Notes to Financial Statements
For the Six Months Ended December
31, 2016 and 2015
(unaudited)
1.
|
Background Information
|
BioVie Inc. (F/K/A NanoAntibiotics,
Inc.) (the “Company”) is a development stage enterprise that was incorporated in the state of Nevada on April 10, 2013. The
Company is engaged in the discovery, development and commercialization of a therapy targeting ascites due to liver cirrhosis. Ascites
due to liver cirrhosis is a life-threatening condition affecting about 100,000 Americans and many times more worldwide. Our therapy
BIV201 is based on a drug that’s 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 US. 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. 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.
We currently own all development and marketing rights to our drug candidate, except as noted previously, the Company and PharmaIN
have exchanged small (low single-digit) ownership rights to each other’s ascites drug development programs. The Company recently
filed patent applications for its drug candidate in the US and Japan, as well as a PCT in Europe. We are currently completing the
work necessary to file our investigational new drug (IND) application, and aim to commence clinical trials should the FDA approve
our application.
The Company’s activities are subject
to significant risks and uncertainties including failure to secure additional funding to properly execute the company’s business
plan.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. For the six months ended December 31, 2016, the
Company had a net loss of $709,141. As of December 31, 2016, the Company has not earned any revenues. In view of these
matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations
and to achieve a level of profitability. Since inception, the Company has financed its activities principally from the sale of
public equity securities. The Company intends on financing its future development activities and its working capital needs largely
from the sale of public equity securities with some additional funding from other traditional financing sources, including term
notes and proceeds from sub-licensing agreements until such time that funds provided by operations are sufficient to fund working
capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company
be unable to continue as a going concern.
3.
|
Significant Accounting Policies
|
Unaudited Interim Financial Statements
The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim
financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the financial statements
do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments
consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position;
(b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading. The
results of operations for such interim periods are not necessarily indicative of operations for a full year.
Basis of Presentation
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash
Cash is maintained at financial institutions
and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All
of our cash balances were fully insured at December 31, 2016.
Financial Instruments
The Company’s financial instruments
include cash and accounts payable. The carrying amounts of cash and accounts payable approximate their fair value, due to the short-term
nature of these items.
Research and Development
Research and development costs are charged
to operations when incurred and are included in operating expenses. The Company expensed $255,829 for research and development
for the six months ended December 31, 2016.
Income Taxes
Deferred income tax assets and liabilities
arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities,
as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and
liabilities are classified as current or non-current, depending on the classification of the assets or liabilities to which they
relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending
on the periods in which the temporary differences are expected to reverse.
The Company follows the provisions of
FASB ASC 740-10 “
Uncertainty in Income Taxes
” (ASC 740-10), January 1, 2007. The Company has not recognized
a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized
tax benefits has not been provided since there are no unrecognized benefits at December 31, 2016 and since the date of adoption.
The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an
unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense
and penalties in operating expenses.
Earnings (Loss) per Share
Basic earnings per share are computed
by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings
per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding and dilutive
options outstanding during the period. For the six months ended December 31, 2016 all outstanding options have been excluded from
the calculation of the diluted net loss per share since their effect was anti-dilutive.
Stock-based Compensation
The Company recognizes all share-based
payments to employees, including grants of employee stock options, as compensation expense in the financial statements based on
their fair values. That expense will be recognized over the period during which an employee is required to provide services in
exchange for the award, known as the requisite service period (usually the vesting period).
Fair Value Measurements
In September 2006, the Financial Accounting
Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements
of assets and liabilities. The Company adopted the standard for those financial assets and liabilities as of the beginning of the
2013 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 “
Fair
Value Measurements and Disclosures
” (ASC 820) defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information
available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 - Inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that
are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs
that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value
measurement and unobservable.
Fair value estimates discussed herein
are based upon certain market assumptions and pertinent information available to management as of December 31, 2016. The respective
carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of
these instruments. These financial instruments include accrued payroll.
Recent accounting pronouncements
The Company has reviewed recent accounting pronouncements
issued by the FASB (including its EITF), the AICPA, and the SEC and did not or are not believed by management to have a material
impact on the Company’s financial statements.
4. Related Party Loan
LAT Pharma was given a zero-interest bearing loan by the
company’s General Partner, Jonathan Adams in the amount of $5,000 in August 2015 and $5,000 in November 2015. The total of
$10,000 was outstanding when the Company merged with LAT Pharma. As of December 31
th
, 2016 the Company has an outstanding
balance of $10,000 payable on demand to the CEO, Jonathan Adams.
5. Commitments and Contingencies
Office Lease
On January 1, 2014 the Company executed
a lease agreement with Cummings Properties for the company’s office of 270 square feet at 100 Cummings Center, Suite 247-C,
Beverly, MA 01915. The lease is for a term of five years from January 1, 2014 to December 30, 2018 and requires monthly payments
of $357 ($4,284 annually for each of the five years, total aggregate of $21,420).
Employment Agreements
On April 11, 2016 the Company entered
into employment agreement with CEO Jonathan Adams. The Company’s agreement provides for a three-year term with minimum annual
base salary of $250,000 per year. Effective April 11, 2016, the (previous) CEO/CFO resigned.
Deferred taxes are recorded for all
existing temporary differences in the Company’s assets and liabilities for income tax and financial reporting purposes. Due
to the valuation allowance for deferred tax assets, as noted below, there were no net deferred tax benefit or expense for the six
months ended December 31, 2016.
There is no current or deferred income
tax expense or benefit allocated to continuing operations for the six months ended December 31, 2016.
The provision for income taxes is different
from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing
this difference are as follows:
|
|
December 31, 2016
|
|
June 30, 2016
|
Tax expense (benefit) at U.S. statutory rate
|
|
$
|
(241,116
|
)
|
|
$
|
(111,343
|
)
|
State income tax expense (benefit), net of federal benefit
|
|
|
(35,458
|
)
|
|
|
(16,374
|
)
|
Effect of non-deductible expenses
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
276,574
|
|
|
|
127,717
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 were as follows:
Deferred tax assets (liability), noncurrent:
|
|
|
Net operating loss
|
|
$
|
668,422
|
|
Valuation allowance
|
|
|
(668,422
|
)
|
|
|
$
|
—
|
|
Change in valuation allowance:
Balance, June 30, 2016
|
|
$
|
391,848
|
|
Increase in valuation allowance
|
|
|
276,574
|
|
Balance, December 31, 2016
|
|
|
668,422
|
|
Since management of the Company believes
that it is more likely than not that the net deferred tax assets will not provide future benefit, the Company has established a
100 percent valuation allowance on the net deferred tax assets as of December 31, 2016.
As of December 31, 2016, the Company
had federal and state net operating loss carry-forwards totaling approximately $1,700,000 which begin expiring in 2022.
7. Purchase of LAT Pharma
On April 11, 2016, the Company entered into
and consummated an Agreement and Plan of Merger (the “Merger Agreement”), with LAT Acquisition Corp., a Nevada corporation
and wholly-owned subsidiary of the Company (“Acquisition”) and LAT Pharma, LLC an Illinois limited liability company
(“LAT”). Pursuant to the terms of the Merger Agreement, Acquisition merged with and into LAT in a statutory triangular
merger (the “Merger”) with LAT surviving as a wholly-owned subsidiary of the Company. As consideration for the Merger,
the Company issued the interest holders of LAT (the “LAT Holders”) an aggregate of 39,820,000 shares of our Common
Stock issued to the LAT Holders in accordance with their pro rata ownership of LAT membership interests prior to the Merger. Following
the Merger, the Registrant will continue the development of LAT’s lead clinical therapeutic candidate Continuous low-dose
Infusion (CI) Terlipressin.
Immediately prior to the Merger, the Company
had 87,210,000 shares of Common Stock issued and outstanding. In connection with the Merger, certain shareholders of the Company
collectively agreed to retire and cancel an aggregate of 39,869,999 shares of Common Stock. Following the consummation of the Merger,
the issuance of the Merger Shares of the 39,820,000 shares of Common Stock, the Company had 87,160,001 shares of Common Stock issued
and outstanding and the LAT Holders beneficially own 39,820,000 shares or approximately forty-six percent (46%) of such issued
and outstanding Common Stock.
Under the purchase method of accounting, the
transaction was valued for accounting purposes at $2,389,200, which was the estimated fair value of the consideration paid by the
Company. The estimate was based on the consideration paid of 39,820,000 shares of common stock valued based on the closing price
on 04/11/2016 of $0.06 per share.
The assets and liabilities of LAT Pharma,
Inc. were recorded at their respective fair values as of the closing date of the Merger Agreement, and the following table summarizes
these values based on the balance sheet at April 11, 2016.
$
|
2,303,682
|
|
|
|
Assets Purchased
|
|
260,193
|
|
|
|
Liabilities Assumed
|
|
2,043,489
|
|
|
|
Net Assets Purchased
|
|
2,389,200
|
|
|
|
Purchase Price
|
$
|
345,711
|
|
|
|
Goodwill from Purchase
|
Intangible asset detail
$
|
2,293,770
|
|
|
Intangible Intellectual Property
|
|
345,711
|
|
|
Goodwill
|
|
2,639,481
|
|
|
Intangible Asset from Purchase
|
Under the 338(h)(10) election, intangibles
related to the acquisition of LAT Pharma will be fully deductible for tax purposes.
The intangible intellectual property
is amortized over 10 years.
|
|
December 2016
|
|
December 2015
|
Intangible Assets subject to Amortization
|
|
$
|
2,293,770
|
|
|
$
|
—
|
|
Amortization Expense in current year
|
|
$
|
57,344
|
|
|
$
|
—
|
|
Accumulated Amortization at year end
|
|
$
|
165,724
|
|
|
$
|
—
|
|
The previous year amortization expense
has been amortized for the period from April 11, 2016 to June 30, 2016. The estimated Amortization expense for each of the five
succeeding fiscal years will be approximately $229,300 per year.
8. Stockholders’ Equity
Offering of Stock Options
In connection with the employment agreement
signed with the Chief Financial Officer on April 11, 2016, Jonathan Adams received options to acquire 3 million shares exercisable
at $0.06 per share, the closing price on that date. These Options Group A shall become vested and exercisable (i) as to 1 million
shares on April 11, 2017, (ii) as to 1 million shares on April 11, 2018, and (iii) as to 1 million shares on April 11, 2019.
The fair market value of the stock options
is estimated using the Black Scholes valuation model and the Company uses the following methods to determine its underlying assumptions:
expected volatilities are based on the historical volatilities of 3 comparable companies of the daily closing price of their respective
common stock; the expected term of options granted is based on the average time outstanding method; and the risk free interest
rate is based on the US Treasury bonds issued with similar life terms to the expected life of the grant.
The following key assumptions were used
in the valuation model to value stock option grants for each respective period:
Valuation Date
|
|
4/11/2016
|
4/11/2016
|
4/11/2016
|
Stock Price
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
Exercise Price
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
Term (expected term for options)
|
|
|
1.00
|
|
|
2.00
|
|
|
3.00
|
|
Volatility
|
|
|
56.49
|
%
|
|
58.45
|
%
|
|
97.82
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
Discount Rate - Bond Equivalent Yield
|
|
|
0.53
|
%
|
|
0.70
|
%
|
|
0.85
|
%
|
Call Option Value ($Millions)
|
|
$
|
0.01
|
|
$
|
0.02
|
|
$
|
0.04
|
|
Fair Value
|
|
$
|
13,467
|
|
$
|
19,523
|
|
$
|
36,489
|
|
The Company issued stock options to
consultants and board of directors for services provided to the company. The following key assumptions were used in the valuation
model to value stock option grants for each respective period:
Valuation Date
|
|
11/16/2016
|
12/18/2016
|
Stock Price
|
|
$
|
0.25
|
|
$
|
0.21
|
|
Exercise Price
|
|
$
|
0.25
|
|
$
|
0.21
|
|
Term (expected term for options)
|
|
|
2.00
|
|
|
2.00
|
|
Volatility
|
|
|
43.12
|
%
|
|
43.12
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
|
0.00
|
%
|
Discount Rate - Bond Equivalent Yield
|
|
|
1.02
|
%
|
|
1.15
|
%
|
Call Option Value ($Millions)
|
|
$
|
0.06
|
|
$
|
0.05
|
|
Fair Value
|
|
$
|
30,919
|
|
$
|
15,646
|
|
Stock option transactions under the
Company’s plans for the years ended December 31st, 2016 is summarized below:
|
|
|
Weighted
|
|
|
|
Weighed-
|
Average
|
Aggregate
|
|
|
Average
|
Remaining
|
Intrinsic
|
|
Shares
|
Exercise
|
Contractual
|
Value
|
Options
|
(Thousands)
|
Price
|
Term
|
(Thousands)
|
Outstanding at June 30, 2016
|
3,000
|
0.06
|
2
|
-
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
-
|
Outstanding at September 30, 2016
|
3,000
|
0.06
|
2
|
-
|
Granted
|
800
|
0.24
|
2
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
-
|
Outstanding at December 31, 2016
|
3,800
|
0.10
|
2
|
-
|
The compensation expense includes $8,848
related to the stock options described above. The Legal and Professional fee includes $2,416 related to the stock options described
above.
Offerings of Common Stock and Warrants
In September 2016, the Company sold
and issued an aggregate of 49,999 shares of common stock in a private placement transaction for aggregate gross proceeds of approximately
$5,000. The purchase price for the common stock was $0.10 per share.
In October 2016, the Company sold and
issued an aggregate of 225,000 shares of common stock and warrants to purchase 112,500 shares of common stock in a private placement
transaction for aggregate gross proceeds of approximately $45,000. The purchase price for the common stock and warrants was $0.20
per unit. The warrants are exercisable at an exercise price of $0.50 at any time from date of issuance until 5 years from the date
of issuance.
In November 2016, the Company sold and
issued an aggregate of 250,000 shares of common stock and warrants to purchase 125,000 shares of common stock in a private placement
transaction for aggregate gross proceeds of approximately $50,000. The purchase price for the common stock and warrants was $0.20
per unit. The warrants are exercisable at an exercise price of $0.50 at any time from date of issuance until 5 years from the date
of issuance.
9. Subsequent Event
Subsequent to December 31, 2016, the
Company sold and issued an aggregate of 100,000 shares of common stock and warrants to purchase 50,000 shares of common stock in
a private placement transaction for aggregate gross proceeds of approximately $20,000. The purchase price for the common stock
and warrants was $0.20 per unit. The warrants are exercisable at an exercise price of $0.50 at any time from date of issuance until
5 years from the date of issuance.
On January 4, 2017, the Company,
entered into a common stock purchase agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois
limited liability company (“Aspire Capital”) which provides that, on the terms and subject to the conditions and limitations
set forth therein, Aspire Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s
common stock over the 30-month term of the Purchase Agreement. On execution of the Purchase Agreement, the Company agreed to sell
to Aspire Capital 1,000,000 shares of common stock and warrants to purchase 500,000 shares of common stock for proceeds of $200,000.
The Warrant Shares will each have a five-year term and will be exercisable at $0.50 per share. Concurrently with entering into
the Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital (the “Registration
Rights Agreement”), in which the Company agreed to file one or more registration statements, as permissible and necessary
to register under the Securities Act of 1933, as amended (the “Securities Act”), registering the sale of the shares
of the Company’s common stock that have been and may be issued to Aspire Capital under the Purchase Agreement.
Under the Purchase agreement, after
the Securities and Exchange Commission (the “SEC”) has declared effective the registration statement referred to above,
on any trading day selected by the Company, the Company has the right, in its sole discretion, to present Aspire Capital with a
purchase notice (each, a “Purchase Notice”), directing Aspire Capital (as principal) to purchase up to 100,000 shares
of the Company’s common stock per business day, up to $12.0 million of the Company’s common stock in the aggregate
at a per share price (the “Purchase Price”) equal to the lesser of:
-
the lowest sale price of the Company’s
common stock on the purchase date; or
-
the arithmetic average of the three
(3) lowest closing sale prices for the Company’s common stock during the twelve (12) consecutive trading days ending on the
trading day immediately preceding the purchase date.
In addition, on
any date on which the Company submits a Purchase Notice to Aspire Capital in an amount equal to 100,000 shares and the closing
sale price of our stock is equal to or greater than $0.30 per share, the Company also has the right, in its sole discretion, to
present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing
Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of the Company’s common stock traded
on its principal market on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares the
Company may determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 95% of the volume-weighted
average price for the Company’s common stock traded on its principal market on the VWAP Purchase Date.
The Purchase Price will be adjusted
for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the period(s)
used to compute the Purchase Price. The Company may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital
from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
The Purchase Agreement provides that
the Company and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale
price of the Company’s common stock is less than $0.10. There are no trading volume requirements or restrictions under the
Purchase Agreement, and the Company will control the timing and amount of sales of the Company’s common stock to Aspire Capital.
Aspire Capital has no right to require any sales by the Company, but is obligated to make purchases from the Company as directed
by the Company in accordance with the Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants,
restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase
Agreement. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement,
the Company issued to Aspire Capital 2,400,000 shares of the Company’s common stock (the “Commitment Shares”).
The Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost to the Company. Aspire
Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect
short-selling or hedging of the Company’s common stock during any time prior to the termination of the Purchase Agreement.
Any proceeds that the Company receives under the Purchase Agreement are expected to be used for working capital and general corporate
purposes.