ITEM 1B.
UNRESOLVED STAFF COMMENTS
As of the date hereof, we have no unresolved comments from the staff of the SEC that have been outstanding for more than 180 days. However, we are currently in the process of responding to comments from the staff of the SEC, including comments relating to the valuation of certain warrant grants to officers, directors and consultants that were made during the fiscal year ended March 31, 2010. See “Risk Factors” under “Financial and Market Risks.”
We currently lease approximately 1,100 square feet for our corporate office. Our address is 5350 South Roslyn Street, Suite 430, Greenwood Village, CO 80111.
We are not a party to any material legal proceedings nor is our property the subject of any material legal proceedings.
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is currently traded on the Over the Counter Bulletin Board (the “OTCBB”) maintained by the Financial Industry Regulatory Authority under the symbol OMBP. Our common stock began trading on the OTCBB in December 2007. The following table sets forth the range of high and low bid quotations for our common stock during each calendar quarter beginning June 30, 2008 and ending March 31, 2010. The figures have been rounded to the nearest whole cent.
The above quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
Number of Shareholders of Record and Dividends
The number of shareholders of record of the Company’s issued and outstanding common stock as of June 15, 2010 was approximately 350. This number was derived from our stockholder records and does not include beneficial owners of our common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers, and other fiduciaries.
Holders of common stock are entitled to receive such dividends as may be declared by our Board of Directors. No dividends on the common stock were paid by us during the periods reported herein nor do we anticipate paying dividends in the foreseeable future.
Recent Sales of Unregistered Securities
In December 2009 and January 2010, we accepted subscription agreements related to the sale of Units in a private placement securities offering (the “Private Placement”) to accredited investors pursuant to section 4(2) of the Securities Act, as amended, and Rule 506 promulgated thereunder. Each “Private Placement 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 Private Placement Unit (the “Private Placement Warrants”). Each Private Placement Warrant is exercisable at $3.75 through December 29, 2014. We completed the Private Placement in multiple closings in December 2009 and January 2010 and completed the final closing on January 29, 2010 (the “Final Closing Date”). We sold 794,260 Private Placement Units and netted cash proceeds of $1,786,890, after deducting commissions and expenses paid to GVC, who served as the placement agent for the Private Placement and earned a commission of 8% plus a non-accountable expense allowance of 2% of the gross proceeds raised. In addition, we were obligated to sell for a nominal fee to GVC, as the placement agent, warrants to purchase 20% of the total number of Private Place Units sold in the Private Placement, 79,426 of which are exercisable at a price of $2.50 per share and 79,426 of which are exercisable at $3.75 per share (collectively, the “Private Placement PA Warrants”). The Private Placement PA Warrants expire five years from the Final Closing Date and are exercisable 180 days after the Final Closing Date. The sales and issuances of the securities described above were conducted pursuant to Section 4(2) of the Act and Rule 506 promulgated thereunder.
Warrant Exercises under Cashless Exercise Provisions
During the quarter ended March 31, 2010, certain investors exercised common stock purchase warrants under cashless exercise provisions. The following table represents the net shares surrendered in these cashless warrant exercises.
Performance Graph
The following performance graph compares the cumulative total return of our common stock with that of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. Our stock was initially listed on the OTCBB on December 21, 2007, the date of formation of the Company and the date that our shares began to trade publicly. The graph assumes an investment of $100 on December 21, 2007 and reinvestments of all dividends and other distributions.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA.
The fiscal years ended March 31, 2010, 2009, and 2008 statements of operations data, and the fiscal years March 31, 2010 and 2009 balance sheet data, have been derived from our consolidated financial statements and notes appearing in Item 15 of this report. The statement of operations and balance sheet data for the fiscal year ended March 31, 2007 and for the period from February 28, 2006 (Inception) through March 31, 2006 have been derived from our historical financial statements for those years.
The financial statements for the fiscal years ended March 31, 2008 and 2007 and for the period from February 28, 2006 (Inception) through March 31, 2006 are those of the accounting predecessor, Apro Bio.
The following table should be read in conjunction with our consolidated financial statements and associated notes found in Item 15 of this report.
ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
On March 31, 2009, Across America completed the acquisition of Apro Bio pursuant to the Merger. 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.
Overview
We are in pursuit of advancing existing and novel therapies that we believe have the potential to move through clinical trials quickly, shepherd them through the FDA approval processes and advance them through to commercialization. This core strategy is based on licensing issued and pending patent applications that cover new uses for an existing FDA-approved drug, Alpha-1 Antitrypsin (“AAT”), which has come off of its initial patents. AAT is currently used as a therapeutically effective treatment for a genetic deficiency and the treatment for a pulmonary disorder that is unrelated to our licensed intellectual property. Omni is the licensee of three patent portfolios from the University of Colorado Denver (“UCD”) (formerly known as the University of Health Sciences Center). These patent portfolios are comprised of 1 issued and 21 pending patent applications. In addition, we have received two notices of allowance related to filed applications.
With respect to the licensed technologies, we have licensed patent applications and patents related to methods of use for AAT and novel compositions of matter and their uses from UCD. We are currently focusing on four areas: bacterial disorders, viral disorders, complications due to graft rejection and diabetes. One license agreement from UCD relates to treating transplantation rejection. Transplantation rejection includes cellular and organ transplant rejection. One focus related to cellular transplantation is islet cell transplantation for the treatment of some diabetics and the treatment of diabetes in general. A second license agreement relates to the treatment and/or prevention of bacterial disorders, including bacterial pneumonia, tuberculosis and biowarfare agents such as anthrax. The third license agreement focuses on the treatment and/or prevention of viral disorders. With this third license, we have licensed a patent, United States Patent No. 6,849,605, Titled: Inhibitors of Serine Protease Activity, Methods and Compositions for Treatment of Viral Infections, which covers treatment of HIV. Additionally, we have licensed patent applications for the treatment of other viral-associated disorders such as epidemic influenza, including H1N1 related strains.
Other than the agreements with UCD, we have licensed and intend to pursue additional licenses to more thoroughly cover and commercialize a patent portfolio from Bio Holding, Inc. (“Bio Holding”), an entity affiliated with our Principal Investigator, Dr. Leland Shapiro. A component of these applications involves uses of AAT to treat a variety of indications related to the indications targeted by UCD.
Several companies currently sell products of the FDA-approved drug, AAT, for the treatment of genetic deficiency and the treatment for a pulmonary disorder (brand name in parenthesis): (i) Baxter Biotherapeutics (Aralast NP), (ii) CSL Behring USA (Zemaira), and (iii) Talecris Biotherapeutics, Inc.( Prolastin-C (R)). The UCD and Bio Holding licensed technologies focus on alternative uses of these commercially available products, including other forms of AAT and AAT derivatives related to treatment and/or prevention of bacterial disorders, viral disorders, cell rejection/graft rejection and diabetes.
To date, our business efforts have been largely dedicated in pursuing additional capital in order to fund Sponsored Research Agreements (“SRAs”) related to the licenses from UCD in effort to further research related to bacterial disorders, viral disorders and cellular transplantation/graft rejection and diabetes-related disorders, and to fund our recently approved clinical trial in Type 1 diabetes.
We intend to continue to outsource the normally capital intensive scientific research function to academic research institutions such as UCD. This can provide us with a specific scientific budget for funding each application, without the substantial cost of carrying-out basic research internally. Work contracted with UCD or other research institutions is expected to provide a contractually guaranteed work product, generally consisting of pre-clinical testing at predetermined costs, which increases the viability of our financial forecasting. With this approach, we expect to be able to work with each project’s lead scientists, overseeing patent application projects and closely managing our corporate overhead. This should allow most of our expenses to be concentrated on research and development efforts and prosecuting the patent applications we have licensed. Future research essential for developing these strategies will be conducted in accordance with our world-wide licensing rights and our existing and expected future SRAs with UCD.
Recent 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 UCD. 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.
On June 7, 2010, Omni Bio Operating, Inc. (the “Sponsor”), a wholly-owned subsidiary of Omni, the Regents of the University of Colorado (the “Regents”) and The Barbara Davis Center (collectively with the Regents, the “Institution”), and Dr. Peter Gottlieb (the “Principal Investigator”) (the Institution and the Principal Investigator collectively referred to as the “Site”) entered into an Investigational Site Agreement (the “Agreement”), whereby the Institution, acting on behalf of the Sponsor, agreed to arrange, administer and manage a clinical study to evaluate Aralast NPTM (an Alpha-1 antitrypsin product) in the treatment of patients with Type 1 diabetes (the “Clinical Trial”). The Clinical Trial is initially to include 15 patients. Base costs, which include the enrollment fee and other incidental charges, for the 15 patients will be approximately $725,000. Additional contingent costs could be as high as $100,000. Omni was required to make an initial deposit of $365,000 upon execution of the Agreement.
In March 2010, Omni and Baxter Healthcare Corporation (“Baxter”) executed a Material Transfer Agreement (the “Material Transfer Agreement”) whereby Baxter agreed to supply, at no cost, 1.25 kg of Aralast NPTM, with a commercial value of $420,000 (the “Materials”), to Omni for use in the Clinical Trial as described above. Omni warrants that the Clinical Trial will be conducted under either a waiver to an Investigational New Drug Application or an Investigational New Drug Application (“IND”) filed with the United States Food and Drug Administration (“FDA”) by Omni. Under the Material Transfer Agreement, Omni is responsible to maintain the IND and comply with all reporting and other obligations associated with the IND. The Material Transfer Agreement will terminate upon completion of the Clinical Trial unless Omni and Baxter mutually agree in writing to extend its term. The Material Transfer Agreement may be terminated by either party (i) upon a material breach of the Material Transfer Agreement, or (2) in the event of an Adverse Event (as defined in the Material Transfer Agreement) that warrants termination of the Clinical Trial. Omni is required to prepare for Baxter a summary of the information and results generated by the Clinical Trial upon its completion.
License And Sponsored Research Agreements
Bacterial Disorders License
On May 15, 2006, we entered into our first exclusive license agreement with the Regents of the University of Colorado (“RUC”) on behalf of UCD relating to anthrax, tuberculosis and bacterial pneumonia. RUC granted us an exclusive worldwide license to use intellectual property covered by various U.S. provisional patent applications filed by UCD. At the same time, we entered into a three year SRA with UCD for research to be undertaken by UCD related to the development of the licensed technology for anthrax and bacterial pneumonia (the “Bacterial SRA”). Under the Bacterial SRA, we were required to make payments aggregating $1,097,460 over the three-year period. On January 9, 2009 we amended the agreement to extend the required payments due in the final year. The revised payment terms were for four quarterly payments due on April 1, 2009, July 1, 2009, October 1, 2009 and January 1, 2010. We made our final payment under this SRA in January 2010 and have no further obligation 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 Trademark Office (“USPTO”) as well as international offices, which include Japan, Canada and Europe.
Viral Disorders License
On March 31, 2008, we entered into a license agreement with RUC covering patent applications and an issued patent directed to treatment and/or prevention of viral disorders. Some of these disorders include, but are not limited to, HIV and influenza (the “Viral License”). We are currently pursuing expanded patent rights based on our licensed technology directed to treating viral-related disorders with the USPTO. In addition, we are negotiating an SRA related to research and advancement of this licensed technology. We expect that upon execution of the SRA, our financial obligation will total approximately $440,000, payable quarterly over two years.
Cellular Transplant License
On November 12, 2008, we entered into a license agreement with RUC for technology related to the treatment of cellular transplantation and graft rejection (the “Cellular Transplant License”). We are currently pursuing expanded patent rights based on our licensed technology directed to treating cellular transplantation and graft rejection disorders with the USPTO and international patent offices, which include Canada and Europe. In addition, we are negotiating an SRA related to research and advancement of this licensed technology. The estimate related to our financial obligation under this SRA will total approximately $975,000, payable quarterly over three years.
License Agreement with Bio Holding, Inc.
On September 28, 2009, we entered into a license agreement (the “License Agreement”) with 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 the benefit of Dr. Leland Shapiro’s laboratory related to the License Agreement. We are presently in discussions regarding this SRA, and expect our payment under this SRA to be approximately $88,000.
Under the terms of the License Agreement, 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 our Principal Investigator and currently the beneficial owner of approximately 14% of our common stock, is the majority shareholder of Bio Holding.
Future royalty payments under the above license agreements are summarized below:
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.
Significant Trends, Uncertainties and Challenges
We believe that the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include, but are not limited to:
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The continued expected growth in the biopharmaceutical sector;
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Our ability to license key intellectual property and protect our current intellectual property relating to our development of therapies;
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Our ability to fund and enter into SRAs and clinical trials necessary for our development of therapies;
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Our ability to devote our resources to therapies that are the most likely to result in commercialization;
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Our ability to shepherd potential therapies through the FDA approval process; and
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Our ability to compete against companies in our industry with greater resources.
Results of Operations - Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31,
The following discussion relates to Omni’s operations for the year ended March 31, 2010 (“fiscal year 2010”) as compared to the year ended March 31, 2009 (“fiscal year 2009”).
Net loss - For fiscal year 2010, we reported a net loss of $5,025,352 as compared to a net loss $4,544,521 for fiscal year 2009, an increase of $480,831. We have not reported any revenue since inception and it is highly likely that we will not recognize any revenue in the near term.
General and administrative expenses - General and administrative expenses for fiscal year 2010 were $2,994,190, which included $2,013,750 of share-based compensation, as compared to $1,031,911 for fiscal year 2009, which included $740,251 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 since inception 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 fiscal year 2010 were $980,440 as compared to $291,660 for fiscal year 2009, an increase of $688,780 or approximately 236%. 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 fiscal year 2010 and not incurred for fiscal year 2009, as we were not an SEC reporting company until March 31, 2009. Also in fiscal year 2010, we had significant increases in legal expenses associated with patents related to our licensing arrangements and consulting and scientific advisory expenses as compared to fiscal year 2009.
Other operating expense - In fiscal year 2010, we executed the License Agreement with Bio Holding, a related party, whose majority shareholder is a significant shareholder of Omni. We paid a license fee of $25,000 and issued to the minority shareholder of Bio Holding a warrant to purchase 650,000 shares of our common stock at an exercise price of $3.00. The value of the warrant was calculated at $1,470,000 using the Black-Scholes pricing model, and this amount was recorded as a non-cash operating expense for fiscal year 2010. For fiscal year 2009, we incurred non-cash operating expenses in the amount of $719,772 associated with issuances of shares of our common stock to the University of License Equity Holdings, Inc., a beneficiary of RUC, that were required under anti-dilution provisions associated with our licenses for viral disease treatment and cellular transplantation/graft rejection.
Research and development - Research and development expenses for fiscal year 2010 were $-0- as compared to $241,300 in fiscal year 2009. The decrease was primarily attributable to having no SRAs in place with UCD in the areas of viral disease treatment and cellular transplantation and graft rejection, and no SRA executed with Bio Holding for diabetes treatment associated with the license executed with Bio Holding. We anticipate executing these three SRAs during calendar year 2010.
Other non-operating expenses - For fiscal year 2010, we recognized accretion expense on notes payable with related parties of $12,000 as compared to $41,125 for fiscal year 2009. The decrease was primarily the result of the conversion of one of the notes in conjunction with a private placement equity offering (the “PP Offering”) that was completed on March 31, 2009. All unamortized discount on this note was expensed upon the conversion of the note on March 31, 2009. For fiscal year 2009, we recorded non-cash charges for the issuances of common stock purchase warrants issuances to investors and related parties of $2,354,587 as compared to $-0- for fiscal year 2010. The decrease was a result of the warrant issuances to outside investors and related parties in conjunction with the Merger and the PP Offering that were completed on March 31, 2009. Charges for modifications to outstanding warrants for fiscal year 2010 were $528,000 as compared $152,686 for fiscal year 2009. This increase was primarily due a larger number of warrants that were modified in fiscal year 2010 as compared to fiscal year 2009.
Interest income/expense net - For fiscal year 2010, we recorded net interest income of $3,838 as compared to net interest expense of $6,140 for fiscal year 2009. The net increase in interest income for fiscal year 2010 was primarily due to interest earned on an interest-bearing cash account that had a significant balance for the majority of the fiscal year as a result of our private placement equity offering that occurred during December 2009 and January 2010 (the “Private Placement”).
Results of Operations - Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31,
The following discussion relates to Omni’s operations for fiscal year 2009 as compared to the year ended March 31, 2008 (“fiscal year 2008”).
Net loss - For fiscal year 2009, we reported a net loss of $4,544,521 as compared to a net loss of $1,812,567 for fiscal year 2008, an increase of $2,741,954. This increase was primarily due to non-cash charges of $2,504,273 associated with the issuances of common stock purchase warrants (“warrants”) pursuant to the Merger as well as in the PP Offering, both of which occurred on March 31, 2009. Other significant non-cash charges were our common stock issuances to CU as required under our license agreements, which totaled approximately $720,000 in fiscal year 2009 as compared to approximately $11,000 in fiscal year 2008, and a charge recorded in fiscal year 2009 of approximately $153,000 related to modifications of certain terms of warrants held by related parties. We did not report any revenue in fiscal year 2009 or 2008 or since inception.
General and administrative expenses - General and administrative expenses for fiscal year 2009 were $1,031,911, and included $740,251 of share-based compensation, as compared to $1,366,976 in fiscal year 2008, which included $692,638 of share-based compensation. As previously disclosed, management views general and administrative expenses, exclusive of share-based compensation, as an important non-GAAP measure. Accordingly, excluding share-based compensation, general and administrative expenses in fiscal year 2009 were $291,660 as compared to $674,338 for fiscal year 2008, a decrease of $382,678 or approximately 57%. This decrease was primarily due to significantly lower employee compensation and related payroll taxes in fiscal year 2009 as a result of the departure of our CEO during the first quarter of fiscal year 2009 and our COO during the third quarter of fiscal year 2009. Further, as part of settlement agreements with both individuals, our committed pay-outs resulted in a reduction in compensation expense in fiscal year 2009 for previously accrued compensation pertaining to both fiscal years 2008 and 2009.
Research and development - Research and development expenses for fiscal year 2009 were $241,300 as compared to $385,437 in fiscal year 2008, a decrease of $144,137 or approximately 37%. The decrease was primarily attributable to our inability to continue funding of research activities at UCD due to cash availability constraints.
Other non-operating expenses - Accretion expense on notes payable with related parties for fiscal year 2009 was $41,125 for fiscal year 2009 as compared to $-0- for fiscal year 2008. During fiscal year 2009, we executed two notes payable with related parties in the aggregate amount of $100,000. Both notes were issued along with detachable warrants and were recorded at a discount based on the allocation of proceeds to both the notes and warrants as required under US GAAP. We accreted these discounts over the terms of the notes, and one of the notes was converted in conjunction with the PP Offering that was completed on March 31, 2009. All unamortized discount on this note was expensed upon the conversion of the note on March 31, 2009. Charges for the issuances of common stock purchase warrants issuances to investors and related parties for fiscal year 2009 was $2,354,587 and was attributable to the warrant issuances to outside investors and related parties in conjunction with the Merger and the PP Offering. Charges for modifications to outstanding warrants for fiscal year 2009 were $152,686 as compared to $-0- for fiscal year 2008. This increase was a result of modifications to warrants in fiscal year 2009 and no modifications to warrants in fiscal year 2008.
Interest expense - Interest expense for fiscal year 2009 was $6,140 as compared to $49,425 for fiscal year 2008, primarily due to lower debt outstanding during fiscal year 2009.
Warrant Issuances for Fiscal Year 2010
During fiscal year 2010, we granted the following warrants to officers, directors and consultants. All related expense was recorded as share-based compensation and included in general and administrative expenses. Further detail on the respective share-based compensation charges is disclosed in Note 9 to our consolidated financial statements included under Item 15 of this report.
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. This warrant expires on April 7, 2016. We valued these warrants at $529,975 using the Black-Scholes model.
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.
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.
On July 30, 2009 and pursuant to 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 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 $688,908 using the Black-Scholes model.
Pursuant to Board approval on July 30, 2009, 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 a 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 $125,256 using the Black-Scholes model.
Pursuant to Board approval on July 30, 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 $124,854 using the Black-Scholes model.
On October 12, 2009, our Board appointed a new director 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 $249,709 using the Black-Scholes model.
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 $338,272 using the Black-Scholes model.
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 $1,498,251 using the Black-Scholes model.
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 $749,126 using the Black-Scholes model.
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.
On February 4, 2010, our Board approved the grant of 100,000 common stock purchase warrants to a member of our scientific advisory board as consideration for an amendment to his consulting agreement to provide additional services to Omni. The warrants are exercisable at $3.00 per share, expire on February 4, 2015 and vest on October 11, 2010 if the individual has continuously provided service to the Company through such date. We valued these warrants at $225,723 using the Black-Scholes model.
On March 31, 2010, our Board approved the grant of 50,000 common stock purchase warrants to a medical consultant in exchange for consulting services to be provided through September 30, 2010. The warrants are exercisable at $3.00 per share, expire on March 31, 2015 and vest on September 30, 2010 if the individual has continuously provided service to the Company through such date. We valued these warrants at $112,748 using the Black-Scholes model.
For the period from July 7, 2009 through March 31, 2010, we granted warrants at an exercise price of $3.00 per share, which represented management’s estimated fair value of our common stock price as of the date of each grant and which was different than the quoted price of our common stock on the Over the Counter Bulletin Board on each of the grant dates. Our determination of estimated fair value was based on factors, including, but not limited to: 1) initial discussions with potential investors on an equity capital raise at a price of $3.00 per share and the price of Private Placement Units that were ultimately sold in the Private Placement; 2) the limited trading volume and limited public trading duration of our common stock; 3) the trading prices on private common stock sale transactions during this period; and 4) the trading lock-up requirement of two or three years on the majority of our outstanding warrants and common stock.
Liquidity and Capital Resources
Our consolidated financial statements as presented in Item 15 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, 2010, 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 or likely to be recognized in the near term, and our inception to date net losses, which total approximately $12.5 million and include non-cash charges of approximately $8.4 million. 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.
Cash and Cash Equivalents
We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents. Our cash and cash equivalents were $1.8 million at March 31, 2010 and 2009.
Cash Flows from Operating Activities
For fiscal year 2010, net cash used in operations was $1,793,869. The primary uses of cash from operations were general and administrative expenses excluding share-based compensation, which totaled $980,040 and a reduction in accounts payable, amounts due under an SRA, accrued liabilities and amounts due to related parties, which totaled approximately $814,000. The significant decrease in these liabilities was a result of a significant pay-down on these liabilities during the first quarter of fiscal year 2010, which 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 fiscal year 2009, net cash used in operations was $56,513. The primary uses of cash from operations were general and administrative expenses excluding share-based compensation, which totaled $291,660 and research and development expenses of $241,300. The primary source of cash from operations was the net increase in accounts payable, amounts due under an SRA, accrued liabilities and amounts due to related parties, which totaled approximately $471,000. The significant increase in these liabilities was primarily a result of a significant build-up in during the first nine months of fiscal year 2009 as the Company had negligible cash on hand during fiscal year 2009 to settle liabilities on reasonable and, as applicable, contractual payment terms.
Cash Flows from Investing Activities
For fiscal year 2010, we did not generate or expend cash from investing activities. For fiscal year 2009, our primary use of cash from investing activities was the purchase of a license related to the application of cellular transplantation and graft rejection in the amount of $35,401.
Cash Flows from Financing Activities
For fiscal year 2010, we generated $1,786,890 of cash from financing activities as a result of the Private Placement. For fiscal year 2009, we generated $1,800,000 of cash from financing activities as a result of the PP Offering.
Anticipated Cash Commitments
During the remainder of 2010, we intend to enter into three SRAs in the areas of diabetes, viral disorder treatments and cellular transplantation/graft rejection. We presently anticipate that the financial commitments for these pending SRA agreements will total approximately $1,500,000 over a three year period. Additionally, in June 2010, we became obligated for payments under the Clinical Trial, which include a base cost of approximately $725,000 plus additional estimated costs of $100,000. We currently have cash on hand to carry-out the Type 1 diabetes clinical trial based on the current patient enrollment of 15.
In December 2009 and January 2010, we generated net cash of $1,786,890 through the sale of common stock and warrants in the Private Placement. We do not expect to generate revenue during the remainder of 2010 or at any time in the foreseeable future. We expect our current cash balance, including funds raised in the Private Placement, to be sufficient to cover our planned capital and operational expenditures for the near term based on current trends and currently known factors. We will need to raise additional capital to cover our operating losses, SRAs, clinical trials and other research and development expenses. We currently are pursuing various avenues to obtain additional capital including raising money in the equity markets. There can be no assurance that additional capital will be available to us on acceptable terms or at all. Failure to obtain additional capital will have a material adverse impact on our ability to continue our research and development efforts and cover our operating expenses.
Contractual Obligations
We are committed to make payments on certain contractual obligations, and our cash payments due under contractual obligations as of March 31, 2010 were as follows:
Critical Accounting Policies
We prepare our financial statements in accordance with US GAAP. Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements contained under Item 15 in this report. The accounting policies most fundamental to the understanding our financial statements are our use of estimates, including the computation of share-based compensation and determination of fair value of our stock price used in those computations (this policy is further disclosed in Note 9 to our consolidated financial statements); capitalization of license agreements and impairment analysis of the capitalized license costs; and the valuation, classification and recording of debt and equity transactions, including those that include stock purchase warrants.
Share-based Compensation
A significant portion of our general and administrative expenses for the years ended March 31, 2010, 2009 and 2008 is comprised of share-based compensation in the amounts of $2,013,750, $740,251 and $692,638, respectively, related to warrants to purchase shares of our common stock issued to employees, consultants and directors. We have computed the share-based compensation charges using the Black-Scholes pricing model, which incorporates estimates as to a company’s stock price (when there is not readily available market as a basis), the expected term that a warrant holder will hold a warrant and the expected volatility of a company’s stock price over a specified term.
For fiscal year 2010, we recorded significant charges in the amount of $1,998,000 for warrants issued as a partial payment for a licensing fee with a related party and for a modification of an outside investor warrant. We calculated these charges also using the Black-Scholes model and assessed the appropriateness of the variables employed in the model, including an estimate of our stock price on the date of each transaction as used in the computation of share-based compensation. We are likely to issue more equity instruments, which may be in the forms of common stock sold with detachable warrants, convertible debt sold with detachable warrants and convertible preferred sold with detachable warrants. These potential types of transactions require extensive analysis to determine the proper asset, liability and/or equity classification and the application of estimates in deriving values to be assigned under the Black-Scholes model. Future issuances of these transactions may possibly result in significant expenses being recorded in our consolidated financial statements.
For the period from July 7, 2009 through March 31, 2010, we granted warrants at an exercise price of $3.00 per share, which represented management’s estimated fair value of our common stock price as of the date of each grant and which was different than the quoted price of our common stock on the Over the Counter Bulletin Board on each of the grant dates. Our determination of estimated fair value was based on factors, including, but not limited to: 1) initial discussions with potential investors on an equity capital raise at a price of $3.00 per share and the price of Private Placement Units that were ultimately sold in the Private Placement; 2) the limited trading volume and limited public trading duration of our common stock; 3) the trading prices private common stock sale transactions during this period; and 4) the trading lock-up requirement of two or three years on the majority of our outstanding warrants and common stock. We believe that these factors represent appropriate measures of fair value as outlined in US GAAP, and as a result, we concluded the principal market for Omni’s common stock was inactive. As a result, we looked to the terms and pricing of the Private Placement, which included these securities, as the most reasonable and appropriate fair value indication of our stock price.
Capitalized License Costs
Since inception, we have capitalized approximately $80,000 related to direct costs incurred to establish our ability to license potential future patents in the bio pharmaceutical areas that are associated with our licenses. We commence amortization of these costs when a patent is applied for and continue the amortization over the expected life of the patent. The assignment of an estimated life to a license is also an estimate that we must monitor as well as the net carrying value of the license. Because we are in development stage and have not generated any revenue or identified which of the licenses may potentially generate revenue, a formal impairment analysis is not practical at this time. We will continue to monitor our license agreements as to the appropriateness of definite lives in relation to patent development and formalize our potential impairment analysis as we correlate evidence as to the potential marketability of product(s) related to our license agreements.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of March 31, 2010, approximately 96% of our total assets were comprised of cash and cash equivalents, which were held in operating and short-term, interest bearing money market accounts. Additionally, as of March 31, 2010, we did not have any outstanding debt obligations or any credit facilities in place. As we are a development stage company and have not reported any revenue from inception, we currently utilize 100% of our cash and cash equivalents on hand to fund general operating expenses and research and development activities. We do not anticipate investing any cash or cash equivalents in any equity or debt securities in the foreseeable future and, as such, we are not subject to interest rate risk associated with debt securities or debt obligations or market risk associated with equity securities investments.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements
Our consolidated financial statements are included as a separate section of this report beginning on page immediately following the signature page to this report.
Supplementary Data
Supplementary data for each quarter in our fiscal years ended March 31, 2010 and 2009 is as follows:
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES.
Evaluation of 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 SEC’s 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 March 31, 2010. Based on this evaluation, our Acting Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of this date.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including the Acting Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal controls were designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Management has used the framework set forth in the report entitled Internal Control - Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that our internal control over financial reporting was effective as of March 31, 2010.
Hein & Associates LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included herein.
Change in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fourth quarter of the fiscal year ended March 31, 2010 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Omni Bio Pharmaceutical, Inc.
We have audited Omni Bio Pharmaceutical, Inc.’s (the “Company”) internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Omni Bio Pharmaceutical, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Omni Bio Pharmaceutical, Inc. and our report dated June 25, 2010 expressed an unqualified opinion.
HEIN & ASSOCIATES LLP
Denver, Colorado
June 25, 2010
None.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 will be incorporated by reference from the registrant’s definitive Proxy Statement to be used in connection with its 2010 Annual Meeting of Shareholders or from an amendment to this Annual Report on Form 10-K.
Code of Ethics
A copy of our code of ethics is attached hereto as Exhibit 14.1.
The information required by Item 11
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by Item 12 will be incorporated by reference from the registrant’s definitive Proxy Statement to be used in connection with its 2010 Annual Meeting of Shareholders or from an amendment to this Annual Report on Form 10-K.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 13 will be incorporated by reference from the registrant’s definitive Proxy Statement to be used in connection with its 2010 Annual Meeting of Shareholders or from an amendment to this Annual Report on Form 10-K.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by Item 14 will be incorporated by reference from the registrant’s definitive Proxy Statement to be used in connection with its 2010 Annual Meeting of Shareholders or from an amendment to this Annual Report on Form 10-K.
PART IV
Item 15.
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Consolidated Financial Statements - See Index to Consolidated Financial Statements at page of this Report.
(b) Financial Statement Schedules - Not applicable.
(c) Exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
June 25, 2010 By: /s/ Charles A. Dinarello
Charles A. Dinarello
Acting Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Omni Bio Pharmaceutical, Inc. and Subsidiary
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Omni Bio Pharmaceutical, Inc. & Subsidiary
Greenwood Village, Colorado
We have audited the accompanying consolidated balance sheets of Omni Bio Pharmaceutical, Inc. and Subsidiary (a development stage company) as of March 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended March 31, 2010 and 2009 and for the period from February 28, 2006 (inception) to March 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The cumulative statements of operations, stockholders’ equity, and cash flows for the period February 28, 2006 (inception) to March 31, 2010 include amounts for the period from February 28, 2006 (inception) to March 31, 2008, which were audited by other auditors, and our opinion, insofar as it relates to the amounts included for the period February 28, 2006 through March 31, 2008, is based solely on the report of other auditors.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Omni Bio Pharmaceutical, Inc. and Subsidiary (a development stage company) as of March 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years ended March 31, 2010 and 2009 and for the period February 28, 2006 (inception) to March 31, 2010, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Omni Bio Pharmaceutical, Inc. and Subsidiary’s internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated June 25, 2010 expressed an unqualified opinion on the effectiveness of Omni Bio Pharmaceutical, Inc. and Subsidiary’s internal control over financial reporting.
HEIN & ASSOCIATES LLP
Denver, Colorado
June 25, 2010
F - 2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders:
Omni Bio Pharmaceutical, Inc. & Subsidiary
(formerly Apro Bio Pharmaceutical Corporation)
Greenwood Village, Colorado
We have audited the accompanying consolidated balance sheet of Omni Bio Pharmaceutical, Inc. & Subsidiary (formerly Apro Bio Pharmaceutical Corporation) (A Development Stage Company) as of March 31, 2008 (not separately included herein) and the related consolidated statements of operations, shareholders’ deficit, and cash flows for the year ended March 31, 2008 and the period from February 28, 2006 (inception) through March 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Omni Bio Pharmaceutical, Inc. & Subsidiary (formerly Apro Bio Pharmaceutical Corporation) as of March 31, 2008 and the consolidated results of their operations and their cash flows for the year ended March 31, 2008 and the period from February 28, 2006 (inception) through March 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ Cordovano and Honeck LLP
Cordovano and Honeck LLP
Englewood, Colorado
February 28, 2009
F - 3
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
F - 6
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
F - 7
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
F - 8
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
F - 9
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
The accompanying notes are an integral part of these consolidated financial statements.
F - 10
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
F - 11
OMNI BIO PHARMACEUTICAL, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
The accompanying notes are an integral part of these consolidated financial statements.
F - 12
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND GOING CONCERN
Organization
Omni Bio Pharmaceutical, Inc. is the successor company of Across America Financial Services, Inc. (“Across America”) and was incorporated under Colorado law on December 1, 2005 as a wholly-owned subsidiary of Across America Real Estate Corp.
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 3.
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. The name of the merged entity was changed to Apro Bio Pharmaceutical Corporation (“Apro Bio”). See further discussion in Note 3.
Apro Utah was formed as a Utah corporation 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”) and to pursue a research agreement with UCD to further scientific study on a previously FDA-approved pharmaceutical’s method of action on various forms of viral illness.
Nature of Operations
Except as the context otherwise requires, the terms “Company,” “we,” “our” or “us” means Omni Bio Pharmaceutical, Inc. and its wholly-owned subsidiary, Omni Bio Operating, Inc.
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 disorders 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 pursuing 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. Since inception, we have not generated any revenues from our operations.
F - 13
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Basis of Presentation and Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“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; reorganization and mergers; and obtaining various intellectual property rights, a research and development agreement and a clinical trial agreement to Type 1 diabetes. We have incurred net losses since inception, and as of March 31, 2010, had an accumulated deficit of $12.5 million, which included total non-cash charges from inception of approximately $8.4 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 and January 2010, we enhanced our liquidity though a private placement equity offering (the “Private Placement”), which generated net cash of $1,786,890 (after offering costs of $198,760). See further discussion in Note 4. 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 and the timing of entering into new SRAs or pursuing clinical trials in addition to our current budgeted one, we will likely need to raise additional capital to fund our operations by December 2010 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Omni and its wholly-owned subsidiary, Omni Bio Operating, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made in the fiscal year 2009 and inception to date consolidated financial statements to conform to the fiscal year 2010 presentation.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. Periodically, we maintain deposits in financial institutions in excess of federally insured limits.
Revenue Recognition and Accounts Receivable
We have not recognized any revenue since inception and had no accounts receivable balances as of March 31, 2010 or 2009.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets which range from three to five years. Expenditures for replacements, renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
F - 14
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Property and equipment consisted of the following:
Depreciation expense for the years ended March 31, 2010, 2009 and 2008 totaled $1,402, $2,172 and $1,849, respectively.
Intangible Assets
Intangible assets consist of costs incurred to acquire license rights to granted and pending patents held by UCD. Amortization of license rights is based on the estimated useful life of the patent to which the license relates. Estimated useful lives of the assets range from 12 to 17 years.
Capitalized license costs consisted of the following:
For the years ended March 31, 2010, 2009 and 2008, amortization expense related to intangibles was $5,185, $4,022 and $2,051, respectively. The estimated aggregate amortization expense for each of the next five years is as follows:
F - 15
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Impairment of Long-lived Assets
We review long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Based on our review, we do not believe that any impairment of long-lived assets existed at March 31, 2010 or 2009.
Research and Development
Research and development costs are charged to expense as incurred. Our research and development activities to date are comprised of an SRA with UCD and a research services contract with Colorado State University.
Fair Value of Financial Instruments
The carrying value of our financial instruments, which include cash, accounts payable and accrued liabilities, at March 31, 2010 and 2009 approximates their fair values due to the short-term nature of these financial instruments.
Use of Estimates
Our consolidated financial statements are prepared in accordance with US GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
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 (“ASC 260”), 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 year ended March 31, 2010, the weighted average number of common shares outstanding as of the beginning of the year 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.
Potentially dilutive securities were comprised of the following:
F - 16
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Share-based Compensation
We account for share-based compensation under FASB ASC Topic 718 Compensation - Stock Compensation (“ASC 718”). ASC 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. ASC 718 also requires share-based 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 estimate 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 9 for additional disclosures.
Income Taxes
We account for income taxes under FASB ASC Topic 740 Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent that it is more likely than not that a deferred tax asset will not be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We had no unrecognized tax benefits or uncertain tax positions at March 31, 2010 or 2009.
Recently Issued Accounting Pronouncements
We have reviewed all of the FASB’s Accounting Standard Updates through the filing date of this report and have concluded that none will have a material impact on our future consolidated financial statements.
NOTE 3 - MERGER TRANSACTION
On March 31, 2009 and pursuant to a merger (the “Merger”) among Across America, a non-operating public shell corporation, Apro Bio and Across America Acquisition Corp. 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 which allowed Apro Bio additional opportunities to raise capital to further its research and development efforts with UCD and to provide Apro and Across America investors a long-term, public trading market for our 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 shares 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. Warrants to purchase 200,000 shares of Across America stock held by existing Across America stockholders were retained in the merged entity. 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 America’s common stock on the same terms and conditions as before.
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 Securities and Exchange Commission (“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, as per SEC guidance for this type of transaction, we recorded no goodwill in the Merger.
F - 17
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Assets acquired and liabilities assumed of Across America by Apro Bio on March 31, 2009 based on their estimated fair values were as follows:
For all periods presented, the financial statements of Apro Bio have been adopted as the historical financial statements of Omni. On May 27, 2009, the name of the Company was changed to Omni Bio Pharmaceutical, Inc.
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 Bio’s common stock at an exercise price of $0.001 per share. This warrant was exercised during the year ended March 31, 2010. In connection with the Merger, Across America paid an advisor fee to GVC Capital LLC (“GVC”) (formerly known as Bathgate Capital Partners LLC) 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. This warrant was exercised during the year ended March 31, 2010.
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, expected volatility of 100%, risk-free interest rate of 1.82% (commensurate with the expected life) and dividend yield of 0%. The total 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 (“ASC 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 Company’s own stock and should be classified in stockholders’ equity and would qualify for the scope exception contained in ASC 815. As further required, we reviewed the additional requirements for equity classification contained in ASC 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 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 and approved the extension of the expiration date from March 31, 2010 to March 31, 2012. The warrants extended by this resolution were comprised of 500,000 warrants exercisable at $1.10 per share, all of which were exercised during the year ended March 31, 2010.
Also extended by two years were 257,500 warrants issued to two unaffiliated investors that are exercisable at $1.00 per share, of which 250,000 were exercised cashless during the year ended March 31, 2010. Additionally, 30,000 warrants that were originally issued to a consultant and exercisable at $1.00 per share were extended by two years to May 10, 2012.
We accounted for these extensions as modifications to the original warrant grants. For the year ended March 31, 2009, we recorded non-cash charges of $152,686, 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. We calculated the incremental charges using the Black Scholes model, with the revised exercise price and expected life of the warrant being the only change in the assumptions.
F - 18
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 4 - PRIVATE PLACEMENTS
Private Placement - March 31, 2009
In conjunction with the Merger and also on March 31, 2009, we closed a private placement securities offering (the “PP Offering”). We sold “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 to purchase two shares of our 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 (collectively referred to as the “PP Offering Investor Warrants”). We sold the Units at a price of $1.00 per Unit and issued 1,870,000 Units for gross cash proceeds of $1,820,000 and the conversion of a note payable to a related party of $50,000. The PP Offering Investor Warrants expire on March 31, 2014.
The PP Offering Investor Warrants that are exercisable at $0.25 and $0.50 per share are callable (the “Warrant Call”) through March 31, 2014 at the option of the Company. The Company may execute the Warrant Call by giving 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 the Company’s 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 PP Offering, we paid to GVC 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 (collectively the “PP Offering Placement Agent Warrants”). We recorded a charge related to the issuance of these warrants in the amount of $403,350 as calculated using the Black-Scholes model.
We evaluated both the PP Offering Investor Warrants and the PP Offering Placement Agent Warrants (collectively, the “PP Offering Warrants”) as potential free standing derivatives under the criteria in ASC 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 PP Offering Warrants were indexed to the Company’s own stock and should be classified in stockholders’ equity and would qualify for the scope exception contained in ASC 815. As further required, we reviewed the additional requirements for equity classification contained in ASC 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 PP Offering is as follows:
F - 19
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Private Placement - December 2009 and January 2010
In December 2009 and January 2010, we accepted subscription agreements related to the sale of Units in the Private Placement. Each “Private Placement 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 Private Placement Unit (the “Private Placement Warrants”). Each Private Placement Warrant is exercisable at $3.75 through December 29, 2014. The net proceeds from the PPO will be used to fund research and development and for general working capital purposes. We completed the Private Placement in multiple closings in December 2009 and January 2010 and completed the final closing on January 29, 2010 (the “Final Closing Date”). We sold 794,260 Private Placement Units and netted cash proceeds of $1,786,890, after deducting commissions and expenses paid to GVC, who served as the placement agent for the Private Placement and earned a commission of 8% plus a non-accountable expense allowance of 2% of the gross proceeds raised. In addition, we were obligated to sell for a nominal fee to GVC, as the placement agent, warrants to purchase 20% of the total number of Private Place Units sold in the Private Placement, 79,426 of which are exercisable at a price of $2.50 per share and 79,426 of which are exercisable at $3.75 per share (collectively, the “Private Placement PA Warrants”). The Private Placement PA Warrants expire five years from the Final Closing Date and are exercisable 180 days after the Final Closing Date. A total of 158,852 Private Placement PA Warrants were issued.
At the Company’s option, we may call the Private Placement Warrants through December 29, 2014 by giving to the holder a notice of call upon 20 days written notice (the “Private Placement Call Notice”). A Private Placement 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.
We calculated the value of these Private Placement PA Warrants at $356,471 using the Black-Scholes model and recorded this amount as a charge to additional paid in capital for the year ended March 31, 2010.
We evaluated both the Private Placement Warrants and the Private Placement PA Warrants as potential free standing derivatives under the criteria in ASC 815. We concluded that the both the Private Placement Warrants and the Private Placement PA Warrants were indexed to the Company’s own stock and should be classified in stockholders’ equity and would qualify for the scope exception contained in ASC 815. As further required, we reviewed the requirements for equity classification contained in ASC 815, and concluded that all of the criteria had been met and that equity classification was appropriate.
At the Company’s option, we may call the Private Placement Warrants through December 29, 2014 by giving to the holder a notice of call upon 20 days written notice (the “Private Placement Call Notice”). A Private Placement 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.
NOTE 5 - 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 on 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 in the event that 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.
F - 20
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
We concluded that the Bathgate Note met the definition of “conventional convertible debt,” as defined in ASC 815, as the note holder may only realize the value of the conversion option by exercising the option 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 ASC 815 and was indexed to the Company’s common stock. Therefore, we concluded that the conversion feature of the Bathgate Note did not meet the definition of a derivative under ASC 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 (“ASC 470-20”), we allocated the cash proceeds received to both the Bathgate Note and Bathgate Warrant based on relative fair values of each. We valued the Bathgate 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.
We concluded that the conversion feature in the Bathgate Note met the definition of a “beneficial conversion feature” as outlined in ASC 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 Warrant of $14,830 per above). In accordance with ASC 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, or an initial carrying value of the Bathgate Note of $-0-. We are accreting the discount over the life of the note.
We evaluated the Bathgate Warrant as a potential free standing derivative under the criteria in ASC 815, and concluded that it was indexed to the Company’s own stock and should be classified in stockholders’ equity and would qualify for the scope exception contained in ASC 815. As further required, we reviewed the additional requirements for equity classification contained in ASC 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 the bridge loan entered into on that date with BOCO Investments, LLC (“BOCO”), 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 entered into a bridge loan agreement with BOCO, pursuant to which BOCO loaned to the Company $50,000 at an interest rate of 12% per annum in the form of a note (the “BOCO 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. The BOCO Warrant is exercisable at $0.50 per share and expires on December 31, 2013. The BOCO Note was originally due on February 4, 2009 with an automatic extension to March 4, 2009.
In accordance with ASC 470-20, we allocated the cash proceeds received to both the BOCO Note and BOCO Warrant based on relative fair values of each. We valued the BOCO 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 were accreting 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 in accordance with ASC 470-20.
F - 21
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
As part of an agreement to further extend the Bathgate Note to March 31, 2009, we agreed to incur a default interest rate of 24% per annum from the original due date of the note through March 31, 2009, and pursuant to terms in the PP Offering, BOCO converted its note on March 31, 2009 in conjunction with the PP Offering (on the same terms of other investors). As additional consideration to the extension of the BOCO Note, we agreed to issue a warrant to purchase 200,000 shares of our common stock (the “BOCO II Warrant”) at $0.001 per share. Subsequent to the agreement to issue the BOCO II Warrant, BOCO authorized the assignment of the BOCO II Warrant to JZBK, LLC, an affiliate of the then President and CEO of Across America. We recorded a charge for the issuance of the BOCO II Warrant in the amount of $200,000. The BOCO II Warrant was exercised during the year ended March 31, 2010.
We evaluated both the BOCO Warrant and BOCO II Warrant as potential free standing derivatives under the criteria in ASC 815, which require 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 both warrants were indexed to the Company’s own stock and should be classified in stockholders’ equity and would qualify for the scope exception contained in ASC 815. As further required, we reviewed the additional requirements for equity classification contained in ASC 815, and concluded that all of the criteria had been met and that equity classification was appropriate.
Note Payable - WestMountain Prime, LLC
On October 16, 2008, Across America entered into an unsecured, promissory note payable agreement with WestMountain Prime, LLC., (“WestMountain”), a related party that was affiliated with the then President of Across America, in the amount of $132,000. This note (the “WestMountain Note”) bore interest at the rate of 12% per annum and was due on October 16, 2009, unless converted. At any time prior to the due date, all outstanding principal and related accrued interest, at the sole option of WestMountain, was convertible into Across America’s common shares equal to the outstanding principal amount of the note divided by .22. On March 30, 2009, the accrued interest on this note was converted into 12,000 shares of Across America common stock. The WestMountain Note was assumed in conjunction with the Merger on March 31, 2009, and the entire principal was converted into 600,000 shares of Omni’s common stock on April 1, 2009.
Other Obligations
On May 31, 2008, the chief executive officer, president and a director of Apro Bio resigned his officer positions. Subsequently on October 1, 2008, the individual resigned his remaining capacity 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. We recorded a charge for share-based compensation related to these shares in the amount of $60,000, based on the fair value of the stock of $1.00 per share.
On January 8, 2009, we entered into a resignation and settlement agreement with a former executive officer of Apro Bio. Pursuant to this agreement and to settle any and all claims with Apro Bio, we were obligated to make a lump sum payment of $95,000 (comprised of $75,000 in compensation and reimbursement of $20,000 of business expenses) and to issue 50,000 shares of our common stock. We recorded a charge for share-based compensation related to these shares in the amount of $50,000 based on the fair value of the stock of $1.00 per share.
F - 22
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
On March 3, 2009, we entered into a settlement agreement with a former employee and officer of Apro Bio. Pursuant to this agreement and to settle any and all claims with Apro Bio, we were obligated to pay this individual $55,000, payable one half upon the closing of the Merger, and the remaining one half over twelve equal monthly installments, commencing April 2009. Also under this agreement, we were obligated to issue 100,000 warrants, exercisable at $1.10 and expiring July 1, 2012, with a cashless exercise provision, in replacement of a grant of 150,000 warrants made in July 2007, without a cashless exercise provision, but with the same exercise price and duration. We recorded a charge for share-based compensation related to this new grant in the amount of $53,853 based on the estimated fair value of the warrant as determined under the Black-Scholes model using the following assumptions: exercise price of $1.10, expected life of 2.33 years, stock price of $1.00 at date of grant, dividend yield of 0%, interest rate of 0.93% and volatility of 100.0%.
NOTE 6 - 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 was the beneficial owner of approximately 14% of our common stock on the Effective Date, 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 a warrant to purchase 650,000 shares of our common stock at an exercise price of $3.00 per share (the “Bio Holding Warrant”). The Bio Holding Warrant expires on September 28, 2014 and contains a cashless exercise provision. The issuance of the Bio Holding Warrant was subject to the execution of a subscription and lock-up agreement 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 $1,470,000, which was calculated using the Black-Scholes model with the following assumptions: exercise price of $3.00 expected life of five years, assumed stock price of $3.00 at date of grant, dividend yield of 0%, interest rate of 2.72%, and volatility of 100.0%. The total value ascribed to this license agreement was $1,495,000, and we expensed this amount in the year ended March 31, 2010.
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 Shapiro’s laboratory. As of March 31, 2010, we had not executed the SRA, which, when executed, we expect to pay approximately $88,000 through its duration.
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.
F - 23
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Bacterial Disorders License
On May 15, 2006, we entered into an SRA with the Regents of the University of Colorado (“RUC”) related to the licensing of pending patents related to the method of use of AAT on bacterial infection (the “Bacterial SRA”). Pursuant to the Bacterial SRA, we were required to make quarterly payments to RUC totaling $1,097,460. As of March 31, 2008, we were in arrears on payments to RUC in the amounts of $80,000 and were in default of our license agreement. On January 8, 2009, we obtained an amendment from RUC, which waived the default and postponed the total payments of $321,300, which were originally due in 2008, to 2009 and early 2010. During the year ended March 31, 2010, we paid the final four installments under this SRA, which totaled $321,300.
Pursuant to a stock purchase agreement which was executed on May 15, 2006 simultaneously with the license agreement and the Bacterial SRA, we issued to the University License Equity Holdings, Inc. (“ULEHI”) (an entity controlled by RUC), 406,000 shares of our common stock, which represented 4% of our outstanding shares, and committed to an anti-dilution provision, whereby, unless certain triggering events occur, we were required to issue additional shares to ULEHI so that its ownership would not be reduced below 4%. Under the stock purchase agreement, we issued additional shares as follows: 26,354 shares in December 2006; 5,979 shares in January 2007; 10,729 shares in June 2007; and 20,833 shares in April 2008. This agreement was amended in November 2008 as discussed below.
Viral Disorders License
On March 30, 2008, we entered into a second license agreement with RUC related to an issued patent for the method of use of AAT on viral disease, including HIV. We intend to execute an SRA for the benefit of UCD related to further research on this license. As of March 31, 2010, we had not executed an SRA, but anticipate that we will during 2010.
Cellular Transplantation License
On November 12, 2008, we entered into a third license agreement with RUC related to the method of use of AAT for treating cellular transplantation /graft rejection. We are required to execute an SRA for the benefit of UCD related to further research on this license. As of March 31, 2010, we had not executed an SRA, but anticipate that we will during 2010.
In conjunction with the issuance of this license, we agreed to amend the terms of the stock purchase agreement with ULEHI (which superseded the 4% anti-dilution provision as note above) 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.
F - 24
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Future royalty payments under license agreements are summarized below:
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.
Operating Leases
On January 29, 2010, we executed a three year lease for corporate office space. Total commitments under the lease, which expires on January 31, 2013, are $58,890 plus annual operating expenses. For the year ended March 31, 2010, our rent expense was $3,164.
In March 2010, we executed a three year office machine lease. Total commitments under the lease, which expires in March 2013, are approximately $7,000.
F - 25
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Future commitments under non-cancellable operating leases were as follows:
Contributed Rent
For the years ended March 31, 2009 and 2008 and through January 31, 2010, we utilized, free-of-charge, approximately 575 square feet of the office space of GVC, a related party. We calculated the value of our approximate utilized office space at $3,780, $5,880 and $10,080 for the years ended March 31, 2010, 2009 and 2008, respectively, and recorded non-cash charges for these amounts.
NOTE 7 - INCOME TAXES
As of March 31, 2010, we had net operating loss carryforwards available to offset future federal income tax of approximately $4.5 million. These carryforwards expire between fiscal years 2026 through 2030. Under the Tax Reform Act of 1986, the amount of and the benefit from net operating losses that can be carried forward may be limited in certain circumstances. Events that may cause changes in the our tax carryovers include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Therefore, the amount available to offset future taxable income may be limited. We carry a deferred tax valuation allowance equal to 100% of total deferred assets. In recording this allowance, we have considered a number of factors, but chiefly, our sustained operating losses from inception. We have concluded that a valuation allowance is required for 100% of the total deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.
Deferred tax assets were comprised of the following:
F - 26
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
The benefit for income taxes differed from the amount computed using the U.S. federal income tax rate of 34% as follows:
As of March 31, 2010 and 2009, we had no liability for unrecognized tax benefits and no accrual for the payment of related interest.
Interest costs related to unrecognized tax benefits are classified as interest expense and penalties are recognized as a component of “general and administrative expenses” in the accompanying consolidated statements of operations. For the years ended March 31, 2010, 2009 and 2008, we recorded no amounts for interest expense related to unrecognized tax benefits or tax related penalties.
Any of our uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. We have not been examined by the Internal Revenue Service or the state of Colorado since inception and, therefore, our tax returns are open for review for all years since inception.
NOTE 8 - STOCKHOLDERS’ EQUITY
During the period from April 1, 2007 through March 31, 2008, we sold to two unaffiliated investors 257,500 Units for net proceeds of $231,750 after commissions of $750 and $25,000 that were paid to GVC and an outside party, respectively. Each Unit consisted of one share of common stock and one warrant exercisable at $1.00 per share and expiring in May 2010.
On March 31, 2008, a warrant holder exercised 500,000 warrants at a price of $0.02 per share. As a result of this transaction, we issued 20,833 shares of our common stock to ULEHI as additional consideration pursuant to the anti-dilution provision of its license agreement and stock purchase agreement and recorded a non-cash charge of $20,833 for the estimated fair value of these shares.
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. The preferred shares may be issued in such series and preferences as determined by our Board.
F - 27
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
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. In addition, we recorded a charge in the amount of $528,000 related to a modification of 250,000 warrants that were exercised in the December 2009 quarter. The estimated fair value of the modification was calculated using the Black-Scholes model.
As discussed in Notes 3 and 4, during the period from March 31, 2009 to January 31, 2010, we issued shares of our common stock and warrants to purchase shares of our common stock pursuant to the Merger, the PP Offering and the Private Placement.
For the quarter ended March 31, 2010, we issued 106,273 shares of our common stock pursuant to cashless exercise provisions of 117,500 warrants exercised at an average price of $1.10 per share.
NOTE 9 - SHARE-BASED COMPENSATION
From inception, we have not had an employee stock option plan, but have issued 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 ASC 718. 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. Historically, the expected life of a warrant has been equal to its contractual term, as all of the warrants granted have underlying shares that are not registered and have additional trading restrictions. Further, for warrants granted to directors and officers, vested warrants are not forfeited in the circumstance 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 is 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:
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OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Warrant Issuances for the Year Ended March 31, 2008 (“Fiscal Year 2008”)
In June 2007, we issued warrants to purchase 30,000 shares of our common stock to an outside director, for initiation of service on our board of directors. The warrants expire on April 30, 2012 and are exercisable at a price of $1.10 per share. We valued these warrants at $21,915.
In May 2007, we issued warrants to purchase 500,000 shares of our common stock to a consultant in payment for consulting services. The warrants were exercisable at $0.02 per share and expired on March 31, 2008. We valued these warrants at $490,150. The consultant exercised the warrants on March 31, 2008.
In May 2007, we issued warrants to purchase 30,000 shares of our common stock to a consultant in payment for consulting services at an exercise price of $1.00 per share, expiring May 10, 2010. We valued these warrants at $18,033.
In July 2007, we granted to an employee warrants to purchase 150,000 shares of our common stock. The warrants were exercisable at $1.10 per share and expire July 1, 2012. We valued these warrants at $109,680.
In March 2008, we issued warrants to purchase 60,000 shares of our common stock to a scientific and medical industry consultant at an exercise price of $1.25 per share, with an expiration date of February 28, 2013. We valued these warrants at $52,860.
Warrant Issuances for the Year Ended March 31, 2009 (“Fiscal Year 2009”)
On April 11, 2008, we authorized the issuance of 100,000 common stock purchase warrants to a director for service during the year ended March 31, 2008. The warrants vested immediately and are exercisable until April 15, 2015 at an exercise price of $1.25. We valued these warrants at $81,528.
On April 15, 2008, we authorized the issuance of an aggregate of 500,000 common stock purchase warrants to five directors (100,000 warrants to each) for service for fiscal year 2009. These warrants vested quarterly over fiscal year 2009, with each tranche vested on the first day of a quarter. We valued these warrants at $366,876. On May 31, 2008 our then President and CEO resigned from his capacities as an officer and on October 1, 2008 resigned as a director. As result, one half of his 100,000 warrant grant was forfeited.
On August 6, 2008, we authorized the issuance of 75,000 common stock purchase warrants to a new director for service for fiscal year 2009. These warrants vested over three fiscal quarters, beginning with the fiscal quarter ended September 30, 2009, and each tranche vested on the first day of a fiscal quarter. We valued these warrants at $61,392.
On October 1, 2008, we authorized the issuance of 50,000 common stock purchase warrants to a new director for service for fiscal year 2009. These warrants vested over two fiscal quarters, beginning with the fiscal quarter ended December 31, 2008, and each tranche vested on the first day of a fiscal quarter. We valued these warrants at $40,759.
On March 3, 2009 as part of a settlement agreement with a former employee, we issued 100,000 warrants, exercisable at $1.10 and expiring July 1, 2012. We valued these warrants at $53,853.
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OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Warrant Issuances for the Year Ended March 31, 2010 (“Fiscal Year 2010”)
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. 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, estimated fair value of our common stock price of $1.00 at date of grant, dividend yield of 0%, interest rate of 2.47%, and volatility of 100.0%. We recognized share-based compensation using the straight-line method based on the vesting term of the grant.
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, estimated fair value of our common 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, estimated fair value of our common stock price of $1.00 at date of grant, dividend yield of 0%, interest rate of 2.47 %, and volatility of 100.0%.
On July 30, 2009 and pursuant to 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 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 $688,908 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of seven years, estimated fair value of our common stock price of $3.00 at date of grant, dividend yield of 0%, interest rate of 3.37 %, and volatility of 100.0%.
Pursuant to Board approval on July 30, 2009, 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 a 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 $125,256 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of seven years, estimated fair value of our common stock price of $3.00 at date of grant, dividend yield of 0%, interest rate of 3.14% and volatility of 100.0%.
Pursuant to Board approval on July 30, 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 $124,854 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of seven years, estimated fair value of our common stock price of $3.00 at date of grant, dividend yield of 0%, interest rate of 3.02% and volatility of 100.0%.
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OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
On October 12, 2009, our Board appointed a new director 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 $249,709 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of seven years, estimated fair value of our common stock price of $3.00 at date of grant, 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 $338,272 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of five years, estimated fair value of our common stock price of $3.00 at date of grant, 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 $1,498,251 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of seven years, estimated fair value of our common stock price of $3.00 at date of grant, 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 $749,126 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of seven years, estimated fair value of our common stock price of $3.00 at date of grant, 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.
On February 4, 2010, our Board approved the grant of 100,000 common stock purchase warrants to a member of our scientific advisory board as consideration for an amendment to his consulting agreement to provide additional services to Omni. The warrants are exercisable at $3.00 per share, expire on February 4, 2015 and vest on October 11, 2010 if the individual has continuously provided service to the Company through such date. We valued these warrants at $225,723 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of five years, estimated fair value of our common stock price of $3.00 at date of grant, dividend yield of 0%, interest rate of 2.48% and volatility of 100.0%.
On March 31, 2010, our Board approved the grant of 50,000 common stock purchase warrants to a medical consultant in exchange for consulting services to be provided through September 30, 2010. The warrants are exercisable at $3.00 per share, expire on March 31, 2015 and vest on September 30, 2010 if the individual has continuously provided service to the Company through such date. We valued these warrants at $112,748 using the Black-Scholes model with the following assumptions: exercise price of $3.00, expected life of five years, estimated fair value of our common stock price of $3.00 at date of grant, dividend yield of 0%, interest rate of 2.36% and volatility of 100.0%.
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OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the period from July 7, 2009 through March 31, 2010, we granted warrants at an exercise price of $3.00 per share, which represented management’s estimated fair value of our common stock price as of the date of each grant and which was different than the quoted price of our common stock on the Over the Counter Bulletin Board (the “OTCBB”) on each of the grant dates. Our determination of estimated fair value was based on factors, including, but not limited to: 1) initial discussions with potential investors on an equity capital raise at a price of $3.00 per share and the price of Private Placement Units that were ultimately sold in the Private Placement; 2) the limited trading volume and limited public trading duration of our common stock; 3) private common stock sale transactions during this period; and 4) the trading lock-up requirement of two or three years on the majority of our outstanding warrants and common stock.
We believe that the above four factors represent appropriate measures of fair value as outlined in FASB ASC Topic 820 Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. To differentiate between the approaches to fair value measurements, ASC Topic 820 uses a fair value hierarchy and describes three levels used to classify fair value measurements:
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•
Level 2 inputs are observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data, such as matrix pricing of fixed income securities.
•
Level 3 fair value measurements are based on unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Therefore, unobservable inputs reflect the Company’s own assumptions about the inputs that market.
The use of Level 2 or Level 3 inputs is generally not permitted when Level 1 inputs are available. If quoted prices are not available for the identical asset, then entities should determine whether “Level 2 inputs” are available. Adjustments to Level 2 inputs will vary depending on factors specific to the asset, including the extent to which the inputs relate to items that are comparable to the asset, and the volume and level of activity in the markets within which the inputs are observed. An adjustment that is significant to the fair value measurement in its entirety might render the measurement a Level 3 measurement.
Because of the thin trading volume, extreme stock price volatility, substantial bid ask spreads on the OTCBB and trading restrictions associated with the common stock, we concluded the principal market for Omni’s common stock was inactive. As a result, we looked to the terms and pricing of the Private Placement, which included these securities, as the most reasonable and appropriate fair value indication. As these observations involve historical transactions in similar, although not identical interests, and are further subject to adjustments derived from unobservable inputs, we concluded that these Level 3 indications were the best estimate of fair value.
The weighted average grant date fair value of warrants issued to employees, directors and consultants under share-based compensation agreements for the years ended March 31, 2010, 2009 and 2008 was $1.99, $0.78 and $0.87 per share, respectively.
F - 32
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Share-based compensation recorded for the years ended March 31, 2010, 2009 and 2008 was as follows:
As of March 31, 2010, there was $2.6 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements that is expected to be recognized over a weighted-average period of approximately 2.3 years.
A summary of warrant activity related to warrants issued to employees, directors and consultants under share-based compensation agreements for the year ended March 31, 2010 is as follows:
A summary of investor warrant activity for the year ended March 31, 2010 is as follows:
F - 33
OMNI BIO PHARMACEUTICAL, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 10 - SUBSEQUENT EVENTS
In April 2010, we settled a liability for legal services in exchange in the amount of $49,982 for 20,000 shares of our common stock and a warrant to purchase 20,000 shares of our common stock at $3.75 per share.
In May 2010, we entered into a month-to-month agreement with our Acting CEO whereby we agreed to pay him $2,500 per month for consulting services rendered. Our Acting CEO is employed by UCD and currently does not receive any other cash compensation from the Company except for reimbursement of business expenses incurred related to Company business matters.
On June 7, 2010, Omni Bio Operating, Inc. (the “Sponsor”), a wholly-owned subsidiary of Omni, the Regents of the University of Colorado (the “Regents”) and The Barbara Davis Center (collectively with the Regents, the “Institution”), and Dr. Peter Gottlieb (the “Principal Investigator”) (the Institution and the Principal Investigator collectively referred to as the “Site”) entered into an Investigational Site Agreement (the “Agreement”), whereby the Institution, acting on behalf of the Sponsor, agreed to arrange, administer and manage a clinical study to evaluate Aralast NPTM (an Alpha-1 antitrypsin product) in the treatment of patients with Type 1 diabetes (the “Clinical Trial”). The Clinical Trial is initially to include 15 patients. Base costs, which include the enrollment fee and other incidental charges, for the 15 patients will be approximately $725,000. Additional contingent costs could be as high as $100,000. Omni was required to make an initial deposit of $365,000 upon execution of the Agreement.
Commensurate with the Clinical Trial, Omni and Baxter Healthcare Corporation (“Baxter”) executed a Material Transfer Agreement (the “Material Transfer Agreement”) whereby Baxter agreed to supply, at no cost, 1.25 kg of Aralast NPTM, with a commercial value of $420,000 (the “Materials”), to Omni for use in the Clinical Trial as described above. Pursuant to the Material Transfer Agreement, Omni warrants that the Clinical Trial will be conducted under either a waiver to an Investigational New Drug Application or an Investigational New Drug Application (“IND”) filed with the United States Food and Drug Administration (“FDA”) by Omni. Under the Material Transfer Agreement, Omni is responsible to maintain the IND and comply with all reporting and other obligations associated with the IND. The Material Transfer Agreement will terminate upon completion of the Clinical Trial unless Omni and Baxter mutually agree in writing to extend its term. The Material Transfer Agreement may be terminated by either party (i) upon a material breach of the Material Transfer Agreement, or (2) in the event of an Adverse Event (as defined in the Material Transfer Agreement) that warrants termination of the Clinical Trial. Omni is required to prepare for Baxter a summary of the information and results generated by the Clinical Trial upon its completion.
F - 34