Notes to Condensed Financial Statements
For the Six Months Ended December
31, 2017 and 2016
(unaudited)
BioVie Inc. (the “Company”)
is a clinical-stage company pursuing the discovery, development, and commercialization of innovative drug therapies. The Company
is currently focused on developing and commercializing BIV201, a novel approach to the treatment of ascites due to chronic liver
cirrhosis. In March 2017, the Company received notification from the FDA that it could initiate a Phase 2a US clinical trial. In
April the Company signed a Cooperative Research and Development Agreement (CRADA) with the McGuire Research Institute/VA in Richmond,
VA, and began dosing patients with BIV201 in September 2017.
BIV201 has the potential to improve
the health of thousands of patients suffering from life-threatening complications of liver cirrhosis due to hepatitis, 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. The FDA has never approved any drug specifically for treating ascites.
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 have exchanged small
(low single-digit) ownership rights to each other’s ascites drug development programs. The Company has an issued US Patent
covering the use of BIV201 for the treatment of ascites patients in the outpatient setting using ambulatory pump infusion, and
has filed a patent application for its drug candidate in Japan, as well as a Partnership in Clinical Trials (PCT) in Europe.
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, 2017, the
Company had a net loss of $1,165,523. As of December 31, 2017, the Company has not yet 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 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.
BIOVIE INC.
Notes to Condensed Financial
Statements
For the Six Months Ended December
31, 2017 and 2016
(unaudited)
3.
|
Significant
Accounting Policies (continued)
|
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 the Company’s cash balances were fully insured at December 31, 2017.
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 $228,695 for research and development
for the six months ended December 31, 2017.
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, 2017 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 year. 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 year. For the six months ended December 31, 2017 all outstanding options have been excluded
from the calculation of the diluted net loss per share since their effect was anti-dilutive.
Use of estimates
The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
BIOVIE INC.
Notes to Condensed Financial
Statements
For the Six Months Ended December
31, 2017 and 2016
(unaudited)
3.
|
Significant
Accounting Policies (continued)
|
The table below shows the number of
outstanding options and shares as of December 31,2017.
|
Number of Shares (Thousands)
|
Stock Options
|
4,550
|
Warrants
|
9,231
|
Total
|
13,781
|
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
The carrying value of the Company’s
financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments
include accrued payroll, accounts payable, accrued expenses and related party advances.
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.
LAT Pharma
was given a zero-interest bearing loan by the Company’s CEO, 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. On June 16
th
,
2017, the Company was given an additional $25,000 zero-interest bearing loan by Jonathan Adams. During the year ended December
31, 2017, the Company repaid $35,000 and the loan no longer has an outstanding balance.
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 $369.
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.
On September 24, 2017, the Board of
Directors of BioVie Inc. appointed R. Richard Wieland II as an interim Chief Financial Officer of BioVie. Mr. Wieland is
an experienced executive in the healthcare field, having previously served as Chief Financial Officer of several other biopharmaceutical
companies.
BIOVIE INC.
Notes to Condensed Financial
Statements
For the Six Months Ended December
31, 2017 and 2016
(unaudited)
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.
During
the six month ended December 31, 2017, 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
|
|
09/21/2017
|
|
10/13/2017
|
|
10/25/2017
|
|
10/27/2017
|
|
11/10/2017
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.23
|
|
Exercise Price
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.23
|
|
Term (expected term for options)
|
|
|
2.000
|
|
|
|
2.000
|
|
|
|
2.000
|
|
|
|
2.000
|
|
|
|
2.000
|
|
Volatility
|
|
|
32.75
|
%
|
|
|
31.95
|
%
|
|
|
31.61
|
%
|
|
|
31.56
|
%
|
|
|
31.46
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Discount Rate - Bond Equivalent Yield
|
|
|
1.45
|
%
|
|
|
1.50
|
%
|
|
|
1.60
|
%
|
|
|
1.60
|
%
|
|
|
1.64
|
%
|
Call Option Value ($Millions)
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
Fair Value
|
|
$
|
3,903
|
|
|
$
|
3,825
|
|
|
$
|
5,993
|
|
|
$
|
3,989
|
|
|
$
|
4,366
|
|
Stock option activity for the Company's plans for the period ended December 31, 2017 is summarized
below:
|
|
|
Weighted
|
|
|
|
Weighed-
|
Average
|
Aggregate
|
|
|
Average
|
Remaining
|
Intrinsic
|
|
Shares
|
Exercise
|
Contractual
|
Value
|
Options
|
(Thousands)
|
Price
|
Term
|
(Thousands)
|
Outstanding at July 1, 2016
|
3,000
|
0.06
|
2
|
-
|
Granted
|
1,000
|
0.24
|
2
|
-
|
Outstanding at June 30, 2017
|
4,000
|
0.10
|
2
|
-
|
Granted
|
550
|
0.21
|
2
|
-
|
Outstanding at December 31, 2017
|
4,550
|
0.12
|
2
|
-
|
Exercisable as of December 31, 2017
|
2,550
|
0.16
|
2
|
-
|
The compensation expense for the six
months ended December 31, 2017 includes $17,696 related to the stock options described above. The legal and professional expenses
for the six months ended December 31, 2017 includes $22,076 related to the stock options described above. The estimated compensation
expense for the next six months ended June 30, 2018 is $17,696.
Offerings of Common Stock and Warrants
In August 2017, the Company sold and
issued an aggregate of 886,364 shares of common stock and warrants to purchase 443,182 shares of common stock in a private placement
transaction for aggregate gross proceeds of approximately $195,000. The purchase price for the common stock and warrants was $0.22
per share. The warrants are exercisable at an exercise price of $0.60 at any time from date of issuance until 5 years from the
date of issuance.
In August 2017, the Company issued
1,500,000 shares of common stock to Aspire Capital in a private placement transaction in exchange for services. The shares were
valued at $0.22 per share, and the value of the services were $330,000.
BIOVIE INC.
Notes to Condensed Financial
Statements
For the Six Months Ended December
31, 2017 and 2016
(unaudited)
6.
|
Stock Options (continued)
|
Between July 2017 and September 2017,
the Company sold an aggregate of 250,000 shares of common stock in transactions under the Aspire Equity Line for aggregate gross
proceeds of $50,000. The average purchase price for the common stock was $0.20 per share.
In August 2017, the Company issued an
aggregate of 32,727 shares of common stock to compensate certain initial investors who purchased common stock at a $0.25 share
price in a Series C offering prior to a reduction in the offering price to $0.22 per share.
In October 2017, the Company sold and
issued an aggregate of 159,091 shares of common stock and warrants to purchase 79,545 shares of common stock in a private placement
transaction for aggregate gross proceeds of approximately $35,000. The purchase price for the common stock and warrants was $0.22
per share. The warrants are exercisable at an exercise price of $0.60 at any time from date of issuance until 5 years from the
date of issuance.
In November 2017, the Company issued
150,000 shares of common stock in a private placement transaction in exchange for services. The shares were valued at $0.23 per
share, and the value of the services were $34,500. The Company also sold and issued an aggregate of 68,182 shares of common stock
and warrants to purchase 34,091 shares of common stock in a private placement transaction for aggregate gross proceeds of approximately
$15,000. The purchase price for the common stock and warrants was $0.22 per share. The warrants are exercisable at an exercise
price of $0.60 at any time from date of issuance until 5 years from the date of issuance.
In December 2017, the Company issued
warrants to purchase 2,500,000 shares of common stock in a private placement transaction for aggregate gross proceeds of $100,000.
The purchase price for the warrants were $0.04 per warrant. The warrants are exercisable at an exercise price of $0.20 at any time
from date of issuance until 7 years from the date of issuance.
The following table summarizes the warrants
that have been issued:
Aggregate Number of Warrants Issued
|
|
Exercise Price
|
|
Issue Date
|
|
Expiration Date
|
|
5,000,000
|
|
|
$
|
0.50
|
|
|
April 2013
|
|
April 2018
|
|
112,500
|
|
|
$
|
0.50
|
|
|
October 2016
|
|
October 2021
|
|
125,000
|
|
|
$
|
0.50
|
|
|
November 2016
|
|
November 2021
|
|
50,000
|
|
|
$
|
0.50
|
|
|
December 2016
|
|
December 2021
|
|
500,000
|
|
|
$
|
0.50
|
|
|
January 2017
|
|
January 2022
|
|
250,000
|
|
|
$
|
0.50
|
|
|
March 2017
|
|
March 2022
|
|
120,000
|
|
|
$
|
0.60
|
|
|
May 2017
|
|
May 2022
|
|
79,545
|
|
|
$
|
0.60
|
|
|
July 2017
|
|
July 2022
|
|
363,636
|
|
|
$
|
0.60
|
|
|
August 2017
|
|
August 2022
|
|
79,545
|
|
|
$
|
0.60
|
|
|
October 2017
|
|
October 2022
|
|
34,091
|
|
|
$
|
0.60
|
|
|
November 2017
|
|
November 2022
|
|
2,500,000
|
|
|
$
|
0.20
|
|
|
December 2017
|
|
December 2024
|
BIOVIE INC.
Notes to Condensed Financial
Statements
For the Six Months Ended December
31, 2017 and 2016
(unaudited)
On March 23,
2017, Barrett Ehrlich agreed to defer the payment of his consulting fee debt of $173,333.33 until December 31, 2019, through
the issuance of a Promissory note. The promissory note does not carry any interest charge as long as the amount is paid
in full before December 31, 2019. The consulting fee debt has thereby been reclassified from a current liability to
a long-term liability on the balance sheet. Any portion of the balance due under the note that remains unpaid after December
31, 2019 will accrue interest at a rate of 5% per annum until paid in full.
On March 23,
2017, Elliot Ehrlich agreed to forgive 50% of his salary debt of $444,056.25. The adjusted salary debt is $222,028.13.
Elliot Ehrlich also agreed to defer the payment of his salary debt of $222,028.13 until December 31, 2019, through the issuance
of a Promissory note. The promissory note does not carry any interest charge as long as the amount is paid in full before December
31, 2019. The salary debt has thereby been reclassified from a current liability to a long-term liability on the balance
sheet and the salary debt forgiven has been reflected on the income statement as other income. Any portion of the balance
due under the note that remains unpaid after December 31, 2019 will accrue interest at a rate of 5% per annum until paid
in full.
On March 23,
2017, Jonathan Adams agreed to defer the payment of his salary debt of $180,555.64 until December 31, 2019, through the issuance
of a Promissory note. The promissory note does not carry any interest charge as long as the amount is paid in full before December
31, 2019. The salary debt has thereby been reclassified from a current liability to a long-term liability on the balance
sheet. Any portion of the balance due under the note that remains unpaid after December 31, 2019 will accrue interest
at a rate of 5% per annum until paid in full.
8. Subsequent Event
In January 2018, the Company sold an
aggregate of 333,333 shares of common stock in a private placement transaction for aggregate gross proceeds of $50,000. The purchase
price for the common stock was $0.15 per share.