Rezolute, Inc. quarterly report, Q3 FY2014

Business context and reporting period

This is AntriaBio, Inc.’s Form 10-Q for the quarter and nine months ended March 31, 2014 (fiscal third quarter), not a filing under the name Rezolute, Inc. AntriaBio was a development-stage biotechnology company developing sustained-release products for diabetes, led by AB101, a proposed once-weekly basal insulin. It had not generated revenue.

Financial performance and position

At March 31, cash was $5.64 million, current assets $5.98 million, and current liabilities $2.86 million, for reported working capital of $3.12 million. Total assets were $6.27 million and stockholders’ equity $3.41 million. Current liabilities included $657,500 of convertible notes, $234,700 due under a related-party note, and $1.12 million of related-party accounts payable and accrued expenses. No revenue-based margins are meaningful.

Changes versus comparable periods

• Quarterly net loss increased from $4.53 million to $5.09 million; nine-month net loss increased from $5.70 million to $7.73 million.
• Quarterly operating expenses declined from $4.05 million to $1.60 million, and nine-month expenses from $5.09 million to $2.95 million. Management attributed much of the decrease to lower stock-based compensation than in 2013, when previously granted options had immediately vested.
• Interest expense was unusually high: $3.44 million for the quarter and $4.23 million for the nine months, including substantial amortization of convertible-note discounts and charges on conversion. The company also reported $559,791 of nine-month derivative expense and $341,780 of receivable write-offs.
• Cash increased from $527 at June 30, 2013 to $5.64 million at March 31, 2014, mainly reflecting financing. Financing cash flow was $6.72 million for the nine months; operating cash use was $1.07 million.

Outlook, risks and notable items

• Management stated that available cash and expected operating cash flows would not sustain operations for more than one year and disclosed substantial doubt about the company’s ability to continue as a going concern. Continued operations depended on raising additional capital.
• The company described plans to complete IND-enabling work, target an FDA IND filing in 2015, and begin U.S. clinical trials in the second half of 2015. It estimated a need to raise as much as $30 million to fund development through initial Phase 1 and Phase 2 studies; timing and amount of future financing were uncertain.
• A March private placement generated approximately $4.1 million net proceeds; an April closing generated approximately $3.4 million net. Management described total net proceeds of approximately $7.6 million. The financing triggered conversion of $5.71 million principal of notes, plus accrued interest, into common shares. After period-end, remaining noteholders agreed to convert all but $211,966 of remaining principal and interest.
• The company disclosed up to $44 million of contingent payments under its acquired-asset agreement, payable only upon specified development, licensing, regulatory approval, or sales milestones within five years; no milestone had occurred by the report date.
• On May 5, 2014, the company entered a 72-month lease for approximately 27,000 square feet of office, laboratory, and clean-room space in Colorado. The filing also reported a material weakness in disclosure controls, citing inadequate segregation of duties and a need for a stronger internal-control environment.
• Related-party receivables and accrued interest were written off in March. The company reported no pending or threatened litigation expected to have a material effect and no off-balance-sheet arrangements.

Important facts for investors to verify

• Confirm the issuer identity and period: the supplied filing identifies AntriaBio, Inc. and the period ended March 31, 2014.
• Review the detailed note-conversion terms, remaining debt and interest, and the effect of the conversions and warrants on dilution.
• Verify net proceeds and share issuances from the March and April private-placement closings, including placement costs and the reported approximately $7.6 million total.
• Assess the company’s cash runway, planned development spending, financing needs, and the going-concern warning.
• Evaluate the related-party balances and write-offs, the contingent milestone obligations, and the material weakness in disclosure controls.