Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
1.
|
Background Information
|
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. As of April 2018, three patients had been treated with BIV201
therapy in this ongoing Phase 2a clinical trial.
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 nine months ended March 31, 2018, the Company
had a net loss of $1,858,080. As of March 31, 2018, the Company had a working capital deficit of $1,055,676 and had
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.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
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 and should be read in conjunction with a reading of the Company’s form 10-K filed with the SEC on August 24, 2017.
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.
Use of Estimates
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. The Company has never experienced
any losses related to these balances. All of the Company’s cash balances were fully insured at March 31, 2018.
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 $275,116
for research and development for the nine months ended March 31, 2018.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
3.
|
Significant Accounting Policies (continued)
|
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 March, 31, 2018 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 nine months ended March 31, 2018 all outstanding options have been excluded from the
calculation of the diluted net loss per share since their effect was anti-dilutive.
The table below shows the number
of outstanding options and shares as of March 31,2018.
|
Number of Shares (Thousands)
|
Stock Options
|
5,150
|
Warrants
|
9,774
|
Total
|
14,924
|
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
3.
|
Significant Accounting Policies (continued)
|
Stock-based Compensation
The Company has accounted for stock-based
compensation under the provisions of FASB ASC 718 – “Stock Compensation” which requires the use of the fair-value
based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity
instruments (stock options and common stock purchase warrants). For employee awards, the fair value of each stock option award
is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected
dividends, expected term, and the risk-free interest rate. For non-employees, the fair value of each stock option award is estimated
on the measurement date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends,
expected term, and the risk-free interest rate. For non-employees, the Company utilizes the graded vesting attribution method under
which the entity treats each separately vesting portion (tranche) as a separate award and recognizes compensation cost for each
tranche over its separate vesting schedule. Expected volatilities are based on historical volatility of peer companies and other
factors estimated over the expected term of the stock options. For employee awards, the expected term of options granted is derived
using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract
term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected
term.
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.
Goodwill
Goodwill is recorded when the purchase
price paid for an acquisition exceeds the fair value of net identified tangible and intangible assets acquired. The Company performs
an annual impairment test of goodwill and further periodic tests to the extent indicators of impairment develop between annual
impairment tests. The Company’s impairment review process compares the fair value of the reporting unit to its carrying value,
including the goodwill related to the reporting unit. To determine the fair value of the reporting unit, the Company may use various
approaches including an asset or cost approach, market approach or income approach or any combination thereof. These approaches
may require the Company to make certain estimates and assumptions including future cash flows, revenue and expenses. These estimates
and assumptions are reviewed each time the Company tests goodwill for impairment and are typically developed as part of the Company’s
routine business planning and forecasting process. While the Company believes its estimates and assumptions are reasonable, variations
from those estimates could produce materially different results. The Company did not recognize any goodwill impairments for the
year ended June 30
th
, 2017
Impairment of Long-Lived Assets
Long-lived assets, including intangible
assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds
its undiscounted estimated future cash flows, an impairment review is performed. An impairment charge is recognized in the amount
by which the carrying amount of the asset exceeds the fair value of the asset. Generally, fair value is determined using valuation
techniques such as expected discounted cash flows or appraisals, as appropriate. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated
or amortized. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
3.
|
Significant Accounting Policies (continued)
|
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.
Intangible Assets
The
company’s intangible assets consist of intellectual property acquired from LAT Pharma, Inc., and are amortized over their
estimated useful lives as indicated below. The following is a summary of the intangible assets as of March 31, 2018 and 2017.
|
|
March 31, 2018
|
|
June 30, 2017
|
Intangible Assets subject to Amortization
|
|
$
|
2,013,357
|
|
|
$
|
2,242,733
|
|
Accumulated Amortization
|
|
$
|
172,033
|
|
|
$
|
229,376
|
|
Intangible Assets (Net of Amortization
|
|
$
|
1,841,324
|
|
|
$
|
2,013,357
|
|
Future expected Amortization of
intangible assets is as follows:
Year Ending June 30,
|
|
2018 (Remaining in Year)
|
$ 57,344
|
2019
|
$ 229,376
|
2020
|
$ 229,376
|
2021
|
$ 229,376
|
2022
|
$ 229,376
|
Thereafter
|
$ 866,473
|
|
$ 1,841,324
|
5. Related Party Loan
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 quarter ended
December 31, 2017, the Company repaid the $35,000 outstanding balance of the loan. During the quarter ended March 31, 2018, the
company was given an additional $25,000 zero-interest bearing loan by Jonathan Adams which is currently outstanding. As of March
31, 2018, the balance of the loans was $25,000.
6.
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 $379.
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.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
7. Related Party Transactions
On March 23,
2017, Barrett Ehrlich agreed to defer the payment of his consulting fee debt of $173,333 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. The adjusted salary debt is $222,028.13.
Elliot Ehrlich also agreed to defer the payment of his salary debt of $222,028 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 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.
In January 2018, the Company
sold an aggregate of 333,333 shares of common stock and warrants to purchase 333,333 shares of common stock to a member of its
board of directors for aggregate gross proceeds of $50,000. The purchase price for the common stock and warrants was $0.15 per
share. The warrants are exercisable at an exercise price of $0.15 at any time from date of issuance until 7 years from the date
of issuance. The Company also issued 30,000 shares of common stock in exchange for services. The shares were valued at $0.13 per
share, and the value of the services were $3,900.
8. Stockholders’ Equity
Stock Options
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 nine months ended March 31,
2018, 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:
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighed-
|
|
Remaining
|
|
|
|
|
Average
|
|
Average
|
|
|
Shares
|
|
Exercise
|
|
Contractual
|
Options
|
|
(Thousands)
|
|
Price
|
|
Term
|
|
Outstanding at July 1, 2016
|
|
|
|
3,000
|
|
|
$
|
0.06
|
|
|
|
|
|
|
Granted
|
|
|
|
1,000
|
|
|
$
|
0.24
|
|
|
|
4
|
|
|
Outstanding at June 30, 2017
|
|
|
|
4,000
|
|
|
$
|
0.10
|
|
|
|
4
|
|
|
Granted
|
|
|
|
1,250
|
|
|
$
|
0.15
|
|
|
|
5
|
|
|
Outstanding at March 31, 2018
|
|
|
|
5,250
|
|
|
$
|
0.12
|
|
|
|
5
|
|
|
Exercisable at March 31, 2018
|
|
|
|
5,250
|
|
|
$
|
0.12
|
|
|
|
5
|
|
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
8. Stockholders’ Equity (continued)
The fair value of options granted during
the three months ended March 31, 2018 was estimated using the Black Scholes Method and the following assumptions: volatility -
124.7% to 143.46%; Term – 5 years; Risk Free Rate – 2.45% to 2.61%; dividend rate – 0.00%.
The compensation expense for the nine
months ended March 31, 2018 includes $16,443 related to the stock options described above. The future estimated compensation expense
related to stock options is estimated to be $3,900 for the quarter ended June 30, 2018 and $10,135 for the year ended June 2018.
The legal and professional expenses for the nine months ended March 31, 2018 includes $175,391 related to the stock options described
above.
Offerings of Common Stock and Warrants
In July 2017 and 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 exchange for services. The shares were valued at $0.22 per share, and the value of
the services were $330,000.
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 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 November 2017, the Company extended
the maturity date of stock options issued to the board of directors between November 2017 and November 2017 by 3 years. The Company
recorded an incremental expense of $79,491.
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
8. Stockholders’ Equity (continued)
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.
In January 2018, the Company sold
an aggregate of 333,333 shares of common stock and warrants to purchase 333,333 shares of common stock to a member of its
board of directors for aggregate gross proceeds of $50,000. The purchase price for the common stock and warrants was $0.15
per share. The warrants are exercisable at an exercise price of $0.15 at any time from date of issuance until 7 years from
the date of issuance. The Company also issued 30,000 shares of common stock in exchange for services. The shares were valued
at $0.13 per share, and the value of the services were $3,900.
In January 2018, the company
also issued 1,400,000 shares of common stock as compensation for the Board of Directors. The shares were valued at $0.15 per share,
and the value of the compensation was $210,000. The Company also issued warrants to purchase 105,000 shares of common stock in
exchange for services. The warrants are exercisable at an exercise price of $0.15 any time from the date of issuance until 7 years
from the date of issuance. The warrants were valued at $9,444.
In February 2018, the Company
issued 600,000 shares of common stock in a private placement transaction in exchange for services. The shares were valued at $0.0475
per share, and the value of the services were $28,500. The Company also issued warrants to purchase 105,000 shares of common stock
in a termination agreement. The warrants are exercisable at an exercise price of $0.15 any time from the date of issuance until
7 years from the date of issuance. The warrants were valued at $3,025.
The following table summarizes
the warrants that have been issued:
|
|
Weighted Average
|
Weighted Average
|
|
Number of Shares
|
Exercise Price
|
Remaining Life (Years)
|
Outstanding at June 30, 2017
|
6,173,864
|
$ 0.50
|
0.7
|
Granted
|
3,600,150
|
$ 0.22
|
6.3
|
Outstanding at March 31, 2018
|
9,774,014
|
$ 0.40
|
2.8
|
BIOVIE INC.
Notes to Condensed Financial Statements
For the Nine Months Ended March 31,
2018 and 2017
(unaudited)
8. Stockholders’ Equity (continued)
The following table summaries
the stock option information as of March 31, 2018
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Contract
|
|
|
Exercise Price
|
|
Outstanding
|
|
Life
|
|
Exercisable
|
$
|
0.06
|
|
|
|
3,100,000
|
|
|
|
No expiration
|
|
|
|
1,100,000
|
|
$
|
0.10
|
|
|
|
500,000
|
|
|
|
4.8
|
|
|
|
500,000
|
|
$
|
0.20
|
|
|
|
200,000
|
|
|
|
4.5
|
|
|
|
200,000
|
|
$
|
0.21
|
|
|
|
550,000
|
|
|
|
4.1
|
|
|
|
550,000
|
|
$
|
0.22
|
|
|
|
100,000
|
|
|
|
4.0
|
|
|
|
100,000
|
|
$
|
0.23
|
|
|
|
200,000
|
|
|
|
4.4
|
|
|
|
200,000
|
|
$
|
0.25
|
|
|
|
500,000
|
|
|
|
3.6
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
5,150,000
|
|
|
|
4.2
|
|
|
|
3,150,000
|
|
9. Subsequent Event
On
March 29, 2018, the Company received a short-term convertible loan in the amount of $30,000 from Mr. Cuong Do, who is a
member of its Board of Directors. Under the terms of the loan, BioVie must repay the principle amount of the loan in full plus
simple interest of 10 percent not later than
May 29, 2018
. BioVie also has
the right, instead, at any time up to and including the maturity date of the loan, to convert the outstanding balance of the loan
into BioVie stock to be issued to Mr. Do at a conversion price of 2.5 cents per share. Alternatively, Mr. Do also has the right
to require such conversion during that same period of time by forgoing the accrued interest.
On
April 25, 2018, the Company received a short-term convertible loan in the amount of $100,000 from Mr. Cuong Do, who is a
member of its Board of Directors. Under the terms of the loan, BioVie must repay the principle amount of the loan in full plus
simple interest of 10 percent not later than
June 25, 2018
. BioVie also has
the right, instead, at any time up to and including the maturity date of the loan, to convert the outstanding balance of the loan
into BioVie stock to be issued to Mr. Do at a conversion price of 2.5 cents per share. Alternatively, Mr. Do also has the right
to require such conversion during that same period of time by forgoing the accrued interest.
On
April 30, 2018, the Company received notice that Mallinckrodt Pharmaceuticals Ireland Limited had petitioned the US
Patent and Trademark Office (USPTO) to institute an
Inter Partes
Review of BioVie’s US 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. Although a petition for Inter Partes Review has been filed, grant of
the petition by the PTAB is required for the proceeding to be instituted. BioVie will oppose the request to
institute the IPR, and if it is allowed to proceed, we will oppose the full proceedings. BioVie is confident in the validity
of the ‘945 patent.
On
May 9, 2018, the Company received a short-term convertible loan in the amount of $30,000 from Mr. James Lang, who is a
member of its Board of Directors. Under the terms of the loan, BioVie must repay the principle amount of the loan in full plus
simple interest of 10 percent not later than
July 9, 2018
. BioVie also has
the right, instead, at any time up to and including the maturity date of the loan, to convert the outstanding balance of the loan
into BioVie stock to be issued to Mr. Lang at a conversion price of 2.5 cents per share. Alternatively, Mr. Lang also has the right
to require such conversion during that same period of time by forgoing the accrued interest.