Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
1.
|
Background Information
|
BioVie Inc. (the “Company”) is
a clinical-stage company developing innovative drug therapies to treat chronic debilitating conditions including liver disease
and neurological and neuro-degenerative disorders and certain cancers. We are currently focused on developing and commercializing
BIV201 (continuous infusion terlipressin), a novel approach to the treatment of ascites due to chronic liver cirrhosis. Our therapy
BIV201 is based on a drug that is approved in about 40 countries to treat related complications of liver cirrhosis (part of the
same disease pathway as ascites), but not yet available in the United States. BIV201’s active agent is a potent vasoconstrictor
and has shown efficacy for reducing portal hypertension in studies around the world. The goal is for BIV201 to interrupt the ascites
disease pathway, thereby halting the cycle of accelerating fluid generation in ascites patients.
BioVie completed a Phase 2a clinical trial
of BIV201 in patients with refractory ascites due to advanced liver cirrhosis at the McGuire Research Institute in Richmond, VA
in 2019. The Company met with representatives of the Food and Drug Administration (“FDA”) in a Type C Guidance Meeting
to discuss the study results and plan our next clinical study. Subsequently we requested a Type B Meeting and submitted an extensive
pre-meeting information package. In April 2020, the FDA provided a written response that provided new guidance regarding primary
and secondary endpoints, BIV201 dosing levels, quality of life measures and other key aspects of the clinical trial design. After
further communications, the Company completed the clinical trial design protocol and was cleared to begin a Phase 2 clinical study.
We activated the first trial sites in the first calendar quarter of 2021 and patient screening is now underway. The Phase 2 study
results will be used to guide the design of a pivotal Phase 3 clinical trial. We have developed a patent-pending novel liquid formulation
of BIV201 for use in this study that is intended to improve convenience for outpatient administration and avoid potential formulation
errors that may occur when pharmacists reconstitute the powder version of terlipressin.
BIV201 has the potential to improve the health
of thousands of patients suffering from life-threatening complications of liver cirrhosis due to hepatitis, nonalcoholic steatohepatitis
(NASH), and alcoholism. It has FDA Fast-Track status and Orphan Drug designation for the most common of these complications, ascites,
which represents a significant unmet medical need. An Orphan drug that is first-to-market typically receives 7 years of market
exclusivity in the United States for the designated use(s). The FDA has never approved any drug specifically for treating ascites. In
addition, the Company is applying for global patent coverage of a proprietary liquid formulation of terlipressin for use in the
Phase 2 and Phase 3 clinical trials, which has been cleared by the FDA. This could eventually provide up to 20 years of patent
protection in countries where the Company seeks patent issuance according to local patent laws.
The BIV201 development program began at LAT
Pharma LLC. On April 11, 2016, the Company acquired LAT Pharma LLC and the rights to
its BIV201 development program. The Company currently owns all development and marketing rights to its drug candidate. The Company
and PharmaIN, Corp. (“PharmaIN”), LAT Pharma’s former partner focused on the development of new modified drug
candidates in the same therapeutic field but not including BIV201, had agreed to pay royalties equal to less than 1% of future
net sales of each company's ascites drug development programs, or if such program is licensed to a third party, less than 5% of
each company's net license revenues. On December 24, 2018, the Company returned its partial ownership rights to the PharmaIN modified
terlipressin development program and simultaneously paid the remaining balance due on a related debt. PharmaIN, Corp.’s rights
to our program remain unchanged.
On April 27, 2021, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”)
with NeurMedix, Inc. (“NeurMedix”) and Acuitas Group Holdings, LLC (“Acuitas”), which are related party
affiliates, pursuant to which the Company has agreed to acquire certain assets from NeurMedix and assume certain liabilities of
NeurMedix, in exchange for the consideration of cash and shares of common stock. (collectively, the “Transaction”).
The acquired assets include, among others, those related to certain drug candidates being developed by NeurMedix, including NE3107,
a small molecule orally administered inhibitor of insulin resistance and the pathological inflammatory cascade, with a novel mechanism
of action that has potential applications for treatment against Alzheimer’s Disease and Parkinson’s Disease. See Note
9 - Subsequent Events.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
Liquidity and Going Concern
The
Company’s operations are subject to a number of factors that can affect its operating results and financial conditions. Such
factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s products,
the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold
or being developed by other companies, the price of, and demand for, Company products, the Company’s ability to negotiate
favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise
capital. The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March
31, 2021, the Company had working capital of approximately $10 million and cash of $11.4 million and, stockholders’ equity
was approximately $11.4 million, and its accumulated deficit was approximately $93.4 million. In addition, the Company has not
generated any revenues and no revenues are expected in the foreseeable future. The Company’s future operations are dependent
on the success of the Company’s ongoing development and commercialization effort, as well as continuing to secure additional
financing.
The
future viability of the Company is largely dependent upon its ability to raise additional capital to finance its operations. Management
expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions. The
emergence of widespread health emergencies or pandemics of the coronavirus ("Covid-19"), may lead to continued regional
quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic instability, including the
duration and spread of the outbreak and restrictions and the impact of Covid-19 on the financial markets and the overall economy,
all of which are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for
an extended period, the Company’s ability to raise funds may be materially adversely affected.
Although
management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient financing
on terms acceptable to the Company, if at all, to fund continuing operations. These circumstances raise substantial doubt on the
Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
3.
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Significant Accounting Policies
|
Basis of Presentation – Interim Financial Information
These unaudited interim condensed financial
statements and related notes have been prepared in accordance with accounting principles generally accepted in the United State
of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities Exchange Commission for Interim Reporting. Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect
all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair
presentation of the results for the interim periods presented. Interim results are not necessarily indicative of the results for
the full year. The condensed balance sheet at June 30, 2020 was derived from audited annual financial statements but does not contain
all the footnote disclosures from the annual financial statements. These unaudited interim condensed financial statements and information
included under the heading: “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
should be read in conjunction with the Company’s audited financial statements for the fiscal years ended June 30, 2020 and
2019 in our Annual Report on form 10-K filed with Securities Exchange Commission (“SEC”) on August 6, 2020, and as
amended by Amendment No. 1 on Form 10-K/A and filed with the SEC on August 7, 2020. For a summary of significant accounting policies,
see the Company’s Annual Report on Form 10K for the fiscal year ended June 30, 2020 filed with the SEC on August 6, 2020,
and as amended by Amendment No. 1 on Form 10-K/A and filed with the SEC on August 7, 2020.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
3.
|
Significant Accounting Policies (continued)
|
Loan Pursuant to Paycheck Protection Program
The Company received $62,500 in loan proceeds
pursuant to the Paycheck Protection Program (“PPP”), under the Coronavirus Aid Relief and Economic Security (CARES)
Act. The PPP Loan is evidenced by a loan application and payment agreement by and between the Company and Lender. The Company applied
for the loan in May 2020 and received funding for its maximum amount of $62,500 on May 21, 2020. The term of the loan is for 60
months and matures on the fifth-year anniversary from the date of funding. It bears interest at an annual rate of 1%. The PPP loan
is subject to 100% forgiveness. The Company has filed the application for forgiveness, in February 2021 and is pending confirmation
of forgiveness by the SBA. There can be no assurance that such forgiveness will occur. The Company is accounting for the loan as
debt and if forgiveness is granted the Company will recognize a gain on extinguishment.
Net (loss) income per Common Share
Basic net (loss) income per common share
is computed by dividing the net (loss) income attributable to common stockholders by the weighted average number of shares of common
stock outstanding during the period. Diluted net (loss) income per common share is computed by dividing the net (loss) income attributable
to common stockholders by the weighted average number of shares of common stock outstanding and potentially outstanding shares
of common stock during the period to reflect the potential dilution that could occur from common shares issuable through stock
options, warrants, and convertible debentures. For the nine months ended March 31, 2021 and 2020, all potential securities were
anti-dilutive as a result of the effect of the change in fair value of the derivative liability creating a net loss available to
common shareholders. For the three months ended March 31, 2021 and 2020, such amounts were excluded from the diluted loss since
their effect was considered anti-dilutive due to net loss for the period.
The table below shows the number of
outstanding stock options and warrants as of March 31, 2021 and 2020:
|
|
March 31, 2021
|
|
March 31, 2020
|
|
|
Number of Shares
|
|
Number of Shares
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Stock Options
|
|
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755,200
|
|
|
|
68,400
|
|
Warrants
|
|
|
173,021
|
|
|
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1,374,667
|
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Total
|
|
|
928,221
|
|
|
|
1,443,067
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|
Recent accounting pronouncements
The Company considers the applicability
and impact of all Accounting Standard Updates (“ASU’s”). ASU’s not discussed below were assessed and determined
to be either not applicable or expected to have minimal impact on our balance sheets or statement of operations.
In August 2018, the FASB issued ASU 2018-13,
“Fair value measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”.
The new guidance modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years beginning
after December 15, 2019. Early adoption is permitted. This ASU was adopted as of July 1, 2020. There has been no impact to its
condensed financial statements and related disclosures.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
The Company’s intangible assets consist
of intellectual property acquired from LAT Pharma, Inc. and are amortized over their estimated useful lives. The following is a
summary of the intangible assets as of March 31, 2021 and June 30, 2020:
Summary of the intangible assets
|
|
March 31, 2021
|
|
June 30, 2020
|
Intellectual Property
|
|
$
|
2,293,770
|
|
|
$
|
2,293,770
|
|
Less Accumulated Amortization
|
|
|
(1,140,576
|
)
|
|
|
(968,544
|
)
|
Intellectual Property, Net
|
|
$
|
1,153,194
|
|
|
$
|
1,325,226
|
|
Amortization expense for the three-month period
ended March 31, 2021 and 2020 was $57,344 and $57,344 respectively. Amortization expense for the nine-month period ended March
31, 2021 and 2020 was $172,032 and $172,032 respectively.
Estimated future amortization expense is as
follows:
|
|
Year ending June 30, 2021 (Remaining three months)
|
$ 57,344
|
2022
|
229,377
|
2023
|
229,377
|
2024
|
229,377
|
2025
|
229,377
|
2026
|
178,342
|
Intellectual Property, Net
|
$ 1,153,194
|
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
5.
|
Related Party Transactions
|
Equity Transactions with Acuitas
On September 22, 2020, concurrent with the
closing of the Company’s Offering, approximately $1.8 million was paid to Acuitas satisfying all amounts owed on the Debenture
due September 24, 2020 held by the Company’s controlling stockholder, Acuitas.
Additionally in connection with the close of
the public offering on September 22, 2020, the Company issued an aggregate of 6,909,582 shares of Common Stock to Acuitas, representing
(i) 5.4 million shares issuable pursuant to Acuitas’ rights under the Purchase Agreement dated July 3, 2018, as amended on
June 24, 2019 and October 9, 2019; and the various extension letters as more fully described below; which resulted in a deemed
dividend at the close of the public offering at price of $10 per share, consistent with the Company’s accounting policy;
and (ii) the automatic exercise of 1.5 million warrants issued to Acuitas in connection with the Debenture financing at the par
value of the Common Stock.
During the three months ended September 30,
2020, the Company received additional draws under the Debenture totaling $436,000. The total draws as of September 22, 2020 were
$1.7 million and the related total number of warrants issuable at $4.00 per share of common stock was 424,750 of which 328,250
warrants had been issued. In accordance with the Debenture agreements, as more fully described below; at September 22, 2020 upon
the Company’s close of its public offering, al1 the warrants issued related to the debenture totaling 1,453,250 were mandatorily
redeemed along with the additional 96,500 shares common stock issued to Acuitas.
The following paragraphs summarize the background of those financings
and arrangements which were settled and redeemed on September 22, 2020.
On July 3, 2018, we entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with Acuitas and certain other purchasers identified in the Purchase
Agreement (together with Acuitas, the “Purchasers”) pursuant to which (i) the Purchasers agreed to purchase an aggregate
of 2,133,332 shares of the our Series A Convertible Preferred Stock (the “Preferred Stock”) at a price per share of
$1.50 per share of Preferred Stock (the “Initial Sale”) and (ii) we agreed to issue warrants (the “Warrants”)
to purchase 1,706,666 shares of common stock, each subject to the terms and conditions set forth in the Purchase Agreement, for
an aggregate consideration of $3.2 million. We received $160,000 of the $3.2 million in April and May 2018 as prepaid equity. Acuitas
also received an additional 6,667 Warrants in connection with the payoff of a note issued by us in favor of Acuitas. The Initial
Sale and issuance of the Warrants occurred on July 3, 2018. In addition, Acuitas had the option to purchase up to an additional
1,600,000 shares of common stock at a price per share of $1.88, and warrants on the same terms as the Warrants, within two weeks
following the one year anniversary of the closing of the Initial Sale (the “Subsequent Sale”) in the event that we
did not obtain $3,000,000 of funding through various non-dilutive grants prior to the one year anniversary of the closing of the
Initial Sale, less any federal or FDA grant funding received by the Company. Acuitas is controlled by our Chairman and Chief Executive
Officer, Terren Peizer and the Purchasers included Jonathan Adams, James Lang, Cuong Do and Michael Sherman, who are members of
our Board.
The Purchase Agreement contained customary
representations and warranties. In connection with the disclosure schedule associated with the representations and warranties,
we also disclosed customary information, including the following: (i) the existence of the Mallinckrodt petition before the U.S.
Patent Trial and Appeal Board, (ii) our capitalization, (iii) our obligation to pay a low single digit royalty on the net sales
of BIV201 (continuous infusion terlipressin) to be shared among LAT Pharma LLC members, PharmaIN Corporation and The Barrett Edge,
Inc. pursuant to the Agreement and Plan of Merger, dated April 11, 2016, by and between LAT Pharma LLC and us, (iv) our obligation
to pay a low single digit royalty on net sales of all terlipressin products covered by specified patents up to a maximum of $200,000
per year pursuant to the Technology Transfer Agreement, dated July 25, 2016, by and between us and the University of Padova (Italy),
and (v) certain recent issuances of common stock by us.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
5.
|
Related Party Transactions (continued)
|
Each share of Preferred Stock automatically
converted into 1 share of common stock upon the filing with the Secretary of State of the State of Nevada of a Certificate of Amendment
to our Articles of Incorporation (the “Amendment”) on August 13, 2018 that increased the number of authorized shares
of common stock to 800,000,000. The Amendment was approved by the written consent of the holders of more than a majority of our
issued and outstanding common stock on July 3, 2018 and was filed with the Secretary of State of the State of Nevada 20 calendar
days following the distribution of our Definitive Information Statement on Schedule 14 that was filed with the SEC on July 13,
2018.
Pursuant to a letter agreement dated June 24,
2019, Acuitas agreed to modify its existing rights under the Purchase Agreement so that:
-
|
|
Acuitas agreed to immediately exchange its
existing 1,606,667 Warrants for common stock such that it will have effectively exercised its Warrants in full pursuant to a cashless
exercise thereof at an assumed current market price of $45.00 per share and, as a result received an aggregate of 95% of the shares
covered thereby, or 1,526,094 shares of common stock;
|
-
|
|
Acuitas agreed to (i) waive its rights to a
50% adjustment of the purchase price of the Preferred Stock in the Initial Sale, the exercise price of the Warrants and the price
per share in the Subsequent Sale in the event of certain reductions in the useful life of our current intellectual property rights,
and (ii) effectively exercise its rights to purchase securities in a Subsequent Sale pursuant to a “cashless purchase”
at an assumed current market price of approximately $11.25 per share, conditioned in each case on the listing of our common stock
on Nasdaq or the raising of $2.0 million in additional funds in the form of another securities offering, in either case not later
than November 30, 2019, which will result Acuitas having irrevocably waived its rights to an adjustment in the purchase price of
the Preferred Stock in the Initial Sale and the exercise price of the Warrants and the purchase price of per share in the Subsequent
Sale upon the issuance by us of an aggregate of 1,339,958 shares of common stock (the “Subsequent Sale Shares”) to
Acuitas, which is expected to occur concurrently with the closing of our potential public offering and listing on Nasdaq;
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-
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|
Acuitas shall in exchange for the foregoing agreements and waivers have the option to purchase additional shares of common stock and warrants to purchase one share of common stock for each share of common stock purchased during the period from September 1, 2019 to November 30, 2019 at the then-effective purchase price of the Preferred Stock in the Initial Sale (the “Funding Option”), provided that any shares issued pursuant to any exercise of the Funding Option will reduce share-for-share the amount of shares issued pursuant to the deemed exercise of its rights to purchase securities in a Subsequent Sale mentioned above.
|
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
5.
|
Related Party Transactions (continued)
|
Convertible Debenture Transaction with Acuitas
On September 24, 2019, the Company entered
into a Securities Purchase Agreement (the “2019 Purchase Agreement”) with Acuitas pursuant to which (i) Acuitas agreed
to purchase a 10% OID Convertible Delayed Draw Debenture due September 24, 2020 for an aggregate commitment amount of up to $2.0
million, and (ii) the Company issued 1,125,000 shares (the “Commitment Shares”) of the Company’s common stock
and warrants (the “Commitment Warrants”) to purchase an equal number of shares, each subject to the terms and conditions
set forth in the 2019 Purchase Agreement. The Debenture accrues additional principal at the rate of 6% per annum and interest at
the rate of 10% per annum, is convertible into shares of common stock at $4.00 per share prior to the completion of the company’s
planned public offering of units (the “Public Offering”) or, subsequent to the closing of the Public Offering, the
lower of $4.00 or 80% of the offering price per unit to the public in the Public Offering and are mandatorily redeemable upon such
closing at 100% of the accrued principal amount and unpaid interest to the date of redemption. The Commitment Warrants are five-year
warrants, exercisable upon the earlier of the effectiveness of the Company’s current reverse stock split or December 1, 2019,
at an amount equal to the lower of $4.00 or 80% of the offering price per unit to the public in the Public Offering. Upon entering
into the 2019 Purchase Agreement, the Company drew an initial $500,000 under the Debenture and in accordance with the 2019 Purchase
Agreement, Acuitas received an additional 125,000 warrants (the “Bridge Warrants”) having the same terms as the Commitment
Warrants.
Any future draws under the Debenture, which
may be made from and after October 15, 2019, November 15, 2019 and December 15, 2019 in equal tranches of $500,000 each, will entitle
Acuitas to receive additional Bridge Warrants in equal amount upon such funding. In addition, the 2019 Purchase Agreement provides
that, should the underwriters in the Public Offering exercise their option to purchase additional securities during the 45 days
following closing and the issuance of such securities would result in Acuitas' beneficial ownership (on a fully diluted basis)
of shares of common stock being below 60%, Acuitas shall be issued a number of additional shares of common stock and warrants having
the same terms as the Commitment Warrants to result in its beneficial ownership (on a fully diluted basis) of shares of common
stock equaling 60%.
The issuance of 1,125,000 shares of the Company’s
commons stock and warrants to purchase an equal amount number of shares, to its controlling stockholder for the Bridge Financing
was accounted for as a deemed dividend due to its related party nature and $17.1 million representing the excess of the fair value
of the consideration given for the financing, net of debt discount; was recorded in accumulated deficit for the year ended June
30, 2020, accordingly. A debt discount of $500,000 against the debenture was recorded which will be amortized over the term of
the debenture using the effective interest method. The Company recognized amortization of the unearned discount for the three-month
period ended March 31, 2021 and 2020 of $0 and $20,307, respectively, and for the nine months period ended March 31, 2021 and 2020
of $21,336 and $41,902, respectively.
The Company received draws under the Debenture
that totaled approximately $1.3 million during the year ended June 30, 2020. The total interest expense related to the draws under
the Debenture was approximately $99,000 for the year ended June 30, 2020. On April 1, 2020, the Company entered an amendment to
modify the payment of accrued interest amounts under the original terms of the Debenture to capitalize all such amounts as would
otherwise accrue on the Debenture. On January 4, 2020, payment of $13,487 accrued interest due was paid through the issuance of
4,422 shares of the Company’s common stock. Acuitas and the Company continue to discuss the need and timing for some or all the
remaining draws under the Debenture Agreement. Subsequent to the initial $500,000 draw on September 24, 2019, the Company received
draws that totaled $813,000 as July 13, 2020, and accordingly; the Company issued additional Bridge Warrants to purchase 203,250
shares of common stock to its controlling stockholder under the terms of the Bridge Financing. Accordingly, on April 16, 2020,
the Company recorded the warrants to purchase 125,000 common stock related to the second $500,000 draw under the debenture as a
derivative warrant liability as of June 30, 2020. The Company recorded the warrants related to the draws totaling $313,000 to purchase
78,250 common shares as derivative liabilities.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
5.
|
Related Party Transactions (continued)
|
Pursuant to the 2019 Purchase Agreement, Acuitas
agreed to further modify its existing rights under the Purchase Agreement dated July 3, 2018 with the Company so that Acuitas’
previous agreement in June 2019 to waive its rights to a 50% adjustment of the purchase price of the Preferred Stock in the July
2018 transaction, the exercise price of the warrants in such transaction and the price per share in a Subsequent Sale in the event
of certain reductions in the useful life of our current intellectual property rights, and effectively exercise its rights to purchase
securities in a Subsequent Sale pursuant to a “cashless purchase” at an assumed current market price of approximately
$11.25 per share, conditioned in each case on the listing of the Company’s common stock on Nasdaq or the raising of $2.0
million in additional funds in the form of another securities offering, in either case not later than November 30, 2019, such that
Acuitas will have irrevocably waived its rights to an adjustment in the purchase price of the Preferred Stock in the Initial Sale
and the exercise price of the Warrants and the purchase price of per share in the Subsequent Sale upon the issuance by us of an
aggregate of 2,679,916 shares of common stock and 2,679,916 warrants having the same terms as the Commitment Warrants to Acuitas,
upon the closing of the Public Offering.
Pursuant to an amendment to the 2019 Purchase
Agreement dated October 9, 2019, Acuitas agreed to modify its existing rights under the 2019 Purchase Agreement so that:
|
-
|
The Commitment Warrants (and related warrants issued upon the first draw under the Debenture) were replaced with warrants having similar terms, but which are automatically exercised upon the closing of the offering at an exercise price equal to the par value of the common stock;
|
|
-
|
Acuitas' existing rights under the Purchase Agreement dated July 3, 2018 with the Company were further amended so that the number of Subsequent Sale Shares would be multiplied by four (in lieu of the changes to the Purchase Agreement originally provided for in the 2019 Purchase Agreement); and
|
|
-
|
The provisions of the 2019 Purchase Agreement providing that, should the underwriters in the offering exercise their option to purchase additional securities during the 45 days following closing and the issuance of such securities would result in Acuitas’ beneficial ownership (on a fully diluted basis) of shares of common stock being below 60%, Acuitas will be issued a number of additional shares of common stock and warrants having the same terms as the Commitment Warrants to result in its beneficial ownership (on a fully diluted basis) of shares of common stock equaling 60% have been modified such that, upon the exercise of such option by the underwriters, the Company will issue to Acuitas a number of securities that will result in Acuitas’ fully diluted beneficial ownership after the exercise of such option being the same as prior thereto.
|
On July 14, 2020, the Company, entered into
a further extension of its letter agreements dated April 8, 2020, that furthered extended its letter agreement dated February 10,
2020 with Acuitas regarding Acuitas’ previous agreement to modify its existing rights under the Purchase Agreement dated
July 3, 2018 with the Company so that its June 2019 waiver of its rights to a 50% adjustment of the purchase price applicable to
its initial investment in the Company and the exercise price of the warrants received in such transaction and the price per share
should it exercise certain rights to purchase additional securities in the event of certain reductions in the useful life of the
Company’s intellectual property rights and commitment to purchase such securities upon the closing of the Offering and commitment
to purchase such additional securities would remain effective until October 31, 2020, and accordingly Acuitas was entitled to receive
an aggregate of 5,359,832 shares of Common Stock at such closing. In addition, the parties agreed that certain draws under the
Company’s current bridge financing with Acuitas were to be made based with respect to the Company’s ongoing capital
requirements and current market conditions, notwithstanding certain scheduled availability dates set forth in the 10% OID Convertible
Delayed Draw Debenture issued in connection therewith. The letter agreement of July 14, 2020 also confirmed the understanding between
the Company and Acuitas regarding certain amounts funded to BioVie that were intended as “partial draws” of credit
available under the Debenture which, as of July 14, 2020 hereof aggregated $813,000 in aggregate principal amount in additional
to amounts initial funded under the Debenture. Accordingly, such “partial draws” accrued additional principal as amounts
otherwise funded pursuant to the original schedule of draws included in the Debenture (as modified by the letter agreement between
BioVie and Acuitas dated April 1, 2020 regarding the capitalization of interest otherwise payable) and shall entitle Acuitas to
receive a pro rata amount of Bridge Warrants.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
6.
|
Fair Value Measurements
|
On September 22, 2020, concurrent with the
closing of the Offering; the warrants related to derivative liabilities were automatically exercised in full and the convertible
Debenture was paid off in cash expiring the conversion option. The fair value of the derivative liabilities - warrants and derivative
liability - conversion option on convertible Debenture prior to redemption at September 22, 2020 was $13.1 million, and the change
in the fair value of $8.3 million from June 30, 2020 was recorded in the accompanying condensed Statements of Operations. At September
22, 2020, the derivative liabilities, both the warrants and expired conversion option totaling $ 13.1 million were then recorded
as additional paid in capital upon automatic exercise of the warrants and payoff of the Debenture.
At March 31, 2021 and June 30, 2020, the estimated fair value of
derivative liabilities measured on a recurring basis are as follows:
|
|
|
Fair Value Measurements at
March
31, 2021
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
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|
|
|
|
|
Derivative liability - Warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
Derivative liability -Conversion option on convertible debenture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
Total derivatives
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fair Value Measurements at
|
|
|
June 30, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Derivative liability - Warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,411,504
|
|
|
$
|
16,411,504
|
|
Derivative liability -Conversion option on convertible debenture
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000,800
|
|
|
|
5,000,800
|
|
Total derivatives
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,412,304
|
|
|
$
|
21,412,304
|
|
The following table presents the activity for liabilities measured
at fair value using unobservable inputs for the nine months ended March 31, 2021:
|
|
Derivative liabilities - Warrants
|
|
Derivative liability - Conversion Option on Convertible Debenture
|
|
|
|
|
|
Beginning balance at July 1, 2020
|
|
$
|
16,411,504
|
|
|
$
|
5,000,800
|
|
Additions to level 3 liabilities
|
|
|
—
|
|
|
|
—
|
|
Change in in fair value of level 3 liability
|
|
|
(6,054,121
|
)
|
|
|
(2,225,798
|
)
|
Transfer in and/or out of Level 3
|
|
|
(10,357,383
|
)
|
|
|
(2,775,002
|
)
|
Balance at March 31, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
6.
|
Fair Value Measurements (continued)
|
Derivative liability – Warrants
The Company accounts for stock purchase warrants
as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements. Under applicable
accounting guidance, stock warrants that are precluded from being indexed to the Company’s own stock because of full-rachet
anti-dilution provisions or the adjustments to the strike price due to an occurrence of a future event; are accounted for as derivative
financial instruments. The stock warrants issued September 24, 2019 were not considered indexed to the Company’s own stock because
of the adjustment to strike price, an occurrence of a future event such as the Company’s pending capital raise.
The warrants associated with the level 3 liability
were issued on September 24, 2019 and were valued using the Black-Scholes-Merton model. The valuation at June 30, 2020 used the
following assumptions: stock price of $14, exercise price of $4.00, term of 5 year expiring April 2025, volatility of 76.61%, dividend
yield of 0%, and risk-free interest rate of 0.29%.
The valuation at September 22, 2020 of the
warrants associated with equity financing prior to their automatic exercise in full used were the following assumptions: stock
price of $9.55, exercise price of $4.00, term of 4 year expiring September 2024, volatility of 79.69%, dividend yield of 0%, and
risk-free interest rate of 0.21%. (See note 5 “Related Party Transactions”)
Derivative liability – Conversion
option in convertible debenture
The Company recognized a derivative liability
for the conversion option of the $2 million 10% OID Convertible Delayed Draw Debenture; which may be convertible into shares of
common stock at $4.00 per share prior to the completion of an offering or, subsequent to the closing of the offering, the lower
of $4.00 or 80% of the offering price per unit to the public in such offering and are mandatorily redeemable upon such closing
at 100% of the accrued principal amount and unpaid interest to the date of redemption. The valuation at June 30, 2020 used the
following assumptions: stock price of $14, conversion price of $4.00, term of 0.25 year expiring September 2020, volatility of
62.47%, dividend yield of 0%, and risk-free interest rate of 0.16%.
The valuation at September 22, 2020 used the
following assumptions: stock price of $9.55, conversion price of $4.00, term of 0.008 year expiring September 2020, volatility
of 45.49%, dividend yield of 0%, and risk-free interest rate of 0.01%.
The related Debenture was paid off in cash
on September 22, 2020, expiring the conversion option. (See note 5 “Related Party Transactions”)
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
Stock Options
The following table summarizes the activity
relating to the Company’s stock options for the nine months ended March 31, 2021:
|
|
Options
|
|
Weighted-Average Exercise Price
|
|
Weighted Remaining Average Contractual Term
|
|
Aggregate Intrinsic Value
|
Outstanding at June 30, 2020
|
|
|
60,400
|
|
|
$
|
11.06
|
|
|
|
4.2
|
|
|
$
|
352,600
|
|
Granted
|
|
|
698,000
|
|
|
|
14.63
|
|
|
|
4.7
|
|
|
|
954,239
|
|
Options Exercised or Forfeited
|
|
|
(3,200
|
)
|
|
|
4.76
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at March 31, 2021
|
|
|
755,200
|
|
|
$
|
13.85
|
|
|
|
4.4
|
|
|
$
|
1,516,511
|
|
Exercisable at March 31, 2021
|
|
|
236,500
|
|
|
$
|
13.85
|
|
|
|
4.4
|
|
|
$
|
1,516,511
|
|
The fair value of each option grant on the date of grant is estimated
using the Black-Scholes option. The pricing model reflected the following weighted-average assumptions for the nine months ended
March 31, 2021 and 2020:
|
March 31, 2021
|
|
March 31, 2020
|
Expected life of options (In years)
|
5
|
|
5
|
Expected volatility
|
77.05%
|
|
73.74%
|
Risk free interest rate
|
0.5%
|
|
1.63%
|
Dividend Yield
|
0%
|
|
0%
|
Expected volatility is based on the
historical volatilities of three comparable companies of the daily closing price of their respective common stock and the expected
life of options is based on historical data with respect to employee exercise periods. The Company accounts for forfeitures as
they are incurred.
The Company recorded stock-based compensation
expense of $803,604 and $2,340,533 for the three- and nine- month periods ended March 31, 2021, respectively, and $13,684 and $24,846
for the three- and nine- month periods ended March 31, 2020, respectively.
As of March 31, 2021, unrecognized stock-based
compensation cost was $3,721,620 which is expected to be recognized over a weighted-average period of approximately 3 years.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
7.
|
Equity Transactions (continued)
|
The following is a summary of stock
options outstanding and exercisable by exercise price as of March 31, 2021:
|
Exercise Price
|
|
Outstanding
|
|
Weighted Average Contract Life
|
|
Exercisable
|
|
$
|
2.80
|
|
|
|
7,200
|
|
|
|
3.8
|
|
|
|
7,200
|
|
|
$
|
3.75
|
|
|
|
4,800
|
|
|
|
2.8
|
|
|
|
4,800
|
|
|
$
|
6.25
|
|
|
|
1,600
|
|
|
|
2.6
|
|
|
|
1,600
|
|
|
$
|
7.50
|
|
|
|
25,600
|
|
|
|
4.9
|
|
|
|
25,600
|
|
|
$
|
8.75
|
|
|
|
1,600
|
|
|
|
3.0
|
|
|
|
1,600
|
|
|
$
|
9.54
|
|
|
|
800
|
|
|
|
4.5
|
|
|
|
800
|
|
|
$
|
9.90
|
|
|
|
800
|
|
|
|
4.5
|
|
|
|
800
|
|
|
$
|
12.50
|
|
|
|
4,000
|
|
|
|
1.8
|
|
|
|
4,000
|
|
|
$
|
13.91
|
|
|
|
691,600
|
|
|
|
4.7
|
|
|
|
172,900
|
|
|
$
|
25.00
|
|
|
|
1,600
|
|
|
|
1.5
|
|
|
|
1,600
|
|
|
$
|
26.25
|
|
|
|
4,400
|
|
|
|
1.1
|
|
|
|
4,400
|
|
|
$
|
27.50
|
|
|
|
800
|
|
|
|
1.0
|
|
|
|
800
|
|
|
$
|
28.75
|
|
|
|
1,600
|
|
|
|
1.4
|
|
|
|
1,600
|
|
|
$
|
31.25
|
|
|
|
4,000
|
|
|
|
0.6
|
|
|
|
4,000
|
|
|
$
|
42.09
|
|
|
|
4,800
|
|
|
|
4.8
|
|
|
|
4,800
|
|
Stock Warrants
The following table summarizes the warrants
activity during the nine months ended March 31, 2021:
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life (Years)
|
|
Aggregate Intrinsic Value
|
Outstanding and exercisable at June 30, 2020
|
|
|
1,374,667
|
|
|
$
|
7.72
|
|
|
|
4.2
|
|
|
$
|
13,799,331
|
|
Granted
|
|
|
293,248
|
|
|
$
|
6.61
|
|
|
|
5.0
|
|
|
$
|
—
|
|
Expired
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
(41,644
|
)
|
|
$
|
12.40
|
|
|
|
4.0
|
|
|
$
|
—
|
|
Exercised - Acuitas
|
|
|
(1,453,250
|
)
|
|
$
|
4.00
|
|
|
|
4.0
|
|
|
$
|
—
|
|
Outstanding and exercisable at March 31, 2020
|
|
|
173,021
|
|
|
$
|
10.49
|
|
|
|
3.4
|
|
|
$
|
2,203,264
|
|
Of the above warrants, 9,391 expire in fiscal
year ending June 30, 2022, 4,815 expire in fiscal year ending June 30, 2023, 110,140 expire in fiscal year ending June 30, 2025
and 48,675 expire in fiscal year ending June 30, 2026.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
7.
|
Equity Transactions (continued)
|
Issuance of common stock through
exercise of Stock Options and Warrants
On July 28, 2020, the Company issued 2,210
shares of common stock pursuant to a cashless exercise of stock options to purchase 3,200 shares at an average exercise price of
$4.76 per share.
On January 27, 2021, the Company issued 304
shares of common stock pursuant to a cashless exercise of warrants to purchase 320 shares at an average exercise price of $1.88
per share.
On March 23, 2021, the Company issued 27,000
shares of common stock pursuant to a cash exercise of warrants to purchase 27,000 shares at an average exercise price of $12.50
per share.
On March 24, 2021, the Company issued 14,324
shares of common stock pursuant to a cash exercise of warrants to purchase 14,324 shares at an average exercise price of $12.50
per share.
Issuance of warrants
On July 13, 2020, the Company issued
Warrants to purchase 203,250 shares of common stock to its controlling stockholder under the terms of the Bridge Financing. The
warrants were exercisable at an exercise price of $4 at any time from the date of issuance until 5 years from the date of issuance.
(See Note 5 Related Party Transactions.)
On September 22, 2020, the Company issued
warrants to purchase 89,998 shares of common stock to the underwriters of the Offering in connection with the close of the Offering
of registered Common Stock The warrants are exercisable at an exercise price of $12.50 at any time from date of issuance until
5 years from the date of issuance.
Issuance of stock options
On October 1, 2020, the Company issued stock
options to purchase 800 shares of common stock to the Chief Financial Officer as part of her compensation. The stock options were
issued and are exercisable at an exercise price of $9.54 at any time from date of issuance and expire 5 years from the date of
issuance.
On October 13, 2020, the Company issued stock
options to purchase 800 shares of common stock as part of the annual board of director compensation. The stock options were issued
and are exercisable at $9.90 at any time from date of issuance and expire 5 years from the date of issuance.
On December 18, 2020, the Company issued stock
options to purchase 691,600 shares of common stock as part of the annual board of director compensation. The stock options have
a vesting period, where 25% of the stock options vest on the grant date, and the remaining 75% vest over a 3 year period, on the
first, second, and third anniversary of the grant date. The stock options were issued and are exercisable at $13.91 at any time
from date of issuance and expire 5 years from the date of issuance. The amortization for the quarter ended March 31, 2021 was $679,276.
The remaining amortization over the next 5 years is $3,721,610.
On January 19, 2021, the Company issued stock
option grants to purchase a total of 4,800 shares of common stock, granting 800 shares each to the Chief Operations Officer, the
Chief Scientific Officer and to four of its key consultants as part of their annual compensation. The stock options were issued
and are exercisable at $42.09 at any time from date of issuance and expire 5 years from the date of issuance.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
8.
|
Commitments and Contingencies
|
Office Lease
On July 1, 2019, the Company’s
office moved with Acuitas’ new offices to 2120 Colorado Avenue Ste 230, Santa Monica, CA 90404. There is no lease agreement
for the new premises and the Company continues to accrue monthly lease payments of $1,000 for the new office under the terms of
the previous month-to-month lease for the previous premises which may be cancelled upon 30 days’ written notice.
Challenge to US Patent
On April 30, 2018, we received notice that
Mallinckrodt had petitioned the U.S. Patent and Trademark Office (“USPTO”) to institute an Inter Partes Review of our
U.S. Patent No. 9,655,945 titled “Treatment of Ascites” (the “’945 patent”). Inter Partes Review
is a trial proceeding conducted with the USPTO Patent Trial and Appeal Board (PTAB) to review the patentability of one or more
claims of a patent. Such review is limited to grounds of novelty and obviousness on the basis of prior art consisting of patents
and printed publications.
On November 13, 2019, the Patent Trial and
Appeal Board of the United States Patent and Trademark Office (the “Board”) issued a written decision in the inter
partes review (“IPR”) action that was brought by Mallinckrodt Pharmaceuticals Ireland Limited (“Mallinckrodt”)
against BioVie Inc. (“BioVie” or “Company”). In that action, Mallinckrodt sought to invalidate BioVie’s
patent (U.S. Pat. No. 9,655,945, “Treatment of Ascites”) (the “’945 Patent”). In its decision, the
Board determined that all claims of the ‘945 Patent were not patentable because they were either anticipated or obvious in
light of prior art. The Board also denied BioVie’s Motion to Amend the claims on similar grounds. The result of the Board’s
decision is that the ‘945 patent is no longer valid or enforceable. Acuitas Group Holdings, LLC was aware of this patent
challenge when it purchased a majority ownership interest in the company in July 2018.
This ruling is unrelated to the Company’s
Orphan drug designations for ascites and hepatorenal syndrome (“HRS”), which remain unchanged. An Orphan drug that
is first-to-market typically receives 7 years of market exclusivity in the United States for the designated use(s). In addition,
the ruling does not affect the Company’s rights in its pending patent application directed to proprietary liquid formulations
of terlipressin for use in its planned Phase 2 and Phase 3 trials, subject to FDA clearance, which could eventually provide up
to 20 years of patent coverage in each country in which the Company seeks patent protection, such as the United States, if a patent
issues from a patent application according to the patent laws of each issuing country.
Royalty Agreements
Pursuant to the Agreement and Plan of Merger
entered into on April 11, 2016 between our predecessor entities, LAT Pharma LLC and NanoAntibiotics, Inc., BioVie is obligated
to pay a low single digit royalty on net sales of BIV201 (continuous infusion terlipressin) to be shared among LAT Pharma Members,
PharmaIn Corporation, and The Barrett Edge, Inc.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31, 2021
and 2020
(unaudited)
8.
|
Commitments and Contingencies (continued)
|
The Company and PharmaIN Corporation, LAT Pharma’s
former partner focused on the development of new modified drug candidates in the same therapeutic field but not including BIV201,
had agreed to pay royalties equal to less than 1% of future net sales of each company's ascites drug development programs, or if
such program is licensed to a third party, less than 5% of each company's net license revenues. On December 24, 2018, the Company
returned its partial ownership rights to the PharmaIN modified terlipressin development program and simultaneously paid the remaining
balance due on a related debt. PharmaIN, Corp. rights to our program remain unchanged. Additionally, the Company obligation to
pay a low single digit royalty on the net sales of BIV201 (continuous infusion terlipressin) to be shared among LAT Pharma LLC
members, and The Barrett Edge, Inc. pursuant to the Agreement and Plan of Merger, dated April 11, 2016, by and between LAT Pharma
LLC. The Company has an obligation to pay a low single digit royalty on net sales of all terlipressin products covered by specified
patents up to a maximum of $200,000 per year pursuant to the Technology Transfer Agreement, dated July 25, 2016, by and between
us and the University of Padova (Italy).
Pursuant to the Technology Transfer Agreement entered into on July
25, 2016 between BioVie and the University of Padova (Italy), BioVie is obligated to pay a low single digit royalty on net sales
of all terlipressin products covered by US patent no. 9,655,645 and any future foreign issuances capped at a maximum of $200,000
per year.
On April 19, 2021, the Company issued
724 shares of common stock pursuant to a cashless exercise of warrants to purchase 760 shares at an average exercise price of $1.88
per share.
On April 30, 2021, the Company issued 13,500
shares of common stock pursuant a cash exercise of warrants at $12.50 per share.
On April 27, 2021, the Company entered into a Purchase Agreement with NeurMedix, and Acuitas,
which are related party affiliates, pursuant to which the Company has agreed to acquire certain assets from NeurMedix and assume
certain liabilities of NeurMedix, in exchange for the consideration described below. The acquired assets include, among others,
those related to certain drug candidates being developed by NeurMedix, including NE3107, a small molecule orally administered inhibitor
of insulin resistance and the pathological inflammatory cascade, with a novel mechanism of action that has potential applications
for treatment against Alzheimer’s Disease and Parkinson’s Disease.
At the closing of the Transaction, BioVie will
issue to NeurMedix 8,361,308 shares of the Company’s common stock and make a cash payment equal to the aggregate amount of
NeurMedix’s direct and documented cash expenditures to advance certain clinical programs from March 1, 2021 through the closing,
which cash payment is estimated to be approximately $3.0 million. Subject to the terms and conditions of the Purchase Agreement,
following the closing, BioVie will also be obligated to deliver contingent consideration to NeurMedix (or its successor) consisting
of (i) a cash payment of approximately $7.3 million, subject to a pivotal clinical trial for NE3107 meeting its primary endpoint(s)
and BioVie having successfully raised at least $50 million in new capital, and (ii) shares of BioVie’s common stock having
an aggregate value of up to $3.0 billion, subject to the achievement of certain clinical, regulatory and commercial milestones
related to the drug candidates to be acquired by the Company from NeurMedix, as more fully set forth in the Purchase Agreement.
On
May 9, 2021, the Company, NeurMedix and Acuitas entered into Amendment No. 1 to the APA (the Amendment and the APA as so
amended, the Purchase Agreement), pursuant to which the parties agreed, among other things, to modify the contingent stock
consideration that BioVie may be obligated to deliver to NeurMedix (or its successor) pursuant to the Purchase Agreement. Previously,
BioVie was obligated to deliver contingent stock consideration to NeurMedix (or its successor) consisting of shares of BioVies
common stock having an aggregate value of up to $3.0 billion, subject to the achievement of certain clinical, regulatory and commercial
milestones related to the drug candidates to be acquired by BioVie from NeurMedix, and subject to a cap limiting each issuance of shares
if such issuance would result in the beneficial ownership of NeurMedix and its affiliates exceeding 89.9999% of BioVies issued
and outstanding common stock. Pursuant to the Amendment, BioVie will be obligated to deliver contingent stock consideration to NeurMedix
(or its successor) consisting of up to 18.0 million shares of BioVies common stock, with 4.5 million shares issuable upon the
achievement of each of the four milestones set forth in the Purchase Agreement, subject to a cap limiting the issuance of shares if such
issuance would result in the beneficial ownership of NeurMedix and its affiliates exceeding 87.5% of BioVies issued and outstanding
common stock.
The Transaction is expected to close twenty
calendar days after a related definitive information statement on Schedule 14C is mailed to the Company’s stockholders and
is anticipated to close in the second calendar quarter of 2021.