Fraunhofer USA, Inc. (“Fraunhofer”) continues to be the Company’s most significant vendor. The accounts payable balance includes amounts due Fraunhofer of approximately $1 million and $2.2 million as of March 31, 2014 and June 30, 2013, respectively. In addition, the accrued expenses balance includes amounts due Fraunhofer of approximately $0 and $1.7 million as of March 31, 2014 and June 30, 2013, respectively. The Company is charged interest by Fraunhofer on certain outstanding balances at the rate of prime plus 2%. For the three months ended March 31, 2014 and 2013, research and development expenses related to Fraunhofer were approximately $0.1 million and $0.4 million, respectively, and $0.7 million and $1.8 million for the nine months ended March 31, 2014 and 2013, respectively. In September 2013, the Company and Fraunhofer completed the Terms of Settlement for the TTA Seventh Amendment (the “Settlement Agreement”), the significant terms of which are as follows:
| · | The Company’s liabilities to Fraunhofer in the amount of approximately $2.9 million as of June 30, 2013 were released and terminated; |
| · | The term of the TTA has been extended by one year and will now expire on December 31, 2015; |
| · | The Company’s obligation under the TTA, prior to the Settlement Agreement, to make three $1 million payments to Fraunhofer in April 2013, November 2013, and April 2014 (the “Guaranteed Annual Payments”) was terminated and replaced with an obligation to engage Fraunhofer to perform at least $3 million of research and development work as directed by iBio prior to December 31, 2015. See Note 13 – Commitments and Contingencies for additional information; |
| · | The Company terminated and released Fraunhofer from the obligation to make further financial contributions toward the enhancement, improvement and expansion of iBio’s technology in an amount at least equal to the Guaranteed Annual Payments. In addition, the Company terminated and released Fraunhofer from the obligation to further reimburse iBio for certain past and future patent-related expenses; |
| · | The Company’s obligation to remit to Fraunhofer minimum annual royalty payments in the amount of $ 200,000 was terminated. Instead the Company will be obligated to remit royalties to Fraunhofer only on technology license revenues that iBio actually receives and on revenues from actual sales by iBio of products derived from the Company’s technology until the later of November 2023 or until such time as the aggregate royalty payments total at least $4 million; |
| · | The rate at which the Company will be obligated to pay royalties to Fraunhofer on iBioLaunch and iBioModulator license revenues received was reduced from 15% to 10%; and |
| · | Any and all other claims of each party to any other amounts due at June 30, 2013 were mutually released. |
The effect of the Settlement Agreement was the elimination of approximately $1.7 million of accrued expenses and $1.2 million of accounts payable from the Company’s books, as well as a $1 million reduction in prepaid expenses and an approximately $1.9 million positive impact on earnings resulting from the reversal of expenses incurred by the Company under the terms of the previous agreement. This $1.9 million is composed of credits of $1.04 million to research and development expenses, $0.7 million to general and administrative expenses, and $122 interest expense.
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