Notes
to Condensed Financial Statements
For
the Three and Six Months Ended December 31, 2022 and 2021
(unaudited)
|
1. |
Background
Information |
BioVie
Inc. (the “Company” or “we” or “our”) is a clinical-stage company developing innovative drug therapies
to treat chronic debilitating conditions including neurological and neuro-degenerative disorders and liver disease.
The
Company acquired the biopharmaceutical assets of NeurMedix, Inc. (“NeurMedix”), a privately held clinical-stage pharmaceutical
company, in June 2021 (See Note 5 Related Party Transactions). The acquired assets included NE3107, a potentially selective inhibitor
of inflammatory extracellular single-regulated kinase(“ERK”) signaling that, based on animal studies, is believed to reduce
neuroinflammation. NE3107 is a novel orally administered small molecule that is thought to inhibit inflammation-driven insulin resistance
and major pathological inflammatory cascades with a novel mechanism of action. There is emerging scientific consensus that both inflammation
and insulin resistance may play fundamental roles in the development of Alzheimer’s Disease (AD) and Parkinson’s Disease
(PD), and NE3107 could, if approved represent an entirely new medical approach to treating these devastating conditions affecting an
estimated 6 million Americans suffering from AD and 1 million Americans suffering from PD. In August 2021, the Company initiated the
FDA authorized potentially pivotal Phase 3 randomized, double-blind, placebo-controlled, parallel group, multicenter study to evaluate
NE3107 in subjects who have mild to moderate AD (NCT04669028). The Company is targeting primary completion of this study in the third
quarter of calendar year 2023.
In
December 2022, the Company released topline results from its Phase 2 study assessing NE3107’s safety and tolerability and potential
pro-motoric impact in Parkinson’s disease patients. The NM201 study (NCT05083260) was a double-blind, placebo-controlled, safety,
tolerability, and pharmacokinetics study in PD participants treated with carbidopa/levodopa and NE3107. Forty-five patients with a defined
L-dopa “off state” were randomized 1:1 to placebo: NE3107 20 mg twice daily for 28 days. The trial was launched with two
design objectives: 1) the primary objectives are safety and a drug-drug interaction study (as requested by the FDA) to demonstrate the
absence of adverse interactions of NE3107 with levodopa; and 2) the secondary objective is to determine if preclinical indications of
promotoric activity and apparent enhancement of levodopa activity can be seen in humans. Both objectives of the study were met. The Company
continues to process its findings from its completed NM201 study as it prepares for the next round of clinical studies in PD.
Neuroinflammation,
insulin resistance, and oxidative stress are common features in the major neurodegenerative diseases, including AD, PD, frontotemporal
lobar dementia, and Amyotrophic lateral sclerosis (ALS). NE3107 is an oral small molecule, blood-brain permeable, compound with potential
anti-inflammatory, insulin sensitizing, and ERK-binding properties that may allow it to selectively inhibit ERK-, NFκB- and TNF-stimulated
inflammation. NE3107’s potential to inhibit neuroinflammation and insulin resistance forms the basis for the Company’s work
testing the molecule in AD and PD patients. NE3107 is patented in the United States, Australia, Canada, Europe and South Korea.
The Company’s Orphan drug candidate BIV201
(continuous infusion terlipressin), with FDA Fast Track status, is being evaluated in a US Phase 2b study for the treatment of refractory
ascites due to liver cirrhosis with top-line results anticipated in mid-2023. BIV201 is administered as a patent-pending liquid formulation.
The active agent is approved in the U.S. and in about 40 countries for related complications of advanced liver cirrhosis.
The
BIV201 development program was initiated by LAT Pharma LLC (“LAT Pharma”). On April 11, 2016, the Company acquired LAT Pharma
and the rights to its BIV201 development program. The Company currently owns all development and marketing rights to this drug candidate.
Pursuant to the Agreement and Plan of Merger entered into on April 11, 2016, between our predecessor entities, LAT Pharma and NanoAntibiotics,
Inc., BioVie is obligated to pay a low single digit royalty on net sales of BIV201 (continuous infusion terlipressin), if approved, to
be shared by the members of LAT Pharma, PharmaIn Corporation and The Barrett Edge, Inc
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; 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, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and
marketing agreements for its products, if approved; and the Company’s ability to raise capital to support its operations. 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 December 31, 2022, the Company had working capital
of approximately $38.2
million, cash of approximately $45.7
million, stockholders’ equity of approximately
$26.1
million, and an accumulated deficit of approximately
$277.1
million. The Company has not generated
any revenue to date and no revenue is expected in the foreseeable future. The Company’s future operations are dependent on the
success of the Company’s ongoing development and commercialization efforts, as well as its ability to secure additional financing
as needed. Although our cash balance may sustain operations over the next 12 months from the balance sheet date if measures
are taken to delay planned expenditures in our research protocols and slow the progress in the Company’s clinical programs, the
Company’s current planned operations to meet certain goals and objectives project cash flows to be depleted within that period
of time.
Management
expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions.
The
duration and spread of the COVID-19 pandemic and the long-term impact of COVID-19 and any variants on the financial markets and the overall
economy continue to be highly uncertain and cannot be predicted at this time. 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. In addition, the COVID-19
pandemic has created a widespread labor shortage, including a shortage of medical professionals, and has impacted and may continue to
impact the potential patient participation in our studies, which may adversely impact our ability to continue or complete our clinical
trials on the Company’s planned timeline.
Although
management continues to pursue the Company’s strategic 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. |
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 and Exchange Commission (the “SEC”) 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
condensed 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, 2022 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
should be read in conjunction with the Company’s audited financial statements for the fiscal years ended June 30, 2022 and 2021
in our Annual Report on Form 10-K filed with the SEC on September 27, 2022. For a summary of significant accounting policies, see the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on September 27, 2022 (the “2022
Form 10-K”).
Certain
prior period amounts have been reclassified for consistency with the current period presentation.
Net
loss per Common Share
Basic
net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of
shares of Class A common stock, par value $0.0001 per share (“common stock”), outstanding during the period. Diluted net
loss per common share is computed by dividing the net loss 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 three and six months ended
December 31, 2022 and 2021, such amounts were excluded from the diluted loss since their effect was considered anti-dilutive due to the
net loss for the period.
The
table below shows the number of outstanding stock options and warrants as of December 31, 2022 and 2021:
Schedule of Dilutive securities were excluded from the computation of diluted loss per share | |
| | | |
| | |
| |
December 31,
2022 | | |
December 31,
2021 | |
| |
Number
of Shares | | |
Number
of Shares | |
Stock
Options | |
| 3,448,797 | | |
| 2,047,910 | |
Warrants | |
| 7,770,285 | | |
| 519,763 | |
Total | |
| 11,219,082 | | |
| 2,567,673 | |
Recent
Accounting Pronouncements
The
Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). There have been no recent ASUs
that are expected to have a material impact on the Company’s balance sheets or statements of operations since the 2022 Form 10-K.
The
Company’s intangible assets consist of intellectual property acquired from LAT Pharma. and are amortized over their estimated useful
lives.
The following is a summary of the Company’s intangible assets as of December 31, 2022 and June 30, 2022:
Schedule of intangible assets | |
| | | |
| | |
| |
December 31,
2022 | | |
June 30,
2022 | |
Intellectual
Property | |
$ | 2,293,770 | | |
$ | 2,293,770 | |
Less
Accumulated Amortization | |
| (1,541,986 | ) | |
| (1,427,298 | ) |
Intellectual
Property, Net | |
$ | 751,784 | | |
$ | 866,472 | |
Amortization
expense was $57,344 in each of the three-month periods ended December 31, 2022 and 2021. Amortization expense was $114,688 and $114,689
in each of the six-month periods ended December 31, 2022 and 2021, respectively. The Company amortizes intellectual property over the
expected, original useful lives of 10 years.
Estimated
future amortization expense is as follows:
Schedule of future amortization expense | |
| | |
Year
ending June 30, 2023 (Remaining six months) | |
$ | 114,689 | |
2024 | |
| 229,377 | |
2025 | |
| 229,377 | |
2026 | |
| 178,341 | |
Intellectual Property, Net | |
$ | 751,784 | |
|
5. |
Related
Party Transactions |
Equity
Transactions with Acuitas
On
July 15, 2022, the Company entered into a securities purchase agreement with Acuitas Group Holdings, LLC (Acuitas), the Company’s
majority stockholder, pursuant to which Acuitas agreed to purchase from the Company, in a private placement, (i) an aggregate of 3,636,364
shares of the Company’s common stock, at a price of $1.65 per share (the “PIPE Shares”), and (ii) a warrant to purchase
7,272,728 shares of Common Stock (“PIPE Warrant Shares”), at an exercise price of $1.82, with a term of exercise of five
years. The warrant has a down round feature that reduces the exercise price of the warrant if the Company sells stock at a price lower
than the exercise price of the warrant. On August 15, 2022, the Company received net proceeds of approximately $5.9 million, net of costs
of approximately $94,000, and entered into an amended and restated registration agreement with Acuitas, which amended and restated that
certain registration rights agreement, dated as of June 10, 2021, by and between the Company and Acuitas (the “Existing Registration
Rights Agreement”), to amend the definition of “Registrable Securities” in the Existing Registration Rights Agreement
to include the PIPE Shares and the PIPE Warrant Shares as Registrable Securities thereunder.
Asset
Acquisition with NeurMedix
On
April 27, 2021, the Company entered into an Asset Purchase Agreement (“APA”) with NeurMedix and Acuitas, which are related
party affiliates, pursuant to which the Company acquired certain assets from NeurMedix and assumed certain liabilities of NeurMedix,.
The acquired assets include, among others, certain assets related to the drug candidates then being developed by NeurMedix, including
NE3107. On June 10, 2021, and pursuant to the terms of the APA, the Company issued to Acuitas (as NeurMedix’s assignee) 8,361,308
shares of the Company’s common stock and made a cash payment to Acuitas of approximately $2.3 million. Since the transaction was
between entities under common control, there were no fair value adjustments of the purchased assets, and the historical cost basis of
the purchased assets was zero. The total consideration paid was expensed as in process research and development expense in the year ended
June 30, 2021.
Previously,
the Company was obligated to deliver contingent stock consideration to NeurMedix (or its successor) consisting of shares of the Company’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, 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 the Company’s
issued and outstanding common stock. Subject to the terms and conditions of the APA, as amended, the Company may now be obligated to
deliver contingent stock consideration to NeurMedix (or its successor) consisting of up to 18 million shares of the Company’s common
stock, with 4.5 million shares issuable upon the achievement of each of the four milestones set forth in the APA, 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 the
Company’s issued and outstanding common stock.
The
current portion of other liabilities at December 31, 2022 were $338,698 and at June 30, 2022 was $1.31,304,925 million, including $338,698 and
$580,614, respectively, of retention bonus payable for arrangements with certain employees. The payment terms of the total retention
bonus arrangements of $1,161,000 recognized in August 2021 provided for equal monthly installments over a 24-month period and began in August
2021.
On
November 30, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement and the Supplement to the
Loan and Security Agreement and Promissory Notes (together, the “Loan Agreement”) with Avenue Venture Opportunities Fund,
L.P. (“AVOPI”) and Avenue Venture Opportunities Fund II, L.P. (“AVOPII,” and together with AVOPI, “Avenue”)
for growth capital loans in an aggregate commitment amount of up to $20 million (the “Loan”). On the Closing Date, $15 million
of the Loan was funded (“Tranche 1”). The Loan provided for an additional $5 million to be available to the Company on or
prior to September 15, 2022, subject to the Company’s achievement of certain milestones with respect to certain of its ongoing
clinical trials, which were not achieved. The Loan bears interest at an annual rate equal to the greater of (a) the sum of 7.00% plus the prime rate as reported
in The Wall Street Journal and (b) 10.75%. The prime rate at December 31, 2022 was 7.5%. The Loan is secured by a lien upon and security
interest in all of the Company’s assets, including intellectual property, subject to agreed exceptions. The maturity date of the
Loan is December 1, 2024.
The
Loan Agreement requires monthly interest-only payments during the first eighteen months of the term of the Loan. Following the
interest-only period, the Company will make equal monthly payments of principal, plus accrued interest, until the Loan’s
maturity date when all remaining principal and accrued interest is due. If the Company prepays the Loan, it will be required to pay
(a) a prepayment fee in an amount equal to 3.0% of the principal amount of the Loan that is prepaid during the interest-only period;
and (b) a prepayment fee in an amount equal to 1.0% of the principal amount of the Loan that is prepaid after the interest-only
period. At the Loan’s maturity date, or on the date of the prepayment of the Loan, the Company will be obligated to pay
a final payment equal to 4.25% of the Loan commitment amount, the sum of Tranche 1 and Tranche 2.
The
Loan Agreement includes a conversion option to convert up to $5.0 million of the principal amount of the Loan outstanding at the option
of Avenue , into shares of the Company’s common stock at a conversion price of $6.98 per share.
On
the Closing Date, the Company issued to Avenue warrants to purchase 361,002 shares of common stock of the Company (the “Avenue
Warrants”) at an exercise price per share equal to $5.82. The Avenue Warrants are exercisable until November 30, 2026.
The
amount of the carrying value of the notes payable was determined by allocating portions of the outstanding principal of the notes;
approximately $1.4
million to the fair value of the Avenue Warrants and approximately $2.2 million to the fair value of the embedded conversion option.
Accordingly, the total amount of unearned discount of approximately $3.7
million, the total direct financing cost of approximately $390,000
and premium of $850,000
are recognized on an effective interest method over the term of the Loan. The adjusted effective interest rate is 25%. The total
interest expense of approximately $1.1
million for the three months ended December 31, 2022, was recognized in the accompanying statements of operations and included the
interest only payments totaling approximately $518,000,
the amortization of financing costs of approximately $43,000,
unearned discount of approximately $400,000
and the accretion of loan premium of approximately $93,000. The total interest expense of approximately $2.1
million for the six- months ended December 31, 2022, was recognized in the accompanying statements of operations and included
interest only payments totaling approximately $987,000,
the amortization of financing costs of approximately $85,000,
unearned discount of approximately $800,000
and the accretion of loan premium of approximately $237,000.
As
of December 31, 2022, the remaining principal balance of $15 million under the Loan is payable in 18 monthly equal installments beginning
July 1, 2023; for a total of $10.0 million and $5.0 million in the fiscal years ended June 30, 2024 and 2025 respectively.
The
following is a summary of the Notes Payable as of December 31, 2022 and June 30, 2022:
Schedule of note payable | |
| | | |
| | |
| |
December 31,
2022 | | |
June 30,
2022 | |
Notes
Payable | |
$ | 15,000,000 | | |
$ | 15,000,000 | |
Less
debt financing costs | |
| (205,680 | ) | |
| (290,790 | ) |
Less
unearned discount | |
| (1,935,080 | ) | |
| (2,735,802 | ) |
Plus
accretion of loan premium | |
| 401,818 | | |
| 165,278 | |
Notes
Payable, net of financing costs, unearned premiums and discount | |
$ | 13,261,058 | | |
$ | 12,138,686 | |
Estimated
future amortization expense and accretion of premium is as follows:
Schedule of Estimated future amortization expense and accretion of premium | |
| | | |
| | | |
| | |
| |
Unearned
Discount | | |
Debt
Financing Costs | | |
Loan
accretion Premium | |
Year
ending June 30, 2023 (Remaining 6 months) | |
$ | 800,723 | | |
$ | 85,111 | | |
$ | 185,455 | |
2024 | |
| 1,023,145 | | |
| 108,751 | | |
| 236,970 | |
2025 | |
| 111,212 | | |
| 11,820 | | |
| 25,755 | |
Total | |
$ | 1,935,080 | | |
$ | 205,682 | | |
$ | 448,180 | |
8. |
Fair
Value Measurements |
At
December 31, 2022 and June 30, 2022, the estimated fair value of derivative liabilities measured on a recurring basis are as follows:
Schedule of derivative liabilities at fair value | |
| | | |
| | | |
| | | |
| | |
| |
December
31, 2022 | |
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Derivative
liability Warrants | |
$ | - | | |
$ | - | | |
$ | 1,842,560 | | |
$ | 1,842,560 | |
Derivative
liability Conversion option on notes payable | |
| - | | |
| - | | |
| 2,328,553 | | |
| 2,328,553 | |
Total
derivatives | |
$ | - | | |
$ | - | | |
$ | 4,171,113 | | |
$ | 4,171,113 | |
| |
Fair
Value Measurements at | |
| |
June
30, 2022 | |
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Derivative
liability Warrants | |
$ | - | | |
$ | - | | |
$ | 194,531 | | |
$ | 194,531 | |
Derivative
liability Conversion option on note payable | |
| - | | |
| - | | |
| 188,030 | | |
| 188,030 | |
Total
derivatives | |
$ | - | | |
$ | - | | |
$ | 382,561 | | |
$ | 382,561 | |
The
following table presents the activity for liabilities measured at fair value using unobservable inputs for the six months ended December
31, 2022:
Fair value, liabilities measured on recurring basis | |
| | | |
| | |
| |
Derivative
liabilities Avenue Warrants | | |
Derivative
liability Conversion Option on Convertible Debenture | |
Balance
at July 1, 2022 | |
$ | 194,531 | | |
$ | 188,030 | |
Additions
to level 3 liabilities | |
| - | | |
| - | |
Change
in in fair value of level 3 liability | |
| 1,648,029 | | |
| 2,140,523 | |
Transfer
in and/or out of Level 3 | |
| - | | |
| - | |
Balance
at December 31, 2022 | |
$ | 1,842,560 | | |
$ | 2,328,553 | |
The
following table presents the activity for liabilities measured at fair value using unobservable inputs for the six months ended December
31, 2021:
| |
Derivative
liabilities Avenue Warrants | | |
Derivative
liability Conversion Option on Convertible Debenture | |
Balance
at July 1, 2021 | |
$ | - | | |
$ | - | |
Additions
to level 3 liabilities | |
| 1,456,512 | | |
| 2,213,466 | |
Change
in fair value of level 3 liability | |
| (559,553 | ) | |
| (995,701 | ) |
Transfer
in and/or out of Level 3 | |
| - | | |
| - | |
Balance
at December 31, 2021 | |
$ | 896,959 | | |
$ | 1,217,765 | |
The
fair values of derivative liabilities for the Avenue Warrants and conversion option at December 31, 2022 in the accompanying balance
sheet, were approximately $1.8 million and approximately $2.3 million, respectively. The total change in the fair value of the
derivative liabilities totaled approximately $3.2 million and $3.8 million for the three and six months ended December 31, 2022,
respectively; and accordingly, was recorded in the accompanying statement of operations. The assumptions used in the Black Scholes
model to value the derivative liabilities at December 31, 2022 included the closing stock price of $7.77
per share; for the Avenue Warrants, the exercise price of $5.82, 4-year
term, risk free rate of 4.11%
and volatility of 78.5%;
and for the embedded derivative liability of the conversion option, the conversion price of $6.98; 2-year
term, risk free rate of 4.41%
and volatility of 66.9%.
Derivative
liability – Avenue 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 and anti-dilution provisions or adjustments to the strike price due to an occurrence of a future event are accounted for as derivative financial instruments. The
Avenue Warrants were not considered to be indexed to the Company’s own stock, and accordingly, were recorded as a derivative liability at fair
value in the accompany balance sheet at December 31, 2022.
The
Black Scholes model was used to calculate the fair value of the warrant derivative to bifurcate the warrant derivative amount from
the Avenue Loan amount funded. The Avenue Warrants are recorded at their fair values at the date of issuance and remeasured at
December 31, 2022. The assumptions used for the fair value calculation at November 30, 2021 included: the closing stock price of
$6.44
per share; the exercise price of $5.82; 5
year term; a risk free rate of 1.14%
and volatility of 74.4%.
Embedded
derivative liability – Conversion Option
The embedded derivative liability represents the
optional conversion feature of up to $5.0 million of the outstanding Loan, which meets the definition of a derivative and requires bifurcation
from the loan amount.
The
Black Scholes model was used to calculate the fair value of the embedded derivative to bifurcate the embedded derivative amount representing
the conversion option from the Loan amount funded. The assumption used for the fair value calculation at November 30, 2021 included:
the closing stock price of $6.44 per share; the conversion price of $6.98; 3 year term; risk free rate of 0.81% and volatility of 76.85%.
Stock
Options
The
following table summarizes the activity relating to the Company’s stock options for the six months ended December 31, 2022:
Schedule of summarizes the activity relating to the Company’s stock options | |
| | | |
| | | |
| | | |
| | |
| |
Options | | |
Weighed-Average
Exercise Price | | |
Weighted
Remaining Average Contractual Term | | |
Aggregate
Intrinsic Value | |
Outstanding
at June 30, 2022 | |
| 3,398,764 | | |
| 7.42 | | |
| 6.8 | | |
| - | |
Granted | |
| 205,000 | | |
| 6.08 | | |
| 5.2 | | |
| 347,350 | |
Options
Expired | |
| (5,200 | ) | |
| 28.69 | | |
| - | | |
| - | |
Options
Canceled | |
| (49,667 | ) | |
| 7.74 | | |
| - | | |
| - | |
Options
Exercised | |
| (100,100 | ) | |
| 7.60 | | |
| - | | |
| - | |
Outstanding
at December 31, 2022 | |
| 3,448,797 | | |
$ | 7.29 | | |
| 6.2 | | |
$ | 5,601,237 | |
Exercisable
at December 31, 2022 | |
| 1,008,808 | | |
$ | 9.19 | | |
| 5.8 | | |
$ | 703,756 | |
The
fair value of each option grant on the date of grant is estimated using the Black-Scholes option. The pricing model reflects the following
weighted-average assumptions for the six months ended December 31, 2022 and 2021:
Schedule of assumptions used | |
| |
|
| |
December 31,
2022 | |
December 31,
2021 |
Expected
life of options (In years) | |
5.2 | |
5 |
Expected
volatility | |
79.52% | |
74.96% |
Risk
free interest rate | |
3.61% | |
0.80% |
Dividend
Yield | |
0% | |
0% |
Expected
volatility is based on the historical volatilities of the daily closing price of the common stock of three comparable companies 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
total stock option-based compensation expense for three-month ended December 31, 2022 and 2021 was of $1,712,787 and $1,147,422, respectively
and for the six months ended December 31,2022 and 2021 was $2,591,427 and $3,074,384, respectively.
The
following is a summary of stock options outstanding and exercisable by exercise price as of December 31, 2022:
| Schedule of summary of stock options outstanding and exercisable | | |
| | | |
| | | |
| | |
Exercise
Price | | |
Outstanding | | |
Weighted
Average Contract Life | | |
Exercisable | |
$ | 1.69 | | |
| 124,520 | | |
| 4.5 | | |
| - | |
$ | 1.81 | | |
| 10,000 | | |
| 4.4 | | |
| - | |
$ | 1.98 | | |
| 72,000 | | |
| 4.4 | | |
| 2,000 | |
$ | 2.74 | | |
| 124,167 | | |
| 9.1 | | |
| - | |
$ | 2.80 | | |
| 5,600 | | |
| 2.1 | | |
| 5,600 | |
$ | 3.20 | | |
| 248,167 | | |
| 9.1 | | |
| 24,833 | |
$ | 3.24 | | |
| 25,000 | | |
| 9.1 | | |
| - | |
$ | 3.75 | | |
| 4,800 | | |
| 1.1 | | |
| 4,800 | |
$ | 5.04 | | |
| 755,000 | | |
| 4.6 | | |
| 188,750 | |
$ | 5.21 | | |
| 10,000 | | |
| 9.9 | | |
| - | |
$ | 6.12 | | |
| 195,000 | | |
| 4.9 | | |
| - | |
$ | 6.25 | | |
| 1,600 | | |
| 0.8 | | |
| 1,600 | |
$ | 7.50 | | |
| 1,600 | | |
| 1.0 | | |
| 1,600 | |
$ | 7.74 | | |
| 1,241,668 | | |
| 8.6 | | |
| 447,000 | |
$ | 8.75 | | |
| 1,600 | | |
| 1.0 | | |
| 1,600 | |
$ | 9.54 | | |
| 800 | | |
| 2.8 | | |
| 800 | |
$ | 9.90 | | |
| 800 | | |
| 2.8 | | |
| 800 | |
$ | 12.50 | | |
| 4,000 | | |
| 0.1 | | |
| 4,000 | |
$ | 13.91 | | |
| 618,475 | | |
| 3.0 | | |
| 321,425 | |
$ | 42.09 | | |
| 4,000 | | |
| 3.1 | | |
| 4,000 | |
| | | |
| 3,448,797 | | |
| | | |
| 1,008,808 | |
Issuance
of common stock for cash
During
the three months ended September 30, 2021, the Company issued 2,592,000 of its Class A common stock at $8.00 per share in connection
with its registered public offering of approximately $18.5 million, net of issuance costs of approximately $2.2 million.
On
August 31, 2022, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with
Cantor Fitzgerald & Co. and B. Riley Securities, Inc. (collectively, the “Agents”), pursuant to which the Company
may issue and sell from time-to-time shares of the Company’s common stock through the Agents, subject to the terms and
conditions of the Sales Agreement. During the three months ended December 31, 2022, the Company sold 4,312,741 shares
of common stock under the Sales Agreement for total net proceeds of $32.5 million
after 3%
commissions and expenses of approximately $1.2 million. During
the six months ended December 31, 2022, the Company sold 5,857,613 shares of common stock under the Sales Agreement for total net
proceeds of $38.4 million after 3% commissions and expenses of approximately $1.6 million.
Issuance of common stock through exercise of stock options and warrants
During
the three months ended December 31, 2022, the Company issued 21,882 shares of common stock pursuant to a cashless exercise of stock options
to purchase 99,300 shares at an average exercise price of $7.64
In
November 2022, the Company issued 800 shares of common stock pursuant to a cash exercise of stock options to purchase 800 shares at an
average exercise price of $2.80 per share.
In
October, the Company issued 3,590 shares of common stock pursuant to a cashless exercise of warrants to purchase 8,000 shares at an average
exercise price of $2.25.
Issuance
of restricted stock units for services
On
August 20, 2021, the Company awarded 58,759
restricted stock units (“RSUs”) to
the Company’s President and CEO under the Company’s 2019 Omnibus Incentive Equity Plan (the “2019 Omnibus Plan”)
as his salary for the period from April 27, 2021, the date of his appointment, through December 31, 2021. The number of RSUs awarded
was based on a prorated annual base salary of $600,000 at a 10% discount to the grant date fair value of $7.74
per share of the Company’s common stock.
Each RSU awarded to the CEO entitled him to receive one share of common stock upon vesting. A total of 15,339 RSUs (representing the
pro rata portion of the RSU award for the period from April 27, 2021 to June 30, 2021) vested at the grant date, 21,710 vested at September
30, 2021 and remaining 21,710 vested at December 31, 2021. Accordingly, the CEO was issued an aggregate of 58,759 shares of common
stock over the vesting period of the RSUs. The stock-based compensation expense related to these RSUs was $384,456.
On
June 21, 2022, the Company awarded 124,520
RSUs to the President and CEO under the Company’s 2019 Omnibus Plan. Each RSU awarded to the CEO entitles him to receive one share
of common stock upon vesting. The RSUs vest in three equal annual installments over three years on the anniversary grant date. The
grant date fair value was $1.69
per share of the Company’s common stock. The stock-based compensation expense related to these RSUs was $17,537
and $35,074
for the three and six months ended December 31, 2022, respectively.
On
November 23, 2022, the Company awarded 506,496
RSUs to certain employees and a consultant, with
a grant date fair value of $6.12
per share. Twenty-five percent of these RSU vested
on the grant date and the remaining RSUs vest in three equal installments over three years beginning on the first anniversary of the
grant date. For the three months ended December 31, 2022, the stock-based compensation expense related to these RSUs was $584,424.
On
November 23, 2022, the Company issued equity awards for the board of directors’ annual compensation. Four directors received RSUs
to purchase a total of 155,636 shares of common stock at the grant date fair value of $6.12 per share, a total cost of $952,492 recognized
as stock compensation in the three months ended December 31, 2022. Three directors received stock options to purchase 195,000 shares
of common stock at an exercise price of $6.12 per share, the grant date fair value. The total stock compensation cost of stock options
of $791,700 was recognized in the three months ended December 31, 2022. The equity awards vest every three months beginning from the
last annual shareholders’ meeting on November 9, 2022 on February 9, 2023, May 9, 2023, August 9, 2023 and the earlier of November
9, 2023 or the next annual shareholders’ meeting. While the agreements contain certain
contractual vesting terms, there are circumstances where the vesting can be accelerated that is not within the Company‘s control
and as a result, for accounting purposes, the awards are assumed to have been fully vested on the grant date, accordingly, the Company
recognized the total compensation cost of $1,744,192 on November 23, 2022.
Issuance
of Stock Options
On
August 20, 2021, the Company granted, under the 2019 Omnibus Plan, stock options to purchase 1,365,835
shares of common stock to the executive management team. Twenty percent of the shares underlying the options awarded vested on the
grant date, and the remaining 80% will vest equally over a 5-year
period, on the first, second, third, fourth and fifth anniversary of the grant date. The exercise price of the options is $7.74
per share, the grant date fair value of the stock, and the options terminate on the earlier of the tenth anniversary of the grant
date or the date on which the options have been fully exercised.
Pursuant to a former employee Separation Agreement, dated April 11, 2022,
the Company modified a former employee’s stock option award granted on August 20, 2021 pursuant to the 2019 Omnibus Plan (“2021
Options Grant”). Pursuant to the terms of the Separation Agreement, effective on July 8, 2022 (“the Separation Date”),
the Company accelerated the vesting of options scheduled to vest on the first and second anniversary of the grant date as deemed vested
(“Accelerated Options”) and after giving effect to the Accelerated Options, extended the exercise period of the total vested
outstanding and unexercised options (totaling 74,500 options) to one year following the Separation Date. The unvested portion of the
2021 Option Grant (totaling 49,667 options) was canceled. The modification was remeasured as of July 8, 2022 and the incremental difference
totaled $181,154, net credit, due to the original exercise price of $7.74 being greater than the stock price of $1.80 on the remeasurement
date, and accordingly was recognized on July 8, 2022.
On
December 6, 2022, the Company granted stock options to purchase 10,000 shares of common stock to a new employee. Twenty percent (20%)
of the shares underlying the options awarded vest on the one year anniversary of the grant date, and the remaining 80% vest in equal
monthly installments over 48 month. The exercise price is $5.21 per share, the grant date fair value, and the options terminate on the
tenth anniversary of the grant date.
Stock
Warrants
The
following table summarizes warrant activity during the six months ended December 31, 2022:
Summary of warrants activity | |
| | | |
| | | |
| | | |
| | |
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life (Years) | | |
Aggregate Intrinsic Value | |
Outstanding and exercisable at June 30, 2022 | |
| 510,372 | | |
$ | 6.17 | | |
| 3.8 | | |
$ | - | |
Granted | |
| 7,272,728 | | |
| 1.82 | | |
| 4.9 | | |
| - | |
Expired | |
| (4,815 | ) | |
| 75.00 | | |
| - | | |
| - | |
Exercised | |
| (8,000 | ) | |
| 2.25 | | |
| - | | |
| - | |
Outstanding and exercisable at December 31, 2022 | |
| 7,770,285 | | |
$ | 2.06 | | |
| 4.5 | | |
$ | 44,537,323 | |
Of
the above warrants, 101,380 expire in the fiscal year ending June 30, 2025, 35,175 expire in the fiscal year ending June 30, 2026, and
7,633,730 expire in the fiscal year ending June 30, 2027.
Office
Lease
The
Company paid an annual rent of $2,200 for its headquarters at 680 W Nye Lane, Suite 201, Carson City Nevada 897603. The rental agreement
is for a one year term.
On
February 26, 2022, the Company’s San Diego office relocated to 5090 Shoreham Place, San Diego, CA 92122. The term for the new office
lease is 38 months and commenced on March 1, 2022. The monthly base rate of $4,175 begins June 1, 2022, with annual increases of
three percent.
The
operating lease cost recognized in our statement of operations was approximately $13,000 and $27,700 for the three months ended December
31, 2022 and 2021, respectively. The operating lease cost recognized in our statement of operations was approximately $25,900 and
$53,100 for the six months ended December 31, 2022 and 2021, respectively.
The
following table provides balance sheet information related to leases as of December 31, 2022 and June 30, 2022:
Schedule of balance sheet information related to leases | |
| | |
| |
| |
December 31,
2022 | | |
June 30,
2022 | |
Assets | |
| | |
| |
Operating lease, right-of-use asset, net | |
$ | 100,038 | | |
$ | 118,254 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current portion of operating lease liabilities | |
$ | 41,788 | | |
$ | 38,884 | |
Operating lease liabilities, net of current portion | |
| 65,835 | | |
| 87,414 | |
Total operating lease liabilities | |
$ | 107,623 | | |
$ | 126,298 | |
At
December 31, 2022, the future estimated minimum lease payments under non-cancelable operating leases are as follows:
Schedule of future estimated minimum lease payments under non-cancelable operating leases | |
| | |
Year ending June 30, 2023 (Remaining 6 months) | |
$ | 25,550 | |
2024 | |
| 52,156 | |
2025 | |
| 44,636 | |
Toal minimum lease payments | |
| 122,342 | |
Less amount representing interest | |
| (14,719 | ) |
Present value of future minimum lease payments | |
| 107,623 | |
Less currrent portion of operating lease liabilities | |
| (41,788 | ) |
Operating lease liabilities, net of current portion | |
$ | 65,835 | |
The
weighted average remaining lease term and discount rate as of December 31, 2022 and June 30, 2022 were as follows:
Schedule of weighted average remaining lease term and discount rate | |
| | | |
| | |
| |
December 31,
2022 | | |
June 30,
2022 | |
Weighted average remaining lease term (Years) | |
| | | |
| | |
Operating leases | |
| 2.3 | | |
| 2.8 | |
Weighted average discount rate | |
| | | |
| | |
Operating leases | |
| 10.75 | % | |
| 10.75 | % |
11. |
Commitments
and Contingencies |
Royalty
Agreements
Pursuant to the Agreement and Plan of Merger entered into on April 11,
2016, by and between our predecessor entities, LAT Pharma and NanoAntibiotics, Inc., the Company is obligated to pay a low single digit
royalty on net sales of BIV201 (continuous infusion terlipressin) to be shared by the members of LAT Pharma Members, PharmaIn Corporation,
and The Barrett Edge, Inc.
Pursuant to the Technology Transfer Agreement entered into on July 25,
2016, by and between the Company and the University of Padova (Italy), the Company 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.
12. |
Employee
Benefit Plan |
On August 1, 2021, the Company began sponsoring an employee benefit plan
subject to Section 401(K) of the Internal Revenue Service Code (the “401K Plan”).
Subject
to certain limitations in the Internal Revenue Code, eligible employees are permitted to make contributions to the 401K Plan on a pre-tax
salary reduction basis and the Company will match 5% of the first 5% of an employee’s contributions to the 401K Plan. For the three
months ended December 31, 2022 and 2021, the Company made contributions of approximately $19,000 and $23,000, respectively. For the six
months ended December 31, 2022 and 2021, the Company made contributions of approximately $64,192 and $46,600, respectively.
In
January 2023, the Company sold 483,036
shares of common stock for net proceeds of $2.9
million net of 3% commission and expenses totaling
approximately $90,000
under the Sales Agreement with the Agents.