Notes
to Condensed Financial Statements
March
31, 2022 and 2021
(unaudited)
BioVie
Inc. (the “Company” or “we” or “our”) is a clinical-stage company developing innovative drug therapies
to treat chronic debilitating conditions including liver disease and neurological and neuro-degenerative disorders and certain cancers.
In
liver disease, our Orphan Drug candidate BIV201 (continuous infusion terlipressin) is being developed as a future treatment option for
patients suffering from ascites and other life-threatening complications of advanced liver cirrhosis caused by NASH, hepatitis, and alcoholism.
The initial target for BIV201 therapy is refractory ascites. These patients suffer from frequent life-threatening complications, generate
more than $5 billion in annual treatment costs, and have an estimated 50% mortality rate within 6 to 12 months. The US Food and Drug
Administration (FDA) has not approved any drug to treat refractory ascites. A Phase 2a clinical trial of BIV201 was completed in 2019,
and a multi-center, randomized 30-patient Phase 2b trial is currently underway. As of March 31, 2022, ten of the thirteen planned US
study centers had been activated and are actively screening and enrolling patients in the study. Top-line results from this trial are
expected in early 2023.
The
BIV201 development program was initiated by 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. Pursuant to the
Agreement and Plan of Merger entered into on April 11, 2016, between our predecessor entities, LAT Pharma LLC and NanoAntibiotics, Inc.,
BioVie is obligated to pay a low single digit royalty on net sales of BIV201 (continuous infusion terlipressin) to be shared among LAT
Pharma Members, PharmaIn Corporation, and The Barrett Edge, Inc.
In
neurodegenerative disease, BioVie 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 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 and Parkinson’s Disease, and NE3107 could, if approved represent
an entirely new medical approach to treating these devastating conditions affecting an estimated 6 million Americans suffering from Alzheimer’s
and 1 million from Parkinson’s. The FDA has authorized a potentially pivotal Phase 3 randomized, double-blind, placebo-controlled,
parallel group, multicenter study to evaluate NE3107 in subjects who have mild to moderate Alzheimer’s disease (NCT04669028). In
August 2021, the study was initiated and the Company is anticipating top line results in the first half of 2023.
On
January 20, 2022, the Company initiated a study by treating the first patient, in it’s Phase 2 study assessing NE3107’s safety
and tolerability and potential pro-motoric impact in Parkinson’s disease patients. The NM201 study (NCT05083260) is a double-blind,
placebo-controlled, safety, tolerability, and pharmacokinetics study in Parkinson’s Disease (PD). Participants will be treated
with carbidopa/levodopa and NE3107 or placebo. Forty patients with a defined PD medication “off state” will be randomized
1:1 placebo to: active NE3107 20 mg twice daily for 28 days. Safety assessments will look at standard measures of patient health and
potential for drug-drug interactions affecting L-dopa pharmacokinetics and activity. Exploratory efficacy assessments will use the Motor
Disease Society Unified Parkinson’s Disease Rating (MDS-UPDRS) parts 1-3, ON/OFF Diary, and Non-Motor Symptom Scale. Topline results
are expected for the NM201 study in mid-2022.
Inflammation-driven
insulin resistance is believed to be implicated in a broad range of serious diseases, including multiple myeloma and prostate cancer,
and we plan to begin exploring these opportunities in the coming months using NE3107 or related compounds acquired in the NeurMedix asset
purchase. NE3107 is patented in the United States, Australia, Canada, Europe and South Korea.
The
Company’s operations are subject to a number of factors that can affect its operating results and financial conditions. Such factors
include, but are not limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s
ability to obtain regulatory approval to market its products; competition from products manufactured and sold or being developed by other
companies; the price of, and demand for, Company products; the Company’s ability to negotiate favorable licensing or other manufacturing
and marketing agreements for its products; and the Company’s ability to raise capital. The Company’s financial statements
have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As of March 31, 2022, the Company had working capital of approximately $20.5 million,
cash of approximately $24.5 million, stockholders’ equity of approximately $10.0 million, and an accumulated deficit of approximately
$242.9 million. In addition, the Company has not generated any revenues to date and no revenues are expected in the foreseeable future.
The Company’s future operations are dependent on the success of the Company’s ongoing development and commercialization efforts,
as well as its ability to secure additional financing as needed. Although our cash balance could possibly sustain operations over the
next 12 months 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.
The
future viability of the Company is largely dependent upon its ability to raise additional capital to finance its operations. Management
expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions.
The
continual widespread health emergencies or pandemics such as the coronavirus (“COVID-19”) pandemic (and its related variants),
has led to continued regional quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic instability.
Although some jurisdictions have relaxed these measures, others have not or have reinstated them as COVID-19 cases and its variants continue
to emerge. The duration and spread of the COVID-19 pandemic and the long-term impact of COVID-19 and its variants on the financial markets
and the overall economy are 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 in the 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, 2021 was derived from audited annual financial statements
for the year ended June 30, 2021 but does not contain all the footnote disclosures from the annual financial statements. These unaudited
interim condensed financial statements and information included under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” should be read in conjunction with the Company’s audited financial statements
for the fiscal years ended June 30, 2021 and 2020 in our Annual Report on Form 10-K filed with the SEC on August 30, 2021. For a summary
of significant accounting policies, see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed
with the SEC on August 30, 2021.
Certain
prior period amounts have been reclassified for consistency with the current period presentation.
Leases
The
Company determines whether an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use
(“ROU”) assets, current portion of operating lease liabilities, and net of current portion of operating lease liabilities
on our balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities
represent an obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on
the present value of the future minimum lease payments over the lease term at the commencement date. As the Company’s leases do
not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement date in determining
the present value of lease payments. The Company does not include options to extend or terminate the lease term unless it is reasonably
certain that the Company will exercise any such options. Rent expense is recognized under the operating leases on a straight-line basis.
The Company does not recognize right of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months
or less, and instead will recognize lease payments as expense on a straight-line basis over the lease term
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value for applicable assets and liabilities, we consider
the principal or most advantageous market in which we would transact and we consider assumptions. market participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. This guidance also establishes
a fair value hierarchy to prioritize inputs used in measuring fair value as follows:
| ● | Level
1: Observable inputs such as quoted prices in active markets; |
| ● | Level
2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level
3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions |
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 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 nine months ended March 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 March 31, 2022 and 2021:
Schedule of Dilutive securities were excluded from the computation of diluted loss per share
| | |
| | |
| |
| | |
March 31, 2022 | | |
March 31, 2021 | |
| | |
Number of Shares | | |
Number of Shares | |
| Stock Options | |
| 2,438,044 | | |
| 755,200 | |
| Warrants | |
| 511,463 | | |
| 173,021 | |
| Total | |
| 2,949,507 | | |
| 928,221 | |
Recent
Accounting Pronouncements
The
Company considers the applicability and impact of all Accounting Standards Updates (“ASU’s”). There were no recent
ASUs that are expected to have a material impact on the Company’s balance sheets or statements of operations.
The
Company’s intangible assets consist of intellectual property acquired from LAT Pharma, Inc. and are amortized over their estimated
useful lives.
The following is a summary of the intangible assets as of March 31, 2022 and June 30, 2021:
| | |
March 31, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Intellectual Property | |
$ | 2,293,770 | | |
$ | 2,293,770 | |
| Less Accumulated Amortization | |
| (1,369,953 | ) | |
| (1,197,921 | ) |
| Intellectual Property, Net | |
$ | 923,817 | | |
$ | 1,095,849 | |
Amortization
expense was $57,344 in each of the three-month periods ended March 31, 2022 and 2021. Amortization expense for the nine-month period
ended March 31, 2022 and 2021 was $172,032 and $172,032 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 expected Amortization of intangible assets
| |
| | |
| Year ending June 30, 2022 (Remaining three months) | |
$ | 57,346 | |
| 2023 | |
| 229,377 | |
| 2024 | |
| 229,377 | |
| 2025 | |
| 229,377 | |
| 2026 | |
| 178,340 | |
| Intellectual Property, Net | | |
$ | 923,817 | |
| 5. | Related
Party Transactions |
Asset
Acquisition with NeurMedix
On
April 27, 2021, the Company entered into an Asset Purchase Agreement (“APA”) with NeurMedix and Acuitas Group Holdings, LLC
(“Acuitas”), which are related party affiliates, pursuant to which the Company acquired certain assets from NeurMedix and
assumed certain liabilities of NeurMedix, in exchange for consideration of cash and shares of common stock. The acquired assets include,
among others, those related to certain drug candidates being developed by NeurMedix, including NE3107, a small molecule orally administered
inhibitor of insulin resistance and the pathological inflammatory cascade, with a novel mechanism of action that has potential applications
for treatment against Alzheimer’s Disease and Parkinson’s Disease.
Subject
to the terms and conditions of the APA, following the closing, the Company was potentially obligated to deliver contingent stock consideration
to NeurMedix (or its successor). 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 Company’s
achievement of certain clinical, regulatory and commercial milestones related to the drug candidates to be acquired 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. Pursuant to Amendment No. 1 to the APA, dated May 9, 2021,
the Company is now obligated to deliver to NeurMedix (or its successor) 4.5 million shares upon the achievement of each of the four milestones
set forth in the APA, for an aggregate of up to 18 million shares, 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.
On
June 10, 2021, and pursuant to 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 of approximately $2.3 million, representing NeurMedix’s direct and documented cash expenditures
to advance certain programs from March 1, 2021 through the closing date and cash payments to other third parties for expenses totaling
approximately $4.0 million for due diligence, legal fees, transaction fees and the fairness opinion. 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 research and development expense at the time of the transaction.
Equity
Transactions with Acuitas
On
September 22, 2020, concurrent with the closing of the Company’s registered public offering, approximately $1.8 million was paid
to Acuitas satisfying all amounts owed on the Debenture due September 24, 2020 held by the Company’s controlling stockholder, Acuitas.
Additionally,
in connection with the close of the public offering on September 22, 2020, the Company issued an aggregate of 6,909,582 shares of Common
Stock to Acuitas, representing (i) 5.4 million shares issuable pursuant to Acuitas’ rights under the Purchase Agreement dated July
3, 2018, as amended on June 24, 2019 and October 9, 2019; and the various extension letters; which resulted in a deemed dividend at the
close of the public offering at price of $10 per share, consistent with the Company’s accounting policy; and (ii) the automatic
exercise of 1.5 million warrants issued to Acuitas in connection with the Debenture financing at the par value of the Common Stock.
During
the year ended June 30, 2021, the Company received additional draws under the Debenture totaling $436,000. The total draws as of September
22, 2020 were $1.7 million and the related total number of warrants issuable at $4.00 per share of common stock was 424,750 of which
328,250 warrants had been issued. In accordance with the Debenture agreements, at September 22, 2020 upon the Company’s close of
its public offering, all the warrants issued related to the debenture totaling 1,453,250 were mandatorily redeemed along with the additional
96,500 shares common stock issued to Acuitas.
Other
liabilities represent retention bonus arrangements with certain employees that was recognized in August 2021 totaling $1,161,000 and
included in the accompanying statement of operations for the nine months ended March 31, 2022. The payment terms are equal monthly installments
over a 24-month period and began in August 2021. The current portion of the liability was $580,625 and the non-current portion was $193,542
in the accompanying balance sheet at March 31, 2022.
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”) together (“Avenue”) for growth
capital loans in an aggregate commitment amount of up to $20 million (the “Loan”). On the closing date, $15 million funded
(“Tranche 1”) and up to $5 million will be made 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 (“Tranche 2”). 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 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. An additional growth capital loan in an amount
equal to $5 million may be available (i) upon the Company’s achievement of additional milestones with respect to certain of its
ongoing clinical trials (ii) upon the mutual written agreement of the Company and the Lenders each acting in its sole discretion, and
(iii) subject to execution and delivery by the Company and the Lenders of amendments to the loan documents and the Warrant (as defined
below) to reflect such additional loan and approval of each Lender’s investment committee (“Tranche 3”).
The
Loan Agreement requires monthly interest-only payments during the first eighteen months of the term of the Loan, which may be increased
up to an additional six months from the end of such eighteen-month period prior to receipt of the Tranche 2 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, a final payment equal to 4.25% of the sum of (a) the Loan commitment amount under
Tranche 1 and Tranche 2, plus (b) the aggregate principal amount of additional growth capital loans borrowed under Tranche 3.
The
Loan Agreement includes a conversion option to convert up to $5 million of the principal amount of the Loan outstanding at the option
of the Lenders, into shares of the Company’s Class A common stock at a conversion price of $6.98 per share.
On
the Closing Date, the Company issued to the Lenders warrants to purchase 361,002 shares of Class A common stock of the Company (the “Warrants”)
at an exercise price per share equal to $5.82 (the “Stock Purchase Price”). The warrants are exercisable until November 30,
2026 (the “Expiration Date”).
The
amount of the carrying value of the notes payable were determined by allocating portions of the outstanding principal of the notes to
the fair value of the warrants of approximately $1.4 million and the fair value of the embedded conversion option of approximately $2.2
million. 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 term of the Loan. The adjusted effective interest
rate is 25%. The carrying value of notes payable at March 31, 2022 was approximately $11.6 million, net of unearned discount of approximately
$3.1 million, unamortized direct costs of approximately $333,000 and accreted premium of approximately $94,000 in the accompanying balance
sheets. The total interest expense of approximately $919,000 and $1.2 million for the three and nine months ended March 31, 2022, respectively;
was recognized in the accompanying statements of operations. The amortization of financing costs was approximately $43,000 and $57,000
for the three and nine months ended March 31, 2022, respectively. The accretion of loan premium was approximately $71,000 and $94,000
for the three and nine months ended March 31, 2022, respectively. The accretion of unearned loan discount was approximately $400,000 and $534,000 for the three and nine months ended March 31, 2022, respectively. As of March 31, 2022, the outstanding principal balance of $15 million would
be paid in 18 monthly equal installments beginning July 1, 2023; a total of $10 million and $5 million in the fiscal years ended June
30, 2024 and 2025 respectively.
The
following is a summary of the Note Payable as of March 31, 2022 and June 30, 2021:
| | |
| | |
| |
| | |
March 31, 2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Note Payable | |
$ | 15,000,000 | | |
$ | — | |
| Less debt financing costs | |
| (333,345 | ) | |
| | |
| Less unearned discount | |
| (3,136,163 | ) | |
| | |
| Plus accretion of loan premium | |
| 94,444 | | |
| — | |
| Note Payable, net of financing costs and premiums | |
$ | 11,624,935 | | |
$ | — | |
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 | | |
Loan accretion Premium | |
| | | |
| | |
| | |
| |
| Year ending June 30, 2022 (Remaining three months) | | |
$ | 400,361 | | |
$ | 42,555 | | |
$ | 70,834 | |
| 2023 | | |
| 1,601,445 | | |
| 170,219 | | |
| 283,333 | |
| 2024 | | |
| 1,023,145 | | |
| 108,751 | | |
| 283,333 | |
| 2025 | | |
| 111,212 | | |
| 11,820 | | |
| 118,056 | |
| Total | | |
$ | 3,136,163 | | |
$ | 333,345 | | |
$ | 755,556 | |
| 8. | Fair
Value Measurements |
At
March 31,2022 and June 30, 2021, the estimated fair value of derivative liabilities measured on a recurring basis are as follows:
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
Fair Value Measurements at | |
| | |
March 31, 2022 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
| | |
| | |
| | |
| |
| Derivative liability - Warrants | |
$ | — | | |
$ | — | | |
$ | 1,023,294 | | |
$ | 1,023,294 | |
| Derivative liability -Conversion option on notes payable | |
| — | | |
| — | | |
| 1,477,880 | | |
| 1,477,880 | |
| Total derivatives | |
$ | — | | |
$ | — | | |
$ | 2,501,174 | | |
$ | 2,501,174 | |
| | |
Fair Value Measurements at | |
| | |
June 30, 2021 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
| | | |
| | | |
| | | |
| | |
| Derivative liability - Warrants | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| Derivative liability -Conversion option on note payable | |
| — | | |
| — | | |
| — | | |
| — | |
| Total derivatives | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
The
following table presents the activity for liabilities measured at fair value unobservable inputs for the nine months ended March 31,
2022:
| | |
Derivative liabilities -
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 in fair value of level 3 liability | |
| (433,218 | ) | |
| (735,586 | ) |
| Transfer in and/or out of Level 3 | |
| — | | |
| — | |
| Balance at March 31, 2022 | |
$ | 1,023,294 | | |
$ | 1,477,880 | |
The
following table presents the activity for liabilities measured at fair value unobservable inputs for the nine months ended March 31,
2021:
| | |
Derivative liabilities -
Warrants | | |
Derivative liability -
Conversion Option
on Convertible
Debenture | |
| | |
| | |
| |
| Beginning balance at July 1, 2020 | |
$ | 16,411,504 | | |
$ | 5,000,800 | |
| Additions to level 3 liabilities | |
| — | | |
| — | |
| Change in in fair value of level 3 liability | |
| (6,054,121 | ) | |
| (2,225,798 | ) |
| Transfer in and/or out of Level 3 | |
| (10,357,383 | ) | |
| (2,775,002 | ) |
| Balance at March 31, 2021 | |
$ | — | | |
$ | — | |
The
fair values of derivative liabilities for the warrants and conversion option at March 31, 2022 were approximately $1 million and approximately
$1.5 million, respectively. The total change in the fair value of the derivative liabilities totaled approximately $386,000 and $1.2
million for the three and nine months ended March 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 March 31, 2022 included the closing
stock price of $4.50 per share, and for the warrants the exercise price of $5.82, 5-year term, risk free rate of 1.26% and volatility
of 74.796%. and for the embedded derivative liability of the conversion option, the conversion price of $6.98; 3-year term, risk free
rate of 0.97% and volatility of 76.15%.
Derivative
liability - Warrants
The
Company accounts for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of
the warrant agreements. Under applicable accounting guidance, stock warrants that are precluded from being indexed to the Company’s
own stock because of full-rachet and anti-dilution provisions or adjustments to the strike price due to an occurrence of a future event;
are accounted as derivative financial instruments. The warrants issued on November 30, 2021 in connection with the Avenue loan financing
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 March 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 warrants are recorded at their fair values at the date of issuance and remeasured at March 31, 2022. The
assumptions used for the fair value calculation at November 30, 2021 follows: 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 represents the optional conversion feature of up to $5.0 million of the outstanding Avenue note amounts 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 Avenue loan amount funded. The assumption used for the fair value calculation at November 30, 2021 follows:
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 nine months ended March 31, 2022:
| | |
Options | | |
Weighed-
Average
Exercise
Price | | |
Weighted
Remaining
Average
Contractual
Term | | |
Aggregate
Intrinsic
Value | |
| Outstanding at June 30, 2021 | |
| 755,200 | | |
$ | 4.34 | | |
| 4.4 | | |
$ | 2,569,232 | |
| Granted | |
| 1,763,169 | | |
| 6.69 | | |
| 9.5 | | |
| — | |
| Options Expired | |
| (7,200 | ) | |
| 29.17 | | |
| 0.0 | | |
| | |
| Options Forfeited | |
| (73,125 | ) | |
| (13.91 | ) | |
| — | | |
| — | |
| Outstanding at March 31, 2022 | |
| 2,438,044 | | |
$ | 8.63 | | |
| 7.9 | | |
$ | 678,545 | |
| Exercisable at March 31, 2022 | |
| 675,825 | | |
$ | 10.84 | | |
| 6.2 | | |
$ | 18,480 | |
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 nine months ended March 31, 2022 and 2021:
| | |
March 31, 2022 | |
March 31, 2021 |
| Expected life of options (In years) | |
5 | |
5 |
| Expected volatility | |
75.12% | |
77.05% |
| Risk free interest rate | |
1.6% | |
0.5% |
| 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
Company recorded stock option-based compensation expense of approximately $930,000 and $804,000 for three-month periods ended March 31,
2022 and 2021, respectively; and of approximately $4.0 million and $2.3 million for nine-month periods ended March 31, 2022 and 2021,
respectively.
As
of March 31, 2022, there was approximately $7.1 million of unrecognized compensation cost related to non-vested stock options granted
to Directors and Officers and other employees, which is expected to be recognized over a weighted-average period of approximately 4.1
years.
The
following is a summary of stock options listed by exercise price, the number options outstanding and exercisable as of March 31, 2022:
| |
Exercise Price | | |
Outstanding | | |
Weighted Average Contract Life | | |
Exercisable | |
| $ | 2.74 | | |
| 124,167 | | |
| 5.0 | | |
| — | |
| $ | 2.80 | | |
| 7,200 | | |
| 2.8 | | |
| 7,200 | |
| $ | 3.20 | | |
| 248,167 | | |
| 5.0 | | |
| 24,833 | |
| $ | 3.24 | | |
| 25,000 | | |
| 5.0 | | |
| — | |
| $ | 3.75 | | |
| 4,800 | | |
| 1.8 | | |
| 4,800 | |
| $ | 6.25 | | |
| 1,600 | | |
| 1.6 | | |
| 1,600 | |
| $ | 7.50 | | |
| 25,600 | | |
| 4.0 | | |
| 25,600 | |
| $ | 7.74 | | |
| 1,365,835 | | |
| 4.4 | | |
| 273,167 | |
| $ | 8.75 | | |
| 1,600 | | |
| 2.0 | | |
| 1,600 | |
| $ | 9.54 | | |
| 800 | | |
| 3.5 | | |
| 800 | |
| $ | 9.90 | | |
| 800 | | |
| 3.5 | | |
| 800 | |
| $ | 12.50 | | |
| 4,000 | | |
| 0.8 | | |
| 4,000 | |
| $ | 13.91 | | |
| 618,475 | | |
| 3.7 | | |
| 321,425 | |
| $ | 25.00 | | |
| 1,600 | | |
| 0.5 | | |
| 1,600 | |
| $ | 26.25 | | |
| 2,000 | | |
| 0.2 | | |
| 2,000 | |
| $ | 27.50 | | |
| — | | |
| — | | |
| — | |
| $ | 28.75 | | |
| 1,600 | | |
| 0.3 | | |
| 1,600 | |
| $ | 31.25 | | |
| — | | |
| — | | |
| — | |
| $ | 42.09 | | |
| 4,800 | | |
| 3.8 | | |
| 4,800 | |
| | | | |
| 2,438,044 | | |
| | | |
| 675,825 | |
Stock
Warrants
The
following table summarizes warrant activity during the nine months ended March 31, 2022:
| | |
Number of
Shares | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Life (Years) | | |
Aggregate
Intrinsic
Value | |
| Outstanding and exercisable at June 30, 2021 | |
| 158,761 | | |
$ | 10.37 | | |
| 3.1 | | |
$ | 1,765,437 | |
| Granted | |
| 361,002 | | |
| 5.82 | | |
| 5.0 | | |
| — | |
| Expired | |
| (8,300 | ) | |
| 62.50 | | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
| Outstanding and exercisable at March 31, 2022 | |
| 511,463 | | |
$ | 6.31 | | |
| 4.0 | | |
$ | 271,187 | |
Of
the above warrants, 1,091 expire in the fiscal year ending June 30, 2022, 4,815 expire in the fiscal year ending June 30, 2023, 2,714
expire in the fiscal year ending June 30, 2025, and 502,843 expire in the fiscal year ending June 30, 2026.
Issuance
of common stock for cash
On
August 11, 2021, the Company closed a registered public offering issuing 2,500,000 of its Class A common stock at $8.00 per share,
resulting in net proceeds to the Company of approximately $17.8 million, net of issuance costs of approximately $2.2 million.
On
September 24, 2021, the Company issued 92,000 of its Class A common stock at $8.00 per share in connection with the underwriters’
exercise of its over-allotment option in for the August 2021 registered public offering, resulting in net proceeds to the Company of
approximately $707,000, net of issuance cost of approximately $29,000.
Issuance
of Shares for Services
On
August 20, 2021, the Company awarded 58,759 restricted stock units (“RSUs”) to the 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 entitles 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 21,710 vested at December
31, 2021. Accordingly, the common stock was issued to the CEO at each of the quarter end vesting dates.
The
stock-based compensation expense related to these RSUs totaled $97,695 for the fiscal year ended June 30, 2021 and $384,454 for the nine
month period ended March 31, 2022, respectively. There were no stock-based compensation expense related to these RSUs for the three month
period ended March 31, 2022 and 2021.
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 (20%) of the shares underlying the options awarded vested on the grant date, and the remaining
80% 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 as of which the options were fully exercised.
On
February 1, 2022, the Company granted stock options to purchase 124,167 shares of common stock to a new employee. Twenty percent (20%)
of the shares underlying the options awarded vested on the grant date, and the remaining 80% vest equally over a 5-year period, on the
first, second, third, fourth and fifth anniversary of the grant date. The exercise price is $3.20 per share, the grant date fair value,
and the options terminate on the tenth anniversary of the grant date.
During
the three months ended March 31, 2022, the Company granted, stock options to purchase shares of common stock totaling 273,167 to four
new employees.
The
exercise prices per share are $3.20; $2.74 and $3.24, which were fair values of the Company’s common stock on the respective grant
dates. 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. options terminate on the tenth anniversary of the grant date or date
as of which the options were fulling exercised.
Forfeiture
of Stock Options
On
August 27, 2021, the Chief Executive Officer forfeited unvested stock options to purchase up to 73,125 shares of common stock that were
previously granted to him as compensation as an independent director of the board.
Office
Leases
From
July 1, 2019 to October 31, 2021, the Company paid monthly rent of $1,000 to Acuitas for its headquarter office at 2120 Colorado Avenue
Suite 230, Santa Monica, CA 90404. Effective November 1, 2021, the Company relocated its headquarters to Nevada. The Company paid an
annual rent of $2,200 for the address at 680 W Nye Lane, Suite 201, Carson City Nevada 897603. The Nevada lease is an annual lease.
On
June 1, 2021, the Company assumed a NeurMedix office lease that was extended to February 2022 at 6165 Greenwich Dr Suite 150, San Diego,
CA 92122. The lease agreement required monthly payments of $8,782. On February 26, 2022 the Company’s San Diego office relocated
to 5090 Shoreham Place, San Diego, CA 92122. (the “New Office”). The
New Office lease term for 38 months, commenced on March 1, 2022 with a 2 month rent abatement. The monthly base rate payment of $4,175
begins June 1, with annual increases of three percent.
The
operating lease cost recognized in our statement of operations was approximately $23,000 and $76,500 for the three and nine months
ended March 31, 2022, and approximately $3,000 and $9,000 for the three and nine months ended March 31, 2021.
The
following table provides balance sheet information related to leases as of March 31, 2022 and June 30, 2021:
| | |
March 31, 2022 | | |
June 30, 2021 | |
| Assets | |
| | | |
| | |
| Operating lease, right-of-use asset, net | |
$ | 127,105 | | |
$ | — | |
| | |
| | | |
| | |
| Liabilities | |
| | | |
| | |
| Current portion of operating lease liabilities | |
$ | 29,250 | | |
$ | — | |
| Operating lease liabilities, net of current portion | |
| 97,779 | | |
| — | |
| Total operating lease liabilities | |
$ | 127,029 | | |
$ | — | |
At
March 31, 2022, the future estimated minimum lease payments under non-cancelable operating leases are as follows:
| Year ending June 30: | |
| | |
| 2022 (remaining 3 months) | |
$ | 4,175 | |
| 2023 | |
| 50,600 | |
| 2024 | |
| 52,156 | |
| 2025 | |
| 44,636 | |
| Total minimum lease payments | |
| 151,567 | |
| Less amount representing interest | |
| (24,538 | ) |
| Present value of future minimum lease payments | |
| 127,029 | |
| Less current portion of operating lease liabilities | |
| (29,250 | ) |
| Operating lease liabilities, net of current portion | |
$ | 97,779 | |
The
weighted average remaining lease term and discount rate as of March 31, 2022 and 2021 were as follows:
| | |
March 31, 2022 | |
June 30, 2021 |
| | |
| |
|
| Weighted average remaining lease term (Years) | |
| |
|
| Operating leases | |
3.1 | |
— |
| Weighted average discount rate | |
| |
|
| Operating leases | |
10.75 | % |
— |
| 11. | Commitments
and Contingencies |
Challenge
to US Patent
On
April 30, 2018, we received notice that Mallinckrodt had petitioned the U.S. Patent and Trademark Office (“USPTO”) to institute
an Inter Partes Review (“IPR”) of our U.S. Patent No. 9,655,945 titled “Treatment of Ascites” (the “’945
patent”). On November 13, 2019, the Patent Trial and Appeal Board of USPTO issued a written decision in the IPR from which no appeal
was taken. The decision revoked all of the claims of the patent as lacking novelty or as obvious.
This
ruling is unrelated to the Company’s Orphan drug designations for ascites and hepatorenal syndrome (“HRS”), which remain
unchanged. An Orphan drug that is first-to-market typically receives 7 years of market exclusivity in the United States for the designated
use(s). In addition, the ruling does not affect the Company’s rights in its pending patent application directed to proprietary
liquid formulations of terlipressin for use in its planned Phase 2 and Phase 3 trials, subject to FDA review and authorization, which
could eventually provide up to 20 years of patent coverage in each country in which the Company seeks patent protection, such as the
United States, if a patent issues from a patent application according to the patent laws of each issuing count.
Royalty
Agreements
Pursuant
to the Agreement and Plan of Merger entered into on April 11, 2016, between our predecessor entities, LAT Pharma LLC and NanoAntibiotics,
Inc., BioVie is obligated to pay a low single digit royalty on net sales of BIV201 (continuous infusion terlipressin) to be shared among
LAT Pharma Members, PharmaIn Corporation, and The Barrett Edge, Inc.
Pursuant
to the Technology Transfer Agreement entered into on July 25, 2016 between BioVie and the University of Padova (Italy), BioVie is obligated
to pay a low single digit royalty on net sales of all terlipressin products covered by US patent no. 9,655,645 and any future foreign
issuances capped at a maximum of $200,000 per year.
On
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”) pursuant to which, all employees meeting eligibility requirements are able to participate.
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
and nine months ended March 31, 2022, the Company’s contributions to the 401K Plan totaled approximately $28,700 and $75,100, respectively.
On
April 5, 2022, the Company granted stock options to purchase 755,000 shares of common stock to the independent directors of the board
as compensation for services at an exercise price of $5.04 per share, the grant date fair value. Twenty-five percent (25%) of the shares
underlying the options awarded vested on the grant date, and the remaining 75% vest ratably over three years on the first, second, and
third anniversary of the grant date. The options terminate on the earlier of the fifth anniversary of the grant date or the date as of
which the options are fully exercised.