Rezolute, Inc. (identified in the filing as AntriaBio, Inc.) — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2016. The filing is unaudited and describes the company as a preclinical-stage biotechnology business with no revenue. The company’s lead candidate, AB101, is a potential once-weekly basal insulin.
Financial performance and position
| Metric | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $3.08 million | $5.56 million | $2.52 million quarter; $4.49 million six months |
| General and administrative expense | $1.81 million | $3.15 million | $1.54 million quarter; $2.87 million six months |
| Total operating expenses | $4.89 million | $8.71 million | $4.07 million quarter; $7.37 million six months |
| Net loss | $4.89 million | $8.70 million | $4.07 million quarter; $7.35 million six months |
| Basic and diluted loss per share | $0.12 | $0.23 | $0.17 quarter; $0.30 six months |
| Net cash used in operations | $6.06 million for six months | $4.80 million for six months |
Six-month net loss increased about 18% year over year; operating expenses rose about 18%. Management attributed the R&D increase primarily to hiring staff to prepare clinical material. G&A increased more modestly and was described as largely fixed. Profit margins are not meaningful because the company had no revenue.
At December 31, 2016, cash was $3.57 million, total assets $9.94 million, total liabilities $2.01 million, and stockholders’ equity $7.93 million. Cash declined $0.49 million over the six months. Financing provided $5.66 million net, including equity proceeds; investing used $0.09 million. The company reported $10,000 of convertible notes payable at period end; all remaining notes had matured and were due, with unpaid notes accruing 8% interest. Lease liabilities and future lease commitments also remain.
Liquidity discrepancy: The balance sheet yields working capital of approximately $2.12 million ($3.79 million current assets less $1.67 million current liabilities), consistent with Note 3; MD&A instead states approximately $2.7 million. The filing does not reconcile this difference.
Outlook, risks, and notable items
- Going concern: Management stated that existing cash and expected operating cash flows would not fund operations for more than one year. The filing says substantial doubt exists about the company’s ability to continue as a going concern; continued operations depend on raising capital, with no assurance financing will be available on acceptable terms.
- Financing plan: The company was seeking at least $10 million and potentially up to $30 million, primarily through common stock priced at or around $1 per share, with initial closings expected by the end of February 2017 and further closings in March. These were plans, not completed financing commitments. Management said approximately $10 million more was needed to fund operations, AB101 trials, and R&D through calendar year-end 2017.
- AB101 milestones: The company reported certifying its Louisville facility to cGMP standards in January 2017 and planned to manufacture clinical material in the first quarter of 2017, file an IND with the FDA, and begin a clinical study around mid-2017. Timing and execution depend on manufacturing, regulatory, clinical, and financing progress.
- Potential dilution: Common shares outstanding were 40,952,450 as of February 2, 2017. During the six-month period the company issued 5.78 million shares in private placements, alongside warrants; it also reported 32.89 million options outstanding at December 31, including newly granted options. A January 2017 warrant amendment was accepted for approximately 15.4 million warrants, changing exercise terms.
- Controls and contingencies: Management concluded disclosure controls were ineffective due to a material weakness involving inadequate segregation of duties, a need for a stronger control environment, and limited review of complex accounting. The company reported no pending or threatened lawsuits expected to have a material effect and no off-balance-sheet arrangements.
- Other notable items: Stock-based compensation was $2.13 million for the six months; unrecognized option compensation was $14.13 million. No income tax provision was recorded because of expected losses and a full valuation allowance on deferred tax assets.
Most important facts for investors to verify
- Whether the planned $10–30 million financing closed, on what terms, and whether it provides adequate runway.
- The working-capital figure: MD&A reports about $2.7 million, while the balance sheet and going-concern note indicate about $2.12 million.
- Progress and costs for AB101 manufacturing, IND submission, and the planned clinical-study start.
- The scale and potential dilution of outstanding options, warrants, and any subsequent financing; confirm the effect of the January warrant amendment.
- Remediation of the disclosed material weakness and the company’s ability to maintain effective financial-reporting controls.