Notes
to Financial Statements
For
the Three Months Ended September 30, 2016 and 2015
(unaudited)
1.
|
Background
Information
|
BioVie
Inc. (F/K/A NanoAntibiotics, Inc.) (the “Company”) is a development stage enterprise that was incorporated in the
state of Nevada on April 10, 2013. The Company is engaged in the discovery, development and commercialization of a
therapy targeting ascites due to liver cirrhosis. Ascites due to liver cirrhosis is a life-threatening condition affecting about
100,000 Americans and many times more worldwide. Our therapy BIV201 is based on a drug that’s approved in about 50 countries
to treat related complications of liver cirrhosis (part of the same disease pathway as ascites), but not yet available in the
US. BIV201’s active agent is a potent vasoconstrictor and has shown efficacy for reducing portal hypertension in studies
around the world. The goal is for BIV201 to interrupt the ascites disease pathway, thereby halting the cycle of accelerating fluid
generation in ascites patients. The BIV201 development program began at LAT Pharma LLC. On April 11, 2016, the Company acquired
LAT Pharma LLC and the rights to its BIV201 development program. We currently own all development and marketing rights to our
drug candidate, except as noted previously, the Company and PharmaIN have exchanged small (low single-digit) ownership rights
to each other’s ascites drug development programs. The Company recently filed patent applications for its drug candidate
in the US and Japan, as well as a PCT in Europe. We are currently completing the work necessary to file our investigational new
drug (IND) application, and aim to commence clinical trials should the FDA approve our application.
The
Company’s activities are subject to significant risks and uncertainties including failure to secure additional funding to
properly execute the company’s business plan.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three
months ended September 30, 2016, the Company had a net loss of $351,342. As of September 30, 2016, the Company has
not earned any revenues. In view of these matters, the Company’s ability to continue as a going concern is dependent upon
the Company’s ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed
its activities principally from the sale of public equity securities. The Company intends on financing its future development
activities and its working capital needs largely from the sale of public equity securities with some additional funding from other
traditional financing sources, including term notes and proceeds from sub-licensing agreements until such time that funds provided
by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any
adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities
that might be necessary should the Company be unable to continue as a going concern.
3.
|
Significant
Accounting Policies
|
Unaudited
Interim Financial Statements
The
accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
the financial statements do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements.
In
the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the
periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been
made in
order to make the financial statements presented not misleading. The results of operations for such interim
periods are not necessarily indicative of operations for a full year.
Basis
of Presentation
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash
Cash
is maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced
any losses related to these balances. All of our cash balances were fully insured at September 30, 2016.
Financial
Instruments
The
Company’s financial instruments include cash and accounts payable. The carrying amounts of cash and accounts payable approximate
their fair value, due to the short-term nature of these items.
Research
and Development
Research
and development costs are charged to operations when incurred and are included in operating expenses. The Company expensed $127,270
for research and development for the quarter ended September 30, 2016.
Income
Taxes
Deferred
income tax assets and liabilities arise from temporary differences associated with differences between the financial statements
and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences
reverse. Deferred tax assets and liabilities are classified as current or non-current, depending on the classification of the
assets or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The
Company follows the provisions of FASB ASC 740-10 “
Uncertainty in Income Taxes
” (ASC 740-10), January 1, 2007.
The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning
and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits at September 30,
2016 and since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation
of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized
tax benefits in interest expense and penalties in operating expenses.
Earnings
(Loss) per Share
Basic
earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during
the 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 quarter ended September 30, 2016 all outstanding options
have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.
Stock-based
Compensation
The
Company recognizes all share-based payments to employees, including grants of employee stock options, as compensation expense
in the financial statements based on their fair values. That expense will be recognized over the period during which an employee
is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
Fair
Value Measurements
In
September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required
disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets
and liabilities as of the beginning of the 2013 fiscal year and the impact of adoption was not significant. FASB Accounting Standards
Codification (ASC) 820 “
Fair Value Measurements and Disclosures
” (ASC 820) defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also
establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data
obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists
of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are
described below:
Level
1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities.
Level
2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation
or other means.
Level
3 - Inputs that are both significant to the fair value measurement and unobservable.
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as
of September 30, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair
values due to the short-term nature of these instruments. These financial instruments include accrued payroll.
Recent
accounting pronouncements
The
Company has reviewed recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC and did
not or are not believed by management to have a material impact on the Company’s financial statements.
4.
Related Party Loan
LAT
Pharma was given a zero-interest bearing loan by the company’s General Partner, Jonathan Adams in the amount of $5,000 in
August 2015 and $5,000 in November 2015. The total of $10,000 was outstanding when the Company merged with LAT Pharma. As of September
30
th
, 2016 the Company has an outstanding balance of $10,000 payable on demand to the CEO, Jonathan Adams.
5.
Commitments and Contingencies
Office
Lease
On
January 1, 2014 the Company executed a lease agreement with Cummings Properties for the company’s office of 270 square feet
at 100 Cummings Center, Suite 247-C, Beverly, MA 01915. The lease is for a term of five years from January 1, 2014 to December
30, 2018 and requires monthly payments of $357 ($4,284 annually for each of the five years, total aggregate of $21,420).
Employment
Agreements
On
April 11, 2016 the Company entered into employment agreement with CEO Jonathan Adams. The Company’s agreement provides for
a three-year term with minimum annual base salary of $250,000 per year. Effective April 11, 2016, the (previous) CEO/CFO resigned.
Deferred
taxes are recorded for all existing temporary differences in the Company’s assets and liabilities for income tax and financial
reporting purposes. Due to the valuation allowance for deferred tax assets, as noted below, there were no net deferred tax benefit
or expense for the quarter ended September 30, 2016.
There
is no current or deferred income tax expense or benefit allocated to continuing operations for the quarter ended September 30,
2016.
The
provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to
income before income taxes. The items causing this difference are as follows:
|
|
September 30, 2016
|
|
June 30, 2016
|
Tax expense (benefit) at U.S. statutory rate
|
|
$
|
(119,460
|
)
|
|
$
|
(146,889
|
)
|
State income tax expense (benefit), net of federal benefit
|
|
|
(17,568
|
)
|
|
|
(21,659
|
)
|
Effect of non-deductible expenses
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
137,028
|
|
|
|
168,548
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
at September 30, 2016 were as follows:
Deferred tax assets (liability), noncurrent:
|
|
|
|
|
Net operating loss
|
|
$
|
528,876
|
|
Valuation allowance
|
|
|
(528,876
|
)
|
|
|
$
|
—
|
|
Change in valuation allowance:
Balance, June 30, 2016
|
|
$
|
391,848
|
|
Increase in valuation allowance
|
|
|
137,028
|
|
Balance, September 30, 2016
|
|
|
528,876
|
|
Since
management of the Company believes that it is more likely than not that the net deferred tax assets will not provide future benefit,
the Company has established a 100 percent valuation allowance on the net deferred tax assets as of September 30, 2016.
As
of September 30, 2016, the Company had federal and state net operating loss carry-forwards totaling approximately $1,355,679 which
begin expiring in 2022.
7.
Purchase of LAT Pharma
On
April 11, 2016, the Company entered into and consummated an Agreement and Plan of Merger (the “Merger Agreement”),
with LAT Acquisition Corp., a Nevada corporation and wholly-owned subsidiary of the Company (“Acquisition”) and LAT
Pharma, LLC an Illinois limited liability company (“LAT”). Pursuant to the terms of the Merger Agreement, Acquisition
merged with and into LAT in a statutory triangular merger (the “Merger”) with LAT surviving as a wholly-owned subsidiary
of the Company. As consideration for the Merger, the Company issued the interest holders of LAT (the “LAT Holders”)
an aggregate of 39,820,000 shares of our Common Stock issued to the LAT Holders in accordance with their pro rata ownership of
LAT membership interests prior to the Merger. Following the Merger, the Registrant will continue the development of LAT’s
lead clinical therapeutic candidate Continuous low-dose Infusion (CI) Terlipressin.
Immediately
prior to the Merger, the Company had 87,210,000 shares of Common Stock issued and outstanding. In connection with the Merger,
certain shareholders of the Company collectively agreed to retire and cancel an aggregate of 39,869,999 shares of Common Stock.
Following the consummation of the Merger, the issuance of the Merger Shares of the 39,820,000 shares of Common Stock, the Company
had 87,160,001 shares of Common Stock issued and outstanding and the LAT Holders beneficially own 39,820,000 shares or approximately
forty-six percent (46%) of such issued and outstanding Common Stock.
Under
the purchase method of accounting, the transaction was valued for accounting purposes at $2,389,200, which was the estimated fair
value of the consideration paid by the Company. The estimate was based on the consideration paid of 39,820,000 shares of common
stock valued based on the closing price on 04/11/2016 of $0.06 per share.
The
assets and liabilities of LAT Pharma, Inc. were recorded at their respective fair values as of the closing date of the Merger
Agreement, and the following table summarizes these values based on the balance sheet at April 11, 2016.
$
|
2,303,682
|
|
|
Assets Purchased
|
|
260,193
|
|
|
Liabilities Assumed
|
|
2,043,489
|
|
|
Net Assets Purchased
|
|
2,389,200
|
|
|
Purchase Price
|
$
|
345,711
|
|
|
Goodwill from Purchase
|
Intangible asset detail
$
|
2,293,770
|
|
|
Intangible Intellectual Property
|
|
345,711
|
|
|
Goodwill
|
$
|
2,639,481
|
|
|
Intangible Asset from Purchase
|
Under the 338(h)(10) election, all goodwill
and intangibles related to the acquisition of LAT Pharma will be fully deductible for tax purposes.
The
intangible intellectual property is amortized over 10 years.
|
|
September 2016
|
|
September 2015
|
Intangible Assets subject to Amortization
|
|
$
|
2,293,770
|
|
|
$
|
—
|
|
Amortization Expense in current year
|
|
$
|
57,344
|
|
|
$
|
—
|
|
Accumulated Amortization at year end
|
|
$
|
108,380
|
|
|
$
|
—
|
|
The previous year amortization
expense has been amortized for the period from April 11, 2016 to June 30, 2016. The estimated Amortization expense for each of
the five succeeding fiscal years will be approximately $229,300 per year.
8.
Stock Options
In
connection with the employment agreement signed with the Chief Financial Officer on April 11, 2016, Jonathan Adams received options
to acquire 3 million shares exercisable at $0.06 per share, the closing price on that date. These Options Group A shall become
vested and exercisable (i) as to 1 million shares on April 11, 2017, (ii) as to 1 million shares on April 11, 2018, and (iii)
as to 1 million shares on April 11, 2019.
The
fair market value of the stock options is estimated using the Black Scholes valuation model and the Company uses the
following methods to determine its underlying assumptions: expected volatilities are based on the historical
volatilities
of 3 comparable companies of the daily closing price of their respective common stock; the expected term of options granted
is based on the average time outstanding method; and the risk free interest rate is based on the US Treasury bonds issued
with similar life terms to the expected life of the grant.
The
following key assumptions were used in the valuation model to value stock option grants for each respective period:
Valuation Date
|
|
4/11/2016
|
4/11/2016
|
4/11/2016
|
Stock Price
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
Exercise Price
|
|
$
|
0.06
|
|
$
|
0.06
|
|
$
|
0.06
|
|
Term (expected term for options)
|
|
|
1.00
|
|
|
2.00
|
|
|
3.00
|
|
Volatility
|
|
|
56.49
|
%
|
|
58.45
|
%
|
|
97.82
|
%
|
Annual Rate of Quarterly Dividends
|
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
Discount Rate - Bond Equivalent Yield
|
|
|
0.53
|
%
|
|
0.70
|
%
|
|
0.85
|
%
|
Call Option Value ($Millions)
|
|
$
|
0.01
|
|
$
|
0.02
|
|
$
|
0.04
|
|
Fair Value
|
|
$
|
13,467
|
|
$
|
19,523
|
|
$
|
36,489
|
|
Stock
option transactions under the Company’s plans for the years ended June 30, 2016 is summarized below:
|
|
|
Weighted
|
|
|
|
Weighed-
|
Average
|
Aggregate
|
|
|
Average
|
Remaining
|
Intrinsic
|
|
Shares
|
Exercise
|
Contractual
|
Value
|
Options
|
(Thousands)
|
Price
|
Term
|
(Thousands)
|
Outstanding at July 1, 2015
|
-
|
-
|
-
|
-
|
Granted
|
3,000
|
0.06
|
2
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfieted
|
-
|
-
|
-
|
-
|
Outstanding at June 30, 2016
|
3,000
|
0.06
|
2
|
-
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
Forfieted
|
-
|
-
|
-
|
-
|
Outstanding at September 30, 2016
|
3,000
|
0.06
|
2
|
-
|
The
compensation expense includes $8,848 related to the stock options described above.
9. Loan Payable
LAT
Pharma was given a zero-interest bearing loan from Barrett Ehrlich for $8,000. Barrett Ehrlich made a payment to Hayden IR, LLC
directly on behalf of LAT Pharma. As of September 30
th
, 2016 the Company has an outstanding balance of $8,000 payable
on demand to Barrett Ehrlich.
10.
Subsequent Event
Subsequent
to September 30, 2016, the Company sold 500,000 shares of common stock for 20 cents per share for total proceeds of $100,000.