Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 12, 2014

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

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

 

For the quarterly period ended September 30, 2014

OR

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

 

For the transition period from              to

 

  

 

 

Commission file number: 000-54495

 

 

 

ANTRIABIO, INC

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   27-3440894
(State of other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
1450 Infinite Drive, Louisville, Colorado   80027
(Address of Principal Executive Offices)   (Zip Code)

 

(303) 222-2128

(Registrant’s Telephone Number, including Area Code)

 

890 Santa Cruz Avenue, Menlo Park, CA 94025

(Former name, former address and former fiscal year, if changed since last report)

 

 

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 ¨ No

 

 

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).

x Yes ¨ No

 

 

Indicate by check mark whether the Registrant is ¨ a large accelerated filer, ¨ an accelerated file, ¨ a non-accelerated filer, or x a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act)

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ¨ Yes x No

 

 

Number of shares of issuer’s common stock outstanding as of November 12, 2014: 18,217,793

 

 

 
 

 

TABLE OF CONTENTS 

 

  Page
   
PART I - FINANCIAL INFORMATION 2
   
ITEM 1. FINANCIAL STATEMENTS (unaudited) 2
   
Consolidated Balance Sheets – September 30, 2014 and June 30, 2014 2
   
Consolidated Statements of Operations - Three months ended September 30, 2014 and 2013 3
   

Consolidated Statements of Stockholders’ Equity (Deficit) - From June 30, 2013 to September 30, 2014

4
   
Consolidated Statements of Cash Flows - Three months ended September 30, 2014 and 2013 5
   
Notes to Consolidated Financial Statements 6
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSION ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 20
   
PART II – OTHER INFORMATION 22
   
ITEM 1. LEGAL PROCEEDINGS 22
ITEM 1A. RISK FACTORS 22
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. MINE SAFETY DISCLOSURE 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS 22

 

i
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements included or incorporated by reference in this report, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements appear in a number of places, including, but not limited to “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements represent our reasonable judgment of the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially from those contemplated by the statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:

 

· projected operating or financial results, including anticipated cash flows used in operations;

 

· expectations regarding capital expenditures, research and development expense and other payments;

 

· our beliefs and assumptions relating to our liquidity position, including our ability to obtain additional financing;

 

· our ability to obtain regulatory approvals for our pharmaceutical drugs and diagnostics; and

 

· our future dependence on third party manufacturers or strategic partners to manufacture any of our pharmaceutical drugs and diagnostics that receive regulatory approval, and our ability to identify strategic partners and enter into license, co-development, collaboration or similar arrangements.

 

Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors including, among others:

 

· the loss of key management personnel or sponsored research partners on whom we depend;

 

· the progress and results of clinical trials for our product candidates;

 

· our ability to navigate the regulatory approval process in the U.S. and other countries, and our success in obtaining required regulatory approvals for our product candidates;

 

· commercial developments for products that compete with our product candidates;

  

· the actual and perceived effectiveness of our product candidates, and how those product candidates compare to competitive products;

 

· the strength of our intellectual property protection, and our success in avoiding infringing the intellectual property rights of others;

 

· adverse developments in our research and development activities;

  

· potential liability if our product candidates cause illness, injury or death, or adverse publicity from any such events;

 

· our ability to operate our business efficiently, manage capital expenditures and costs (including general and administrative expenses) and obtain financing when required;

 

· our expectations with respect to our acquisition activity.

 

In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements, some of which are included elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially from those expressed or implied in any forward-looking statements. All forward-looking statements contained in this Quarterly Report of Form 10-Q are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, except as otherwise required by applicable law.

 

1
 

  

AntriaBio, Inc.

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

Consolidated Balance Sheets

 

    September 30, 2014     June 30, 2014  
    (Unaudited)        
Assets                
                 
Current assets                
Cash   $ 4,297,892     $ 5,934,534  
Inventory     301,902       289,600  
Other current assets     95,877       83,425  
Total current assets     4,695,671       6,307,559  
                 
Non-current assets                
Fixed assets, net     812,181       337,932  
Intangibile assets, net     8,866       9,161  
Deposit     750,000       750,000  
Total non-current assets     1,571,047       1,097,093  
                 
Total Assets   $ 6,266,718     $ 7,404,652  
                 
Liabilities and Stockholders' Equity                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 320,114     $ 460,311  
Accounts payable and accrued expenses - related party     381,806       397,055  
Convertible notes payable     60,000       60,000  
Deferred lease liability, current portion     15,984       -  
Capital lease payable, current portion     83,182       -  
Interest payable     11,579       11,079  
Warrant derivative liability     20,243       35,595  
Total current liabilities     892,908       964,040  
                 
Non-current liabilities:                
Deferred lease liability, less current portion     253,068       33,881  
Capital lease payable, less current portion     101,695       -  
Total non-current liabilities     354,763       33,881  
                 
Total Liabilities     1,247,671       997,921  
                 
Commitments and Contingencies (Note 9)                
                 
Stockholders' equity:                
Preferred stock, $0.001 par value; 20,000,000 shares authorized;  none issued and outstanding     -       -  
Common stock, $0.001 par value, 200,000,000 shares authorized; 18,217,793 and 18,091,792 shares issued and outstanding, September 30, 2014 and June 30, 2014     18,218       18,092  
Additional paid-in capital     24,962,445       24,135,563  
Accumulated deficit     (19,961,616 )     (17,746,924 )
Total stockholders' equity     5,019,047       6,406,731  
                 
Total Liabilities and Stockholders' Equity   $ 6,266,718     $ 7,404,652  

 

See accompanying notes to consolidated financial statements

 

2
 

  

AntriaBio, Inc.

Consolidated Statements of Operations

 

      Three Months  
      Ended September 30,  
      2014       2013  
      (Unaudited)  
Operating expenses                
Consulting fees   $ 283,633     $ 81,274  
Compensation and benefits     1,013,025       358,453  
Research and development     112,558       -  
Insurance     38,164       44,813  
Professional fees     154,345       165,649  
Rent     88,616       12,862  
Travel     36,761       5,456  
Amortization and depreciation     27,690       886  
Investor relations     315,685       14,119  
General and administrative     164,641       17,391  
Total operating expenses     2,235,118       700,903  
                 
Loss from operations     (2,235,118 )     (700,903 )
                 
Other income (expense)                
Interest income     1,694       3,454  
Interest expense     (500 )     (164,817 )
Derivative expense     19,232       42,735  
Total other income (expense)     20,426       (118,628 )
                 
Net loss   $ (2,214,692 )   $ (819,531 )
                 
Net loss per common share - basic and diluted   $ (0.12 )   $ (0.12 )
                 
Weighted average number of common shares outstanding - basic and diluted     18,133,756       6,666,667  

 

See accompanying notes to consolidated financial statements

 

3
 

 

AntriaBio, Inc.

Consolidated Statement of Stockholders' Equity (Deficit)

From June 30, 2013 to September 30, 2014 (Unaudited)

 

 

                Common     Additional           Total  
    Common Stock, $0.001 Par Value     Stock     Paid-in     Accumulated     Stockholders'  
    Shares     Amount     Subscribed     Capital     Deficit     Equity (Deficit)  
                                     
Balance at June 30, 2013     6,666,667       6,667       -       3,847,591       (8,016,470 )     (4,162,212 )
                                                 
Stock-based compensation     -       -       -       1,081,792       -       1,081,792  
                                                 
Beneficial conversion feature     -       -       -       2,922,938       -       2,922,938  
                                                 
Fair value of warrants for financing and conversion     -       -       -       6,476,606       -       6,476,606  
                                                 
Fair value of warrants to be issued     -       -       -       690,187       -       690,187  
                                                 
Issuance of common stock, net of issuance costs of $2,263,804     5,725,327       5,725       -       3,477,683       -       3,483,408  
                                                 
Issuance of common stock for note conversions     5,297,964       5,298       -       4,959,581       -       4,964,879  
                                                 
Issuance of common stock as repayment of related party balance     176,283       176       -       274,824       -       275,000  
                                                 
Cashless exercise of warrants     100,550       101       -       (101 )     -       -  
                                                 
Issuance of common stock for services     125,001       125       -       404,462       -       404,587  
                                                 
Net loss for the year ended June 30, 2014     -       -       -       -       (9,730,454 )     (9,730,454 )
                                                 
Balance at June 30, 2014     18,091,792     $ 18,092     $ -     $ 24,135,563     $ (17,746,924 )   $ 6,406,731  
                                                 
Stock-based compensation (Unaudited)     -       -       -       589,007       -       589,007  
                                                 
Issuance of common stock for services (Unaudited)     126,001       126       -       237,875       -       238,001  
                                                 
Net loss for the three months ended September 30, 2014 (Unaudited)     -       -       -       -       (2,214,692 )     (2,214,692 )
                                                 
Balance at September 30, 2014 (Unaudited)     18,217,793     $ 18,218     $ -     $ 24,962,445     $ (19,961,616 )   $ 5,019,047  

 

See accompanying notes to consolidated financial statements

 

4
 

 

AntriaBio, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

    Three Months  
    Ended September 30,  
    2014     2013  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (2,214,692 )   $ (819,531 )
Amortization of deferred financing costs     -       75,508  
Amortization of intangible asset     295       886  
Depreciation expense     27,395       -  
Stock-based compensation expense     589,007       165,318  
Stock issued for services     238,001       -  
Derivative income     (19,232 )     (42,735 )
Warrant expense     3,880       -  
Changes in operating assets and liabilities:                
(Increase) decrease in other assets     (12,452 )     45,251  
Increase in inventory     (12,302 )     -  
Increase in due from related parties     -       122,427  
(Decrease) increase in accounts payable and accrued expenses     (140,197 )     220,538  
(Decrease) increase in accounts payable and accrued expenses - related party     (15,249 )     146,700  
Increase in interest payable     500       89,309  
Deferred lease liability     86,441       -  
Net Cash (Used In) Provided by Operating Activities     (1,468,605 )     3,671  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of fixed assets     (168,037 )     -  
Increase in interest receivable - related party     -       (3,454 )
Net Cash Used In Investing Activities     (168,037 )     (3,454 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:     -       -  
Net Cash Provided By (Used in) Financing Activities     -       -  
                 
Net (decrease) increase in cash     (1,636,642 )     217  
                 
Cash - Beginning of Period     5,934,534       527  
                 
Cash - End of Period   $ 4,297,892     $ 744  
                 
SUPPLEMENTARY CASH FLOW INFORMATION:                
Cash Paid During the Period for:                
Taxes   $ -     $ -  
Interest   $ -     $ -  
                 
Non-Cash Transactions:                
Fixed assets acquired through lease payable   $ 184,877     $ -  
Fixed assets acquired through tenant improvements   $ 148,730     $ -  

 

See accompanying notes to consolidated financial statements

 

5
 

 

AntriaBio, Inc.

Notes to Consolidated Financial Statements
September 30, 2014
(Unaudited)

 

Note 1 Nature of Operations

 

These financial statements represent the consolidated financial statements of AntriaBio, Inc. (“AntriaBio”), formerly known as Fits My Style, Inc., and its wholly owned operating subsidiary, AntriaBio Delaware, Inc. (“Antria Delaware”). AntriaBio and Antria Delaware are collectively referred to herein as the “Company”.

 

On January 31, 2013, AntriaBio, a public company, acquired Antria Delaware pursuant to a share exchange agreement in which the existing stockholders of Antria Delaware exchanged all of their issued and outstanding shares of common stock of Antria Delaware for 5,880,667 shares of common stock of AntriaBio (the “Reverse Merger”). After the consummation of the Reverse Merger, stockholders of Antria Delaware owned 88.2% of AntriaBio’s outstanding common stock.

 

As a result of the Reverse Merger, Antria Delaware became a wholly owned subsidiary of AntriaBio. For accounting purposes, the Reverse Merger was treated as a reverse acquisition with Antria Delaware as the acquirer and AntriaBio as the acquired party. As a result, the business and financial information included in this Quarterly Report on Form 10-Q is the business and financial information of Antria Delaware. The accumulated deficit of AntriaBio has been included in additional paid-in-capital. Pro-forma information has not been presented as the financial information of AntriaBio was insignificant.

 

Effective May 1, 2014, the Company effected a 6 to 1 reverse split of the Company’s common stock, in which for every six (6) shares of common stock combined into one (1) share of common stock. All share and per share amounts have been retroactively restated to reflect the forward split.

 

Note 2 Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

 

The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed on September 29, 2014, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the year ended June 30, 2014.

 

Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the period ended September 30, 2014 are not necessarily indicative of results for the full fiscal year.

 

6
 

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and the accompanying notes. Such estimates and assumptions impact, among others, the following: estimated useful lives and potential impairment of intangible assets, the fair value of share-based payments and warrants, estimates of the probability and potential magnitude of contingent liabilities and the valuation allowance for deferred tax assets due to continuing and expected future operating losses.

 

Risks and Uncertainties

 

The Company's operations may be subject to significant risk and uncertainties including financial, operational, regulatory and other risks associated with a preclinical stage company, including the potential risk of business failure. See Note 3 regarding going concern matters.

 

Fair Value of Financial Instruments

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

· Level 1: Quoted prices for identical assets and liabilities in active markets;
· Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
· Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

The carrying amounts of financial instruments including cash, accounts payable and notes payable approximated fair value as of September 30, 2014 and June 30, 2014 due to the relatively short maturity of the respective instruments.

 

The warrant derivative liability recorded as of September 30, 2014 and June 30, 2014 is recorded at an estimated fair value based on a Black-Scholes pricing model. The warrant derivative liability is a level 3 fair value measurement with the entire change in the balance recorded through earnings. See significant assumptions in Note 7. The following table sets forth a reconciliation of changes in the fair value of financial instruments classified as level 3 in the fair value hierarchy:

 

Balance as of June 30, 2014   $ (35,595 )
Total unrealized gains (losses):        
Included in earnings     19,232  
Warrant recorded as derivative liability     (3,880 )
Balance as of September 30, 2014   $ (20,243 )

 

7
 

 

Recent Accounting Pronouncements

 

In June 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-10, Development Stage Entities (Topic 915). The objective of the amendments in this update is to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements for development stage entities. The amendments in this update remove all incremental financial reporting requirements from US GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company has elected to early adopt this guidance, and therefore is no longer presenting the financial statements in accordance with ASU 915, with inception to date disclosures.

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"), which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. We will be required to perform the going concern assessment under ASU 2014-15 beginning with the year ending June 30, 2017.

 

Note 3 Going Concern

 

As reflected in the accompanying financial statements, the Company has a net loss of $2,214,692 and net cash used in operations of $1,468,605 for the three months ended September 30, 2014, and positive working capital of $3,818,747 and stockholders’ equity of $5,019,047 and an accumulated deficit of $19,961,616 at September 30, 2014.  In addition, the Company is in the preclinical stage and has not yet generated any revenues. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company expects that its current cash resources as well as expected lack of operating cash flows will not be sufficient to sustain operations for a period greater than one year. The ability of the Company to continue its operations is dependent on Management's plans, which include continuing to raise capital through equity based financings.

 

The accompanying 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. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 4 Related Party Transactions

 

During the three months ended September 30, 2014, the Company incurred consulting expenses of $33,000 and professional expenses of none, for services performed by related parties of the Company and included in the statements of operations. As of September 30, 2014 and June 30, 2014, $381,806 and $397,055, respectively, of related party expenses are recorded in accounts payable and accrued expense – related party.

 

During the three months ended September 30, 2013, the Company incurred consulting expenses of $81,274 and professional expenses of $25,500, for services performed by related parties of the Company and included in the statements of operations.

 

Note 5 Convertible Notes Payable

 

2010 Notes (See (A) below.) - During 2010 and 2011, the Company issued 8% convertible notes payable for which principal and interest is due two years after date of issuance. The Company is required to pay a loan fee equal to 100% of the notes principal balance, which is recorded as a loan discount and being amortized on the effective yield method over the term of the notes.

 

8
 

 

Upon the close of a “Financing”, which means any third party capital investment in the Company, in cash, that is two million, five hundred thousand dollars ($2,500,000) or greater, the outstanding principal balance and at the option of the Lender, the unpaid accrued interest on these convertible notes shall convert in whole into the number of whole shares of common stock obtained by dividing the outstanding principal balance and unpaid accrued interest on these convertible notes at the time of such Financing, by the Conversion Price. The “Conversion Price” under these notes shall initially be 65% of the common share price of the Financing, subject to adjustment as provided herein. If the Company elects to pay the accrued interest on these convertible notes in cash, the accrued interest payment shall be due on the date the principal amount is converted to common stock. These terms were modified as disclosed below.

 

2011 Notes (See (B) below.) – During June 2011, the Company issued 8% convertible notes payable via Private Placement Memorandum (“PPM”). The PPM authorizes the issuance of up to $2,000,000 of convertible notes payable for which principal and interest is due one year after date of issuance. Pursuant to the terms of the PPM, upon an offering by the Company of common stock totalling at least $5,000,000 (a “Qualified Offering”) the notes will automatically and on a mandatory basis convert (the “Mandatory Conversion”) into common shares of the Company and the right to receive warrants. On the date of closing of a Qualified Financing of common shares, the Notes will convert into common shares of the Company at a price equal to 65% of the price per common share of the Qualified Financing (the “Mandatory Conversion Price”), subject to a maximum conversion pre-money valuation of $20,000,000, and the right to receive Warrants. The conversion will include the face amount of the Notes and include any accrued and unpaid interest. For each common share received as a result of the Mandatory Conversion, the Investor will receive one (1) warrant to purchase one (1) common share of the Company at an exercise price equal to 135% of the price per common share at which the Notes are converted pursuant to the Mandatory Conversion. The warrants will be exercisable at any time for a period of five years from the date of the Qualified Offering. These terms were modified as disclosed below.

 

2011 Notes (See (C) below) – In September 2011, the Company amended its 2011 PPM (above) to remove the mandatory conversion feature and to permit conversion of the notes payable at the option of the lender. The remaining terms remain essentially the same as the 2011 Notes described above.

 

On July 1, 2012, the Company amended its June 15, 2011 PPM on its twelve month, 8% convertible notes payable to issue up to an additional $2,000,000 in convertible notes and to extend it offering termination date to October 1, 2012. In addition, the amended PPM changes the definition of a “Qualified Financing” from $5,000,000 to $2,500,000. On the maturity date of the convertible notes, or the closing of a Sale of the Company, whichever occurs first, the lenders are permitted an elective conversion option to convert the outstanding principal and interest on the convertible notes at the lower of 65% of the price per share of common stock in the Qualified Financing or 65% of the common stock price using a pre-money valuation of the Company of $20 million. With each share of common stock received, the investor will also receive a warrant to purchase two shares of common stock at 135% of the price per common stock at the time the note was converted. The Company reserved the right to withdraw the offering at any time.

 

2012 Notes (See (D) below) - In December 2012, the Company amended its PPM on its twelve month, 8% convertible notes payable to issue up to an additional $1,000,000 in convertible notes and to extend the offering termination to December 31, 2012. On the date of a Qualified Financing, the lenders are permitted an elective conversion option to convert the outstanding principal and interest at the lower of 50% of the price per share of common stock in the Qualified Financing or $4.50 per share. With each share of common stock received, the investor will also receive a warrant to purchase one share of common stock at 150% of the price per common stock at the time the note was converted.

 

In the second fiscal quarter of 2014, the Company sent letters to the holders of the 2010, 2011 and 2012 notes requesting amendment of their convertible notes payable. The convertible notes payable were amended to: (i) fix the conversion price of the notes into common stock at $1.50 per share, (ii) require mandatory conversion of principal and interest, and (iii) change the definition of a qualified financing to an equity financing of at least $3,000,000. Note holders of $3,032,500 of the convertible notes payable balances outstanding had signed and returned the amendment letter. Based on the fixed conversion price, the intrinsic value of the beneficial conversion feature of $653,000 was calculated and recorded as a discount to the notes payable. As of June 30, 2014, $653,000 of the debt discount has been amortized into interest expense as these all amortized as part of the conversion.

 

9
 

 

2013 Notes (See (E) below) – In December 2013 and January 2014, the Company issued 8% convertible promissory notes payable for which principal and interest is due six months after the date of issuance. Pursuant to the note agreements, if the Company issues equity securities in a transaction resulting in gross proceeds of at least $3,000,000, the promissory note and accrued interest will automatically convert to common stock at a conversion price of $1.26 per share. The notes also allow the investor to convert at any time prior to maturity at $1.26 per share at their option. With the promissory note, the investor will also receive a warrant to purchase common stock equal to one-half of the principal amount of the promissory note. The warrant will have an exercise price of $1.89 per share and will be exercisable for three years from date of issuance.

 

The value of the proceeds of the notes was allocated to the warrants as discussed in Note 7 and the remaining balance was allocated to the beneficial conversion feature as the intrinsic value of the beneficial conversion feature is greater than the remaining value of the notes. The discount on the notes is being amortized into interest expense over the remaining life of the notes.

 

On March 31, 2014, the Company closed on an equity transaction which qualified as a “qualified financing” as such the $2,703,000 in 2013 Notes and the accrued interest was converted into 2,186,838 shares of our common stock. The Company also converted $4,275,172 of the 2010, 2011 and 2012 Notes and accrued interest into 3,111,126 shares of our common stock. The remaining balance of any debt discounts on the notes converted was recorded into interest expense at the time of the conversion.

 

The convertible notes outstanding as of September 30, 2014 and June 30, 2014 are:

 

    September 30, 2014     June 30, 2014  
             
2010 Notes (A)   $ 60,000     $ 60,000  
2011 Notes (B)     -       -  
2011 Notes (C)     -       -  
2012 Notes (D)     -       -  
    $ 60,000     $ 60,000  

 

The notes originated at various dates from April 2010 through January 2013 and mature at various dates from February 2012 to June 2014.

 

As of September 30, 2014, all of the outstanding convertible notes have matured and payments were due on demand and remains convertible at the holders option. The convertible notes which have not been repaid continue to accrue interest at a rate of 8%.

 

Note 6 Shareholders’ Equity (Deficit)

 

During 2014, the Company completed a private placement transaction in which the Company issued 5,725,327 units to accredited investors. Each unit consists of one share of our common stock and one common share purchase warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $2.34 per share and the warrant will expire 36 months following the issuance. The Company received net proceeds of $7.6 million after the placement agent compensation and issuance costs paid of $1,365,085 and $898,719 of warrant expense recorded as issuance costs.

 

10
 

 

In addition to the units issued, the Company also issued 562,352 additional warrants to investors who invested in the 2013 Notes and also in the private placement. For each dollar that was invested in the 2013 Notes, the Company would issue one-half of one common share purchase warrant for their investment in the private placement transaction for up to 150% of their investment in the 2013 Notes. The warrants will be exercisable at $2.34 per share and will expire 36 months after they were issued.

 

On March 31, 2014, the Company entered into a services agreement whereby the Company receives assistance with investor relations relating to digital strategy, website and investor materials, market awareness and other services. The compensation for these services will be 500,000 shares of common stock to be issued over a twelve-month period. As of September 30, 2014, 250,002 shares of common stock have been issued under the agreement and $236,251 has been recorded as investor relations expense during the three months ended September 30, 2014.

 

The Company issued no shares of preferred stock during the three month period ended September 30, 2014. The Company has not declared or paid any dividends or returned any capital to shareholders as of September 30, 2014.

 

Note 7 Stock-Based Compensation

 

Options - AntriaBio adopted individual stock option plans in January 2013 for four officers and/or directors of the Company. The stock option plans granted 1,500,000 option shares with an exercise price of $4.50 per share. Options to purchase 819,445 shares vested immediately, options to purchase 541,667 shares vest monthly over 3 years and 138,888 shares vest on May 31, 2013.

 

In June 2013, AntriaBio adopted individual stock option plans for two consultants of the Company. The stock option plans granted 8,334 shares with an exercise price of $4.50 per share. Option to purchase 2,084 shares vested immediately with the remaining shares vesting at various dates through October 2014.

 

On March 26, 2014, the Company adopted the AntriaBio, Inc. 2014 Stock and Incentive Plan which allows the Company to issue up to 3,750,000 of common stock in the form of stock options, incentive options or common stock. As of September 30, 2014, the Company granted 3,195,000 of these shares to current employees and directors of the Company. The options have an exercise price from $1.75 to $3.44 per share. The options vest monthly over 4 years with some options subject to a one year cliff before options begin to vest monthly.

 

AntriaBio has computed the fair value of all options granted using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to valuation. AntriaBio estimated a volatility factor utilizing a comparable published volatility of a peer company. Due to the small number of option holders and all options being to officers and/or directors, AntriaBio has estimated a forfeiture rate of zero. AntriaBio estimates the expected term based on the average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.

 

AntriaBio has computed the fair value of all options granted during the three months ended September 30, 2014 using the following assumptions:

 

Expected volatility     92 %
Risk free interest rate     1.69 %
Expected term (years)     5  
Dividend yield     0 %

 

11
 

 

Stock option activity is as follows:

 

          Weighted     Weighted Average  
    Number of     Average     Remaining  
    Options     Exercise Price     Contractual Life  
Outstanding, June 30, 2013     1,508,334     $ 4.50       4.6  
Granted     2,835,000     $ 3.14          
Outstanding, June 30, 2014     4,343,334     $ 3.61       5.6  
Granted     360,000     $ 1.82          
Forfeited     (197,916 )   $ 3.70          
Outstanding, September 30, 2014     4,505,418     $ 3.46       5.6  
                         
Exercisable at September 30, 2014     1,591,251     $ 4.21       4.0  

 

Stock-based compensation expense related to the fair value of stock options was included in the statement of operations as payroll expense of $589,007 for the three months ended September 30, 2014. The unrecognized stock-based compensation expense at September 30, 2014 is $7,047,980. AntriaBio determined the fair value as of the date of grant using the Black-Scholes option pricing method and expenses the fair value ratably over the vesting period.

 

Warrants- AntriaBio issued warrants to agents and note holders in conjunction with the closing of its convertible notes payable as follows:

 

          Weighted     Weighted Average  
    Number of     Average     Remaining  
    Warrants     Exercise Price     Contractual Life  
Outstanding, June 30, 2013     293,092     $ 2.21       4.1  
Warrants issued to note holders     225,259     $ 1.89          
Warrants issued to note holders     4,039,184     $ 1.98          
Warrants issued to related party     39,117     $ 7.50          
Warrants issued in private placement     6,287,679     $ 2.34          
Warrants issued to placement agent     290,861     $ 1.56          
Warrants issued for investor relations     66,667     $ 3.34          
Warrants exercised     (100,550 )   $ 1.17          
Warrants forfeited     (41,570 )   $ 1.17          
Outstanding, June 30, 2014     11,099,739     $ 2.21       3.6  
Outstanding, September 30, 2014     11,099,739     $ 2.21       3.3  

 

12
 

 

The Company issued warrants to purchase 41,424 shares of common stock at a price of $2.03 per share, exercisable from August 2012 through August 2017 to a placement agent in connection with the closing of convertible notes payable on specific PPMs. The Company issued a warrant to purchase 233,334 shares of common stock at a price of $2.03 per share, exercisable from August 2012 through August 2017 to a placement agent in connection with the closing of over $1,000,000 in convertible notes payable. The Company issued warrants to purchase 18,334 shares of common stock at a price of $4.95 per share, exercisable from February 2013 through February 2018 in connection with the closing of convertible notes payable on specific PPMs. The Company issued warrants to various note holders to purchase 225,259 shares of common stock at a price of $1.89 per share, exercisable from December 2013 through January 2017 in connection with the issuance of convertible notes. The Company issued warrants to a related party as part of a settlement of debt to purchase 39,117 shares of common stock at a price of $7.50 per share, exercisable from March 2014 through March 2019. The Company issued warrants to various note holders to purchase 4,039,184 shares of common stock at an average price of $1.98 per share of common stock, exercisable through April 2019 in connection with the conversion of convertible notes payable into equity. The Company issued warrants to purchase 6,287,679 shares of common stock at a price of $2.34 per share, exercisable through April 2017 in connection with the issuance of units in the private placement that was closed in April. The Company issued warrants to placement agent to purchase 290,861 shares of common stock at a price of $1.56 per share, exercisable through April 2021 in connection with the private placement that closed in April. The Company issued warrants to purchase 66,667 shares of common stock at a price of $3.44 per share, exercisable through May 2017 and 2019 in connection with investor relations activities that were performed.

 

The warrants exercisable for the 41,424 shares of common stock were accounted for under liability accounting and were fair valued at each reporting period until April 1, 2014 when the warrants were reclassified to equity as the exercise price became fixed. The value of the warrants to purchase 41,424 shares as of April 1, 2014 was $102,917, which was the fair value of the warrant on the date it was reclassified to additional paid-in capital. The warrants exercisable for the 233,334 shares of common stock were accounted for under liability accounting and were fair valued at each reporting period until March 31, 2014 when the warrants were reclassified to equity as the exercise price became fixed. The value of the warrants to purchase 233,334 shares as of March 31, 2014 was $614,635, which was recorded as additional paid-in capital.

 

The warrants exercisable for the 18,334 shares of common stock are accounted for under equity treatment and fair valued as of the date of issuance. The fair value of the warrants was valued at $191,126 and recorded as additional paid-in-capital and deferred financing fees. The deferred financing fees were being amortized over the term of the notes associated with the warrants and were fully amortized as of June 30, 2014. The warrants for the 225,259 shares of common stock are accounted for under equity treatment and were recorded at the allocated fair value as of the date of issuance. The fair value of the warrants was $524,594 and the allocated fair value of $433,062 was recorded into additional paid-in capital and as a discount to the note payable balance. The unamortized discount was fully expensed into interest upon the conversion of the bridge notes in fiscal 2014.

 

The warrants exercisable for the 6,287,679 shares of common stock were accounted for under equity treatment and were recorded at the allocated fair value as of the date of issuance. The fair value of the warrants was $14,432,123 and the allocated fair value of $3,184,222 was recorded into additional paid-in capital. The warrants for the 4,039,184 shares of common stock were accounted for under the equity treatment and were recorded at the allocated fair value as of the date of issuance. The fair value of the warrants was $11,111,739 and the allocated fair value of $2,065,708 was recorded into additional paid-in capital. The warrants for the 39,117 was accounted for under the equity treatment and fair valued as of the date of issuance. The fair value of the warrants was valued at $76,062 and recorded as additional paid-in capital and interest expense. The warrants exercisable for the 290,861 shares were accounted for under liability accounting on the date they were recorded. The warrants to purchase 290,861 shares value was $898,719 when recorded using a Lattice pricing model. On May 16, 2014, the warrants to purchase 290,861 shares terms were fixed and the warrants were fair valued at $690,187 using a Black-Scholes pricing model and reclassified into equity with the fair value adjustment recorded as derivative expense on the consolidated statement of operations.

 

The warrants exercisable for the 66,667 shares of common stock are accounted for under liability accounting for the shares that have vested and were recorded at their fair value on the date of issuance of $50,365 as a liability and as professional fees and investor relation expense. The fair value as of September 30, 2014 and June 30, 2014 were $20,243 and $35,595, respectively which is reflected as a liability with the fair value adjustment recorded as a derivative expense on the consolidated statements of operations.

 

13
 

 

On May 2, 2014, an investor elected to exercise their warrant under a net issue exercise in which 100,550 shares of common stock were issued and 41,570 warrant shares were forfeited.

 

These warrants were valued using the Black-Scholes option pricing model on the date of issuance except for the warrants to purchase 290,861 shares which were valued using a Lattice pricing model. In order to calculate the fair value of the warrants in both models, certain assumptions were made regarding components of the model, including the closing price of the underlying common stock, risk-free interest rate, volatility, expected dividend yield, and warrant term. Changes to the assumptions could cause significant adjustments to valuation. AntriaBio estimated a volatility factor utilizing a comparable published volatility of a peer company. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.

 

The Black-Scholes valuation methodology was used because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions were as follows:

 

Expected volatility     92% - 97%  
Risk free interest rate     0.78% - 2.21%  
Warrant term (years)      3 - 7  
Dividend yield     0 %

 

We utilize a Lattice model to determine the fair market value of the warrants to purchase 290,861 shares on the day they were issued. The warrants issued resulted in a warrant derivative liability of $898,719. The Lattice model accommodates the probability of exercise price adjustment features as outlined in the warrant agreement. Under the terms of the warrant agreement, at any time while the warrant is outstanding, the exercise price per share can be reduced in proportion to the exercise price per share of future warrants issued that is lower than the exercise price per share as stated in the warrant agreement. The estimated fair value was derived using the lattice model with the following assumptions:

 

Expected volatility     93 %
Risk free interest rate     2.21 %
Warrant term (years)     7  
Dividend yield     0 %

 

Note 8 Income Taxes

 

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

 

In the three months ended September 30, 2014, the Company did not record any income tax provision due to continuing the expected future losses and full valuation allowance on its deferred tax assets.

 

Note 9 Commitments and Contingencies

 

Employment Agreements - The Company entered into employment agreements with the officers of the Company.

 

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On April 1, 2012, the Company entered into an employment agreement with its Chief Scientific Officer. This agreement provides for an initial salary of $275,000 through December 31, 2012 and a base salary $295,000 thereafter. The Chief Scientific Officer is also entitled to one-time bonuses totaling $275,000 upon achieving certain clinical testing milestones. Furthermore, the Chief Scientific Officer is entitled to an annual performance bonus equal to 40% of his base salary beginning in calendar 2013 based on criteria set by the Board of Directors in its sole discretion. Termination benefits for base salary and certain other benefits are provided for a period of twelve months. On March 26, 2014, we entered into an amended and restated employment agreement which removed the pension benefit owed to the Chief Scientific Officer.

 

On June 18, 2012, the Company entered into an employment agreement with its Chief Executive Officer. This agreement provides for an initial salary of $230,000 from the effective date of the agreement until the executive commits full time to the Company’s business and his base salary increases to $350,000. The Chief Executive Officer is entitled to one- time bonus of $40,000 upon the close of a Company financing of at least $5,000,000. Furthermore, the Chief Executive Officer is entitled to an annual performance bonus equal to 40% of his base salary beginning in calendar 2013 based on criteria set by the Board of Directors in its sole discretion. The agreement also provides for stock options to purchase 3,500,000 shares of common stock of the Company at an exercise price equal to the fair value of these shares on the date of grant. These options will vest 50% on December 31, 2012 and the remaining shares vest equally over the following thirty-six months of service. Termination benefits for base salary and certain other benefits are provided for a period of six months.

On March 26, 2014, we entered into an amended and restated employment agreement with our Chief Executive Officer. The Amended and Restated Employment Agreement provides, among other things, for: (i) an increase in Mr. Elam’s base salary from $230,000 to $390,000; (ii) a termination of the bonus due to Mr. Elam under the Employment Agreement upon the Company raising at least $5,000,000 in an equity financing; and (iii) a termination of the car allowance granted to Mr. Elam under the Employment Agreement.

 

Advisory Agreement - On July 2, 2012, the Company entered into an advisory agreement whereby the Company receives services including, but not limited to finance and strategy, clinical design, project management and portfolio assessment. The Company agreed to pay a monthly retainer in the amount of $9,000 per month to cover general and administrative matters plus an hour fee ranging from $100 to $700 per hour for additional services provided.

 

Consulting Agreements – On March 31, 2014, the Company entered into a services agreement whereby the Company receives assistance with investor relations relating to digital strategy, website and investor materials, market awareness and other services. The Company agrees that the compensation for these services will be 500,000 shares of common stock to be issued over a twelve month period.

 

On April 1, 2014, the Company entered into a services agreement whereby the Company receives assistance with strategic media placement, third –party research, e-mail blasts and media buys to generate awareness of the Company. The Company agrees to pay $20,000 per month plus expenses for these services through March 31, 2015, and can be renewed on a monthly basis at that point in time.

 

Lease Commitments – In May 2014, the Company entered into a lease of approximately 27,000 square feet of office, laboratory and clean room space to be leased for seventy two months. The lease requires monthly payments of $28,939 adjusted annually by approximately 3% plus triple net expenses monthly of $36,427 adjusted annually. The Company also made a security deposit of $750,000 which is held by the landlord and will be returned gradually over the next several years.

 

As of September 30, 2014, minimal rental commitment under the lease is as follows:

 

Year Ending June 30,        
2015   $ 262,183  
2016     359,468  
2017     370,252  
2018     381,360  
2019     392,855  
Thereafter     335,747  
    $ 2,101,865  

 

 

In September 2014, the Company entered into an equipment lease for laboratory equipment to be leased for twenty-four months with a bargain purchase option at the end of the lease. The equipment lease has been recorded as a capital lease with monthly payments of $8,060 per month to be made.

 

15
 

 

As of September 30, 2014, minimal commitment under the lease is as follows:

 

Year Ending June 30,        
2015   $ 64,483  
2016     96,725  
2017     32,242  
    $ 193,450  

 

Asset Acquisition - On January 30, 2013, the Company closed on an asset purchase agreement with the Chapter 7 Estate of PR Pharmaceuticals, Inc. (“PRP”). Pursuant to the asset purchase agreement, the Company has acquired certain tangible and intangible assets in exchange for $400,000 in cash plus an initial deposit of $100,000 paid to the Chapter 11 Trustee of PRP which is included in the purchase price, plus contingent consideration up to a maximum amount of $44,000,000.

 

The contingent consideration is payable in the following amounts, upon the occurrence of the following events:

· Two million dollars ($2,000,000) related to the initiation of Phase 2b clinical studies for a multi-day injectable insulin, payable 30 days after the first dosing of a patient in a formal Phase 2b clinical study;
· Two million dollars ($2,000,000) to be paid within 30 days after the exclusive license of the multi-day injectable insulin in the United States to a commercial pharmaceutical company.
· Five million dollars ($5,000,000) after the initiation of Phase 3 clinical studies for the multi-day injectable insulin by the Company or a licensee of the Company, payable 30 days after the first dosing of a patient in a formal Phase 3 clinical study.
· Ten million dollars ($10,000,000) upon the approval by the FDA or EMEA to allow the marketing and sales of the multi-day injectable insulin by the Company or a licensee of the Company, payable 30 days after the receipt of the approval letter or notice from the FDA or EMEA.
· Twenty five million dollars ($25,000,000) if the twelve month cumulative sales of the multi-day injectable insulin by the Company or a licensee of the Company reaches five hundred million dollars ($500,000,000) in any one given twelve consecutive month period, so long as such period occurs during the life of the patents included in the purchased assets, payable 90 days after the twelfth month in which sales equaled or exceeded five hundred million dollars.

 

All contingent consideration events must occur within five years of the closing of the asset purchase agreement. If an event is not reached within five years, no remaining contingent consideration would be required to be paid. No contingent events have occurred through the report date. On November 6, 2014, the Company closed on an asset purchase agreement with the Chapter 7 Estate of PRP in which the Company acquired its contingent consideration payments in exchange for $55,000 in cash. As of the closing, the Company is no longer obligated to make any contingent consideration payments.

 

Legal Matters - From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of September 30, 2014, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholders, is an adverse party or has a material interest adverse to our interest.

 

Note 11 Subsequent Events

 

No events occurred subsequent to September 30, 2014 that would require adjustment to the accompanying financial statements or footnotes other than those disclosed in the notes above.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Effective May 1, 2014, the Company effected a 6 to 1 reverse split of the Company’s common stock, in which for every (6) shares of common stock combined into one (1) share of common stock. All share and per share amounts in this Quarterly Report on Form 10-Q have been retroactively restated to reflect the forward split.

 

General

 

This discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.

 

Overview, Background and Recent Developments

 

On January 31, 2013, AntriaBio acquired Antria Delaware pursuant to a share exchange in which AntriaBio acquired all of the issued and outstanding shares of common stock of Antria Delaware from the stockholders of Antria Delaware in exchange for 5,880,667 shares of common stock of AntriaBio (the “Reverse Merger”). As a result of the Reverse Merger, Antria Delaware became a wholly owned subsidiary of AntriaBio. For accounting purposes, the Reverse Merger was treated as a reverse acquisition with Antria Delaware as the acquirer and AntriaBio as the acquired party. As a result, the business and financial information included in the report is the business and financial information of Antria Delaware. The accumulated deficit of AntriaBio has been included in additional paid-in-capital. Pro-forma information has not been presented as the financial information of AntriaBio was insignificant.

 

We are a preclinical stage company that is developing novel, sustained release therapeutics based on our proprietary formulation and manufacturing platform. Specifically, we apply our microsphere technology to well-characterized pharmaceuticals in order to improve significantly the existing standard of care. We believe that utilizing our platform with known and approved pharmaceutical agents increases the probability of technical success while reducing safety concerns, approval risks and development costs. We also believe that our approach may result in differentiated, patent-protected products which provide significant benefits to patients. Our objective is to use our platform to create new drug candidates in multiple therapeutic areas that address large potential markets.

 

Plan of Operation

 

In first half of calendar 2014, we successfully raised more than $11 million to fund our operations including hiring and retaining qualified staff, leasing a manufacture and research facility and engaging third party advisors to assist in the AB101 development efforts. As of September 30, 2014, we had $4.3 million cash on hand. Our general operating expenses average $350-$500 thousand per month and we anticipate that our current cash would be sufficient to fund our operations well into 2nd half of calendar 2015. However, our current cash is not sufficient to fund the production of cGMP material required for AB101 clinical studies and it is insufficient to pay for our planned clinical study in 2nd half of 2015. In order to advance our clinical program for AB101, we believe that we require at least an additional $10 million of cash.

 

Specifically, in order to produce cGMP material in our facility we will need to construct a manufacturing suite which we estimate will cost at least $2.5 million and we expect that our first clinical study in 2nd half of calendar 2015 will cost approximately $4 million. In addition, following the move into our Louisville facility we discovered that some of the equipment required for the production of microspheres on our platform is missing, broken or was managed by software which is outdated and unsupported and consequently we anticipate acquiring or leasing additional equipment which may cost approximately $1 million.

 

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We believe that our current cash is sufficient to support the manufacture of fresh GLP AB101 material as well as to conduct studies in support of our IND, including acute and sub-acute toxicity studies in at least two species (which are likely to be rodents and dogs), safety pharmacology, and mutagenicity/genotoxicity studies.

 

We are also planning to conduct additional in vitro and in vivo pharmacology in the animal to demonstrate the promise of once weekly dosing of basal insulin.

 

In our clinical studies our objective is to demonstrate that AB101 is safe and effective at the intended once weekly subcutaneous dosing frequency and that it is non-inferior to current standard of care basal insulin therapies in controlling blood glucose without an undue risk of hypoglycemia. After completion of additional IND-enabling work, we plan on filing an IND with the FDA in 2015, followed by the initiation of a clinical trial in the second half of 2015. The objectives of the Phase 1 program will be to assess the single and repeat (once weekly) ascending dose safety, pharmacokinetics (PK), and pharmacodynamics (PD) in the target population with type 1 and type 2 diabetes, including confirmation of the time action profile for glucose lowering (Phase 2a data). Following successful completion of the Phase 1/2a program, Phase 2b trials in both populations will be conducted to obtain proof-of-concept for the intended once weekly dosing regimen, using the accepted biomarker for glucose efficacy (hemoglobin A1c; HbA1c), compared to a standard of care basal insulin such as Lantus.

 

If proof-of-concept trials are successful, we would expand our clinical program to include Phase 3 registration trials in various jurisdictions including the US and Europe, to obtain regulatory and marketing approval. The Phase 3 program would include studies in combination with other injectable and oral glucose lowering therapies, and would be designed to meet regulatory guidelines for the development of therapies for diabetes, while achieving an expanded label at the time of product launch.

 

Significant Accounting Policies and Estimates

 

The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our financial position or results of operations.

 

Results of Operations

 

For Three Months Ended September 30, 2014 and 2013

 

Results of operations for the three months ended September 30, 2014 (the “2015 quarter”) and the three months ended September 30, 2013 (the “2014 quarter”) reflected losses of $2,214,692 and $819,531, respectively. These losses include charges related to stock based compensation of $589,007 in the 2015 quarter and $165,318 in the 2014 quarter.

 

Revenues

 

We are a preclinical stage company and have not generated any revenues since inception.

 

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Expenses

 

Consulting expenses were approximately $283,000 in the 2015 quarter compared to $81,000 in the 2014 quarter. The increase is primarily due to the increase in consulting fees that were paid to assist in setting up the laboratory space and getting the equipment up and running.

 

Payroll expenses were approximately $1,013,000 in the 2015 quarter compared to $358, 000 in the 2014 quarter. The increase is due to an increase in stock-based compensation in the 2015 period as well as having more full time employees in the 2015 period compared to the 2014 period.

 

Professional fees were approximately $154,000 in the 2015 quarter compared to $166,000 in the 2014 quarter. Professional fees consist primarily of legal, audit and accounting costs, costs related to public company compliance costs, and consulting related to capital formation. The decrease is due to the decrease in legal services as well as other public compliance costs that have been incurred in the 2015 period.

 

Investor relations expenses were approximately $316,000 in the 2015 quarter compared to $14,000 in the 2014 quarter. The increase is due to several contracts that have been entered into that the Company did not have during the 2014 quarter.

 

General and administrative costs were approximately $165,000 in the 2015 quarter compared to $17,000 in the 2014 quarter. The increase in the 2015 period is primarily due to the increase in expenses related to moving into the leased facility.

 

Liquidity and Capital Resources

 

As of September 30, 2014, we have approximately $4.3 million in cash on hand and working capital of approximately $3.8 million. Our operating expenses fluctuate between $350 thousand and $500 thousand a month. In the 2nd half of calendar 2015, as we begin our 1st clinical study, we estimate that we will need approximately $4 million for the study. We also estimate that we will need at least $3.5 million for the build out of our facility and purchase of equipment. As such, we anticipate that we need to raise an additional $10 million in funds to continue the plan above.

 

During the year ended June 30, 2014, we converted $6.3 million in convertible notes payable and $722 thousand in interest payable into 5,297,964 shares of common stock and issued warrants to purchase shares of common stock. During the year ended June 30, 2014, we also closed on an equity transaction in which we issued 5,725,327 units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock. The Company received net proceeds of approximately $7.6 million from the equity transaction. While we do have cash on hand, we anticipate that we will need an additional $10 million to cover operating and capital expenses through the calendar year end 2015. We are currently evaluating raising additional capital to fund our current and future operations.

 

Going Concern

 

The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations in our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. There are no assurances that we will be able to obtain additional financing through either private placements, and/or bank financing or other loans necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. These conditions raise substantial doubt about our ability to continue as a going concern.

 

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Recent Accounting Pronouncements

 

In June 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-10, Development Stage Entities (Topic 915). The objective of the amendments in this update is to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements for development stage entities. The amendments in this update remove all incremental financial reporting requirements from US generally accepted accounting principles development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company has elected to early adopt this guidance, and therefore is no longer presenting the financial statements in accordance with ASU 915, with inception to date disclosures.

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"), which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. We will be required to perform the going concern assessment under ASU 2014-15 beginning with the year ending June 30, 2017.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet transactions.

 

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSION ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer and our principal accounting officer), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on that evaluation and the material weakness described below, our management concluded that we did not maintain effective disclosure controls and procedures as of September 30, 2014 in ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that it is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management has identified control deficiencies regarding a lack of segregation of duties, and a need for a stronger internal control environment. Our management believes that these deficiencies, which in the aggregate constitute a material weakness, are due to the small size of our staff, which makes it challenging to maintain adequate disclosure controls.

 

Changes in internal controls over financial reporting

 

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Certain factors exist which may affect the Company’s business and could cause actual results to differ materially from those expressed in any forward-looking statements. The Company has not experienced any material changes from those risk factors as previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 29, 2014 (the “Form 10-K”).

   

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

All unregistered sales of equity securities have previously been disclosed on our Current Reports on Form 8-K.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

  

Exhibit Number   Description of Exhibits
31.1   Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
     
31.2   Certification of Chief Accounting Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
     
32.1   Certification of Chief Executive Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2   Certification of Chief Accounting Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
101   The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheet, (ii) Statement of Operations, (iii) Statements of Cash Flows, (iv) Statements of Stockholders Equity and (v) related notes to these financial statements, tagged as blocks of text.**

 

 

*Filed herewith

**Furnished herewith

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SIGNATURES

 

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    ANTRIABIO, INC.
     
 Date: November 12, 2014 By: /s/ Nevan Elam
    Nevan Elam
    Chief Executive Officer
    (Principal Executive Officer)
     
 Date: November 12, 2014 By: /s/ Morgan Fields
    Morgan Fields
    Chief Accounting Officer
    (Principal Accounting Officer)

 

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