| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis
of Presentation The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally
accepted accounting principles (U.S. GAAP) and with the rules and regulations of the U.S. Securities and Exchange
Commission (SEC) related to quarterly reports on Form 10-Q. Accordingly, they do not include all of the information
and disclosures required by U.S. GAAP for a complete set of financial statements. These unaudited condensed consolidated financial
statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended April 30, 2016. The condensed consolidated balance sheet at April 30,
2016 has been derived from audited financial statements at that date. The unaudited financial information for the interim periods
presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial
condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments.
Results of operations for interim periods covered by this Quarterly Report on Form 10-Q may not necessarily be indicative of results
of operations for the full fiscal year or any other interim period. The
unaudited condensed consolidated financial statements include the accounts of Peregrine and Avid. All intercompany accounts and
transactions among the consolidated entities have been eliminated in the unaudited condensed consolidated financial statements. The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts, as well as disclosures of commitments and contingencies in the financial statements and accompanying notes.
Actual results could differ materially from those estimates and assumptions. Liquidity
and Financial Condition At
July 31, 2016, we had $44,195,000 in cash and cash equivalents. We have expended substantial funds on the research and
development of our product candidates, and funding the operations of Avid. As a result, we have historically experienced
negative cash flows from operations since our inception and we expect negative cash flows from operations to continue until
at least the fiscal year ending April 30, 2018 before we believe we can generate sufficient revenue from Avids contract
manufacturing services to achieve profitability. Therefore, unless and until we are able to generate sufficient revenue from
Avids contract manufacturing services or from the sale or licensing of our product candidates under development, we
expect such losses to continue through at least the fiscal year ending April 30, 2018. Our
ability to continue to fund our operations is highly dependent on the amount of cash and cash equivalents on hand combined with
our ability to raise additional capital to support our future operations through one or more methods, including but not limited
to, (i) raising additional capital in the equity markets, (ii) generating additional revenue from Avid, or (iii) licensing or
partnering our product candidates in development. Historically,
we have funded a significant portion of our operations through the issuance of equity. During the three months ended July 31,
2016, we raised $2,170,000 in aggregate gross proceeds from the sale of shares of our common stock (Note 6). Subsequent to July
31, 2016 and through September 8, 2016, we raised an additional $1,601,000 in aggregate gross proceeds from the sale of shares
of our 10.5% Series E Convertible Preferred Stock (the Series E Preferred Stock) (Note 11). As of September 8, 2016,
$110,416,000 remained available to us under our two effective shelf registration statements, which allows us from time to time
to offer and sell shares of our common stock or Series E Preferred Stock, in one or more offerings, either individually or in
combination. Our
ability to raise additional capital in the equity markets to fund our obligations in future periods is dependent on a number of
factors, including, but not limited to, the market demand for our common stock or Series E Preferred Stock. The market demand
or liquidity of our common stock and/or Series E Preferred Stock is subject to a number of risks and uncertainties, including
but not limited to, negative economic conditions, adverse market conditions, adverse financial results, and negative research
and development results. If we are unable to either (i) raise sufficient capital in the equity markets, (ii) generate additional
revenue from Avid, or (iii) license or partner our products in development, or any combination thereof, we may need to delay,
scale back, or eliminate some or all our research and development efforts, or restructure our operations, which may include delaying
the expansion of our contract manufacturing business. In addition, even if we are able to raise additional capital, it may not
be at a price or on terms that are favorable to us. Cash and
Cash Equivalents We
consider all short-term investments readily convertible to cash with an initial maturity of three months or less to be cash equivalents. Restricted
Cash Under
the terms of two separate operating leases related to our facilities, we are required to maintain, as collateral, letters of credit
during the terms of such leases. At July 31, 2016 and April 30, 2016, restricted cash of $600,000, in aggregate, was pledged as
collateral for the letters of credit. Concentrations
of Credit Risk and Customer Base Financial
instruments that potentially subject us to a significant concentration of credit risk consist of cash and cash equivalents, restricted
cash and trade receivables. We maintain our cash and restricted cash balances primarily with one major commercial bank and our
deposits held with the bank exceed the amount of government insurance limits provided on our deposits. We are exposed to credit
risk in the event of default by the major commercial bank holding our cash and restricted cash balances to the extent of the cash
and restricted cash amounts recorded on the accompanying interim unaudited condensed consolidated balance sheet. Our
trade receivables from amounts billed for contract manufacturing services provided by Avid have historically been derived from
a small customer base. Most contracts require up-front payments and installment payments during the service period. We perform
periodic evaluations of the financial condition of our customers and generally do not require collateral, but we can terminate
any contract if a material default occurs. At July 31, 2016 and April 30, 2016, approximately 100% and 98% of our trade receivables,
respectively, were due from four customers. In
addition, contract manufacturing revenue generated by Avid has historically been derived from a small customer base (Note 9).
These customers typically do not enter into long-term contracts because their need for drug supply depends on a variety of factors,
including the drugs stage of development, their financial resources, and, with respect to commercial drugs, demand for
the drug in the market. Our future results of operations could be adversely affected if revenue from any one of our primary customers
is significantly reduced or eliminated. Revenue
Recognition We
currently derive revenue from the following two sources: (i) contract manufacturing services provided by Avid, and (ii) licensing
revenue related to agreements associated with Peregrines technologies under development. We
recognize revenue in accordance with the authoritative guidance for revenue recognition when all of the following criteria are
met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been
rendered, (iii) the sellers price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.
We also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple elements. Revenue
arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether
the delivered element has stand-alone value to the customer or licensing partner. When deliverables are separable, consideration
received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria
are applied to each of the separate units, which may require the use of significant judgement. Deliverables are considered separate
units of accounting if (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) the arrangement includes
a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered
probable and substantially in our control. Arrangement
consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling
price. The relative selling price for each deliverable is determined using vendor specific objective evidence (VSOE)
of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of
selling price exists, we use our best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration
is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting,
and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales
price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized
under any agreement. Contract
Manufacturing Revenue Revenue
associated with contract manufacturing services provided by Avid is recognized when all four of the aforementioned revenue recognition
criteria have been met. For arrangements that include multiple elements, we follow the authoritative guidance for revenue recognition
regarding arrangements with multiple deliverables, as described above. In
addition, we also follow the authoritative guidance when reporting revenue as gross when we act as a principal versus reporting
revenue as net when we act as an agent. For transactions in which we act as a principal, have discretion to choose suppliers,
bear credit and inventory risk and perform a substantive part of the services, revenue is recorded at the gross amount billed
to a customer and costs associated with these reimbursements are reflected as a component of cost of sales for contract manufacturing
services. Any
amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue or customer deposits in
the accompanying unaudited condensed consolidated financial statements. We also record a provision for estimated contract losses,
if any, in the period in which they are determined. License
Revenue License
revenue related to licensing agreements associated with our technologies under development primarily consists of non-refundable
upfront license fees, non-refundable annual license fees and milestone payments. Non-refundable upfront license fees received
under license agreements, whereby continued performance or future obligations are considered inconsequential to the relevant license
technology, are recognized as revenue upon delivery of the technology. For licensing agreements that include multiple elements,
we follow the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables, as described above. We
recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which
the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it
meets all of the following criteria:
1. The
consideration is commensurate with either the entitys performance to achieve the
milestone or the enhancement of the value of the delivered item(s) as a result of a specific
outcome resulting from the entitys performance to achieve the milestone;
2. The
consideration relates solely to past performance; and
3. The
consideration is reasonable relative to all of the deliverables and payment terms within
the arrangement. A
milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entitys performance
or on the occurrence of a specific outcome resulting from the entitys performance, (ii) for which there is substantive
uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional
payments being due to us. The
provisions above do not apply to contingent consideration for which payment is either contingent solely upon the passage of time
or the result of a counterpartys performance. We will assess the nature of, and appropriate accounting for, these payments
on a case-by-case basis in accordance with the applicable authoritative guidance for revenue recognition. Any
amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue in the accompanying unaudited
condensed consolidated financial statements. Impairment Long-lived
assets are reviewed for impairment in accordance with authoritative guidance for impairment or disposal of long-lived assets.
Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable.
Long-lived assets are reported at the lower of carrying amount or fair value less cost to sell. For the three months ended July
31, 2016 and 2015, there was no impairment of the value of our long-lived assets. Fair Value Measurements Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The guidance prioritizes the inputs used in measuring fair value into the
following hierarchy:
· Level
1 Observable inputs, such as unadjusted quoted prices in active markets for identical
assets or liabilities.
· Level
2 Observable inputs other than quoted prices included in Level 1, such as assets
or liabilities whose values are based on quoted market prices in markets where trading
occurs infrequently or whose values are based on quoted prices of instruments with similar
attributes in active markets.
· Level
3 Unobservable inputs that are supported by little or no market activity and
significant to the overall fair value measurement of the assets or liabilities; therefore,
requiring the company to develop its own valuation techniques and assumptions. As
of July 31, 2016 and April 30, 2016, we do not have any Level 2 or Level 3 financial assets or liabilities and our cash equivalents,
which are primarily invested in money market funds with one major commercial bank, are carried at fair value based on quoted market
prices for identical securities (Level 1 input). Customer
Deposits Customer
deposits primarily represent advance billings and/or payments received from Avids third-party customers prior to the initiation
of contract manufacturing services. Research
and Development Expenses Research
and development expenses primarily include (i) payroll and related costs, including share-based compensation associated with research
and development personnel, (ii) costs related to clinical trials and preclinical testing of our technologies under development,
(iii) costs to develop and manufacture the product candidates, including raw materials and supplies, product testing, depreciation,
and facility related expenses, (iv) expenses for research services provided by universities and contract laboratories, including
sponsored research funding, and (v) other research and development expenses. Research and development expenses are charged to
expense as incurred when these expenditures relate to our research and development efforts and have no alternative future uses. Clinical
trial costs are a significant component of our research and development expenses. We have a history of contracting with third
parties that perform various clinical trial activities on our behalf in the ongoing development of our product candidates. The
financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven
payment flow. Expenses related to clinical trials are accrued based on our estimates and/or representations from third parties
(including clinical research organizations) regarding services performed. If the contracted amounts are modified (for instance,
as a result of changes in the clinical trial protocol or scope of work to be performed), we modify our accruals accordingly on
a prospective basis. Revisions in the scope of a contract are charged to expense in the period in which the facts that give rise
to the revision become reasonably certain. There were no material adjustments for a change in estimate to research and development
expenses in the accompanying unaudited condensed consolidated financial statements for the three months ended July 31, 2016 and
2015. Under
certain research and development agreements, we are obligated to make certain advance payments, including nonrefundable amounts,
for goods or services that will be used or rendered for future research and development activities and are deferred and capitalized
as prepaid research and development expenses. These advance payments are recognized as an expense in the period the related goods
are delivered or the related services are performed. We assess our prepaid research and development expenses for impairment when
events or changes in circumstances indicate that the carrying amount of the prepaid expense may not be recoverable or provide
future economic benefit. In
addition, under certain in-licensing agreements associated with the research and development of our product candidates, we are
obligated to pay certain milestone payments based on potential clinical development and regulatory milestones. These milestone
payments have no alternative future uses (in other research and development projects or otherwise) and therefore have no separate
economic values and are expensed as research and development costs at the time the costs are incurred. We have no in-licensed
product candidates that have alternative future uses in research and development projects or otherwise. Share-based
Compensation We
account for stock options and other share-based awards granted under our equity compensation plans in accordance with the authoritative
guidance for share-based compensation. The estimated fair value of share-based payments to employees in exchange for services
is measured at the grant date, using a fair value based method, such as a Black-Scholes option valuation model, and is recognized
as expense on a straight-line basis over the requisite service periods. The fair value of modifications to share-based awards,
if any, is generally estimated using a Black-Scholes option valuation model, unless a lattice model is required. Share-based compensation
expense recognized during the period is based on the value of the portion of the share-based payment that is ultimately expected
to vest during the period. As of July 31, 2016, there were no outstanding share-based awards with market or performance conditions. Periodically,
we grant stock options and other share-based awards to non-employee consultants, which we account for in accordance with the authoritative
guidance for share-based compensation. The cost of non-employee services received in exchange for share-based awards are measured
based on either the fair value of the consideration received or the fair value of the share-based award issued, whichever is more
reliably measurable. In addition, guidance requires share-based compensation related to unvested options and awards issued to
non-employees to be recalculated at the end of each reporting period based upon the fair market value on that date until the share-based
award has vested, and any cumulative catch-up adjustment to share-based compensation resulting from the re-measurement is recognized
in the current period (Note 7). Basic
and Dilutive Net Loss Per Common Share Basic
net loss per common share is computed by dividing our net loss attributable to common stockholders by the weighted average number
of shares of common stock outstanding during the period excluding the dilutive effects of stock options, shares of common stock
expected to be issued under our Employee Stock Purchase Plan (the ESPP), warrants, and Series E Preferred Stock
outstanding during the period. Diluted net loss per common share is computed by dividing our net loss attributable to common stockholders
by the sum of the weighted average number of shares of common stock outstanding during the period plus the potential dilutive
effects of stock options, shares of common stock expected to be issued under our ESPP, warrants, and Series E Preferred Stock
outstanding during the period. Net loss attributable to common stockholders represents our net loss plus Series E Preferred Stock
accumulated dividends. Series E Preferred Stock accumulated dividends include dividends declared for the period (regardless of
whether or not the dividends have been paid) and dividends accumulated for the period (regardless of whether or not the dividends
have been declared). The
potential dilutive effect of stock options, shares of common stock expected to be issued under our ESPP, and warrants outstanding
during the period are calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive.
The potential dilutive effect of Series E Preferred Stock outstanding during the period was calculated using the if-converted
method assuming the conversion of Series E Preferred Stock as of the earliest period reported or at the date of issuance, if later,
but are excluded if their effect is anti-dilutive. However, because the impact of stock options, shares of common stock expected
to be issued under our ESPP, warrants, and Series E Preferred Stock are anti-dilutive during periods of net loss, there was no
difference between basic and diluted loss per common share amounts for the three months ended July 31, 2016 and 2015. The
calculation of weighted average diluted shares outstanding for the three-month periods ended July 31, 2016 and 2015 excludes the
dilutive effect of the following weighted average outstanding stock options and shares of common stock expected to be issued under
our ESPP as their impact are anti-dilutive during periods of net loss, resulting in an anti-dilutive effect as of July 31:
2016 2015
Stock Options 2,820,989
ESPP 18,638 13,935
Total 18,638 2,834,924 The
calculation of weighted average diluted shares outstanding for the three-month periods ended July 31, 2016 and 2015 also excludes
the following weighted average outstanding stock options, warrants, and Series E Preferred Stock (assuming the if-converted method),
as their exercise prices or conversion price were greater than the average market price of our common stock during the respective
periods, resulting in an anti-dilutive effect as of July 31:
2016 2015
Stock Options 27,862,497 15,619,720
Warrants 273,280 273,280
Series E Preferred Stock 13,260,355 13,237,860
Total 41,396,132 29,130,860 Pending
Adoption of Recent Accounting Pronouncements In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers Revenue Recognition Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entitys Ability to Continue as a Going Concern In
July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-2 requires an entity to recognize right-of-use
assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers
specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose
qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the
amount, timing and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2018, which will be our fiscal year 2020 beginning May 1, 2019. Early adoption
is permitted. We are currently in the process of evaluating the impact of adoption of ASU No. 2016-02 on our consolidated financial
statements and related disclosures. In
March 2016, FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). ASU No. 2016-09 changes certain aspects
of accounting for share-based payments to employees and involves several aspects of the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement
of cash flows. Specifically, ASU No. 2016-09 requires that all income tax effects of share-based awards be recognized as income
tax expense or benefit in the reporting period in which they occur. Additionally, ASU No. 2016-09 amends existing guidance to
allow forfeitures of share-based awards to be recognized as they occur. Previous guidance required that share-based compensation
expense include an estimate of forfeitures. ASU No. 2016-09 is effective for annual and interim periods beginning after December 15,
2016, which will be our fiscal year 2018 beginning May 1, 2017. Early adoption is permitted. We are currently evaluating
the impact the adoption of ASU No. 2016-09 will have on our consolidated financial statements and related disclosures. |
