Attached files
file | filename |
---|---|
EX-31.2 - EXHIBIT 31.2 - OMNI BIO PHARMACEUTICAL, INC. | c07684exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - OMNI BIO PHARMACEUTICAL, INC. | c07684exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - OMNI BIO PHARMACEUTICAL, INC. | c07684exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - OMNI BIO PHARMACEUTICAL, INC. | c07684exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended December 31, 2009
or
o | 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: 000-52530
Omni Bio Pharmaceutical, Inc.
(Exact Name of Registrant as Specified in its Charter)
Colorado | 20-8097969 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
5350 South Roslyn, Suite 430, Greenwood Village, CO 80111
(Address of principal executive offices, including zip code)
(Address of principal executive offices, including zip code)
(303) 867-3415
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 þ No o
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 (Section 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). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock as of January 29, 2010 was
27,242,485.
Table of Contents
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (the Form 10-Q/A) to the Quarterly Report on Form 10-Q for
Omni Bio Pharmaceutical, Inc. (we or the Company) for the quarterly period ended December 31,
2009, initially filed with the Securities and Exchange Commission (the SEC) on February 4 , 2010
(the Original Filing), is being filed to report restated share-based compensation and other
equity-based charges for the three and nine months ended December 31, 2009. This restatement
relates to revised valuations for: 1) certain common stock purchase warrants granted to directors,
officers and consultants during the period from July 30, 2009 to December 16, 2009 (the Director
Warrants); 2) a common stock purchase warrant (the Bio Holding Warrant) issued in September 2009
in consideration for a licensing arrangement with a related party, Bio Holding, Inc. (Bio
Holding); and 3) a modification of an investor warrant in October 2009 (the Modification
Warrant, and together with the Director Warrants and the Bio Holding Warrant, the 2010
Warrants). The restatement of the Companys accounting for the 2010 Warrants arose in connection
with comments received from the staff of the SEC in its review of the Companys periodic SEC
filings.
As a result, and as previously disclosed in filings made with the SEC, on October 8, 2010, the
Audit Committee of the Board of Directors of the Company, in consultation with management,
concluded that the Companys unaudited, consolidated financial statements and reports filed the SEC
for the fiscal quarter ended December 31, 2009 should not be relied upon. For a more detailed
description of the effects of the restatement, see Note 1A in Part IItem 1 of this report.
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety.
However, this Form 10-Q/A only amends and restates Items 1, 2 and 4T of Part I of the Original
Filing, in each case, solely as a result of, and to reflect, the restatement and comments of the
SEC, and no other information in the Original Filing is amended hereby. The foregoing items have
not been updated to reflect other events occurring after the Original Filing or to modify or update
those disclosures affected by subsequent events. In addition, pursuant to the rules of the SEC,
Item 6 of Part II of the Original Filing has been amended to contain currently dated certifications
from the Companys Chief Executive Officer and Chief Financial Officer, as required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002, and are attached as Exhibits 31.1, 31.2, 32.1 and 32.2
to this report.
Except for the foregoing amended information, this Form 10-Q/A continues to speak as of the date of
the Original Filing, and the Company has not updated the disclosures contained herein to reflect
events that occurred at a later date. Other events occurring after the filing of the Original
Filing or other disclosures necessary to reflect subsequent events will be addressed in any reports
filed with the SEC subsequent to the date of this filing.
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
TABLE OF CONTENTS
TABLE OF CONTENTS
Page | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
7 | ||||||||
9 | ||||||||
26 | ||||||||
32 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
34 | ||||||||
35 | ||||||||
35 | ||||||||
35 | ||||||||
36 | ||||||||
37 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 2009 | March 31, 2009 | |||||||
(Unaudited) | (Unaudited) | |||||||
(As restated) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 790,292 | $ | 1,805,395 | ||||
Other current assets |
16,939 | 21,772 | ||||||
Total current assets |
807,231 | 1,827,167 | ||||||
Property and equipment, net |
1,169 | 2,250 | ||||||
Intangible assets, net |
68,412 | 72,300 | ||||||
Total long-term assets |
69,581 | 74,550 | ||||||
TOTAL ASSETS |
$ | 876,812 | $ | 1,901,717 | ||||
LIABILITIES & STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 112,306 | $ | 282,935 | ||||
Amounts due to UCD under sponsored research agreement |
81,300 | 321,300 | ||||||
Accrued liabilities |
61,977 | 56,817 | ||||||
Accrued compensation and related benefits and taxes |
7,625 | 211,012 | ||||||
Amounts due to related parties |
4,500 | 138,261 | ||||||
Note payable related party |
| 132,000 | ||||||
Total current liabilities |
267,708 | 1,142,325 | ||||||
Note payable related party, net of discount of $6,000 and
$15,000, respectively |
19,000 | 10,000 | ||||||
Total liabilities |
286,708 | 1,152,325 | ||||||
Commitments and Contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.10 par value; 5,000,000 shares
authorized; -0- shares
issued and outstanding |
| | ||||||
Common stock, $0.001 par value; 200,000,000 shares authorized;
27,242,485 and 23,164,567 shares issued and outstanding, respectively |
27,242 | 23,164 | ||||||
Additional paid-in capital |
20,395,931 | 8,186,704 | ||||||
Deficit accumulated during the development stage |
(19,833,069 | ) | (7,460,476 | ) | ||||
Total stockholders equity |
590,104 | 749,392 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERSEQUITY |
$ | 876,812 | $ | 1,901,717 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
For the Three Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
(As restated) | ||||||||
Operating expenses: |
||||||||
General and administrative (including share-based compensation
of $2,317,780 and $122,372, respectively) |
$ | 2,551,157 | $ | 239,952 | ||||
Research and development |
| 81,300 | ||||||
Total operating expenses |
2,551,157 | 321,252 | ||||||
Loss from operations |
(2,551,157 | ) | (321,252 | ) | ||||
Non-operating expenses: |
||||||||
Interest income (expense), net |
1,063 | (1,321 | ) | |||||
Accretion expense on notes payable related party |
(3,000 | ) | (17,386 | ) | ||||
Charge for modification to warrant |
(2,479,000 | ) | | |||||
Total non-operating expenses |
(2,480,937 | ) | (18,707 | ) | ||||
Net loss |
$ | (5,032,094 | ) | $ | (339,959 | ) | ||
Basic and diluted net loss per share |
$ | (0.19 | ) | $ | (0.02 | ) | ||
Weighted average shares outstanding basic and diluted |
27,073,918 | 18,210,295 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
February 28, 2006 | ||||||||||||
For the Nine Months Ended | (Inception) through | |||||||||||
December 31, | December 31, 2009 | |||||||||||
2009 | 2008 | |||||||||||
(As restated) | (As restated) | |||||||||||
Operating expenses: |
||||||||||||
General and administrative (including share-based
compensation of $3,652,595, $428,184 and
$5,118,409, respectively) |
$ | 4,270,305 | $ | 761,540 | $ | 7,228,561 | ||||||
License fee related party |
5,615,980 | | 5,615,980 | |||||||||
Research and development |
| 241,300 | 1,132,497 | |||||||||
Charge for common stock issued pursuant to
license agreements |
| 20,833 | 763,240 | |||||||||
Total operating expenses |
9,886,285 | 1,023,673 | 14,740,278 | |||||||||
Loss from operations |
(9,886,285 | ) | (1,023,673 | ) | (14,740,278 | ) | ||||||
Non-operating expenses: |
||||||||||||
Interest income (expense), net |
1,692 | (1,843 | ) | (59,393 | ) | |||||||
Accretion expense on notes payable
related party |
(9,000 | ) | (21,386 | ) | (50,125 | ) | ||||||
Charges for warrants issued in merger related parties |
| | (1,948,237 | ) | ||||||||
Charge for warrants issued in private placements
related parties |
| | (403,350 | ) | ||||||||
Charges for modifications to warrants |
(2,479,000 | ) | | (2,631,686 | ) | |||||||
Total non-operating expenses |
(2,486,308 | ) | (23,229 | ) | (5,092,791 | ) | ||||||
Net loss |
$ | (12,372,593 | ) | $ | (1,046,902 | ) | $ | (19,833,069 | ) | |||
Basic and diluted net loss per share |
$ | (0.47 | ) | $ | (0.06 | ) | ||||||
Weighted average shares outstanding basic and diluted |
26,562,854 | 18,209,234 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Deficit | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | During | Total | ||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Development | Stockholders | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Equity | ||||||||||||||||||||||
Balances at March 31, 2009 |
| $ | | 23,164,567 | $ | 23,164 | $ | 8,186,704 | $ | (7,460,476 | ) | $ | 749,392 | |||||||||||||||
Conversion of related party note payable into common stock
(April 2009 at $0.22 per share) |
600,000 | 600 | 131,400 | 132,000 | ||||||||||||||||||||||||
Common stock purchase warrants exercised for cash by related parties (June 2009; 200,000 at $0.01 per
share and 1,175,356 at $0.001 per share) |
1,375,356 | 1,375 | 1,800 | 3,175 | ||||||||||||||||||||||||
Common stock purchase warrants exercised cashless
(May and June 2009 at weighted average exercise price
of $1.10 per share) |
126,097 | 126 | (126 | ) | | |||||||||||||||||||||||
Common stock purchase warrants exercised for cash by
related parties (July and August 2009 at $0.001 per share) |
774,644 | 775 | | 775 | ||||||||||||||||||||||||
Common stock purchase warrants exercised cashless by
related parties (July through September 2009 at
weighted average exercise price of $0.75 per share) |
485,387 | 485 | (485 | ) | | |||||||||||||||||||||||
Common stock purchase warrants exercised cashless
(August and September 2009 at weighted average exercise
price of $1.10 per share) |
268,720 | 269 | (269 | ) | | |||||||||||||||||||||||
Common stock purchase warrant issued to related party for
license fee (September 2009 at estimated fair value of $8.60
per share and exercise price of $3.00 per share, as restated |
5,590,980 | 5,590,980 |
5
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (continued)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (continued)
Deficit | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | During | Total | ||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Development | Stockholders | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Stage | Equity | ||||||||||||||||||||||
Common stock purchase warrants exercised cashless
(October through December 2009 at weighted average
exercise price of $1.02 per share) |
291,714 | 292 | (292 | ) | | |||||||||||||||||||||||
Common stock sold in private placement offering, net of
offering costs of $39,000 (December 2009 at $2.50
per unit) |
156,000 | 156 | 350,844 | 351,000 | ||||||||||||||||||||||||
Share-based compensation related to issuance of common
stock purchase warrants and common stock (April
2009 through December 2009), as restated |
3,652,595 | 3,652,595 | ||||||||||||||||||||||||||
Modification to common stock purchase warrants at
estimated
fair value of $9.92 per share, as restated |
2,479,000 | 2,479,000 | ||||||||||||||||||||||||||
Contributed rent |
3,780 | 3,780 | ||||||||||||||||||||||||||
Net loss, as restated |
(12,372,593 | ) | (12,372,593 | ) | ||||||||||||||||||||||||
Balances at December 31, 2009, as restated (unaudited) |
| $ | | 27,242,485 | $ | 27,242 | $ | 20,395,931 | $ | (19,833,069 | ) | $ | 590,104 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended | February 28, 2006 | |||||||||||
December 31, | (Inception) Through | |||||||||||
2009 | 2008 | December 31, 2009 | ||||||||||
(As restated) | (As restated) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net loss |
$ | (12,372,593 | ) | $ | (1,046,902 | ) | $ | (19,833,069 | ) | |||
Adjustments used to reconcile net loss to net cash used in
operating activities: |
||||||||||||
Charge for warrant issued for purchase of license
related party |
5,590,980 | | 5,590,980 | |||||||||
Common stock issued pursuant to license agreements |
| 20,833 | 763,240 | |||||||||
Share-based compensation |
3,652,595 | 428,184 | 5,118,409 | |||||||||
Accretion expense related parties |
9,000 | 21,386 | 50,125 | |||||||||
Charge for warrants issued in merger transaction
related parties |
| | 1,948,237 | |||||||||
Charge for warrants issued in private placement
transactions related parties |
| | 403,350 | |||||||||
Charges for modifications to warrants |
2,479,000 | | 2,631,686 | |||||||||
Depreciation and amortization |
4,969 | 3,895 | 15,296 | |||||||||
Contributed rent |
3,780 | 4,620 | 19,740 | |||||||||
Other non-cash credit |
| (2,836 | ) | |||||||||
Loss on disposal of equipment |
| | 2,444 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Other current assets |
4,833 | 73 | (19,038 | ) | ||||||||
Accounts payable |
(169,629 | ) | 9,628 | 268,501 | ||||||||
Amounts due to UCD under sponsored research
agreement |
(241,000 | ) | 321,300 | 81,300 | ||||||||
Accrued liabilities and accrued compensation and related
benefits and taxes |
(198,227 | ) | 173,340 | (242,222 | ) | |||||||
Amounts due to related parties |
(133,761 | ) | 17,987 | 208,382 | ||||||||
Net cash used in operating activities |
(1,370,053 | ) | (48,492 | ) | (2,992,639 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Proceeds from reverse merger transactions |
| | 11,750 | |||||||||
Purchase of licenses |
| (35,401 | ) | (35,401 | ) | |||||||
Purchase of property and equipment |
| | (7,423 | ) | ||||||||
Net cash used in investing activities |
| (35,401 | ) | (31,074 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds from the sale of common stock |
351,000 | | 2,850,055 | |||||||||
Proceeds from the issuance of notes payable to related
parties |
| 75,000 | 825,000 | |||||||||
Proceeds from the sale of common stock warrants |
| | 125,000 | |||||||||
Proceeds from the exercise of common stock warrants |
3,950 | | 13,950 | |||||||||
Net cash provided by financing activities |
354,950 | 75,000 | 3,814,005 | |||||||||
Net increase (decrease) in cash and cash equivalents |
(1,015,103 | ) | (8,893 | ) | 790,292 | |||||||
Cash and cash equivalents at beginning of period |
1,805,395 | 17,309 | | |||||||||
Cash and cash equivalents at end of period |
$ | 790,292 | $ | 8,416 | $ | 790,292 | ||||||
7
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Nine Months Ended | February 28, 2006 | |||||||||||
December 31, | (Inception) Through | |||||||||||
2009 | 2008 | December 31, 2009 | ||||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION: |
||||||||||||
Cash paid for: |
||||||||||||
Interest |
$ | 1,750 | $ | | $ | 1,750 | ||||||
Income taxes |
$ | | $ | | $ | | ||||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES: |
||||||||||||
Note payable related party converted to common stock |
$ | 132,000 | $ | | ||||||||
Issuance of common stock purchase warrants to related
party pursuant to private placement transaction |
$ | 69,962 | $ | | ||||||||
Issuance of common stock pursuant to cashless exercises
of warrants |
$ | 1,172 | $ | | ||||||||
Discounts on notes payable related parties |
$ | | $ | 56,125 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 ORGANIZATION AND GOING CONCERN
Organization
Omni Bio Pharmaceutical, Inc. is the successor company of Across America Financial Services, Inc.
(Across America), which was incorporated under Colorado law on December 1, 2005 as a wholly-owned
subsidiary of Across America Real Estate Corp. Across America intended to act as a mortgage broker
for commercial real estate transactions. However, no revenues were generated from this business.
On March 31, 2009, Across America completed the acquisition of Apro Bio Pharmaceutical Corporation
(Apro Bio) pursuant to the terms of the Agreement of Merger and Plan of Reorganization, as
amended (the Merger) among Across America, Apro Bio and Across America Acquisition Corp.
(AAAC), a Colorado corporation and a wholly-owned subsidiary of Across America. Under the terms
of the Merger, AAAC was merged into Apro Bio and Apro Bio became a wholly-owned subsidiary of
Across America. On May 27, 2009, Across America changed its name to Omni Bio Pharmaceutical, Inc.
(Omni). The Merger was accounted for as a reverse acquisition with Apro Bio being treated as the
acquirer for accounting purposes. Accordingly, for all periods presented, the financial statements
of Apro Bio have been adopted as the historical financial statements of Omni. See further
discussion in Note 2.
On March 31, 2008, Apro Bio was formed from the merger of Apro Bio Pharmaceutical Corporation
(Apro Utah) and Maxcure Pharmaceutical, Inc. (Maxcure), with Maxcure being the surviving legal
corporation and Apro Bio the deemed acquirer for accounting purposes. See further discussion in
Note 2.
Apro Utah was originally incorporated under the laws of the state of Utah on February 28, 2006 for
the purpose of advancing the underlying licensed scientific art to attain the ability to sell
treatments and/or countermeasures commercially to the Federal Government related to bacterial
infections. Maxcure was formed as a Colorado corporation on December 26, 2006 for the purpose of
entering into a license agreement with the University of Colorado Denver (UCD), formerly known as
the University of Colorado Health Science Center (UCHSC) and to pursue a research agreement with
UCD to further scientific study on using FDA-approved pharmaceuticals in novel methods for
treatment of viral infection.
Nature of Operations
Except as the context otherwise requires, the terms Company, we, our or us means Omni and
its wholly-owned subsidiary, Omni Bio Operating, Inc. (Omni Bio).
From inception, we have been engaged in the sponsoring of research and development programs
conducted by UCD and one other academic/research institution. Pursuant to two existing license
agreements with the Regents of the University of Colorado (RUC), we have entered into one
Sponsored Research Agreement (SRA) related to a pending patent for the treatment of bacterial
infection utilizing Alpha 1-Antitrypsin (AAT) dated May 15, 2006, and are obligated to enter into
additional SRAs under our license agreement dated March 31, 2008 for methods of use of an issued
patent related to the treatment of HIV (human immunodeficiency virus). On November 12, 2008, we
executed a third license agreement with RUC, which involves patent applications for methods of use
of AAT for potential use in organ/graft transplantation rejection. We are also obligated to enter
into an additional SRA under this license agreement. To date, we have not generated any revenues
from our operations.
9
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Basis of Presentation
The accompanying unaudited consolidated financial statements are comprised of Omni and its
wholly-owned subsidiary, Omni Bio, and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (US GAAP) have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the unaudited consolidated
financial statements have been prepared on the same basis as the annual audited consolidated
financial statements, and reflect all adjustments, consisting only of normal, recurring
adjustments, necessary for a fair presentation in accordance with US GAAP. The results of
operations for interim periods presented are not necessarily indicative of the operating results
for the full year. These unaudited consolidated financial statements should be read in connection
with the audited consolidated financial statements and notes thereto included in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2009 (the 2009 10-K). The balances as of March
31, 2009 are derived from our audited consolidated balance sheet.
Going Concern
The accompanying financial statements have been prepared in conformity with US GAAP, which
contemplate our continuation as a going concern, whereby the realization of assets and liquidation
of liabilities are in the ordinary course of business. We are currently in the development stage
as we have not realized any revenue since inception. Activities have included: raising capital;
reorganizations and mergers; and obtaining various rights, license agreements and a research and
development agreement. We have incurred net losses since inception, and as of December 31, 2009,
had a deficit accumulated from inception of $20.4 million, which included total non-cash charges
from inception of approximately $16.6 million. These conditions raise substantial doubt as to our
ability to continue as a going concern. These financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be different should we be unable to continue as a going
concern.
In December 2009, we enhanced our liquidity with the first closing of a private placement equity
offering (the Private Placement), which generated net cash of $351,000 (after offering costs of
$39,000). In January 2010, we completed two additional closings of the Private Placement and
generated net cash of $1,436,000 (after offering costs of $160,000). See further discussion in
Note 3. We believe that the capital raised in the Private Placement provides us cash to fund our
current operations and research and development for the near term. Depending on the extent that we
increase research and development through potential new licenses or pursue clinical trials in
addition to our current budgeted one, we will likely need to raise additional capital through
additional equity financings or through other means that we deem necessary. There is no assurance
that we will be successful in raising additional capital on acceptable terms or at all. Further,
even if we raise additional capital, there is no assurance that we will achieve profitability or
positive cash flow in the near term or at all.
Share-based Compensation
We account for share-based compensation under FASB ASC Topic 718 Compensation Stock Compensation
(Topic 718). Topic 718 requires the recognition of equity-based payments to employees in the
financial statements and is measured based on the estimated fair value of the award on the grant
date. Topic 718 also requires the stock option or stock purchase warrant compensation expense to
be recognized over the period during which an employee is required to provide service in exchange
for the award (generally the vesting period). We estimated the fair value of each stock option or
stock purchase warrant at the grant date by using the Black-Scholes option pricing model. See Note
7 for additional disclosures.
10
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Earnings (Loss) per Share
Basic earnings (loss) per share is computed based on the weighted average number of common shares
outstanding during the period presented. In addition to common shares outstanding, and in
accordance with FASB ASC Topic 260 Earnings per Share, any shares issuable for little or no cash
consideration are considered outstanding shares as of the beginning of a reporting period and are
included in the calculation of the weighted average number of common shares. Accordingly, for the
nine months ended December 31, 2009, the weighted average number of common shares outstanding
included 200,000 and 1,950,000 shares issuable under outstanding common stock purchase warrants
(warrants) that were immediately exercisable at $0.01 and $0.001, respectively.
Diluted earnings (loss) per share is computed using the weighted average number of common shares
outstanding plus the number of common shares that would be issued assuming exercise or conversion
of all potentially dilutive common shares. Potentially dilutive securities are excluded from the
calculation when their effect would be anti-dilutive. For all periods presented in the
consolidated financial statements, all potentially dilutive securities have been excluded from the
diluted share calculations as they were anti-dilutive as a result of the net losses incurred for
the respective periods. Accordingly, basic shares equal diluted shares for all periods presented.
For the three and nine months ended December 31, 2009, potentially dilutive securities were
comprised of 10,750,200 common stock purchase warrants and 25,000 shares issuable upon conversion
of a note payable. For the three and nine months ended December 31, 2008, potentially dilutive
securities were comprised of 2,207,500 common stock purchase warrants and 25,000 shares issuable
upon conversion of a note payable.
Recently Issued Accounting Standard Updates
We have reviewed all of the FASBs Accounting Standard Updates through the filing date of this
report, February 4, 2010, and have concluded that none will have a material impact on our future
consolidated financial statements.
Subsequent Events
We have evaluated events subsequent to December 31, 2009 through the filing date of this report,
February 4, 2010.
NOTE 1A RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
We have restated our consolidated financial statements as of and for the three and nine months
ended December 31, 2009 related to the Companys accounting for share-based compensation and other
equity-based charges related to the 2010 Warrants. When the 2010 Warrants were issued, an active
market for the Companys common stock did not exist, and as a result, in its application of ASC
Topic 718, the Company used alternative valuation methods to calculate the estimated fair value of
the 2010 Warrants. Following discussions with the SEC in connection with comments issued by the
staff of the SEC, the Company determined that its accounting for share-based compensation should be
reviewed. As a result, we reviewed our assumptions and variables used in computing the estimated
fair value of the 2010 Warrants under the Black-Scholes pricing model, and have concluded that the
common stock price variable in the calculations for the 2010 Warrants should be revised and be
primarily based on the closing price of our common stock as quoted on the Over-the-Counter Bulletin
Board (the OTC price) on the specific grant dates for each of the respective warrants as opposed
to other fair value measurements. See Notes 5 and 7 for the revised calculations of the estimated
fair value of the 2010 Warrants.
Additionally, the Company is adjusting share-based compensation as originally reported for the
three months ended June 30, 2009, the three and six months ended September 30, 2009 and the three
and nine months ended December 31, 2009 related to certain Director Warrants that were granted on
July 30, 2009 (the Director 1 Warrants) These adjustments resulted from the Company reviewing
the criteria in ASC 718 for the initial recording of share-based compensation for the Director 1
Warrants where the service inception date and the grant date were different. Based on our review
of ASC 718, we determined that the Director 1 Warrants did not meet the criteria for recording
share-based compensation prior to the grant date and that the share-based compensation for the
Director 1 Warrants that was previously recorded for the three months ended June 30, 2009 should be
reversed and recorded in the operating results during the period from July 30, 2009 to March 31,
2010. Accordingly, the adjustments related to the restatements represented below include the net
impact of the revised accounting for the Director 1 Warrants (the Director 1 Warrants Adjustment)
and the revaluation of the Director Warrants (the Director Warrants Revaluation) as discussed
above.
11
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
The impact of the restatement on the unaudited consolidated financial statements as of and for the
three and nine months ended December 31, 2009 is shown in the following (unaudited) tables:
Balance sheet data December 31, 2009 | As reported | Adjustment | As restated | |||||||||
Additional paid-in capital |
$ | 11,985,520 | $ | 8,410,411 | $ | 20,395,931 | ||||||
Deficit accumulated during the development stage |
(11,422,658 | ) | (8,410,411 | ) | (19,883,069 | ) | ||||||
Total stockholders equity |
$ | 590,104 | $ | | $ | 590,104 | ||||||
Statement of Operations data - | ||||||||||||
For the three months ended December 31, 2009 | As reported | Adjustment | As restated | |||||||||
General and administrative expenses (1) |
$ | 831,519 | $ | 1,719,638 | $ | 2,551,157 | ||||||
Loss from operations |
(831,519 | ) | (1,719,638 | ) | (2,551,157 | ) | ||||||
Charges for modifications to warrants |
(528,000 | ) | (1,951,000 | ) | (2,479,000 | ) | ||||||
Net loss |
$ | (1,361,456 | ) | $ | (3,670,638 | ) | $ | (5,032,094 | ) | |||
Basic and diluted net loss per share |
$ | (0.05 | ) | $ | (0.14 | ) | $ | (0.19 | ) | |||
Statement of Operations data - | ||||||||||||
For the nine months ended December 31, 2009 | As reported | Adjustment | As restated | |||||||||
General and
administrative expenses (2) |
$ | 1,931,874 | $ | 2,338,431 | $ | 4,270,305 | ||||||
License fee related party |
1,495,000 | 4,120,980 | 5,615,980 | |||||||||
Total operating expenses |
3,426,874 | 6,459,411 | 9,886,285 | |||||||||
Loss from operations |
(3,426,874 | ) | (6,459,411 | ) | (9,886,285 | ) | ||||||
Charges for modifications to warrants |
(528,000 | ) | (1,951,000 | ) | (2,479,000 | ) | ||||||
Net loss |
$ | (3,962,182 | ) | $ | (8,410,411 | ) | $ | (12,372,593 | ) | |||
Basic and diluted net loss per share |
$ | (0.15 | ) | $ | (0.32 | ) | $ | (0.47 | ) | |||
12
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Statement of Cash Flows data | ||||||||||||
For the nine months ended December 31, 2009 | As reported | Adjustment | As restated | |||||||||
Net loss |
$ | (3,962,182 | ) | $ | (8,410,411 | ) | $ | (12,372,593 | ) | |||
Share-based compensation |
$ | 1,314,164 | $ | 2,338,431 | $ | 3,652,595 | ||||||
Charge for warrant issued for purchase of license
related party |
1,470,000 | 4,120,980 | 5,590,980 | |||||||||
Charges for modifications to warrants |
528,000 | 1,951,000 | 2,479,000 | |||||||||
Net cash used in operating activities |
$ | (1,370,053 | ) | $ | | $ | (1,370,053 | ) | ||||
(1) | Includes share-based compensation of 2,317,780. For the three months ended December 31, 2009, the adjustments to previously reported share-based compensation were: 1) an increase of $1,470,096 as a result of the Director Warrants Revaluation and 2) an increase of $ 249,542 as a result of the Director 1 Warrants Adjustment. | |
(2) | Includes share-based compensation of $3,652,595. For the nine months ended December 31, 2009, the adjustments to previously reported share-based compensation were: 1) an increase of $2,487,055 as a result of the Director Warrants Revaluation and 2) a decrease of $148,624 as a result of the Director 1 Warrants Adjustment. |
NOTE 2 MERGER TRANSACTIONS
Apro Utah and Maxcure Merger
On March 31, 2008, Apro Utah and Maxcure completed a merger with Maxcure continuing as the
surviving legal entity under the name of Apro Bio. The purpose of the merger was primarily one of
synergies between the two companies in their efforts to continue funding sponsored research under
their existing licensing relationships with UCD.
Under this merger, Maxcure issued to Apro Utah stockholders 11,726,562 of its common shares in
exchange for all of the issued and outstanding shares of Apro Utah. Upon completion of the merger,
former Apro Utah stockholders held 11,726,562 common shares (or approximately 64%) of the total
18,189,642 common shares issued and outstanding of Maxcure, and former Maxcure stockholders held
6,462,900 common shares (or approximately 36%). As a result of this majority ownership, Apro Utah
was deemed the acquirer for accounting purposes and its historical financial statements have been
adopted and presented for all periods in this report.
In exchange for the issuance of its shares, Maxcure cancelled debt due from Apro Utah of $938,241
comprised of $804,692 of promissory notes and related accrued interest and other intercompany
amounts of approximately $133,549. Also, warrants held by Maxcure stockholders to purchase 600,000
shares of Apro Utah were cancelled. Warrants to purchase 1,052,500 shares of Apro Utah common
stock were converted to an equivalent number of warrants in the merged entity. Warrants to purchase
130,000 shares of Maxcure stock held by existing Maxcure stockholders were retained in the merged
entity.
Assets acquired and liabilities assumed of Maxcure by Apro Utah on March 31, 2008 based on their estimated fair values were as follows:
Assets acquired and liabilities assumed of Maxcure by Apro Utah on March 31, 2008 based on their estimated fair values were as follows:
Cash |
$ | 6,750 | ||
Other current assets |
272 | |||
Property and equipment |
1,524 | |||
Licenses |
22,972 | |||
Accounts payable |
(31,518 | ) | ||
Net assets acquired |
$ | | ||
13
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Amounts assigned to licenses relate to respective patent filings made by UCD and are subject to
amortization commensurate with the estimated patent life. The net unamortized amount of each
license was deemed to be the fair value and was recorded at the date of the merger.
Apro Bio and Across America Merger
On March 31, 2009 and pursuant to the Merger among Across America, a non-operating public shell
corporation, Apro Bio and AAAC, a wholly-owned subsidiary of Across America, Apro Bio was merged
into Across America, with Across America being the surviving legal entity. The primary reasons for
the Merger were to create an entity to provide Apro Bio additional opportunities to raise capital
to further its development efforts with UCD and to provide Apro Bio and Across America investors a
long-term, public trading market for their common stock. Across America issued a total of
18,210,295 shares of its common stock to the stockholders of Apro Bio in exchange for all of the
issued and outstanding common stock of Apro Bio. Warrants to purchase 1,957,500 shares of Apro Bio
common stock were converted to an equivalent number of warrants in Across America. A warrant to
purchase 200,000 shares of Across America stock held by an existing Across America stockholder was
retained as part of the Merger. This warrant was exercised on June 29, 2009. In addition, a note,
convertible into 25,000 shares of the common stock of Apro Bio, was converted into a note
convertible into 25,000 shares of Across Americas common stock on the same terms and conditions.
After the consummation of the Merger, the former Apro Bio stockholders held approximately 91% of
the issued and outstanding shares of Across America. As a result of this majority ownership, Apro
Bio was deemed the acquirer for accounting purposes, and the transaction was accounted for as a
reverse acquisition. Further, we followed the current guidance of the SEC related to reverse
mergers between a private company and a public shell company, and considered the reverse merger as
equivalent to a reverse recapitalization. Accordingly, we recorded no goodwill in the Merger.
Assets acquired and liabilities assumed of Across America by Apro Bio on March 31, 2009 based on
their estimated fair values were as follows:
Cash |
$ | 5,000 | ||
Other current assets |
1,500 | |||
Note payable related party |
(132,000 | ) | ||
Net liabilities assumed |
$ | (125,500 | ) | |
For all periods presented, the financial statements of Apro Bio have been adopted as the historical
financial statements of Omni. On May 27, 2009, we changed our name to Omni Bio Pharmaceutical, Inc.
14
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
As a condition to the Merger, Apro Bio authorized the issuance of a warrant to an affiliate of
Across America to purchase 200,000 shares of Apro Bios common stock at an exercise price of $0.001
per share. This warrant was exercised on June 29, 2009. In connection with the Merger, Across
America paid an advisor fee to Bathgate Capital Partners, LLC (BCP) in the form of a warrant to
purchase 1,750,000 shares of its common stock at an exercise price of $0.001 per share (the
Advisor Warrants). During June and July 2009, all of the Advisor Warrants were exercised and we
issued 1,750,000 shares of our common stock pursuant to those exercises.
The warrants issued in the Merger (the Merger Warrants) were valued using the Black-Scholes model
with the following assumptions: exercise price of $0.001 per share, stock price of $1.00, expected
life of five years (representing the full contractual term as prescribed by the SEC for investor
warrants), expected volatility of 100%, risk-free interest rate of 1.82% (commensurate with the
expected life) and dividend yield of 0%. The total amount of the charges recorded for the Merger
Warrants was $1,948,237.
We evaluated the Merger Warrants as potential free standing derivatives under the criteria in FASB
ASC Topic 815 Derivatives and Hedging (Topic 815), which requires that a contract issued by a
reporting entity be accounted for as a derivative unless it is both (1) indexed to its own stock
and (2) classified in stockholders equity in its statement of financial position. We concluded
that the Merger Warrants were indexed to the Companys own stock and should be classified in
stockholders equity and would qualify for the scope exception contained in Topic 815. As further
required, we reviewed the requirements for equity classification contained in Topic 815, and
concluded that all of the criteria had been met and that equity classification was appropriate.
Warrant Modifications
On January 14, 2009, our board of directors (the Board) unanimously authorized the extension from
March 31, 2010 to March 31, 2012 of 500,000 warrants that were previously issued to investors. The
Board concluded that these warrants would expire prior to the expiration of lockup agreements
required by Across America in conjunction with the Merger. The warrants that were extended by this
resolution are exercisable at $1.10 per share, and include 80,000 warrants purchased by an outside
director of the Company and 5,000 warrants purchased by the former CEO, President and director of
the Company.
Also extended were 257,500 warrants issued to two unaffiliated investors that are exercisable at
$1.00 per share, of which 250,000 were extended from May 10, 2010 to May 10, 2012 and 7,500 were
extended from June 6, 2010 to June 6, 2012. Additionally, 30,000 warrants that were originally
issued to a consultant and exercisable at $1.00 per share were extended from May 10, 2010 to May
10, 2012.
We accounted for these extensions as modifications to the original warrant grants as outlined in
Topic 718. For the year ended March 31, 2009, we recorded a non-cash charge of $148,155 related to
the investor warrants and share-based compensation of $25,843 related to the employee and
consultant warrants, calculated as the difference between the estimated fair value of the warrant
immediately prior to the modification and the estimated fair value of the warrant after the
modification. Both values were calculated using the Black-Scholes model, with the revised exercise
price and expected life of the warrant being the only change in the assumptions.
NOTE 3 PRIVATE PLACEMENT TRANSACTIONS
Private Placement March 31, 2009
In conjunction with the Merger and also on March 31, 2009, we closed a private placement securities
offering (the Private Placement) to four accredited investors. We issued units, consisting of one
share of our common stock, a warrant to purchase one-half a share of our common stock at an
exercise price of $0.25 per share (two warrants must be exercised to purchase one share of common
stock), two warrants to purchase two shares of our common stock (one warrant purchases one share of
common stock) at an exercise price of $0.50 per share and a warrant to purchase one share of our
common stock at an exercise price of $1.00 per share (the PP Units). We sold the PP Units at a
price of $1.00 per PP Unit and issued 1,870,000 PP Units for gross cash proceeds of $1,820,000 and
the conversion of a note payable to a related party of $50,000. The warrants (the Investor
Warrants) issued to investors in the Private Placement expire March 31, 2014.
15
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
The Investor Warrants that are exercisable at $0.25 and $0.50 per share are callable (the Warrant
Call) through March 31, 2014 at our option. We may execute the Warrant Call by giving to the
warrant holder a notice of call upon 20 days written notice (the Call Notice). A Call Notice may
be given by the Company only within 10 days after our common stock has had a closing price of not
less than $2.50 per share for 20 out of 30 consecutive trading days with trading volume in excess
of 50,000 shares per day for that period of days.
In connection with the Private Placement, we paid to BCP a placement agent fee comprised of
$112,200 in cash and a warrant to purchase 56,100 shares of our common stock at an exercise price
of $0.25 per share, a warrant to purchase 224,400 shares of our common stock at $0.50 per share,
and a warrant to purchase 224,400 shares of our common stock at $1.00 per share. We recorded a
charge related to the issuance of these warrants (the Placement Agent Warrants) in the amount of
$403,350 as calculated using the Black-Scholes model.
We evaluated both the Investor Warrants and the Placement Agent Warrants (collectively, the
Private Placement Warrants) as potential free standing derivatives under the criteria in Topic
815, which requires that a contract issued by a reporting entity be accounted for as a derivative
unless it is both (1) indexed to its own stock and (2) classified in stockholders equity in its
statement of financial position. We concluded that the Private Placement warrants were indexed to
the Companys own stock and should be classified in stockholders equity and would qualify for the
scope exception contained in Topic 815. As further required, we reviewed the requirements for
equity classification contained in Topic 815, and concluded that all of the criteria had been met
and that equity classification was appropriate.
A summary of the warrants issued in the Merger and the Private Placement is as follows:
Estimated Fair Value | ||||||||||||
Number of Warrants | Exercise Price | Charge Recorded | ||||||||||
1,950,000 | $ | 0.001 | $ | 1,948,237 | ||||||||
991,100 | $ | 0.25 | 49,842 | |||||||||
3,964,400 | $ | 0.50 | 185,784 | |||||||||
2,094,400 | $ | 1.00 | 167,904 | |||||||||
8,999,900 | $ | 2,351,767 | ||||||||||
Private Placement December 2009 and January 2010
On December 29, 2009, we accepted subscription agreements related to the sale of Units in the PPO.
Each PPO Unit was comprised of one share of our common stock and one warrant to purchase one
share of our common stock for a purchase price of $2.50 per PPO Unit (the PPO Warrants). Each
PPO Warrant is exercisable at $3.75 through December 29, 2014. The maximum amount of the PPO is
$2.5 million or 1,000,000 PPO Units. The net proceeds from the PPO will be used to fund research
and development and for general working capital purposes. We completed the PPO in multiple
closings in January 2010 and completed the final closing on January 29, 2010 (the Final Closing
Date). BCP served as the placement agent for the PPO and earned a commission of 8% plus a
non-accountable expense allowance of 2% of the gross proceeds raised. In addition, we are
obligated to sell for a nominal fee to BCP, as the placement agent, warrants to purchase 20% of the
total number of PPO Units sold in PPO, half of which will be exercisable at a price of $2.50 per
share and half of which will be exercisable at $3.75 per share (collectively, the PPO PA
Warrants). The PPO PA Warrants expire five years from the Final Closing Date and are exercisable
180 days after the Final Closing Date.
16
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
At the Companys option, we may call the PPO Warrants through December 29, 2014 by giving to the
holder a notice of call upon 20 days written notice (the PPO Call Notice). A PPO Call Notice may
be given by the Company only within 10 days after our common stock has had a closing price of not
less than $6.00 per share for 20 out of 30 consecutive trading days with trading volume in excess
of 25,000 shares per day for that period of days.
On December 29, 2009, we conducted the initial closing under the PPO, pursuant to which we entered
into subscription agreements for the purchase of 146,000 PPO Units for an aggregate subscription
price of $365,000. Additionally, on December 31, 2009, we entered into a subscription agreement
for the purchase of 10,000 PPO Units for an aggregate subscription price of $25,000. After
deducting offering expenses including commissions and expenses paid to the placement agent, net
proceeds to the Company from such sales totaled $351,000.
In conjunction with the initial closing of the PPO, we sold for a nominal fee to BCP, as the
placement agent, PPO PA Warrants to purchase 15,600 shares of our common stock at an exercise price
of $2.50 per share and 15,600 shares of our common stock at an exercise price of $3.75 per share.
We calculated the value of these PPO PA Warrants at $69,962 using the Black-Scholes model and
recorded this amount as a charge to additional paid in capital.
We evaluated both the PPO Warrants and the PPO PA Warrants as potential free standing derivatives
under the criteria in Topic 815. We concluded that the both the PPO Warrants and the PPO PA
Warrants were indexed to the Companys own stock and should be classified in stockholders equity
and would qualify for the scope exception contained in Topic 815. As further required, we reviewed
the requirements for equity classification contained in Topic 815, and concluded that all of the
criteria had been met and that equity classification was appropriate.
NOTE 4 RELATED PARTIES AND DEBT OBLIGATIONS
Convertible Note Payable Related Party
On May 30, 2008, we entered into a $25,000 unsecured, convertible debenture agreement with the
spouse of a director and related party (the Bathgate Note). The Bathgate Note bears interest at
6%, is convertible into our common stock at $1.00 per share and matures June 30, 2010. As
additional consideration, we issued a warrant to purchase 50,000 shares of our common stock at
$1.00 per share (the Bathgate Warrant), which expires on
June 30, 2013. In addition, this warrant included a reset provision, which provided, that if we issued a similar security with common stock purchase warrants exercisable below $1.00 per share, the exercise price would be reduced to the lower price. This reset provision pertained to any new investment made prior to December 31, 2008 and expired effective with the completion of the Private Placement.
June 30, 2013. In addition, this warrant included a reset provision, which provided, that if we issued a similar security with common stock purchase warrants exercisable below $1.00 per share, the exercise price would be reduced to the lower price. This reset provision pertained to any new investment made prior to December 31, 2008 and expired effective with the completion of the Private Placement.
We concluded that the Bathgate Note met the definition of conventional convertible debt, as
defined in Topic 815, as the note holder may only realize the value of the conversion option by
converting the note and receiving the entire proceeds in a fixed number of shares or the equivalent
amount of cash (at the discretion of the Company). Further, we concluded that the conversion
option of the Bathgate Note represented an embedded derivative as defined in Topic 815 and was
indexed to the Companys common stock. Therefore, we concluded that the conversion feature of the
Bathgate Note did not meet the definition of a derivative under Topic 815 and did not require
separate accounting from the debt instrument.
In accordance with FASB ASC Topic 470-20 Debt with Conversion and Other Options (Topic 470-20),
we allocated the cash proceeds received to both the Bathgate Note and Bathgate Warrants based on
relative fair values of each. We valued the warrant using the Black-Scholes model with the
following assumptions: exercise price of $1.00 per share, stock price of $1.00, expected life of
five years (representing the full contractual term as prescribed by the SEC for investor warrants),
expected volatility of 95%, risk-free interest rate of 2.45% (commensurate with the expected life)
and dividend yield of 0%. The value assigned to the Bathgate Warrant was $14,830 and was credited
to additional paid-in capital with a corresponding debt discount recorded as a reduction to the
Bathgate Note.
17
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
We further concluded that the conversion feature in the Bathgate Note met the definition of a
beneficial conversion feature as outlined in Topic 470-20. The amount of proceeds allocated to
the Bathgate Note was $10,170 (calculated as the $25,000 principal less the discount related to the
value assigned to the Bathgate Warrants of $14,830 per above), which resulted in an effective
conversion price of $0.41 per share and an intrinsic value of $0.59 per share (calculated as $1.00
conversion price less $0.41 effective conversion price). Therefore, the value assigned to the
beneficial conversion feature was $10,170, which represented the initial amount allocated to the
Bathgate Note, and was recorded as an additional debt discount to the note with a corresponding
credit to additional paid-in capital. In accordance with Topic 470-20, the amount recorded for the
beneficial conversion feature was limited to the amount of proceeds allocated to the convertible
instrument of $10,170. This resulted in a full discount offset to the $25,000 principal balance of
the note, or an initial carrying value of $-0-. We are accreting the discount over the life of the
note.
We also evaluated the Bathgate Warrant as a potential free standing derivative under the criteria
in Topic 815, and concluded that it was indexed to the Companys own stock and should be classified
in stockholders equity and would qualify for the scope exception contained in Topic 815. As
further required, we reviewed the requirements for equity classification contained in Topic 815,
and concluded that all of the criteria had been met and that equity classification was appropriate.
Pursuant to the reset provision described above, on November 6, 2008, the exercise price on the
Bathgate Warrant was reduced to $0.50 per share with all other terms remaining intact. This reset
was a result of a bridge loan entered into on that date with BOCO Investments, LLC (BOCO) (the
BOCO Note), a related party to Across America. We recorded a charge for the modification of the
exercise price on the Bathgate Warrant in the amount of $4,531, which was calculated as the
difference between the estimated fair value of the warrant immediately prior to the modification
and the estimated fair value of the warrant after the modification. Both values were calculated
using the Black-Scholes model with the revised exercise price being the only difference in the
assumptions.
Note Payable BOCO Investments, LLC
On November 6, 2008, we executed the BOCO Note, pursuant to which BOCO loaned $50,000 at an
interest rate of 12% per annum in the form of a note, which was collateralized by substantially all
of our assets. As additional consideration for the BOCO Note, we issued to BOCO a warrant (the
BOCO Warrant) to purchase 100,000 shares of our common stock. This warrant is exercisable at
$0.50 per share and expires on December 31, 2013. The BOCO Note was originally due on February 4,
2009 and was converted into equity as part of the Private Placement.
We allocated the cash proceeds received to both the BOCO Note and the BOCO Warrant based on
relative fair values of each. We valued the warrant using the Black-Scholes model with the
following assumptions: exercise price of $0.50 per share, stock price of $1.00, expected life of
five years (representing the full contractual term as prescribed by the SEC for investor warrants),
expected volatility of 100%, risk-free interest rate of 0.32% (commensurate with the expected life)
and dividend yield of 0%. The value assigned to the BOCO Warrant was $31,125 and was credited to
additional paid-in capital with a corresponding debt discount recorded as a reduction to the BOCO
Note. We accreted this debt discount over the life of the note, but upon conversion of the note
pursuant to terms in the Private Placement, we wrote-off the remaining unamortized discount as of
March 31, 2009.
Other Obligations
On May 31, 2008, the Chief Executive Officer and President of Apro Bio resigned from these
positions and on October 1, 2008, resigned as a director of Apro Bio. On March 3, 2009, we entered
into a settlement agreement with this individual and agreed to settle any and all claims for a lump
sum payment of $45,000 and the issuance of 60,000 shares of our common stock.
18
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
NOTE 5 COMMITMENTS AND CONTINGENCIES
License Agreement with Bio Holding, Inc.
On September 28, 2009 (the Effective Date), we entered into a license agreement with Bio Holding,
Inc. (Bio Holding) pursuant to which we obtained an exclusive license (the License Agreement)
to practice, perform, make, use, sell, import and offer to sell products covered by current and
future patents and patent applications owned by Bio Holding for the treatment of diabetes (the
Licensed Technology). We may not sublicense, assign or otherwise transfer its rights in the
Licensed Technology without the prior written consent of Bio Holding. In addition, we have a right
of first refusal to license any intellectual property owned by Bio Holding that is not part of the
License Agreement. Dr. Leland Shapiro, who is the beneficial owner of approximately 14% of our
common stock, is the majority shareholder of Bio Holding.
In consideration for the License Agreement, we were obligated to pay Bio Holding within 60 days
from the Effective Date a license fee of $25,000. We paid this amount in November 2009. As
additional consideration, we issued to a minority shareholder of Bio Holding the Bio Holding
Warrant to purchase 650,000 shares of our common stock at an exercise price of $3.00 per share.
The Bio Holding Warrant expires on September 28, 2014 and contains a cashless exercise provision.
In addition, the Bio Holding Warrant is subject to the execution of a subscription and lock-up
agreement (the Lock-up) by the minority shareholder that restricts the sale or transfer of the
underlying shares until March 31, 2011. We estimated the fair value of the Bio Holding Warrant at
$5,590,980, which was calculated using the Black-Scholes model with the following assumptions:
exercise price of $3.00; expected life of five years; common stock price of $9.81 based on the
closing OTC price of our common stock on the Effective Date, discounted for the restriction on
marketability of the Bio Holding Warrants underlying shares of common stock as a result of the
Lock-up; dividend yield of 0%; interest rate of 2.72%; and volatility of 100.0%. The total value
ascribed to this license agreement was $5,615,980, and we expensed this amount for the three months
ended September 30, 2009.
We are obligated to pay royalties to Bio Holding of (i) four percent (4%) of the gross revenues
from the sale or use of the Licensed Technology and (ii) thirty percent (30%) of the gross revenues
from sublicensing of the Licensed Technology. We were also obligated to enter into an SRA with UCD
for the benefit of Dr. Leland Shapiros laboratory. As of December 31, 2009, we had not executed
the SRA, which is expected to be in the amount of $88,000.
The term of the License Agreement expires upon the expiration date of the last patent underlying
the Licensed Technology. The License Agreement may be terminated only upon the material breach of
the terms and conditions of the License Agreement by the other party, subject to a 30 day cure
period. During the term of the License Agreement, we will bear all expenses related to filing,
prosecuting and maintaining the patents and patent applications underlying the Licensed Technology,
including, but not limited to, expenses related to divisional, continuation-in-part patent
applications and foreign filings.
Bacterial Infection License
As of December 31, 2009, our current commitments under our SRA associated with this license was
$81,300, which was paid in January 2010.
Pursuant to a stock purchase agreement, which was executed on May 15, 2006 simultaneously with the
license agreement and the SRA, during the quarter ended June 30, 2008, we issued to a designee and
beneficiary of RUC, University License Equity Holdings, Inc. (ULEHI), 20,833 shares of our common
stock. In conjunction with the issuance of the license for cell transplant/graft rejection on
November 12, 2008, we agreed to amend the terms of the stock purchase agreement with ULEHI by
authorizing the issuance of additional shares of our common stock, calculated at 2% of the
fully-diluted outstanding shares of our common stock upon completion of the Merger. The
calculation of these shares included all common shares and common stock purchase warrants issued in
connection with
the Merger and the Private Placement. In accordance with this provision, we issued 698,939 shares
of our common stock to ULEHI.
19
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
We have no further obligations for common share issuances to ULEHI under any of the three license
agreements.
Viral Infection License
As of December 31, 2009, we had not executed an SRA related to this license.
Cellular Transplant/Graft Rejection
As of December 31, 2009, we had not executed an SRA related to this license.
Future royalty payments under license agreements are summarized below:
Minimum | Milestone | Earned | Sublicense | |||||||||||
License Date | Field of Use | Royalties | Royalties | Royalties | Royalties | |||||||||
May 15, 2006 |
Bacterial | $25,000 per year starting May 15, 2011 | $30,000 to $300,000 (1) | 4% of Net Sales | 20% to 30% | |||||||||
March 30, 2008 |
Viral (including HIV) |
$50,000 per year after first commercial sale | $100,000 to $150,000 (2) | 4% of Net Sales | 20% to 30% | |||||||||
November 12, 2008 |
Cellular Transplant /Graft Rejection | $50,000 per year after first commercial sale | $25,000 to $200,000 (3) | 3% of Net Sales | 20% to 30% | |||||||||
September 28, 2009 |
Diabetes | None | None | 4% of Gross Revenues (4) | 30% | (4) |
(1) | Payable to RUC as follows: $30,000 upon completion of preclinical trial; $50,000 upon completion of a phase I clinical trial; $100,000 upon completion of a phase II clinical trial; $200,000 upon completion of a phase III clinical trial; and $300,000 upon receipt of approval of FDA or foreign equivalent. | |
(2) | Payable to RUC as follows: $100,000 upon completion of any phase III clinical trial and $150,000 upon first commercial sale. No milestone royalties are required for the first indication. For the second indication, 100% of the milestone royalties shall be paid, and for subsequent indications 50% of the milestone royalties shall be paid. | |
(3) | Payable to RUC as follows: $25,000 upon initiation of a phase II clinical trial; $100,000 upon initiation of a phase III clinical trial; and $200,000 upon receipt of approval of FDA or foreign equivalent. | |
(4) | Payable to Bio Holding. |
The license agreements expire upon the expiration date of the last patent covered by the agreement
and may also be terminated by either party in the event of a default by the other party.
20
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Contributed Rent
We utilize, free-of-charge, office space of BCP, a shareholder and related party. We calculated the
value of our approximate utilized office space at $1,260 for each of the quarters ended June 30,
September 30 and December 31, 2009 and $2,100 for each of the quarters ended June 30, September 30
and December 31, 2008, and recorded non-cash charges for these amounts in the respective periods.
NOTE 6 STOCKHOLDERS EQUITY
On May 27, 2009, we filed Articles of Amendment to our Articles of Incorporation to change our
corporate name from Across America Financial Services, Inc. to Omni Bio Pharmaceutical, Inc. At
the same time, we also filed Articles of Amendment to our Articles of Incorporation to increase our
authorized common shares to 200,000,000 from 50,000,000 and to increase our authorized preferred
shares to 5,000,000 from 1,000,000. The par values of the common and preferred shares were not
changed.
For the quarter ended June 30, 2009, we issued 600,000 shares of our common stock pursuant to the
conversion of a note payable to a related party. Additionally, we issued 1,375,356 shares of our
common stock pursuant to warrant exercises by related parties, which were comprised of 1,175,356
warrants exercised for $0.001 per share and 200,000 warrants exercised for $0.01 per share,
generating $3,175 of net cash proceeds. In addition, we issued 126,097 shares of common stock
pursuant to cashless exercise provisions of 140,000 warrants exercised at a weighted average price
of $1.09 per share.
For the quarter ended September 30, 2009, we issued 1,260,031 shares of our common stock pursuant
to warrant exercises by related parties, which were comprised of 774,644 warrants exercised for
$0.001 per share for cash proceeds of $775 and 485,387 shares issued pursuant to cashless
provisions of 515,900 warrants exercised at a weighted average price of $0.75 per share. In
addition, we issued 268,720 shares of common stock pursuant to cashless exercise provisions of
290,000 warrants exercised at a weighted average price of $1.10 per share.
For the quarter ended December 31, 2009, we issued 291,714 shares of our common stock pursuant to
cashless exercise provisions of 317,500 warrants exercised at a weighted average price of $1.02 per
share.
As discussed in Note 3, on December 29 and 31, 2009 and under the PPO, we issued to PPO investors
156,000 shares of our common stock and warrants to purchase 156,000 shares of our common stock,
exercisable at $3.75 per share through December 29, 2014, resulting in net cash proceeds to the
Company of $351,000. We also sold for a nominal fee to the placement agent warrants to purchase
15,600 shares of our common stock at an exercise price of $2.50 per share and 15,600 shares of our
common stock at an exercise price of $3.75 per share. The placement agent warrants expire five
years from the Final Closing Date and are exercisable 180 days after the Final Closing Date.
21
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
A summary of investor warrant activity for the nine months ended December 31, 2009 was as follows:
Number of Warrants | ||||
Outstanding and exercisable at March 31, 2009 |
10,107,400 | |||
Issued pursuant to license agreement with Bio Holding |
650,000 | |||
Issued pursuant to the PPO |
187,200 | |||
Exercised |
(3,287,400 | ) | ||
Forfeited/expired |
| |||
Outstanding and vested at December 31, 2009 |
7,657,200 | |||
Exercisable at December 31, 2009 |
7,626,000 | |||
NOTE 7 SHARE-BASED COMPENSATION
From inception, we have not had an employee stock option plan, but have issued common stock
purchase warrants on a discretionary basis to employees, directors and outside consultants. We
calculate share-based compensation to employees and directors in accordance with the fair-value
method prescribed in Topic 718. For warrants issued to outside consultants (i.e., non-employees),
we calculate share-based compensation under the applicable provisions of Topic 718 and FASB ASC
Topic 505-50 Equity-Based Payments to Non-Employees (Topic 505-50). Topic 718 requires fair
value accounting for equity securities issued to non-employees, and Topic 505-50 specifies the
measurement date for recording compensation cost.
For warrants issued in the nine months ended December 31, 2009 and 2008, the fair value of each
warrant award was estimated on the date of grant using the Black-Scholes pricing model based on
assumptions noted in the following table. The expected life was equal to the contractual term, as
the majority of all warrants granted are not forfeited in the circumstances of disassociation with
the Company. Expected volatility was estimated based on comparisons of stock price volatility of
peer group publicly-traded companies. The risk-free interest rate was based on the yield on the
grant measurement date of a traded zero-coupon U.S. Treasury bond, as reported by the U.S. Federal
Reserve, with a term equal to the expected term of the respective warrant.
The following table provides the range of assumptions used in the Black-Scholes pricing model for
warrants granted during the nine months ended December 31, 2009 and 2008, respectively:
December 31, 2009 | December 31, 2008 | |||||||
Expected life (years) |
5.0 to 7.0 | 7.0 | ||||||
Expected volatility |
100 | % | 100.5 | % | ||||
Risk-free interest rate |
1.86 to 3.37 | % | 2.1 to 3.03 | % | ||||
Dividend yield |
0 | % | 0 | % |
Issuances for the Three Months Ended June 30, 2009
On April 7, 2009, we granted a warrant to our acting chief executive officer to purchase 600,000
shares of our common stock at an exercise price of $0.50 per share. Shares under this warrant vest
as follows: 200,000 upon issuance, 200,000 in October 2009 and 200,000 in April 2010. We are
recognizing share-based compensation using the straight-line method over the vesting term of the
grant. This warrant expires on April 7, 2016. We valued these warrants at $529,975 using the
Black-Scholes model with the following assumptions: exercise price of $0.50 expected life of seven
years, assumed stock price of $1.00 at date of grant, dividend yield of 0%, interest rate of 2.47%,
and volatility of 100.0%.
22
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
On April 15, 2009, we granted a warrant to our chief financial officer to purchase 50,000 shares of
our common stock at an exercise price of $0.50 per share. All shares under this warrant vested upon
issuance. This warrant expires on April 15, 2016. We valued this warrant at $44,165 using the
Black-Scholes model with the following assumptions: exercise price of $0.50 expected life of seven
years, assumed stock price of $1.00 at date of grant, dividend yield of 0%, interest rate of 2.47
%, and volatility of 100.0%.
On April 1, 2009, we granted a warrant to a medical consultant to purchase 48,000 shares of our
common stock at an exercise price of $1.25 per share. All shares under this warrant vested as of
September 30, 2009. This warrant expires on April 1, 2014. We valued this warrant at $35,927
using the Black-Scholes model with the following assumptions: exercise price of $1.25, expected
life of five years, assumed stock price of $1.00 at date of grant, dividend yield of 0%, interest
rate of 2.47 %, and volatility of 100.0%.
Issuances for the Three Months Ended September 30, 2009
On July 30, 2009, and pursuant to Board approval and our compensation program for directors
(whereby a director receives a grant of 100,000 warrants in the first year of service and 50,000
warrants per year for each subsequent year of service), we granted warrants to our directors
(excluding our acting CEO who is a director) to purchase 275,000 shares of our common stock in
exchange for director services for the fiscal year ended March 31, 2010 (the Director Warrants).
Four of the directors received an annual grant of 50,000 warrants based on the commencement of
their second year of service, which was April 1, 2009. Warrants under these grants vest on March
31, 2010 and expire on April 1, 2016. A fifth director received a grant of 25,000 warrants for the
fourth quarter of his first year of service. Warrants under this grant vested April 1, 2009 and
expire on April 1, 2016. A sixth director received a grant of 50,000 warrants for the third and
fourth quarters of his first year of service, of which 25,000 vested on April 1, 2009 and expire on
April 1, 2016 and 25,000 vest on July 1, 2009 and expire on July 1, 2016. We valued these
warrants at $2,189,943 using the Black-Scholes model with the following assumptions: exercise price
of $3.00, expected life of seven years, common stock price of $8.75 based on the closing OTC price
of our common stock on the grant date, dividend yield of 0%, interest rate of 3.37 %, and
volatility of 100.0%.
On August 6, 2009, we granted 50,000 common stock purchase warrants exercisable at $3.00 per share
and expiring on August 6, 2016 to a director for his second year of service. The warrants vest on
August 5, 2010 if the director has continuously served as a director of the Company through such
date. We valued these warrants at $506,719 using the Black-Scholes model with the following
assumptions: exercise price of $3.00, expected life of seven years, common stock price of $11.00
based on the OTC closing price of our common stock on the grant date, dividend yield of 0%,
interest rate of 3.14% and volatility of 100.0%.
23
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Issuances for the Three Months Ended December 31, 2009
On October 1, 2009, we granted 50,000 common stock purchase warrants exercisable at $3.00 per share
and expiring on October 1, 2016 to a director for his second year of service. The warrants vest on
September 30, 2010 if the director has continuously served as a director of the Company through
such date. We valued these warrants at $579,424 using the Black-Scholes model with the following
assumptions: exercise price of $3.00, expected life of seven years, common stock price of $12.50
based on the closing OTC price of our common stock on the grant date, dividend yield of 0%,
interest rate of 3.02% and volatility of 100.0%.
On October 12, 2009, our Board appointed a new director to our Board as a result of a resignation
of a Board director. All previously recorded share-based compensation related to the unvested
warrants held by this director was reversed in the December 2009 quarter. Also on October 12,
2009, we granted 100,000 common stock purchase warrants exercisable at $3.00 per share and expiring
on October 12, 2016 to the new director for his first year of service as a director. The warrants
vest on October 11, 2010 if the director has continuously served as a director of the Company
through such date. We valued these warrants at $1,402,839 using the Black-Scholes model with the
following assumptions: exercise price of $3.00, expected life of seven years, common stock price of
$15.00 based on the closing OTC price of our common stock on the grant date, dividend yield of 0%,
interest rate of 3.02% and volatility of 100.0%.
On October 12, 2009 and as consideration for consulting service agreements that we executed with a
director and a member of our scientific advisory board, we granted to these two individuals 50,000
and 100,000 common stock purchase warrants, respectively, exercisable at $3.00 per share and
expiring October 12, 2014. The warrants vest on October 11, 2010 if the individual has
continuously provided service to the Company through such date. We valued these warrants at
$2,038,042 using the Black-Scholes model with the following assumptions: exercise price of $3.00,
expected life of five years, common stock price of $15.00 based on the closing OTC price of our
common stock on the grant date, dividend yield of 0%, interest rate of 2.37% and volatility of
100.0%.
On December 16, 2009, our Board approved the grant to our acting chief executive officer of 600,000
common stock purchase warrants exercisable at $3.00 per share and expiring on November 13, 2016.
The warrants vest and become exercisable in four equal installments on March 31, 2010, March 31,
2011, March 31, 2012 and March 31, 2013, subject to continuous service with the Company. We valued
these warrants at $6,366,996 using the Black-Scholes model with the following assumptions: exercise
price of $3.00, expected life of seven years, common stock price of $11.50 based on the closing OTC
price of our common stock on the grant date, dividend yield of 0%, interest rate of 2.92% and
volatility of 100.0%.
On December 16, 2009, our Board approved the grant to our chief financial officer of 300,000 common
stock purchase warrants exercisable at $3.00 per share and expiring on November 13, 2016. The
warrants vest and become exercisable as follows: 60,000 shares on November 20, 2009, 80,000 shares
on September 30, 2010, 80,000 shares on September 30, 2011, and 80,000 shares on September 30,
2012, all subject to continuous service with the Company. We valued these warrants at $3,183,498
using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected
life of seven years, common stock price of $11.50 based on the closing OTC price of our common
stock on the grant date, dividend yield of 0%, interest rate of 2.92% and volatility of 100.0%.
As of December 31, 2009, we recorded $9,999 in share-based compensation for shares of our common
stock to be issued pursuant to a consulting agreement that we executed during the December 2009
quarter.
24
Table of Contents
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
(A Development Stage Company)
Notes to Consolidated Financial Statements (Unaudited)
Warrant modification
On October 12, 2009, we recorded a charge in the amount of $2,479,000 related to a modification of
an investor warrant to purchase 250,000 shares of our common stock. This warrant was exercised in
the December 2009 quarter, and shares purchased under this warrant were subject to the Lock-up.
The estimated fair value of the modification was calculated using the Black-Scholes model with the
following assumptions: exercise price of $1.00; expected life of one year; common stock price of
$10.91 based on the closing OTC price of our common stock on the modification date, discounted for
the restriction on marketability of this warrants underlying shares of common stock as a result of
the Lock-up; dividend yield of 0%; interest rate of 0.40%; and volatility of 100.0%.
Share-based compensation recorded for the three and nine months ended December 31, 2009 and 2008
was as follows:
Three months ended December 31, | Nine months ended December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(As restated) | (As restated) | |||||||||||||||
Employees, former employees
and directors |
$ | 1,798,270 | $ | 122,372 | $ | 3,097,157 | $ | 428,184 | ||||||||
Outside consultants |
519,510 | | 555,438 | | ||||||||||||
$ | 2,317,780 | $ | 122,372 | $ | 3,652,595 | $ | 428,184 | |||||||||
The weighted average grant date fair value of warrants issued under share-based compensation
agreements for the nine months ended December 31, 2009 and 2008 was $7.59 and $0.82 per share,
respectively.
A summary of warrant activity related to warrants issued under share-based compensation agreements
for the nine months ended December 31, 2009 is as follows:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Exercise | Term (in | Intrinsic Value | ||||||||||||||
Shares | Price | years) | (As restated) | |||||||||||||
Outstanding at March 31, 2009 |
1,050,000 | $ | 1.22 | |||||||||||||
Granted |
2,223,000 | $ | 2.23 | |||||||||||||
Exercised |
(130,000 | ) | $ | 1.08 | ||||||||||||
Forfeited/expired/cancelled |
(50,000 | ) | $ | 3.00 | ||||||||||||
Outstanding at December 31, 2009 |
3,093,000 | $ | 1.92 | 5.9 | $ | 31,167,000 | ||||||||||
Vested and exercisable at December 31, 2009 |
1,553,000 | $ | 1.15 | 5.3 | $ | 16,807,000 | ||||||||||
25
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Restatement
We have restated our consolidated financial statements as of and for the three and nine months
ended December 31, 2009 related to the Companys accounting for share-based compensation and other
equity-based charges related to the 2010 Warrants. When the 2010 Warrants were issued, an active
market for the Companys common stock did not exist, and as a result, in its application of ASC
Topic 718, the Company used alternative valuation methods to calculate the estimated fair value of
the 2010 Warrants. Following discussions with the SEC in connection with comments issued by the
staff of the SEC, the Company determined that its accounting for share-based compensation should be
reviewed. As a result, we reviewed our assumptions and variables used in computing the estimated
fair value of the 2010 Warrants under the Black-Scholes pricing model, and have concluded that the
common stock price variable in the calculations for these warrants should be revised and be
primarily based on the closing price of our common stock as quoted on the Over-the-Counter Bulletin
Board (the OTC price) on the specific grant dates for each of the respective warrants as opposed
to other fair value measurements. See Part I Item 1 Notes 5 and 7 for the revised calculations
of the estimated fair values of the 2010 Warrants. There was no impact
to the Companys liquidity position as a result of the
restatements.
Forward-Looking Information May Prove Inaccurate
Some of the information presented in this Quarterly Report on Form 10-Q constitutes
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, but are not limited to, statements that include
terms such as may, will, intend, anticipate, estimate, expect, continue, believe,
plan, or the like, as well as all statements that are not historical facts. Forward-looking
statements are inherently subject to risks and uncertainties that could cause actual results to
differ materially from current expectations. Although we believe our expectations are based on
reasonable assumptions within the bounds of our knowledge of our business and operations, there can
be no assurance that actual results will not differ materially from expectations.
For additional factors that could affect the validity of our forward-looking statements, you should
read the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal
year ended March 31, 2009 and the consolidated financial statements contained therein, as well as
those set forth in Part II. Item 1A of our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009. The forward-looking statements included in this quarterly report are subject
to additional risks and uncertainties not disclosed in this quarterly report, some of which are not
known or capable of being known by us. The information contained in this quarterly report is
subject to change without notice. Readers should review future reports that we file with the
SEC. In light of these and other risks, uncertainties and assumptions, actual events or results
may be very different from those expressed or implied in the forward-looking statements in this
quarterly report or may not occur. We have no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise.
Organization
On March 31, 2009, Across America Financial Services, Inc. (Across America) completed the
acquisition of Apro Bio Pharmaceutical Corporation (Apro Bio) pursuant to the terms of the
Agreement of Merger and Plan of Reorganization, as amended (the Merger), among Across America,
Apro Bio and Across America Acquisition Corp. (AAAC), a Colorado corporation and a wholly-owned
subsidiary of Across America. Under the terms of the Merger, Apro Bio was merged into AAAC, and
Apro Bio became a wholly-owned subsidiary of the Company. On May 27, 2009, Across America changed
its name to Omni Bio Pharmaceutical, Inc. (Omni).
The Merger was accounted for as a reverse acquisition with Apro Bio being treated as the acquirer
for accounting purposes. Accordingly, for all periods presented in this report, the financial
statements of Apro Bio have been adopted as the historical financial statements of Omni.
Except as the context otherwise requires, the terms Company, we, our, us or Omni, means
Omni and our wholly-owned subsidiary, Omni Bio Operating, Inc.
26
Table of Contents
Plan of Operation
We intend to commercialize a broad patent portfolio licensed from the as the University of Colorado
Denver (UCD), formerly known as the University of Colorado Health Sciences Center (UCHSC). A
component of these applications involves use of existing FDA approved drugs to treat a variety of
bacterial and viral diseases, and transplant rejection in a subject.
We are the licensee of applications and patents related to novel compositions of matter and methods
of use for an existing FDA approved drug, Alpha 1-Antitrypsin (AAT), for treating transplantation
rejection, including islet cell transplantation for the treatment of diabetes, and treating
bacterial infections including bacterial pneumonia, tuberculosis and anthrax. We have also
licensed an existing patent for the treatment of HIV, and licensed patent applications for the
treatment of other viral-associated disorders including influenza.
To date, our business efforts have been largely dedicated to pursue additional capital in order to
continue funding Sponsored Research Agreements (SRAs) to further our licenses regarding bacterial
disease treatments, and in funding SRAs for the furtherance of our licenses regarding viral disease
treatment and cellular transplantation/graft rejection.
We have licensed and plan to further develop novel therapies for the treatment of medical
conditions that we believe have the potential to move through clinical trials quickly. We also
plan to shepherd these novel therapeutic applications through the FDA approval processes and
advance them through commercialization. This core strategy is based on licensing issued patents
and patent applications, partially directed to the use of an existing FDA approved drug that has
come off of its initial patents for new and novel uses in treating disorders.
We intend to continue to outsource the normally capital intensive scientific research function to
academic research institutions such as UCD, where we currently have one SRA. This approach
provides a specific scientific budget for funding each application, without the possibility of
substantial cost overruns being incurred internally. Work contracted with UCD or other research
institutions is expected to provide a contractually guaranteed work product, greatly increasing our
ability for financial forecasting. With this approach, we expect to be able to focus on working
with each projects lead scientists, overseeing patent application projects and closely managing
our corporate overhead. This approach should allow most of our expenses to be focused on research
and development. Future research essential for developing these strategies will be conducted in
accordance with our world-wide licensing rights and our existing and pending collaborative SRAs
with UCD.
Recent Scientific Developments
Clinical Trial on Type I Diabetes
In December 2009, we received the approval of a protocol related to a proposed trial of AAT on
patients diagnosed with Type I diabetes from the regional Institutional Review Board (IRB) at a
unit of the University of Colorado-Denver-Anschutz Medical Campus. Subsequent to this approval, we
filed with the FDA an Investigational New Drug Application (IND) for the use of AAT on Type I
diabetes and to sponsor a clinical trial. AAT has received prior FDA approval as a biological
treatment of emphysema. However, there is no assurance that the FDA will approve this clinical
trial, and if the clinical trial is successful, there is no assurance that we will obtain FDA
approval for the use of AAT to treat Type I diabetes in humans. Additionally, there is no
assurance that, if approved, we will have available resources to complete the clinical trial in a
timely manner or at all.
Bacterial License and Associated Sponsored Research Agreement
We have completed all of our payments under this SRA. Concurrently with this work, we are
continuing to pursue our patent rights on patent applications directed to targeting bacterial
disorders with the United States Patent and Trade Office (USPTO) as well as international
offices.
27
Table of Contents
Viral License and Viral Sponsored Research Agreement
We are currently negotiating an SRA related to our licensed and issued patent related to AAT and
novel compositions for treating viral-related disorders. We expect that upon consummation of the
SRA, we will be obligated to expend approximately $55,000 quarterly for a period of two years.
Additionally, we are continuing to pursue patent rights based on our patent applications directed
to treating viral-related disorders with the USPTO.
Cellular Transplant/Graft Rejection License and Associated Sponsored Research Agreement:
We are presently negotiating an SRA related to this license. Additionally, we are continuing to
pursue patent rights based on our patent applications directed to related cellular transplant/graft
rejection with the USPTO as well as foreign offices.
License Agreement with Bio Holding, Inc. (Treatment of Diabetes)
On September 28, 2009, we entered into a license agreement (the License Agreement) with Bio
Holding, Inc. (Bio Holding) pursuant to which we obtained an exclusive license to practice,
perform, make, use, sell, import and offer to sell products covered by current and future patents
and patent applications owned by Bio Holding for the treatment of diabetes (the Licensed
Technology). We also agreed to enter into an SRA with UCD for $88,000, which we are currently
negotiating.
We may not sublicense, assign or otherwise transfer its rights in the Licensed Technology without
the prior written consent of Bio Holding. In addition, we have a right of first refusal to license
any intellectual property owned by Bio Holding that is not part of the license Agreement. Dr.
Leland Shapiro, who is the beneficial owner of approximately 14.4% of our common stock, is the
majority shareholder of Bio Holding.
Liquidity and Capital Resources
Our unaudited consolidated financial statements as presented in Item 1 of this report have been
prepared in conformity with US GAAP, which contemplate our continuation as a going concern.
However, the report of our independent registered public accounting firm on our consolidated
financial statements, as of and for the year ended March 31, 2009, contains an explanatory
paragraph expressing substantial doubt as to our ability to continue as a going concern. The going
concern qualification results from, among other things, our development-stage status, no revenue
recognized since inception, our inception to date net losses, which
total approximately $20.4
million and include non-cash charges of approximately $16.6 million through December 31, 2009, and
the outstanding and currently anticipated contractual commitments for research and development
efforts under any current or anticipated SRAs. Our consolidated financial statements do not
include any adjustments relating to the recoverability and classification of recorded asset amounts
or amounts and classification of liabilities that might be necessary if we were unable to continue
as a going concern.
December 2009 and January 2010 Private Placement
In December 2009 and January 2010, we enhanced our liquidity with the first closing of a private
placement equity offering (the PPO), which generated net cash of $351,000 (after offering costs
of $39,000). In January 2010, we completed two additional closings of the PPO and generated net
cash of $1,435,650 (after offering costs of $160,000).
Under the PPO, we sold Units (PPO Units), which were comprised of one share of our common stock
and one warrant to purchase one share of our common stock for a purchase price of $2.50 per PPO
Unit (the PPO Warrants). Each PPO Warrant is exercisable at $3.75 through December 29, 2014.
The maximum amount of the PPO is $2.5 million or 1,000,000 PPO Units. The net proceeds from the
PPO will be used to fund research and development and for general working capital purposes. We
completed the PPO in multiple closings during January 2010 and completed the final closing on
January 29, 2010 (the Final Closing Date). BCP served as the placement
agent for the PPO and earned a commission of 8% plus a non-accountable expense allowance of 2% of
the gross proceeds raised. In addition, we are obligated to sell for a nominal fee to BCP, as the
placement agent, warrants to purchase 10% of the total number of PPO Units sold in PPO, half of
which will be exercisable at a price of $2.50 per share and half of which will be exercisable at
$3.75 per share (collectively, the PPO PA Warrants). The PPO PA Warrants expire five years from
the Final Closing Date and are exercisable 180 days after the Final Closing Date.
28
Table of Contents
At the Companys option, we may call the PPO Warrants through December 29, 2014 by giving to the
holder a notice of call upon 20 days written notice (the PPO Call Notice). A PPO Call Notice may
be given by the Company only within 10 days after our common stock has had a closing price of not
less than $6.00 per share for 20 out of 30 consecutive trading days with trading volume in excess
of 25,000 shares per day for that period of days.
In conjunction with the initial closing of the PPO, we sold for a nominal fee to BCP, as the
placement agent, PPO PA Warrants to purchase 15,600 shares of our common stock at an exercise price
of $2.50 per share and 15,600 shares of our common stock at an exercise price of $3.75 per share.
We calculated the value of these PPO PA Warrants at $69,962 using the Black-Scholes model and
recorded it as a charge to additional paid in capital.
We believe that the capital raised in the PPO provides us cash to fund our current operations and
research and development for the near term. Depending on the extent that we increase research and
development through potential new licenses or pursue clinical trials in addition to our current
budgeted one, we will likely need to raise additional capital through additional equity financings
or through other means that we deem necessary. There is no assurance that we will be successful in
raising additional capital on acceptable terms or at all. Further, even if we raise additional
capital, there is no assurance that we will raise sufficient capital to fund our operations.
Cash and Cash Flows
Our cash and cash equivalents at December 31, 2009 were $790,292 as compared to $1,805,395 at March
31, 2009 and $8,416 at December 31, 2008. For the nine months ended December 31, 2009, net cash
used in operations was $1,370,053 as compared to net cash used in operations of $48,492 for the
nine months ended December 31, 2008. For the nine months ended December 31, 2009, the primary uses
of cash were for general and administrative expenses (excluding share-based compensation) of
approximately $618,000 and a significant decrease from March 31, 2009 to December 31, 2009 of
approximately $743,000 in accounts payable, accrued liabilities and amounts due to related parties.
The significant decrease in these liabilities was a result of a significant pay-down on these
liabilities that had largely been incurred during the first nine months of fiscal year 2009 because
the Company had negligible cash on hand during fiscal year 2009 to settle liabilities on reasonable
and, as applicable, contractual payment terms. For the nine months ended December 31, 2008, the
primary use of cash was for general and administrative expenses (excluding share-based
compensation) of approximately $333,000, and the primary sources of cash were net increases of
approximately $321,000 from March 31, 2008 to December 31, 2008 in the amounts due to UCD under the
bacterial SRA and net increases of approximately $201,000 in the aggregate of accounts payable,
accrued liabilities and amounts due to related parties. The significant increase in these
liabilities was attributable to negligible cash on hand during the nine months ended December 31,
2008.
For the
nine months ended December 31, 2009, we did not generate or expend any cash from investing activities. For the nine months ended December 31, 2008, we used cash of $35,401 for the purchase
of a license from UCD for cellular transplant/graft rejection. For the nine months ended December
31, 2009, net cash provided by financing activities was $354,950 and was primarily attributable to
the net cash proceeds generated from the PPO in December 2009. For the nine months ended December
31, 2008, net cash provided by financing activities was $75,000 from notes payable executed with
related parties.
Contractual Obligations
As previously disclosed under this item, we have an obligation to pay $88,000 under an SRA related
to the License Agreement entered into with Bio Holding. Terms of this SRA are being negotiated and
payments under this SRA are due within 12 months from the date the SRA is executed. As of December
31, 2009, our additional material contractual obligations are payments due under an SRA associated
with our bacterial license agreement with UCD
in the amount of $81,300, which was the final installment due and was paid in January 2010, and a
note payable to a related party in the amount of $25,000, which is due in June 2010.
29
Table of Contents
During the second half of fiscal year 2010, we expect to increase our research and development
expenditures commensurate with the requirements associated with anticipated SRAs with UCD in the
areas of viral infection and graft host technology. As of December 31, 2009, we expect that the
total expenditure levels for these anticipated SRAs will be approximately $760,000 and will be paid
over approximately the next 18 months. We expect to fund a significant portion of these
expenditures from proceeds generated from the PPO.
Director Warrant Issuances for the Quarter Ended December 31, 2009
On October 1, 2009, we granted 50,000 common stock purchase warrants exercisable at $3.00 per share
and expiring on October 1, 2016 to a director for his second year of service. The warrants vest on
September 30, 2010 if the director has continuously served as a director of the Company through
such date. We valued these warrants at $579,424 using the Black-Scholes model with the following
assumptions: exercise price of $3.00, expected life of seven years, common stock price of $12.50
based on the closing OTC price of our common stock on the grant date, dividend yield of 0%,
interest rate of 3.02% and volatility of 100.0%.
On October 12, 2009, our Board appointed a new director to our Board as a result of a resignation
of a Board director. All previously recorded share-based compensation related to the unvested
warrants held by this director was reversed in the December 2009 quarter. Also on October 12,
2009, we granted 100,000 common stock purchase warrants exercisable at $3.00 per share and expiring
on October 12, 2016 to the new director for his first year of service as a director. The warrants
vest on October 11, 2010 if the director has continuously served as a director of the Company
through such date. We valued these warrants at $1,402,839 using the Black-Scholes model with the
following assumptions: exercise price of $3.00, expected life of seven years, common stock price of
$15.00 based on the closing OTC price of our common stock on the grant date, dividend yield of 0%,
interest rate of 3.02% and volatility of 100.0%.
On October 12, 2009 and as consideration for consulting service agreements that we executed with a
director and a member of our scientific advisory board, we granted to these two individuals 50,000
and 100,000 common stock purchase warrants, respectively, exercisable at $3.00 per share and
expiring October 12, 2014. The warrants vest on October 11, 2010 if the individual has
continuously provided service to the Company through such date. We valued these warrants at
$2,038,042 using the Black-Scholes model with the following assumptions: exercise price of $3.00,
expected life of five years, common stock price of $15.00 based on the closing OTC price of our
common stock on the grant date, dividend yield of 0%, interest rate of 2.37% and volatility of
100.0%.
On December 16, 2009, our Board approved the grant to our acting chief executive officer of 600,000
common stock purchase warrants exercisable at $3.00 per share and expiring on November 13, 2016.
The warrants vest and become exercisable in four equal installments on March 31, 2010, March 31,
2011, March 31, 2012 and March 31, 2013, subject to continuous service with the Company. We valued
these warrants at $6,366,996 using the Black-Scholes model with the following assumptions: exercise
price of $3.00, expected life of seven years, common stock price of $11.50 based on the closing OTC
price of our common stock on the grant date, dividend yield of 0%, interest rate of 2.92% and
volatility of 100.0%.
On December 16, 2009, our Board approved the grant to our chief financial officer of 300,000 common
stock purchase warrants exercisable at $3.00 per share and expiring on November 13, 2016. The
warrants vest and become exercisable as follows: 60,000 shares on November 20, 2009, 80,000 shares
on September 30, 2010, 80,000 shares on September 30, 2011, and 80,000 shares on September 30,
2012, all subject to continuous service with the Company. We valued these warrants at $3,183,498
using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected
life of seven years, common stock price of $11.50 based on the closing OTC price of our common
stock on the grant date, dividend yield of 0%, interest rate of 2.92% and volatility of 100.0%.
As of December 31, 2009, we recorded $9,999 in share-based compensation for shares of our common
stock to be issued pursuant to a consulting agreement that we executed during the December 2009
quarter.
30
Table of Contents
Warrant modification
On October 12, 2009, we recorded a charge in the amount of $2,479,000 related to a modification of
an investor warrant to purchase 250,000 shares of our common stock. This warrant was exercised in
the December 2009 quarter, and shares purchased under this warrant were subject to the Lock-up.
The estimated fair value of the modification was calculated using the Black-Scholes model with the
following assumptions: exercise price of $1.00; expected life of one year; common stock price of
$10.91 based on the closing OTC price of our common stock on the modification date, discounted for
the restriction on marketability of this warrants underlying shares of common stock as a result of
the Lock-up; dividend yield of 0%; interest rate of 0.40%; and volatility of 100.0%.
Results of Operations for the Three Months Ended December 31, 2009 Compared to the Three Months
Ended December 31, 2008
For the three months ended December 31, 2009 (the December 2009 quarter), we reported a net loss
of $5,032,094 as compared to a net loss of $339,959 for the three months ended December 31, 2008
(the December 2008 quarter), an increase of $4,692,135. We have not reported any revenue since
inception.
General
and administrative expenses for the December 2009 quarter were
$2,551,157, which included
$2,317,780 of share-based compensation, as compared to $239,952 for the December 2008 quarter,
which included $122,372 of share-based compensation. Management views general and administrative
expenses, exclusive of share-based compensation, as an important non-GAAP measure, as we are in
development stage, have not recorded any revenue and closely monitor operating expenses to manage
and control cash. Management also believes this measure is helpful to investors so they can better
understand our cash expenditures. Accordingly, excluding share-based compensation, general and
administrative expenses in the December 2009 quarter increased $115,797 or approximately 98% from
the December 2008 quarter. This increase was primarily due to public company reporting and
administrative related expenses in the areas of external audit and reporting, legal, stock
administration, investor relations and insurance that were incurred in the December 2009 quarter
and not incurred in the December 2008 quarter when we were not an SEC reporting company. Also for
the December 2009 quarter, we had increases in consulting and scientific advisory expenses as
compared to December 2008 quarter.
Research and development expenses for the December 2009 quarter were $-0- as compared to $81,300
for the December 2008 quarter as a result of the SRA expense incurred in the December 2008 quarter
related to our bacterial license. We did not enter into any additional SRAs during the December
2009 quarter.
In the December 2009 quarter, we recorded a charge in the amount of $2,479,000 related to a
modification of 250,000 warrants that were exercised during the December 2009 quarter. The
estimated fair value of the modification was $9.92 per share and was calculated using the
Black-Scholes model.
Interest income, net of interest expense, for the December 2009 quarter was $1,063 and was
primarily comprised of interest income of $1,438 from cash invested in an interest bearing, money
market account.
Results of Operations for the Nine Months Ended December 31, 2009 Compared to the Nine Months Ended
December 31, 2008
For the
nine months ended December 31, 2009, we reported a net loss of
$12,372,593 as compared to a
net loss of $1,046,902 for the nine months ended December 31,
2008, an increase of $11,325,691.
General and administrative expenses for the nine months ended
December 31, 2009 were $4,270,305,
which included $3,652,595 of share-based compensation, as compared to $761,540 for the nine months
ended December 31, 2008, which included $428,184 of share-based compensation. Management views
general and administrative expenses, exclusive of share-based compensation, as an important
non-GAAP measure, as we are in development stage, have not recorded any revenue and closely monitor
operating expenses to manage and control cash. Management also believes this measure is helpful to
investors so they can better understand our cash expenditures. Accordingly, excluding share-based
compensation, general and administrative expenses for the nine months ended
December 31, 2009 increased $284,354 or approximately 85% from
the nine months ended December 31,
2008. This increase was primarily due to public company reporting and administrative related
expenses in the areas of external audit and reporting, legal, stock administration, investor
relations and related travel and insurance that were incurred for the nine months ended December
31, 2009 and not incurred for the nine months ended December 31, 2008 when we were not an SEC
reporting company. Also for the nine months ended December 31, 2009, we had increases in
consulting and scientific advisory expenses as compared to the nine months ended December 31, 2008.
31
Table of Contents
During the September 2009 quarter, we executed a license agreement with a related party. The total
value ascribed to the license agreement was $5,615,980, and this amount was expensed as a license
fee during the September 2009 quarter.
Research and development expenses for the nine months ended December 31, 2009 were $-0- as compared
to $241,300 for the nine months ended December 31, 2008 as a result of the SRA expense incurred for
the nine months ended December 31, 2008 related to our bacterial license.
In the December 2009 quarter, we recorded a charge in the amount of $2,479,000 related to a
modification of 250,000 warrants that were exercised during the December 2009 quarter. The
estimated fair value of the modification was calculated using the Black-Scholes model.
Interest income, net of interest expense, for the nine months ended December 31, 2009 was $1,692
and was primarily comprised of interest income of $3,317 from cash invested in an interest bearing,
money market account.
Critical Accounting Policies
We prepare our financial statements in accordance with US GAAP. The accounting policies most
fundamental to the understanding of our financial statements are those relating to our use of
estimates, to the accounting for license agreements and the impairment analysis of the capitalized
license costs, the valuation, classification and recording of debt and equity transactions,
including those that include common stock purchase warrants, and assumptions used under share-based
compensation arrangements.
Our significant accounting policies and estimates are disclosed in the notes to our consolidated
financial statements contained in our Annual Report on Form 10-K for the fiscal year ended March
31, 2009.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information under this item.
32
Table of Contents
Item 4T. Controls and Procedures.
Disclosure Controls and Procedures
We are responsible for establishing and maintaining disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms, and that such information is accumulated and communicated to our management, including
our Acting Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our management, with the participation of our Acting Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act) as of December 31, 2009 and
concluded that our disclosure controls and procedures were effective
as of that date. However, based on the
restatements described in Note 1A to the Companys unaudited consolidated financial statements, our
Acting Chief Executive Officer and Chief Financial Officer have
subsequently concluded that our disclosure
controls and procedures were not effective as of December 31, 2009, and that a material weakness
existed with regards to the accounting for share-based compensation and other equity-based charges.
Remediation of the Material Weakness
To remediate the aforementioned material weakness, management intends to utilize outside technical
accounting and valuation resources, as deemed appropriate, in reviewing and assisting with
accounting, disclosure and valuation issues related to equity instruments and equity-based
compensation. In addition, we have restated our consolidated financial statements for the
quarterly period ended December 31, 2009, as well as for the quarterly period ended September 30,
2009, the fiscal year ended March 31, 2010 and the quarterly period ended June 30, 2010 with
regards to the accounting for share-based compensation and other equity-based charges.
Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended
December 31, 2009 that materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION.
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
None.
33
Table of Contents
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Warrant Grants
On October 1, 2009, the Board approved a grant of 50,000 warrants to purchase our common stock to
Michael Wort, one of our directors, as compensation for his services as a director. The warrants
vest and become exercisable on September 30, 2010 with an exercise price of $3.00 per share. The
warrants expire on October 1, 2016. The warrants were issued under the Companys director
compensation plan and under Section 4(2) of the Securities Act of 1933, as amended (the Securities
Act).
On October 12, 2009, the Board approved a grant of 50,000 warrants to purchase our common stock to
Michael Iseman, one of our directors and the chairperson of our scientific advisory board, as
compensation for his additional services as a consultant on certain scientific matters. The
warrants vest and become exercisable on October 11, 2010 with an exercise price of $3.00 per share.
The warrants expire on October 12, 2014. The warrants were issued under Section 4(2) of the
Securities Act.
On October 12, 2009, the Board approved a grant of 100,000 warrants to purchase our common stock to
Eli Lewis, a member of our scientific advisory board, as compensation for his additional services
as a consultant on certain scientific matters. The warrants vest and become exercisable on October
11, 2010 with an exercise price of $3.00 per share. The warrants expire on October 12, 2014. The
warrants were issued under Section 4(2) of the Securities Act.
On October 12, 2009, the Board approved a grant of 100,000 warrants to purchase our common stock to
Jeffrey Sperber, one of our directors, as compensation for his services as a director. The
warrants vest and become exercisable on October 11, 2009 with an exercise price of $3.00 per share.
The warrants expire on October 12, 2016. The warrants were issued under the Companys director
compensation plan and under Section 4(2) of the Securities Act.
On December 16, 2009, our Board approved a grant to Charles Dinarello, our acting chief executive
officer and a director, of 600,000 common stock purchase warrants exercisable at $3.00 per share
and expiring on November 13, 2016. The warrants vest and become exercisable in four equal
installments on March 31, 2010, March 31, 2011, March 31, 2012 and March 31, 2013, subject to
continuous service with the Company. The warrants were issued under Section 4(2) of the Securities
Act.
On December 16, 2009, our Board approved a grant to Robert Ogden, our chief financial officer, of
300,000 common stock purchase warrants exercisable at $3.00 per share and expiring on November 13,
2016. The warrants vest and become exercisable as follows: 60,000 shares on November 20, 2009,
80,000 shares on September 30, 2010, 80,000 shares on September 30, 2011, and 80,000 shares on
September 30, 2012, all subject to continuous service with the Company.
34
Table of Contents
Warrant Exercises under Cashless Exercise Provisions
During the December 2009 quarter, certain investors exercised common stock purchase warrants under
cashless exercise provisions. The following table represents the net shares surrendered in these
cashless warrant exercises.
ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||||
(d) Maximum Number | ||||||||||||||||
(c) Total Number of | (or Approximate Dollar | |||||||||||||||
Shares (or Units) | Value) of Shares (or | |||||||||||||||
(a) Total Number of | (b) Average Price | Purchased as Part of | Units) that May Yet Be | |||||||||||||
Shares (or Units) | Paid per Share | Publicly Announced Plans | Purchased Under the | |||||||||||||
Period | Purchased | (or Unit) | or Programs | Plans or Programs) | ||||||||||||
October 1 to October 31, 2009 |
4,952 | $ | 15.00 | | | |||||||||||
November 1 to November 30,
2009 |
| | | | ||||||||||||
December 1 to December 31,
2009 |
20,834 | $ | 12.00 | | | |||||||||||
TOTAL |
25,786 | $ | 12.58 | | | |||||||||||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
As previously reported in our Current Report on Form 8-K filed on January 5, 2010 and as discussed
in Item 2 of this report, in December 2009, we entered into subscription agreements with certain
investors relating to the issuance and sale of PPO Units in the PPO. On January 22, 2010 and
January 29, 2010, we entered into additional subscription agreements with investors for the
issuance and sale of 638,260 PPO Units for an aggregate subscription price of $1,595,650. On
January 29, 2010, we closed the PPO. We sold an aggregate of 794,260 PPO Units in the PPO, which
generated net proceeds of $1,786,260 after deducting offering expenses of $199,000. A copy of the
Form of Subscription Agreement and Letter of Investment Intent and Form of Warrant are filed as
Exhibits 10.2 and 10.3, respectively, to this report and are incorporated herein by reference.
In connection with the PPO, we were obligated to sell to the placement agent for a nominal fee
warrants to purchase 10% of the total number of PPO Units sold in the PPO. Upon closing of the
PPO, we became obligated to issue 158,852 PPO PA Warrants to the placement agent. Half of the PPO
PA Warrants are exercisable at $2.50 per share and half of the PPO PA Warrants are exercisable at
$3.75 per share. The PPO PA warrants expire on January 29, 2015 and are exercisable beginning on
July 28, 2010.
The PPO Units and the PPO PA Warrants were issued exempt from registration pursuant to Regulation D
of the Securities Act and constitute restricted securities under Rule 144 of the Securities Act.
35
Table of Contents
Item 6. Exhibits.
EXHIBIT # | DESCRIPTION | |||
3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrants
Registration Statement on Form SB-2 filed on March 2, 2007) |
|||
3.2 | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Registrants
Form 8-K filed on January 5, 2010) |
|||
3.3 | Articles of Amendment for Across America Financial Services, Inc. including Amendment to
Articles of Incorporation of Across America Financial Services, Inc. (incorporated by
reference to Exhibit 3.3 to the Registrants Form 8-K filed on June 2, 2009) |
|||
10.1 | License Agreement by and between Bio Holding, Inc. and Omni Bio Pharmaceutical, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on October 2,
2009) |
|||
10.2 | Form of Subscription Agreement and Letter of Investment Intent (incorporated by reference to
Exhibit 10.2 to the Registrants Annual Report on Form 10-K filed on June 25, 2010) |
|||
10.3 | Form of Warrant (incorporated by reference to Exhibit 10.3 to the Registrants Annual Report
on Form 10-K filed on June 25, 2010) |
|||
31.1 | Certification of Acting Chief Executive Officer Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 # |
|||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 # |
|||
32.1 | Certification of Acting Chief Executive Officer Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code # |
|||
32.2 | Certification of Chief Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code # |
# | Filed herewith |
36
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
OMNI BIO PHARMACEUTICAL, INC. | ||||||
November
8, 2010
|
By: | /s/ Robert C. Ogden
|
||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
37