Notes to Consolidated Financial Statements
September 30, 2017
(Unaudited)
Note 1 Nature of Operations
These financial statements represent the consolidated
financial statements of AntriaBio, Inc. (“AntriaBio”), and its wholly owned operating subsidiary, AntriaBio Delaware,
Inc. (“Antria Delaware”). AntriaBio and Antria Delaware are collectively referred to herein as the “Company”.
The Company is a clinical stage biopharmaceutical Company.
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 22, 2017, 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, 2017.
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, 2017 are not necessarily indicative of results for the full fiscal year.
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 impairment of depreciable assets, the fair value of share-based payments and warrants,
fair value of derivative instruments, 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. Actual results could differ from those
estimates.
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 clinical
stage company, including the potential risk of business failure. See Note 3 regarding going concern matters.
Fixed Assets
Fixed assets are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the estimated useful lives.
Research and Development Costs
Research and development costs
are expensed as incurred and include salaries, benefits and other staff-related costs; consultants and outside costs;
material manufacturing costs, clinical trial costs, license and development payments under third party agreements;
and facilities and other costs. These costs relate to research and development costs without an allocation of general
and administrative expenses.
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 accrued expenses, and convertible notes payable approximated fair value as of September 30,
2017 and June 30, 2017 due to the relatively short maturity of the respective instruments.
The warrant derivative liability recorded
as of September 30, 2017 and June 30, 2017 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 8. 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, 2017
|
|
$
|
(588
|
)
|
Total unrealized gains (losses):
|
|
|
|
|
Included in earnings
|
|
|
342
|
|
Balance as of September 30, 2017
|
|
$
|
(246
|
)
|
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
:
Recognition and Measurement of Financial Assets and Financial Liabilities
,
which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01
will be effective for us starting on July 1, 2018, and early adoption is not permitted. We are currently evaluating the impact
that the standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. This update requires organizations to recognize lease assets and lease liabilities on the balance sheet
and also disclose key information about leasing arrangements. This ASU is effective for annual reporting periods beginning on
or after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities
as of the beginning of an interim or annual period. We will be required to adopt ASU 2016-02 starting on July 1, 2019. We are
currently evaluating the impact the adoption of this ASU will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09.
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
The update
will affect all entities that issue share-based payment awards to their employees and is effective for annual periods beginning
after December 15, 2016 for public entities. The areas for simplification in ASU 2016-09 involve 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. We adopted the ASU starting on July 1, 2017 and there is a minimal impact on
our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-9.
Compensation
– Stock Compensation (Topic 718): Scope of Modification Accounting.
The update includes guidance on what changes to
share-based payment awards would require modification accounting and is effective for annual periods after December 15, 2017.
We expect to adopt the ASU 2017-9 on July 1, 2018. We do not expect the adoption of the new provisions to have a material impact
on our financial condition or results of operations.
Note 3 Going Concern
As reflected in the accompanying financial
statements, the Company has a net loss of $6,684,612 and net cash used in operations of $4,905,007 for the three months ended
September 30, 2017, working capital of $2,673,071 and stockholders’ equity of $7,805,901 and an accumulated deficit of $71,006,574
at September 30, 2017. In addition, the Company is in the clinical 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 from the date these financial statements were available for issuance. The ability of the Company to continue its
operations is dependent on Management’s plans, which include continuing to raise capital through equity or debt based
financings. There can be no assurances that such capital will be available to us on acceptable terms, or at all.
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 Fixed Assets
The following is a summary of fixed assets
and accumulated depreciation:
|
|
Useful
|
|
|
|
|
|
|
|
|
Life
|
|
September
30, 2017
|
|
|
June
30, 2017
|
|
Furniture and fixtures
|
|
5 - 7 years
|
|
$
|
118,450
|
|
|
$
|
118,450
|
|
Lab equipment
|
|
3 - 15 years
|
|
|
3,951,855
|
|
|
|
3,946,040
|
|
Leasehold Improvements
|
|
5 - 7 years
|
|
|
3,247,038
|
|
|
|
3,247,038
|
|
|
|
|
|
|
7,317,343
|
|
|
|
7,311,528
|
|
Less: accumulated
depreciation and amortization
|
|
|
|
|
(2,252,739
|
)
|
|
|
(1,986,127
|
)
|
|
|
|
|
$
|
5,064,604
|
|
|
$
|
5,325,401
|
|
Depreciation expense was $266,613 and $268,355
for the three months ended September 30, 2017 and 2016, respectively.
Note 5 Related Party Transactions
During the three months ended September 30,
2017, the Company incurred no related party transactions. During the three months ended September 30, 2016, the Company incurred
investor relation expenses of $36,225 for services performed by a related party. As of September 30, 2017 and June 30, 2017, there
were none and $25,200, respectively, related party expenses recorded in accounts payable and accrued expense – related party.
Note 6 Convertible Notes Payable
As of September 30, 2017 and June 30, 2017,
the convertible note outstanding balance was $10,000 and $10,000, respectively. As of September 30, 2017, the outstanding convertible
note has matured and payment is due. The convertible note which has not been repaid or converted continues to accrue interest
at a rate of 8%.
Note 7 Shareholders’ Equity
During the year ended June 30, 2017, the Company
closed private placement transactions in which the Company issued 5,783,184 units to accredited investors. Each investor was issued
either Class A Units or Class B units of the Company. Each Class A Unit received one share of common stock and one-half of one
common share purchase warrant. If the investor had previously invested in the Company they were eligible for a Class B Unit which
received one share of common stock and one common share purchase warrant. Each common share purchase warrant is exercisable at
$1.65 per share and will expire 60 months following the issuance. As of June 30, 2017, the Company received net proceeds of approximately
$5.2 million after the placement agent compensation and issuance costs paid of $683,194 and $516,550 of warrant expense recorded
as issuance costs.
The Company also entered into a private placement
transaction in which the Company issued common stock to accredited investors at an offering price of $1.00 per share. As of June
30, 2017, the Company received net proceeds of approximately $8.1 million after the placement agent compensation of $186,671 of
warrant expense recorded as issuance costs, as there was no placement agent compensation.
During the three months ended September 30,
2017, the Company closed an additional private placement transaction in which the Company issued common stock to accredited investors
at an offering price of $1.00 per share. The Company received net proceeds of $4.44 million after the placement agent compensation
of $60,000.
The Company has not declared or paid any dividends
or returned any capital to common stockholders as of September 30, 2017, nor do we intend to do so in the foreseeable future.
Note 8 Stock-Based
Compensation
Options
– 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. The Company had granted 3,295,000 of these shares to current
employees and directors of the Company as of June 30, 2016 and no additional grants as of September 30, 2017. The options have
an exercise price from $1.29 to $3.44 per share. The options vest monthly over four years, with some options subject to a one
year cliff before options begin to vest monthly.
On February 23, 2015, the Company adopted
the AntriaBio, Inc. 2015 Non Qualified Stock Option Plan which allows the Company to issue up to 6,850,000 of common stock in
the form of stock options. The Company had granted 4,487,000 of these shares to current employees and directors of the Company
as of June 30, 2017 and no additional grants as of September 30, 2017. The options have an exercise price of from $1.00 to $2.06
per share. The options vest monthly over 4 years with some options subject to a one year cliff before options begin to vest monthly.
On October 31, 2016, the Board adopted
the AntriaBio, Inc. 2016 Non Qualified Stock Option Plan which allows the Company to issue up to 35,000,000 shares of common
stock in the form of stock options. The 2016 Non Qualified Stock Option Plan was amended on August 21, 2017 to reduce the
number of shares to be issued to 15,000,000 shares of common stock in the form of stock options. The Board had issued options
to purchase 28,995,000 of these shares to current employees and directors as of June 30, 2017, of which 4,360,000 were
cancelled before their terms were established and 11,090,000 were additionally cancelled by the Board during the year ended
June 30, 2017. The Company had 1,550,000 of the cancelled stock options that had begun vesting prior to the cancellation and
with the cancellation the Company recorded $1,199,847 of unrecognized stock compensation expense. The Company had granted
135,000 of these shares to current employees and directors of the Company as of September 30, 2017. The options have an
exercise price from $1.00 to $1.20 per share. The options expire no later than ten years from the date of the grant. The
options vest on a monthly basis over 48 months, except for 100,000 of the options which do not begin to vest until specific
events have occurred and then begin to vest over 48 months and 50,000 of the options that all vest at the end of a consulting
contract. Some options are subject to a one year cliff and all options have an exercise price based on the fair value of the
common stock on the date of grant.
AntriaBio has computed the fair value of all
options granted that have begun vesting using the Black-Scholes option pricing model. The options that require specific events
before they begin to vest are not valued until the specific event has occurred. 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 comparable published volatility of several
peer companies. Due to the small number of option holders and all options being to officers, directors or high level employees,
AntriaBio has estimated a forfeiture rate of zero as the value of each option holder is calculated individually. 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, 2017 using the following assumptions:
Expected volatility
|
|
|
84%
|
|
Risk free interest rate
|
|
|
2.00%
|
|
Expected term (years)
|
|
|
7
|
|
Dividend yield
|
|
|
0%
|
|
Stock option activity is as follows:
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
Outstanding, June 30, 2017
|
|
|
21,290,751
|
|
|
$
|
1.65
|
|
|
|
7.7
|
|
Granted
|
|
|
135,000
|
|
|
$
|
1.15
|
|
|
|
|
|
Forfeited
|
|
|
(25,000
|
)
|
|
$
|
1.00
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
21,400,751
|
|
|
$
|
1.65
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
7,815,876
|
|
|
$
|
2.21
|
|
|
|
6.3
|
|
Stock-based compensation expense related to
the fair value of stock options was included in the statement of operations as research and development – compensation and
benefits expense of $298,955 and $304,969 and as general and administrative – compensation and benefits expense of $1,208,744
and $584,059 for the three months ended September 30, 2017 and 2016, respectively. The unrecognized stock-based compensation expense
at September 30, 2017 is $10,268,075. 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 in conjunction with the closing of various financings and issued warrants in private placements as
follows:
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
Outstanding, June 30, 2017
|
|
|
32,796,448
|
|
|
$
|
1.71
|
|
|
|
3.7
|
|
Warrants expired
|
|
|
(25,000
|
)
|
|
$
|
1.65
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
32,771,448
|
|
|
$
|
1.71
|
|
|
|
3.5
|
|
For the Three Months Ended September 30,
2017:
The Company had warrants to purchase 25,000 shares of common stock expire as of September 30, 2017.
The warrants exercisable for
16,667 shares of common stock at September 30, 2017 are accounted for under liability accounting. The fair value as of September 30,
2017 and June 30, 2017 were $246 and $588, respectively which is reflected as a liability with the fair value adjustment
recorded as derivative gains or losses on the consolidated statements of operations.
The warrants exercisable for the 250,000 shares of common stock are accounted
for under the equity method of accounting and are fair valued monthly at the date that the warrants vest. As of June 30, 2017,
warrants to purchase 15,624 shares of common stock had vested and $12,564 had been recorded into equity and investor relations
expense. As of September 30, 2017, warrants to purchase an additional 15,624 shares of common stock had vested and $14,847 had
been recorded into equity and investor relations expense.
These warrants were valued using the Black-Scholes
option pricing model on the date of issuance. In order to calculate the fair value of the warrants, 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 comparable published volatilities of several peer companies. 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 for the warrant values calculated for the three months ended September 30, 2017 were as follows:
Expected volatility
|
|
52% - 84%
|
Risk free interest rate
|
|
1.47% - 2.35%
|
Warrant term (years)
|
|
2 - 10
|
Dividend yield
|
|
0%
|
Note 9 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,
2017, the Company did not record any income tax provision due to expected future losses and full valuation allowance on its deferred
tax assets.
Note 10 Commitments and Contingencies
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 $34,381 adjusted annually. The Company also made a security deposit of $750,000 which is held by the landlord, of which
$375,000 has been returned to the Company and the remaining balance will be returned gradually over the next several years.
On March 17, 2017, the Company entered
into a lease of approximately 20,000 square feet of office space to be leased for eighty-two months. The lease requires monthly
payments of $28,425 adjusted annually plus triple net expenses monthly of $28,410 adjusted annually. The Company also made a security
deposit of $56,851 which will be returned at the end of the lease.
On March 17, 2017, the Company sub-leased
their original approximately 10,000 square feet of office space to another company. The sublease is for eighty-two months unless
the Company is unable to extend our current lease then the sub-lease will expire on March 31, 2020. The Company is to receive
monthly payments of $12,523 adjusted annually plus triple net expenses monthly of $12,828 adjusted annually. The Company also
received a security deposit of $25,046 which will be returned at the end of the lease.
As of September 30, 2017, the minimum
rental commitment under the leases are as follows:
|
|
Operating Leases
|
|
|
Sub-lease Income
|
|
|
Total
|
|
Year Ending June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
519,829
|
|
|
|
(114,435
|
)
|
|
|
405,394
|
|
2019
|
|
|
712,360
|
|
|
|
(157,187
|
)
|
|
|
555,173
|
|
2020
|
|
|
664,696
|
|
|
|
(148,551
|
)
|
|
|
516,145
|
|
2021
|
|
|
338,392
|
|
|
|
—
|
|
|
|
338,392
|
|
2022
|
|
|
347,836
|
|
|
|
—
|
|
|
|
347,836
|
|
Thereafter
|
|
|
569,364
|
|
|
|
—
|
|
|
|
569,364
|
|
|
|
$
|
3,152,477
|
|
|
$
|
(420,173
|
)
|
|
$
|
2,732,304
|
|
License Agreements
– On
August 4, 2017, the Company entered into a Development and License Agreement (“
License Agreement
”) with
ActiveSite Pharmaceuticals, Inc. (“
ActiveSite
”) pursuant to which the Company acquired the rights to
ActiveSite’s Plasma Kallikrein Inhibitor program (“
PKI Program
”). The Company desires to use
the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other human
therapeutic indications. The Company was required to make an upfront payment of $750,000 payable within five (5) days
of the date of the parties executed the License Agreement. The Company is required to pay up to an additional aggregate of
$36.5 million in development and regulatory milestone payments if certain clinical study objectives and regulatory filings,
acceptances and approvals are achieved. In addition, we are required to pay up to an aggregate of $10.0 million in sales
milestone payments if certain annual sales targets are achieved.
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, 2017, 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.