UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
(Mark One)
FORM 10-Kx

ANNUAL REPORT PURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  _______ to _______

For The Fiscal Year Ended April 30, 2006Commission file number: _____

PEREGRINE PHARMACEUTICALS, INC.
(Exact (Exact name of Registrant as specified in its charter)

Delaware
95-3698422
(State or other jurisdiction of incorporation)
incorporation or organization)
(I.R.S. Employer Identification No.)
  
1427214282 Franklin Avenue, Tustin, California
92780
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code:(714) 508-6000

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(714) 508-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock ($0.001 par value)
Preferred Stock Purchase Rights
The Nasdaq Stock Market Inc. under
symbol “PPHM”
LLC
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  o   No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  o   No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o     No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405)  is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ox
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definitiondefinitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer  o
 
Accelerated filer  x
 
Non-accelerated filer  o
  Smaller reporting company  o
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o  No  x
  
The approximate aggregate market value of voting stockCommon Stock held by non-affiliates of the registrant was $168,445,000 as of October 31, 2005.2008 was 58,026,551. (1) (1)

188,852,218
(Number of shares of common stockCommon Stock outstanding as of July 7, 2006)10, 2009:  236,964,414
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III of this report incorporates certain information by reference from the registrant’s proxy statement for the annual meeting of stockholders, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended April 30, 2006.2009.

_________
(1) Excludes 2,493,5053,031,574 shares of common stock held by directors and officers, and any stockholder whose ownership exceeds five percent of the shares outstanding as of October 31, 2005.2008.


PEREGRINE PHARMACEUTICALS, INC.

FORMFiscal Year 2009 10-K ANNUAL REPORT
FISCAL YEAR ENDED APRIL 30, 2006Annual Report

Table of Contents

TABLE OF CONTENTS

PART I
Item  1.
1
Business
1
Item 1A.
Risk Factors
Overview		1
Products in Clinical Stage Development2
Understanding the Mechanism of Action of Our Technology Platforms6
Government Contract With The Defense Threat Reduction Agency6
Preclinical Programs6
In-Licensing Collaborations7
Out-Licensing Collaborations7
Contract Manufacturing Services9
Government Regulation10
Manufacturing and Raw Materials12
Patents and Trade Secrets13
Customer Concentration and Geographic Area Financial Information14
Marketing Our Potential Products14
Competition14
Research and Development15
Corporate Governance16
Human Resources16
Glossary of Terms17
Item  1B.1A
Risk Factors
19
Item  1BUnresolved Staff Comments2636
Item  2.
2
Properties
2636
Item  3.
3
Legal Proceedings
2636
Item  4.
4
Submission of Matters to a Vote of Security Holders
2638
   
PART II
Item  5.
5
Market for Registrant'sRegistrant’s Common Equity, and Related Stockholders'Stockholder Matters and Issuer Purchases of Equity Securities
2738
Item  6.
6
Selected Financial Data
2839
Item  7.
7
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
2940
Item  7A.
7A
Quantitative and Qualitative Disclosures About Market Risk
4254
Item  8.
8
Financial Statements and Supplementary Data
4255
Item  9.
9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
4255
Item 9A
Controls and Procedures
4255
Item 9B.
9B
Other Information
4255
   
PART III
Item 10.
10
Directors, and Executive Officers of the Registrant
and Corporate Governance		4558
Item 11.
11
Executive Compensation
4558
Item 12.
12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
4558
Item 13.
13
Certain Relationships and Related Transactions,
and Director Independence		4558
Item 14.
14
Principal AccountantAccounting Fees and Services
4558
   
PART IV
Item 15.
15
Exhibits and Consolidated Financial Statement Schedules
4659
 
Signatures
Schedules		5364
Signatures

i
i
PART I

In this Annual Report, the terms “we”, “us”, “our”, “Company” and “Peregrine” refersrefer to Peregrine Pharmaceuticals, Inc., and our wholly owned subsidiary, Avid Bioservices, Inc.  This Annual Report contains forward-looking statements that involve risks and uncertainties.  The inclusion of forward-looking statements should not be regarded as a representation by us or any other person that the objectives or plans will be achieved because our actual results may differ materially from any forward-looking statement.  The words “may,” “should,” “plans,” “believe,” “anticipate,” “estimate,” “expect,” their opposites and similar expressions are intended to identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.  We caution readers that such statements are not guarantees of future performance or events and are subject to a number of factors that may tend to influence the accuracy of the statements, including but not limited to, those risk factors outlined in the section titled “Risk Factors and Forward-Looking Statements”Factors” as well as those discussed elsewhere in this Annual Report.  You should not unduly rely on these forward-looking statements, which speak only as of the date of this Annual Report.  We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Annual Report or to reflect the occurrence of unanticipated events.  You should, however, review the factors and risks we describe in the reports that we file from time to time with the Securities and Exchange Commission (“SEC”) after the date of this Annual Report.

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed with or furnished to the SEC are available, free of charge, through our website at www.peregrineinc.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.  The information on, or that can be accessed through, our website is not part of this Annual Report.

Certain technical terms used in the following description of our business are defined in the “Glossary of Terms”.

In addition, we own or have rights to the registered trademark Cotara®. and Avid Bioservices, Inc.  All other company names, registered trademarks, trademarks and service marks included in this Annual Report are trademarks, registered trademarks, service marks or trade names of their respective owners.

Item 1.BUSINESS
Item 1.BUSINESS

Company Overview
 
We are a clinical stage biopharmaceutical company with a portfolio of clinicalthat manufactures and pre-clinical stagedevelops monoclonal antibody-based targeted therapeutics for the treatment of solid cancers and viral infections. We are currently advancing three separate clinical trial programsantibodies for the treatment of cancer and chronic hepatitis C virus (HCV) infection. Underserious viral infections.  We are advancing three separate clinical programs with our novel compounds bavituximab and Cotara® that are the first clinical candidates under our Anti-Phosphatidylserine ("Anti-PS"(“Anti-PS”) Immunotherapeutic technology platform, our lead candidate bavituximab (formerly known as Tarvacin), is currently in a multi-center Phase I clinical trial for the treatment of solid cancers as well as a multi-center phase Ib clinical trial for the treatment of chronic HCV infection. Our third clinical program is a dose confirmationtherapeutics and dosimetry clinical trial using our lead Tumor Necrosis Therapy ("TNT"(“TNT”) agent, Cotara®, for the treatment of glioblastoma multiforme, a deadly form of brain cancer.platforms.
 
In addition to our clinical programs, we are conducting internalperforming pre-clinical research on bavituximab and collaborating with researchers at top academic institutions to extend our product pipeline to include new therapeutics and therapeutic adjuvants and to expandan equivalent fully human antibody as a potential broad-spectrum treatment for viral hemorrhagic fever infections under a contract awarded through the potentialTransformational Medical Technologies Initiative (“TMTI”) of bavituximab anti-viral indications beyond the treatmentU.S. Department of HCV infection. In addition to our research efforts, we also operate a wholly owned cGMP contract manufacturing subsidiary, Avid Bioservices, Inc.Defense's Defense Threat Reduction Agency (“Avid”DTRA”).  Avid provides several critical functions for Peregrine includingThis federal contract is expected to provide us with up to $22.3 million in funding over an initial 24-month base period, with $14.3 million having been appropriated through the manufacturing of all clinical supplies, commercial scale-up of products in clinical trials, and assisting with the advancement of new clinical candidates. current federal fiscal year ending September 30, 2009.
 
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In addition to Peregrine related activities,our research and development efforts, we operate a wholly owned cGMP (current Good Manufacturing Practices) contract manufacturing subsidiary, Avid Bioservices, Inc. (“Avid”).  Avid provides contract manufacturing services for outside biotechnology and biopharmaceutical companies on a fee-for-service basis. We believe thebasis, from pre-clinical drug supplies up through commercial-scale drug manufacture.  In addition to these activities, Avid provides critical services in support of Avid create significant value for the Company allowing us to aggressively move ourPeregrine’s product pipeline including manufacture and scale-up of pre-clinical and clinical and research programs forward while bringing in revenues through outside contracts which partially offsets our overall cash used in operations.drug supplies.

We were originally incorporated in California in June 1981 and reincorporated in the State of Delaware on September 25, 1996.  Our principal executive offices are located at 1427214282 Franklin Avenue, Tustin, California, 92780 and our telephone number is (714) 508-6000.  Our internet website address is www.peregrineinc.com.addresses are www.peregrineinc.com and www.avidbio.com.  Information contained on, or can be accessed through, our website does not constitute any part of this Annual Report.

Our Technology PlatformsProducts in Clinical Stage Development

Our three products in clinical trials fallare focused on the treatment of cancer and HCV infection.  The below table is a summary of our clinical trials and the current status of each clinical trial. Additional information pertaining to each clinical trial is further discussed below.

ProductIndicationTrial DesignTrial Status
Bavituximab
Solid tumor cancers
Phase I monotherapy repeat dose safety study designed to treat up to 28 patients.In June 2009, we completed planned patient enrollment in this study.  Patient treatments and follow-up are continuing.
Bavituximab plus docetaxel
Advanced breast cancer
Phase II study designed to treat up to 15 patients initially. Study was expanded to treat up to a total of 46 patients based on early promising results observed in the initial 15 patients.The trial was fully enrolled in May 2009.  Patient treatment and follow-up are continuing.
Bavituximab plus carboplatin and paclitaxel
Advanced breast cancer
Phase II study designed to treat up to 15 patients initially. Study was expanded to treat up to a total of 46 patients based on early promising results observed in the initial 15 patients.Patient enrollment was initiated in April 2009 in the final 31-patient second stage of the trial.  The study is actively enrolling patients.
Bavituximab plus carboplatin and paclitaxel
Non-small cell lung cancer (“NSCLC”)
Phase II study designed to treat up to 21 patients initially. Study was expanded to treat up to a total of 49 patients based on early promising results observed in the initial 21 patients.Patient enrollment was initiated in April 2009 in the final 28-patient second stage of the trial.  The study is actively enrolling patients.
Cotara®
Glioblastoma multiforme (“GBM”)
Dosimetry and dose confirmation study designed to treat up to 12 patients with recurrent GBM.This trial is nearing completion of planned patient enrollment.
Cotara®
Glioblastoma multiforme (“GBM”)
Phase II safety and efficacy study to treat up to 40 patients at first relapse.This study is actively enrolling patients and enrollment is over halfway completed
BavituximabChronic hepatitis C virus (“HCV”) infection co-infected with HIVPhase Ib repeat dose safety study designed to treat up to 24 patients.This study is actively enrolling patients.
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Bavituximab for the Treatment of Solid Tumors

We are currently running four clinical trials testing bavituximab for the treatment of solid tumors. Three of these clinical trials are Phase II trials evaluating bavituximab in combination with commonly prescribed chemotherapeutic drugs in patients with advanced breast or lung cancer.  These Phase II trials utilize a two-stage design in which an initial cohort of patients is first enrolled, dosed and evaluated and then the study may be expanded if a sufficient number of patients in the initial cohort meet the primary endpoint and the safety profile is positive.  The primary endpoint of the Phase II studies is to assess overall response to the combination of bavituximab and chemotherapy.  Secondary objectives include measuring time to tumor progression, duration of response, overall patient survival and safety parameters.  Tumor responses in all of the studies are being evaluated using Response Evaluation Criteria in Solid Tumors (“RECIST”) parameters.  The trials are being conducted according to International Conference on Harmonization (“ICH”) and Good Clinical Practices (“GCP”) standards.  Our fourth active bavituximab oncology clinical trial is a Phase I trial evaluating bavituximab as solo therapy in patients with advanced solid tumors that no longer respond to standard cancer treatments.  The following is a more thorough discussion of our four clinical trials using bavituximab for the treatment of solid tumors.

Phase II Study - Bavituximab Plus Docetaxel in Advanced Breast Cancer Patients.  On May 4, 2009, we announced that we had completed patient enrollment in a Phase II trial evaluating bavituximab in combination with docetaxel in advanced breast cancer patients.  In the trial's two-stage design, 15 patients with advanced breast cancer were enrolled in the trial's first cohort. Ten of the 14 evaluable patients in this cohort demonstrated an objective tumor response according to RECIST criteria, exceeding the pre-defined primary efficacy endpoint needed to expand enrollment in the trial. These preliminary results compare favorably with historical response rates for docetaxel as a solo therapy in advanced breast cancer patients.  An additional 31 patients were then enrolled to fulfill the planned study total of 46 patients overall.  Patients are currently undergoing treatment and follow-up, and may continue to receive bavituximab as long as the cancer does not progress and side effects are acceptable.  Preliminary data from this trial was the subject of an oral presentation at the 2009 American Society of Clinical Oncology (“ASCO”) Annual Meeting.

Phase II Study - Bavituximab Plus Carboplatin and Paclitaxel in Non-Small Cell Lung Cancer (“NSCLC”) Patients.  Patient enrollment is continuing in this Phase II trial evaluating bavituximab plus carboplatin and paclitaxel in patients with non-small cell lung cancer.  In this trial's two-stage design, 21 patients were enrolled in the trial's first cohort.  On April 20, 2009, we reported that 11 of the 17 evaluable patients in this cohort demonstrated an objective tumor response according to RECIST criteria, exceeding the pre-defined primary efficacy endpoint needed to expand enrollment in the trial.  Tumor response data to date from this trial compares favorably to published studies with current standard-of-care lung cancer treatments.  Currently the trial is in the process of enrolling an additional 28 patients to fulfill the planned study total of 49 patients overall.  Patients may continue to receive bavituximab as long as the cancer does not progress and side effects are acceptable.

Phase II Study - Bavituximab Plus Carboplatin and Paclitaxel in Advanced Breast Cancer Patients.  A second bavituximab Phase II breast cancer trial is enrolling patients, evaluating bavituximab plus carboplatin and paclitaxel in patients with advanced breast cancer.  In this trial's two-stage design, 15 patients were enrolled in the trial's first cohort.  We reported on April 27, 2009, that nine of the 14 evaluable patients in this cohort demonstrated an objective tumor response according to RECIST criteria, exceeding the pre-defined primary efficacy endpoint needed to expand enrollment in the trial.  Currently the trial is in the process of enrolling an additional 31 patients to fulfill the planned study total of 49 patients overall.  Patients may continue to receive bavituximab as long as the cancer does not progress and side effects are acceptable.
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Phase I Study - Bavituximab in Advanced Cancer Patients. In addition to our three Phase II bavituximab cancer trials, in June 2009 we announced we completed planned patient enrollment in a multi-center Phase I monotherapy trial for which most solid cancer types were eligible for enrollment.  The clinical trial was designed to enroll up to 28 patients with advanced solid tumors who no longer respond to standard cancer treatments.  The objectives of this open-label dose escalation study are to (i) determine the safety and tolerability of bavituximab administered intravenously to patients with advanced cancer; (ii) characterize the pharmacokinetic profile of bavituximab and (iii) define the dose-limiting toxicities, maximum tolerated dose and/or maximum effective dose of bavituximab.  Patients who demonstrate an objective response to therapy may be offered continued treatment under two technology platforms: Anti-Phosphatidylserinean extension protocol.  Interim data from this trial was presented at the 2009 American Society of Clinical Oncology (“Anti-PS”ASCO”) ImmunotherapeuticsAnnual Meeting.

We believe bavituximab may have broad potential for the treatment of multiple cancers when used in combination with commonly prescribed chemotherapeutic drugs based on its target, mechanism of action, pre-clinical studies and the promising early signs of efficacy against multiple tumor types with an acceptable safety profile in three separate Phase II clinical trials.

Cotara® for the Treatment of Brain Cancer

Cotara®, our first Tumor Necrosis Therapy (“TNT”).
Anti-PS Immunotherapeutics
Peregrine’s new class of Anti-Phosphatidylserine (“Anti-PS”) Immunotherapeutics are based agent, is a monoclonal antibodies that target and bind to components of cells normally only found on the inner surface of the cell membrane. The main target is known as phosphatidylserine (“PS”) which is normally not available for binding but becomes exposed on the outside of cells under stress conditions including the tumor microenvironment and during certain viral infections. Our first-in-class Anti-PS Immunotherapeuticsantibody targeting agent bavituximab, helps stimulate the body's immune defenses to destroy disease associated cells that have PS exposed on their surface. It has shown promise in pre-clinical studies in multiple types of cancer and viral diseases, both as a monotherapy and in combination with other therapies, and has demonstrated a good safety profile and promising signs of activity in pre-clinical and clinical studies completed to date.
Tumor Necrosis Therapy (“TNT”)

Our TNT technology uses monoclonal antibodies that target and bind to Deoxyribonucleic Acid (“DNA”) and associated histone proteins accessible in dead and dying cells found at the core of solid tumors. TNT antibodies are potentially capable of carrying a variety of therapeutic agents into the interior of solid tumors, including radioisotopes and chemotherapeutic agents, in order to kill the tumor from the inside out. Our most advanced TNT product, Cotara®, is an antibody conjugated to Iodine 131, a therapeutic radioisotope that kills adjacent cells. A product similar totumor cells near the site of localization.  In prior clinical studies, Cotara® has been developeddemonstrated encouraging results in China underpatients with advanced brain cancer.  One previous study demonstrated a license58% increase in expected median survival time in a group of patients suffering from Peregrinerecurrent glioblastoma multiforme (“GBM”) who were treated with Cotara® at the anticipated therapeutic dose rang being used in current studies.  This was considered a promising development in this serious and deadly disease.  Cotara® is being studied in two separate clinical trials as follows:

Dose Confirmation and Dosimetry Study -  Cotara® in GBM Patients.  Cotara® is currently awaiting marketing approvalin a dose confirmation and dosimetry clinical trial for the treatment of advanced lung cancer.recurrent GBM at several clinical sites.  The multi-center open label study is designed to treat up to 12 GBM patients who have recurrent disease.  Patients are receiving Cotara® by convection-enhanced delivery (“CED”), a National Institute of Health (“NIH”)-developed technique that delivers the agent to the tumor with great precision.  The study’s main objectives are to confirm the dose limiting toxicities and maximum tolerated dose and to characterize the biodistribution and radiation dosimetry of Cotara®.  In May 2009, we announced we were actively screening for the final patient in the planned patient enrollment.  Preliminary data from the trial was presented at the  2009 Society for Nuclear Medicine Annual Meeting showing that Cotara® specifically localizes to brain tumors at high concentrations with minimal radiation exposure to other organs, and that all of the GBM patients in the study cohort discussed in the presentation had surpassed the expected median six-month survival time for this patient population.

Our ProductsPhase II Study - Cotara® in GBM Patients.  Patient enrollment and dosing is also ongoing in a Phase II trial to assess Cotara® in up to 40 GBM patients who have experienced a first relapse.  This study is expected to be an integral part of the overall Cotara® brain cancer development program.  Patients receive a single infusion of the drug using the CED delivery method.  The study’s primary objective is to confirm the maximum tolerated dose of Cotara® in these relapsed patients.  Secondary objectives include estimates of overall patient survival, progression-free survival and the proportion of patients alive at six months post-treatment.  The study is being conducted according to internationally accepted ICH (International Conference on Harmonization) and GCP (Good Clinical TrialsPractices) guidelines at multiple clinical centers.  In March 2009, we announced that we were reducing the number of clinical sites to concentrate on enrolling patients at our top-enrolling sites, which have enrolled the majority of patients in the study to date.  We believe that by focusing our efforts on the key clinical sites, we can reduce the operational cost of the study with a minimal impact on actual enrollment rates.  In May 2009, we announced that we had enrolled over half of the planned patients in this study.
4

Taken together, we believe the study results from Peregrine’s two ongoing Cotara trials could provide the safety, dosimetry and initial efficacy data needed to support the design of a Phase III study.   Cotara has been granted FDA/EMEA orphan drug status for GBM and anaplastic astrocytoma and fast track designation in the U.S. for the treatment of recurrent GBM.

Bavituximab for the Treatment of HCV Infection

Bavituximab is a monoclonal antibody with unique anti-viral properties, has completed a Phase Ia single dose clinical trial for the treatment of chronic HCV infectionsthat targets and is currently in a Phase Ib repeat dose clinical trial. Bavituximab attachesbinds to its target which is specifically foundphosphatidylserine (“PS”).  Our researchers and collaborators have discovered that PS becomes exposed on the surface of a broad class of viruses known as enveloped viruses, whichas well as on the cells they infect.  These pathogens are responsible for about half of all human viral diseases, including hepatitis C virus (“HCV”), influenza, human immunodeficiency virus ("HIV"(“HIV”), cytomegalovirus ("CMV"(“CMV”) and other virus strains that cause serious and life-threatening diseases.conditions.  Scientists studying bavituximab believe the drug’s mechanism of action helpsmay help stimulate the body's natural immune defenses to destroy both the virus particles and the cells they infect.  Since the target for bavituximab is only exposed on diseased cells, healthy cells should not be directly affected by bavituximab.

2
We filed our first Investigational New Drug (“IND”) application using bavituximab for the treatment of chronic hepatitis C virus (“HCV”) infection in April 2005. During fiscal year 2006, we initiated and completed patient enrollment in a Phase IaI single dose escalation study in twenty-four (24)30 patients chronically infected with HCV and who havehad failed prior therapies.  The primary goal of the Phase I study was to assess the safety and pharmacologic profile of bavituximab in patients with chronic HCV infection.  Changes in viral load, measured as serum HCV RNA levels, were also monitored.  In the study, 30 patients with chronic HCV infection were administered one of five doses of bavituximab including 0.1, 0.3, 1, 3 and 6 milligrams per kilogram (“mg/kg”) of body weight.  After a single dose of bavituximab, among the patients administered 1, 3 and 6 mg/kg doses, 50% achieved a maximum peak reduction in serum HCV levels of greater than 75% (0.6 log), with one patient having a maximum peak 97% (1.5 log) reduction.  In this study, approximately 90% of the subjects were infected with the genotype 1 form of HCV, which is the most common and difficult to treatdifficult-to-treat strain of the virus.  At all four singlefive dose levels, bavituximab appeared to be safe and well tolerated with no dose limitingdose-limiting toxicities or serious adverse events.  Based onReported adverse events were mostly mild, infrequent, transient and likely not drug-related.

These results supported the safety data, we added an additional six patients at a higher single dose level. No dose limiting toxicities have been observed to date with respect to these patients, who are currently in a 12-week follow up period. In June 2006, we announced the initiation and completion of a Phase Ib open-label, repeat-dose escalation clinical trialI repeat dose HCV trial.  The primary objective of the Phase I study was to determine the safety, distribution and pharmacokinetic properties of multiple doses of single agent bavituximab in patients with chronic HCV infection.  ThisChanges in viral load, measured as serum HCV RNA levels, were also monitored.  Twenty-four patients (four cohorts of six patients each) were enrolled in the study, will examinewith each cohort scheduled to receive four doses of bavituximab over a 14-day period.  Patients received twice-weekly doses of bavituximab at escalating dose levels of 0.3, 1, 3 or 6 mg/kg of body weight.  Patients in all cohorts were followed for 12 weeks.  The results indicate that bavituximab was generally safe and well-tolerated, with no dose-limiting toxicities or serious adverse events reported.  Anti-viral activity (decline of greater than or equal to 0.5 log10 reduction in HCV RNA) was observed at all dose levels.  In the study, 83% of patients at the 3 mg/kg dose level demonstrated a maximum peak reduction in HCV RNA levels of at least a 75% (0.6 log), with an average of an 84% (0.8 log) peak reduction for those patients.

Based on the data from these earlier HCV clinical studies and on pre-clinical data indicating the potential of bavituximab to bind to HIV and HIV-infected cells, Peregrine advanced bavituximab into a trial in HCV patients co-infected with HIV.  Patient enrollment and dosing is currently ongoing.  The study is an open-label, dose escalation study designed to assess the safety and tolerabilitypharmacokinetics of bavituximab when administered 4 times over a two week period to patients with chronic HCV infection with a 12 week follow-up. The Phase Ib study will enrollin up to 24 patients atchronically infected with HCV and HIV.  Patient cohorts are receiving ascending dose levels of bavituximab weekly for up to three clinical centers. Patient screeningeight weeks.  HCV and enrollmentHIV viral titers and other biomarkers are currently ongoing. In addition to the single agent clinical trials, a Phase I clinicalbeing tracked, although they are not formal study testing bavituximab in combination with other HCV therapies is being planned.

We are also working with top academic researchers and research organizations to study the potential use of bavituximab to treat other viral infections. These pre-clinical programs are primarily focused on evaluating bavituximab's potential in virus infections with significant economic impact including HIV, influenza, CMV, as well as biodefense applications. We anticipate that these pre-clinical studies may help support additional clinical indications.

Bavituximab for the Treatment of Solid Cancers

Scientists working with us have also determined that the target for bavituximab becomes exposed on the cells that line blood vessels inside solid cancers. Since the target is not exposed in normal tissues and is abundantly exposed on tumor blood vessels, it represents a unique and specific target for cancer therapy, while minimizing effects on healthy cells. In pre-clinical solid cancer therapy studies, including the treatment of breast, prostate and pancreatic tumors, a bavituximab equivalent (mouse versions of the antibody used in the mouse studies) had promising anti-tumor activity as a stand-alone treatment. Common cancer treatments such as chemo and radiation therapy increase the exposure of the PS target on tumor blood vessels and have been shown in pre-clinical studies to enhance the anti-tumor effects of bavituximab equivalents.

Bavituximab is currently in a Phase I clinical trial for which all solid cancer types are eligible for enrollment. The clinical trial is designed to enroll up to 28 patients with advanced solid tumors that no longer respond to standard cancer treatments. The objectives of this open-label, single and repeat dose escalation study are to (i) determine the safety and tolerability of bavituximab administered intravenously to patients with advanced cancer; (ii) characterize the pharmacokinetic profile of bavituximab and; (iii) define the dose-limiting toxicities, maximum tolerated dose and/or maximum effective dose of bavituximab. Patients who demonstrate an objective response to therapy may be offered continued treatment on an extension protocol. Patient screening and enrollment are currently ongoing.endpoints.
 
35
Cotara® for
Understanding the TreatmentMechanism of Brain CancerAction of Our Technology Platforms

Our three products in clinical trials fall under two technology platforms:  Anti-Phosphatidylserine (“Anti-PS”) technology and Tumor Necrosis Therapy (“TNT”) technology.

Anti-PS Technology Platform

Peregrine’s new class of Anti-Phosphatidylserine (“Anti-PS”) therapeutics are monoclonal antibodies that target and bind to components of cells normally found only on the inner surface of the cell membrane.  This target is a targeted cancer therapyspecific phospholipid known as phosphatidylserine (“PS”).  PS becomes exposed on the outside of cells under stress conditions, including on the surface of tumor blood vessels and during certain viral infections.  Our first-in-class Anti-PS product, bavituximab, is believed to help stimulate the body's immune defenses to destroy disease-associated cells that have exposed PS on their surface.  In addition to this direct effect, researchers believe that anti-PS therapies also have a secondary mechanism of action that occurs under certain stressful conditions at the cellular level.  This secondary mechanism involves the immunosuppressive effects of PS molecules expressed on the surface of the cell, which act to dampen the body’s normal immune response.  By binding to the PS molecule and blocking its effects, agents such as bavituximab may have the potential to turn-off this immunosuppressive signal, allowing the immune system to generate a robust immune response.

Tumor Necrosis Therapy (“TNT”) Technology Platform

Our TNT technology uses monoclonal antibodies conjugated to therapeutic agents such as radioisotopes. TNT agents carrythat target and anchor the attached anti-cancer agent into the interior of tumors to kill them from the inside out. Cotara® is a TNT agent that bindsbind to DNA and associated histone proteins that become accessible inreleased by the dead and dying (“necrotic”) cells found at the core of solid tumors.  Cotara® isMost solid tumors develop this core of necrotic cells due to the lack of oxygen and nutrients at their center.   This makes the necrotic center of tumors an abundant but selective target for TNT-based monoclonal antibodies.  Similar to a monoclonal antibody targeting agent conjugated to Iodine 131,guided missile, TNT antibodies are also capable of carrying a variety of therapeutic radioisotope that killsagents into the interior of these tumors, including radioisotopes and chemotherapeutic agents, which then kill the neighboring tumor cells nearfrom the siteinside out, while sparing healthy tissue.  Our most advanced TNT product, Cotara®, is an antibody attached to the radioactive isotope, Iodine 131.

Government Contract with the Defense Threat Reduction Agency

On June 30, 2008, we were awarded a five-year contract potentially worth up to $44.4 million to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections.  The contract was awarded through the Transformational Medical Technologies Initiative (“TMTI”) of localization.the U.S. Department of Defense's Defense Threat Reduction Agency “DTRA”).  This federal contract is expected to provide us with up to $22.3 million in funding over a 24-month base period, with $14.3 million having been appropriated through the current federal fiscal year ending September 30, 2009.  The remainder of the $22.3 million in funding is expected to be appropriated over the remainder of the two-year base period ending June 29, 2010.  Subject to the progress of the program and budgetary considerations in future years, the contract can be extended beyond the base period to cover up to $44.4 million in funding over the five-year contract period through three one-year option terms.  Work under this contract commenced on June 30, 2008 and direct costs associated with the contract are included in research and development expense in the accompanying consolidated statements of operations.

Cotara® is currently in a dose confirmation and dosimetry clinical trial for the treatment of recurrent glioblastoma multiforme (“GBM”) in collaboration with New Approaches to Brain Tumor Therapy (“NABTT”), a brain tumor treatment consortium. This study is partially funded by the National Cancer Institute ("NCI”) and allows us to treat up to 28 patients although we expect this trial to enroll 9-12 patients in order to meet the primary objectives of the study. The next step in the development of Cotara® will be to treat a group of approximately 40 patients using a single administration of the drug with an optimized delivery using two catheters. Taken together, the NABTT study along with data collected from the treatment of the approximate 40 additional patients should provide the safety, dosimetry and efficacy data that will support the final design of the larger Phase III study. Cotara has been granted FDA orphan drug status and fast track designation for the treatment of two lethal brain cancers.

Earlier-Stage TechnologiesPre-clinical Programs

We are pursuinghave historically developed several earlier stage technologies including Vasopermeation Enhancement Agents (“VEAs”) that are intended to be used as an adjuvant to improve the performance of standard cancer drugs, as an adjuvant. We are also evaluating several anti-angiogenesis agents, and Vascular Targeting Agents (“VTAs”)vascular targeting agents, that complement our other anti-cancer platforms, asplatforms.  In order to focus our efforts and resources on our current clinical programs, we have curtailed our efforts in developing these pre-clinical programs and we are actively seeking partners to further described below.

Vasopermeation Enhancement Agents (“VEAs”) utilize monoclonal antibodies which are designed to increase the uptake of cancer therapeutics and imaging agents into the tumor at the tumor site, potentially resulting in greater efficacy. VEAs work by using monoclonal antibodies to deliver known vasoactive compounds (molecules that cause tissues to become more permeable) selectively to solid tumors. VEAs currently use the same targeting agent as TNT to deliver an agent that makes the blood vessels inside the tumor more permeable (leaky). Once localized at the tumor site, VEAs alter the physiology and the permeability of the vessels and capillaries that supply the tumor. In pre-clinical studies, drug uptake has been increased up to almost 400% in solid tumors when VEAs were administered several hours prior to the chemotherapeutic treatment. VEAs are intended to be used as a pre-treatment for most existing cancer therapies and imaging agents.

Anti-Angiogenesis agents work by inhibiting blood vessel growth. Peregrine has an antibody, termed 2C3, which inhibits a key tumor blood vessel growth factor known as Vascular Endothelial Growth Factor (“VEGF”), thereby inhibiting the formation of blood vessels in solid tumors. The 2C3 antibody is part of our anti-angiogenesis compound family under development for the treatment of cancer and other diseases dependent on aberrant blood vessel formation.

Vascular Targeting Agent (“VTA”) technology utilizes monoclonal antibodies and other targeting agents that recognize markers found on tumor blood vessels but not on normal blood vessels. VTAs act in a two-step process: the VTA first binds to the tumor blood vessels and then induces a blood clot in the tumor blood vessels. The formation of the blood clot stops the flow of oxygen and nutrients to the tumor cells, ultimately resulting in tumor cell death.develop these technologies.
 
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LicensingIn-Licensing Collaborations

The following discussions cover our collaborations and licensingin-licensing obligations related to our products in clinical trials:

Anti-Phosphatidylserine Immunotherapeutics(“Anti-PS”) Program

In August 2001, we exclusively in-licensed the worldwide rights to this technology platform from the University of Texas Southwestern Medical Center at Dallas.During November 2003 and October 2004, we entered into two non-exclusive license agreements with Genentech, Inc. to license certain intellectual property rights covering the methods and processes for producing antibodies used in connection with the development of our Anti-Phosphatidylserine (“Anti-PS”) ImmunotherapeuticsAnti-PS program. In March 2005, we entered into a worldwide non-exclusive license agreement with Lonza Biologics for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of Anti-Phosphatidylserine Immunotherapeutics.  During December 2003, we entered into an exclusive commercial license agreement with an unrelated entity covering the generation of the chimeric monoclonal antibody, bavituximab.  In March 2005, we entered into a worldwide non-exclusive license agreement with Lonza Biologics ("Lonza ") for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of bavituximab.

Under our licensingin-licensing agreements relating to the Anti-Phosphatidylserine Immunotherapeutics,Anti-PS program, we typically pay an up-front license fee, annual maintenance fees, and are obligated to pay future milestone payments based on development progress, plus a royalty on net sales and/or a percentage of sublicense income.  Our aggregate future milestone payments under the above in-licensing agreements are $7,100,000$6,850,000 assuming the achievement of all development milestones under the agreements through commercialization of products, of which, we expect to pay up to $100,000 during fiscal year 2007 and $6,600,000$6,400,000 is due upon approval of the first Anti-Phosphatidylserine ImmunotherapeuticsAnti-PS product.  In addition, under one of the agreements, we are required to pay future milestone payments upon the completion of Phase II clinical trial enrollment in the amount of 75,000 pounds sterling, the amount of which will continue as an annual license fee thereafter, plus a royalty on net sales of any products that we market that utilize the underlying technology.  In the event we utilize an outside contract manufacturer other than Lonza Biologics to manufacture bavituximab for commercial purposes, we would owe Lonza Biologics 300,000 pounds sterling per year in addition to an increased royalty on net sales.

During fiscal year 2008, we expensed $50,000 under in-licensing agreements covering our Anti-PS program, which is included in research and development expense in the accompanying consolidated statements of operations.  We did not incur any milestone related expenses during fiscal years 2009 and 2007.

Tumor Necrosis Therapy (“TNT”)

We acquired the rights to the TNT technology in July 1994 after the merger between Peregrine and Cancer Biologics, Inc. was approved by our stockholders.  The assets acquired from Cancer Biologics, Inc. primarily consisted of patent rights to the TNT technology.  To date, no product revenues have been generated from our TNT technology.

In October 2004, we entered into a worldwide non-exclusive license agreement with Lonza Biologics (“Lonza”) for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of Cotara®.  Under the terms of the agreement, we will pay a royalty on net sales of any products that we market that utilize the underlying technology.  In the event a product is approved and we or Lonza do not manufacture Cotara®, we would owe Lonza 300,000 pounds sterling per year in addition to an increased royalty on net sales.

Out-Licensing Collaborations

In addition to internal product development efforts and related licensing collaborations, we remain committed to our existing out-licensing collaborations and the pursuit of select partnerships with pharmaceutical, biopharmaceutical and diagnostic companies based on our broad intellectual property position.  The following represents a summary of our key out-licensing collaborations.collaborations:

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During September 1995, we entered into an agreement with Cancer Therapeutics, Inc. ("CTL"), a California corporation, whereby we granted to Cancer Therapeutics, Inc.CTL the exclusive right to sublicense TNT to a major pharmaceutical company solely in the People’s Republic of China.  In addition, we are entitledaccordance with a Settlement Agreement and Mutual General Release (“Settlement Agreement”) dated June 4, 2009 with CTL as further discussed in Part I, Item 3 under “Legal Proceedings” of this Annual Report, CTL agreed to receiveissue to Peregrine 950,000 shares of Medibiotech (which represents 50% of the distributed profits receivedshares of Medibiotech owned by Cancer Therapeutics, Inc. from the Chinese pharmaceutical company. Cancer Therapeutics, Inc. has the right to 20%CTL) in lieu of any of the distributed profits underfinancial terms included in the agreement with the Chinese pharmaceutical company. During March 2001, we extended the exclusive licensing period granted to Cancer Therapeutics, which now expires on December 31, 2016. In exchange for this extension, Cancer Therapeutics, Inc. agreed to pay us ten percent (10%) of all other consideration received by Cancer Therapeutics, Inc., excluding research funding. Through fiscal year ended April 30, 2006, we have not received any amounts under theSeptember 1995 agreement.

During October 2000, we entered into a licensing agreement with Merck KGaA to out-license a segment of our TNT technology for use in the application of cytokine fusion proteins.  During January 2003, we entered into an amendment to the license agreement, whereby we received an extension to the royalty period from six years to ten years from the date of the first commercial sale.  Under the terms of the agreement, we willwould receive a royalty on net sales if a product is approved under the agreement.  Merck KGaA has not publicly disclosed the development status of its program.

During February 2001,2007, we completed a licensing dealentered into an amended and restated license agreement with SuperGen, Inc. (“SuperGen”) revising the original licensing deal completed with SuperGen in February 2001, to license a segment of our VTAVascular Targeting Agents ("VTA") technology, specifically related to Vascular Endothelial Growth Factorcertain conjugates of vascular endothelial growth factor (“VEGF”).  Under the terms of the licensingamended and restated license agreement, we are entitled towill receive an annual license feefees of up to $200,000 per year payable in cash or SuperGen common stock until SuperGen files an Investigational New Drug Application in the United States utilizing the VEGF conjugate technology.  In addition, we could receive additional milestoneup to $8.25 million in future payments based on SuperGen’s development success, plus receivethe achievement of all clinical and regulatory milestones combined with a royalty on net sales, of all drugs commercialized by SuperGen utilizingas defined in the VEGF technology.agreement, as amended.  We could also receive additional consideration for each clinical candidate that enters a Phase III clinical trial by SuperGen.  As of April 30, 2006,2009, SuperGen has not filed an Investigational New Drug Application in the United States utilizing the VEGF conjugate technology.

During December 2002, we granted the exclusive rights for the development of diagnostic and imaging agents in the field of oncology to Schering A.G. under our VTA technology.  Under the terms of the agreement, we received an up-front payment of $300,000, which we amortized as license revenue over an estimated period of 48 months through December 2006 in accordance with SAB No. 104.  In addition, under the terms of the agreement, we could receive up to $1.2 million in future payments for each product based on the achievement of all clinical and could also receive future milestone payments andregulatory milestones combined with a royalty on net sales, as defined in the agreement.  Under the same agreement, we granted Schering A.G. an option to obtain certain non-exclusive rights to the VTA technology with predetermined up-front fees and milestone payments as defined in the agreement.  Schering A.G. has not publicly disclosed the development status of its program.

During August 2005, we licensed certain intellectual property rights under our VTA technology to Medarex, Inc., which allows Medarex, Inc. to develop and commercialize certain monoclonal antibodies for the treatment of a wide range of solid tumors. Under the terms of the agreement we could receive up to $5.95 million in future payments based on the achievement of all clinical and regulatory milestones combined with a royalty on net sales, as defined in the agreement. Medarex, Inc. has not publicly disclosed the development status of its program.

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Contract Manufacturing Services

During January 2002, we commenced the operations of our wholly owned subsidiary, Avid Bioservices, Inc. (“Avid”), which was formed from the facilities and expertise of Peregrine.  Avid provides an array of contract manufacturingbiomanufacturing services, including contract manufacturing of antibodies and proteins, cell culture development, process development, and testing of biologics for biopharmaceutical and biotechnology companies under current Good Manufacturing Practices (“cGMP”).  Avid’s current cGMP manufacturing capacityoperations includes the following four bioreactors:  two (2) 1,000 liter, 300 liter, and 100 literliter.  Avid also maintains spinner flasks and 22.5bioreactors in our process development laboratory ranging from 1 to 100 liter.
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Operating a cGMP facility requires highly specialized personnel and equipment that must be maintained on a continual basis.  Prior to the formation of Avid, we manufactured our own antibodies for overmore than 10 years and developed the manufacturing expertise and quality systems to provide the same service to other biopharmaceutical and biotechnology companies. We believe Avid’s existing facility is well positioned to meet the growing needs of the industry.  Avid is also well positioned to increase its capacity in the future in order to become a significant supplier of contract manufacturing services.

Avid provides an array of services for Peregrine as well as working with a variety of companies in the biotechnology and pharmaceutical industries.  Even though much of the process is very technical, knowledge of the process should assist you in understanding the overall business and complexities involved in cGMP manufacturing.  The manufacturing of monoclonal antibodies and recombinant proteins under cGMP is a complex process andthat includes several phases before the finished drug product is released for clinical or commercial use.  The first phase of the manufacturing process, called technology transfer phase, is to receive the production cell line (the cells that produce the desired protein) and any available process information from the client.  The cell line must be adequately tested according to FDA guidelines by an outside laboratoryand/or other regulatory guidelines to certify that it is suitable for cGMP manufacturing.  This testing generally takes between one and three months to complete, depending on the necessary testing.  The cell line that is used may either be from a master cell bank (base cells from which all future cells will be grown), which is already fully tested or may represent a research cell line.  In the case of a research cell line, Avid can use the research cell line to produce master and working cell banks.  Clients often request further development through media screening and adaptation followed by small scale bioreactor process development in 1 to 5 liter bioreactor systems.  In parallel to the production of the master and working cell banks, the growth and productivity characteristics of the cell line may be evaluated in the research andprocess development labs and paper work to support the production plan.laboratories.  The whole manufacturing process (master cell bank characterization, process development, assay development, raw materials specifications, test methods, downstream processing methods, purification methods, testing methods and final release specifications) must be developed and documented prior to the commencement of manufacturing in the bioreactors.  The second phase of the process is in the manufacturing facility.  Once the process is developed, pilot runs are generally performed using smaller scale bioreactors, such as the 22.536 or 100 liter bioreactor,bioreactors, in order to verify the process.  Once the process is set, a pilot run or runs at full scale runs will be performed to finalize manufacturing batch records.  Material produced during these runs is often used for toxicology studies.  After completing the pilot batch run(s) is completed,, full-scale cGMP manufacturing is typically initiated.  Once the cGMP run(s) is completed, batch samples are sent to an outside labtaken for various required tests, including sterility and viral testing.  Once the test results verify that the antibodies meet specifications, the product is released for research, clinical or commercial use.

Each product manufactured is tailored to meet the specific needs of Peregrine or the client.  Full process development from start to product release can take ten months or longer.  Research and development work can take from two months to overmore than six months.  All stages of manufacturing can generally take betweenfrom one to several weeks depending on the manufacturing method and process.  Product testing and release can take up to three months to complete.
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Given its inherent complexity, necessity for detail, and magnitude (contracts may be into the millions of dollars), the contract negotiations and sales cycle for cGMP manufacturing services can take a significant amount of time.  Our anticipated sales cycle from client introduction to signing an agreement will take anywhere from between three to six months to overmore than one year.  Introduction to Avid’s services will usually come from exhibiting at trade shows, exposure from attending and presenting at industry conferences and through word of mouth exposure from direct mailings, exposure from attendance at conferences or from advertising in trade journals.referrals.  The sales cycle consists of the introduction phase, the proposal phase, the audit phase, the contract phase and the project initiation phase.

To date, Avid has been audited and qualified by both large, and small, domestic and foreign biotechnology companies interested in the production of monoclonal antibodies for clinical trialtrials and, as discussed below, commercial use. Additionally, Avid has been audited by the European Agency for the Evaluation of Medicinal Products (“EMEA”),Regulatory authorities, the United States Food and Drug Administration (“FDA”) and the California Department of Health.

In 2005, Avid was inspected by the FDA in a Pre-Approval Inspection ("PAI"(“PAI”) in support ofsupporting a New Drug Application for a commercial application by a client company.  The Los Angeles District FDA office did  recommendrecommended to Washington that the facility be approved as a site for the Active Pharmaceutical Ingredient ("API"(“API”) for the client company.  The client'sclient’s New Drug Application was in fact approved later in 2005 and includes Avid as the source of the API.  Avid has been subsequently inspected by the FDA most recently in January 2009 with no objectionable citations.  Avid is currently producing commericalcommercial product for the client company under this approved New Drug Application.

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Government Regulation

Regulation by governmental authorities in the United States and other countries is a significant factor in our ongoing research and development activities and in the production of our products under development.  Our products and our research and development activities are subject to extensive governmental regulation in the U.S., including the Federal Food, Drug, and Cosmetic Act, as amended, the Public Health Service Act, also as amended, as well as to other federal, state, and local statutes and regulations.  These laws, and similar laws outside the U.S., govern the clinical and non-clinical testing, manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, record keeping, reporting, advertising and promotion of our products, if approved.  Violations of regulatory requirements at any stage may result in various adverse consequences, including regulatory delay in approving or refusal to approve a product, enforcement actions, including withdrawal of approval, labeling restrictions, seizure of products, fines, injunctions and/or civil or criminal penalties.  Any product that we develop must receive all relevant regulatory approvals or clearances before it may be marketed in a particular country.

The regulatory process, which includes extensive pre-clinical testing and clinical trials of each clinical candidate to study its safety and efficacy, is uncertain, takes many years and requires the expenditure of substantial resources.  We cannot assure you that the clinical trials of our product candidates under development will demonstrate the safety and efficacy of those product candidates to the extent necessary to obtain regulatory approval.

The activities required before a product may be marketed in the United States, such as Cotara® or bavituximab, (formerly known as Tarvacin), are generally performed in the following sequential steps:

 1.
Pre-clinical testing.  This generally includes laboratory testingevaluation of our products in the laboratory or in animals to determine characterization, safety efficacy and potential toxicity. Pre-clinicalefficacy.  Some pre-clinical studies must be conducted by laboratories that comply with FDA regulations regarding good laboratory practice.

 2.
Submission to the FDA of an investigational new drug application (“IND”).  The results of pre-clinical studies, together with manufacturing information, analytical data and proposed clinical trial protocols, are submitted to the FDA as part of an IND, which must become effective before the clinical trials can begin.  Once the IND is filed, the FDA has 30 days to review it.  The IND will automatically become effective 30 days after the FDA receives it, unless the FDA indicates prior to the end of the 30-day period that the proposed protocol raises concerns that must be resolved to the FDA’s satisfaction before the trialstrial may proceed.  If the FDA raises concerns, we may be unable to resolve the proposed protocol to the FDA’s approval in a timely fashion, if at all.
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 3.
Completion of clinical trials.  Human clinical trials are necessary to seek approval for a new drug or biologic and typically involve a three-phase process.  In phasePhase I, small clinical trials are generally conducted to determine the safety of the product.  In phasePhase II, clinical trials are generally conducted to assess safety, acceptable dose, and gain preliminary evidence of the efficacy of the product.  In phasePhase III, clinical trials are generally conducted to provide sufficient data for the statistically valid proof of safety and efficacy.  Clinical trialsA clinical trial must be conducted according to good clinical practices under protocols that detail the trial’s objectives, inclusion and exclusion criteria, the parameters to be used to monitor safety and the efficacy criteria to be evaluated, and informed consent must be obtained from all study subjects.  Each protocol must be submitted to the FDA as part of the IND.  The FDA may impose a clinical hold on an ongoing clinical trial if, for example, safety concerns arise, in which case the study cannot recommence without FDA authorization under terms sanctioned by the Agency.  In addition, before a clinical trial can be initiated, each clinical site or hospital administering the product must have the protocol reviewed and approved by an institutional review board (“IRB”).  The IRB will consider, among other things, ethical factors and the safety of human subjects.  The IRB may require changes in a protocol, which may delay initiation or completion of a study.  Phase I, Phase II or Phase III clinical trials may not be completed successfully within any specific period of time, if at all, with respect to any of our potential products.  Furthermore, we, the FDA or an IRB may suspend a clinical trial at any time for various reasons, including a finding that the healthy individuals or the patients are being exposed to an unacceptable health risk.

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 4.
Submission to the FDA of a Biologics License Application (“BLA”) or New Drug Application (“NDA”). After completion of clinical studies for an investigational product, a Biologics License Application (“BLA”) or New Drug Application (“NDA”) is submitted to the FDA for product marketing approval.  No action can be taken to market any new drug or biologic product in the United States until the FDA has approved an appropriate marketing application.

 5.
FDA review and approval of the BLA or NDA before the product is commercially sold or shipped.  The results of pre-clinical studies and clinical trials and manufacturing information are submitted to the FDA in the form of a BLA or NDA for approval of the manufacture, marketing and commercial shipment of the product.  The FDA may take a number of actions after the BLA or NDA is filed, including but not limited to, denying the BLA or NDA if applicable regulatory criteria are not satisfied, requiring additional clinical testing or information; or requiring post-market testing and surveillance to monitor the safety or efficacy of the product.  Adverse events that are reported after marketing approval can result in additional limitations being placed on the product’s use and, potentially, withdrawal of the product from the market.  Any adverse event, either before or after marketing approval, can result in product liability claims against us.

In addition, we are subject to regulation under state, federal, and international laws and regulations regarding occupational safety, laboratory practices, the use and handling of radioactive isotopes, environmental protection and hazardous substance control, and other regulations.  Our clinical trial and research and development activities involve the controlled use of hazardous materials, chemicals and radioactive compounds.  Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated.  In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our financial resources.  In addition, disposal of radioactive materials used in our clinical trials and research efforts may only be made at approved facilities.  We believe that we are in material compliance with all applicable laws and regulations including those relating to the handling and disposal of hazardous and toxic waste.
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Our product candidates, if approved, may also be subject to import laws in other countries, the food and drug laws in various states in which the products are or may be sold and subject to the export laws of agencies of the United States government.

In addition, we must also adhere to current Good Manufacturing Practice (“cGMP”) and product-specific regulations enforced by the FDA through its facilities inspection program.  Failure to comply with manufacturing regulations can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution.

During fiscal year 1999, the Office of Orphan Products Development of the FDA determined that Cotara® qualified for orphan designation for the treatment of glioblastoma multiforme and anaplastic astrocytoma (both brain cancers).  The 1983 Orphan Drug Act (with amendments passed by Congress in 1984, 1985, and 1988) includes various incentives that have stimulated interest in the development of orphan drug and biologic products.  These incentives include a seven-year period of marketing exclusivity for approved orphan products, tax credits for clinical research, protocol assistance, and research grants.  Additionally, legislation re-authorizing FDA user fees also created an exemption for orphan products from fees imposed when an application to approve the product for marketing is submitted.  A grant of an orphan designation is not a guarantee that a product will be approved.  If a sponsor receives orphan drug exclusivity upon approval, there can be no assurance that the exclusivity will prevent another entity from receiving approval for the same or a similar drug for the same or other uses.

Cotara® was granted Fast Track designation by the FDA for the treatment of recurrent glioblastoma multiforme.  This designation facilitates the development and expedites the review of new drugs that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs.  The Fast Track mechanism is described in the Food and Drug Administration Modernization Act of 1997 (“FDAMA”). The benefits of Fast Track include scheduled meetings to seek FDA input into development plans, the option of submitting a New Drug Application in sections rather than all components simultaneously, and the option of requesting evaluation of studies using surrogate endpoints.
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Manufacturing and Raw Materials

Manufacturing.  We manufacture pharmaceutical-grade products to supply our previous and ongoing clinical trials through our wholly owned subsidiary, Avid Bioservices,Bioservices®, Inc.  We have assembled a team of experienced scientific, production and regulatory personnel to facilitate the manufacturing of our antibodies, including Cotara®bavituximab and bavituximab (formerly known as Tarvacin)Cotara®.

Our bavituximab product is shipped directly from our facility to the clinical trial sites or to contract research organizations that distribute the clinical trial materials to clinical sites.  Our TNT antibodies are shipped to a third party facility for radiolabeling (the process of attaching the radioactive agent, Iodine 131, to the antibody).  From the radiolabeling facility, Cotara® (the radiolabeled-TNT antibodies) is shipped directly to the clinical site for use in clinical trials.

Any commercial radiolabeling supply arrangement will require a significant investment of funds by us in order for a radiolabeling vendor to develop the expanded facilities necessary to support our product.  There can be no assurance that material produced by our current radiolabeling supplier will be suitable for commercial quantities to meet the possible demand of Cotara®, if approved.  We will continue with our research in radiolabeling scale-up, but we believe this research will be eventually supported by a potential licensing or marketing partner for Cotara®.
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Raw Materials.  Various common raw materials are used in the manufacture of our products and in the development of our technologies.  These raw materials are generally available from several alternate distributors of laboratory chemicals and supplies.  We have not experienced any significant difficulty in obtaining these raw materials and we do not consider raw material availability to be a significant factor in our business.

Patents and Trade Secrets

Peregrine continues to seek patents on inventions originating from ongoing research and development activities within the Company and in collaboration with other companies and university researchers.  Patents, issued or applied for, cover inventions relating in general to cancer therapy and anti-viral therapy and in particular to different proteins, antibodies and conjugates, methods and devices for labeling antibodies, and therapeutic and diagnostic uses of the antibodies and conjugates.  We intend to pursue opportunities to license these technologies and any advancements or enhancements, as well as to pursue the incorporation of our technologies in the development of our own products.

Our issued patents extend for varying periods according to the date of patent application filing or grant and the legal term of patents in the various countries where patent protection is obtained.  The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.  We have either been issued patents or have patent applications pending that relate to a number of current and potential products including products licensed to others.  We consider that in the aggregate our patent applications, patents and licenses under patents owned by third parties are of material importance to our operations.  In general, we have obtained licenses from various parties that we deem to be necessary or desirable for the manufacture, use or sale of our products.  These licenses (both exclusive and non-exclusive) generally require us to pay royalties to the parties.  The terms of the licenses, obtained and that we expect to be obtained, are not expected to significantly impact the cost structure or marketability of the Company’sour products.

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In general, the patent position of a biotechnology firm is highly uncertain and no consistent policy regarding the breadth of issued claims has emerged from the actions of the U.S. Patent Office and courts with respect to biotechnology patents.  Similar uncertainties also exist for biotechnology patents in important overseas markets.  Accordingly, there can be no assurance that our patents, including those issued and those pending, will provide protection against competitors with similar technology, nor can there be any assurance that such patents will not be legally challenged, invalidated, infringed upon and/or designed around by others.

International patents relating to biologics are numerous and there can be no assurance that current and potential competitors have not filed or in the future will not file patent applications or receive patents relating to products or processes utilized or proposed to be used by the Company.us.  In addition, there is certain subject matter which is patentable in the United States but which may not generally be patentable outside of the United States.  Statutory differences in patentable subject matter may limit the protection the Companywe can obtain on some of itsour products outside of the United States.  These and other issues may prevent the Companyus from obtaining patent protection outside of the United States.  Failure to obtain patent protection outside the United States may have a material adverse effect on the Company’sour business, financial condition and results of operations.
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No one has sued us for infringement and no third party has asserted their patents against us that we believe are of any merit.  However, there can be no assurances that such lawsuits have not been or will not be filed and, if so filed, that we will prevail or be able to reach a mutually beneficial settlement.  We also intend to continue to rely upon trade secrets and improvements, unpatented proprietary know-how, and continuing technological innovation to develop and maintain our competitive position in research and development of therapeutic and diagnostic products.  We typically place restrictions in our agreements with third parties, which contractually restrict their right to use and disclose any of the Company'sour proprietary technology with which they may be involved.  In addition, we have internal non-disclosure safeguards, including confidentiality agreements, with our employees.  There can be no assurance, however, that others may not independently develop similar technology or that the Company'sour secrecy will not be breached.

Customer Concentration and Geographic Area Financial Information

We are currently in the research and development phase for all of our products and we have not generated any product sales from any of our technologies under development.  For financial information concerning Avid’s customer concentration and geographic areas of its customers, see Note 11,10, “Segment Reporting” to the consolidated financial statements.

Marketing Our Potential Products

We intend to sell our products, if approved, in the United States and internationally in collaboration with marketing partners or through an internal sales force.  If the FDA approves Cotara®bavituximab or bavituximabCotara® or our other product candidates under development, the marketing of these product candidates will be contingent upon us entering into an agreement with a company to market our products or upon us recruiting, training and deploying our own sales force.  We do not presently possess the resources or experience necessary to market bavituximab, Cotara®, bavituximab, or any of our other product candidates and we currently have no arrangements for the distribution of our product candidates, if approved.  Development of an effective sales force requires significant financial resources, time, and expertise.  There can be no assurance that we will be able to obtain the financing necessary to establish such a sales force in a timely or cost effective manner or that such a sales force will be capable of generating demand for our product candidates.

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Competition

The pharmaceutical and biotechnology industry is intensely competitive and subject to rapid and significant technological change.  Many of the drugs that we are attempting to discover or develop will be competing with existing therapies.  In addition, we are aware of several pharmaceutical and biotechnology companies actively engaged in research and development of antibody-based products that have commenced clinical trials with, or have successfully commercialized, antibody products.  Some or all of these companies may have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience in developing products and running clinical trials.  We expect to continue to experience significant and increasing levels of competition in the future.  In addition, there may be other companies which are currently developing competitive technologies and products or which may in the future develop technologies and products whichthat are comparable or superior to our technologies and products.

We are conducting the Cotara® dose confirmation and dosimetry clinical trial for the treatment of recurrent glioblastoma multiforme (“GBM”), the most aggressive form of brain cancer as a stand-alone study in collaboration with New Approaches to Brain Tumor Therapy (“NABTT”) consortium. Existingcancer.  Approved treatments for brain cancer include the Gliadel® Wafer (polifeprosan 20 with carmustine implant) from MGI Pharma,Eisai, Inc. and, Temodar® (temazolomide)(temozolomide) from Schering-Plough Corporation.Corporation and Avastin® (bevacizumab) from Genentech, Inc..  Gliadel® is inserted in the tumor cavity following surgery and releases a chemotherapeutic agent over time.  Temodar® is administered orally to patients receiving concurrent radiation therapy.with brain cancer.  Avastin® is a monoclonal antibody that targets vascular endothelial growth factor to prevent the formation of new tumor blood vessels.
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Because Cotara® targets brain tumors from the inside out, it is a novel treatment dissimilar from other drugs in development for this disease.  Some of the products thatin development may compete within the brain cancer categorywith Cotara® should they become approved for marketing.  These products include, GLI-328 (Novartis)but are not limited to:  131I-TM601, a radiolabeled chlorotoxin peptide being developed by TransMolecular, Inc., CDX-110, a gene therapy treatment that is injected into the walls of the tumor cavity following surgery; IL13-PE38QQR (cintredekin besudotox) from NeoPharm, Inc. continues inpeptide vaccine under development by Celldex, cilengitide, an integrin-targeting peptide being evaluated by Merk KGaA, and cediranib, a Phase III trial; In March 2006 Eli Lilly and Company began a Phase III trial of enzastuarin for the treatment of GBM; TransMID™ (Xenova Group plc) is a product based on the diphtheria toxin and began a Phase III trial in May 2004.VEGFR tyrosine kinase inibitor being developed by AstraZeneca.  In addition, Gleevec® by Novartis, which is an oncology productproducts marketed for other indications issuch as Gleevec® (Novartis), Tarceva® (Genentech/OSI), and Nexavar® (Bayer), are being tested in clinical trials for the treatment of brain cancer.

Bavituximab is currently in clinical trials for the treatment of advanced solid cancers is currently in Phase I clinical trials.cancers.  There are a number of possible competitors with approved or developmental targeted agents used in combination with standard chemotherapy for the treatment of cancer, including but not limited to, Avastin® by Genentech, Inc., Gleevec® by Novartis, Tarceva® by OSI Pharmaceuticals, Inc. and Genentech, Inc., Erbitux® by ImClone Systems Incorporated and Brystol-MyersBristol-Myers Squibb Company, Rituxan® and Herceptin® by Biogen Idec Inc. and Genentech, Inc., Herceptin®and Vectibix™ by Genentech, Inc. and panitumumab by Amgen®.Amgen.  There are a significant number of companies developing cancer therapeutics using a variety of targeted and non-targeted approaches.  A direct comparison of these potential competitors will not be possible until bavituximab advances to later-stage clinical trials.

In addition, we have completed a Phase I single-dose clinical trialare evaluating bavituximab for the treatment of HCV infection and have begun enrolling patients in a multiple-dose Phase Ib clinical trial.HCV.  Bavituximab is a first-in-class approach for the treatment of HCV infection.HCV.  We are aware of no other products in development targeting PSphosphatidylserine as a potential therapy for HCV infection.HCV.  There are a number of companies that have products approved and on the market for the treatment of HCV, including but not limited to:  Peg-Intron®Peg-Intron® (pegylated interferon-alpha-2b), Rebetol®Rebetol® (ribavirin), and Intron-A (interferon-alpha-2a), which are marketed by Schering-Plough Corporation, and Pegasys®Pegasys® (pegylated interferon-alpha-2a), Copegus®Copegus® (ribavirin USP) and Roferon-A®Roferon-A® (interferon-alpha-2a), which are marketed by Roche Pharmaceuticals, and Infergen®Infergen® (interferon alfacon-1) now marketed by ValeantThree Rivers Pharmaceuticals, International.LLC.  First line treatment for HCV has changed little since alpha interferon was first introduced in 1991.  The current standard of care for HCV infection includes a combination of an alpha interferon (pegylated or non-pegylated) with ribavirin.  This combination therapy is generally associated with considerable toxicity including flu-like symptoms, hematologic changes and central nervous system disordersside effects including depression.  It is not uncommon for patients to discontinue alpha interferon therapy because they are unable to tolerate the side effects of the treatment.

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Future treatments for HCV are likely to include a combination of these existing products used as adjuncts with products now in development.  Later-stage developmental treatments include improvements to existing therapies, such as Abluferon™Albuferon™ (albumin interferon) from Human Genome Sciences, Inc.  and Viramidine™ (taribavirin), a prodrug analog of ribavirin being developed by Valeant Pharmaceuticals International. Other developmental approaches include, but are not limited to, protease inhibitors such as VX-950telaprevir from Vertex Pharmaceuticals Incorporated and SCH7boceprevir from Schering-Plough Corporation, and NM283, a polymerase inhibitor by Idenix Pharmaceuticals, Inc.Corporation.  

Research and Development

A major portion of our operating expenses to date is related to research and development.  Research and development expenses primarily include (i) payroll and related costs associated with research and development personnel, (ii) costs related to clinical and pre-clinical 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) technology access and maintenance fees, including intellectual property fees and fees incurred under licensing agreements, (v) expenses for research services provided by universities and contract laboratories, including sponsored research funding, and (vi) other research and development expenses.  Research and development expenses were $12,415,000$18,424,000 in fiscal year 2006, $11,164,0002009, $18,279,000 in fiscal year 2005,2008, and $9,673,000$15,876,000 in fiscal year 2004. 2007.  

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Corporate Governance

Our Board is committed to legal and ethical conduct in fulfilling its responsibilities.  The Board expects all directors, as well as officers and employees, to act ethically at all times and to adhere to the policies comprising the Company's Code of Business Conduct and Ethics.  The Board of Directors (the "Board") of the Company adopted the corporate governance policies and charters.  Copies of the following corporate governance documents are posted on our website, and are available free of charge, at www.peregrineinc.comwww.peregrineinc.com: (1) Peregrine Pharmaceuticals, Inc. Code of Business Conduct and Ethics (2) Peregrine Pharmaceuticals, Inc. Charter of the Nominating Committee of the Board of Directors, (3) Peregrine Pharmaceuticals, Inc. Charter of the Audit Committee of the Board of Directors, and (4) Peregrine Pharmaceuticals, Inc. Charter of the Compensation Committee of the Board of Directors.  If you would like a printed copy of any of these corporate governance documents, please send your request to Peregrine Pharmaceuticals, Inc., Attention: Corporate Secretary, 1427214282 Franklin Avenue, Tustin, California  92780.

Human Resources

As of April 30, 2006,2009, we employed 102133 full-time employees and 65 part-time employees.  Each of our employees has signed a confidentiality agreement and none are covered by a collective bargaining agreement.  We have never experienced employment-related work stoppages and consider our employee relations to be good.
 
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GLOSSARY OF TERMS
Glossary of Terms

ADJUVANT - Adjuvant – Anagent added to a drug to increase or aid its effect.

ANGIOGENESIS Antibody - The formation of new blood vessels.

ANTIBODY - Protein formed by the body to help defend against infection and disease.

ANTIGENAntigen - Any substance that antagonizes or stimulates the immune system to produce antibodies.

CHEMOTHERAPYBavituximab - Our first monoclonal antibody in clinical development for the treatment of cancer and hepatitis C virus infection under our Anti-PS technology platform.

Chemotherapy - Treatment of disease by means of chemical substances or drugs.

CHIMERICChimeric - A type of antibody that is mostly human and partially mouse.

cGMP -- current Good Manufacturing Practices; regulations established by the FDA and/or other regulatory bodies for the manufacture, processing, packing, or holding of a drug to assure that such drug meets the requirements of the Federal Food, Drug and Cosmetic Act as to safety, and has the identity and strength and meets the quality and purity characteristics that it purports or is represented to possess.

COTARA®Cotara® - The trade name of our first Tumor Necrosis Therapy (“TNT”) clinical compound.  Cotara® is a chimeric monoclonal antibody combined with Iodine 131 (radioisotope) that targets dead and dying cells found primarily at the core of a tumor.

CYTOKINECytokine - A chemical messenger protein released by certain white blood cells.  The cytokines include the interferons, the interleukins, tumor necrosis factor, and many others.

DNA (DEOXYRIBONUCLEIC ACID)(Deoxyribonucleic Acid) - A complex polynucleotide that is the carrier of genetic information.

ENDOTHELIAL CELLSEMEA - European Medicines Agency.

Endothelial Cells - A layer of flat cells that line blood vessels.

FDA -- the U.S. Food and Drug Administration; the government agency responsible for regulating the food, drug and cosmetic industries, including the commercial approval of pharmaceuticals in the United States.

GLIOBLASTOMA MULTIFORMEGlioblastoma multiforme - A type of brain tumor that forms from glial (supportive) tissue of the brain.  Also called grade IV astrocytoma.

IND - Investigational New Drug Application; the application submitted to the FDA requesting permission to conduct human clinical trials.

MAXIMUM TOLERATED DOSEMaximum Tolerated Dose - The highest nontoxic dose that can be reasonably given to patients.

MONOCLONAL ANTIBODY Monoclonal antibody -Antibodies that have identical molecular structure and bind to a specific target. The inherent selectivity of monoclonal antibodies makes them ideally suited for targeting specific cells, such as cancer cells or certain viruses, while bypassing most normal tissue.

NECROSISNecrosis or NECROTICNecrotic - The death and degradation of cells within a tissue.

ONCOLOGYOncology - The study and treatment of cancer.
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PHARMACOKINETICPharmacokinetic - Concerning the study of how a drug is processed by the body, with emphasis on the time required for absorption, distribution in the body metabolism and excretion.
14

PHOSPHOLIPIDSPhospholipids - Phospholipids are normal cellular structures that are present in all cells of the human body and form the building blocks that make-up the outer and inner surface of cells responsible for maintaining integrity and normal functions.

PRE-CLINICALPre-clinical - Generally refers to research that is performed in animals or tissues in the laboratory.

PROTOCOLProtocol - A detailed plan for studyingconducting a treatment forresearch study such as a specific condition.clinical trial.

RADIOLABELINGRadiolabelingor RADIOLABELED - Process of attaching a radioactive isotope, such as Iodine 131.

RECURRENTRecurrent - The return or flare up of a condition thought to be cured or in remission.

SOLID TUMORSResponse Evaluation Criteria In Solid Tumors (“RECIST”) – A set of published rules that define when cancer patients improve (“respond”), stay the same (“stable”) or worsen (“progression”) during treatments.

Solid tumors - Cancer cells which grow as a solid mass.

TUMOR NECROSIS THERAPYTumor Necrosis Therapy (“TNT”) - - Therapeutic agents that target dead and dying cells found primarily at the core of a tumor.
 

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ITEM 1A.RISK FACTORS
ITEM 1A.RISK FACTORS

This Annual Report on Form 10-K contains forward-looking information based on our current expectations.  Because our actual results may differ materially from any forward-looking statements made by or on behalf of Peregrine, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our potential product sales, potential royalties, contract manufacturing revenues, expenses, net income(loss) and earnings(loss) per common share.

If We Cannot Obtain Additional Funding, Our Product Development And Commercialization Efforts May Be Reduced Or Discontinued And We May Not Be Able To Continue Operations.

At JuneApril 30, 2006,2009, we had approximately $26.3 million$10,018,000 in cash and cash equivalents.  We have expended substantial funds on (i) the research, development and clinical trials of our product candidates, and (ii) funding the operations of our wholly owned subsidiary, Avid Bioservices, Inc.Avid.  As a result, we have historically experienced negative cash flows from operations since our inception and we expect theto continue to experience negative cash flows from operations to continue for the foreseeable future, unlessfuture.  Our net losses incurred during the past three fiscal years ended April 30, 2009, 2008, and 2007 amounted to $16,524,000, $23,176,000, and $20,796,000, respectively.  Unless and until we are able to generate sufficient revenues from Avid’s contract manufacturing services and/or from the sale and/or licensing of our products under development. Whiledevelopment, we expect Avid to generate revenues in the foreseeable future, we expect our monthly negative cash flowsuch losses to continue for the foreseeable future duefuture.

Therefore, our ability to continue our clinical trial activities using Cotara® for the treatment of brain cancer, our ongoing clinical studies of bavituximab for the treatment of both solid tumors and hepatitis C virus infection, our anticipated researchtrials and development costs associated withefforts and to continue as a going concern is highly dependent on the possible expansionamount of our clinical indications using bavituximabfor the treatment of other viral indications, including possible supporting trials outside the U.S., our continued research directed towards our other technologies in pre-clinical development,cash and our possible expansion of our manufacturing capabilities. We believe we have sufficient cash equivalents on hand combined with our ability to meetraise additional capital to support our obligations onfuture operations.  As discussed in Note 1 to the consolidated financial statements, there exists substantial doubt regarding our ability to continue as a timely basis through at least fiscal year 2007.going concern.

In additionWe will need to the operations of Avid, we plan to obtain any necessary financingraise additional capital through one or more methods, including eitherbut not limited to, issuing additional equity or debt, in order to support the costs of our research and development programs.

With respect to financing and/our operations through the issuance of equity, on March 26, 2009, we entered into an At Market Issuance Sales Agreement (“AMI Agreement”) with Wm Smith & Co., pursuant to which we may sell shares of our common stock through Wm Smith & Co., as agent, in registered transactions from our shelf registration statement on Form S-3, File Number 333-139975, for aggregate gross proceeds of up to $7,500,000.  Shares of common stock sold under this arrangement were to be sold at market prices.  As of April 30, 2009, we had sold 1,477,938 shares of common stock under the AMI Agreement for aggregate net proceeds of $550,000.  Subsequent to April 30, 2009, we raised net proceeds of $6,685,000 after deducting commissions of 3% paid to Wm Smith & Co. under the AMI Agreement in exchange for 9,275,859 shares of common stock.

With respect to financing our operations through the issuance of debt, on December 9, 2008, we entered into a loan and security agreement pursuant to which we had the ability to borrow up to $10,000,000 (“Loan Agreement”).  On December 19, 2008, we received initial funding of $5,000,000, in which principal and interest are payable over a thirty (30) month period commencing after the initial six month interest only period.  The amount payable under the Loan Agreement is secured by generally all assets of the Company as further explained in Note 5 to the consolidated financial statements.  Under the Loan Agreement, we had an option, which expired June 30, 2009, to borrow a second tranche in the amount of $5,000,000 upon the satisfaction of certain clinical and financial conditions as set forth in the Loan Agreement.  Although we had satisfied the required clinical and financial conditions by June 30, 2009, we determined that exercising the option to borrow the second tranche, and issuing the additional warrants to the Lenders, was not in the best interests of the Company or negotiatingour stockholders.
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In addition to the above, we may also raise additional capital through additional equity offerings or licensing our products or collaboration agreements fortechnology platforms or entering into similar collaborative arrangements.  In order to raise capital through the issuance of equity, we plan to file a new shelf registration statement on Form S-3 to register up to $50 million gross in proceeds from the sale of our technology platforms. Therecommon stock.  Although we are not required to issue any shares of common stock under this registration statement, we plan to register the underlying shares of common stock as a potential method of raising additional capital to support our drug development efforts.  

While we will continue to consider and explore these potential opportunities, there can be no assurances that we will be successful in raising such fundssufficient capital on terms acceptable to us, or at all, or that sufficient additional capitalrevenues will be raisedgenerated from Avid or under potential licensing or partnering agreements to complete the research, development, and clinical testing of our product candidates.  Based on our current projections and assumptions, which include projected revenues under signed contracts with existing customers of Avid, combined with the projected revenues from our government contract, we believe we have sufficient cash on hand combined with amounts expected to be received from Avid customers and from our government contract to meet our obligations as they become due through at least fiscal year 2010.  There are a number of uncertainties associated with our financial projections, including but not limited to, termination of third party or government contracts, technical challenges, or possible reductions in funding under our government contract, which could reduce or delay our future projected cash-inflows.  In addition, under the Loan Agreement, in the event our contract with the Defense Threat Reduction Agency is terminated or canceled for any reason, including reasons pertaining to budget cuts by the government or reduction in government funding for the program, we would be required to set aside cash and cash equivalents in an amount equal to 80% of the outstanding loan balance in a restricted collateral account non-accessible by us.  In the event our projected cash-inflows are reduced or delayed or if we default on a loan covenant that limits our access to our available cash on hand, we might not have sufficient capital to operate our business through the fiscal year 2010 unless we raise additional capital.  The uncertainties surrounding our future cash inflows have raised substantial doubt regarding our ability to continue as a going concern.

Our Outstanding Indebtedness To MidCap Financial LLC and BlueCrest Capital Finance, L.P. Imposes Certain Restrictions On How We Conduct Our Business.  In Addition, All Of Our Assets, Including Our Intellectual Property, Are Pledged To Secure This Indebtedness.  If We Fail To Meet Our Obligations To The Lenders, Our Payment Obligations May Be Accelerated And The Collateral Securing The Debt May Be Sold To Satisfy These Obligations.

                Pursuant to a Loan and Security Agreement dated December 9, 2008 (the “Loan Agreement”), MidCap Financial LLC and BlueCrest Capital Finance, L.P. (the “Lenders”) have provided us a three-year, $5,000,000 working capital loan, which funded on December 19, 2008.  As collateral to secure our repayment obligations to the Lenders, we and our wholly-owned subsidiary, Avid Bioservices, Inc., have granted the Lenders a first priority security interest in generally all of our respective assets, including our intellectual property.

                The Loan Agreement also contains various covenants that restrict our operating flexibility.  Pursuant to the Loan Agreement, we may not, among other things:

●
incur additional indebtedness, except for certain permitted indebtedness. Permitted indebtedness is defined to include accounts payable incurred in the ordinary course of business, leases of equipment or property incurred in the ordinary course of business not to exceed in the aggregate $100,000 outstanding at any one time;
●
incur additional liens on any of our assets except for certain permitted liens including but not limited to non-exclusive licenses of our intellectual property in the ordinary course of business and exclusive licenses of intellectual property provided they are approved by our board of directors and do not involve bavituximab or Cotara;
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●
make any payment of subordinated debt, except as permitted under the applicable subordination or intercreditor agreement;
●
merge with or acquire any other entity, or sell all or substantially all of our assets, except as permitted under the Loan Agreement;
●
pay dividends (other than stock dividends) to our shareholders;
●
redeem any outstanding shares of our common stock or any outstanding options or warrants to purchase shares of our common stock except in connection with the repurchase of stock from former employees and consultants pursuant to share repurchase agreements provided such repurchases do not exceed $50,000 in the aggregate during any twelve-month period;
●
enter into transactions with affiliates other than on arms-length terms; and
●
make any change in any of our business objectives, purposes and operations which has or could be reasonably expected to have a material adverse effect on our business.

These provisions could have important consequences for us, including (i) making it more difficult for us to obtain additional debt financing from another lender, or obtain new debt financing on terms favorable to us, because a new lender will have to be willing to be subordinate to the lenders, (ii) causing us to use a portion of our available cash for debt repayment and service rather than other perceived needs and/or (iii) impacting our ability to take advantage of significant, perceived business opportunities.  Our failure to timely repay our obligations under the Loan Agreement or meet the covenants set forth in the Loan Agreement could give rise to a default under the agreement.  In the event of an uncured default, the Loan Agreement provides that all amounts owed to the Lender may be declared immediately due and payable and the Lenders have the right to enforce their security interest in the assets securing the Loan Agreement.  In such event, the Lenders could take possession of any or all of our assets in which they hold a security interest, and dispose of those assets to the extent necessary to pay off our debts, which would materially harm our business.

In The Event Our Contract With The DTRA Is Terminated, Our Loan Requires Us To Place A Significant Amount Of Our Cash In A Restricted Bank Account.

Under the terms of the Loan Agreement, if our contract with the Defense Threat Reduction Agency is terminated while any principal balance of the loan is outstanding, we will be required to at all times thereafter maintain cash and cash equivalents in an amount of at least eighty percent (80%) of the then outstanding principal balance of the loan in a restricted account over which we will not be permitted to make withdrawals or otherwise exercise control.

We Have Had Significant Losses And We Anticipate Future Losses.

We have incurred net losses in most fiscal years since we began operations in 1981.  The following table represents net losses incurred for each of the past three fiscal years:
  Net Loss 
Fiscal Year 2009 $16,524,000 
Fiscal Year 2008 $23,176,000 
Fiscal Year 2007 $20,796,000 

As of April 30, 2009, we had an accumulated deficit of $247,360,000.  While we expect to continue to generate revenues from Avid’s contract manufacturing services, in order to achieve and sustain profitable operations, we must successfully develop and obtain regulatory approval for our products, either alone or with others, and must also manufacture, introduce, market and sell our products.  The costs associated with clinical trials and product manufacturing is very expensive and the time frame necessary to achieve market success for our products is long and uncertain.  We do not expect to generate product or royalty revenues for at least the next three years, and we may never generate product and/or royalty revenues sufficient to become profitable or to sustain profitability.
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The Sale Of Substantial Shares Of Our Common Stock May Depress Our Stock Price.

As of April 30, 2009, there were 227,688,555 shares of our common stock outstanding.  Subsequent to April 30, 2009, we issued an additional 9,275,859 shares of common stock under an At Market Issuance Sales Agreement in exchange for $6,685,000 in net proceeds after deducting commissions of 3%.  Substantially all of these shares are eligible for trading in the public market, subject in some cases to volume and other limitations.  The market price of our common stock may decline if our common stockholders sell a large number of shares of our common stock in the public market, or the market perceives that such sales may occur.

We could also issue up to 17,146,892 additional shares of our common stock that are reserved for future issuance under our stock option plans and for outstanding warrants, as further described in the following table:

Number of Shares
of Common Stock
Reserved For Issuance
Common shares reserved for issuance upon exercise of outstanding options or  reserved for future option grants under our stock incentive plans  15,454,845
Common shares issuable upon exercise of outstanding warrants1,692,047
Total
17,146,892

Of the total options and warrants outstanding as of April 30, 2009, 3,158,649 would be considered dilutive to stockholders because we would receive an amount per share which is less than the market price of our common stock at April 30, 2009.

In addition, we will need to raise substantial additional capital in the future to fund our operations.  If we raise additional funds by issuing equity securities, the market price of our securities may decline and our existing stockholders may experience significant dilution.

Current Economic Conditions And Capital Markets Are In A Period Of Disruption And Instability Which Could Adversely Affect Our Ability To Access The Capital Markets, And Thus Adversely Affect Our Business And Liquidity.

The current economic conditions and financial crisis have had, and will continue to have, a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity.  The shortage of liquidity and credit combined with recent substantial losses in worldwide equity markets could lead to an extended worldwide recession.  We may face significant challenges if conditions in the capital markets do not improve.  Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans, including our pre-clinical studies and clinical trial schedules and other research and development activities.  Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us.  We cannot predict the occurrence of future disruptions or how long the current conditions may continue.
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Our Highly Volatile Stock Price And Trading Volume May Adversely Affect The Liquidity Of Our Common Stock.

The market price of our common stock and the market prices of securities of companies in the biotechnology sector have generally been highly volatile and are likely to continue to be highly volatile.

The following table shows the high and low sales price and trading volume of our common stock for each quarter in the three fiscal years ended April 30, 2009:

  
Common Stock
Sales Price
  
Common Stock Daily
Trading Volume
(000’s omitted)
 
  High  Low  High  Low 
Fiscal Year 2009            
Quarter Ended April 30, 2009 $0.52  $0.30   3,509   68 
Quarter Ended January 31, 2009 $0.47  $0.22   1,298   93 
Quarter Ended October 31, 2008 $0.40  $0.23   1,318   77 
Quarter Ended July 31, 2008 $0.53  $0.31   2,997   103 
Fiscal Year 2008                
Quarter Ended April 30, 2008 $0.73  $0.35   3,846   130 
Quarter Ended January 31, 2008 $0.65  $0.35   3,111   140 
Quarter Ended October 31, 2007 $0.79  $0.54   2,631   169 
Quarter Ended July 31, 2007 $1.40  $0.72   21,653   237 
Fiscal Year 2007                
Quarter Ended April 30, 2007 $1.26  $0.86   6,214   408 
Quarter Ended January 31, 2007 $1.39  $1.09   4,299   203 
Quarter Ended October 31, 2006 $1.48  $1.12   3,761   277 
Quarter Ended July 31, 2006 $1.99  $1.30   23,790   429 

The market price of our common stock may be significantly impacted by many factors, including, but not limited to:

·announcements of technological innovations or new commercial products by us or our competitors;
·publicity regarding actual or potential clinical trial results relating to products under development by us or our competitors;
·our financial results or that of our competitors, including our abilities to continue as a going concern;
·the offering and sale of shares of our common stock at a discount under an equity transaction;
·changes in our capital structure, including but not limited to any potential reverse stock split;
·published reports by securities analysts;
·announcements of licensing agreements, joint ventures, strategic alliances, and any other transaction that involves the sale or use of our technologies or competitive technologies;
·developments and/or disputes concerning our patent or proprietary rights;
·regulatory developments and product safety concerns;
·general stock trends in the biotechnology and pharmaceutical industry sectors;
·public concerns as to the safety and effectiveness of our products;
·economic trends and other external factors, including but not limited to, interest rate fluctuations, economic recession, inflation, foreign market trends, national crisis, and disasters; and
·healthcare reimbursement reform and cost-containment measures implemented by government agencies.
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These and other external factors have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock, and may otherwise negatively affect the liquidity of our common stock.

The Liquidity Of Our Common Stock Will Be Adversely Affected If Our Common Stock Is Delisted From The NASDAQ Capital Market.

Our common stock is presently traded on The NASDAQ Capital Market.  To maintain inclusion on The NASDAQ Capital Market, we must continue to meet the following six listing requirements:

1.Net tangible assets of at least $2,500,000 or market capitalization of at least $35,000,000 or net income of at least $500,000 in either our latest fiscal year or in two of our last three fiscal years;
2.Public float of at least 500,000 shares;
3.Market value of our public float of at least $1,000,000;
4.A minimum closing bid price of $1.00 per share of common stock, without falling below this minimum bid price for a period of thirty consecutive trading days;
5.At least two market makers; and
6.At least 300 stockholders, each holding at least 100 shares of common stock.

On July 25, 2007, we received a deficiency notice from The NASDAQ Stock Market notifying us that we had not met the $1.00 minimum closing bid price requirement for thirty consecutive trading days as required under NASDAQ listing rules.  According to the NASDAQ notice, we were automatically afforded an initial “compliance period” of 180 calendar days, or until January 22, 2008, to regain compliance with this requirement.  After the initial 180 calendar day period, we remained noncompliant with the minimum closing bid price requirement but because we were in compliance with all other initial listing requirements, we were afforded an additional “compliance period” of 180 calendar days, or until July 21, 2008.  Because we did not regain compliance, i.e., the closing bid price of the Company’s common stock did not meet or exceed $1.00 per share for a minimum of ten (10) consecutive business days prior to July 21, 2008, on July 22, 2008 we received a notice from The NASDAQ Stock Market indicating that we were not in compliance with the minimum bid price requirement for continued listing, and as a result our common stock is subject to delisting.  On July 28, 2008, we requested a hearing with the NASDAQ Listing Qualifications Panel (“Panel”) to review the delisting determination.  Our request for a hearing stayed the delisting pending a decision by the Panel.  The oral hearing took place September 4, 2008 at which we presented to the Panel our definitive plan to achieve and sustain long-term compliance with the listing requirements of the NASDAQ Capital Market.  On September 16, 2008, we received a letter from the NASDAQ Stock Market informing us that the Panel had determined to grant our request to remain listed, subject to the condition that on or before January 20, 2009, we must evidence a closing bid price for our common stock of $1.00 or more for a minimum of ten prior consecutive trading days.

On October 21, 2008, we conducted our 2008 annual meeting of stockholders at which our stockholders approved an amendment to our certificate of incorporation to effect a reverse stock split of the outstanding shares of our common stock at a ratio to be determined by our Board of Directors within a range of three-for-one and ten-for-one.  Subsequent to our annual meeting of stockholders, the NASDAQ Stock Market suspended the bid price and market value of publicly held shares continued listing requirements through April 17, 2009.  As a result of this suspension, the exception granted to us by the Panel, which required us to demonstrate compliance with the closing minimum bid price requirement by January 20, 2009, has now been extended to no later than November 11, 2009.  On July 14, 2009, we received a letter from The NASDAQ Stock Market informing us that NASDAQ does not anticipate that it will further extend its suspension of the bid price requirement.
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We intend to pursue all available options to ensure our continued listing on the NASDAQ Stock Market, including, if necessary, effecting the reverse stock split of our outstanding common stock previously approved by our stockholders.  Although we currently meet all other NASDAQ listing requirements, the market price of our common stock has generally been highly volatile and we cannot guarantee that we will be able to regain compliance with the minimum closing bid price requirement within the required compliance period.  If we fail to regain compliance with the minimum closing bid price requirement or fail to comply with any other of The NASDAQ Capital Market listing requirements, the market value of our common stock could fall and holders of common stock would likely find it more difficult to dispose of the common stock.

If our common stock is delisted, we would apply to have our common stock quoted on the over-the-counter electronic bulletin board.  Upon any such delisting, our common stock would become subject to the regulations of the Securities and Exchange Commission relating to the market for penny stocks.  A penny stock, as defined by the Penny Stock Reform Act, is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share.  The penny stock regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.  The broker-dealer must make a suitability determination for each purchaser and receive the purchaser’s written agreement prior to the sale.  In addition, the broker-dealer must make certain mandated disclosures, including the actual sale or purchase price and actual bid offer quotations, as well as the compensation to be received by the broker-dealer and certain associated persons.  The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit your ability to sell your securities in the secondary market.

If We Effect A Reverse Stock Split, The Liquidity of Our Common Stock And Market Capitalization Could Be Adversely Affected.

A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in our overall market capitalization.  If the per share market price does not increase proportionately as a result of the reverse split, then the value of our company as measured by our market capitalization will be reduced, perhaps significantly.  In addition, because the reverse split will significantly reduce the number of shares of our common stock that are outstanding, the liquidity of our common stock could be adversely affected and you may find it more difficult to purchase or sell shares of our common stock.

Successful Development Of Our Products Is Uncertain.  To Date, No Revenues Have Been Generated From The Commercial Sale Of Our Products And Our Products May Not Generate Revenues In The Future.

Our development of current and future product candidates is subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies.  These risks include:

 
·
delays in product development, clinical testing or manufacturing;
 
·
unplanned expenditures in product development, clinical testing or manufacturing;
 
·
failure in clinical trials or failure to receive regulatory approvals;
 
·
emergence of superior or equivalent products;
 
·
inability to manufacture on our own, or through others, product candidates on a commercial scale;
 
·
inability to market products due to third party proprietary rights; and
 
·
failure to achieve market acceptance.
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Because of these risks, our research and development efforts or those of our partners may not result in any commercially viable products.  If significant portions of these development efforts are not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successful, our business, financial condition and results of operations may be materially harmed.

Because our licensing partners and we have not begun the commercial salessale of any of our products, our revenue and profit potential is unproven and our limited operating history makes it difficult for an investor to evaluate our business and prospects.  Our technology may not result in any meaningful benefits to our current or potential partners.  No revenues have been generated from the commercial sale of our products, and our products may not generate revenues in the future.  Our business and prospects should be considered in light of the heightened risks and unexpected expenses and problems we may face as a company in an early stage of development in a new and rapidly evolving industry.

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We Have Had Significant LossesAre Primarily Focusing Our Activities And We Anticipate Future Losses.Resources On The Development Of Bavituximab And Depend On Its Success.

We have incurred net lossesare focusing most of our near-term research and development activities and resources on bavituximab, and we believe a significant portion of the value of our Company relates to our ability to develop this drug candidate.  The development of bavituximab is subject to many risks, including the risks discussed in most fiscal years since we began operations in 1981. The following table represents net losses incurred duringother risk factors.  If the past three fiscal years ended April 30, 2006:

  Net Loss 
Fiscal Year 2006 $17,061,000 
Fiscal Year 2005 $15,452,000 
Fiscal Year 2004 $14,345,000 
results of clinical trials of bavituximab, the regulatory decisions affecting bavituximab, the anticipated or actual timing and plan for commercializing bavituximab, or, ultimately, the market acceptance of bavituximab do not meet our, your, analysts’ or others’ expectations, the market price of our common stock could be adversely affected.

As of April 30, 2006, we had an accumulated deficit of $186,864,000. While we expect to continue to generate revenues from Avid’s contract manufacturing services, in order to achieve and sustain profitable operations, we must successfully develop and obtain regulatory approval for our products, either alone or with others, and must also manufacture, introduce, market and sell our products. The costs associated with clinical trials and product manufacturing is very expensive and the time frame necessary to achieve market success for our products is long and uncertain. We do not expect to generate product or royalty revenues for at least the next two years, and we may never generate product revenues sufficient to become profitable or to sustain profitability.

Our Product Development Efforts May Not Be Successful.

Since our inception, we have been engaged in the development of drugs and related therapies for the treatment of people with cancer. During fiscal year 2005, we began exploring the use of one of our product candidates, bavituximab, for the treatment of viral infections (in particular enveloped viruses). We recently completed a single dose Phase Ia trial for the treatment of people with the hepatitis C virus (“HCV”) infection, including the extension of the study to test an additional six patients at a higher dose. We have also recently initiated a Phase 1b repeat dose study and are planning a combination therapy study using bavituximab with standard anti-viral therapies. Our product candidates have not received regulatory approval and are generally in research, pre-clinical and various clinical stages of development.  If the results from any of the clinical trials are poor, those results may adversely affect our ability to raise additional capital or obtain regulatory approval to conduct additional clinical trials, which will affect our ability to continue full-scale research and development for our antibody technologies.  In addition, our product candidates may take longer than anticipated to progress through clinical trials, or patient enrollment in the clinical trials may be delayed or prolonged significantly, thus delaying the clinical trials.  Patient enrollment is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to the clinical sites, and the eligibility criteria for the study.  In addition, because our Cotara® product currently in clinical trials represents a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, rather than enroll patients in our clinical study.

Clinical Trials Required For Our Product Candidates Are Expensive And Time Consuming, And Their Outcome Is Uncertain.

In order to obtain FDA approval to market a new drug product, we or our potential partners must demonstrate proof of safety and efficacy in humans.  To meet these requirements, we or our potential partners will have to conduct extensive pre-clinical testing and “adequate and well-controlled” clinical trials.  Conducting clinical trials is a lengthy, time-consuming and expensive process.  The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per trial.  Delays associated with products for which we are directly conducting pre-clinical or clinical trials may cause us to incur additional operating expenses.  Moreover, we may continue to be affected by delays associated with the pre-clinical testing and clinical trials of certain product candidates conducted by our partners over which we have no control.  The commencement and rate of completion of clinical trials may be delayed by many factors, including, for example:
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·  obtaining regulatory approval to commence a clinical trial;
·reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
·  slower than expected rates of patient recruitment due to narrow screening requirements;
·the inability of patients to meet FDA or other regulatory authorities imposed protocol requirements;
·the inability to retain patients who have initiated a clinical trial but may be prone to withdraw due to various clinical or personal reasons, or who are lost to further follow-up;
·  the inability to manufacture sufficient quantities of qualified materials under current good manufacturing practices, or cGMPs, for use in clinical trials;
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·the need or desire to modify our manufacturing processes;
·the inability to adequately observe patients after treatment;
·changes in regulatory requirements for clinical trials;
·the lack of effectiveness during the clinical trials;
·unforeseen safety issues;
·delays, suspension, or termination of the clinical trials due to the institutional review board responsible for overseeing the study at a particular study site; and
·government or regulatory delays or “clinical holds” requiring suspension or termination of the trials.

Even if we obtain positive results from pre-clinical or initial clinical trials, we may not achieve the same success in future trials.  Clinical trials may not demonstrate statistically sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates employing our technology.

Clinical trials that we conduct or that third-parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates.  We expect to commence new clinical trials from time to time in the course of our business as our product development work continues.  The failure of clinical trials to demonstrate safety and effectiveness for our desired indications could harm the development of that product candidate as well as other product candidates.  Any change in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations.

We Rely On Third Parties To Conduct Our Clinical Trials And Many Of Our Preclinical Studies.  If Those Parties Do Not Successfully Carry Out Their Contractual Duties Or Meet Expected Deadlines, Our Drug Candidates May Not Advance In A Timely Manner Or At All.

In the course of our discovery, preclinical testing and clinical trials, we rely on third parties, including universities, investigators and clinical research organizations, to perform critical services for us. For example, we rely on third parties to conduct our clinical trials and many of our preclinical studies. Clinical research organizations and investigators are responsible for many aspects of the trials, including finding and enrolling patients for testing and administering the trials.  Although we rely on these third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its investigational plan and protocol.  Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, commonly referred to as good clinical practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.  Our reliance on third parties does not relieve us of these responsibilities and requirements.  These third parties may not be available when we need them or, if they are available, may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner, and we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated.  These independent third parties may also have relationships with other commercial entities, some of which may compete with us.  In addition, if such third parties fail to perform their obligations in compliance with our clinical trial protocols, our clinical trials may not meet regulatory requirements or may need to be repeated.  As a result of our dependence on third parties, we may face delays or failures outside of our direct control.  These risks also apply to the development activities of our collaborators, and we do not control our collaborators’ research and development, clinical trials or regulatory activities.  We do not expect any drugs resulting from our collaborators’ research and development efforts to be commercially available for many years, if ever.
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We Do Not Have Experience As a Company Conducting Large-Scale Clinical Trials, Or In Other Areas Required For The Successful Commercialization And Marketing Of Our Product Candidates.

Preliminary results from clinical trials of bavituximab may not be indicative of successful outcomes in later stage trials.  Negative or limited results from any current or future clinical trial could delay or prevent further development of our product candidates which would adversely affect our business.
We have no experience as a Company in conducting large-scale, late stage clinical trials, and our experience with early-stage clinical trials with small numbers of patients is limited.  In part because of this limited experience, we cannot be certain that planned clinical trials will begin or be completed on time, if at all.  Large-scale trials would require either additional financial and management resources, or reliance on third-party clinical investigators, clinical research organizations (“CROs”) or consultants. Relying on third-party clinical investigators or CROs may force us to encounter delays that are outside of our control.  Any such delays could have a material adverse effect on our business.
We also do not currently have marketing and distribution capabilities for our product candidates. Developing an internal sales and distribution capability would be an expensive and time-consuming process.  We may enter into agreements with third parties that would be responsible for marketing and distribution.  However, these third parties may not be capable of successfully selling any of our product candidates.  The inability to commercialize and market our product candidates could materially affect our business.

Our International Clinical Trials May Be Delayed Or Otherwise Adversely Impacted By Social, Political And Economic Factors Affecting The Particular Foreign Country.

We are presently conducting clinical trials in India and the Republic of Georgia.  Our ability to successfully initiate, enroll and complete a clinical trial in either country, or in any future foreign country in which we may initiate a clinical trial, are subject to numerous risks unique to conducting business in foreign countries, including:

·difficulty in establishing or managing relationships with clinical research organizations and physicians;
·different standards for the conduct of clinical trials and/or health care reimbursement;
·our inability to locate qualified local consultants, physicians, and partners;
·the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical products and treatment; and
● geopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations.
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Because we will be conducting a number of our Phase II clinical trials in India and the Republic of Georgia and potentially other foreign countries, any disruption to our international clinical trial program could significantly delay our product development efforts.  In addition, doing business in the Republic of Georgia, which is in Eastern Europe, involves other significant risks which could materially and adversely affect our business as there remains a high degree of political instability in many parts of Eastern Europe.

Success In Early Clinical Trials May Not Be Indicative Of Results Obtained In Later Trials.

A number of new drugs and biologics have shown promising results in initial clinical trials, but subsequently failed to establish sufficient safety and effectiveness data to obtain necessary regulatory approvals.  Data obtained from pre-clinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval.

Positive results from our pre-clinical studies, Phase I and the first stage of our Phase III clinical trialtrials should not be relied upon as evidence that later or larger-scale clinical trials will succeed.  The Phase I clinical trialstudies we have completed to date have been designed to primarily assess safety in a small number of patients.  In addition, while we have completed the first stage of all three of our Phase II studies, and obtained positive results with respect to our primary endpoints, our Phase II trials are open-label, Simon two-stage design trials to evaluate the safety and efficacy on bavituximab for the treatmentin combination with chemotherapy drugs in a limited number of the Hepatitis C virus (“HCV”) infection has been conducted only in small numbers of patients that may not fully represent the diversity present in larger populations infected with HCV.patients.  The limited results we have obtained, and will obtain in the Phase II trials, may not predict results fromfor any future studies in larger numbers of patients drawn from more diverse populations and also may not predict the abilityfuture therapeutic benefit of bavituximab to achieve a sustained anti-viral response or the ability to provide a long-term therapeutic benefit. These initial trials in HCV have not been designed to assess the long-term therapeutic utility of bavituximab.our drug candidates.  We will be required to demonstrate through larger-scale clinical trials that bavituximab isand Cotara® are safe and effective for use in a diverse population before we can seek regulatory approval for itstheir commercial sale.  There is typically an extremely high rate of attrition from the failure of drug candidates proceeding through clinical trials.

In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

If We Successfully Develop Products But Those Products Do Not Achieve And Maintain Market Acceptance, Our Business Will Not Be Profitable.

Even if bavituximab, Cotara®, or any future product candidate is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, healthcare professionals and third-party payors and our profitability and growth will depend on a number of factors, including:

·our ability to provide acceptable evidence of safety and efficacy;
·relative convenience and ease of administration;
·the prevalence and severity of any adverse side effects;
·availability of alternative treatments;
·pricing and cost effectiveness;
·effectiveness of our or our collaborators’ sales and marketing strategy; and
·our ability to obtain sufficient third-party insurance coverage or reimbursement.

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In addition, if bavituximab, Cotara®, or any future product candidate that we discover and develop does not provide a treatment regimen that is more beneficial than the current standard of care or otherwise provide patient benefit, that product likely will not be accepted favorably by the market.  If any products we may develop do not achieve market acceptance, then we may not generate sufficient revenue to achieve or maintain profitability.

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In addition, even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

If We Cannot License Or Sell Cotara®, It May Be Delayed Or Never Be Further Developed.

We have concluded acompleted Phase I and Phase I/II studystudies with Cotara® for the treatment of recurrent Glioblastoma Multiforme (“GBM”), a deadly form of brain cancer.  WeIn addition, we are currently collaborating with various universities that are members of the New Approaches to Brain Tumor Therapy (“NABTT”) consortium to complete theconducting a dose confirmation and dosimetry clinical trial. The next steptrial in the development of Cotara® will be to treatpatients with recurrent glioblastoma multiforme (“GBM”).  We are also currently conducting a group of approximately 40 patientsPhase II safety and efficacy study using a single administration of the drug withthrough an optimized delivery using two catheters.method.  Taken together, the NABTTcurrent U.S. study along with data collected from the treatment of the approximate 40 additional patientsPhase II safety and efficacy study should provide the safety, dosimetry and efficacy data that will support the final design of the larger Phase III study.  Once we complete these two Cotara® studies for the initial two partstreatment of the Cotara® study for brain cancer,GBM, substantial financial resources will be needed to complete the final part of the trial and any additional supportive clinical studies necessary for potential product approval.  We do not presently have the financial resources internally to complete the larger Phase III study.  We therefore intend to continue to seek a licensing or funding partner for Cotara®, and hope that the data from this collaboration with members of NABTT together with other data from additional 40 patients,our clinical studies will enhance our opportunities of finding such partner.  If a partner is not found for this technology, we may not be able to advance the project past its current state of development.  Because there are a limited number of companies which have the financial resources, the internal infrastructure, the technical capability and the marketing infrastructure to develop and market a radiopharmaceutical based anti-canceroncology drug, we may not find a suitable partnering candidate for Cotara®.  We also cannot assure youensure that we will be able to find a suitable licensing partner for this technology.  Furthermore, we cannot assure youensure that if we do find a suitable licensing partner, the financial terms that they propose will be acceptable to the Company.

Our Dependency On OneOur Radiolabeling SupplierSuppliers May Negatively Impact Our Ability To Complete Clinical Trials And Market Our Products.

We have procured our antibody radioactive isotope combination services (“radiolabeling”) for Cotara® with Iso-tex Diagnostics, Inc. for all U.S. clinical trials using Cotara®.and with the Board of Radiation & Isotope Technology (“BRIT”) for our Phase II study in India.  If this suppliereither of these suppliers is unable to continue to qualify its respective facility or radiolabel and supply our antibody in a timely manner, our current clinical trial or potential licensing partner’s clinical trials using radiolabeling technology could be adversely affected and significantly delayed.  While there are other suppliers for radioactive isotope combination services in the U.S., our clinical trial would be delayed for up to twelve to eighteen months because it may take that amount of time to certify a new facility under current Good Manufacturing Practices and qualify the product, plus we would incur significant costs to transfer our technology to another vendor.  In addition, the number of facilities that can perform these radiolabeling services is very limited.  Prior to commercial distribution of any of our products, if approved, we will be required to identify and contract with a company for commercial antibody manufacturing and radioactive isotope combination services.  An antibody that has been combined with a radioactive isotope, such as Iodine 131,Iodine-131, cannot be stored for long periods of time, as it must be used within one week of being radiolabeled to be effective.  Accordingly, any change in our existing or future contractual relationships with, or an interruption in supply from, any such third-party service provider or antibody supplier could negatively impact our ability to complete ongoing clinical trials conducted by us or a potential licensing partner.

Our Manufacturing Facilities May Not Continue To Meet Regulatory Requirements And Have Limited Capacity.

Before approving a new drug or biologic product, the FDA requires that the facilities at which the product will be manufactured be in compliance with current Good Manufacturing Practices, or cGMP requirements.  To be successful, our therapeutic products must be manufactured for development and, following approval, in commercial quantities, in compliance with regulatory requirements and at acceptable costs.  Currently, we manufacture all pre-clinical and clinical material through Avid Bioservices, our wholly owned subsidiary.  While we believe our current facilities are adequate for the manufacturing of product candidates for clinical trials, our facilities may not be adequate to produce sufficient quantities of any products for commercial sale.

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If we are unable to establish and maintain a manufacturing facility or secure third-party manufacturing capacity within our planned time frame and cost parameters, the development and sales of our products, if approved, may be materially harmed.

We may also encounter problems with the following:

 
·
production yields;
 
·
quality control and quality assurance;
 
·
shortages of qualified personnel;
 
·
compliance with FDA or other regulatory authorities regulations, including the demonstration of purity and potency;
 
·
changes in FDA or other regulatory authorities requirements;
 
·
production costs; and/or
 
·
development of advanced manufacturing techniques and process controls.

In addition, we or any third-party manufacturer will be required to register the manufacturing facilities with the FDA and other regulatory authorities.authorities, provided it had not already registered.  The facilities will be subject to inspections confirming compliance with cGMP or other regulations.  If any of our third-party manufacturers or we fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval.  As a result, our business, financial condition and results of operations may be materially harmed.

We Currently Depend On A Government Contract To Partially Fund Our Research And Development Efforts.  If Our Current Government Funding Is Reduced Or Delayed, Our Drug Development Efforts May Be Negatively Affected.
On June 30, 2008, we were awarded up to a five-year contract potentially worth up to $44.4 million to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections.  The initial contract was awarded through the Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense's Defense Threat Reduction Agency “DTRA”).  This federal contract is expected to provide us with up to $22.3 million in funding over a 24-month base period, with $14.3 million having been appropriated through the current federal fiscal year ending September 30, 2009.  The remainder of the $22.3 million in funding is expected to be appropriated over the remainder of the two-year base period ending June 29, 2010.  Subject to the progress of the program and budgetary considerations in future years, the contract can be extended beyond the base period to cover up to $44.4 million in funding over the five-year contract period.  Work under this contract commenced on June 30, 2008.  If we do not receive the expected funding under this contract, we may not be able to develop therapeutics to treat hemorrhagic fever virus infection nor otherwise receive the other indirect benefits that may be derived from receipt of the full funding under this contract.
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Federal Government Contracts Contain Provisions Giving Government Customers A Variety Of Rights That Are Unfavorable To Us, Including The Ability To Terminate A Contract At Any Time For Convenience.

Federal government contracts, such as our contract with the DTRA, contain provisions, and are subject to laws and regulations, that give the government rights and remedies not typically found in commercial contracts. These provisions may allow the government to:
·Reduce, cancel,  or otherwise modify our contracts or related subcontract agreements;
·Decline to exercise an option to renew a multi-year contract;
·Claim rights in products and systems produced by us;
·Prohibit future procurement awards with a particular agency as a result of a finding of an organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors;
·Subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest;
·Suspend or debar us from doing business with the federal government or with a governmental agency; and
·Control or prohibit the export of our products and services.

If the government terminates our contract for convenience, we may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the government terminates our contract for default, we may not recover even those amounts, and instead may be liable for excess costs incurred by the government in procuring undelivered items and services from another source. If the DTRA were to unexpectedly terminate or cancel, or decline to exercise the option to extend our contract beyond the base period, our revenues, product development efforts and operating results would be materially harmed.

We May Have Significant Product Liability Exposure Because We Maintain Only Limited Product Liability Insurance.

We face an inherent business risk of exposure to product liability claims in the event that the administration of one of our drugs during a clinical trial adversely affects or causes the death of a patient.  Although we maintain product liability insurance for clinical studies in the amount of $3,000,000 per occurrence or $3,000,000 in the aggregate on a claims-made basis, this coverage may not be adequate.  Product liability insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, if at all.  Our inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims in excess of our insurance coverage, if any, or a product recall, could negatively impact our financial position and results of operations.

In addition, the contract manufacturing services that we offer through Avid expose us to an inherent risk of liability as the antibodies or other substances manufactured by Avid, at the request and to the specifications of our customers, could possibly cause adverse effects or have product defects.  We obtain agreements from our customers indemnifying and defending us from any potential liability arising from such risk.  There can be no assurance that such indemnification agreements will adequately protect us against potential claims relating to such contract manufacturing services or protect us from being named in a possible lawsuit.  Although Avid has procured insurance coverage, there is no guarantee that we will be able to maintain our existing coverage or obtain additional coverage on commercially reasonable terms, or at all, or that such insurance will provide adequate coverage against all potential claims to which we might be exposed.  A partially successful or completely uninsured claim against Avid would have a material adverse effect on our consolidated operations..

The Liquidity Of Our Common Stock Will Be Adversely Affected If Our Common Stock Is Delisted From The Nasdaq Capital Market.

Our common stock is presently traded on The Nasdaq Capital Market. To maintain inclusion on The Nasdaq Capital Market, we must continue to meet the following six listing requirements:

1.Net tangible assets of at least $2,500,000 or market capitalization of at least $35,000,000 or net income of at least $500,000 in either our latest fiscal year or in two of our last three fiscal years;
2.Public float of at least 500,000 shares;
3.Market value of our public float of at least $1,000,000;
4.A minimum closing bid price of $1.00 per share of common stock, without falling below this minimum bid price for a period of thirty consecutive trading days;
5.At least two market makers; and
6.At least 300 stockholders, each holding at least 100 shares of common stock.

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We cannot guarantee that we will be able to maintain the minimum closing bid price requirement or maintain any of the other requirements in the future. The market price of our common stock has generally been highly volatile. During the fiscal year 2006, the trading price of our common stock on The Nasdaq Capital Market ranged from $0.88 per share to $1.76 per share. If we fail to meet any of The Nasdaq Capital Market listing requirements, the market value of our common stock could fall and holders of common stock would likely find it more difficult to dispose of the common stock. During the third quarter ended January 31, 2006, the closing bid price of our common stock was less than $1.00 for a period of 27 consecutive trading days. Had the closing bid price not equaled at least $1.00 prior to the close of the 30th day, we would have been out of compliance with a continued listing requirement and subject to delisting if we did not regain compliance in accordance with the Nasdaq listing rules within 180 days thereafter.

If our common stock is delisted, we would apply to have our common stock quoted on the over-the-counter electronic bulletin board. Upon any such delisting, our common stock would become subject to the regulations of the Securities and Exchange Commission relating to the market for penny stocks. A penny stock, as defined by the Penny Stock Reform Act, is any equity security not traded on a national securities exchange or quoted on the NASDAQ Global or Capital Market, that has a market price of less than $5.00 per share. The penny stock regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. The broker-dealer must make a suitability determination for each purchaser and receive the purchaser’s written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures, including the actual sale or purchase price and actual bid offer quotations, as well as the compensation to be received by the broker-dealer and certain associated persons. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit your ability to sell your securities in the secondary market.

The Sale Of Substantial Shares Of Our Common Stock May Depress Our Stock Price.

As of April 30, 2006, we had approximately 179,382,000 shares of our common stock outstanding, and for that date the last reported sales price of our common stock was $1.39 per share.

We could also issue up to approximately 38,798,000 additional shares of our common stock reserved for future issuance under our shelf registration statements, stock option plans and outstanding warrants, as further described in the following table:

Number of Shares
of Common Stock Reserved For Issuance
Shares reserved for under two effectiveshelf registration statements
15,179,180    
Common shares reserved for issuance under stock option plans11,307,279    
Common shares available for future grant under option plans5,346,418    
Common shares issuable upon exercise of outstanding warrants6,964,653    
Total38,797,530    

Ofthe total warrants and options outstanding as of April 30, 2006, approximately 11,205,000 options and warrants would be considered dilutive to stockholders because we would receive an amount per share which is less than the market price of our common stock at April 30, 2006.
21
Our Highly Volatile Stock Price And Trading Volume May Adversely Affect The Liquidity Of Our Common Stock.

The market price of our common stock and the market prices of securities of companies in the biotechnology sector have generally been highly volatile and are likely to continue to be highly volatile.

The following table shows the high and low sales price and trading volume of our common stock for each quarter in the three years ended April 30, 2006:

  
Common Stock
Sales Price
 
Common Stock Daily
Trading Volume
(000’s omitted)
  
High
 
Low
 
High
 
Low
Fiscal Year 2006
         
Quarter Ended April 30, 2006 $1.76 $1.20 9,922  391
Quarter Ended January 31, 2006 $1.40 $0.88 12,152  251
Quarter Ended October 31, 2005 $1.28 $0.91 4,619  156
Quarter Ended July 31, 2005 $1.31 $0.92 7,715  178
Fiscal Year 2005
         
Quarter Ended April 30, 2005 $1.64 $1.11 5,945  223
Quarter Ended January 31, 2005 $1.45 $0.99 6,128  160
Quarter Ended October 31, 2004 $1.96 $0.95 2,141  148
Quarter Ended July 31, 2004 $1.92 $0.88 1,749  131
Fiscal Year 2004
         
Quarter Ended April 30, 2004 $2.85 $1.56 3,550  320
Quarter Ended January 31, 2004 $3.14 $2.01 6,062  201
Quarter Ended October 31, 2003 $2.44 $1.25 18,060  314
Quarter Ended July 31, 2003 $2.19 $0.60 12,249  255

The market price of our common stock may be significantly impacted by many factors, including, but not limited to:

·
Announcements of technological innovations or new commercial products by us or our competitors;
·
publicity regarding actual or potential clinical trial results relating to products under development by us or our competitors;
·
our financial results or that of our competitors;
·
published reports by securities analysts;
·
announcements of licensing agreements, joint ventures, strategic alliances, and any other transaction that involves the sale or use of our technologies or competitive technologies;
·
developments and/or disputes concerning our patent or proprietary rights;
·
regulatory developments and product safety concerns;
·
general stock trends in the biotechnology and pharmaceutical industry sectors;
·
public concerns as to the safety and effectiveness of our products;
·
economic trends and other external factors, including but not limited to, interest rate fluctuations, economic recession, inflation, foreign market trends, national crisis, and disasters; and
·
health care reimbursement reform and cost-containment measures implemented by government agencies.

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

22
If We Are Unable To Obtain, Protect And Enforce Our Patent Rights, We May Be Unable To Effectively Protect Or Exploit Our Proprietary Technology, Inventions And Improvements.

Our success depends in part on our ability to obtain, protect and enforce commercially valuable patents.  We try to protect our proprietary positions by filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to developing our business.  However, if we fail to obtain and maintain patent protection for our proprietary technology, inventions and improvements, our competitors could develop and commercialize products that would otherwise infringe upon our patents.

Our patent position is generally uncertain and involves complex legal and factual questions.  Legal standards relating to the validity and scope of claims in the biotechnology and biopharmaceutical fields are still evolving.  Accordingly, the degree of future protection for our patent rights is uncertain.  The risks and uncertainties that we face with respect to our patents include the following:

 
·
the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;
 
·
the claims of any patents that issue may not provide meaningful protection;
 
·
we may be unable to develop additional proprietary technologies that are patentable;
 
·
the patents licensed or issued to us may not provide a competitive advantage;
 
·
other parties may challenge patents licensed or issued to us;
 
·
disputes may arise regarding the invention and corresponding ownership rights in inventions and know-how resulting from the joint creation or use of intellectual property by us, our licensors, corporate partners and other scientific collaborators; and
 
·
other parties may design around our patented technologies.

We May Become Involved In Lawsuits To Protect Or Enforce Our Patents That Would Be Expensive And Time Consuming.

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties.  In addition, we may become subject to interference or opposition proceedings conducted in patent and trademark offices to determine the priority and patentability of inventions.  The defense of intellectual property rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings, would be costly and divert our technical and management personnel from their normal responsibilities.  An adverse determination of any litigation or defense proceedings could put our pending patent applications at risk of not being issued.

33
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.  For example, during the course of this kind of litigation, confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony.  This disclosure could materially adversely affecthave a material adverse effect on our business and our financial results.

We May Not Be Able To Compete With Our Competitors In The Biotechnology Industry Because Many Of Them Have Greater Resources Than We Do And They Are Further Along In Their Development Efforts.

The pharmaceutical and biotechnology industry is intensely competitive and subject to rapid and significant technological change.  Many of the drugs that we are attempting to discover or develop will be competing with existing therapies.  In addition, we are aware of several pharmaceutical and biotechnology companies actively engaged in research and development of antibody-based products that have commenced clinical trials with, or have successfully commercialized, antibody products.  Some or all of these companies may have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience in developing products and running clinical trials.  We expect to continue to experience significant and increasing levels of competition in the future.  In addition, there may be other companies which are currently developing competitive technologies and products or which may in the future develop technologies and products whichthat are comparable or superior to our technologies and products.

We are conducting the Cotara® dose confirmation and dosimetry clinical trial for the treatment of recurrent glioblastoma multiforme (“GBM”), the most aggressive form of brain cancer as a stand-alone study in collaboration with New Approaches to Brain Tumor Therapy (“NABTT”) consortium. Existingcancer.  Approved treatments for brain cancer include the Gliadel® Wafer (polifeprosan 20 with carmustine implant) from MGI Pharma,Eisai, Inc. and, Temodar® (temazolomide)(temozolomide) from Schering-Plough Corporation.Corporation and Avastin® (bevacizumab).  Gliadel® is inserted in the tumor cavity following surgery and releases a chemotherapeutic agent over time.  Temodar® is administered orally to patients receiving concurrent radiation therapy.with brain cancer.  Avastin® is a monoclonal antibody that targets vascular endothelial growth factor to prevent the formation of new tumor blood vessels.

23
Because Cotara® targets brain tumors from the inside out, it is a novel treatment dissimilar from other drugs in development for this disease.  Some of the products thatin development may compete within the brain cancer categorywith Cotara® should they become approved for marketing.  These products include, GLI-328 (Novartis)but are not limited to:  131I-TM601, a radiolabeled chlorotoxin peptide being developed by TransMolecular, Inc., CDX-110, a gene therapy treatment that is injected into the walls of the tumor cavity following surgery; IL13-PE38QQR (cintredekin besudotox) from NeoPharm continues inpeptide vaccine under development by Celldex, cilengitide, an integrin-targeting peptide being evaluated by Merk KGaA, and cediranib, a Phase III trial; In March 2006 Eli Lilly and Company began a Phase III trial of enzastuarin for the treatment of GBM; TransMID (Xenova Group plc) is a product based on the diphtheria toxin and began a Phase III trial in May 2004.VEGFR tyrosine kinase inibitor being developed by AstraZeneca.  In addition, Gleevec® by Novartis, which is an oncology productproducts marketed for other indications issuch as Gleevec® (Novartis), Tarceva® (Genentech/OSI), and Nexavar® (Bayer), are being tested in clinical trials for the treatment of brain cancer.

Bavituximab is currently in clinical trials for the treatment of advanced solid cancers is currently in Phase I clinical trials.cancers.  There are a number of possible competitors with approved or developmental targeted agents used in combination with standard chemotherapy for the treatment of cancer, including but not limited to, Avastin® by Genentech, Inc., Gleevec® by Novartis, Tarceva® by OSI Pharmaceuticals, Inc. and Genentech, Inc., Erbitux® by ImClone Systems Incorporated and Brystol-MyersBristol-Myers Squibb Company, Rituxan® and Herceptin® by Biogen Idec Inc. and Genentech, Inc., Herceptin®and Vectibix™ by Genentech, Inc. and panitumumab by Amgen®.Amgen.  There are a significant number of companies developing cancer therapeutics using a variety of targeted and non-targeted approaches.  A direct comparison of these potential competitors will not be possible until bavituximab advances to later-stage clinical trials.

In addition, we have completed a Phase I single-dose clinical trialare evaluating bavituximab for the treatment of HCV and have begun enrolling patients in a multiple-dose Phase Ib clinical trial.HCV.  Bavituximab is a first-in-class approach for the treatment of HCV.  We are aware of no other products in development targeting PSphosphatidylserine as a potential therapy for HCV.  There are a number of companies that have products approved and on the market for the treatment of HCV, including but not limited to:  Peg-Intron® (pegylated interferon-alpha-2b), Rebetol® (ribavirin), and Intron-A (interferon-alpha-2a), which are marketed by Schering-Plough Corporation, and Pegasys® (pegylated interferon-alpha-2a), Copegus® (ribavirin USP) and Roferon-A® (interferon-alpha-2a), which are marketed by Roche Pharmaceuticals, and Infergen® (interferon alfacon-1) now marketed by ValeantThree Rivers Pharmaceuticals, International.LLC.  First line treatment for HCV has changed little since alpha interferon was first introduced in 1991.  The current standard of care for HCV includes a combination of an alpha interferon (pegylated or non-pegylated) with ribavirin.  This combination therapy is generally associated with considerable toxicity including flu-like symptoms, hematologic changes and central nervous system disordersside effects including depression.  It is not uncommon for patients to discontinue alpha interferon therapy because they are unable to tolerate the side effects of the treatment.

Future treatments for HCV are likely to include a combination of these existing products used as adjuncts with products now in development.  Later-stage developmental treatments include improvements to existing therapies, such as Abluferon™Albuferon™ (albumin interferon) from Human Genome Sciences, Inc.  and Viramidine™ (taribavirin), a prodrug analog of ribavirin being developed by Valeant Pharmaceuticals International. Other developmental approaches include, but are not limited to, protease inhibitors such as VX-950telaprevir from Vertex Pharmaceuticals Incorporated and SCH7boceprevir from Schering-Plough Corporation, and NM283, a polymerase inhibitor by Idenix Pharmaceuticals, Inc.

New And Potential New Accounting Pronouncements May Impact Our Future Financial Position And Results Of Operations

There may be potential new accounting pronouncements or regulatory rulings, which may have an impact on our future financial position and results of operations. For example, in December 2004, the FASB issued an amendment to SFAS No. 123, Accounting For Stock-Based Compensation (“SFAS No. 123R”), which we adopted May 1, 2006. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 (“APB No. 25”), and instead requires companies to recognize compensation expense using a fair-value based method for costs related to share-based payments including stock options. The adoption of SFAS No. 123R will materially impact our financial position and results of operations for future periods. Although we have not yet determined the final impact of SFAS No. 123R, we believe the non-cash compensation expense for fiscal year 2007 related to the adoption of SFAS No. 123R may be up to approximately $1,000,000 based on actual shares granted and unvested as of April 30, 2006. However, the actual share-based compensation expense recorded in fiscal year 2007 as a result of adopting SFAS No. 123R may differ materially from our estimate as a result of changes in a number of factors that affect the amount of non-cash compensation expense, including the number of options granted by our Board of Directors during fiscal year 2007, the price of our common stock on the date of grant, the volatility of our stock price, the estimate of the expected life of options granted and the risk free interest rates as measured at the grant date. Also, a change in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Other new accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. Changes to existing rules, future changes, if any, or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business, which may also adversely affect our stock price.Corporation.
 
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Avid Bioservices, Our subsidiary, Is Exposed To Risks Resulting From Its Small Customer Base.

A significant portion of Avid Bioservices’ revenues have historically been derived from a small customer base.  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 results of operations could be adversely affected if revenue from any one of our primary customers is significantly reduced or eliminated

If We Lose Qualified Management And Scientific Personnel Or Are Unable To Attract And Retain Such Personnel, We May Be Unable To Successfully Develop Our Products Or We May Be Significantly Delayed In Developing Our Products.

Our success is dependent, in part, upon a limited number of key executive officers, each of whom is an at-will employee, and also upon our scientific researchers.  For example, because of his extensive understanding of our technologies and product development programs, the loss of Mr. Steven W. King, our President and& Chief Executive Officer and Director, would adversely affect our development efforts and clinical trial programs during the six to twelve month period that we estimate it would take to find and train a qualified replacement.

We also believe that our future success will depend largely upon our ability to attract and retain highly-skilled research and development and technical personnel.  We face intense competition in our recruiting activities, including competition from larger companies with greater resources.  We do not know if we will be successful in attracting or retaining skilled personnel.  The loss of certain key employees or our inability to attract and retain other qualified employees could negatively affect our operations and financial performance.

Our Governance Documents And State Law Provide Certain Anti-Takeover Measures Which Will Discourage A Third Party From Seeking To Acquire Us Unless Approved By the Board of Directors.

We adopted a shareholder rights plan, commonly referred to as a “poison pill,” on March 16, 2006.  The purpose of the shareholder rights plan is to protect stockholders against unsolicited attempts to acquire control of us that do not offer a fair price to our stockholders as determined by our Board of Directors.  Under the plan, the acquisition of 15% or more of our outstanding common stock by any person or group, unless approved by our board of directors, will trigger the right of our stockholders (other than the acquiror of 15% or more of our common stock) to acquire additional shares of our common stock, and, in certain cases, the stock of the potential acquiror, at a 50% discount to market price, thus significantly increasing the acquisition cost to a potential acquiror.  In addition, our certificate of incorporation and by-laws contain certain additional anti-takeover protective devices.  For example,

 
·
no stockholder action may be taken without a meeting, without prior notice and without a vote; solicitations by consent are thus prohibited;
 
·
special meetings of stockholders may be called only by our Board of Directors; and
 
·
our Board of Directors has the authority, without further action by the stockholders, to fix the rights and preferences, and issue shares, of preferred stock. An issuance of preferred stock with dividend and liquidation rights senior to the common stock and convertible into a large number of shares of common stock could prevent a potential acquiror from gaining effective economic or voting control.

Further, we are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, restricts certain transactions and business combinations between a corporation and a stockholder owning 15% or more of the corporation’s outstanding voting stock for a period of three years from the date the stockholder becomes a 15% stockholder.
35

Although we believe these provisions and our rights plan collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders.  In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management.

ITEM 1B. UNRESOLVED STAFF COMMENTS
25
ITEM 1B.        UNRESOLVED STAFF COMMENTSNot applicable.

Not Applicable.

ITEM 2.          PROPERTIES
ITEM 2.PROPERTIES

Our corporate, research and development, and clinical trial operations are located in two Company-leased office and laboratory buildings with aggregate square footage of approximately 47,770 feet.  The facilities are adjacent to one another and are located at 14272 and 14282 Franklin Avenue, Tustin, California 92780-7017.  We currently make combined monthly lease payments of approximately $62,000$66,000 for these facilities with a 3.35% rental increase every two years.  The next rental increase is scheduled for December 2006.January 2011.  The lease, which commenced in December 1998, has an initial twelve-year term with two five-year term extensions.  During December 2005, we entered into a lease amendment with our landlord and extended the original lease term for seven additional years through December 2017 while maintaining our two five-year term extensions that could extend our lease through December 2027.  In addition, our monthly lease payments stillwill continue to increase at a rate of 3.35% every two years under the lease amendment.  We believe our facilities are adequate for our current needs and that suitable additional substitute space would be available if needed.

ITEM 3.          LEGAL PROCEEDINGS
ITEM 3.LEGAL PROCEEDINGS

In the ordinary course of business, we are at times subject to various legal proceedings and disputes.  WeAlthough we currently are not aware of any such legal proceedingproceedings or claim that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, operating results or cash flows.flows, however, we were involved with the following lawsuit that recently settled:

On January 12, 2007, we filed a Complaint in the Superior Court of the State of California for the County of Orange against Cancer Therapeutics Laboratories (“CTL”), Alan Epstein (“Dr. Epstein”), Medibiotech Co., Inc. and Shanghai Medipharm Biotech Co., Ltd. (collectively “Medipharm”).  The lawsuit alleged claims for breach of contract, interference with contractual relations, declaratory relief, injunctive relief, and other claims against the defendants.  Our claims stemmed primarily from a 1995 License Agreement with CTL, and amendments to that Agreement ("License Agreement").  We claimed that CTL breached the License Agreement by, among other things, (i) not sharing with Peregrine all inventions, technology, know-how, patents and other information, derived and/or developed in the People’s Republic of China and/or at the CTL laboratory, as was required under the License Agreement; (ii) not splitting revenue appropriately with Peregrine as required under the License Agreement; (iii) utilizing Peregrine's licensed technologies outside of the People’s Republic of China; and (iv) failing to enter a sublicense agreement with a Chinese sponsor obligating the Chinese sponsor to comply with the terms and obligations in the License Agreement.  We also alleged that Medipharm improperly induced CTL to enter into a relationship that did not preserve Peregrine's rights.

ITEM 4.          On March 28, 2007, CTL filed a cross-complaint, which it amended on May 30, 2007, alleging that we improperly terminated the License Agreement, and that we interfered with CTL’s agreements with various Medipharm entities and were double-licensing the technology that CTL had licensed to Shanghai Medipharm.
36

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSOn February 22, 2008, Medipharm filed a cross-complaint alleging, as third party beneficiaries, that we breached the Agreement by double-licensing the technology licensed to CTL to another party, intentionally interfered with a prospective economic advantage, and unjust enrichment.

On April 16, 2009, we signed a settlement agreement with Medipharm (“April Settlement Agreement”) providing for a settlement and release of all claims with respect to our previously disclosed litigation with Medipharm.  Under the April Settlement Agreement, we agreed to dismiss our respective claims against each other with prejudice.  In connection with the April Settlement Agreement (1) Medipharm agreed not to sell radiolabelled TNT Products outside of the Peoples Republic of China (“PRC”) and we agreed not to sell radiolabelled TNT Products within the PRC; (2) Medipharm agreed that NHS76 (a fully human equivalent antibody to Cotara) is not part of the License Agreement; (3) Medipharm agreed to deliver to CTL 1.9 million shares of Medibiotech Co. Inc. stock; and (4) we relinquished any and all claims we had with respect to Shanghai Medipharm's use of Vivatuxin, murine clone (TNT-1), or any chimeric clone derived from any TNT murine clone developed by Medipharm and product derived thereof in the PRC (with the exception of claims we may choose to assert related to rhTNT-IL2).  Otherwise, the April Settlement Agreement contained a general release between the Company and Medipharm of all claims arising out of the License Agreement or the matters of the lawsuit between the parties.

On June 4, 2009, we signed a settlement agreement (the “June Settlement Agreement”) with CTL, Dr. Epstein, Clive Taylor, M.D. and Peisheng Hu, M.D. (collectively, the “CTL Parties”), providing for a settlement and release of all claims with respect to our previously disclosed litigation with those CTL Parties.  Under the June Settlement Agreement, the parties dismissed all of their claims against each other in the lawsuit.  In connection with the June Settlement Agreement, (1) we agreed to pay to CTL the sum of four hundred thousand dollars ($400,000) in eight equal monthly installments of fifty thousand dollars ($50,000) commencing upon execution of the June Settlement Agreement and continuing on the first business day of each succeeding month until paid in full, which amount is included in selling, general and administrative expenses in the accompanying consolidated financial statements during fiscal year 2009, (2) CTL agreed to issue to us 950,000 shares of Medibiotech (which represents fifty percent (50%) of the shares of Medibiotech to be issued to and owned by CTL under the April Settlement Agreement), and (3) we entered into a license agreement with Dr. Epstein effective as of September 20, 1995, pursuant to which Dr. Epstein granted us (i) a fully paid-up, royalty free, exclusive worldwide license to the murine clone TNT1 and (ii) a fully paid-up, royalty free, non-exclusive worldwide (except in the Peoples Republic of China) license to the murine clones TNT2 and TNT3.  The foregoing license grants include our right to grant sublicenses, to make, have made, modify, have modified, use, sell and offer for sale, murine clone TNT1, TNT2 and TNT3 products and derivatives thereof, but not to sell the murine clones.  We also granted back to Dr. Epstein a limited, fully paid-up, royalty free, exclusive license to the murine clone TNT1, with the right to grant sublicenses, to make, have made, modify, have modified, offer to sell, sell and use the murine clone TNT1 and its products solely in the Peoples Republic of China effective as of August 29, 2001.  In consideration of the foregoing license grants, we paid Dr. Epstein the sum of one thousand dollars ($1,000), which amount was deducted from the initial $50,000 payment.  In addition, the June Settlement Agreement contained full general releases between the Company and the CTL parties.
37

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the quarter ended April 30, 2006.2009.

26
PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDERS’STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)           Market Information. The Company is  We are listed on the The NasdaqNASDAQ Capital Market under the stock trading symbol “PPHM”.  The following table shows the high and low sales price of the Company’sour common stock for each quarter in the two years ended April 30, 2006:2009:

  
Common Stock Sales Price
  
High
 
Low
Fiscal Year 2006
    
Quarter Ended April 30, 2006 $1.76 $1.20
Quarter Ended January 31, 2006 $1.40 $0.88
Quarter Ended October 31, 2005 $1.28 $0.91
Quarter Ended July 31, 2005 $1.31 $0.92
Fiscal Year 2005
    
Quarter Ended April 30, 2005 $1.64 $1.11
Quarter Ended January 31, 2005 $1.45 $0.99
Quarter Ended October 31, 2004 $1.96 $0.95
Quarter Ended July 31, 2004 $1.92 $0.88
  
Common Stock
Sales Price
 
  High  Low 
Fiscal Year 2009      
Quarter Ended April 30, 2009 $0.52  $0.30 
Quarter Ended January 31, 2009 $0.47  $0.22 
Quarter Ended October 31, 2008 $0.40  $0.23 
Quarter Ended July 31, 2008 $0.53  $0.31 
Fiscal Year 2008        
Quarter Ended April 30, 2008 $0.73  $0.35 
Quarter Ended January 31, 2008 $0.65  $0.35 
Quarter Ended October 31, 2007 $0.79  $0.54 
Quarter Ended July 31, 2007 $1.40  $0.72 

(b)Holders.Holders.  As of June 30, 2006,2009, the number of stockholders of record of the Company'sour common stock was 5,875.5,805.

(c)Dividends.Dividends.  No dividends on common stock have been declared or paid by the Company. The Company intendsus.  We intend to employ all available funds for the development of itsour business and, accordingly, doesdo not intend to pay any cash dividends in the foreseeable future.

(d)           Securities Authorized for Issuance Under Equity Compensation.  The information included under Item 12 of Part III of this Annual Report is hereby incorporated by reference into this Item 5 of Part II of this Annual Report.

(e)            Recent Sale of Unregistered Securities.  None.
 
2738
ITEM 6.          SELECTED FINANCIAL DATA
ITEM 6.SELECTED FINANCIAL DATA

The following selected financial data has been derived from audited consolidated financial statements of the Company for each of the five years in the period ended April 30, 2006.2009.  These selected financial summaries should be read in conjunction with the financial information contained for each of the three years in the period ended April 30, 2006,2009, included in the consolidated financial statements and notes thereto, Management's Discussion and Analysis of Results of Operations and Financial Condition, and other information provided elsewhere herein.

CONSOLIDATED STATEMENTS OF OPERATIONS
 
FIVE YEARS ENDED APRIL 30,
 
           
CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE YEARS ENDED APRIL 30,
CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE YEARS ENDED APRIL 30,
 
 
2006
 
2005
 
2004
 
2003
 
2002
  2009  2008  2007  2006  2005 
                          
Revenues $3,193,000 $4,959,000 $3,314,000 $3,921,000 $3,766,000  $18,151,000  $6,093,000  $3,708,000  $3,193,000  $4,959,000 
                                
Net loss $(17,061,000)$(15,452,000)$(14,345,000)$(11,559,000)$(11,718,000) $(16,524,000) $(23,176,000) $(20,796,000) $(17,061,000) $(15,452,000)
                                
Basic and diluted loss per common share $(0.10)$(0.11)$(0.11)$(0.10)$(0.11) $(0.07) $(0.10) $(0.11) $(0.10) $(0.11)
                                
Weighted average common shares outstanding  168,294,782 144,812,001 134,299,407 116,468,353 104,540,204   226,231,464   221,148,342   192,297,309   168,294,782   144,812,001 
 

CONSOLIDATED BALANCE SHEET DATA
 
AS OF APRIL 30,
 
CONSOLIDATED BALANCE SHEET DATA
AS OF APRIL 30,
CONSOLIDATED BALANCE SHEET DATA
AS OF APRIL 30,
 
                          
 
2006
 
2005
 
2004
 
2003
 
2002
  2009  2008  2007  2006  2005 
                          
Cash and cash equivalents $17,182,000 $9,816,000 $14,884,000 $3,137,000 $6,072,000  $10,018,000  $15,130,000  $16,044,000  $17,182,000  $9,816,000 
                                
Working capital $15,628,000 $7,975,000 $13,631,000 $1,949,000 $4,007,000  $1,270,000  $12,403,000  $14,043,000  $15,628,000  $7,975,000 
                                
Total assets $22,676,000 $14,245,000 $19,137,000 $5,399,000 $7,866,000  $23,127,000  $23,057,000  $22,997,000  $22,676,000  $14,245,000 
                                
Long-term debt $545,000 $434,000 $- $760,000 $-  $3,212,000  $22,000  $149,000  $545,000  $434,000 
                                
Accumulated deficit $(186,864,000)$(169,803,000)$(154,351,000)$(140,006,000)$(128,447,000) $(247,360,000) $(230,836,000) $(207,660,000) $(186,864,000) $(169,803,000)
                                
Stockholders’ equity $17,626,000 $9,610,000 $14,759,000 $2,131,000 $5,083,000  $901,000  $15,595,000  $16,989,000  $17,626,000  $9,610,000 
 
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ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is included to describe the Company’sour financial position and results of operations for each of the three years in the period ended April 30, 2006.2009.  The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.

Overview

We are a clinical stage biopharmaceutical company with a portfolio of clinicalthat manufactures and pre-clinical stagedevelops monoclonal antibody-based targeted therapeutics for the treatment of solid cancers and viral infections. We are currently advancing three separate clinical trial programsantibodies for the treatment of cancer and chronic hepatitis C virus (“HCV”)serious viral infections.  UnderWe are advancing three separate clinical programs with our Anti-Phosphatidylserine (“Anti-PS”) Immunotherapeutic platform technology, our lead candidatefirst-in-class compounds bavituximab (formerly known as Tarvacin), isand Cotara®.

We are currently in a multi-center Phase Irunning four clinical trialtrials using bavituximab for the treatment of solid cancers as well as a multi-center phase Ibtumors. Three of these clinical trials are Phase II trials evaluating bavituximab in combination with commonly prescribed chemotherapeutic drugs in patients with advanced breast or lung cancer.  Our fourth active bavituximab oncology clinical trial for the treatment of chronic HCV infection. Our third clinical program is a dose confirmation and dosimetryphase I trial evaluating bavituximab alone in patients with advanced solid tumors that no longer respond to standard cancer treatments.

We are currently running two clinical trialtrials using our lead Tumor Necrosis Therapy (TNT) agent, Cotara®, for the treatment of glioblastoma multiforme, a deadly form of brain cancer.cancer, Cotara® is currently in a dose confirmation and dosimetry clinical trial and in a Phase II clinical trial.

WeIn addition to our clinical programs, we are organized into two reportable operating segments: (i) Peregrine,performing pre-clinical research on bavituximab and an equivalent fully human antibody as a potential broad-spectrum treatment for viral hemorrhagic fever infections under a contract awarded through the parent company,Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense's Defense Threat Reduction Agency (“DTRA”).  This federal contract is engagedexpected to provide us with up to $22.3 million in funding over an initial 24-month base period, with $14.3 million having been appropriated through the current federal fiscal year ending September 30, 2009.

In addition to our research and development of monoclonal antibody-based targeted therapeutics and (ii)efforts, we operate a wholly owned cGMP (current Good Manufacturing Practices) contract manufacturing subsidiary, Avid Bioservices, Inc., (“Avid”) a wholly owned subsidiary, is engaged in providing bio-manufacturing.  Avid provides contract manufacturing services for Peregrinebiotechnology and outside customersbiopharmaceutical companies on a fee-for-services basis.fee-for-service basis, from pre-clinical drug supplies up through commercial-scale drug manufacture.  In addition to these activities, Avid provides critical services in support of Peregrine’s product pipeline including manufacture and scale-up of pre-clinical and clinical drug supplies.
 
Going Concern

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should it be determined that we are unable to continue as a going concern.

At April 30, 2009, we had $10,018,000 in cash and cash equivalents.  We have expended substantial funds on the research, development and clinical trials 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 the negative cash flows from operations to continue for the foreseeable future.  Our net losses incurred during the past three fiscal years ended April 30, 2009, 2008 and 2007 amounted to $16,524,000, $23,176,000, and $20,796,000, respectively.  Unless and until we are able to generate sufficient revenues from Avid’s contract manufacturing services and/or from the sale and/or licensing of our products under development, we expect such losses to continue for the foreseeable future.
 
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Therefore, our ability to continue our clinical trials and development efforts and to continue as a going concern 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.

We will need to raise additional capital through one or more methods, including but not limited to, issuing additional equity or debt, in order to support the costs of our research and development programs.

With respect to financing our operations through the issuance of equity, on March 26, 2009, we entered into an At Market Issuance Sales Agreement (“AMI Agreement”) with Wm Smith & Co., pursuant to which we may sell shares of our common stock through Wm Smith & Co., as agent, in registered transactions from our shelf registration statement on Form S-3, File Number 333-139975, for aggregate gross proceeds of up to $7,500,000.  Shares of common stock sold under this arrangement were to be sold at market prices.  As of April 30, 2009, we had sold 1,477,938 shares of common stock under the AMI Agreement for aggregate net proceeds of $550,000.  Subsequent to April 30, 2009, we sold and additional 9,275,859 shares of common stock under the AMI Agreement for aggregate net proceeds of $6,685,000 after deducting commissions of 3% paid to Wm Smith & Co.  As of June 30, 2009, we had raised the aggregate gross proceeds of $7,500,000 permitted under the AMI Agreement.

With respect to financing our operations through the issuance of debt, on December 9, 2008, we entered into a loan and security agreement pursuant to which we had the ability to borrow up to $10,000,000 (“Loan Agreement”).  On December 19, 2008, we received initial funding of $5,000,000, in which principal and interest are payable over a thirty (30) month period commencing after the initial six month interest only period.  The amount payable under the Loan Agreement is secured by generally all assets of the Company as further explained in Note 5 to the consolidated financial statements.  Under the Loan Agreement, we had an option, which expired June 30, 2009, to borrow a second tranche in the amount of $5,000,000 upon the satisfaction of certain clinical and financial conditions as set forth in the Loan Agreement.  Although we had satisfied the required clinical and financial conditions by June 30, 2009, we determined that exercising the option to borrow the second tranche, and issuing the additional warrants to the Lenders, was not in the best interest of the Company or our stockholders.

In addition to the above, we may also raise additional capital through additional equity offerings or licensing our products or technology platforms or entering into similar collaborative arrangements.  In order to raise capital through the issuance of equity, we plan to file a new shelf registration statement on Form S-3 to register up to $50 million in proceeds from the sale of our common stock.  Although we are not required to issue any shares of common stock under this registration statement, we plan to register the underlying shares of common stock as a potential method of raising additional capital to support our drug development efforts. 

While we will continue to consider and explore these potential opportunities, there can be no assurances that we will be successful in raising sufficient capital on terms acceptable to us, or at all, or that sufficient additional revenues will be generated from Avid or under potential licensing or partnering agreements to complete the research, development, and clinical testing of our product candidates.  Based on our current projections and assumptions, which include projected revenues under signed contracts with existing customers of Avid, combined with the projected revenues from our government contract, we believe we have sufficient cash on hand combined with amounts expected to be received from Avid customers and from our government contract to meet our obligations as they become due through at least fiscal year 2010.  There are a number of uncertainties associated with our financial projections, including but not limited to, termination of third party or government contracts, technical challenges, or possible reductions in funding under our government contract, which could reduce or delay our future projected cash-inflows.  In addition, under the Loan Agreement, in the event our government contract with the Defense Threat Reduction Agency is terminated or canceled for any reason, including reasons pertaining to budget cuts by the government or reduction in government funding for the program, we would be required to set aside cash and cash equivalents in an amount equal to 80% of the outstanding loan balance in a restricted collateral account non-accessible by us.  In the event our projected cash-inflows are reduced or delayed or if we default on a loan covenant that limits our access to our available cash on hand, we might not have sufficient capital to operate our business through the fiscal year 2010 unless we raise additional capital.  The uncertainties surrounding our future cash inflows have raised substantial doubt regarding our ability to continue as a going concern.
41

Results of Operations

The following table compares the consolidated statements of operations for the fiscal years ended April 30, 2006, 20052009, 2008 and 2004.2007.  This table provides you with an overview of the changes in the statement of operations for the comparative periods, which changes are further discussed below.

 
Years Ended April 30,
 
Years Ended April 30,
  Years Ended April 30,  Years Ended April 30, 
 
2006
 
2005
 
$ Change
 
2005
 
2004
 
$ Change
  2009  2008  $ Change  2008  2007  $ Change 
 
(in thousands)
 
(in thousands)
                   
REVENUES:
                                
Contract manufacturing $3,005 $4,684 $(1,679)$4,684 $3,039 $1,645  $12,963,000  $5,897,000  $7,066,000  $5,897,000  $3,492,000  $2,405,000 
Government contract revenue  5,013,000   -   5,013,000   -   -   - 
License revenue  188  275  (87) 275  275  0   175,000   196,000   (21,000)  196,000   216,000   (20,000)
Total revenues  3,193 4,959 (1,766) 4,959 3,314 1,645   18,151,000   6,093,000   12,058,000   6,093,000   3,708,000   2,385,000 
                                      
COST AND EXPENSES:
              COST AND EXPENSES:                     
Cost of contract manufacturing  3,297 4,401 (1,104) 4,401 2,212 2,189   9,064,000   4,804,000   4,260,000   4,804,000   3,296,000   1,508,000 
Research and development  12,415 11,164 1,251 11,164 9,673 1,491   18,424,000   18,279,000   145,000   18,279,000   15,876,000   2,403,000 
Selling, general and administrative  6,564  5,098  1,466  5,098  4,225  873   6,979,000   7,150,000   (171,000)  7,150,000   6,446,000   704,000 
Total cost and expenses  22,276  20,663  1,613  20,663  16,110  4,553   34,467,000   30,233,000   4,234,000   30,233,000   25,618,000   4,615,000 
                                      
LOSS FROM OPERATIONS
  (19,083) (15,704) (3,379) (15,704) (12,796) (2,908)  (16,316,000)  (24,140,000)  7,824,000   (24,140,000)  (21,910,000)  (2,230,000)
                                      
OTHER INCOME (EXPENSE):
              OTHER INCOME (EXPENSE):                 
Recovery of note receivable  1,229 - 1,229 - - - 
Interest and other income  846 265 581 265 291 (26)  200,000   989,000   (789,000)  989,000   1,160,000   (171,000)
Interest and other expense  (53) (13) (40) (13) (1,840) 1,827   (408,000)  (25,000)  (383,000)  (25,000)  (46,000)  21,000 
NET LOSS
 $(17,061)$(15,452)$(1,609)$(15,452)$(14,345)$(1,107) $(16,524,000) $(23,176,000) $6,652,000  $(23,176,000) $(20,796,000) $(2,380,000)
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Total Revenues
Contract Manufacturing Revenue

Year Ended April 30, 20062009 Compared to the Year Ended April 30, 2005: 2008:

The decreaseincrease in revenuescontract manufacturing revenue of $1,766,000$7,066,000 during the year ended April 30, 20062009 compared to the prior year was due to a decrease in contract manufacturing revenue of $1,679,000 combined with a decrease in license revenue of $87,000. The decrease in contract manufacturing revenue was primarily due to increases in both manufacturing and process development services provided by Avid to unrelated entities on a decreasefee-for-service basis including an increase in the number of completed manufacturing runs associated with unrelated entitiesand the mix of completed manufacturing runs utilizing our larger capacity bioreactors compared to the prior year during which time we significantly increased our utilization of our manufacturing facility to manufacture clinical grade materials to support Peregrine’s three active clinical trials and other products under development.year.

We expect to continue to generate contract manufacturing revenue during fiscal year 20072010 based on the anticipated completion of in-process customer related projects and the anticipated demand for Avid’s services under signed contracts and outstanding proposals. Although Avid is presently working on several active projects for unrelated entities and has submitted project proposals with various potential customers, we cannot estimate nor can we determine the likelihood that we will be successful in completing these ongoing projects or convert any of these outstanding project proposals into definitive agreements during the remainder of fiscal year 2007.

Year Ended April 30, 20052008 Compared to the Year Ended April 30, 2004: 2007:

The increase in revenuescontract manufacturing revenue of $1,645,000$2,405,000 during the year ended April 30, 20052008 compared to the prior year was due to an increase in contract manufacturing revenue of the same amount. The fiscal year 2005 increase in contract manufacturing revenue2007 was primarily due to an increase in services provided by Avid to unrelated entities on a fee-for-service basis associated with an increase in process development services including an increase in the number of completed manufacturing runs associated with unrelated entities completed in fiscal year 2005 compared to fiscalthe year 2004.ended April 30, 2007.

Cost ofGovernment Contract ManufacturingRevenue

Year Ended April 30, 20062009 Compared to the Year Ended April 30, 2005: 2008:

The decreaseincrease in costgovernment contract revenue of contract manufacturing of $1,104,000$5,013,000 during the year ended April 30, 20062009 compared to the prior year was primarilyis related to research and development services performed under our government contract with the current year decrease inDefense Threat Reduction Agency (“DTRA”), a division of the Department of Defense.  The contract manufacturing revenue. The current year decrease was offset by the write-off of unusable work-in-process inventory generated for an unrelated entity during the quarter ended Aprilsigned on June 30, 2006 combined with an estimated contract loss provision for the same unrelated entity, which amount2008 and therefore, there was no corresponding revenue in the aggregate totaled $882,000.prior year.

The contract was awarded through the Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense's Defense Threat Reduction Agency (“DTRA”).  The purpose of the contract is to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections.  We expect to continue to generate government contract revenue associated with our contract with the DTRA.  The contract has an initial 24-month base period with up to $22.3 million in funding with $14.3 million having been appropriated through the current federal fiscal year ending September 30, 2009.  The contract also includes up to three one-year option periods and aggregate funding under the contract is potentially worth up to $44.4 million over the entire five year period.  Subject to the progress of the program and budgetary considerations, the contact can be canceled by the DTRA at any time.

Cost of Contract Manufacturing

Year Ended April 30, 20052009 Compared to the Year Ended April 30, 2004: 2008:

The increase in cost of contract manufacturing of $2,189,000$4,260,000 during the year ended April 30, 20052009 compared to fiscalthe prior year 2004 was primarily duedirectly related to the fiscalcurrent year 2005 increase in contract manufacturing revenue.  In addition, the cost of contract manufacturing as a percentage of contract manufacturing revenue improved from 81% in fiscal year 2008 to 70% in fiscal year 2009, which was primarily due to an increase was further supplemented byin contract manufacturing revenue combined with improved efficiencies in costs associated with contract manufacturing services and the write-offmix of unusable work-in-process inventory generatedcompleted manufacturing runs from the utilization of our larger capacity bioreactors.  We expect to continue to incur contract manufacturing costs during fiscal year 2010 based on the quarter ended April 30, 2005 in the amountanticipated completion of $605,000.customer projects under our current contract manufacturing agreements.
 
3143
Research and Development Expenses

Year Ended April 30, 20062008 Compared to the Year Ended April 30, 2005: 2007:

The increase in cost of contract manufacturing of $1,508,000 during the year ended April 30, 2008 compared to fiscal year 2007 was directly related to the fiscal year 2008 increase in contract manufacturing revenue.  In addition, the cost of contract manufacturing as a percentage of contract manufacturing revenue improved from 94% in fiscal year 2007 to 81% in fiscal year 2008, which was primarily due to an increase in contract manufacturing revenue combined with improved efficiencies in costs associated with manufacturing runs.

Research and Development Expenses

Year Ended April 30, 2009 Compared to the Year Ended April 30, 2008:

The increase in research and development (“R&D”) expenses of $1,251,000$145,000 during the year ended April 30, 20062009 compared to the prior year was primarily due to a net increase in expensesthe following changes associated with each of our following platform technologies under development:

o
Anti-Phosphatidylserine (“Anti-PS”) Immunotherapeutics (bavituximab) - During fiscal year 2006, Anti-PS Immunotherapeutics program expenses increased $3,202,000 from $5,069,000 in fiscal year 2005 to $8,271,000 in fiscal year 2006. This current year increase in Anti-PS Immunotherapeutics program expenses resulted primarily from the advancement of our first Anti-PS Immunotherapeutic agent, bavituximab (formerly known as Tarvacin). During the current fiscal year, we increased manufacturing, in-house antibody development, and clinical trials expenses of bavituximab as we supported the manufacturing commercial scale-up efforts and clinical trial expenses to support two separate Phase I clinical studies using bavituximab for the treatment of advanced solid cancers and chronic hepatitis C virus infection. The foregoing expenses were supplemented with an increase in technology access fees associated with clinical trial milestones achieved during the current fiscal year in accordance with third party licensing agreements, an increase in sponsored research fees, and an increase in outside animal research studies to support the possible expansion of bavituximab clinical trials in other anti-viral indications. These increases were primarily offset by a decrease in pre-clinical toxicology study expenses incurred in the prior year to support the bavituximab Investigational New Drug (“IND”) applications that were filed in the prior fiscal year combined with a decrease in intellectual property access fees and a decrease in outside antibody development fees related to our humanized antibody in development.

o
Tumor Necrosis Therapy (“TNT”) (Cotara®) - During fiscal year 2006, TNT program expenses decreased $811,000 from $3,183,000 in fiscal year 2005 to $2,372,000 in fiscal year 2006. The decrease in TNT program expenses is primarily due to a decrease in payroll and related expenses and radiolabeling process development expenses incurred in the prior year to support the initiation of the Cotara® dose confirmation and dosimetry clinical trial for the treatment of brain cancer in collaboration with the New Approaches to Brain Tumor Therapy consortium, and to support other development programs associated with our TNT technology platform. These decreases were further supplemented by a decrease in technology access fees incurred in the prior year supporting the production of monoclonal antibodies for Cotara®.

o
Vascular Targeting Agents (“VTAs”) and Anti-Angiogenesis - During fiscal year 2006, VTA and Anti-Angiogenesis pre-clinical program expenses decreased $922,000 from $2,338,000 in fiscal year 2005 to $1,416,000 in fiscal year 2006. The decrease in VTA and Anti-Angiogenesis pre-clinical program expenses is primarily due to a decrease in intellectual property access fees and sponsored research fees as our outside researchers are currently focused on the development of our Anti-PS Immunotherapeutics technology platform.

o
Vasopermeation Enhancements Agents (“VEAs”) -During fiscal year 2006, VEA program expenses decreased $211,000 from $567,000 in fiscal year 2005 to $356,000 in fiscal year 2006. The decrease in VEA program expenses is primarily due to a decrease in sponsored research fees and technology license fees combined with a decrease in antibody development fees regarding expenses incurred in the prior year. In January 2005, we entered into an agreement with Merck KGaA of Darmstadt, Germany, that gave us access to Merck's technology and expertise in protein expression to advance the development of our VEA technology and other platform technologies. We are currently developing a clinical candidate under our VEA technology utilizing Merck’s expertise in protein expression.

32
We expect research and development expenses to increase over the near term primarily under the following ongoing research and development programs:

1.Bavituximab clinical studies for the treatment of solid tumors and chronic hepatitis C virus infection and the possible expansion of clinical trials into other anti-viral indications;
2.Cotara® clinical study for the treatment of brain cancer in collaboration with New Approaches to Brain Tumor Therapy (“NABTT”), a brain tumor treatment consortium;
3.Anti-PS Immunotherapeutics research and development program;
4.2C3 (anti-angiogenesis antibody) research and development program;
5.Vascular Targeting Agent research and development program; and
6.Vasopermeation Enhancement Agent research and development program.

Due to the number of ongoing research programs, if we fail to obtain additional funding during fiscal year 2007, we may be forced to scale back our product development efforts, or our operations, in a manner that will ensure we can pay our obligations as they come due in the ordinary course of business beyond fiscal year 2007.

Year Ended April 30, 2005 Compared to the Year Ended April 30, 2004:

The increase in research and development expenses of $1,491,000 during the year ended April 30, 2005 compared to the prior year was primarily due to a net increase in expenses associated with our following platform technologies under development:
  
R&D Expenses –
Fiscal Year Ended April 30,
 
  2009  2008  $ Change 
Technology Platform:         
Anti-PS (bavituximab) $13,779,000  $11,371,000  $2,408,000 
TNT (Cotara®)  4,351,000   3,942,000   409,000 
VTA and Anti-Angiogenesis Agents  262,000   2,350,000   (2,088,000)
VEA  32,000   616,000   (584,000)
Total R&D Expenses $18,424,000  $18,279,000  $145,000 

 o
Anti-Phosphatidylserine (“Anti-PS”)Program (bavituximab) ("Anti-PS") Immunotherapeutics(bavituximab) - During fiscal year 2005, Anti-PS Immunotherapeutics (bavituximab) program expenses increased $1,992,000 to $5,069,000 compared to $3,077,000 in fiscal year 2004.– The increase in Anti-PS Immunotherapeutics (bavituximab) program expenses of $1,992,000 was$2,408,000 during the year ended April 30, 2009 compared to the prior year is primarily due to increasesan increase in payroll and related expenses, various clinical trial start-up expenses, and allocated manufacturing expenses to support two separate Investigational New Drug (“IND”) applications that were filed with the U.S. Food & Drug Administration (“FDA”) during fiscal year 2005advancement of four clinical trials using bavituximab our lead Anti-PS Immunotherapeutics product, for the treatment of solid cancer tumors and chronic hepatitis C virus infection,one clinical trial for the treatment of HCV patients co-infected with HIV.  Patient enrollment for all three of our Phase II studies using bavituximab in additioncombination with chemotherapy advanced to supporting the related bavituximabsecond stage of our two-stage Phase I clinical studies associated with these IND’s. In addition, intellectual property access fees increasedII study designs during fiscal year 2005 as we expanded our rights under the2009.  The increase in Anti-PS Immunotherapeutics platform. These increases were offset by a decreaseprogram expenses was further supplemented with an increase in antibody development and access feesR&D expenses directly associated with increased efforts to advance the timingdevelopment of various payments duebavituximab and a fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections under our licensing agreementsfederal contract with the U.S. Department of Defense’s Defense Threat Reduction Agency ("DTRA"), which was awarded to support bavituximab and other related antibodies under development.us on June 30, 2008.

 o
TNTTumor Necrosis Therapy (“TNT”) (Cotara®) - During fiscal year 2005, TNT (Cotara®) program expenses increased $833,000 to $3,183,000 compared to $2,350,000 in fiscal year 2004. – The increase in TNT (Cotara®) program expenses of $833,000$409,000 during the year ended April 30, 2009 compared to the prior year is primarily due to an increaseincreases in manufacturing expenses,clinical trial and payroll and related expenses, and radiolabeling process expenses to support the planned initiationcontinued advancement of theour two ongoing Cotara® dose confirmation and dosimetry clinical studytrials for the treatment of brain cancer in collaboration with the New Approaches to Brain Tumor Therapy consortium, and to support the increase in research and development programs associated with our TNT technology platform. These increases were further supplemented by an increase in technology access fees, which was primarily due to an up-front license fee to obtain certain worldwide non-exclusive rights used in the manufacturing process for the Cotara® antibody.
33
o
VEA - During fiscal year 2005, VEA program expenses decreased $624,000 to $567,000 compared to $1,191,000 in fiscal year 2004. The decrease in VEA program expenses of $624,000 is primarily due to a decrease in sponsored research fees paid to University of Southern California and stock-based compensation expense associated with the amortization of the fair value of options granted to non-employee consultants performing research and development activities that were fully amortized in fiscal year 2003. These decreases were further supplemented by a decrease in allocated manufacturing expenses as we increased our efforts associated with the manufacturing of bavituximab and Cotara® during fiscal year 2005 and a decrease in technology access fees. In January 2005, we entered into an agreement with Merck KGaA of Darmstadt, Germany, that will provide us access to Merck’s technology and expertise in protein expression to advance the development of our VEA technology.cancer.

 o
VTAVascular Targeting Agents (“VTAs”) and Anti-Angiogenesis Agents - During fiscal year 2005, VTA and Anti-angiogenesis program expenses decreased $481,000 to $2,338,000 compared to $2,819,000 in fiscal year 2004.– The decrease in VTA and Anti-Angiogenesis Agents program expenses of $481,000$2,088,000 during the year ended April 30, 2009 compared to the prior year is primarily due to our efforts to significantly curtail our development expenses associated with this program while focusing our efforts on seeking partners to further advance these technologies.
44

o
Vasopermeation Enhancements Agents (“VEAs”) – The decrease in VEA program expenses of $584,000 during the year ended April 30, 2009 compared to the prior year is primarily due to our efforts to significantly curtail our development expenses associated with this program while focusing our efforts on seeking partners to further advance this technology.  During fiscal year 2009, our rights to the VEA technology expired in accordance with our license agreement.

Based on our current projections, which includes estimated clinical trial enrollment rates that are always uncertain, we expect research and development expenses in fiscal year 2010 to increase in comparison to fiscal year 2009 as we expect to continue the advancement of our bavituximab and Cotara® clinical programs and the development of bavituximab as a potential broad-spectrum treatment for viral hemorrhagic fever infections under our federal contract with the DTRA.  During fiscal year 2010, we expect to direct the majority of our research and development expenses towards our Anti-PS and TNT technology platforms.

Year Ended April 30, 2008 Compared to the Year Ended April 30, 2007:

The increase in research and development (“R&D”) expenses of $2,403,000 during the year ended April 30, 2008 compared to the prior year was primarily due to an increase in expenses associated with each of our following platform technologies under development:

  
R&D Expenses –
Fiscal Year Ended April 30,
 
  2008  2007  $ Change 
Technology Platform:         
Anti-PS (bavituximab) $11,371,000  $9,324,000  $2,047,000 
TNT (Cotara®)  3,942,000   3,898,000   44,000 
VTA and Anti-Angiogenesis Agents  2,350,000   2,037,000   313,000 
VEA  616,000   617,000   (1,000)
Total R&D Expenses $18,279,000  $15,876,000  $2,403,000 

o
Anti-Phosphatidylserine (“Anti-PS”)Program (bavituximab) – The increase in Anti-PS program expenses of $2,047,000 during the year ended April 30, 2008 compared to fiscal year 2007 is primarily due to increases in clinical trial and manufacturing expenses to support the advancement of four clinical trials using bavituximab for the treatment of solid tumors and one clinical trial for the treatment of HCV patients co-infected with HIV.  During fiscal year 2008, we submitted two separate Phase II clinical protocols, one to treat patients with non-small cell lung cancer (“NSCLC”) and one to treat patients with breast cancer, both of which received initial protocol approval in January 2008.  In addition, we initiated and completed patient enrollment in the first part of our two-stage Phase II study and treated 15 patients with breast cancer using our product bavituximab in combination with chemotherapy.  These expenses were further supplemented by increases in pre-clinical development expenses to support the possible expansion of bavituximab to treat other viral infections.  The foregoing increases in Anti-PS program expenses were offset by a decrease in intellectual property access fees, antibody development feesnon-cash stock-based compensation expense associated with shares of common stock earned by employees during fiscal year 2007 under a stock bonus plan, which expired in fiscal year 2007.
45

o
Tumor Necrosis Therapy (“TNT”) (Cotara®) – TNT program expenses remained in line with fiscal year 2007 and manufacturing expenses, offset with an increase in payroll and related feesincreased slightly by $44,000 as we continued our efforts to support the advancement of our increase in active VTA and Anti-Angiogenesis pre-clinical research programs.two ongoing Cotara® clinical trials for the treatment of brain cancer.

 o
Other research programsVascular Targeting Agents (“VTAs”) and Anti-Angiogenesis Agents - During fiscal year 2005, other research program expenses decreased $229,000 to $7,000 compared to $236,000– The increase in fiscal year 2004. The decrease in other researchVTA and Anti-Angiogenesis Agents program expenses of $229,000$313,000 during the year ended April 30, 2008 compared to fiscal year 2007 is primarily due to allocatedincreases in manufacturing expenses incurredas we developed a manufacturing process at a 1,000 liter scale for our anti-angiogenesis product.  These increases in themanufacturing expense were offset by decreases in pre-clinical program expenses associated with our VTA program.  Although VTA and Anti-Angiogenesis program expenses increased overall compared to fiscal year 20032007, we have significantly curtailed these research efforts and are currently seeking partners to manufacture LYM materials for research purposes only.further advance these technologies.

The following represents the research and development expenses (“R&D Expenses”) we incurred by each major technology platform under development:

 
 
Technology Platform
 
R&D Expenses-
Year Ended
April 30, 2004
 
R&D Expenses-
Year Ended
April 30, 2005
 
R&D Expenses-
Year Ended
April 30, 2006
 
R&D Expenses-
May 1, 1998 to
April 30, 2006
 
Anti-PS Immunotherapeutics (bavituximab) $3,077,000 $5,069,000 $8,271,000 $16,417,000 
TNT (Cotara®)  2,350,000  3,183,000  2,372,000  31,188,000 
VTA and Anti-Angiogenesis  2,819,000  2,338,000  1,416,000  11,907,000 
VEA  1,191,000  567,000  356,000  5,724,000 
Other research programs  236,000  7,000  -  13,441,000 
Total R&D Expenses $9,673,000 $11,164,000 $12,415,000 $78,677,000 

From inception to April 1998, we have expensed $20,898,000 on research and development of our product candidates, with the costs primarily being closely split between TNT and prior developed technologies. In addition to the above costs, we have expensed an aggregate of $32,004,000 for the acquisition of our TNT and VTA technologies, which were acquired during fiscal years 1995 and 1997, respectively.
o
Vasopermeation Enhancements Agents (“VEAs”) – VEA program expenses remained in line with fiscal year 2007 and decreased slightly by $1,000 as we have initiated efforts to significantly curtail our development expenses associated with this program and are focusing our efforts on seeking partners to further advance this technology.

Looking beyond the next twelve months, it is extremely difficult for us to reasonably estimate all future research and development costs associated with each of our technologies due to the number of unknowns and uncertainties associated with pre-clinical and clinical trial development.  These unknown variables and uncertainties include, but are not limited to:

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·the uncertainty of our capital resources to fund research, development and clinical studies beyond fiscal year 2007;
●
·the uncertainty of future costs associated with our pre-clinical candidates, including Vascular Targeting Agents, Anti-Angiogenesis Agents, and Vasopermeation Enhancement Agents, which costs are dependent on the success of pre-clinical development. We are uncertain whether or not these product candidates will be successful and we are uncertain whether or not we will incur any additional costs beyond pre-clinical development;
·the uncertainty of future clinical trial results;
·
●
the uncertainty of the ultimate number of patients to be treated in any current or future clinical trial;
·
●
the uncertainty of the U.S. Food and Drug Administration allowing our studies to move forward from Phase I clinical studies to Phase II and Phase III clinical studies;
·
●
the uncertainty of the rate at which patients are enrolled into any current or future study.  Any delays in clinical trials could significantly increase the cost of the study and would extend the estimated completion dates;
·
●
the uncertainty of terms related to potential future partnering or licensing arrangements; and
·
●
the uncertainty of protocol changes and modifications in the design of our clinical trial studies, which may increase or decrease our future costs.costs; and
●
the uncertainty of our ability to raise additional capital to support our future research and development efforts beyond fiscal year 2010.

We or our potential partners will need to do additional development and clinical testing prior to seeking any regulatory approval for commercialization of our product candidates as all of our products are in discovery, pre-clinical or clinical development.  Testing, manufacturing, commercialization, advertising, promotion, exporting, and marketing, among other things, of our proposed products are subject to extensive regulation by governmental authorities in the United States and other countries.  The testing and approval process requires substantial time, effort, and financial resources, and we cannot guarantee that any approval will be granted on a timely basis, if at all.  Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in conducting advanced human clinical trials, even after obtaining promising results in earlier trials.  Furthermore, the United States Food and Drug Administration may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.  Even if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed.  Accordingly, we or our potential partners may experience difficulties and delays in obtaining necessary governmental clearances and approvals to market our products, and we or our potential partners may not be able to obtain all necessary governmental clearances and approvals to market our products.

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Selling, General and Administrative Expenses

Year Ended April 30, 20062009 Compared to the Year Ended April 30, 2005: 2008:

Selling, general and administrative expenses consist primarily of payroll and related expenses, director fees, legal and accounting fees, stock-based compensation expense, investor and public relation fees, insurance, and other expenses relating to ourthe general management, administration, and business development activities of the Company.

The increaseslight decline in selling, general and administrative expenses of $1,466,000$171,000 during the year ended April 30, 20062009 compared to the prior year is primarily due to our efforts to curtail discretionary expenses.    The decrease in discretionary expenses were offset by an increase in payroll and related expenses of $517,000 from $2,357,000 in fiscal year 2005 to $2,874,000 in fiscal year 2006 primarily due to an increase in headcount across most corporate functions to support our increased operations, which were offset by a decrease in consultinglegal fees associated with the prior year business development efforts of the Company. During fiscal year 2006, we hired a Vice President of Business Development whose responsibilities include those previously performedlawsuit described in this Annual Report on Form 10-K under Part I, Item 3, “Legal Proceedings”, offset by outside consultants. The current year increase is also due to an increase in (i) stock based compensation expense of $230,000 from $110,000 in fiscal year 2005 to $340,000 in fiscal year 2006 associated with the amortization of the fair value of options and warrants provided to non-employee consultants for business development and general corporate services, (ii) investor and public relation fees of $167,000 from $248,000 in fiscal year 2005 to $415,000 in fiscal year 2006 primarily due to services provided by public relation firms assisting the Company with its investor and public relations activities, whose services were not utilized in the prior year, (iii) travel and related expenses of $141,000 from $243,000 in fiscal year 2005 to $384,000 in fiscal year 2006 primarily associated with our participation in several investor conferences and non-deal marketing road shows during the current year combined with an increase in travel associated with business development and other corporate activities, and (iv) board of director fees of $137,000 from $276,000 in fiscal year 2005 to $413,000 in fiscal year 2006 primarily due to an increase in the number of non-employee directors combined with an increase in the number of Company Board meetings. These increases were supplemented with increasesoverall decrease in other general corporate matters primarily associated with an incremental increase in corporate legal fees and facility expenses combined with fees associated with the adoption of the Company’s Stockholder Rights Agreement in March 2006.matters.

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Year Ended April 30, 20052008 Compared to the Year Ended April 30, 2004: 2007:

The increase in selling, general and administrative expenses of $873,000$704,000 during the year ended April 30, 20052008 compared to fiscal year 20042007 is primarily due to an increaseincreases in (i) payroll and related expenses, of $173,000 from $2,184,000corporate legal fees, and travel and related expenses.  The increase in fiscal year 2004 to $2,357,000 in fiscal year 2005payroll and related expenses was  primarily due to an increase in headcount across most corporate functions to support the increased operations primarily pertaining to Avid and the expansion of the our pre-clinical and clinical development plans, which were offset by a decrease in consulting fees associated with the prior year business development efforts of Avid, (ii) audit and accounting fees of $253,000 from $164,000 in fiscal year 2004 to $417,000 in fiscal year 2005 primarily related to the implementation of Section 404 of the Sarbanes-Oxley Act of 2002, (iii) legal fees of $345,000 from $196,000 in fiscal year 2004 to $541,000 in fiscal year 2005 primarily pertaining to litigation and disputes that were settled in fiscal year 2006 and other patent and corporate matters, (iv) public relation fees of $141,000 from $107,000 in fiscal year 2004 to $248,000 in fiscal year 2005 primarily due to the addition of a new public relations firm assisting the Company with its public relations activities, and (v) facility and related expenses of $114,000 from $204,000 in fiscal year 2004 to $318,000 in fiscal year 2005 primarily related to an increased allocation of lease expense resulting from the termination of a sub-lease arrangement combined with an increase in other facilityconsulting fees primarily associated with the expansion of our business development activities.  The increase in corporate legal fees compared to fiscal year 2007 was primarily related to a recently settled lawsuit described in this Annual Report on Form 10-K under Part I, Item 3, “Legal Proceedings”.  In addition, travel and related expenses increased compared to fiscal year 2007 primarily due to increased business development efforts in the U.S., Europe and Asia and increased participation in corporate and investor relation activities.  These increased costs were offset with a decrease in non-cash stock-based compensation expense associated with the amortization of the fair value of options granted to employees in accordance with the adoption of SFAS No. 123R and non-cash expenses associated with the increase in employee headcount in the general and administrative departments. These increases were offsetshares of common stock earned by an $188,000 decrease in director fees from $464,000employees during fiscal year 2007 under a stock bonus plan, which expired in fiscal year 2004 to $276,000 in fiscal year 2005 primarily due to a one-time aggregate director fee of $180,000 incurred in the prior year associated with our director’s increased oversight responsibilities mandated by the Sarbanes-Oxley Act of 2002. Prior to fiscal year 2004, directors did not receive any cash compensation other than the reimbursement of expenses.2007.
Interest and Other Income

Recovery of Note Receivable

Year Ended April 30, 20062009 Compared to the Year Ended April 30, 20052008

The increasedecrease in recoveryinterest and other income of note receivable of $1,229,000$789,000 during the year ended April 30, 20062009 compared to the prior year is due the recovery of a previously fully reserved note receivable in the amount of $1,229,000 during the current year as further discussed in Note 3, "Note Receivable" to the consolidated financial statements.

Interest and Other Income

Year Ended April 30, 2006 Compared to the Year Ended April 30, 2005

The increase in interest and other income of $581,000 during the year ended April 30, 2006 compared to the prior year isprimarily due to a $212,000 increasean $800,000 decrease in interest income as a result of a higherlower average cash balance on hand and highercombined with lower prevailing interest rates during the current year compared to the prior year combined with a $369,000 increase in other income, which is primarily due to $363,000 of other income recorded during the quarter ended April 30, 2006 in accordance with a March 2006 global legal settlement.
36
Interest and Other Expenseyear.

Year Ended April 30, 20062008 Compared to the Year Ended April 30, 2005: 2007

The decrease in interest and other income of $171,000 during the year ended April 30, 2008 compared to fiscal year 2007 is due to a $129,000 decrease in other income primarily associated with the sale of a trademark name in fiscal year 2007 combined with a $42,000 decrease in interest income primarily resulting from lower prevailing interest rates.
47

Interest and Other Expense

Year Ended April 30, 2009 Compared to the Year Ended April 30, 2008

The increase in interest and other expense of $40,000$383,000 during the year ended April 30, 20062009 compared to the prior year is primarily due to an increase in long-term debt as we financed additional laboratory equipment during the current fiscal year.

Year Ended April 30, 2005 Compared to the Year Ended April 30, 2004:

The decrease in interest and other expense of $1,827,000 during the year ended April 30, 2005 compared to fiscal year 2004 is primarily due to a decrease$199,000 increase in interest expense associated with the loan and security agreement we entered into during December 2008 combined with a $184,000 increase in non-cash interest expense of $1,811,000 associated withresulting from the amortization of the convertible debtloan and security agreement discount associated with the fair value of detachable warrants and related debt issuance costs in fiscal year 2004. We did not incur any interest expense associated with convertible debt discount and debt issuance costs during fiscal year 2005 as all outstanding convertible debt was converted into common stock and associated discount and issuance costs were fully amortized in fiscal year 2004.costs.

Critical Accounting Policies

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.  We evaluate our estimates and judgments on an ongoing basis.  We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances.  Our experience and assumptions 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.  We believe the following accounting policies are the most critical to us, in that they are important to the portrayal of our financial statements and they require our most difficult, subjective or complex judgments in the preparation of our consolidated financial statements:

Revenue Recognition

We currently derive revenue from contract manufacturing services provided by Avid, from licensing agreements associated with Peregrine’s technologies under development, and from services performed under a government contract awarded to Peregrine through the Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense’s Defense Threat Reduction Agency (“DTRA”) that was signed on June 30, 2008.

We recognize revenuesrevenue pursuant to the SEC’s Staff Accounting Bulletin No. 104 (��(“SAB No. 104”), Revenue Recognition.  In accordance with SAB No. 104, revenue is generally realized or realizable and earned when (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) collectibility is reasonably assured.

In addition, weWe also comply with Financial Accounting Standards Board’s Emerging Issues Task Force No. 00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables.  In accordance with EITF 00-21, we recognize revenue for delivered elements only when the delivered element has stand-alone value and we have objective and reliable evidence of fair value for each undelivered element.  If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.

RevenuesIn addition, we also follow the guidance of the Emerging Issues Task Force Issue No. 99-19 (“EITF 99-19”), Reporting Revenue Gross as a Principal versus Net as an Agent.  Pursuant to EITF 99-19, for transactions in which we act as a principal, have discretion to choose suppliers, bear credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with licensing agreements primarily consistthese reimbursements are reflected as a component of nonrefundable up-front license feescost of sales for contract manufacturing services or research and milestones payments. Revenuesdevelopment expense for services provided under licensing agreements are recognized based onour contract with the performance requirements of the agreement. Nonrefundable up-front license fees received under license agreements, whereby continued performance or future obligations are considered inconsequential to the relevant licensed technology, are generally recognized as revenue upon delivery of the technology. Nonrefundable up-front license fees, whereby we have an ongoing involvement or performance obligations, are generally recorded as deferred revenue and generally recognized as revenue over the term of the performance obligation or relevant agreement. Milestone payments are generally recognized as revenue upon completion of the milestone assuming there are no other continuing obligations. Under some license agreements, the obligation period may not be contractually defined. Under these circumstances, we must exercise judgment in estimating the period of time over which certain deliverables will be provided to enable the licensee to practice the license.DTRA.
 
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ContractRevenue associated with contract manufacturing revenuesservices provided by Avid are generally recognized once the service has been providedrendered and/or upon shipment (or passage of title) of the product to the customer.  On occasion, we recognize revenue on a “bill-and-hold” basis.  Under “bill-and-hold” arrangements, revenue is recognized in accordance with the “bill-and-hold” requirements under SAB No. 104 once the product is complete and ready for shipment, title and risk of loss has passed to the customer, management receives a written request from the customer for “bill-and-hold” treatment, the product is segregated from other inventory, and no further performance obligations exist.  Any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated financial statements.  We also record a provision for estimated contract losses, if any, in the period in which they are determined.

In July 2000, the Emerging Issues Task Force (“EITF”) released Issue 99-19 (“EITF 99-19”), Reporting Revenue Gross as a Principal versus Net as an Agent. EITF 99-19 summarized the EITF’s views on whenLicense revenue should be recorded at the gross amount billed to a customer because it has earned revenue from the saleprimarily consists of goods or services, or the net amount retained (the amount billed to the customer less the amountannual license fees paid to a supplier) because it has earned a fee or commission. In addition, the EITF released Issue 00-10 (“EITF 00-10”), Accounting for Shipping and Handling Fees and Costs, and Issue 01-14 (“EITF 01-14”), Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred. EITF 00-10 summarized the EITF’s views on how the seller of goods should classify in the income statement amounts billed to a customer for shipping and handling and the costs associated with shipping and handling. EITF 01-14 summarized the EITF’s views on when the reimbursement of out-of-pocket expenses should be characterizedunder one license agreement.  Annual license fees are recognized as revenue or as a reduction of expenses incurred. Our revenue recognition policies are in compliance with EITF 99-19, EITF 00-10 and EITF 01-14 whereby we record revenue foron the gross amount billed to customers (the cost of raw materials, supplies, and shipping, plus the related handling mark-up fee) and we record the costanniversary date of the amounts billed as cost of sales as we act as a principalagreement in these transactions.accordance with the criteria under SAB No. 104.  We deem service to have been rendered if no continuing obligation exists.

Our contract with the DTRA is a “cost-plus-fixed-fee” contract whereby we recognize government contract revenue in accordance with the revenue recognition criteria noted above and in accordance with Accounting Research Bulletin No. 43, Chapter 11, Government Contracts.  Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, indirect costs, and a fixed fee for our efforts.  Revenue under this “cost-plus-fixed-fee” contract is generally recognized as we perform the underlying research and development activities.  However, progress billings and/or payments associated with services that are billed and/or received in a manner that is not consistent with the timing of when services are performed are classified as deferred government contract revenue in the accompanying consolidated financial statements and are recognized as revenue upon satisfying our revenue recognition criteria.

Share-based Compensation Expense

We currently maintain four equity compensation plans which provide for the granting of options to our employees to purchase shares of our common stock at exercise prices not less than the fair market value of our common stock at the date of grant.  The granting of options are share-based payments and are subject to the fair value recognition provisions of Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”), Share-Based Payment (Revised 2004), which requires the recognition of compensation expense, using a fair value based method, for costs related to all share-based payments including grants of employee stock options.

The fair value of each option grant is estimated using the Black-Scholes option valuation model and are amortized as compensation expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period (typically 2 to 4 years).  Use of a valuation model requires us to make certain estimates and assumptions with respect to selected model inputs.  Expected volatility is based on daily historical volatility of our stock covering the estimated expected term.  The expected term of options reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options.  The risk-free interest rate is based on U.S. Treasury notes with terms within the contractual life of the option at the time of grant.  In addition, SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
If factors change and we employ different assumptions in the application of SFAS No. 123R in future periods, the share-based compensation expense that we record under SFAS No. 123R may differ significantly from what we have recorded in the current period. There are a number of factors that affect the amount of share-based compensation expense, including the number of employee options granted during subsequent fiscal years, the price of our common stock on the date of grant, the volatility of our stock price, the estimate of the expected life of options granted and the risk-free interest rates.
49

Our loss from operations for fiscal years ended April 30, 2009, 2008 and 2007 included share-based compensation expenses of $857,000, $829,000 and $964,000, respectively, associated with grants of employee stock options.

As of April 30, 2009, the total estimated unrecognized compensation cost related to non-vested employee stock options was $1,128,000.  This cost is expected to be recognized over a weighted average period of 2.16 years.

Allowance for Doubtful Accounts.

We continually monitor our allowance for doubtful accounts for all receivables.  A considerable amount of judgment is required in assessing the ultimate realization of these receivables and we estimate an allowance for doubtful accounts based on these factors at that appear reasonable under the circumstances.point in time.  With respect to our trade and other receivables, we determined no allowance for doubtful accounts was necessary based on our analysis as of April 30, 2009.

LiquidityAmounts billed under our contract with Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense’s Defense Threat Reduction Agency (“DTRA”) include reimbursement for provisional rates covering allowable indirect overhead and Capital Resources

general and administrative cost (“Indirect Rates”).  These Indirect Rates are initially estimated based on financial projections and are subject to change based on actual costs incurred during each fiscal year.  In addition, these Indirect Rates are subject to annual audits by the Defense Contract Audit Agency ("DCAA") for cost reimbursable type contracts.  As of April 30, 2006,2009, we recorded an unbilled receivable of $51,000 pertaining to the calculated difference between estimated and actual Indirect Rates for fiscal year 2009.  As of April 30, 2009, we determined it appropriate to record a corresponding allowance for doubtful account in the amount of $51,000 due to the uncertainty of its collectability given that our actual Indirect Rates have not been audited by the DCAA since we signed the contract on June 30, 2008.

Fair Value Measurements

On May 1, 2008, we adopted the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  SFAS No. 157 establishes a three-level hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy defines the three levels of inputs to measure fair value, as follows:

●
Level 1 – 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 value 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.

The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements as we currently do not have any Level 2 or Level 3 financial assets or liabilities.

The carrying amounts of our short-term financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short maturities.  The fair value of our note payable is estimated based on the quoted prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities.
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Liquidity and Capital Resources

At April 30, 2009, we had $17,182,000$10,018,000 in cash and cash equivalents compared to $9,816,000 at April 30, 2005. During June 2006, we received an additional $13,000,000 in net proceeds from the sale of shares of our common stock and we have $26,318,000 in cash and cash equivalents at June 30, 2006. Although we have sufficient cash on hand to meet our current planned obligations through at least fiscal year 2007, our development efforts are highly dependent on our ability to raise additional capital to support our future operations.

equivalents.  We have expended substantial funds on the research, development and clinical trials of our product candidates, and funding the operations of Avid.  As a result, we have incurredhistorically experienced negative cash flows from operations since our inception and we expect to continue to experience negative cash flows from operations for the majority of ourforeseeable future.  Our net losses incurred during the past three fiscal years since inception. Since inception, we have generally financed our operations primarily through the sale of our common stockended April 30, 2009, 2008 and issuance of convertible debt, which has been supplemented with payments received from various licensing collaborations2007 amounted to $16,524,000, $23,176,000, and through the revenues generated by Avid. We expect negative cash flows from operations to continue$20,796,000, respectively.  Unless and until we are able to generate sufficient revenuerevenues from theAvid’s contract manufacturing services provided by Avid and/or from the sale and/or licensing of our products under development.development, we expect such losses to continue for the foreseeable future.

Revenues earned by Avid during fiscal years ended April 30, 2006, 2005 and 2004 amounted to $3,005,000, $4,684,000 and $3,039,000, respectively. We expect that Avid will continue to generate revenues which should partially offset our consolidated cash flows used in operations, although we expect those near term revenues will be insufficient to cover anticipated cash flows used in operations. In addition, revenues from the sale and/or licensing of our products under development are always uncertain. Therefore, our ability to continue our clinical trials and development efforts 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 beyond fiscal year 2007.operations.  As discussed in Note 1 to the consolidated financial statements, there exists substantial doubt regarding our ability to continue as a going concern.

We will need to raise additional capital through one or more methods, including but not limited to, issuing additional equity or debt, in order to support the costs of our research and development programs.

With respect to financing our operations through the issuance of equity, on March 26, 2009, we entered into an At Market Issuance Sales Agreement (“AMI Agreement”) with Wm Smith & Co., pursuant to which we may sell shares of our common stock through Wm Smith & Co., as agent, in registered transactions from our shelf registration statement on Form S-3, File Number 333-139975, for aggregate gross proceeds of up to $7,500,000.  Shares of common stock sold under this arrangement were to be sold at market prices.  As of April 30, 2009, we had sold 1,477,938 shares of common stock under the AMI Agreement for aggregate net proceeds of $550,000.  Subsequent to April 30, 2009, we sold and additional 9,275,859 shares of common stock under the AMI Agreement for aggregate net proceeds of $6,685,000 after deducting commissions of 3% paid to Wm Smith & Co.  As of June 30, 2009, we had raised the aggregate gross proceeds of $7,500,000 as permitted under the AMI Agreement.

With respect to financing our operations through the issuance of debt, on December 9, 2008, we entered into a loan and security agreement pursuant to which we had the ability to borrow up to $10,000,000 (“Loan Agreement”).  On December 19, 2008, we received initial funding of $5,000,000, in which principal and interest are payable over a thirty (30) month period commencing after the initial six month interest only period.  The amount payable under the Loan Agreement is secured by generally all assets of the Company as further explained in Note 5 to the consolidated financial statements.  Under the Loan Agreement, we had an option, which expired June 30, 2009, to borrow a second tranche in the amount of $5,000,000 upon the satisfaction of certain clinical and financial conditions as set forth in the Loan Agreement.  Although we had satisfied the required clinical and financial conditions by June 30, 2009, we determined that exercising the option to borrow the second tranche, and issuing the additional warrants to the Lenders, was not in the best interest of the Company or our stockholders.

In addition to the above, we may also raise additional capital through additional equity offerings or licensing our products or technology platforms or entering into similar collaborative arrangements.  In order to raise additional capital through the issuance of equity, we plan to file a new shelf registration statement on Form S-3 to register up to $50 million in proceeds from the sale of our common stock.  Although we are not required to issue any shares of common stock under this registration statement, we plan to register the underlying shares of common stock as a potential method of raising additional capital to support our drug development efforts. 
3851
We plan
While we will continue to raise additional capital primarily through the registered offerconsider and sale of shares of our common stock from our shelf registration statements on Form S-3 which, as of June 30, 2006, we had an aggregate of approximately 5,893,000 shares available for possible future registered transactions; provided, however, in connection with our recent financing on June 16, 2006, we agreed not to (i) file another shelf registration statement pursuant to Rule 415 of the Securities Act of 1933, as amended, for a period of one hundred eighty days following June 16, 2006, nor (ii) without the prior written consent of the purchaser in such financing, prior to January 2, 2007, enter into any subsequent or further offer or sale of securities at a price or possible price below $2.50 per share. Notwithstanding the availability of our Form S-3, given uncertain market conditions and the volatility of our stock price and trading volume, we may not be able to sell our securities at prices or on terms that are favorable to us, if at all.
In addition to equity financing, we actively explore various other sources of funding, including possible debt financing and leveraging our many assets, including our intellectual property portfolio. Our broad intellectual property portfolio allows us to develop products internally while at the same time we are able to out-license certain areas of the technology, which would not interfere with our internal product development efforts.

Therethese potential opportunities, there can be no assurances that we will be successful in raising sufficient capital on terms acceptable to us, or at all, or that sufficient additional revenues will be generated from Avid or under potential licensing or partnering agreements to complete the research, development, and clinical testing of our product candidates beyondcandidates.  Based on our current projections and assumptions, which include projected revenues under signed contracts with existing customers of Avid, combined with the projected revenues from our government contract, we believe we have sufficient cash on hand combined with amounts expected to be received from Avid customers and from our government contract to meet our obligations as they become due through at least fiscal year 2007.2010.  There are a number of uncertainties associated with our financial projections, including but not limited to, termination of third party or government contracts, technical challenges, or possible reductions in funding under our government contract, which could reduce or delay our future projected cash-inflows.  In addition, under the Loan Agreement, in the event our government contract with the Defense Threat Reduction Agency is terminated or canceled for any reason, including reasons pertaining to budget cuts by the government or reduction in government funding for the program, we would be required to set aside cash and cash equivalents in an amount equal to 80% of the outstanding loan balance in a restricted collateral account non-accessible by us.  In the event our projected cash-inflows are reduced or delayed or if we default on a loan covenant that limits our access to our available cash on hand, we might not have sufficient capital to operate our business through the fiscal year 2010 unless we raise additional capital.  The uncertainties surrounding our future cash inflows have raised substantial doubt regarding our ability to continue as a going concern.

Significant components of the changes in cash flows from operating, investing, and financing activities for the year ended April 30, 20062009 compared to the prior year are as follows:

Cash Used In Operating Activities.  Cash used in operating activities is primarily driven by changes in our net loss.  However, cash used in operating activities generally differs from our reported net loss as a result of non-cash operating expenses or differences in the timing of cash flows as reflected in the changes in operating assets and liabilities.  During the year ended April 30, 2006,2009, cash used in operating activities increased $3,789,000decreased $10,897,000 to $16,957,000$10,030,000 compared to $13,168,000$20,927,000 for the year ended April 30, 2005. The increase2008.  This decrease in cash used in operating activities was primarily relateddue to the timinga decrease of cash flows as reflected$7,125,000 in the changesnet loss reported during fiscal year 2009 after taking into consideration non-cash operating expenses.  This amount was supplemented by a net change in operating assets and payment or reduction of liabilities in the aggregate amount of $1,910,000.$3,772,000.  The amount of the increase was further supplemented by an increase of $1,879,000decrease in net cash used in operating activities after deducting non-cash operating expenses and adjustments toour fiscal year 2009 net loss and before considering the changes in operating assets and liabilities. This increase was primarily due to a decreasecurrent period increases in contract manufacturing revenue combined withand government contract revenue offset by an increase in research and development expenses and selling, general and administrative expenses.the cost of contract manufacturing.
 
3952

The changes in operating activities as a result of non-cash operating expenses or differences in the timing of cash flows as reflected in the changes in operating assets and liabilities are as follows:

 
Year Ended April 30,
  Year Ended April 30, 
 
2006
 
2005
  2009  2008 
Net loss, as reported $(17,061,000)$(15,452,000) $(16,524,000) $(23,176,000)
Less non-cash operating expenses:
Depreciation
Stock-based compensation expense
Stock issued for research services
Stock bonus plan compensation expense
Gain on sale of property
Recovery of note receivable
  
415,000
499,000
1,048,000
44,000
(6,000
(1,229,000
)
)
 
325,000
231,000
485,000
-
-
-
 
Less non-cash operating expenses:        
Depreciation and amortization
  503,000   486,000 
Stock-based compensation and common stock issued under stock bonus plan
  866,000   850,000 
Amortization of expenses paid in shares of common stock
  255,000   - 
Amortization of discount on notes payable and debt issuance costs
  185,000   - 
Net cash used in operating activities before changes in
operating assets and liabilities
 $(16,290,000)
$
(14,411,000
)
 $(14,715,000) $(21,840,000)
Net change in operating assets and liabilities $(667,000)$1,243,000  $4,685,000  $913,000 
Net cash used in operating activities $(16,957,000)$(13,168,000) $(10,030,000) $(20,927,000)

Cash Provided By (Used In)Used In Investing Activities. During  Net cash used in investing activities decreased $440,000 to $140,000 for the year ended April 30, 2006, net cash provided by investing activities amounted2009 compared to $440,000 primarily due to the recovery of a previously fully reserved note receivable in the amount of $1,229,000 offset by the purchase of property in the amount of $618,000 to support the expanded research efforts of Peregrine and the expanded services of Avid combined with an increase in other assets of $171,000 related to security deposits paid to GE Capital Corporation on notes payable. The net cash used in investing activities of $580,000 during the year ended April 20, 2008.  This decrease was primarily due to a decrease in cash outflows associated with property acquisitions of $565,000 offset by the receipt of $150,000 in security deposits, net of amounts payable to GE Capital Corporation during fiscal year 2008.

Cash Provided By Financing Activities. Net cash provided by financing activities decreased $15,535,000 to $5,058,000 for the year ended April 30, 2005 was primarily due2009 compared to the purchase of laboratory equipment in the amount $1,090,000 to support our research efforts and the expanded services of Avid, combined with an increase in other assets of $101,000 primarily related to security deposits paid to GE Capital Corporation on notes payable.

Cash Provided By Financing Activities.Netnet cash provided by financing activities increased $14,592,000 to $23,883,000of $20,593,000 for the year ended April 30, 2006 compared to net cash provided of $9,291,000 for the same prior year period.2008.  Cash provided by financing activities during fiscal year 20062009 was primarily due to net proceeds of $4,531,000 received from notes payable under a loan and security agreement we entered into on December 9, 2008, net of debt issuance costs in the amount of $469,000.  In addition, during fiscal year 2009, we received proceeds under an At Market Issuance Sales Agreement we entered into on March 26, 2009 whereby we sold 1,477,938 shares of our common stock for proceeds of $550,000, net of commissions and issuance costs of $58,000.  Cash provided by financing activities during fiscal year 2008 was primarily due to proceeds received under five separatea security purchase agreementsagreement whereby we sold and issued a total of 24,707,21730,000,000 shares of our common stock in exchange for aggregate net proceeds of $22,894,000,$20,859,000, which was supplemented with net proceeds of $733,000$73,000 from thisthe exercise of stock options and warrants and $566,000 received from the financing of laboratory equipment with GE Capital Corporation. Cash provided by financing activities during fiscal year 2005 was primarily due to proceeds received from the sale of stock under two separate security purchase agreements in the aggregate amount of $6,486,000 supplemented with net proceeds of $2,137,000 from this exercise of stock options and warrants and $733,000 received from the financing of laboratory equipment with GE Capital Corporation.warrants.
53

Contractual Obligations

Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities for which we cannot reasonably predict future payments.  The following chart represents our contractual obligations as of April 30, 2006,2009, aggregated by type:

40
  Payments Due by Period 
  Total  < 1 year  1-3 years  4-5 years  After 5 years 
                
Operating leases, net (1) $7,451,000  $849,000  $2,520,000  $1,710,000  $2,372,000 
Note payable obligation (2)  5,888,000   2,199,000   3,689,000   -   - 
Capital lease obligation (3)  22,000   18,000   4,000   -   - 
Other long-term liabilities - minimum license obligations (4)  -   -   -   -   - 
Total contractual obligations $13,361,000  $3,066,000  $6,213,000  $1,710,000  $2,372,000 

  
Payments Due by Period (in thousands)
 
  
Total
 
< 1 year
 
1-3 years
 
4-5 years
 
After 5 years
 
Operating leases, net (1) $9,749 $804 $2,404 $1,627 $4,914 
Notes payable (2)  996  475  521  -  - 
Capital lease obligation (3)  70  19  51  -  - 
Other long-term liabilities - minimum license obligations (4)  100  100  -  -  - 
Total contractual obligations $10,915 $1,398 $2,976 $1,627 $4,914 
______________
 (1)Represents our (i) facility operating lease in Tustin, California under a non-cancelable lease agreement, (ii) facility operating lease in Houston, Texas, which has an originala three year lease term and expires in February 2011, and (iii) various office equipment leases, which generally have a fivethree year lease term.terms.
 (2)RepresentsAmounts represent anticipated principal and interest payments on our note payable agreements entered into with General Electric Capital Corporation during fiscal years 2006security and 2005loan agreement.  Under the security and loan agreement, the outstanding principal balance each month will bear interest at a monthly variable rate equal to finance laboratory equipment.the then current thirty (30) day LIBOR rate (set at a floor of 3%) plus 9%.  Anticipated interest payments were calculated using an interest rate of 12% (representing a LIBOR floor rate of 3% plus 9%).  As of April 30, 2009. the thirty (30) day LIBOR rate was less than the minimum 3% floor.
 (3)Represents our capital lease agreementagreements to finance certain office equipment.  Amounts include principal and interest.
 (4)We
Represents licensing agreements we periodically enter into licensing agreements with third parties to obtain exclusive or non-exclusive licenses for certain technologies.  The terms of certain of these agreements require us to pay future milestone payments based on product development success.  We do not anticipate we may makemaking any milestone payments inunder any of our licensing agreements for at least the amount of $100,000 duringnext fiscal year. In addition, milestone payments beyond fiscal year 2007 under in-licensing agreements pertaining to our bavituximab clinical trials. Other milestones fees under these and other licensing agreements2010 cannot be predicted due to the uncertainty of future clinical trial results and development milestones and therefore, cannot be reasonably predicted or estimated at the present time.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies – Recently Adopted Accounting Standards and New Accounting Standards Not Yet Adopted, in the accompanying Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on our consolidated financial statements.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”), Share-Based Payment (Revised 2004), which requires companies to recognize in the financial statements the fair value of all employee share-based payments, including grants of employee stock options as well as compensatory employee stock purchase plans, for interim periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission adopted a rule amendment that delayed the compliance dates of SFAS No. 123R such that we are now allowed to adopt the new standard no later than May 1, 2006. SFAS No. 123R eliminates the ability to account for share-based compensation using APB No. 25, and the pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition.

We adopted SFAS No. 123R on May 1, 2006, using the “modified-prospective method,” in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. We apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which will then be amortized on a straight-line basis. Although we have not yet determined the final impact of SFAS No. 123R, we believe the non-cash compensation expense for fiscal year 2007 related to the adoption of SFAS No. 123R may be up to approximately $1,000,000 based on actual shares granted and unvested as of April 30, 2006. However, the actual expense recorded during fiscal year 2007 as a result of the adoption of SFAS No. 123R may differ materially from our estimate as a result of changes in a number of factors that affect the amount of non-cash compensation expense, including the number of options granted by our Board of Directors during fiscal year 2007, the price of our common stock on the date of grant, the volatility of our stock price, the estimate of the expected life of options granted and the risk free interest rates as measured at the grant date.

41
ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Changes in United States interest rates would affect the interest earned on our cash and cash equivalents. equivalents and interest expense on our outstanding notes payable, however, they would not have an affect on our capital leases, which have fixed interest rates and terms.

Based on our overall cash and cash equivalents interest rate exposure at April 30, 2006,2009, a near-term change in interest rates, based on historical movements, would not materially affect the fair valuehave a material adverse effect on our financial position or results of interest rate sensitive instruments.operations.

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAAt April 30, 2009, we had an outstanding notes payable balance of $5,000,000 under a loan and security agreement, which bear interest at a monthly variable rate equal to the then current thirty (30) day LIBOR rate (set at a floor of 3%) plus 9%, which may expose us to market risk due to changes in interest rates.  However, based on current LIBOR interest rates, which are currently under the minimum floor set at 3% under our loan and security agreement and based on historical movements in LIBOR rates, we believe a near-term change in interest rates would not have a material adverse effect on our financial position or results of operations.

54

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements included in this Report at pages F-1 through F-33.F-32.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable.

ITEM 9A.      CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.  The term “disclosure controls and procedures” (defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of April 30, 2006.2009.  Based on this evaluation, our president and chief executive officeofficer and our chief financial officer concluded that our disclosure controls and procedures were effective as of April 30, 20062009 to ensure the timely disclosure of required information in our Securities and Exchange Commission filings.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  In addition, the design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all future events, no matter how remote.  Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.

(b)  Management’s Report on Internal Control Over Financial Reporting.  Management’s Report on Internal Control Over Financial Reporting which appearsand the report of our independent registered public accounting firm on the following page, is incorporated herein by this reference. Our management’s assessment of the effectiveness of our internal control over financial reporting, as of April 30, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which appearsappear on page 44 of this Annual Report, and which isthe following pages, are incorporated herein by this reference.

(c) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended April 30, 20062009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.      OTHER INFORMATION
ITEM 9B.OTHER INFORMATION

None.

4255

PEREGRINE PHARMACEUTICALS, INC.
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

 
The management of the Company is responsible for establishing and maintaining effective internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting.  The Company’s internal control over financial reporting is a process designed, as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
 
The Company’s internal control over financial reporting is supported by written policies and procedures that:
 
 ·
●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 ·
●
provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and

 ·
●
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In connection with the preparation of the Company’s annual consolidated financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”).  Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of the Company’s internal control over financial reporting.
 
Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of April 30, 2006.2009.
 
Ernst & Young LLP, the independent registered public accounting firm that audited the company’s consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on management’s assessment ofthe Company’s internal control over financial reporting which appears on the following page.
 
         
By: 
/s/ StevenSTEVEN W. King KING
 By: /s/ PaulPAUL J. LytleLYTLE  
  Steven W. King,   Paul J. Lytle  
  President and& Chief Executive Officer, and Director   Chief Financial Officer  
 
July 7, 200610, 2009
 
4356
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
The Board of Directors and Stockholders of Peregrine Pharmaceuticals, Inc.

We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting included in Item 9A, that Peregrine Pharmaceuticals, Inc.’s (the “Company”) maintained effective internal control over financial reporting as of April 30, 2006,2009, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Peregrine Pharmaceuticals, Inc.'sThe Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.reporting included in the accompanying Peregrine Pharmaceuticals, Inc.’s Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Peregrine Pharmaceuticals, Inc. maintained effective internal control over financial reporting as of April 30, 2006 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Peregrine Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of April 30, 2006,2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Peregrine Pharmaceuticals, Inc. as of April 30, 20062009 and 2005,2008, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended April 30, 20062009 and our report dated July 12, 200610, 2009 expressed an unqualified opinion including an explanatory paragraph with respect to the Company's ability to continue as a going concern thereon.



/s/ Ernst & Young LLP


Orange County, California
July 12, 200610, 2009

4457
PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item, including, without limitation, disclosureItem regarding our Codedirectors, executive officers and committees of Ethics,our board of directors is incorporated by reference to the information set forth under the caption “Directorscaptions “Election of Directors” and Executive Officers”“Executive Compensation and Related Matters” in our 20062009 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended April 30, 2006.
ITEM 11.        EXECUTIVE COMPENSATION
2009 (the “2009 Definitive Proxy Statement”).

Information required by this Item regarding Section 16(a) reporting compliance is incorporated by reference to the information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2009 Proxy Statement.

Information required by this Item regarding our code of ethics is incorporated by reference to the information set forth under the caption “Corporate Governance” in Part I of this Annual Report on Form 10-K.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this itemItem is incorporated by reference to the information set forth under the caption “Executive Compensation”Compensation and Related Matters” in our 20062009 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended April 30, 2006.2009.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this itemItem is incorporated by reference to the information set forth under the caption “Common Stock“Security Ownership of Directors and Executive Officers and Certain Beneficial Owners and Management”Owners” in our 20062009 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended April 30, 2006.2009.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this itemItem is incorporated by reference to the information set forth under the captioncaptions “Certain Relationships and Related Transactions” and “Compensation Committee Interlocks and Insider Participation” in our 20062009 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended April 30, 2006.2009.

ITEM 14.       PRINCIPAL ACCOUNTANT
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this itemItem is incorporated by reference to the information set forth under the caption “Independent Registered Public Accounting Firm Fees” in our 20062009 Definitive Proxy Statement to be filed within 120 days after the end of our fiscal year ended April 30, 2006.2009.
 
PART IV

ITEM 15.
EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
 
(a)(1)
Consolidated Financial Statements
Index to consolidated financial statements:

  
Page
   
 
Index to consolidated financial statements:
Page
Report of Independent Registered Public Accounting FirmF-1
   
 
Consolidated Balance Sheets as of April 30, 20062009 and 20052008F-2
   
 
Consolidated Statements of Operations for each of the three years in the period ended April 30, 20062009F-4
   
 
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended April 30, 20062009F-5
   
 
Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 20062009F-6
   
 
Notes to Consolidated Financial StatementsF-8
(2)
Financial Statement Schedules
The following schedule is filed as part of this Form 10-K:
 
The following schedule is filed as part of this Form 10-K:
Schedule II- Valuation of Qualifying Accounts for each of the three years in the period ended April 30, 20062009F-33F-32
 
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

 
(3)
Exhibits
(3)           Exhibits

Exhibit
Number
 
 
Description
 
3.1 Certificate of Incorporation of Techniclone Corporation, a Delaware corporation (Incorporated by reference to Exhibit B to the Company’s 1996 Proxy Statement as filed with the Commission on or about August 20, 1996).
 
3.2 Amended and Restated Bylaws of Peregrine Pharmaceuticals, Inc. (formerly Techniclone Corporation), a Delaware corporation (Incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 2003).
 
3.3 Certificate of Designation of 5% Adjustable Convertible Class C Preferred Stock as filed with the Delaware Secretary of State on April 23, 1997.  (Incorporated by reference to Exhibit 3.1 contained in Registrant’s Current Report on Form 8-K as filed with the Commission on or about May 12, 1997).
 
3.4 Certificate of Amendment to Certificate of Incorporation of Techniclone Corporation to effect the name change to Peregrine Pharmaceuticals, Inc., a Delaware corporation.  (Incorporated by reference to Exhibit 3.4 contained in Registrant’s Annual Report on Form 10-K for the year ended April 30, 2001).
 
3.5 Certificate of Amendment to Certificate of Incorporation of Peregrine Pharmaceuticals, Inc. to increase the number of authorized shares of the Company’s common stock to two hundred million shares (Incorporated by reference to Exhibit 3.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 2003).
 
3.6 Certificate of Amendment to Certificate of Incorporation of Peregrine Pharmaceuticals, Inc. to increase the number of authorized shares of the Company’s common stock to two hundred fifty million shares (Incorporated by reference to Exhibit 3.6 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2005).
 
3.7 Certificate of Designation of Rights, Preferences and Privileges of Series D Participating Preferred Stock of the Registrant, as filed with the Secretary of State of the State of Delaware on March 16, 2006.  (Incorporated by reference to Exhibit 3.7 to Registrant’s Current Report on Form 8-K as filed with the Commission on March 17, 2006).
 3.8 Certificate of Amendment to Certificate of Incorporation of Peregrine Pharmaceuticals, Inc. to increase the number of authorized shares of the Company’s common stock to three hundred twenty five million shares (Incorporated by reference to Exhibit 3.8 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2007).
4.13.9Amended and Restated Bylaws of Peregrine Pharmaceuticals, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.9 to Registrant’s Current Report on Form 8-K as filed with the Commission on December 21, 2007).

Exhibit
Number
Description
4.0 Form of Certificate for Common Stock (Incorporated by reference to the exhibit of the same number contained in Registrant’s Annual Report on Form 10-K for the year end April 30, 1988).

4.13Form of Stock Purchase Warrant to be issued to the Equity Line Subscribers pursuant to the Regulation D Common Stock Equity Subscription Agreement (Incorporated by reference to Exhibit 4.7 contained in Registrant’s Current Report on Form 8-K as filed with the Commission on or about June 29, 1998).
Exhibit
Number
 
4.1
Description
4.16 Form of Non-qualified Stock Option Agreement by and between Registrant, Director and certain consultants dated December 22, 1999 (Incorporated by reference to the exhibit contained in Registrant’s Registration Statement on Form S-3 (File No. 333-40716)).*
 
4.174.2 Peregrine Pharmaceuticals, Inc. 2002 Non-Qualified Stock Option Plan (Incorporated by reference to the exhibit contained in Registrant’s Registration Statement in Form S-8 (File No. 333-106385)).*
 
4.184.3 Form of 2002 Non-Qualified Stock Option Agreement (Incorporated by reference to the exhibit contained in Registrant’s Registration Statement in Form S-8 (File No. 333-106385)).*
 
4.194.4 Preferred Stock Rights Agreement, dated as of March 16, 2006, between the Company and Integrity Stock Transfer, Inc., including the Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C, respectively (Incorporated by reference to Exhibit 4.19 to Registrant’s Current Report on Form 8-K as filed with the Commission on March 17, 2006).

10.404.5 1996 Stock Incentive Plan (Incorporated by reference to the exhibit contained in Registrant's Registration Statement in form S-8 (File No. 333-17513)).*
 
10.414.6 Stock Exchange Agreement dated as of January 15, 1997 among the stockholders of Peregrine Pharmaceuticals, Inc. and Registrant (Incorporated by reference to Exhibit 2.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997).
 
10.424.7 First Amendment to Stock Exchange Agreement among the Stockholders of Peregrine Pharmaceuticals, Inc. and Registrant (Incorporated by reference to Exhibit 2.1 contained in Registrant’s Current Report on Form 8-K as filed with the Commission on or about May 12, 1997).
 
10.43Termination and Transfer Agreement dated as of November 14, 1997 by and between Registrant and Alpha Therapeutic Corporation (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Current Report on Form 8-K as filed with the commission on or about November 24, 1997).
10.47Real Estate Purchase Agreement by and between Techniclone Corporation and 14282 Franklin Avenue Associates, LLC dated December 24, 1998 (Incorporated by reference to Exhibit 10.47 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1999).
10.48Lease and Agreement of Lease between TNCA, LLC, as Landlord, and Techniclone Corporation, as Tenant, dated as of December 24, 1998 (Incorporated by reference to Exhibit 10.48 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1999).
10.49Promissory Note dated as of December 24, 1998 between Techniclone Corporation (Payee) and TNCA Holding, LLC (Maker) for $1,925,000 (Incorporated by reference to Exhibit 10.49 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1999).
Exhibit
Number
Description
10.50Pledge and Security Agreement dated as of December 24, 1998 for $1,925,000 Promissory Note between Grantors and Techniclone Corporation (Secured Party) (Incorporated by reference to Exhibit 10.50 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1999).
10.56License Agreement dated as of March 8, 1999 by and between Registrant and Schering A.G. (Incorporated by reference to Exhibit 10.56 to Registrant's Annual Report on Form 10-K for the year ended April 30, 1999).**
10.57Patent License Agreement dated October 8, 1998 between Registrant and the Board of Regents of the University of Texas System for patents related to Targeting the Vasculature of Solid Tumors (Vascular Targeting Agent patents) (Incorporated by reference to Exhibit 10.57 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1999).
10.58Patent License Agreement dated October 8, 1998 between Registrant and the Board of Regents of the University of Texas System for patents related to the Coagulation of the Tumor Vasculature (Vascular Targeting Agent patents) (Incorporated by reference to Exhibit 10.58 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1999).
10.59License Agreement between Northwestern University and Registrant dated August 4, 1999 covering the LYM-1 and LYM-2 antibodies (Oncolym) (Incorporated by reference to Exhibit 10.59 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1999).
10.67Warrant to purchase 750,000 shares of Common Stock of Registrant issued to Swartz Private Equity, LLC dated November 19, 1999 (Incorporated by reference to Exhibit 10.67 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2000).
10.73Common Stock Purchase Agreement to purchase up to 6,000,000 shares of Common Stock of Registrant issued to ZLP Master Fund, LTD, ZLP Master Technology Fund, LTD, Eric Swartz, Michael C. Kendrick, Vertical Ventures LLC and Triton West Group, Inc. dated November 16, 2001 (Incorporated by reference to Exhibit 10.73 to Registrant’s Current Report on Form 8-K dated November 19, 2001, as filed with the Commission on November 19, 2001).
10.74Form of Warrant to be issued to Investors pursuant to the Common Stock Purchase Agreement dated November 16, 2001 (Incorporated by reference to Exhibit 10.74 to Registrant’s Current Report on Form 8-K dated November 19, 2001, as filed with the Commission on November 19, 2001).
10.75Common Stock Purchase Agreement to purchase 1,100,000 shares of Common Stock of Registrant issued to ZLP Master Fund, LTD and Vertical Capital Holdings, Ltd. dated January 28, 2002 (Incorporated by reference to Exhibit 10.75 to Registrant’s Current Report on Form 8-K dated January 31, 2002, as filed with the Commission on February 5, 2002).
10.76Form of Warrant to be issued to Investors pursuant to the Common Stock Purchase Agreement dated January 28, 2002 (Incorporated by reference to Exhibit 10.76 to Registrant’s Current Report on Form 8-K dated January 31, 2002, as filed with the Commission on February 5, 2002).
10.77Securities Purchase Agreement dated as of August 9, 2002 between Registrant and Purchasers (Incorporated by reference to Exhibit 10.77 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
Exhibit
Number
Description
10.78Form of Convertible Debentures issued to Purchasers pursuant to Securities Purchase Agreement dated August 9, 2002 (Incorporated by reference to Exhibit 10.78 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.79Registration Rights Agreement dated August 9, 2002 between Registrant and Purchasers of Securities Purchase Agreements dated August 9, 2002 (Incorporated by reference to Exhibit 10.79 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.80Form of Warrant to be issued to Purchasers pursuant to Securities Purchase Agreement dated August 9, 2002 (Incorporated by reference to Exhibit 10.80 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.81Form of Warrant issued to Debenture holders pursuant to Securities Purchase Agreement dated August 9, 2002 (Incorporated by reference to Exhibit 10.81 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.82Form of Adjustment Warrant issued to Investors pursuant to Securities Purchase Agreement dated August 9, 2002 (Incorporated by reference to Exhibit 10.82 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.83Securities Purchase Agreement dated as of August 9, 2002 between Registrant and ZLP Master Fund, Ltd. (Incorporated by reference to Exhibit 10.83 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.84Registration Rights Agreement dated August 9, 2002 between Registrant and ZLP Master Fund, Ltd. (Incorporated by reference to Exhibit 10.84 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.85Form of Warrant to be issued to ZLP Master Fund, Ltd. pursuant to Securities Purchase Agreement dated August 9, 2002 (Incorporated by reference to Exhibit 10.85 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.86Form of Adjustment Warrant issued to ZLP Master Fund, Ltd. pursuant to Securities Purchase Agreement dated August 9, 2002 (Incorporated by reference to Exhibit 10.86 to Registrant’s Registration Statement on Form S-3 (File No. 333-99157), as filed with the Commission on September 4, 2002).
10.87Common Stock Purchase Agreement dated June 6, 2003 between Registrant and eight institutional investors (Incorporated by reference to Exhibit 10.87 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 2003).

10.88Common Stock Purchase Agreement dated June 6, 2003 between Registrant and one institutional investor (Incorporated by reference to Exhibit 10.88 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 2003).
Exhibit
Number
Description

10.89Common Stock Purchase Agreement dated June 26, 2003 between Registrant and seven institutional investors (Incorporated by reference to Exhibit 10.89 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 2003).
10.90Common Stock Purchase Agreement dated July 24, 2003 between Registrant and one institutional investor (Incorporated by reference to Exhibit 10.90 to Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 2003).
10.91Common Stock Purchase Agreement dated September 18, 2003 between Registrant and one institutional investor (Incorporated by reference to Exhibit 10.91 to Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 2003).
10.92Common Stock Purchase Agreement dated January 22, 2004 between Registrant and one institutional investor (Incorporated by reference to Exhibit 10.92 to Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2004).
10.93Common Stock Purchase Agreement dated March 31, 2004 between Registrant and one institutional investor (Incorporated by reference to Exhibit 10.93 to Registrant’s Annual Report on Form 10-K for the year ended April 30, 2005).
10.954.8 2003 Stock Incentive Plan Non-qualified Stock Option Agreement (Incorporated by reference to the exhibit contained in Registrant’s Registration Statement in form S-8 (File No. 333-121334).*
 
10.964.9 2003 Stock Incentive Plan Incentive Stock Option Agreement (Incorporated by reference to the exhibit contained in Registrant’s Registration Statement in form S-8 (File No. 333-121334)).*
 
10.97Common Stock Purchase Agreement dated January 31, 2005 between Registrant and one institutional investor (Incorporated by reference to Exhibit 10.97 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2005).
10.984.10 Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.98 to Registrant’s Current Report on Form 8-K as filed with the Commission on October 28, 2005).*
 
10.994.11 Form of Non-Qualified Stock Option Agreement for 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.99 to Registrant’s Current Report on Form 8-K as filed with the Commission on October 28, 2005).*
 
10.1004.12 Peregrine Pharmaceuticals, Inc. 2005 Stock Incentive Plan (Incorporated by reference to Exhibit B to Registrant’s Definitive Proxy Statement filed with the Commission on August 29, 2005).*


Exhibit
Number
Description
 
10.10110.1 First Amendment to LeasePlacement Agent Agreement dated June 27, 2007, between Registrant and Agreement of Lease between TNCA,Rodman & Renshaw, LLC as Landlord, and Peregrine Pharmaceuticals, Inc., as Tenant, dated December 22, 2005 (Incorporated by reference to Exhibit 99.1 and 99.2 to Registrant’s Current Report on Form 8-K as filed with the Commission on December 23, 2005).
Exhibit
Number
Description
10.102Common Stock Purchase Agreement dated May 11, 2005 between Registrant and one institutional investor (Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the Commission on May 11, 2005).
10.103Common Stock Purchase Agreement dated June 22, 2005 between Registrant and one institutional investor (Incorporated by reference to Exhibit 99.11.1 to Registrant’s Current Report on Form 8-K as filed with the Commission on June 24, 2005)28, 2007).
 
10.10410.2 Common StockForm of Securities Purchase Agreement dated November 23, 2005 between Registrant and one institutional investorJune 28, 2007 (Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K as filed with the Commission on November 23, 2005)June 28, 2007).
 
10.10510.3 Common Stock Purchase Agreement
Government contract by and between Peregrine Pharmaceuticals, Inc. and the Defense Threat Reduction Agency dated April 5, 2006 between Registrant and one institutional investor (IncorporatedJune 30, 2008 (Incorporated by reference to Exhibit 99.210.110 to Registrant’s Current Report on Form 10-Q as filed with the Commission on September 9, 2008).
10.4
Loan and Security Agreement dated December 9, 2008 between Registrant and BlueCrest Capital Finance, L.P. (Incorporated by reference to Exhibit 10.111 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009).**
10.5
Secured Term Promissory Note dated December 19, 2008 between Registrant and BlueCrest Capital Finance, L.P. (Incorporated by reference to Exhibit 10.112 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009).
10.6
Secured Term Promissory Note dated December 19, 2008 between Registrant and MidCap Funding I, LLC. (Incorporated by reference to Exhibit 10.113 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009)
10.7
Intellectual Property Security Agreement dated December 19, 2008 between Avid Bioservices, Inc. and MidCap Funding I, LLC. (Incorporated by reference to Exhibit 10.114 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009).
10.8
Intellectual Property Security Agreement dated December 19, 2008 between Registrant and MidCap Funding I, LLC. (Incorporated by reference to Exhibit 10.115 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009).
10.9
Warrant to purchase 507,614 shares of Common Stock of Registrant issued to BlueCrest Capital Finance, L.P. dated December 9, 2008. (Incorporated by reference to Exhibit 10.116 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009).
10.10
Warrant to purchase 1,184,433 shares of Common Stock of Registrant issued to MidCap Funding I, LLC dated December 9, 2008. (Incorporated by reference to Exhibit 10.117 to Registrant’s Current Report on Form 10-Q as filed with the Commission on March 12, 2009).
10.11
At Market Issuance Sales Agreement, dated March 26, 2009, by and between Peregrine Pharmaceuticals, Inc. and Wm. Smith & Co. (Incorporated by reference to Exhibit 10.118 to Registrant’s Current Report on Form 8-K as filed with the Commission on April 6, 2006)March 27, 2009).
10.12
Employment Agreement by and between Peregrine Pharmaceuticals, Inc. and Steven W. King, dated March 18, 2009. (*)(***)
10.106
Exhibit
Number
 Form of Incentive Stock Bonus Plan dated February 13, 2006 between Registrant and key employees and consultants. **, ***
Description
 10.13 
Employment Agreement by and between Peregrine Pharmaceuticals, Inc. and Paul J. Lytle, dated March 18, 2009. (*)(***)
10.14
Employment Agreement by and between Peregrine Pharmaceuticals, Inc. and Joseph Shan, dated March 18, 2009. (*)(***)
10.15
Employment Agreement by and between Peregrine Pharmaceuticals, Inc. and Shelley P.M. Fussey, Ph.D., dated March 18, 2009. (*)(***)
21 Subsidiaries of RegistrantRegistrant. ***
 
23.1 Consent of Independent Registered Public Accounting FirmFirm. ***
 
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** ***
 
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** ***
 
32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** ***
_______________________________
*
**
***
 
This Exhibit is a management contract or a compensation plan or arrangement.
Portions omitted pursuant to a request of confidentiality filed separately with the Commission.
Filed herewith.



SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
PEREGRINE PHARMACEUTICALS, INC.
   
PEREGRINE PHARMACEUTICALS, INC.



Dated: July 7, 200610, 2009By:/s/ Steven W. King
 
 Steven W. King
President and& Chief Executive Officer, and Director
 
 
POWER OF ATTORNEY
 
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven W. King, President and Chief Executive Officer, and Paul J. Lytle, Chief Financial Officer and Corporate Secretary, and each of them, his true and lawful attorneys-in-fact and agents, with the full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature
 
Capacity
 
Date
 
/s/ Steven W. KingPresident & Chief ExecutiveJuly 7, 2006
Steven W. KingOfficer (Principal Executive
Officer)
/s/ Paul J. LytleChief Financial OfficerJuly 7, 2006
Paul J. Lytle(Principal Financial and
Principal Accounting Officer)
/s/ Carlton M. JohnsonDirectorJuly 7, 2006
Carlton M. Johnson    
     
/s/ David H. PohlSteven W. King
Steven W. King
 President & Chief Executive Officer (Principal Executive Officer), and Director July 7, 200610, 2009
David H. Pohl    
     
/s/ Eric S. SwartzPaul J. Lytle
Paul J. Lytle
 DirectorChief Financial Officer (Principal Financial and Principal Accounting Officer) July 7, 200610, 2009
Eric S. Swartz    
     
/s/ Dr. Thomas A. WaltzCarlton M. Johnson
Carlton M. Johnson
 Director July 7, 200610, 2009
Thomas A. Waltz, M.D.    
/s/ David H. Pohl
David H. Pohl
DirectorJuly 10, 2009
/s/ Eric S. Swartz
Eric S. Swartz
DirectorJuly 10, 2009

 
5364


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders of Peregrine Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Peregrine Pharmaceuticals, Inc. (the “Company”) as of April 30, 20062009 and 2005,2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended April 30, 2006.2009.  Our audits also included the financial statement schedule listed in the Index at Item 15 (a)(2).  These consolidated financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Peregrine Pharmaceuticals, Inc. at April 30, 20062009 and 2005,2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 30, 2006,2009, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying financial statements have been prepared assuming Peregrine Pharmaceuticals, Inc. will continue as a going concern.  As more fully described in Note 1, the Company’s recurring losses from operations and recurring negative cash flows from operating activities raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regards to these matters are also described in Note 1.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Peregrine Pharmaceuticals, Inc.'s internal control over financial reporting as of April 30, 2006,2009, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 12, 200610, 2009 expressed an unqualified opinion thereon.



/s/ Ernst & Young LLP


Orange County, California
July 12, 200610, 2009

F-1
PEREGRINE PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30, 20062009 AND 20052008
 
 
2006
 
2005
  2009  2008 
ASSETS
           
           
CURRENT ASSETS:             
Cash and cash equivalents $17,182,000 $9,816,000  $10,018,000  $15,130,000 
Trade and other receivables, net of allowance for doubtful accounts of nil and $69,000, respectively  579,000  486,000 
Inventories  885,000  627,000 
Prepaid expenses and other current assets  1,466,000  1,197,000 
       
Trade and other receivables  1,770,000   605,000 
Government contract receivables  1,944,000   - 
Inventories, net 4,707,000  2,900,000 
Debt issuance costs, current portion 229,000   - 
Prepaid expenses and other current assets, net  1,466,000   1,208,000 
Total current assets  20,112,000  12,126,000  20,134,000  19,843,000 
               
PROPERTY:               
Leasehold improvements  618,000  494,000  675,000  669,000 
Laboratory equipment  3,444,000  3,029,000  4,180,000  4,140,000 
Furniture, fixtures and computer equipment  666,000  647,000   902,000   919,000 
        5,757,000  5,728,000 
  4,728,000  4,170,000 
Less accumulated depreciation and amortization  (2,822,000) (2,532,000)  (4,076,000)  (3,670,000)
       
Property, net  1,906,000  1,638,000  1,681,000  2,058,000 
       
OTHER ASSETS:       
Note receivable, net of allowance of nil and $1,512,000, respectively  -  - 
Other  658,000  481,000 
       
Total other assets  658,000  481,000 
       
Debt issuance costs, less current portion 142,000   - 
Other assets  1,170,000   1,156,000 
TOTAL ASSETS $22,676,000 $14,245,000  $23,127,000  $23,057,000 

F-2

PEREGRINE PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30, 20062009 AND 20052008 (continued)
 
LIABILITIES AND STOCKHOLDER'S EQUITY  
2006 
  
2005
 
        
CURRENT LIABILITIES:       
Accounts payable $1,233,000 $1,325,000 
Accrued clinical trial site fees  170,000  8,000 
Accrued legal and accounting fees  250,000  549,000 
Accrued royalties and license fees  138,000  149,000 
Accrued payroll and related costs  850,000  806,000 
Notes payable, current portion  429,000  234,000 
Capital lease obligation, current portion  15,000  - 
Deferred revenue  563,000  517,000 
Other current liabilities  836,000  563,000 
        
Total current liabilities  4,484,000  4,151,000 
        
Notes payable, less current portion  498,000  434,000 
Capital lease obligation, less current portion  47,000  - 
Deferred license revenue  21,000  50,000 
Commitments and contingencies       
        
STOCKHOLDERS’ EQUITY:       
Preferred stock - $.001 par value; authorized 5,000,000
shares; non-voting; nil shares outstanding
  -  - 
Common stock-$.001 par value; authorized 250,000,000 shares;
outstanding – 179,382,191 and 152,983,460, respectively
  179,000  153,000 
Additional paid-in-capital  204,546,000  180,011,000 
Deferred stock compensation  (235,000) (751,000)
Accumulated deficit  (186,864,000) (169,803,000)
        
Total stockholders’ equity  17,626,000  9,610,000 
        
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $22,676,000 $14,245,000 

  2009  2008 
LIABILITIES AND STOCKHOLDERS' EQUITY 
       
CURRENT LIABILITIES:      
Accounts payable $3,518,000  $2,060,000 
Accrued clinical trial site fees  955,000   237,000 
Accrued legal and accounting fees  667,000   450,000 
Accrued royalties and license fees  182,000   222,000 
Accrued payroll and related costs  1,580,000   1,084,000 
Capital lease obligation, current portion  17,000   22,000 
Notes payable, current portion and net of discount  1,465,000   - 
Deferred revenue  3,776,000   2,196,000 
Deferred government contract revenue  3,871,000   - 
Customer deposits  2,287,000   838,000 
Other current liabilities  546,000   331,000 
     Total current liabilities  18,864,000   7,440,000 
         
Capital lease obligation, less current portion  4,000   22,000 
Notes payable, less current portion and net of discount  3,208,000   - 
Other long-term liabilities  150,000   - 
Commitments and contingencies        
         
STOCKHOLDERS' EQUITY:        
Preferred stock - $.001 par value; authorized 5,000,000 shares; non-voting; nil shares outstanding  -   - 
Common stock - $.001 par value; authorized 325,000,000 shares; outstanding - 227,688,555 and 226,210,617, respectively  227,000   226,000 
Additional paid-in-capital  248,034,000   246,205,000 
Accumulated deficit  (247,360,000)  (230,836,000)
     Total stockholders' equity  901,000   15,595,000 
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,127,000  $23,057,000 
See accompanying notes to consolidated financial statements.

F-3
PEREGRINE PHARMACEUTICALS, INC.
 
PEREGRINE PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009
  
2006
 
2005
 
2004
 
        
REVENUES:          
Contract manufacturing revenue $3,005,000 $4,684,000 $3,039,000 
License revenue  188,000  275,000  275,000 
           
Total revenues  3,193,000  4,959,000  3,314,000 
           
COSTS AND EXPENSES:          
Cost of contract manufacturing  3,297,000  4,401,000  2,212,000 
Research and development  12,415,000  11,164,000  9,673,000 
Selling, general and administrative  6,564,000  5,098,000  4,225,000 
           
Total costs and expenses  22,276,000  20,663,000  16,110,000 
           
LOSS FROM OPERATIONS  (19,083,000) (15,704,000) (12,796,000)
           
OTHER INCOME (EXPENSE):          
Recovery of note receivable  1,229,000  -  - 
Interest and other income  846,000  265,000  291,000 
Interest and other expense  (53,000) (13,000) (1,840,000)
           
NET LOSS
 $(17,061,000)$(15,452,000)$(14,345,000)
           
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
  168,294,782  144,812,001  134,299,407 
BASIC AND DILUTED LOSS PER COMMON SHARE
 $(0.10)$(0.11)$(0.11)

  2009  2008  2007 
REVENUES:         
Contract manufacturing revenue $12,963,000  $5,897,000  $3,492,000 
Government contract revenue  5,013,000   -   - 
License revenue  175,000   196,000   216,000 
   Total revenues  18,151,000   6,093,000   3,708,000 
             
COSTS AND EXPENSES:            
Cost of contract manufacturing  9,064,000   4,804,000   3,296,000 
Research and development  18,424,000   18,279,000   15,876,000 
Selling, general and administrative  6,979,000   7,150,000   6,446,000 
   Total costs and expenses  34,467,000   30,233,000   25,618,000 
             
LOSS FROM OPERATIONS  (16,316,000)  (24,140,000)  (21,910,000)
             
OTHER INCOME (EXPENSE):         
Interest and other income  200,000   989,000   1,160,000 
Interest and other expense  (408,000)  (25,000)  (46,000)
NET LOSS $(16,524,000) $(23,176,000) $(20,796,000)
             
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  226,231,464   221,148,342   192,297,309 
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.07) $(0.10) $(0.11)

See accompanying notes to consolidated financial statements.

F-4
PEREGRINE PHARMACEUTICALS, INC.

PEREGRINE PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009

      
Additional
 
Deferred
   
Total
 
  
Common Stock
 
Paid-In
 
Stock
 
Accumulated
 
Stockholders’
 
  
Shares
 
Amount
 
Captital
 
Compensation
 
Deficit
 
Equity
 
BALANCES, April 30, 2003
  
119,600,501
 
$
120,000
 
$
142,274,000
 
$
(257,000
)
$
(140,006,000
)
$
2,131,000
 
Common stock issued for cash under June 6, 2003 Financing, net of issuance costs of $104,000  2,412,448  2,000  1,969,000  -  -  1,971,000 
Common stock issued for cash under June 26, 2003 Financing, net of issuance costs of $101,000  1,599,997  2,000  1,737,000  -  -  1,739,000 
Common stock issued for cash under option granted under June 26, 2003 Financing, net of issuance costs of $54,000  1,599,997  2,000  1,784,000  -  -  1,786,000 
Common stock issued for cash under July 24, 2003 Financing, net of issuance costs of $13,000  2,000,000  2,000  2,885,000  -  -  2,887,000 
Common stock issued for cash under September 18, 2003 Financing, net of issuance costs of $19,000  2,800,000  2,000  5,271,000  -  -  5,273,000 
Common stock issued for cash under November 17, 2003 Financing, net of issuance costs of $1,000  2,000,000  2,000  4,254,000  -  -  4,256,000 
Common stock issued for cash under January 22, 2004 Financing, net of issuance costs of $1,000  1,000,000  1,000  2,274,000  -  -  2,275,000 
Common stock issued to an unrelated entity for research services under a research collaboration agreement, net of issuance costs of under $1,000  243,101  -  648,000  -  -  648,000 
Common stock issued upon conversion of convertible debt  2,817,645  3,000  2,392,000  -  -  2,395,000 
Common stock issued upon exercise of options and warrants, net of issuance costs of $134,000  5,194,493  5,000  3,467,000  -  -  3,472,000 
Reversal of deferred stock compensation associated with the cancellation of unvested options  -  -  (52,000) 28,000  -  (24,000)
Deferred stock compensation  -  -  66,000  (66,000) -  - 
Stock-based compensation  -  -  -  295,000  -  295,000 
Net loss  -  -  -  -  (14,345,000) (14,345,000)
BALANCES, April 30, 2004
  
141,268,182
  
141,000
  
168,969,000
  
-
  
(154,351,000
)
 
14,759,000
 
Common stock issued for cash under March 31, 2004 Financing, net of issuance costs of $43,000  3,000,000  3,000  3,204,000  -  -  3,207,000 
Common stock issued for cash under January 31, 2005 Financing, net of issuance costs of $1,000  3,000,000  3,000  3,276,000  -  -  3,279,000 
Common stock issued to various unrelated entities for research services  1,174,682  1,000  1,448,000  -  -  1,449,000 
Common stock issued upon exercise of options and warrants, net of issuance costs of $5,000  4,540,596  5,000  2,132,000  -  -  2,137,000 
Deferred stock compensation  -  -  982,000  (982,000) -  - 
Stock-based compensation  -  -  -  231,000  -  231,000 
Net loss  -  -  -  -  (15,452,000) (15,452,000)
BALANCES, April 30, 2005
  
152,983,460
  
153,000
  
180,011,000
  
(751,000
)
 
(169,803,000
)
 
9,610,000
 
Common stock issued for cash under January 31, 2005 Financing, net of issuance costs of $6,000  1,582,217  1,000  1,575,000  -  -  1,576,000 
Common stock issued for cash under May 11, 2005 Financing, net of issuance costs of $11,000  3,125,000  3,000  2,986,000  -  -  2,989,000 
Common stock issued for cash under June 22, 2005 Financing, net of issuance costs of $29,000  8,000,000  8,000  6,683,000  -  -  6,691,000 
Common stock issued for cash under November 23, 2005 Financing, net of issuance costs of $1,000  8,000,000  8,000  6,711,000  -  -  6,719,000 
Common stock issued for cash under April 5, 2006 Financing, net of issuance costs of $1,000  4,000,000  4,000  4,915,000  -  -  4,919,000 
Common stock issued to various unrelated entities for research services  695,820  1,000  906,000  -  -  907,000 
Common stock issued upon exercise of options and warrants  966,742  1,000  732,000  -  -  733,000 
Common stock issued under the Company's stock bonus plan  28,952  -  44,000  -  -  44,000 
Deferred stock compensation  -  -  (17,000) 17,000  -  - 
Stock-based compensation  -  -  -  499,000  -  499,000 
Net loss  -  -  -  -  (17,061,000) (17,061,000)
BALANCES, April 30, 2006
  
179,382,191
 
$
179,000
 
$
204,546,000
 
$
(235,000
)
$
(186,864,000
)
$
17,626,000
 
        Additional  Deferred     Total 
  Common Stock  Paid-In  Stock  Accumulated  Stockholders’ 
  Shares  Amount  Captital  Compensation  Deficit  Equity 
BALANCES, April 30, 2006  179,382,191  $179,000  $204,546,000  $(235,000) $(186,864,000) $17,626,000 
Common stock issued for cash under June 16, 2006 Financing, net of issuance costs of $30,000  9,285,714   10,000 �� 12,960,000   -   -   12,970,000 
Common stock issued to various unrelated entities for prepaid research services  862,832   1,000   930,000   -   -   931,000 
Common stock issued upon exercise of options  65,350   -   59,000   -   -   59,000 
Common stock issued upon exercise of warrants, net of issuance costs of $16,000  6,266,788   6,000   4,830,000   -   -   4,836,000 
Common stock issued under stock bonus plan  249,326   -   342,000   -   -   342,000 
Elimination of deferred stock compensation upon adoption of SFAS No. 123R  -   -   (235,000)  235,000   -   - 
Stock-based compensation  -   -   1,021,000   -   -   1,021,000 
Net loss  -   -   -   -   (20,796,000)  (20,796,000)
BALANCES, April 30, 2007  196,112,201   196,000   224,453,000   -   (207,660,000)  16,989,000 
Common stock issued for cash under June 28, 2007 Financing, net of issuance costs of $1,641,000  30,000,000   30,000   20,829,000   -   -   20,859,000 
Common stock issued upon exercise of options  45,000   -   27,000   -   -   27,000 
Common stock issued upon exercise of warrants  53,416   -   46,000   -   -   46,000 
Stock-based compensation  -   -   850,000   -   -   850,000 
Net loss  -   -   -   -   (23,176,000)  (23,176,000)
BALANCES, April 30, 2008  226,210,617   226,000   246,205,000   -   (230,836,000)  15,595,000 
Common stock issued for cash under March 26, 2009 Financing, net of issuance costs of $58,000  1,477,938   1,000   549,000   -   -   550,000 
Fair market value of warrants issued with notes payable  -   -   414,000   -   -   414,000 
Stock-based compensation  -   -   866,000   -   -   866,000 
Net loss  -   -   -   -   (16,524,000)  (16,524,000)
BALANCES, April 30, 2009  227,688,555  $227,000  $248,034,000  $-  $(247,360,000) $901,000 
 
See accompanying notes to consolidated financial statements.
F-5
PEREGRINE PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009

  
2006
 
2005
 
2004
 
        
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss $(17,061,000)$(15,452,000)$(14,345,000)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation  415,000  325,000  374,000 
Stock-based compensation expense  499,000  231,000  271,000 
Amortization of discount on convertible debt and debt issuance costs  -  -  1,811,000 
Stock issued for research services  1,048,000  485,000  616,000 
Stock bonus plan compensation expense  44,000  -  - 
Gain on sale of property  (6,000) -  - 
Recovery of note receivable  (1,229,000) -  - 
Changes in operating assets and liabilities:          
Trade and other receivables  (93,000) 1,034,000  (1,275,000)
Short-term investments  -  -  242,000 
Inventories  (258,000) 613,000  (864,000)
Prepaid expenses and other current assets  (410,000) 7,000  49,000 
Accounts payable  (92,000) (6,000) 771,000 
Accrued clinical trial site fees  162,000  (46,000) (206,000)
Deferred revenue  17,000  (1,082,000) 918,000 
Accrued payroll and related expenses  44,000  303,000  189,000 
Other accrued expenses and current liabilities  (37,000) 420,000  198,000 
Net cash used in operating activities  (16,957,000) (13,168,000) (11,251,000)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Property acquisitions  (618,000) (1,090,000) (411,000)
Increase in other assets, net  (171,000) (101,000) (250,000)
Recovery of note receivable  1,229,000  -  - 
Net cash provided by (used in) investing activities  440,000  (1,191,000) (661,000)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of common stock, net of issuance costs of
$48,000, $49,000, and $428,000, respectively
  23,627,000  8,623,000  23,659,000 
Proceeds from issuance of notes payable  566,000  733,000  - 
Principal payments on notes payable and capital lease  (310,000) (65,000) - 
Net cash provided by financing activities  23,883,000  9,291,000  23,659,000 
  2009  2008  2007 
          
CASH FLOWS FROM OPERATING ACTIVITIES:       
Net loss $(16,524,000) $(23,176,000) $(20,796,000)
Adjustments to reconcile net loss to net cash used in operating activities:     
   Depreciation and amortization  503,000   486,000   475,000 
   Share-based compensation and issuance of common stock under stock bonus plan  866,000   850,000   1,324,000 
   Amortization of expenses paid in shares of common stock  255,000   -   391,000 
   Loss on sale of property  -   -   1,000 
   Amortization of discount on notes payable and debt issuance costs  185,000   -   - 
Changes in operating assets and liabilities:            
   Trade and other receivables  (1,165,000)  145,000   (171,000)
   Government contract receivables  (1,944,000)  -   - 
   Inventories, net  (1,807,000)  (984,000)  (1,031,000)
   Prepaid expenses and other current assets, net  (513,000)  (203,000)  (113,000)
   Accounts payable  1,458,000   377,000   450,000 
   Accrued clinical trial site fees  718,000   9,000   58,000 
   Accrued payroll and related expenses  496,000   210,000   63,000 
   Deferred revenue  1,580,000   1,132,000   480,000 
   Deferred government contract revenue  3,871,000   -   - 
   Customer deposits  1,449,000   253,000   194,000 
   Other accrued expenses and current liabilities  542,000   (26,000)  196,000 
          Net cash used in operating activities  (10,030,000)  (20,927,000)  (18,479,000)
             
CASH FLOWS FROM INVESTING ACTIVITIES:         
   Refund of security deposits on notes payable  -   150,000   - 
   Property acquisitions  (126,000)  (691,000)  (220,000)
   (Increase) decrease in other assets, net  (14,000)  (39,000)  140,000 
          Net cash used in investing activities  (140,000)  (580,000)  (80,000)
             
CASH FLOWS FROM FINANCING ACTIVITIES:         
   Proceeds from issuance of common stock, net of  issuance costs of $58,000, $1,641,000, and $46,000, respectively  550,000   20,932,000   17,865,000 
   Proceeds from issuance of notes payable, net of issuance costs of $469,000  4,531,000   -   - 
   Principal payments on notes payable  -   (323,000)  (429,000)
   Principal payments on capital leases  (23,000)  (16,000)  (15,000)
          Net cash provided by financing activities  5,058,000   20,593,000   17,421,000 

See accompanying notes to consolidated financial statements.

F-6
PEREGRINE PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)

  
2006
 
2005
 
2004
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $7,366,000 $(5,068,000)$11,747,000 
           
CASH AND CASH EQUIVALENTS, Beginning of year  9,816,000  14,884,000  3,137,000 
           
CASH AND CASH EQUIVALENTS, End of year $17,182,000 $9,816,000 $14,884,000 
           
SUPPLEMENTAL INFORMATION:          
Interest paid $49,000 $13,000 $78,000 
           
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Property acquired under capital lease $65,000 $- $- 
Conversion of convertible debt into common stock $- $- $2,395,000 
Common stock issued for research fees and prepayments for future research services $907,000 $1,449,000 $648,000 

For supplemental information relating to conversion of convertible debentures into common stock, common stock issued in exchange for services, property acquired under capital lease, and property financed in exchange for notes payable, see Notes 4, 7 and 8.

  2009  2008  2007 
NET DECREASE IN CASH AND CASH EQUIVALENTS $(5,112,000) $(914,000) $(1,138,000)
             
CASH AND CASH EQUIVALENTS,  Beginning of year  15,130,000   16,044,000   17,182,000 
             
CASH AND CASH EQUIVALENTS, End of year $10,018,000  $15,130,000  $16,044,000 
             
SUPPLEMENTAL INFORMATION:            
Interest paid $174,000  $25,000  $50,000 
             
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: 
             
Fair market value of warrants issued in connection with notes payable $414,000  $-  $- 
Property acquired under capital lease $-  $13,000  $- 
Applied security deposit on payoff of notes payable to GE Capital $-  $175,000  $- 
Common stock issued for research fees and prepayments for future research services $-  $-  $931,000 

See accompanying notes to consolidated financial statements.

F-7
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)2009
1.ORGANIZATION AND BUSINESS DESCRIPTION

Organization - – In this Annual Report, “Peregrine,” “Company,” “we,” “us,” and “our,” refer to Peregrine Pharmaceuticals, IncInc. and our wholly owned subsidiary Avid Bioservices, Inc.. We wereInc.  Peregrine was incorporated inunder the laws of the state of Delaware on September 25, 1996. We were originally incorporated in California in June 1981, under the name Techniclone International Corporationreincorporated in Delaware in September 1996 and subsequently merged into Techniclone Corporation, a Delaware corporation, in March 1997. We changed our name to Peregrine Pharmaceuticals, Inc. in October 2000. In January 2002, we formed our wholly owned subsidiary,commenced operations of Avid Bioservices, Inc. (“Avid”). in January 2002.

Business Description -–  We are a clinical stage biopharmaceutical company with a portfolio of clinicalthat manufactures and pre-clinical stagedevelops monoclonal antibody-based targeted therapeutics for the treatment of solid cancers and viral infections. We are currently advancing three separate clinical trial programsantibodies for the treatment of cancer and chronic hepatitis C virus (“HCV”)serious viral infections.  UnderWe are advancing three separate clinical programs with our Anti-Phosphatidylserine (“Anti-PS”) Immunotherapeutic platform technology, our lead candidatefirst-in-class compounds bavituximab (formerly known as Tarvacin), isand Cotara®.

We are currently in a multi-center Phase Irunning four clinical trialtrials using bavituximab for the treatment of solid cancers as well as a multi-center phase Ibtumors. Three of these clinical trials are Phase II trials evaluating bavituximab in combination with commonly prescribed chemotherapeutic drugs in patients with advanced breast or lung cancer.  Our fourth active bavituximab oncology clinical trial for the treatment of chronic HCV infection. Our third clinical program is a dose confirmation and dosimetryphase I trial evaluating bavituximab alone in patients with advanced solid tumors that no longer respond to standard cancer treatments.

We are currently running two clinical trialtrials using our lead Tumor Necrosis Therapy (TNT) agent, Cotara®, for the treatment of glioblastoma multiforme, a deadly form of brain cancer.  WeCotara® is currently in a dose confirmation and dosimetry clinical trial and in a Phase II clinical trial.

In addition to our clinical programs, we are organized into two reportable operating segments: (i) Peregrine,performing pre-clinical research on bavituximab and an equivalent fully human antibody as a potential broad-spectrum treatment for viral hemorrhagic fever infections under a contract awarded through the parent company,Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense's Defense Threat Reduction Agency (“DTRA”).  This federal contract is engagedexpected to provide us with up to $22.3 million in funding over an initial 24-month base period, with $14.3 million having been appropriated through the current federal fiscal year ending September 30, 2009.

In addition to our research and development of monoclonal antibody-based targeted therapeutics and (ii) Avid Bioservices, Inc., (“Avid”)efforts, we operate a wholly owned cGMP (current Good Manufacturing Practices) contract manufacturing subsidiary, is engaged in providing bio-manufacturingAvid Bioservices®, Inc. (“Avid”).  Avid provides contract manufacturing services for Peregrinebiotechnology and outside customersbiopharmaceutical companies on a fee-for-services basis.fee-for-service basis, from pre-clinical drug supplies up through commercial-scale drug manufacture.  In addition to these activities, Avid provides critical services in support of Peregrine’s product pipeline including manufacture and scale-up of pre-clinical and clinical drug supplies.

Going Concern – Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should it be determined that we are unable to continue as a going concern.

At April 30, 2009, we had $10,018,000 in cash and cash equivalents.  We have expended substantial funds on the research, development and clinical trials of our product candidates, and funding the operations of Avid.  As a result, we have incurredhistorically experienced negative cash flows from operations forsince our inception and we expect the majority of our years since inception. Since inception, we have generally financed our operations primarily through the sale of our common stock and issuance of convertible debt, which has been supplemented with payments received from various licensing collaborations and through the revenues generated by Avid. We expect negative cash flows from operations to continue for the foreseeable future.  Our net losses incurred during the past three fiscal years ended April 30, 2009, 2008 and 2007 amounted to $16,524,000, $23,176,000, and $20,796,000, respectively.  Unless and until we are able to generate sufficient revenuerevenues from theAvid’s contract manufacturing services provided by Avid and/or from the sale and/or licensing of our products under development.development, we expect such losses to continue for the foreseeable future.
 
Revenues earned by Avid during fiscal years ended April
F-8

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006, 2005 and 2004 amounted to $3,005,000, $4,684,000 and $3,039,000, respectively. We expect that Avid will continue to generate revenues which should partially offset our consolidated cash flows used in operations, although we expect those near term revenues will be insufficient to cover anticipated cash flows used in operations. In addition, revenues from the sale and/or licensing of our products under development are always uncertain. 2009 (continued)
Therefore, our ability to continue our clinical trials and development efforts 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.

We will need to raise additional capital through one or more methods, including but not limited to, issuing additional equity or debt, in order to support the costs of our research and development programs.

With respect to financing our operations beyond fiscal year 2007.through the issuance of equity, on March 26, 2009, we entered into an At April 30, 2006,Market Issuance Sales Agreement (“AMI Agreement”) with Wm Smith & Co., pursuant to which we had $17,182,000 in cash and cash equivalents compared to $9,816,000 at April 30, 2005. In addition, during June 2006 we received an additional $13,000,000 in net proceeds from the sale of 9,285,714may sell shares of our common stock under a common stock purchase agreement dated June 16, 2006 (Note 8).
We plan to raise additional capital primarily through theWm Smith & Co., as agent, in registered offer and sale of shares of our common stocktransactions from our shelf registration statementsstatement on Form S-3, which, asFile Number 333-139975, for aggregate gross proceeds of up to $7,500,000.  Shares of common stock sold under this arrangement were to be sold at market prices.  As of April 30, 2009, we had sold 1,477,938 shares of common stock under the AMI Agreement for aggregate net proceeds of $550,000.  Subsequent to April 30, 2009, we sold and additional 9,275,859 shares of common stock under the AMI Agreement for aggregate net proceeds of $6,685,000 after deducting commissions of 3% paid to Wm Smith & Co.  As of June 30, 2006,2009, we had raised the aggregate gross proceeds of $7,500,000 as permitted under the AMI Agreement.

With respect to financing our operations through the issuance of debt, on December 9, 2008, we entered into a loan and security agreement pursuant to which we had the ability to borrow up to $10,000,000 (“Loan Agreement”).  On December 19, 2008, we received initial funding of $5,000,000, in which principal and interest are payable over a thirty (30) month period commencing after the initial six month interest only period.  The amount payable under the Loan Agreement is secured by generally all assets of the Company as further explained in Note 5.  Under the Loan Agreement, we had an aggregateoption, which expired June 30, 2009, to borrow a second tranche in the amount of approximately 5,893,000 shares available for possible future registered transactions; provided, however,$5,000,000 upon the satisfaction of certain clinical and financial conditions as set forth in connection with our recent financing onthe Loan Agreement.  Although we had satisfied the required clinical and financial conditions by June 16, 2006,30, 2009, we agreeddetermined that exercising the option to borrow the second tranche, and issuing the additional warrants to the Lenders, was not to (i) file another shelf registration statement pursuant to Rule 415in the best interest of the Securities Act of 1933, as amended, for a period of one hundred eighty days following June 16, 2006, nor (ii) without the prior written consent of the purchaser in such financing, prior to January 2, 2007, enter into any subsequentCompany or further offer or sale of securities at a price or possible price below $2.50 per share. Notwithstanding the availability of our Form S-3, given uncertain market conditions and the volatility of our stock price and trading volume, we may not be able to sell our securities at prices or on terms that are favorable to us, if at all.
F-8
PEREGRINE PHARMACEUTICALS, INC.stockholders.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn addition to the above, we may also raise additional capital through additional equity offerings or licensing our products or technology platforms or entering into similar collaborative arrangements.  
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
ThereWhile we will continue to consider and explore these potential opportunities, there is no certainty that such offerings or collaborative agreements will be successful as they are dependent on the market conditions.  Therefore, there can be no assurances that we will be successful in raising sufficient capital on terms acceptable to us, or at all, or that sufficient additional revenues will be generated from Avid or under potential licensing or partnering agreements to complete the research, development, and clinical testing of our product candidates beyondcandidates.  Based on our current projections and assumptions, which include projected revenues under signed contracts with existing customers of Avid, combined with the projected revenues from our government contract, we believe we have sufficient cash on hand combined with amounts expected to be received from Avid customers and from our government contract to meet our obligations as they become due through at least fiscal year 2007.2010.  There are a number of uncertainties associated with our financial projections, including but not limited to, termination of third party or government contracts, technical challenges, or possible reductions in funding under our government contract, which could reduce or delay our future projected cash-inflows.  In addition, under the Loan Agreement, in the event our government contract with the Defense Threat Reduction Agency is terminated or canceled for any reason, including reasons pertaining to budget cuts by the government or reduction in government funding for the program, we would be required to set aside cash and cash equivalents in an amount equal to 80% of the outstanding loan balance in a restricted collateral account non-accessible by us.  In the event our projected cash-inflows are reduced or delayed or if we default on a loan covenant that limits our access to our available cash on hand, we might not have sufficient capital to operate our business through the fiscal year 2010 unless we raise additional capital.  The uncertainties surrounding our future cash inflows have raised substantial doubt regarding our ability to continue as a going concern.
F-9
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying consolidated financial statements include the accounts of the Peregrine and its wholly owned subsidiary, Avid Bioservices, Inc.  All intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents -- We consider all highly liquid, short-term investments with an initial maturity of three months or less to be cash equivalents.

Government Contract Receivables – Government contract receivables includes amounts billed under our contract with Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense’s Defense Threat Reduction Agency (“DTRA”) that was signed on June 30, 2008.  In addition, amounts unbilled at April 30, 2009 were $151,000, of which amount, included $141,000 in prepaid expenses and other current assets and included $10,000 in other assets in the accompanying consolidated financial statements.

Allowance for Doubtful Accounts - - We continually monitor our allowance for doubtful accounts for all receivables.  A considerable amount of judgment is required in assessing the ultimate realization of these receivables and we estimate an allowance for doubtful accounts based on these factors at that appear reasonable under the circumstances.point in time.  With respect to our trade and other receivables, we determined no allowance for doubtful accounts was necessary based on our analysis as of April 30, 2009 and 2008.

Amounts billed to the DTRA during fiscal year 2009 include reimbursement for provisional rates covering allowable indirect overhead and general and administrative cost (“Indirect Rates”).  These Indirect Rates are initially estimated based on financial projections and are subject to change based on actual costs incurred during each fiscal year.  In addition, these Indirect Rates are subject to annual audits by the Defense Contract Audit Agency (“DCAA”) for cost reimbursable type contracts.  As of April 30, 2009, we recorded an unbilled receivable of $51,000 pertaining to the calculated difference between estimated and actual Indirect Rates for fiscal year 2009.  As of April 30, 2009, we determined it appropriate to record a corresponding allowance for doubtful account in the amount of $51,000 due to the uncertainty of its collectability given that our actual Indirect Rates have not been audited by the DCAA since we signed the contract on June 30, 2008.

Prepaid Expenses - Our prepaid expenses primarily represent pre-payments made to secure the receipt of services at a future date.  During fiscal year 2006 and 2005,In addition, we have prepaid various research and development related services through the issuance of our shares of our common stock withto unrelated entities, which are expensed once the services have been provided under the terms of the arrangement.  As of April 30, 20062009 and April 30, 2005,2008, prepaid expenses and other current assets in the accompanying consolidated financialsfinancial statements include $866,000$220,000 and $1,028,000,$475,000, respectively, in research and development services prepaid inwith shares of our common stock.stock to Affitech AS under a research collaboration agreement for the generation of fully human monoclonal antibodies.
F-10
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
Inventories -- Inventories are stated at the lower of cost or market and includesinclude raw materials, direct labor, and overhead costs associated with our wholly owned subsidiary, Avid.  Cost is determined by the first-in, first-out method.  Inventories consist of the following at April 30, 2006 and April 30, 2005::

 
2006
 
2005
  2009  2008 
Raw materials $565,000 $445,000 
Raw materials, net $1,654,000  $1,115,000 
Work-in-process  320,000  182,000   3,053,000   1,785,000 
Total inventories $885,000 $627,000  $4,707,000  $2,900,000 

Concentrations of Credit Risk - - The majority of trade and other receivables as of April 30, 2006,2009, are from customers in the United States, Germany and Canada.  The majority of trade and other receivables as of April 30, 2008, are from customers in the United States and Australia.Germany.  Most contracts require up-front payments and installment payments asduring the project progresses.term of the service.  We perform periodic credit evaluations of our ongoing customers and generally do not require collateral, but we can terminate any contract if a material default occurs. Reserves are maintained for potential credit losses and such losses have been within our estimates.

F-9
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
Comprehensive Loss- Comprehensive loss is equal to net loss for all periods presented.

Property - - Property is recorded at cost.  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.

Impairment - - Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  We assess recoverability of our long-term assets by comparing the remaining carrying value to the value of the underlying collateral or the fair market value of the related long-term asset based on undiscounted cash flows.  Long-lived assets are reported at the lower of carrying amount or fair value less cost to sell.

Customer Deposits - Customer deposits primarily represents advance billings and/or payments received from customers prior to the initiation of contract manufacturing services.

Deferred Revenue -- Deferred revenue primarily consists of up-front contract fees and installment billings and/or payments received by Avid prior to the recognition of revenues under contract manufacturing, and development agreements and up-front license fees received by Peregrine under technology licensingcustomer service agreements.  Deferred revenue is generally recognized once the service has been provided, all obligations have been met and/or upon shipment of the product to the customer.

Revenue Recognition -- We currently derive revenues primarilyrevenue from contract manufacturing services provided by Avid, from licensing agreements associated with Peregrine’s technologies under development, and from services performed under a government contract manufacturing services provided by Avid.awarded to Peregrine through the Transformational Medical Technologies Initiative (“TMTI”) of the U.S. Department of Defense’s Defense Threat Reduction Agency (“DTRA”) that was signed on June 30, 2008.

We recognize revenuesrevenue pursuant to the SEC’s Staff Accounting Bulletin No. 104 (“SAB No. 104”), Revenue Recognition.  In accordance with SAB No. 104, revenue is generally realized or realizable and earned when (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) collectibility is reasonably assured.
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PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, weFOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
We also comply with Financial Accounting Standards Board’s Emerging Issues Task Force No. 00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables.  In accordance with EITF 00-21, we recognize revenue for delivered elements only when the delivered element has stand-alone value and we have objective and reliable evidence of fair value for each undelivered element.  If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.

RevenuesIn addition, we also follow the guidance of the Emerging Issues Task Force Issue No. 99-19 (“EITF 99-19”), Reporting Revenue Gross as a Principal versus Net as an Agent.  Pursuant to EITF 99-19, for transactions in which we act as a principal, have discretion to choose suppliers, bear credit risk and performs a substantive part of the services, revenue is recorded at the gross amount billed to a customer and costs associated with licensing agreements primarily consistthese reimbursements are reflected as a component of nonrefundable up-front license feescost of sales for contract manufacturing services or research and milestones payments. Revenuesdevelopment expense for services provided under licensing agreements are recognized based on the performance requirements of the agreement. Nonrefundable up-front license fees received under license agreements, whereby continued performance or future obligations are considered inconsequential to the relevant licensed technology, are generally recognized as revenue upon delivery of the technology. Nonrefundable up-front license fees, whereby ongoing involvement or performance obligations exist, are generally recorded as deferred revenue and generally recognized as revenue over the term of the performance obligation or relevant agreement. Milestone payments are recognized as revenue upon the achievement of mutually agreed milestones, provided that (i) the milestone event is substantive and its achievement is not reasonably assured at the inception of the agreement, and (ii) there are no continuing performance obligations associatedour contract with the milestone payment. Under a license agreement with Schering A.G. (Note 7), the obligation period was not contractually defined in relation to a $300,000 upfront fee. Under this circumstance, we exercised judgment in estimating the period of time over which certain deliverables will be provided to enable the licensee to practice the license, which was determined to be 48 months. The estimated period of 48 months was primarily determined based on the historical experience with Schering A.G. under a separate license agreement.
F-10
PEREGRINE PHARMACEUTICALS, INC.DTRA.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
ContractRevenue associated with contract manufacturing revenuesservices provided by Avid are generally recognized once the service has been providedrendered and/or upon shipment (or passage of title) of the product to the customer.  On occasion, we recognize revenue on a “bill-and-hold” basis.  Under “bill-and-hold” arrangements, revenue is recognized in accordance with the “bill-and-hold” requirements under SAB No. 104 once the product is complete and ready for shipment, title and risk of loss has passed to the customer, management receives a written request from the customer for “bill-and-hold” treatment, the product is segregated from other inventory, and no further performance obligations exist.  Any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated financial statements.  We also record a provision for estimated contract losses, if any, in the period in which they are determined.

In July 2000, the Emerging Issues Task Force (“EITF”) released Issue 99-19 (“EITF 99-19”), Reporting Revenue Gross as a Principal versus Net as an Agent. EITF 99-19 summarized the EITF’s views on whenLicense revenue should be recorded at the gross amount billed to a customer because it has earned revenue from the saleprimarily consists of goods or services, or the net amount retained (the amount billed to the customer less the amountannual license fees paid to a supplier) because it has earned a fee or commission. In addition, the EITF released Issue 00-10 (“EITF 00-10”), Accounting for Shipping and Handling Fees and Costs, and Issue 01-14 (“EITF 01-14”), Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred. EITF 00-10 summarized the EITF’s views on how the seller of goods should classify in the income statement amounts billed to a customer for shipping and handling and the costs associated with shipping and handling. EITF 01-14 summarized the EITF’s views on when the reimbursement of out-of-pocket expenses should be characterizedunder one license agreement.  Annual license fees are recognized as revenue or as a reduction of expenses incurred. Our revenue recognition policies are in compliance with EITF 99-19, EITF 00-10 and EITF 01-14 whereby we record revenue foron the gross amount billed to customers (the cost of raw materials, supplies, and shipping, plus the related handling mark-up fee) and we record the costanniversary date of the amounts billed as cost of sales as we act as a principalagreement in these transactions.accordance with the criteria under SAB No. 104.  We deem service to have been rendered if no continuing obligation exists.

Our contract with the DTRA is a “cost-plus-fixed-fee” contract whereby we recognize government contract revenue in accordance with the revenue recognition criteria noted above and in accordance with Accounting Research Bulletin No. 43, Chapter 11, Government Contracts.  Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, indirect costs, and a fixed fee for our efforts.  Revenue under this “cost-plus-fixed-fee” contract is generally recognized as we perform the underlying research and development activities.  However, progress billings and/or payments associated with services that are billed and/or received in a manner that is not consistent with the timing of when services are performed are classified as deferred government contract revenue in the accompanying consolidated financial statements and are recognized as revenue upon satisfying our revenue recognition criteria.

Fair Value of Financial Instruments -Our The carrying amounts of our short-term financial instruments, consist principally ofwhich include cash and cash equivalents, receivables, inventories,accounts receivable, accounts payable, and accrued liabilities. We believe all of the financial instruments' recorded valuesliabilities approximate their fair values due to their short maturities.  The fair value of our note payable is estimated based on the short-term naturequoted prices for the same or similar issues or on the current rates offered to us for debt of these instruments.the same remaining maturities.
F-12

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
Reclassification – Certain amounts in fiscal year 2008 and 2007 consolidated financial statements have been reclassified to conform to the current year presentation.

Use of Estimates - The preparation of our financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from these estimates.

Basic and DilutedDilutive Net Loss Per Common Share - Basic and diluteddilutive net loss per common share are calculated in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share.  Basic net loss per common share is computed by dividing our net loss by the weighted average number of common shares outstanding during the period excluding the dilutive effects of options warrants, and convertible instruments.warrants.  Diluted net loss per common share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the potential dilutive effects of options warrants, and convertible debtwarrants outstanding during the period. Potentially dilutive common shares consist of stock options and warrantsperiod calculated in accordance with the treasury stock method, but are excluded if their effect is antidilutive. The potential dilutive effect of convertible debt was calculated using the if-converted method assuming the conversion of the convertible debt as of the earliest period reported or at the date of issuance, if later.anti-dilutive.  Because the impact of options and warrants and other convertible instruments are antidilutiveanti-dilutive during periods of net loss, there was no difference between basic and diluted loss per common share amounts for the three years ended April 30, 2006. 2009.

The calculation of weighted average diluted shares outstanding excludes the dilutive effect of the following shares issuable upon the exercise of options, warrants, and convertible debt outstanding during the period were excluded from dilutive net loss per common share because their effect is antidilutive since we reported a net loss in the periods presented:
F-11
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
  
2006
 
2005
 
2004
 
Common stock equivalent shares assuming issuance of shares represented by outstanding stock options and warrants utilizing the treasury stock method  
3,433,414
  
6,485,168
  
11,462,682
 
Common stock equivalent shares assuming issuance of shares upon conversion of convertible debt utilizing the if-converted method  
-
  
-
  
563,054
 
Total  3,433,414  
6,485,168
  12,025,736 

Weighted average outstanding options and warrants to purchase up to 9,090,374, 11,946,248234,439, 928,801 and 8,393,0832,071,087 shares of common stock for the fiscal years ended April 30, 2006, 20052009, 2008 and 2004,2007, respectively, were also excluded fromsince the impact of such options and warrants are anti-dilutive during periods of net loss.

The calculation of weighted average diluted earnings pershares outstanding also excludes weighted average outstanding options and warrants to purchase up to 13,007,072, 10,455,216 and 7,218,883 shares of common share because theirstock for the fiscal years ended April 30, 2009, 2008 and 2007, respectively, as the exercise prices of those options were greater than the average market price of our common stock during the period.respective periods, resulting in an anti-dilutive effect.

During June 2006,Subsequent to April 30, 2009, we issued 9,285,714an aggregate of 9,275,859 shares of our common stock under a common stock purchase agreement dated June 16, 2006an At Market Issuance Sales Agreement (Note 8) in exchange for aggregate net proceeds of $13,000,000,$6,685,000 after deducting commissions of 3%, which additional shares have been excluded from the calculation of basic and dilutive net loss per common share for the year ended April 30, 2006.2009.

Share-based Compensation- We account for stock options granted under our equity compensation plans in accordance with Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”), Share-Based Payment (Revised 2004).  SFAS No. 123R requires the recognition of compensation expense, using a fair value based method and value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods (typically 2 to 4 years).  See Note 3 for further discussion regarding share-based compensation.

Income Taxes - We utilize the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.  Under the liability method, deferred taxes are determined based on the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates.  A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized.
F-13
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
In addition, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN No. 48”), Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.  We adopted the provisions of FIN No. 48 on May 1, 2007 (Note 11).

Research and Development - Research and development costs are charged to expense when incurred in accordance with Statement of Financial Accounting Standards No. 2, Accounting for Research and Development Costs.  Research and development expenses primarily include (i) payroll and related costs associated with research and development personnel, (ii) costs related to clinical and pre-clinical 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) technology access and maintenance fees, including intellectual property fees and fees incurred under licensing agreements, (v) expenses for research services provided by universities and contract laboratories, including sponsored research funding, and (vi) other research and development expenses.

Recently Adopted Accounting Standards -In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  SFAS No. 157 establishes a three-level hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy defines the three levels of inputs to measure fair value, as follows:

●
Level 1 – 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 value 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.

We adopted SFAS No. 157 on May 1, 2008, which did not have a material impact on our consolidated financial statements as we currently do not have any Level 2 or Level 3 financial assets or liabilities and cash and cash equivalents are carried at fair value based on quoted market prices for identical securities (Level 1 input).

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS No. 159”), The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB statement No. 115.  SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  If the fair value method is selected, a business entity shall report unrealized gains and losses on elected items in earnings at each subsequent reporting date.  The standard also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.  We adopted SFAS No. 159 on May 1, 2008, which did not have a material impact on our consolidated financial statements as the fair value option was not elected for any of our financial assets or financial liabilities.
F-12F-14
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
In June 2007, the FASB ratified EITF Issue No. 07-3 (“EITF 07-3”), Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities, which requires nonrefundable advance payments for goods and services that will be used or rendered for future research and development activities be deferred and capitalized.  These amounts will be recognized as expense in the period that the related goods are delivered or the related services are performed.  We adopted EITF 07-3 on May 1, 2008, which did not have a material impact on our consolidated financial statements.

Stock-based CompensationNew Accounting Standards Not Yet Adopted - In November 2007, the FASB ratified EITF Issue 07-01 (“EITF 07-01”), Accounting for Collaborative Arrangements, which defines collaborative arrangements and requires that revenues and costs incurred with third parties that do not participate in the collaborative arrangements be reported in the statement of operations gross or net pursuant to the guidance in EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.  Classification of payments made between participants of a collaborative arrangement are to be based on other applicable authoritative accounting literature or, in the absence of other applicable authoritative accounting literature, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election.  EITF 07-01 will be effective for fiscal years beginning after December 15, 2008, which we would be required to implement during our quarter ending July 31, 2009, and applied as a change in accounting principal to all prior periods retrospectively for all collaborative arrangements existing as of the effective date.  Our adoption of EITF 07-01 is not expected to have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”).  This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP.  This statement will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendment to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.  Our adoption of SFAS No. 162 is not expected to have a material impact on our consolidated financial statements.

In June 2008, the FASB issued EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock  (“EITF No. 07-5”). EITF 07-5 supersedes EITF Issue No. 01-6, The Meaning of 'Indexed to a Company's Own Stock', and provides guidance in evaluating whether certain financial instruments or embedded features can be excluded from the scope of SFAS 133, Accounting for Derivatives and Hedging Activities (“SFAS 133”).  EITF No. 07-5 sets forth a two-step approach that evaluates an instrument's contingent exercise and settlement provisions for the purpose of determining whether such instruments are indexed to an issuer's own stock (a requirement necessary to comply with the scope exception under SFAS 133).  EITF No. 07-5 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Our adoption of EITF No. 07-5 is not expected to have a material impact on our consolidated financial statements.

In April 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FAS 107-1” and “APB 28-1”), which requires publicly traded companies to include in their interim financial reports certain disclosures about the carrying value and fair value of financial instruments previously required only in annual financial statements and to disclose changes in significant assumptions used to calculate the fair value of financial instruments.  FAS 107-1 and APB 28-1 is effective for all interim reporting periods ending after June 15, 2009, which we would be required to adopt during our quarter ending July 31, 2009.  Our adoption of FSP FAS 107-1 and APB 28-1 is not expected to have a material impact on our consolidated financial statements.
F-15
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”).  SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009, which we would be required to adopt during our quarter ending July 31, 2009.  Our adoption of SFAS No. 165 is not expected to have a material impact on our consolidated financial statements.

3. SHARE-BASED COMPENSATION

We currently maintain four equity compensation plans referred to as the 1996 Plan, the 2002 Plan, the Financial Accounting Standards Board (“FASB”2003 Plan, and the 2005 Plan (collectively referred to as the “Option Plans”) issued.  The Option Plans provide for the granting of options to purchase shares of our common stock at exercise prices not less than the fair market value of our common stock at the date of grant.  The options generally vest over a two to four year period and expire ten years from the date of grant, if unexercised.

We account for stock options granted under our Option Plans in accordance with Statement of Financial Accounting Standards No. 148123R (“SFAS No. 148”123R”), Share-Based Payment (Revised 2004)Accounting for Stock-Based Compensation-Transition and Disclosure.  SFAS No. 148 amends SFAS No. 123 (“SFAS No. 123”), Accounting for Stock-Based Compensation, and provides alternative methods123R requires the recognition of transition forcompensation expense, using a voluntary change to the fair value based method, for costs related to all share-based payments including grants of accounting for stock-based employee compensation.stock options.  In addition, SFAS No. 148 amends123R requires companies to estimate the disclosure requirementsfair value of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation, and the effect of the method used on reported results.
We have not adopted a method under SFAS No. 148 to expense stock options, but rather we continue to apply the provisions of SFAS No. 123; however, we have adopted the additional disclosure provisions of the statement. As SFAS No. 123 permits, we elected to continue accounting for our employee stock options in accordance with Accounting Principles Board Opinion No. 25 (“APB No. 25”), Accounting for Stock Issued to Employeesand Related Interpretations. APB No. 25 requires compensation expense to be recognized for stock options when the market price of the underlying stock exceeds the exercise price of the stock optionshare-based payment awards on the date of grant using an option-pricing model.  The value of the grant.portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods (typically 2 to 4 years).

We utilize the guidelines in APB No. 25 for measurement of stock-based transactions for employees and, accordingly, noTotal share-based compensation expense has been recognizedrelated to employee stock option grants for the optionsfiscal years ended April 30, 2009, 2008 and 2007 are included in the accompanying consolidated financial statements for the three years ended April 30, 2006.of operations as follows:
  2009  2008  2007 
Research and development $475,000  $534,000  $589,000 
Selling, general and administrative  382,000   295,000   375,000 
Total $857,000  $829,000  $964,000 

Had we used aThe fair value of each option grant is estimated using the Black-Scholes option valuation model for measurementand is amortized as compensation expense on a straight-line basis over the requisite service period of stock-based transactions for employees under SFAS No. 123 and amortized the expense overaward, which is generally the vesting period pro forma information would(typically 2 to 4 years).  The use of a valuation model requires us to make certain estimates and assumptions with respect to selected model inputs.  The expected volatility is based on the daily historical volatility of our stock covering the estimated expected term.  The expected term of options granted subsequent to the adoption of SFAS No. 123R (adopted May 1, 2006) through our quarter ended October 31, 2007 was based on the expected time to exercise using the “simplified” method allowable under the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107.  Effective November 1, 2007, the expected term reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised, outstanding options and is applied to all option grants subsequent to October 31, 2007.  The risk-free interest rate is based on U.S. Treasury notes with terms within the contractual life of the option at the time of grant.  The expected dividend yield assumption is based on our expectation of future dividend payouts.  We have never declared or paid any cash dividends on our common stock and currently do not anticipate paying such cash dividends. In addition, SFAS No. 123R requires forfeitures to be as follows:

  
2006
 
2005
 
2004
 
Net loss, as reported $(17,061,000)$(15,452,000)$(14,345,000)
Stock-based employee compensation cost that would have been included in the determination of net loss if the fair value based method had been applied to all awards  (1,755,000) (2,828,000) (2,541,000)
Pro forma net loss as if the fair value based method had been applied to all awards $(18,816,000)$(18,280,000)$(16,886,000)
Basic and diluted loss per common share, as reported $(0.10)$(0.11)$(0.11)
Basic and diluted loss per common share, pro forma $(0.11)$(0.13)$(0.13)
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The fair value of stock options on the date of grant and the weighted-average assumptions used to estimate the fair value of the stock options using the Black-Scholes option valuation model for fiscal years ended April 30, 2009, 2008 and 2007, were as follows:

  
2006
 
2005
 
2004
 
Weighted average fair value of stock options granted $0.91 $0.80 $1.59 
Risk-free interest rate  
3.88%
  
3.38%
  
2.31%
 
Expected life (in years)  5.49  4.00  4.00 
Expected volatility factor  
103%
  
115%
  
124%
 
Expected dividend yield  -  -  - 
 
F-13F-16
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)

  Year Ended April 30,
  2009 2008 2007
Risk-free interest rate  3.10%  3.77%  4.83%
Expected life (in years)  6.00   6.02   6.25 
Expected volatility  79%  82%  98%
Expected dividend yield  -   -   - 

As of April 30, 2009, options to purchase up to 14,193,164 shares of our common stock were issued and outstanding under the Option Plans with a weighted average exercise price of $1.21 per share and expire at various dates through April 14, 2019.  Options to purchase up to 1,261,681 shares of common stock were available for future grant under the Option Plans as of April 30, 2009.

The following summarizes all stock option transaction activity for fiscal year ended April 30, 2009:

Stock Options Shares  
Weighted
Average
Exercisable
Price
  
Weighted
Average
Remaining
Contractual
Term (years)
  
Aggregate
Intrinsic
Value
Outstanding, May 1, 2008  14,689,064  $1.24        
Granted  644,550  $0.36        
Exercised  -  $-        
Canceled or expired  (1,140,450) $1.04        
Outstanding, April 30, 2009  14,193,164  $1.21    5.11  $62,000 
                  
Exercisable and expected to vest  13,898,377  $1.22    5.04  $60,000 
Exercisable, April 30, 2009  11,459,197  $1.36    4.34  $43,000 
The weighted-average grant date fair value of options granted during the years ended April 30, 2009, 2008 and 2007 was $0.25, $0.35 and $1.05 per share, respectively.

The aggregate intrinsic value of stock options exercised during the years ended April 30, 2008 and 2007 was $19,000 and $38,000, respectively. Cash proceeds from stock options exercised during the years ended April 30, 2008 and 2007 totaled $27,000 and $59,000, respectively.   No stock options were exercised during fiscal year ended April 30, 2009.

We issue shares of common stock that are reserved for issuance under the Option Plans upon the exercise of stock options, and we do not expect to repurchase shares of common stock from any source to satisfy our obligations under our compensation plans.

As of April 30, 2009, the total estimated unrecognized compensation cost related to non-vested stock options was $1,128,000.  This cost is expected to be recognized over a weighted average vesting period of 2.16 years based on current assumptions.
F-17

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
 
Stock-based compensation expense recorded during each of the three years in the periods ended April 30, 2006 primarily relate toPeriodically, we grant stock option grants issuedoptions to non-employee consultants.  The fair value of these options granted to non-employees are measured utilizing the Black-Scholes option valuation model and are being amortized over the estimated period of service or related vesting period in accordance with the provisions of SFAS No. 123 and EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.  Stock-basedShare-based compensation expense recorded during fiscal years 2006, 20052009, 2008 and 20042007 associated with non-employees amounted to $499,000, $231,000,$­­­­­­­­­­­­9,000, $21,000 and $271,000,$57,000, respectively.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”), Share-Based Payment (Revised 2004), which requires companies to recognize in the financial statements the fair value of all employee share-based payments, including grants of employee stock options as well as compensatory employee stock purchase plans, for interim periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission adopted a rule amendment that delayed the compliance dates of SFAS No. 123R such that we are now allowed to adopt the new standard no later than May 1, 2006. SFAS No. 123R eliminates the ability to account for share-based compensation using APB No. 25, and the pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition.

We adopted SFAS No. 123R on May 1, 2006, using the “modified-prospective method,” in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. We apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which will then be amortized on a straight-line basis. Although we have not yet determined the final impact of SFAS No. 123R, we believe the non-cash compensation expense for fiscal year 2007 related to the adoption of SFAS No. 123R may be up to approximately $1,000,000 based on actual shares granted and unvested as of April 30, 2006. However, the actual expense recorded during fiscal year 2007 as a result of the adoption of SFAS No. 123R may differ materially from our estimate as a result of changes in a number of factors that affect the amount of non-cash compensation expense, including the number of options to be granted by our Board of Directors during fiscal year 2007, the price of our common stock on the date of grant, the volatility of our stock price, the estimate of the expected life of options granted and the risk free interest rates as measured at the grant date.

In addition, during February 2006, our Compensation Committee of the Board of Directors approved the Company’sa Stock Bonus Plan that remained in effect through April 30, 2007 to promote the interests of the Company and its stockholders by issuing key employees and consultants a predetermined number of shares of the Company’s common stock upon achievement of various research and clinical goals (“Performance Goals”).  Compensation expense associated with shares issued under the Stock Bonus Plan iswas calculated in accordance with APBAccounting Principles Board No. 25,Accounting for Stock Issued to Employees and Related Interpretations, and EITF 96-18.  In accordance with APB No. 25 and EITF 96-18, we will recordrecorded compensation expense at each reporting period when it becomesbecame probable that a Performance Goal under the Stock Bonus Plan willwould be achieved and this accrual will bewas carefully assessed at each subsequent reporting period and adjusted accordingly until the Performance Goal iswas actually achieved.  Decreases or increases to these accruals will bewere accounted for as cumulative catch-up adjustments under FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Awards Plans.  During fiscal year 2006,2007, we recorded $83,000$304,000 in share-based compensation expense under the Stock Bonus Plan,Plan.

4. GOVERNMENT CONTRACT

On June 30, 2008, we were awarded a five-year contract potentially worth up to $44.4 million to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections.  The contract was awarded through the Transformational Medical Technologies Initiative (“TMTI”) of which, $39,000the U.S. Department of Defense's Defense Threat Reduction Agency (“DTRA”).  This federal contract is expected to provide us with up to $22.3 million in funding over an initial 24-month base period, with $14.3 million having been appropriated through the current federal fiscal year ending September 30, 2009.  The remainder of the $22.3 million in funding is expected to be appropriated over the remainder of the two-year base period ending June 29, 2010.  Subject to the progress of the program and budgetary considerations in future years, the contract can be extended beyond the base period to cover up to $44.4 million in funding over the five-year contract period through three one-year option terms.  Work under this contract commenced on June 30, 2008 and direct costs associated with the contract are included in accrued payrollresearch and related costsdevelopment expense in the accompanying condensed consolidated financial statements as of April 30, 2006.operations.

5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes Payable Obligations

On December 9, 2008, we entered into a loan and security agreement pursuant to which we have the ability to borrow up to $10,000,000 (“Loan Agreement”) with MidCap Financial LLC and BlueCrest Capital Finance, L.P.  On December 19, 2008, we received initial funding of $5,000,000.  In addition, we had an option, which expired on June 30, 2009, to borrow a second tranche in the amount of $5,000,000 upon the satisfaction of certain clinical and financial conditions as set forth in the Loan Agreement.   Although we had satisfied the required clinical and financial conditions by June 30, 2009, we determined that exercising the option to borrow the second tranche, and issuing warrant coverage equal to 10% of the second tranche, was not in the best interest of the Company or our stockholders.
F-14F-18

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
Under the Loan Agreement, the outstanding principal balance each month will bear interest at the then current thirty (30) day LIBOR rate (set at a floor of 3%) plus 9% (12% at April 30, 2009).  The Loan Agreement allows for interest-only payments during the initial six (6) months or until July 2009 followed by thirty (30) equal monthly principal payments plus interest.  The Loan Agreement, which is secured by generally all assets of the Company, contains customary covenants that, among other things, generally restricts our ability to incur additional indebtedness.  In addition, the Loan Agreement contains a covenant, whereby if our contract with the DTRA (Note 4) is terminated while the loan is outstanding, we would be required to set aside cash and cash equivalents in an amount equal to at least 80% of the outstanding loan balance in a secured account over which we will not be permitted to make withdrawals or otherwise exercise control.  Moreover, the Loan Agreement includes a Material Adverse Change clause whereby if there is a material impairment in the priority of lenders' lien in the collateral or in the value of such collateral, or if we encounter a material adverse change in our business, operations, or condition (financial or otherwise), or a material impairment of the prospect of repayment of any portion of the loan, then an event of default can be invoked by the lender.
Recent Accounting Pronouncements - In November 2004,
The terms of the FASB issued StatementLoan Agreement also include a provision for warrant coverage equal to 10% of Financial Accounting Standards No. 151 (“SFAS No. 151”), Inventory Costs. SFAS No. 151 amendseach tranche amount divided by the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventorywarrant exercise price.  The warrant exercise price was calculated based on the normal capacityaverage closing price of our common stock for the 20-day period prior to the date of the production facilities.Loan Agreement.  The standard is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We adopted SFAS No. 151 on May 1, 2006, which we do not expect willwarrants are exercisable immediately, include piggy-back registration rights, and have a significant impact on our consolidated financial condition and resultsfive-year term.  In connection with the first tranche advance of operations.

In May 2005, the FASB$5,000,000, we issued Statementwarrants to purchase an aggregate of Financial Accounting Standards No. 154 (“SFAS No. 154”), Accounting Changes and Error Corrections. SFAS No. 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS No. 154 also requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted SFAS No. 151 on May 1, 2006, which we do not expect will have a significant impact on our consolidated financial condition and results of operations.

3.NOTE RECEIVABLE

During December 1998, we completed the sale and subsequent leaseback1,692,047 shares of our two facilities in Tustin, California and recordedcommon stock at an initial note receivable from the buyerexercise price of $1,925,000 as part$0.2955 per share.  The fair value of the consideration. Duringwarrants was $414,000, and this amount was credited to additional paid-in capital and reduced the quarter ended October 31, 1999, we established a 100% reserve for the note receivable in the amount of $1,887,000 based on our then financial condition and the underlying termscarrying value of the note agreement. We reduce the reservedebt, reflected as monthly payments are received and we record the reduction as interest and other incomea debt discount in the accompanying consolidated statementsfinancial statements.  The debt discount is being amortized as a non-cash interest expense over the term of operations. On December 22, 2005, we entered into a First Amendment to Lease and Agreementthe outstanding loan using the effective interest method.  The fair value of Lease (“First Amendment”)the warrants was determined using the Black-Scholes model with the landlord to our original lease dated December 24, 1998 and extended the original lease term for seven years, which extends our contractual commitment under the operating lease through December 2017. In addition, the monthly lease payment terms under the original lease, which increase at afollowing assumptions:  estimated volatility of 70.72%; risk free interest rate of 3.35% every two years, have not been modified. 2.00%; an expected life of five years; and no dividend yield.

In connection with this First Amendment,the Loan Agreement, we entered into a separate agreement withalso incurred $469,000 in financing fees and legal costs related to closing the landlord on December 22, 2005 regardingLoan Agreement.  These fees and costs are classified as debt issuance costs, and the immediate payoffshort-term and long-term portions of our note receivablethese costs are included in the amount of $1,229,000 after reducing the principal amount by twenty percent (20%), which amount was recorded as recovery of note receivablecurrent assets and other long-term assets, respectively, in the accompanying consolidated statementsbalance sheet as of operations duringApril 30, 2009 and are being amortized as a non-cash interest expense over the term of the outstanding loan using the effective interest method.  Included in debt issuance costs is a final payment fee of $150,000, which is due and payable on the maturity date of the outstanding loan balance, and is equal to 3% of the total amount funded under the Loan Agreement.  The final payment fee payable of $150,000 is classified as other long-term liabilities in the accompanying consolidated balance sheet as of April 30, 2009.

We will make the following note payable principal payments in the years ending April 30:

2010 $1,667,000 
2011  2,000,000 
2012  1,333,000 
Total
 $5,000,000 

During fiscal year 2006.years 2005 and 2006, we entered into five separate note payable agreements with an aggregate original principal amount of approximately $1,299,000 (the “Notes”) with General Electric Capital (“GE”) to finance certain laboratory equipment.  In addition, under the terms of the Notes, we paid GE a security deposit equal to 25% of the original principal amount of the Notes that totaled $325,000 in aggregate.  The security deposits were due and payable to us at the time the Notes were paid in full.
 
F-15F-19

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
The following represents a rollforwardDuring fiscal year 2008, we paid in full the balance of the allowanceNotes, which amount was offset by an applied security deposit in the amount of $175,000.  In addition, the note receivable for the two years ended April 30, 2006:

  
2006
 
2005
 
Allowance balance, beginning $1,581,000 $1,645,000 
Principal payments received  (1,274,000) (64,000)
Note receivable payoff reduction  (307,000) - 
Allowance balance, ending $- $1,581,000 
remaining security deposit of $150,000 was refunded back to us during fiscal year 2008.

4.NOTES PAYABLE AND CAPITAL LEASE OBLIGATION
Capital Lease Obligations

During fiscal years 2006 and 2005, we entered into the following note payable agreements with General Electric Capital Corporation (“GE”) to finance certain laboratory equipment. Notes payable consist of the following at April 30, 2006 and April 30, 2005:

  
April 30,
2006
 
April 30,
2005
 
Note payable dated November 2004; 5.78% per annum;
monthly payments of $11,000 due through December 2007
 
$
202,000
 
$
314,000
 
Note payable dated December 2004; 5.85% per annum;
monthly payments of $12,000 due through January 2008
  
232,000
  
354,000
 
Note payable dated June 2005; 6.39% per annum; monthly
payments of $8,000 due through July 2008
  
205,000
  
-
 
Note payable dated November 2005; 6.63% per annum;
monthly payments of $3,000 due through December 2008
  
92,000
  
-
 
Note payable dated March 2006; 6.87% per annum;
monthly payments of $6,000 due through April 2009
  
196,000
  
-
 
   927,000  668,000 
Less current portion  (429,000) (234,000)
Notes payable, less current portion $498,000 $434,000 
Under the terms of the GE note payable agreements, we paid security deposits equal to 25% of the amount financed, which are due and payable to us at the end of the term of each note agreement. As of April 30, 2006 and April 30, 2005, security deposits totaling $325,000 and $183,000, respectively, are included in other long-term assets in the accompanying consolidated financial statements.
Minimum future principal payments on notes payable as of April 30, 2006 are as follows:

Year ending April 30:   
2007  429,000 
2008  379,000 
2009  119,000 
Total $927,000 
F-16
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
During December 2005, we financed certain equipment under a capital lease agreement in the amount of $65,000.  The agreement bears interest at a rate of 6.30% per annum with payments due monthly in the amount of approximately $1,600 through December 2009.

During April 2008, we financed certain equipment under a capital lease agreement in the amount of $15,000.  The agreement bears interest at a rate of 6.56% per annum with payments due monthly in the amount of approximately $400 through April 2011.

The equipment purchased under thethese capital leaseleases is included in property in the accompanying consolidated financial statements as follows at April 30, 2006:2009 as follows:

Laboratory equipment $13,000 
Furniture, fixtures and office equipment $68,000   68,000 
Less accumulated depreciation  (5,000)  (48,000)
Net book value $63,000  $33,000 

Minimum future capital lease payments under the capital lease as of April 30, 20062009 are as follows:

Year ending April 30:       
2007 $19,000 
2008  19,000 
2009  19,000 
2010  13,000    18,000 
2011
   4,000 
Total minimum lease payments  70,000    22,000 
Amount representing interest
  (8,000)   (1,000)
Net present value minimum lease payments  62,000    21,000 
Less current portion
  15,000    17,000 
 $47,000   $4,000 

5.6.COMMITMENTS AND CONTINGENCIES

Operating Leases - In December 1998, we sold and subsequently leased back our two facilities in Tustin, California.  The lease has an original lease term of 12 years with two 5-year renewal options and includes scheduled rental increases of 3.35% every two years.  On December 22, 2005, we entered into a First Amendment to Lease and Agreement of Lease (“First Amendment”) with the landlord to our original lease dated December 24, 1998 and extended the original lease term for seven additional years to expire on December 31, 2017 while maintaining our two 5-year renewal options that could extend our lease to December 31, 2027.  In addition, ourOur monthly lease payments stillwill continue to increase at a rate of 3.35% every two years under the First Amendment.  We record rent expense on a straight-line basis and the differences between the amounts paid and the amounts expensed are included in other accruedcurrent liabilities in the accompanying consolidated financial statements.  Annual rent expense under the lease agreement totaled $758,000 during fiscal year 2006 and $735,000$807,000, during fiscal years 20052009, 2008 and 2004.2007.
 
During fiscal year 2004, we entered into an operating lease agreement to lease certain office equipment. The lease has a 5-year term and annual minimum lease payments are $29,000.

During February 2005, we entered into an operating lease agreement to lease certain office space in Houston, Texas. The lease has a 3-year term and annual minimum lease payments are $20,000 plus a pro rata share of monthly operating expenses. Rent expense under the lease agreement totaled $21,000 and $4,000 during fiscal years 2006 and 2005, respectively.

F-17F-20

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
At April 30, 2006,2009, future minimum lease payments and sublease income under all non-cancelable operating leases are as follows:
 
Year ending
April 30:
 Minimum Lease Payments 
Sublease
Income
 
Net Lease
 Payments
 
2007 $804,000 $(40,000)$764,000 
2008  815,000  -  815,000 
2009  793,000  -  793,000 
2010  796,000  -  796,000 
2011  805,000  -  805,000 
Thereafter  5,736,000  -  5,736,000 
  $9,749,000 $(40,000)$9,709,000 
Year ending April 30: 
Minimum Lease
Payments
 
  2010 $849,000 
  2011  854,000 
  2012  834,000 
  2013  832,000 
  2014  850,000 
  Thereafter  3,232,000 
  $7,451,000 

Rental Income - We currently sublease portions of our unused space. Sublease rental income totaled $59,000, $99,000 and $179,000 for fiscal years 2006, 2005 and 2004, respectively.

Legal Proceedings - From time to time, we are subject to legal proceeding and disputes during – In the ordinary course of business. Webusiness, we are at times subject to various legal proceedings and disputes.  Although we currently are not aware of any such legal proceedingproceedings or claim that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, operating results or cash flows.flows, however, we were involved with the following lawsuit that recently settled:

6.CONVERTIBLE DEBT
On January 12, 2007, we filed a Complaint in the Superior Court of the State of California for the County of Orange against Cancer Therapeutics Laboratories (“CTL”), Alan Epstein (“Dr. Epstein”), Medibiotech Co., Inc. and Shanghai Medipharm Biotech Co., Ltd. (collectively “Medipharm”).  The lawsuit alleged claims for breach of contract, interference with contractual relations, declaratory relief, injunctive relief, and other claims against the defendants.  Our claims stemmed primarily from a 1995 License Agreement with CTL, and amendments to that Agreement ("License Agreement").  We claimed that CTL breached the License Agreement by, among other things, (i) not sharing with Peregrine all inventions, technology, know-how, patents and other information, derived and/or developed in the People’s Republic of China and/or at the CTL laboratory, as was required under the License Agreement; (ii) not splitting revenue appropriately with Peregrine as required under the License Agreement; (iii) utilizing Peregrine's licensed technologies outside of the People’s Republic of China; and (iv) failing to enter a sublicense agreement with a Chinese sponsor obligating the Chinese sponsor to comply with the terms and obligations in the License Agreement.  We also alleged that Medipharm improperly induced CTL to enter into a relationship that did not preserve Peregrine's rights.

On August 9, 2002,March 28, 2007, CTL filed a cross-complaint, which it amended on May 30, 2007, alleging that we entered intoimproperly terminated the License Agreement, and that we interfered with CTL’s agreements with various Medipharm entities and were double-licensing the technology that CTL had licensed to Shanghai Medipharm.

On February 22, 2008, Medipharm filed a private placementcross-complaint alleging, as third party beneficiaries, that we breached the Agreement by double-licensing the technology licensed to CTL to another party, intentionally interfered with four investors under a Debenture Securities Purchaseprospective economic advantage, and unjust enrichment.

On April 16, 2009, we signed a settlement agreement with Medipharm (“April Settlement Agreement”) providing for a settlement and release of all claims with respect to our previously disclosed litigation with Medipharm.  Under the April Settlement Agreement, (“Debt SPA”), whereby we issued Convertible Debenturesagreed to dismiss our respective claims against each other with prejudice.  In connection with the April Settlement Agreement (1) Medipharm agreed not to sell radiolabelled TNT Products outside of the Peoples Republic of China (“Convertible Debt”PRC”) for gross proceedsand we agreed not to sell radiolabelled TNT Products within the PRC; (2) Medipharm agreed that NHS76 (a fully human equivalent antibody to Cotara) is not part of $3,750,000. The Convertible Debt was fully converted into 4,411,764the License Agreement; (3) Medipharm agreed to deliver to CTL 1.9 million shares of common stock,Medibiotech Co. Inc. stock; and (4) we relinquished any and all claims we had with respect to Shanghai Medipharm's use of which, 1,594,119 sharesVivatuxin, murine clone (TNT-1), or any chimeric clone derived from any TNT murine clone developed by Medipharm and product derived thereof in the PRC (with the exception of our common stock were issued during fiscal year 2003claims we may choose to assert related to rhTNT-IL2).  Otherwise, the April Settlement Agreement contained a general release between the Company and 2,817,645 sharesMedipharm of our common stock were issued during fiscal year 2004.
In accordance with EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, we initially recorded the convertible debt net of discount of (i) the relative fair valueall claims arising out of the warrants issued inLicense Agreement or the amount of $1,321,000 and (ii) the intrinsic valuematters of the embedded conversion feature inlawsuit between the amount of $1,143,000. The relative fair value of the warrants was determined in accordance with the Black-Scholes valuation model based on the warrant terms. The debt discount, along with the debt issuance costs, were amortized as non-cash interest expense on a straight-line basis over the term of the Convertible Debt, which approximated the effective interest method. Upon conversion of the Convertible Debt, the entire unamortized debt discount and debt issuance costs remaining at the date of conversion that was attributed to the converted Convertible Debt were immediately recognized as interest expense in the accompanying consolidated statements of operations. During fiscal year 2004, we recognized $1,635,000 in non-cash interest expense associated with the Convertible Debt, which amount was included in interest and other expense in the accompanying consolidated statements of operations. As of April 30, 2004, all outstanding Convertible Debt was converted into common stock and the associated discount was fully amortized as non-cash interest expense in the accompanying financial statements.parties.

F-18F-21
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
On June 4, 2009, we signed a settlement agreement (the “June Settlement Agreement”) with CTL, Dr. Epstein, Clive Taylor, M.D. and Peisheng Hu, M.D. (collectively, the “CTL Parties”), providing for a settlement and release of all claims with respect to our previously disclosed litigation with those CTL Parties.  Under the Debt SPA,June Settlement Agreement, the parties dismissed all of their claims against each Debenture holder was granted a detachable warrant equal to 75% ofother in the quotient obtained by dividing the principal amount of the Convertible Debt by the Conversion Price or an aggregate of 3,308,827 warrants. The detachable warrants have a 4-year term with an exercise price of $0.75 per share. During fiscal year 2006 and 2004, Debenture holders exercised 796,765 and 2,244,120 warrants, respectively, under the Debt SPA for gross proceeds of $598,000 and $1,683,000, respectively, at the exercise price of $0.75 per share. As of April 30, 2006, 267,942 warrants were outstanding under the Debt SPA (Note 10).

lawsuit.  In connection with the Convertible Debt,June Settlement Agreement, (1) we incurred approximately $363,000agreed to pay to CTL the sum of four hundred thousand dollars ($400,000) in debt issuance costs, including placement agent feeseight equal monthly installments of $318,000, which was amortized as interest expense on a straight-line basis over the lifefifty thousand dollars ($50,000) commencing upon execution of the Convertible Debt,June Settlement Agreement and continuing on the first business day of each succeeding month until paid in full, which approximates the effective interest method. Upon conversion of the Convertible Debt, the entire unamortized debt issuance costs remaining at the date of conversion that was attributed to the converted Convertible Debt was immediately recognized as interest expenseamount is included in selling, general and administrative expenses in the accompanying consolidated financial statements of operations. Duringduring fiscal year 2004,2009, (2) CTL agreed to issue to us 950,000 shares of Medibiotech (which represents fifty percent (50%) of the shares of Medibiotech to be issued to and owned by CTL under the April Settlement Agreement), and (3) we expensed $175,000 in debt issuance costs included in interestentered into a license agreement with Dr. Epstein effective as of September 20, 1995, pursuant to which Dr. Epstein granted us (i) a fully paid-up, royalty free, exclusive worldwide license to the murine clone TNT1 and other expense(ii) a fully paid-up, royalty free, non-exclusive worldwide (except in the accompanying consolidated statementsPeoples Republic of operations. AsChina) license to the murine clones TNT2 and TNT3.  The foregoing license grants include our right to grant sublicenses, to make, have made, modify, have modified, use, sell and offer for sale, murine clone TNT1, TNT2 and TNT3 products and derivatives thereof, but not to sell the murine clones.  We also granted back to Dr. Epstein a limited, fully paid-up, royalty free, exclusive license to the murine clone TNT1, with the right to grant sublicenses, to make, have made, modify, have modified, offer to sell, sell and use the murine clone TNT1 and its products solely in the Peoples Republic of April 30, 2004,China effective as of August 29, 2001.  In consideration of the debt issuance costs were completely amortized.foregoing license grants, we paid Dr. Epstein the sum of one thousand dollars ($1,000), which amount was deducted from the initial $50,000 payment.  In addition, the June Settlement Agreement contained full general releases between the Company and the CTL parties.

7.LICENSE, RESEARCH AND DEVELOPMENT AGREEMENTS

The following represents a summary of our key collaborations for the development and commercialization of our products in clinical trials, bavituximab and Cotara®. and our products in pre-clinical development.  In addition, we do not perform any research and development activities for any unrelated entities.

Tumor Necrosis Therapy (“TNT”)

Cotara® is the trade name of our first TNT-based product currently in clinical trials for the treatment of brain cancer.  We acquired the rights to the TNT technology in July 1994 after the merger between Peregrine and Cancer Biologics, Inc. was approved by our stockholders.  The assets acquired from Cancer Biologics, Inc. primarily consisted of patent rights to the TNT technology.  To date, no product revenues have been generated from our TNT technology.
F-22

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
In October 2004, we entered into a worldwide non-exclusive license agreement with Lonza Biologics (“Lonza”) for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of Cotara®.  Under the terms of the agreement, we paid an upfront fee of 75,000 pounds sterling ($141,000 U.S.) which amount is included in research and development expense in the accompanying consolidated financial statements in fiscal year 2005, and we will pay a royalty on net sales of any products that we market that utilize the underlying technology.  In the event a product is approved and we or Lonza do not manufacture Cotara®, we would owe Lonza 300,000 pounds sterling per year in addition to an increased royalty on net sales.

Anti-Phosphatidylserine (“Anti-PS”) ImmunotherapeuticsProgram

Bavituximab (formerly known as Tarvacin) is the generic name for our first product in clinical trials under our Anti-PS Immunotherapeutics technology platform. Bavituximab is currently in a Phase I clinical trial for the treatment of solid cancers and also in a Phase Ib clinical trial for the treatment of hepatitis C virus infection.  In August 2001, we exclusively in-licensed the worldwide rights to this technology platform from the University of Texas Southwestern Medical Center at Dallas.  During November 2003 and October 2004, we entered into two non-exclusive license agreements with Genentech, Inc. to license certain intellectual property rights covering the methods and processes for producing antibodies used in connection with the development of our Anti-PS Immunotherapeutics program.  During December 2003, we entered into an exclusive commercial license agreement with an unrelated entity covering the generation of the chimeric monoclonal antibody, bavituximab.  In March 2005, we entered into a worldwide non-exclusive license agreement with Lonza Biologics for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of bavituximab.

F-19
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
Under our in-licensing agreements relating to the Anti-Phosphatidylserine ImmunotherapeuticsAnti-PS technology, we typically pay an up-front license fee, annual maintenance fees, and are obligated to pay future milestone payments based on development progress, plus a royalty on net sales and/or a percentage of sublicense income.  Our aggregate future milestone payments under the above in-licensing agreements are $7,100,000$6,850,000 assuming the achievement of all development milestones under the agreements through commercialization of products, of which, we expect to pay up to $100,000 during fiscal year 2007 and $6,600,000$6,400,000 is due upon approval of the first Anti-Phosphatidylserine ImmunotherapeuticsAnti-PS product.  In addition, under one of the agreements, we are required to pay future milestone payments upon the completion of Phase II clinical trial enrollment in the amount of 75,000 pounds sterling, the amount of which will continue as an annual license fee thereafter, plus a royalty on net sales of any products that we market that utilize the underlying technology.  In the event we utilize an outside contract manufacturer other than Lonza to manufacture bavituximab for commercial purposes, we would owe Lonza 300,000 pounds sterling per year in addition to an increased royalty on net sales.  We do not anticipate making any milestone payments under these agreements for at least the next fiscal year.

During fiscal years 2006 and 2004,year 2008, we expensed $450,000 and $100,000, respectively, under$50,000 upon the completion of clinical milestones in accordance with in-licensing agreementagreements covering our Anti-PS Immunotherapeutics technology platform, which amount is included in research and development expense in the accompanying consolidated financial statements.  We did not incur any milestone related expenses during fiscal years 2009 and 2007.
 
Other Licenses Covering Products in Pre-Clinical Development

During August 2001, we entered into an exclusive worldwide license for a new pre-clinical compound from the University of Texas Southwestern Medical Center.  This new compound, named 2C3, added to our anti-cancer platform technologies in the anti-angiogenesis field.  Under this license agreement, we paid an up-front license fee and are obligated to pay annual maintenance fees, future milestone payments based on development progress, plus a royalty on net sales.  Our aggregate future milestone payments under this exclusive worldwide license are $450,000 assuming the achievement of all development milestones under the agreement through commercialization of the product.  We do not anticipate making any milestone payments under this agreement for at least the next fiscal year.
F-23

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
In April 1997, in conjunction with the acquisition of Vascular Targeting Technologies, Inc. (formerly known as Peregrine Pharmaceuticals, Inc.), we gained access to certain exclusive licenses for Vascular Targeting Agents (“VTAs”) technologies from various institutions.  In conjunction with various licensing agreements covering our VTA technology, we are required to pay combined annual fees of $50,000 plus milestone payments based on the development success of the technologies and a royalty on net sales.  Our aggregate future milestone payments under these exclusive licenses are $1,688,000 assuming the achievement of all development milestones under the agreements through commercialization of the product, which are due at various stages of clinical development in accordance with the applicable license.  We do not anticipate making any milestone payments for at least the next fiscal year under these agreements.

During February 2000,fiscal year 2007, we entered into an exclusive worldwide licensing transaction with the University of Southern California for its Permeability Enhancing Protein (“PEP”) in exchange for an up-front payment plus future milestone paymentsa research collaboration agreement and a royalty on net sales based on development success. The PEP technology is classified under our Vasopermeation Enhancing Agent (“VEA”) technology, which is designed to increase the uptake of chemotherapeutic agents into tumors. PEP is designed to be used in conjunction with the VEA technology platform. Our aggregate future milestone payments under our PEP and VEA exclusive worldwide licensing agreements are $115,000 assuming the achievement of all development milestones under thecommercialization agreement through commercialization of the product. We do not anticipate making any milestone payments for at least the next fiscal year under this agreement.

F-20
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
During June 2003, September 2004, and November 2004, we entered into various binding term sheets with an unrelated entity regarding the generation and commercialization of up to ninefifteen fully human monoclonal antibodies under our platform technologies to be used as possible future clinical candidates.  These agreements incorporate the various binding term sheets we entered into with the unrelated entity during June 2003, September 2004, and November 2004.  Under the terms of the binding terms sheets,research collaboration agreement, we paidpay a non-refundable upfront technology access fee for each human antibody project initiatedinitiated.  In addition, under the terms of the development and commercialization agreement, we are obligated to pay future milestones payments based on the achievement of development milestones, plus a royalty on net sales.  Our aggregate future milestone payments range from $5.75 million to $6.05$6.35 million per fully human antibody generated by the unrelated entity upon the achievement of certain development milestones through commercialization.  During fiscal years 2006, 2005 and 2004,year 2009, we expensed $185,000, $150,000 and $200,000, respectively,$255,000 in non-refundable upfront technology access fees under the binding term sheetsresearch collaboration agreement upon the initiation to generate fourone fully human antibodies,monoclonal antibody, the amountsamount of which areis included in research and development expense in the accompanying consolidated financial statements.  We did not incur any non-refundable upfront technology access fees during fiscal years 2008 and 2007.  We also do not anticipate making any milestone payments for at least the next fiscal year under these agreements.

During December 2003,June 2007, we entered into a research collaborationan exclusive license agreement with an unrelated entityThe Regents of the University of California regarding the humanizationuse of one of our Anti-Phosphatidylserine Immunotherapeuticcertain Anti-PS antibodies to be used as a possible future generation clinical candidate.  Under the terms of the research collaboration agreement, we are required to paypaid a non-refundable up-front license fee antibodyof $25,000, which is included in research and development milestone fees,expense in fiscal year 2008 in the accompanying consolidated financial statements.  In addition, under the terms of the agreement, we are obligated to pay an annual maintenance fee, clinical development milestone fees and a royalty on net sales.  During January and October 2004, we issued and sold 243,101 and 107,665 shares of our common stock to the unrelated entity, respectively, for payment of the non-refundable up-front license fee of 90,000 pounds sterling and forOur aggregate antibodyfuture clinical development milestone fees of 360,000 pounds sterling. These shares were valued at $802,000 based on the more readily determinable value of the services received or the fair value of the common stock issued, of which, $186,000 and $616,000 was recorded as research and development expense in the accompanying consolidated financial statements during fiscal year 2005 and 2004, respectively. Our minimum aggregate future milestone payments under thisthe license agreement are $3,250,000$735,000 assuming the achievement of all developmentdevelopmental milestones under the agreement through commercialization of the product.  We do not anticipate making any milestone payments for at least the next fiscal year under this agreement.

During July 2004, we announced that we entered into a worldwide exclusive licensing agreement for intellectual property related to Phosphatidylserine conjugates and Anti-Phosphatidylserine (Anti-PS) antibodies from The University of Texas M. D. Anderson Cancer Center related to generating an immune response for the treatment of cancer and other indications. Under the terms of the agreement, we paid The University of Texas M. D. Anderson Cancer Center a non-refundable up-front fee of $150,000, which is included in research and development expense in fiscal year 2005 in the accompanying consolidated financial statements, and we are obligated to pay future milestone fees based on the clinical progress of products that fall under the licensed intellectual property and a royalty on net sales as defined in the agreement. Our aggregate future milestone payments under this licensing agreement are $1,700,000 assuming the achievement of all development milestones under the agreement through commercialization of the product. We do not anticipate making any milestone payments for at least the next fiscal year under this agreement.
F-21
PEREGRINE PHARMACEUTICALS, INC.Out-Licensing Collaborations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
Out-Licensing Collaborations

In addition to our in-licensing collaborations, the following represents a summary of our key out-licensing collaborations.

During September 1995, we entered into an agreement with Cancer Therapeutics, Inc., a California corporation, whereby we granted to Cancer Therapeutics Laboratories, Inc. (“CTL”) the exclusive right to sublicense TNT to a major pharmaceutical company solely in the People’s Republic of China.  In addition, we are entitledaccordance with the June Settlement Agreement (Note 6), CTL agreed to receiveissue to Peregrine 950,000 shares of Medibiotech (which represents 50% of the distributed profits receivedshares of Medibiotech owned by Cancer Therapeutics, Inc. from the Chinese pharmaceutical company. Cancer Therapeutics, Inc. has the right to 20%CTL) in lieu of any of the distributed profits underfinancial terms included in the agreement with the Chinese pharmaceutical company. During March 2001, we extended the exclusive licensing period granted to Cancer Therapeutics, which now expires on December 31, 2016. In exchange for this extension, Cancer Therapeutics, Inc. agreed to pay us ten percent (10%) of all other consideration received by Cancer Therapeutics, Inc., excluding research funding. Through fiscal year ended AprilSeptember 1995 agreement.
F-24

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006, we have not received any amounts under the agreement.2009 (continued)

During October 2000, we entered into a licensing agreement with Merck KGaA to out-license a segment of our TNT technology for use in the application of cytokine fusion proteins.  During January 2003, we entered into an amendment to the license agreement, whereby we received an extension to the royalty period from six years to ten years from the date of the first commercial sale.  Under the terms of agreement, we would receive a royalty on net sales if a product is approved under the agreement.  Merck KGaA has not publicly disclosed the development status of its program.program to Peregrine.

During February 2001,2007, we completed a licensing dealentered into an amended and restated license agreement with SuperGen, Inc. (“SuperGen”) revising the original licensing deal completed with SuperGen in February 2001 to license a segment of our VTA technology, specifically related to certain conjugates Vascular Endothelial Growth Factor (“VEGF”).  Under the terms of the licensingamended and restated license agreement, we will receive an annual license feefees of up to $200,000 per year payable in cash or SuperGen common stock until SuperGen files an Investigational New Drug Application in the United States utilizing the VEGF conjugate technology.  In addition, we could receive additional milestoneup to $8.25 million in future payments based on SuperGen’s development success, plus receivethe achievement of all clinical and regulatory milestones combined with a royalty on net sales, of all drugs commercialized by SuperGen utilizingas defined in the VEGF technology.agreement, as amended.  We could also receive additional consideration for each clinical candidate that enters a Phase III clinical trial by SuperGen.  As of April 30, 2006,2009, SuperGen has not filed an Investigational New Drug Application in the United States utilizing the VEGF conjugate technology.

During December 2002, we granted the exclusive rights for the development of diagnostic and imaging agents in the field of oncology to Schering A.G. under our VTA technology.  Under the terms of the agreement, we received an up-front payment of $300,000, that is beingwhich we amortized as license revenue over an estimated period of 48 months of which, $50,000 is included in deferred license revenuethrough December 2006 in accordance with SAB No. 104104.  In addition, under the terms of the agreement, we could receive up to $1.2 million in the accompanying consolidated financial statements at April 30, 2006. Under this license agreement, the obligation period was not contractually defined and we exercised judgment in estimating the period of time over which certain deliverables will be provided to enable the licensee to practice the license. The estimated period of 48 months was primarily determinedfuture payments for each product based on the historical experienceachievement of all clinical and regulatory milestones combined with Schering A.G. under a separate license agreement. In addition, we could also receive future milestone payments and a royalty on net sales, as defined in the agreement.  Under the same agreement, we granted Schering A.G. an option to obtain certain non-exclusive rights to the VTA technology with predetermined up-front fees and milestone payments as defined in the agreement.  Schering A.G. has not publicly disclosed the development status of its program.

F-22
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
During August 2005, we licensed certain intellectual property rights under our VTA technology to Medarex, Inc., which allows Medarex, Inc. to develop and commercialize certain monoclonal antibodies for the treatment of a wide range of solid tumors. Under the terms of the agreement, we could receive up to $5.95 million in future payments based on the achievement of all clinical and regulatory milestones combined with a royalty on net sales, as defined in the agreement. Medarex has not publicly disclosed the development status of its program.

8.STOCKHOLDERS' EQUITY

Adoption of a Stockholder Rights Agreement

On March 16, 2006, our Board of Directors adopted a Stockholder Rights Agreement (“Rights Agreement”) that is designed to strengthen the ability of the Board of Directors to protect the interests of our stockholders against potential abusive or coercive takeover tactics and to enable all stockholders the full and fair value of their investment in the event that an unsolicited attempt is made to acquire Peregrine.  The adoption of the Rights Agreement is not intended to prevent an offer the Board of Directors concludes is in the best interest of Peregrine and its stockholders.

Under the Rights Agreement, the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each share of our common stock held by shareholders of record as of the close of business on March 27, 2006.  Each Right will entitle holders of each share of our common stock to buy one thousandth (1/1,000thth) of a share of Peregrine’s Series D Participating Preferred Stock, par value $0.001 per share, at an exercise price of $11.00 per share, subject to adjustment.  The Rights are neither exercisable nor traded separately from our common stock.  The Rights will become exercisable and will detach from the common shares if a person or group acquires 15% or more of our outstanding common stock, without prior approval from our Board of Directors, or announces a tender or exchange offer that would result in that person or group owning 15% or more of our common stock.  Each Right, when exercised, entitles the holder (other than the acquiring person or group) to receive common stock of the Company (or in certain circumstances, voting securities of the acquiring person or group) with a value of twice the Rights exercise price upon payment of the exercise price of the Rights.
F-25

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
Peregrine will be entitled to redeem the Rights at $0.001 per Right at any time prior to a person or group achieving the 15% threshold.  The Rights will expire on March 16, 2016.

Increased Authorized Shares Of Common Stock

On October 22, 2007, the stockholders of the Company approved an increase in the number of authorized shares of common stock from 250,000,000 to 325,000,000.  In November 2007, we filed an amendment to our Certificate of Incorporation with the Secretary of State of Delaware which effected the foregoing increase in the number of shares authorized.

Financing Under Shelf Registration Statements On Form S-3

During fiscal years 2006, 2005, and 2004,January 2007, we entered into various financing transactions under the following shelffiled a registration statementsstatement on Form S-3, File Number 333-139975 (“January 2007 Shelf”) which werewas declared effective by the Securities and Exchange Commission, on various dates described in the below table, allowing us to issue, from time to time, in one or more offerings, shares of common stock for proceeds up to $30,000,000.  As of June 30, 2009, we had raised the $30,000,000 in gross proceeds permitted under the January 2007 Shelf registration statement under the following number ofagreements:

On June 28, 2007, we entered into a Securities Purchase Agreement with several institutional investors whereby we sold 30,000,000 shares of our common stock in exchange for gross proceeds of $22,500,000 under the January 2007 Shelf.  We received net proceeds of $20,859,000 after deducting placement agent fees and warrantsestimated costs associated with the offering.

On March 26, 2009, we entered into an At Market Issuance Sales Agreement (“AMI Agreement”) with Wm Smith & Co., pursuant to purchasewhich we may sell shares of our common stock:stock through Wm Smith & Co., as agent, in registered transactions from our January 2007 Shelf, for aggregate gross proceeds of $7,500,000.  Shares of common stock sold under this arrangement were to be sold at market prices.  As of April 30, 2009, we had sold 1,477,938 shares of common stock under the AMI Agreement for aggregate net proceeds of $550,000.  Subsequent to April 30, 2009, we sold and additional 9,275,859 shares of common stock under the AMI Agreement for aggregate net proceeds of $6,685,000 after deducting commissions of 3% paid to Wm Smith & Co.  As of June 30, 2009, we had raised the aggregate gross proceeds of $7,500,000 permitted under the AMI Agreement.

Registration
Statement No.
Shelf Effective Date
Number of Shares of
Common Stock Registered
Number of Warrants
Registered
333-71086November 200110,000,0002,000,000
333-103965March 200310,000,000-
333-109982October 200312,000,000-
333-121450December 200412,000,000-
333-128322September 200512,000,000-
333-132872March 200615,000,000-
During fiscal year 2007, we entered into two separate financing transactions under a shelf registration statement on Form S-3, File Number 333-132872, which was declared effective by the Securities and Exchange Commission, allowing us to issue, from time to time, in one or more offerings, up to 15,000,000 shares of our common stock.  The following table summarizes the two financing transactions we entered into during fiscal year 2007 under this shelf registration statement:
 
F-23F-26

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
The following tables summarize the financing transactions we entered into during fiscal years 2004, 2005, and 2006 under the above shelf registration statements:
 FISCAL YEAR 2004
 
Description of Financing Transaction
 
Number of Common Stock Shares Issued
 
Number of
Warrants Issued
 
Net Issuance
Value
 
Common stock purchase agreement dated June 6, 2003  2,412,448  150,000 $1,971,000 
Common stock purchase agreement dated June 26, 2003  1,599,997  - $1,739,000 
Option granted under the common stock purchase agreement dated June 26, 2003  1,599,997  - $1,786,000 
Common stock purchase agreement dated July 24, 2003  2,000,000  - $2,887,000 
Common stock purchase agreement dated September 18, 2003  2,800,000  - $5,273,000 
Common stock purchase agreement dated November 17, 2003  2,000,000  
-
 
$
4,256,000
 
Common stock purchase agreement dated January 22, 2004  1,000,000  
-
 $2,275,000 
Common stock issued to unrelated entities for research services  243,101  
-
 $648,000 
   13,655,543  150,000 $20,835,000 
Description of Financing Transaction Number of Shares of Common Stock Issued  Net Issuance Value 
Common stock purchase agreement dated June 16, 2006  9,285,714  $12,970,000 
Common stock issued to unrelated entities for research services  862,832  $931,000 
   10,148,546  $13,901,000 


FISCAL YEAR 2005
Description of Financing Transaction
 
Number of Common Stock Shares Issued
 
Number of
Warrants Issued
 
Net Issuance
Value
 
Common stock purchase agreement dated March 31, 2004  3,000,000  
-
 $3,207,000 
Common stock purchase agreement dated January 31, 2005  3,000,000  
-
 $3,279,000 
Common stock issued to unrelated entities for research services  1,174,682  
-
 $1,449,000 
   7,174,682  - $7,935,000 

FISCAL YEAR 2006
Description of Financing Transaction
 
Number of Common Stock Shares Issued
 
Number of
Warrants Issued
 
Net Issuance
Value
 
Common stock purchase agreement dated January 31, 2005  1,582,217  
-
 
$
1,576,000
 
Common stock purchase agreement dated May 11, 2005  3,125,000  
-
 
$
2,989,000
 
Common stock purchase agreement dated June 22, 2005  8,000,000  
-
 
$
6,691,000
 
Common stock purchase agreement dated November 23, 2005  8,000,000  
-
 
$
6,719,000
 
Common stock purchase agreement dated April 5, 2006  4,000,000  
-
 
$
4,919,000
 
Common stock issued to unrelated entities for research services  695,820  
-
 
$
907,000
 
   25,403,037  - $23,801,000 

As of April 30, 2006, an aggregate of 15,179,180 shares of common stock were available for issuance under two of the shelf registration statements noted above.
F-24
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
On June 16, 2006, we entered into a Common Stock Purchase Agreement whereby we sold 9,285,714 shares of our common stock in exchange for net proceeds of $13,000,000. As of June 30, 2006, an aggregate 5,893,466 shares of common stock were registered and available for issuance under two separate shelf registration statements.

Financing Under Securities Purchase Agreement

In addition to the above financing transactions pursuant to our shelf registration statements, on August 9, 2002, we entered into a private placement with two investors under a Securities Purchase Agreement (“SPA”) and issued an aggregate of 1,923,078 shares of our common stock in exchange for gross proceeds of $1,250,000. In conjunction with the private placement, we issued warrants to purchase up to an aggregate of 1,442,309 shares of our common stock. The warrants have a four year term and are exercisable six months after the date of issuance at an exercise price of $0.71 per share. During fiscal year 2004, the two investors exercised all 1,442,309 warrants in exchange for gross proceeds of $1,024,000 at the exercise price of $0.71 per share.

Also on August 9, 2002, we agreed to sell 3,298,462 shares of our common stock at a negotiated price of $0.65 per share in exchange for gross proceeds of $2,144,000 to one investor. In conjunction with this offering, we issued a four-year warrant to purchase up to 4,648,846 shares of our common stock at an exercise price of $0.71 per share. As of April 30, 2006, warrants to purchase up to 4,648,846 shares our common stock, which expire in August 2006, were outstanding under the SPA.

Shares Of Common Stock Authorized And Reserved For Future Issuance

In accordance with our shares reserved for issuance under our Shelf registration statements, stock option plans and warrant agreements, we have reserved 38,797,53026,422,751 shares of our common stock at April 30, 20062009 for future issuance, calculated as follows:

  
Number of
shares reserved
Shares reserved under two effective shelf registration statements
15,179,180
 
Options issued and outstanding  11,307,27914,193,164 
Options available for future grant  5,346,4181,261,681 
Warrants issued and outstanding  6,964,6531,692,047
Shares reserved for issuance under AMI Agreement9,275,859 
Total shares reserved  38,797,53026,422,751 

In addition, up to 1,302,033shares of common stock could potentially be issued under our 2005 Stock Option Plan for the possible issuance of shares under our Stock Bonus Plan (Note 9).

F-25
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
9.STOCK OPTIONS
We maintain four equity compensation plans, the 1996 Plan, the 2002 Plan, the 2003 Plan, and the 2005 Plan. The 1996, 2003 and 2005 Plans were approved by our stockholders while the 2002 Plan was not submitted for stockholder approval.

Equity Compensation Plans Approved by Stockholders

We have three incentive stock option plans with outstanding options as of April 30, 2006: the 1996 Plan, the 2003 Plan, and the 2005 Plan. The plans provide for the granting of options to purchase shares of our common stock at prices not less than the fair market value of our common stock at the date of grant and generally expire ten years after the date of grant.
The 1996 Plan originally provided for the issuance of options to purchase up to 4,000,000 shares of our common stock. The number of shares for which options may be granted under the 1996 Plan automatically increases for all subsequent common stock issuances by us in an amount equal to 20% of such subsequent issuances up to a maximum of 10,000,000 options as long as the total shares allocated to the 1996 Plan do not exceed 20% of our authorized stock. As a result of issuances of our common stock subsequent to the adoption of the 1996 Plan, the number of shares for which options may be granted has increased to 10,000,000. Options granted generally vest over a period of four years with a maximum term of ten years. As of April 30, 2006, options to purchase 4,321,328 shares of our common stock were outstanding under the 1996 Plan and 56,437 options were available for grant under the 1996 Plan.

During October 2003, our stockholders approved the 2003 Stock Incentive Plan (“2003 Plan”) for the issuance of options to purchase up to 5,000,000 shares of the Company’s common stock. The 2003 Plan provides for the granting of options to purchase shares of our common stock at prices not less than the fair market value of the stock at the date of grant and which generally expire ten years after the date of grant. As of April 30, 2006, options to purchase 4,745,508 shares of our common stock were outstanding under the 2003 Plan and 254,492 options were available for grant under the 2003 Plan.

During October 2005, our stockholders approved the 2005 Stock Incentive Plan (“2005 Plan”) which provides for the granting of stock options to purchase shares of our common stock at prices not less than the fair market value of our common stock on the date of grant or for the direct issuance of stock as a bonus for services rendered. The 2005 Plan provides for the issuance of up to 5,000,000 shares of common stock. Options granted under the 2005 Plan generally expire ten years after the date of grant. As of April 30, 2006, there were no options outstanding to purchase shares of our common stock under the 2005 Plan and 4,971,048 options were available for grant under the 2005 Plan. In addition, during February 2005, the Compensation Committee of the Board of Directors approved a Stock Bonus Plan that would reward key employees and consultants in shares of the Company’s common stock, which shares would be issued under our 2005 Plan. The total options available for grant of 4,971,048 under the 2005 Plan excludes shares of our common stock reserved for under our Stock Bonus Plan due to the uncertainty of achieving the performance milestones that are required to be achieved before shares of common stock are issued under the Stock Bonus Plan. In the event that all remaining milestones were achieved under the Stock Bonus Plan, we would issue up to 1,302,033 additional shares of common stock under the 2005 Plan during fiscal year 2007 for the achievement of performance milestones.

F-26
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
Equity Compensation Plans Not Approved by Stockholders

During June 2002, we adopted a broad-based non-qualified stock option plan (“2002 Plan”) for the issuance of up to 3,000,000 options. The 2002 Plan provides for the granting of options to purchase shares of our common stock at prices not less than the fair market value of our common stock at the date of grant and generally expire ten years after the date of grant. As of April 30 2006, options to purchase 2,058,779 shares of our common stock were outstanding under the 2002 Plan and 64,441 options were available for grant under the 2002 Plan.

In addition to the 2002 Plan, during 1999, we granted non-qualified options, which are not part of any compensation plan, to purchase up to an aggregate of 1,500,000 shares of our common stock. As of April 30, 2006, options to purchase 181,664 shares of our common stock were outstanding. The resale of the underlying shares of common stock is registered on a registration statement on Form S-3.

Option activity for all option plans for each of the three years ended April 30, 2006 is as follows:
  
2006
 
2005
 
2004
 
  
Shares
 
Weighted Average
Exercise
Price
 
Shares
 
Weighted
Average
Exercise
Price
 
Shares
 
Weighted
Average
Exercise
Price
 
BALANCE,             
Beginning of year  11,182,640  $1.61  11,704,205  $1.48  9,580,458  $1.16 
                    
Granted  1,128,481  $1.14  3,149,829  $1.52  4,187,947  $2.09 
                    
Exercised  (154,230) $0.79  (2,120,806) $0.66  (1,131,242) $0.61 
                    
Forfeited or Expired  (849,612) $1.80  (1,550,588) $1.77  (932,958) $1.99 
BALANCE,                   
End of year  11,307,279  $1. 56  11,182,640  $1.61  11,704,205  $1.48 
Additional information regarding options outstanding as of April 30, 2006 is as follows:

  
Options Outstanding
Options Exercisable
Range of Per
Share Exercise
Prices
Number of Shares
Outstanding
Weighted Average
Remaining Contractual
Life (years)
Weighted Average
Per Share
Exercise Price
Number of Shares Exercisable
Weighted Average
Per Share
Exercise Price
$ 0.34 - $ 1.052,470,2845.64$ 0.631,765,078$ 0.50
$ 1.06 - $ 1.312,264,6166.23$ 1.201,766,182$ 1.21
$ 1.32 - $ 1.622,412,3517.34$ 1.491,172,135$ 1.51
$ 1.63 - $ 2.19558,9006.76$ 1.92   359,575$ 1.95
$ 2.20 - $ 5.283,601,1287.15$ 2.413,416,562$ 2.42
$ 0.34 - $ 5.2811,307,2796.66$ 1.568,479,532$ 1.62
F-27
PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
10.WARRANTS

Granted - As of April 30, 2006,2009, we had warrants outstanding to purchase up to 6,964,6531,692,047 shares of our common stock at exercise prices ranging between $0.71 and $2.50 per share with a weighted averagean exercise price of $0.86$0.2955 per share.

Additional information regardingshare and an expiration date of December 19, 2013.  These warrants outstandingwere issued during fiscal year 2009 in connection with the loan and security agreement we entered into on December 9, 2008, as of April 30, 2006, is as follows:

Range of Per Share
Exercise Prices
 
Number of Warrants
Outstanding
 
Weighted Average
Per Share
Exercise Price
 
Expiration Date
or Date Range
$0.71 - $0.75 4,916,788 $0.71 8/8/06
$0.86      62,865 $0.86 6/8/07
$1.00 1,350,000 $1.00 11/16/06
$1.47 - $2.50    635,000 $1.72 1/31/07 - 3/31/08
$0.71 - $2.50 6,964,653 $0.86 8/6/06 - 3/31/08

During fiscal years 2005 and 2004, we granted 350,000 warrants and 150,000 warrants, respectively, under two separate transactions.further discussed in Note 5.  There were no warrants granted during fiscal year 2006. The relative fair value of the warrants was determined in accordance with the Black-Scholes valuation model based on the underlying warrant terms. The warrants granted during fiscal year 2005 pertain to services being provided by a non-employee consultant. The warrant has a three year term, an exercise price of $1.47 per share, expires March 31,years 2008 and was outstanding at April 30, 2006. We utilized the Black-Scholes valuation model to calculate the fair value of the warrant, which was recorded as stock-based compensation in the accompanying consolidated financial statements. The warrants granted in fiscal year 2004 to purchase up to 150,000 shares of our common stock were issued in connection with the common stock purchase agreement dated June 6, 2003, of which, 62,865 warrants were outstanding at April 30, 2006. The warrants have a 4-year term with an exercise price of $0.86 per share and expire in June 2007.

Exercised - During fiscal year 2006,2008, warrants to purchase 812,51253,416 shares of our common stock were exercised on a cash basis under various transactions for net proceeds of $611,000 and the issuance of 812,512 shares of our common stock.$46,000.  During fiscal year 2005,2007, warrants to purchase 2,495,4146,266,788 shares of our common stock were exercised on a combined cash and cashless basis under various transactions for net proceeds of $747,000 and the issuance of 2,419,790 shares of our common stock. During fiscal year 2004,$4,836,000.  There were no warrants to purchase 4,087,871 shares of our common stock were exercised on a combined cash and cashless basis under various transactions for net proceeds of $2,786,000 and the issuance of 4,063,251 shares of our common stock.

During fiscal years 2006 and 2005, 5,764,631 and 324,638 warrants, respectively, to purchase shares of common stock expired unexercised.

During fiscal year 2005, Swartz Private Equity, LLC (“SPE”) exercised 699,000 warrants granted in November 1999 in exchange for gross proceeds of $328,000, the exercise of which is included in the total warrant exercises during fiscal year 2005. The warrant was originally granted on November 19, 1999 in consideration of a commitment by SPE to fund a $35,000,000 equity line financing over a three year term at an exercise price of $0.46875 per share. This agreement was entered into and approved by the previous Board of Directors. Mr. Eric Swartz, a member of our Board of Directors, maintains a 50% ownership in SPE. We utilized the Black-Scholes valuation model to calculate the fair value of the warrant, which was recorded as stock-based compensation expense in the accompanying consolidated financial statements.

F-28
PEREGRINE PHARMACEUTICALS, INC.2009.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
11.10. SEGMENT REPORTING

Our business is organized into two reportable operating segments.  Peregrine is engaged in the research and development of targeted therapeuticsmonoclonal antibody-based therapies for the treatment of cancer and serious viral infections and cancerusing monoclonal antibodies.infections.  Avid is engaged in providing contract manufacturing of biologicsservices for Peregrine and related services to biopharmaceutical and biotechnology businesses.outside customers on a fee-for-service basis.

The accounting policies of the operating segments are the same as those described in Note 2.  We primarily evaluate the performance of our segmentscontract manufacturing services segment based on net revenues,gross profit or loss.  However, our products in the research and development segment are not evaluated based on gross profit or loss, (exclusivebut rather based on scientific progress of research and development expenses, selling, general and administrative expenses, and interest and other income/expense) and long-lived assets. Ourthe technologies.  As such, gross profit is only provided for our contract manufacturing services segment netin the below table.  All revenues shown below are derived from transactions with external customers. Our
F-27

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
Segment information is summarized as follows:

  2009  2008  2007 
Contract manufacturing services revenue $12,963,000  $5,897,000  $3,492,000 
Cost of contract manufacturing services  9,064,000   4,804,000   3,296,000 
Gross profit $3,899,000  $1,093,000  $196,000 
             
Revenues from products in research and development $5,188,000  $196,000  $216,000 
Research and development expense  (18,424,000)  (18,279,000)  (15,876,000)
Selling, general and administrative expense  (6,979,000)  (7,150,000)  (6,446,000)
Other income (expense), net  (208,000)  964,000   1,114,000 
Net loss $(16,524,000) $(23,176,000) $(20,796,000)

Revenue generated from our contract manufacturing segment gross profit represents net revenues less costwas from the following customers:

  2009  2008  2007
Customer revenue as a % of revenue:           
United States (one customer)  57%   84%   11%
Germany (one customer)  25%   7%   51%
Canada (one customer)  16%   3%   0%
Australia (one customer)  0%   2%   14%
China (one customer)  0%   0%   10%
Other customers  2%   4%   14%
Total customer revenue as a % of revenue  100%   100%   100%

Revenue generated from our products in our research and development segment during fiscal year 2009 were primarily from revenue earned under the government contract with the DTRA (Note 4).  The remainder of sales. revenue generated from our products in our research and development segment during fiscal year 2009 was from an annual license fee received under our license agreement with SuperGen, Inc. (Note 7).  Revenue generated from our products in our research and development segment during fiscal years 2008 and 2007 was from revenue earned under various license agreements including SuperGen, Inc.
F-28

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2009 (continued)
Our long-lived assets consist of leasehold improvements, laboratory equipment, and furniture, fixtures and computer equipment and are net of accumulated depreciation.  Long-lived assets by segment consist of the following:

Segment information
  2009  2008 
Long-lived Assets, net:      
Contract manufacturing services $1,531,000  $1,825,000 
Products in research and development  150,000   233,000 
Total long-lived assets, net $1,681,000  $2,058,000 

11. INCOME TAXES

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN No. 48”), Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  Under FIN No. 48, tax positions are recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.  An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained upon examination by the tax authorities.  FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.

We adopted the provisions of FIN No. 48 on May 1, 2007.   There were no unrecognized tax benefits as of the date of adoption and as a result of the implementation of FIN No. 48, we did not recognize an increase in the liability for unrecognized tax benefits.  In addition, there are no unrecognized tax benefits included in our consolidated balance sheet that would, if recognized, affect our effective tax rate.

It is our policy to recognize interest and penalties related to income tax matters in interest and other expense in our consolidated statement of operations.  We did not recognize interest or penalties related to income taxes for fiscal years 2006, 2005ended April 30, 2009 and 2004 is summarized2008, and we did not accrue for interest or penalties as follows:of April 30, 2009 and 2008.

  
2006
 
2005
 
2004
 
Net Revenues:
          
Contract manufacturing and development of biologics $3,005,000 $4,684,000 $3,039,000 
Research and development of biotherapeutics  188,000  275,000  275,000 
Total net revenues $3,193,000 $4,959,000 $3,314,000 
           
Gross Profit (Loss):
          
Contract manufacturing and development of biologics $(292,000)$283,000 $827,000 
Research and development of biotherapeutics  188,000  275,000  275,000 
Total gross profit (loss) $(104,000)$558,000 $1,102,000 
           
Research and development expense of biotherapeutics  
(12,415,000
)
 
(11,164,000
)
 
(9,673,000
)
Selling, general and administrative expense  (6,564,000) (5,098,000) (4,225,000)
Net other income (expense)  2,022,000  252,000  (1,549,000)
Net loss $(17,061,000)$(15,452,000)$(14,345,000)
We are primarily subject to U.S. federal and California state jurisdictions.  To our knowledge, all tax years remain open to examination by U.S. federal and state authorities.

The adoption of FIN No. 48 did not impact our financial condition, results of operations, or cash flows.  At April 30, 2009, we had total deferred tax assets of $6,327,000.  Due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets, a full valuation has been established to offset our total deferred tax assets.  Additionally, the future utilization of our net operating loss and general business and research and development credit carry forwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future.  We have not yet performed a Section 382 analysis to determine the limitation of the net operating loss and general business and research and development credit carry forwards.  Until this analysis has been performed, we have removed the deferred tax assets for net operating losses of $70,136,000 and general business and research and development credits of $118,000 generated through April 30, 2009 from our deferred tax asset schedule and have recorded a corresponding decrease to our valuation allowance.  When this analysis is finalized, we plan to update our unrecognized benefits under FIN No. 48.  Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.
F-29

PEREGRINE PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
Net revenues generated from Avid duringAt April 30, 2009, we had federal net operating loss carry forwards and tax credit carry forwards of approximately $177,376,000 and $118,000, respectively.  The net operating loss carry forwards expire in fiscal years 2006, 20052010 through 2029.  The net operating losses of $2,986,000 applicable to Vascular Targeting Technologies, our wholly-owned subsidiary, can only be offset against future income of that subsidiary.  The tax credit carry forwards begin to expire in fiscal year 2010 and 2004 were primarily fromare available to offset the following customers:
 
2006
 
2005
 
2004
Customer revenues as a % of net revenues:
     
United States (customer A)73% 51% 4%
United States (customer B)2% 15% 24%
Germany (one customer)10% 0% 3%
Israel (one customer)1% 32% 67%
Other customers14% 2% 2%
Total customer revenues as a % of net revenues100% 100% 100%

Net revenues generated from Peregrine during fiscal years 2006, 2005 and 2004 were primarily from annual license fees received under the license agreement with SuperGen, Inc. combined with the amortized portionfuture taxes of an up-front license fee received under the December 2003 license agreement with Schering A.G. (Note 7).

Long-lived assets consistour subsidiary.  We also have state net operating loss carry forwards of the followingapproximately $111,182,000 at April 30, 2006 and April 30, 2005:

  
2006
 
2005
 
Long-lived Assets, net:
       
Contract manufacturing and development of biologics $1,516,000 $1,291,000 
Research and development of biotherapeutics  390,000  347,000 
Total long-lived assets, net $1,906,000 $1,638,000 

12.INCOME TAXES
2009, which begin to expire in fiscal year 2015.

The provision for income taxes consists of the following for the three years ended April 30, 2006:2009:

  
2006
 
2005
 
2004
 
Provision for federal income taxes at statutory rate 
$
(5,801,000
)
$
(5,254,000
)
$
(4,877,000
)
State income taxes, net of federal benefit  
(995,000
)
 
(902,000
)
 
(837,000
)
Expiration and adjustment of loss carryforwards  
719,000
  
4,513,000
  
891,000
 
Change in valuation allowance  6,048,000  1,628,000  6,746,000 
Increase of effective tax rate for net state deferred tax asset  
-
  
-
  
(1,941,000
)
Other, net  29,000  15,000  18,000 
Income tax (expense) benefit $- $- $- 
F-30
PEREGRINE PHARMACEUTICALS, INC.
  2009  2008  2007 
Provision for federal income taxes at statutory rate $(5,618,000) $(7,880,000) $(7,071,000)
State income taxes, net of federal benefit  (926,000)  (1,309,000)  (1,202,000)
Expiration and adjustment of loss carry forwards  3,917,000   64,484,000   73,000 
Change in valuation allowance  2,405,000   (55,510,000)  8,132,000 
Other, net  222,000   215,000   68,000 
Income tax (expense) benefit $-  $-  $- 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 2006 (continued)
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.  Significant components of our deferred tax assets at April 30, 20062009 and 20052008 are as follows:

  
2006
 
2005
 
      
Net operating loss carryforwards $48,147,000 $41,628,000 
Stock-based compensation  1,676,000  1,495,000 
General business and research and development credits  118,000  118,000 
Deferred revenue  233,000  226,000 
Accrued liabilities  1,126,000  1,785,000 
        
Total deferred tax assets  51,300,000  45,252,000 
Less valuation allowance  (51,300,000) (45,252,000)
        
Net deferred tax assets $- $- 

At April 30, 2006, we had federal net operating loss carryforwards and tax credit carryforwards of approximately $131,000,000 and $118,000, respectively. The net operating loss carryforwards expire in fiscal years 2007 through 2026. The net operating losses of $2,986,000 applicable to Vascular Targeting Technologies, our wholly-owned subsidiary, can only be offset against future income of that subsidiary. The tax credit carryforwards begin to expire in fiscal year 2008 and are available to offset the future taxes or our subsidiary. We also have state net operating loss carryforwards of approximately $68,200,000 at April 30, 2006, which begin to expire in fiscal year 2007.

Due to ownership changes in our common stock, there may be limitations on our ability to utilize our net operating loss carryforwards in the future.
  2009  2008 
       
Stock-based compensation $1,988,000  $1,891,000 
Deferred revenue  3,046,000   875,000 
Accrued liabilities  1,293,000   1,156,000 
Total deferred tax assets  6,327,000   3,922,000 
Less valuation allowance  (6,327,000)  (3,922,000)
Net deferred tax assets $-  $- 

13.RELATED PARTY TRANSACTION

During fiscal years 2005 and 2004, we paid Equiplace Securities, LLC (“Equiplace”) $12,000 and $72,000, respectively, for Avid business development services provided by employees of Equiplace under a Finder’s Agreement. Mr. Swartz, a member of our Board of Directors, owns fifty percent (50%) of Equiplace. The Finder Fee Agreement was canceled on June 30, 2004 and no commissions were paid under the agreement.
14.12. BENEFIT PLAN

During fiscal year 1997, we adopted a 401(k) benefit plan (the “Plan”) for all regular employees who are at least the age of 21 work at least 25 hours per week and have three or more months of continuous service.  The Plan provides for employee contributions of up to 100% of their compensation or a maximum of $15,000.$16,500.  We made no matching contributions to the Plan since its inception.

15.SUBSEQUENT EVENTS

On June 16, 2006, we entered into a Common Stock Purchase Agreement with one institutional investor whereby we sold 9,285,714 shares of our common stock in exchange for net proceeds of $13,000,000 (Note 8).
 
F-31F-30

PEREGRINE PHARMACEUTICALS, INC.INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued)
 
16.13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
Selected quarterly financial information for each of the two most recent fiscal years is as follows:

  
Quarter Ended
 
  
April
30,
  
January
31,
 
October
31,
 
July
31,
  
April
30,
  
January
31,
 
October
31,
 
July
31,
 
  
2006
  
2006
 
2005
 
2005
  
2005
  
2005
 
2004
 
2004
 
 
Net revenues
 
$
901,000
  
$
1,528,000
 
$
556,000
 
$
208,000
  
$
919,000
  
$
1,353,000
 
$
2,183,000
 
$
504,000
 
Cost of sales $1,477,000 (a)$1,088,000 $428,000 $304,000 (b)$1,136,000 (c)$1,273,000 $1,544,000 $448,000 
Gross profit (loss) $(576,000) $440,000 $128,000 $(96,000) $(217,000) $80,000 $639,000 $56,000 
Operating expenses   $4,934,000  $4,922,000 $4,814,000 $4,309,000  $4,498,000  $3,886,000 $4,341,000 $3,537,000 
Net loss $(5,038,000) $(3,113,000)$(4,571,000)$(4,339,000) $(4,657,000) $(3,744,000)$(3,638,000)$(3,413,000)
                             
Basic and diluted loss
per common share
 $(0.02) $(0.02)$(0.03)$(0.03) $(0.03) $(0.03)$(0.03)$(0.02)
  Quarter Ended 
  
April
30,
2009
  
January
 31,
2009
  
October
31,
2008
  
July
31,
2008
  
April
30,
2008
  
January
 31,
2008
  
October
31,
2007
  
July
31,
2007
 
Net  revenues                        $7,867,000  $6,826,000  $1,941,000  $1,517,000  $901,000  $1,675,000  $1,892,000  $1,625,000 
Loss from operations $(3,372,000) $(3,234,000) $(4,550,000) $(5,160,000) $(6,297,000) $(6,402,000) $(6,553,000) $(4,888,000)
Net loss                        $(3,609,000) $(3,332,000) $(4,497,000) $(5,086,000) $(6,159,000) $(6,154,000) $(6,207,000) $(4,656,000)
                                 
Basic and diluted loss per common  share $(0.02) $(0.01) $(0.02) $(0.02) $(0.02) $(0.03) $(0.03) $(0.02)
______________
(a)Cost of sales for the quarter ended April 30, 2006 includes the write-off of unusable work-in-process inventory generated during the quarter ended April 30, 2006 in the amount of $698,000 combined with a contract loss provision associated with one customer in the amount of $184,000.
 
(b)Cost of sales for the quarter ended July 31, 2005 includes additional costs incurred during the quarter ended July 31, 2005 to provide additional data to support required studies for current customers.

(c)Cost of sales for the quarter ended April 30, 2005 includes the write-off of unusable work-in-process inventory generated during the quarter ended April 30, 2005 in the amount of $605,000.

F-32F-31
PEREGRINE PHARMACEUTICALS, INC.
SCHEDULE II
PEREGRINE PHARMACEUTICALS, INC.SCHEDULE II
VALUATION OF QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 20062009 (continued) 

 
 
Description
 
Balance at
Beginning
of period
  
Charged
to deferred
revenue
  
 
Deductions
  
Balance
at end
of period
 
             
Valuation reserve for unbilled receivables for the year ended April 30, 2007 $-  $-  $-  $- 
                 
Valuation reserve for unbilled receivables for the year ended April 30, 2008 $-  $-  $-  $- 
                 
Valuation reserve for unbilled receivables for the year ended April 30, 2009 $-  $51,000  $-  $51,000 

  
Balance at
 
Charged
   
Balance
 
  
Beginning
 
to costs and
   
at end
 
Description   
 
of period
 
expenses
 
Deductions
 
of period
 
          
Valuation reserve for note and other receivables for
the year ended April 30, 2004
 
$
1,704,000
 
$
-
 
$
(59,000
)
$
1,645,000
 
              
Valuation reserve for note and other receivables for
the year ended April 30, 2005
 
$
1,645,000
 
$
-
 
$
(64,000
)
$
1,581,000
 
              
Valuation reserve for note and other receivables for
the year ended April 30, 2006
 
$
1,581,000
 
$
-
 
$
(1,581,000
)
$
-
 

 F-32
F-33