of total contract manufacturing services revenue:
In addition, during
the three and nine months ended January 31, 2017 and 2016, contract manufacturing services revenue was derived solely from U.S.
based customers.
Revenue generated from
our products in our research and development segment during the nine months ended January 31, 2016 was primarily related to license
revenue recognized under certain agreements with an unrelated entity.
Our long-lived assets
are located in the U.S. and consist of leasehold improvements, laboratory equipment, furniture and fixtures, office equipment and
software and are net of accumulated depreciation. Long-lived assets by segment consist of the following:
During November 2016,
we entered into a lease amendment to Lease #1 (per the above table) that extends the lease term through December 31, 2027 while
also maintaining our two 5-year renewal options that could extend the lease term to December 31, 2037. There were no other changes
to the terms of the lease agreements included in the above table as disclosed in Note 3 to the audited consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2016.
The following schedule
represents our future minimum lease payments under all non-cancelable operating leases as of January 31, 2017:
On March 9, 2017, our
Board of Directors declared a quarterly cash dividend of $0.65625 per share on our Series E Preferred Stock. The dividend payment
is equivalent to an annualized 10.50% per share, based on the $25.00 per share stated liquidation preference, accruing from January
1, 2017 through March 31, 2017. The cash dividend is payable on April 3, 2017 to holders of the Series E Preferred Stock of record
on March 20, 2017.
In February 2017, we
entered into a lease amendment to our Lease #3 (Note 10) (the “Lease Amendment”), pursuant to which we secured approximately
42,000 square feet of additional vacant warehouse space (the “Expansion Space”) within the same building as our existing
Myford biomanufacturing facility. The purpose of the Expansion Space is to expand our biomanufacturing capacity, which we believe
will further support the growth of our contract manufacturing business. Under the Lease Amendment, our Myford biomanufacturing
facility now encompasses approximately 84,000 square feet. The Lease Amendment also extends the initial lease term to January 31,
2027 and maintains our two 5-year renewal options that could extend the lease term to January 31, 2037. Our monthly base rent for
the Expansion Space is approximately $74,000 and increases 3% annually. In addition, with respect to the Expansion Space, the Lease
Amendment provides for eight (8) months of free rent and a tenant improvement allowance of $1,269,000, as defined in the Lease
Amendment.