Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial
condition and results of operations should be read together with our financial statements and the notes thereto and other information
included elsewhere in this Annual Report on Form 10-K.
Overview
We are a biotechnology company and biologics
contract development and manufacturing organization (“CDMO”). We apply our licensed and owned technologies to develop
novel products to fight fibrotic diseases, cancers, and infectious diseases. We use our FastPharming® Development
and Manufacturing System to increase “speed-to-clinic” for new candidates. We are also using the FastPharming System
to create proteins and bioinks for research and further manufacturing uses in a variety of R&D applications, including 3D-bioprinting.
In addition, we make the FastPharming System available to clients on a fee-for-service basis for the rapid, scalable, eco-friendly
production of high-quality proteins.
During the year ended June 30, 2020, we
operated in two segments: (i) our CDMO segment, operated via our subsidiary iBio CDMO, and (ii) our biologics development and licensing
activities, conducted within iBio, Inc. In the past, our primary focus was the CDMO business, pursuant to which iBio CDMO provided
manufacturing services to collaborators and third-party customers as well as used for development of our own product candidates.
However, during the second half of 2020 and subsequent to year end, we shifted our primary focus to our biologics development programs,
including new vaccines and therapeutics.
Our current platforms and programs include:
(i) CDMO services using our licensed and owned FastPharming Technologies and GlycaneeringTM Services;
(ii) the development of therapeutics, for which we intend to conduct preclinical and clinical trials; (iii) the development of
vaccines, for which we intend to conduct preclinical and clinical trials, and (iv) the production of proteins for research and
further manufacturing use in 3D-bioprinting and other applications. We are developing a portfolio of technologies, products, and
services driven by the following platforms and programs, which we intend to use individually, and in combination:
· CDMO Services
· Therapeutics
· Vaccines
o The lichenase (“LicKMTM”)-subunit vaccine for COVID-19 (“IBIO-201”).
· Research & Bioprocess Products
o Cytokines and growth factors for cell culture applications.
Results of Operations
Revenue
Gross revenue for 2020 and 2019 was approximately
$1,638,000 and $2,018,000, respectively, a decrease of $380,000 (19%). The decrease is primarily attributable to the timing of
revenue earned under the strategic relationship with CC-Pharming. Revenue earned from CC-Pharming totaled approximately $1,268,000
in 2020 as compared to $1,848,000 in 2019, a decrease of $580,000 (31%). In addition, in 2020, the Company entered into a Master
Manufacturing Services and Supply Agreement (“MSA”) with Lung Bio to produce recombinant human collagen-based bioinks
for 3D-bioprinted organ transplants. Revenue earned from the MSA totaled $46,000. Revenue earned from other third-party customers
in 2020 totaled approximately $325,000 versus $170,000 in 2019, an increase of $155,000 (91%).
Research and Development Expenses
Research and development expenses for 2020
and 2019 were approximately $3,213,000 and $5,474,000, respectively, a decrease of $2,261,000. The decrease primarily related to
decreases in third-party research and development costs of approximately $1,404,000, research and development personnel and consulting
costs of approximately $963,000 and grant income of $37,000, offset by an increase in research and development project related
costs of $112,000.
General and Administrative Expenses
General and administrative expenses for
2020 and 2019 were approximately $12,428,000 and $12,332,000, respectively, an increase of $96,000. General and administrative
expenses principally include officer and employee salaries and benefits, depreciation and amortization, professional fees, facility
repairs and maintenance, rent, utilities, consulting services, and other costs associated with being a publicly traded company.
The increase is primarily attributable to increases in depreciation and amortization expense of $492,000, professional fees of
$508,000, personnel costs of $380,000 and Board of Directors’ fees of $168,000; offset by decreases in repairs and maintenance
costs of approximately $817,000, rent of $409,000, recruiting fees of $131,000, and travel of $212,000.
Other Income (Expense)
Other income (expense) for 2020 and 2019
was approximately $(2,441,000) and $(1,809,000), respectively.
The increase resulted primarily from an increase in interest
expense related to the adoption, effective July 1, 2019, of ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”)
(“ASC 842”) and other associated standards using the modified retrospective approach for all leases entered into before
the effective date. The adoption of ASC 842 had a significant effect on our balance sheet resulting in an increase in non-current
assets and both current and non-current liabilities and an associated $566,000 interest expense.
As discussed above, iBio CDMO’s operations
take place in a facility in Bryan, Texas under Sublease with the Second Eastern Affiliate. Such sublease is treated as a finance
lease. In 2020, other income (expense) included interest expense of $2,466,000 incurred under the finance lease offset by interest
and royalty income of $25,000. Other income (expense) in 2019 included interest expense of $1,900,000 incurred under the capital
lease offset by interest and royalty income of $91,000.
Net Loss Attributable to Noncontrolling
Interest
This represents the share of the loss in
iBio CDMO for the Eastern Affiliate in 2020 and 2019.
Liquidity and Capital Resources
As of June 30, 2020, we had cash of $55.1 million as compared
to $4.4 million as of June 30, 2019. Given that our total cash and marketable securities as of October 8, 2020, exceeded $83 million,
we believe that our current cash will be sufficient to support our current operations through fiscal year 2022.
The following equity transactions occurred
during Fiscal 2020:
Net Cash Used in Operating Activities
Operating activities used $13.3 million
in cash in 2020. The decrease in cash was attributable to funding our net loss for the year offset by an increase in accounts payable,
accrued expenses and contract liabilities related to contract liability amounts.
Net Cash Used in Investing Activities
Net cash used in investing activities was
approximately $1,154,000 for 2020. Cash used in investing activities was attributable to the additions of intangible assets of
$76,000 and fixed assets attributable to iBio CDMO of $1,078,000.
Net Cash Provided by Financing Activities
Net cash provided by financing activities
was approximately $65,192,000 in Fiscal 2020, which represented (1) the net proceeds from the October 2019 public offering; (2)
the net proceeds from the Lincoln Park March 2020 Purchase Agreement; (3) the proceeds from the agreement with Lincoln Park; (4)
the net proceeds from the equity distribution agreement with UBS Securities; (5) the proceeds from the exercises of Warrants; and
(6) the proceeds from the PPP loan net of the repayment of notes issued under the Warrant Exchange and the payments under the finance
lease obligation.
Funding Requirements
We have incurred significant losses and
negative cash flows from operations since our spin-off from Integrated BioPharma in August 2008. As of June 30, 2020, our accumulated
deficit was approximately $150.4 million, and we used approximately $13.3 million of cash for operating activities for Fiscal 2020.
In the past, the history of
significant losses, the negative cash flow from operations, the limited cash resources on hand and the dependence by the
Company on its ability – about which there was no certainty – to obtain additional financing to fund its
operations after the current cash resources are exhausted raised substantial doubt about the Company’s ability to
continue as a going concern. Based on the total cash on hand of approximately $55.1 million as of June 30, 2020, combined
with subsequent purchases of the Company’s common stock by Lincoln Park totaling approximately $6.8 million and sales
of common stock through the equity distribution agreement with UBS Securities through the date of the filing of this Annual
Report totaling approximately $66.9 million, we believe the Company has adequate cash on hand to support the Company’s
activities through fiscal year 2022.
We plan to fund our future business operations
using cash on hand, through proceeds realized in connection with the commercialization of our technologies and proprietary products,
license and collaboration arrangements and the operation of iBio CDMO, and through proceeds from the sale of additional equity
or other securities. We cannot be certain that such funding will be available on favorable terms or available at all. To the extent
that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution. If
we are unable to raise funds when required or on favorable terms, this assumption may no longer be operative, and we may have to:
a) significantly delay, scale back, or discontinue the product application and/or commercialization of our proprietary technologies;
b) seek collaborators for our technology and product candidates on terms that are less favorable than might otherwise be available;
c) relinquish or otherwise dispose of rights to technologies, product candidates, or products that we would otherwise seek to develop
or commercialize; or d) possibly cease operations.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do
not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually limited purposes. As of June 30, 2020, we were not involved
in any SPE transactions.
Critical Accounting Policies and Estimates
A critical accounting policy is one that
is both important to the portrayal of a company’s financial condition and results of operations and requires management’s
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
Our consolidated financial statements are
presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
All applicable U.S. GAAP accounting standards effective as of June 30, 2020 have been taken into consideration in preparing the
consolidated financial statements. The preparation of consolidated financial statements requires estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Some of those estimates are subjective
and complex, and, consequently, actual results could differ from those estimates. The following accounting policies and estimates
have been highlighted as significant because changes to certain judgments and assumptions inherent in these policies could affect
our consolidated financial statements:
• valuation of intellectual property;
• revenue recognition;
• legal and contractual contingencies;
• research and development expenses; and
• share-based compensation expenses.
We base our estimates, to the extent possible,
on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions
that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate
our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates. See Note 3 to
the consolidated financial statements in this Annual Report for a complete discussion of our significant accounting policies and
estimates.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
The information under this Item is not
required to be provided by smaller reporting companies.
Item 8. Financial Statements and Supplementary
Data.
Financial statements and notes thereto
appear on pages F-1 to F-32 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Our management, under the direction of
our Chief Executive Officer and Principal Financial Officer and Principal Accounting Officer have evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of June 30, 2020.
Based on that evaluation, our Chief Executive Officer and Principal Financial Officer and Principal Accounting Officer have concluded
that our disclosure controls and procedures were not effective as of June 30, 2020 due to a control failure related to the sales
of common stock that were recorded on the settlement date rather than the trade date basis which resulted from ineffective review
for compliance with US GAAP and that was not detected on a timely basis. Management evaluated this internal control deficiency
and concluded that the control over the recording of sales of common stock did not operate effectively and is a material weakness.
As of the end of the period covered by this Annual Report, we
evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal
Financial Officer and Principal Accounting Officer, the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Management necessarily applied its judgment in assessing the costs
and benefits of those controls and procedures, which by their nature, can provide only reasonable assurance about management’s
control objectives. You should note that the design of any system of controls is based in part upon certain assumptions about the
likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. Based upon this evaluation, our Chief Executive Officer and the Principal Financial
Officer and Principal Accounting Officer concluded that as of June 30, 2020 our disclosure controls and procedures were not effective
because of the material weakness in internal control over financial reporting described below. In light of the material weakness,
management performed additional procedures to validate the accuracy and completeness of the financial results impacted by the control
deficiency. Such procedures included the review of share purchase agreements, share purchase confirmations, transfer agent reports,
and detailed testing.
Notwithstanding this material weakness,
concluded that the financial statements included in this Annual Report present fairly, in all material respects, the financial
position of iBio as of June 30, 2020 and 2019, and the results of its operations and its cash flows and changes in stockholders’
equity for the years ended June 30, 2020 and 2019, in conformity with accounting principles generally accepted in the United States
of America.
Management’s Report
on Internal Control over Financial Reporting
It is the responsibility of the management
of iBio to establish and maintain effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act). Internal control over financial reporting is designed to provide reasonable assurance to iBio’s management and board
of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted
accounting principles.
iBio’s internal control over financial
reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of iBio; (ii) 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 iBio are being made only in accordance with authorizations of management and directors of
iBio; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition
of iBio’s assets that could have a material effect on the financial statements of iBio.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Management has performed
an assessment of the effectiveness of iBio’s internal control over financial reporting as of June 30, 2020 based upon criteria
set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 COSO Framework).
Based on this assessment, management has
concluded that our internal control over financial reporting was not effective as of June 30, 2020 as our controls
over the recording common stock sales did not operate effectively. We failed to properly apply generally accepted accounting principles
(GAAP) and record common stock sales timely during the quarters ended March and June 2020. This matter was identified by our independent
registered public accounting firm, CohnReznick LLP and corrected by
management during the quarter ended June 30, 2020. Management subsequently investigated all other stock trade transactions from
fiscal year 2020. Management found the same material weakness concerning stock transactions in the quarter ended March 2020.
Material
Weakness in Internal Control Over Financial Reporting
A
material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim financial statements will not be prevented or detected on a timely basis. In the fiscal year 2020 fourth quarter,
we identified the following deficiencies in the design of internal control over financial reporting related to our accounting for
equity transactions.
There were not sufficient resources with an understanding of both the requirements under generally accepted accounting principles
to properly record the issuance of common stock and the terms and conditions of the share purchase agreement governing these sale
transactions to allow the individuals responsible for the accounting review and proper recording of the transactions to prevent
or detect material misstatements on a timely basis in the normal course of their review.
These control deficiencies
resulted in errors impacting total consolidated assets, equity and weighted average shares outstanding in our previously filed
10-Q for the three and nine month periods ended March 31, 2020. We concluded that the combination of control deficiencies represented
a material weakness.
Plan
for Remediation of Material Weakness
Management
has developed and implemented a remediation plan to address the material weakness described above. The Company has modified existing
internal controls and implemented additional internal controls related to the timely and accurate recording of non-routine transactions.
Changes in Internal Control Over Financial
Reporting
Under the supervision and with the participation of our Chief
Executive Officer and Principal Financial Officer and Principal Accounting Officer, our management has evaluated changes in our
internal control over financial reporting that occurred during the third and fourth quarter of 2020. Based on that evaluation,
except for the changes described above, our Chief Executive Officer and Principal Financial Officer and Principal Accounting Officer
did not identify any change in our internal control over financial reporting during these periods that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
Report
of Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does
not include an attestation report by CohnReznick LLP ("CohnReznick"), our independent registered public accounting
firm, regarding internal control over financial reporting. As a smaller reporting company, our internal control over
financial reporting was not subject to audit by our independent registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit us to provide only management’s report.
Item 9B. Other Information.
On October 13, 2020 John Delta, our Principal
Accounting Officer, was appointed as our Principal Financial Officer.
Mr.
Delta, age 58, has served as our Principal Accounting Officer since October 1, 2020 and a consultant to the Company since July
13, 2020. Mr. Delta also serves (from November 2016 to the present) as Managing Partner, Mid-Atlantic of TechCXO LLC, a professional
services firm that provides experienced, C-Suite professionals to deliver strategic and functional consulting services. From February
2011 to June 2016, he served as Chief Operating Officer of Management CV Inc., where he was responsible for all operational aspects
of the business, including HR, Product Management, E-Commerce, Global Research and day to day Operations. From February 2010 to
February 2011, Mr. Delta served as Co-Founder/Chief Financial Officer of JJAB Holdings, LLC, where he was responsible for Finance
and Operations for this private-equity-backed startup in the direct response marketing space. He also served as Chief Financial
Officer of Edison Worldwide, LLC from December 2008 to January 2010, where he led all accounting and strategic finance initiatives
for this high growth Direct Response Marketing firm. From March 2006 to October 2008, Mr. Delta served as Chief Financial Officer
of DoublePositive Marketing Group, Inc., where he built the accounting and finance functions for this high growth VC-backed firm.
From October 2003 to December 2005, he served as Executive Vice President and Chief Operating Officer of Hemscott Group, PLC, a
private-equity-backed roll-up in the financial information space. Mr. Delta led post-merger integration and operations for this
global firm (US, UK and India) and he was instrumental in developing the successful exit strategy of splitting the firm in two
and selling the retail component to Morningstar and the institutional piece to KKR. Mr. Delta also served as Vice President, General
Manager of The Nasdaq Stock Market for almost 10 years, where he developed the business plan for, and then ran, the e-commerce
group. Prior to working at Nasdaq, Mr. Delta worked as an Associate at McKinsey & Co. where he primarily worked with the Financial
Institutions Group on strategic technology engagements and as a Manager at Deloitte & Touche where he focused on Financial
Services. Mr. Delta holds a B.A. and a Master of Business Administration (MBA) from the University of Virginia.
Since July 2020, Mr. Delta has been providing financial consulting
services to the Company under a Consulting and Services Agreement by and between the Company and TechCXO LLC, dated July 8, 2020
(the “Consulting Agreement”). Pursuant to the Consulting Agreement, the Company will pay Mr. Delta for his services
as the Company’s principal accounting officer at an hourly rate expected to represent approximately $30,000 per month, and
to reimburse any reasonable out-of-pocket business expenses incurred by Mr. Delta in performing the services.
PART III
Certain information required by
Part III is omitted from this Annual Report because we intend to file our definitive proxy statement for our 2020 Annual Meeting
of Stockholders, pursuant to regulation 14A of The Exchange Act, not later than 120 days after the end of the fiscal year covered
by this Annual Report and certain information to be included in the definitive proxy statement is incorporated herein by reference.
Item 10. Directors, Executive Officers
and Corporate Governance
Information required by this Item that
will appear under the headings “Governance,” “Executive Officers,” and “Delinquent Section 16(a) Reports”
in the definitive proxy statement to be filed with the SEC relating to our 2020 Annual Meeting of Stockholders is incorporated
herein by reference.
Code of Ethics
We have adopted a written code of ethics
within the meaning of Item 406 of SEC Regulation S-K, which applies to all of our employees, including our principal executive
officer and our chief financial officer, a copy of which can be found on our website at www.ibioinc.com. If we make any waivers
or substantive amendments to the code of ethics that are applicable to our principal executive officer or our chief financial officer,
we will disclose the nature of such waiver or amendment in a Current Report on Form 8-K in a timely manner. No waivers from any
provision of our policy have been granted.
Item 11. Executive Compensation
and Director Compensation
Information required by this Item that
will appear under the heading “Executive Compensation” and “Director Compensation” in the definitive proxy
statement to be filed with the SEC relating to our 2020 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item that
will appear under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation
Plan Information” in the definitive proxy statement to be filed with the SEC relating to our 2020 Annual Meeting of Stockholders
is incorporated herein by reference.
Item 13. Certain Relationships and
Related Transactions, and Director Independence
Information required by this Item that
will appear under the headings “Certain Relationships and Related Transactions” and “Independence of Board”
in the definitive proxy statement to be filed with the SEC relating to our 2020 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 14. Principal Accounting Fees
and Services
Information required by this Item that
will appear under the heading “Independent Auditor Fees and Other Matters” in the definitive proxy statement to be
filed with the SEC relating to our 2020 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement
Schedules.
(a) Exhibits and Index
Item 16. Form 10-K Summary
Not Applicable
EXHIBIT INDEX
Exhibit No. Description
4.9* Description of Securities of iBio, Inc.
21.1* Subsidiaries of Registrant
23.1* Consent of Independent Registered Public Accounting Firm
101.INS XBRL Instance*
101.SCH XBRL Taxonomy Extension Schema*
101.CAL XBRL Taxonomy Extension Calculation*
101.DEF XBRL Taxonomy Extension Definition*
101.LAB XBRL Taxonomy Extension Labeled*
101.PRE XBRL Taxonomy Extension Presentation*
* Filed herewith.
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.
iBio, Inc.
(Registrant)
Dated: October 13, 2020 /s/ Thomas F. Isett 3rd
Thomas F. Isett 3rd
Chairman and Chief Executive Officer
/s/ John Delta
Principal Accounting Officer
(Principal Financial Officer and Principal Accounting 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 dates indicated:
Name Title Date
/s/Thomas F. Isett 3rd Chairman, Chief Executive October 13, 2020
Thomas F. Isett 3rd Officer (Principal Executive Officer)
/s/John Delta Principal Accounting Officer October 13, 2020
John Delta (Principal Financial Officer and Principal Accounting Officer)
/s/Robert B. Kay Director October 13, 2020
Robert B. Kay
/s/Glenn Chang Director October 13, 2020
Glenn Chang
/s/Seymour Flug Director October 13, 2020
Seymour Flug
/s/James T. Hill Director October 13, 2020
General James T. Hill, USA (Retired)
/s/John D. McKey, Jr. Director October 13, 2020
John D. McKey, Jr.
/s/Philip K. Russell Director October 13, 2020
Philip K. Russell, M.D.
[This page intentionally left blank.]
Annual Financial Statements
iBio, Inc.
Financial Statement Index
Page
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Consolidated Balance Sheets – June 30, 2020 and 2019 F-3
Notes to Consolidated Financial Statements F-7
Report of Independent Registered Public
Accounting Firm
The Board of Directors and
Stockholders of iBio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of iBio, Inc. and Subsidiaries (the “Company”) as of June 30, 2020 and 2019, and the related consolidated
statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the years then ended, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations
and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ CohnReznick LLP
We have served as the Company’s auditor since 2010.
Holmdel, New Jersey
iBio, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except share and per share
amounts)
Assets
Current assets:
Accounts receivable - trade 75 97
Subscription receivable 5,549 -
Work in progress 798 -
Prepaid expenses and other current assets 214 290
Finance lease right-of-use assets, net of accumulated amortization 27,616 -
Fixed assets, net of accumulated depreciation 3,657 24,380
Intangible assets, net of accumulated amortization 1,144 1,374
Security deposit 24 24
Liabilities and Equity
Current liabilities:
Note payable – PPP Loan – current portion 261 -
Finance lease obligation – current portion 301 -
Capital lease obligation - current portion - 213
Note payable – PPP Loan – net of current portion 339 -
Finance lease obligation – net of current portion 32,007 -
Capital lease obligation - net of current portion - 24,671
Commitments and Contingencies
Equity
iBio, Inc. Stockholders’ Equity:
Preferred stock - no par value; 1,000,000 shares authorized;
Accumulated other comprehensive loss (33 ) (31 )
Total iBio, Inc. Stockholders’ Equity 56,618 2,463
Noncontrolling interest (11 ) (6 )
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Operations
and Comprehensive Loss
(In Thousands, except per share amounts)
Years Ended
Operating expenses:
Other income (expense):
Interest expense - related party (2,466 ) (1,900 )
Interest income 15 75
Total other income (expense) (2,441 ) (1,809 )
Net loss attributable to noncontrolling interest 5 4
Net loss attributable to iBio, Inc. (16,439 ) (17,593 )
Preferred stock dividends – iBio CMO Preferred Tracking Stock (261 ) (260 )
Net loss available to iBio, Inc. $ (38,260 ) $ (17,853 )
Comprehensive loss:
Other comprehensive loss - foreign currency translation adjustments (2 ) (1 )
Weighted-average common shares outstanding - basic and diluted 62,795 18,926
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Stockholders’
Equity
Years Ended June 30, 2020 and 2019
(In Thousands)
Accumulated
Additional Other
Preferred Stock Common Stock Paid-In Comprehensive Accumulated Noncontrolling
Shares Amount Shares Amount Capital Loss Deficit Interest Total
Costs to raise capital - - - - (159 ) - - - (159 )
Additional paid-in capital – capital contribution - - - - 2,459 - - - 2,459
Conversion of preferred stock to common stock (2 ) - 2,470 2 (2 ) - - - -
Issuance of common stock to underwriters - - 142 1 (1 ) - - - -
Share-based compensation - - - - 241 - - - 241
Foreign currency translation adjustment - - - - - (1 ) - - (1 )
Costs to raise capital and warrant exchange - - - - (2,342 ) - - - (2,342 )
Compensation shares - - 1,316 1 (1 ) - - - -
Exercise of stock options - - 140 - 130 - - - 130
Conversion of preferred stock to common stock (9 ) - 28,438 29 (29 ) - - - -
Share-based compensation - - - - 388 - - - 388
Foreign currency translation adjustment - - - - - (2 ) - - (2 )
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended
Cash flows from operating activities:
Share-based compensation 388 241
Amortization of intangible assets 298 322
Amortization of finance lease right-of-use assets 1,661 -
Depreciation of fixed assets 282 1,427
Write-off of fixed assets - 179
Changes in operating assets and liabilities
Accounts receivable – trade 22 (22 )
Work in process (798 ) -
Prepaid expenses and other current assets 77 (15 )
Security deposit - 1
Accrued expenses 140 (82 )
Net cash used in operating activities (13,345 ) (13,975 )
Cash flows from investing activities:
Additions to intangible assets (76 ) (70 )
Purchases of fixed assets (1,078 ) (920 )
Net cash used in investing activities (1,154 ) (990 )
Cash flows from financing activities:
Proceeds from sales of preferred and common stock 62,363 1,350
Proceeds from the exercise of warrants 6,330 -
Proceeds from the exercise of stock options 130 -
Costs to raise capital and warrant exchange (2,170 ) (159 )
Proceeds from PPP Loan 600 -
Payments of notes payable –warrant exchange (1,995 ) -
Payment of finance/capital lease obligation (66 ) (197 )
Proceeds from capital contribution - 2,459
Net cash provided by financing activities 65,192 3,453
Effect of exchange rate changes (2 ) (1 )
Schedule of non-cash activities:
Increase in ROU assets under ASC 842 $ 7,489 $ -
Subscription receivable for capital raise $ 5,549 $ -
Costs related to subscription receivable (which is net of costs) $ 172 $ -
Deemed dividend – non-cash warrant exchange 6,600 -
Issuances of common stock under warrant exchange $ 3,300 $ -
Issuances of notes payable under warrant exchange $ 3,300 $ -
Unpaid intangible assets included in accounts payable $ - $ 8
Unpaid fixed assets included in accounts payable $ 268 $ 14
Conversion of preferred stock shares into common stock shares $ 29 $ 2
Compensation shares $ 1 $ -
Supplemental cash flow information:
Cash paid during the year for interest $ 2,372 $ 1,903
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business
We are a biotechnology company and biologics
contract development and manufacturing organization (“CDMO”). We apply our licensed and owned technologies to develop
novel products to fight fibrotic diseases, cancers, and infectious diseases. We use our FastPharming® Development
and Manufacturing System to increase “speed-to-clinic” for new candidates. We are also using the FastPharming System
to create proteins and bioinks for research and further manufacturing uses in a variety of research and development (“R&D”)
applications, including 3D-bioprinting. In addition, we make the FastPharming System available to clients on a fee-for-service
basis for the production of proteins.
During the year ended June 30, 2020, we
operated in two segments: (i) our CDMO segment, operated via our subsidiary iBio CDMO LLC (“iBio CDMO”), and (ii) our
biologics development and licensing activities, conducted within iBio, Inc. In the past, our primary focus was the CDMO business,
pursuant to which iBio CDMO provided manufacturing services to collaborators and third-party customers as well as to us, for our
own product development purposes. However, during the second half of 2020 and subsequent to year end, we shifted our primary focus
to our biologics development programs, including new vaccines and therapeutics.
Our current platforms and programs include:
(i) CDMO services using our licensed and owned FastPharming Technologies and GlycaneeringTM Services;
(ii) the development of therapeutics, for which we intend to conduct preclinical and clinical trials; (iii) the development of
vaccines, for which we intend to conduct preclinical and clinical trials, and (iv) the production of proteins for research and
further manufacturing use in 3D-bioprinting and other applications. We are developing a portfolio of technologies, products, and
services driven by the following platforms and programs, which we intend to use individually, and in combination:
· CDMO Services
· Therapeutics
· Vaccines
o The lichenase (“LicKMTM”)-subunit vaccine for COVID-19 (“IBIO-201”).
· Research & Bioprocess Products
o Cytokines and growth factors for cell culture applications.
Our Platforms and Programs
CDMO Services
Our contract development and
manufacturing services include:
iBio was established as a public company
in August 2008 as the result of a spinoff from Integrated BioPharma, Inc and operates in two business segments. iBio’s wholly-owned
and majority-owned subsidiaries as follows:
iBio CDMO (originally
named iBio CMO LLC) – iBio CDMO is a Delaware limited liability company formed on December 16, 2015 as iBio CMO, LLC to develop
and manufacture plant-made pharmaceuticals and provide related services to clients. Effective July 1, 2017, iBio CMO changed its
name to iBio CDMO. As of December 31, 2015, the Company owned 100% of iBio CDMO. On January 13, 2016, the Company entered into
a contract manufacturing joint venture with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the
Company (the “Eastern Affiliate”). The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio
CDMO. The Company retained a 70% interest in iBio CDMO and contributed a royalty-bearing license which grants iBio CDMO a non-exclusive
license to use the Company’s proprietary technologies for research purposes and an exclusive U.S. license for manufacturing
purposes. The Company retained the exclusive right to grant product licenses to those who wish to sell or distribute products made
using the Company’s technologies.
On February 23, 2017, the Company
entered into an exchange agreement with the Eastern Affiliate, pursuant to which the Company acquired substantially all of the
interest in iBio CDMO held by the Eastern Affiliate in exchange for one share of the Company’s iBio CMO Preferred Tracking
Stock, par value $0.001 per share. After giving effect to the transaction, the Company owns 99.99% of iBio CDMO. See Note 14 -
Stockholders' Equity for a further discussion. At any time, at our election or the election of the Eastern Affiliate, the outstanding
share of iBio CMO Preferred Tracking Stock may be exchanged for 29,990,000 units of limited liability company interests of iBio
CDMO. Following such exchange, we would own a 70% interest in iBio CDMO and the Eastern Affiliate would own a 30% interest.
iBio CDMO’s operations
take place in Bryan, Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”)
as sublandlord. The facility is a 130,000-square foot Class A life sciences building located on land owned by the Texas A&M
system, designed and equipped for plant-made manufacture of biopharmaceuticals. The Second Eastern Affiliate granted iBio CDMO
a 34-year lease (the “Sublease”) for the facility as well as certain equipment (see Note 13 – Finance Lease Obligations).
iBio CDMO commenced commercial operations in January 2016. iBio CDMO expects to operate on the basis of three parallel lines of
business: (1) Development and manufacturing of third-party products; (2) Development and production of iBio’s proprietary
products; and (3) Commercial technology transfer services including facility design, as needed.
IBIO DO BRASIL BIOFARMACÊUTICA
LTDA (“iBio Brazil”) – iBio Brazil is a subsidiary organized in Brazil in which the Company has a 99% interest.
iBio Brazil was formed to manage and expand the Company’s business activities in Brazil. The activities of iBio Brazil are
intended to include coordination and expansion of the Company’s existing relationship with Fundacao Oswaldo Cruz/Fiocruz
(“Fiocruz”) beyond the Yellow Fever Vaccine program (see Note 9 – Significant Vendors) and development of additional
products with private sector participants for the Brazilian market. iBio Brazil commenced operations during the first quarter of
the fiscal year ended June 30, 2015.
iBio Manufacturing LLC
(“iBio Manufacturing”) – iBio Manufacturing, a wholly-owned subsidiary, is a Delaware limited liability company
formed in November 2015. iBio Manufacturing has not commenced any activities to date.
2. Basis of Presentation
Since our spin-off from Integrated BioPharma, Inc. in August
2008, we have incurred significant losses and negative cash flows from operations. The Company’s net loss was approximately
$16.4 million and $17.6 million for the years ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the Company's accumulated