ITEM 7: MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere
herein and in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. Readers
should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”,
“we”, “our”, “us” and “NNVC” refer to NanoViricides, Inc., a Nevada corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report contains forward-looking
statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions
or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,”
“plan,” “will,” “we believe,” “NNVC believes,” “management believes”
and similar language. The forward-looking statements are based on the current expectations of NNVC and are subject to certain risks,
uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results anticipated
in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume
no obligation to update them.
Investors are also advised to refer to
the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K,
in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Management’s Plan of Operation
The Company’s drug development business
model was formed in May 2005 with a license to the patents and intellectual property held by TheraCour that enabled creation
of drugs engineered specifically to combat viral diseases in humans. This exclusive license from TheraCour serves as a foundation
for our intellectual property. The Company was granted a worldwide exclusive license to this technology for several drugs with
specific targeting mechanisms for the treatment of the following human viral diseases: Human Immunodeficiency Virus (HIV/AIDS),
Hepatitis B Virus (HBV), Hepatitis C Virus (HCV), Rabies, Herpes Simplex Virus (HSV-1 and HSV-2), Influenza and Asian Bird
Flu Virus. The Company entered into an Additional License Agreement with TheraCour granting the Company the exclusive licenses
for technologies developed by TheraCour for the additional virus types: Dengue viruses, Japanese Encephalitis virus, West Nile
Virus, Viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes, and Ebola/Marburg viruses. The Company completed
a license agreement for the field of VZV indications in November 2019 from TheraCour. The Company and TheraCour have signed
a Memorandum of Understanding for the field of human coronavirus drug indications in June 2020. This MoU grants the Company
a limited license for the development of drugs for the treatment of human coronavirus indications. There was no compensation paid
to TheraCour for this Coronavirus MoU. The Company has initiated an independent valuation for this field. A definitive agreement
is expected to be negotiated between the parties thereafter. TheraCour has not denied any licenses sought by the Company in the
past.
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The Company discloses the risk that while
we are working with the assumption that we will be able to come to mutually agreeable terms for an additional license for the human
coronavirus indications area with TheraCour. However, there can be no assurance that the Company will be able to enter into an
agreement with TheraCour for such license or that the agreement will be on terms that are favorable to the Company. The Company
may want to add further virus types to its drug pipeline as the Company progresses further. The Company would then need to negotiate
with TheraCour appropriate license agreements to include those of such additional viruses that the Company determines it wants
to follow for further development. We are seeking to add to our existing portfolio of products through our internal discovery pre-clinical
development programs and through an in-licensing strategy.
The licenses granted by TheraCour are for
entire set of pathologies that the licensed virus is a causative agent for. The licenses are not for single drug/indication pairs,
which is the customary mode of licensing in the Pharmaceutical industry. Thus these are very broad licenses and enable NanoViricides
to pursue a number of indications as well as develop drug candidates with different characteristics as is best suited for the indications,
without having to license the resulting drugs for each indication separately, as with normal pharmaceutical industry licensing.
The Company plans to develop several
drugs through the preclinical studies and clinical trial phases with the goal of eventually obtaining approval from the
United States Food and Drug Administration (“FDA”) and International regulatory agencies for these drugs. The
Company plans, when appropriate, to seek regulatory approvals in several international markets, including developed markets
such as Europe, Japan, Canada, Australia, and Emerging Regions such as Southeast Asia, India, China, Central and South
America, as well as the African subcontinent. The seeking of these regulatory approvals would only come when and if one or
more of our drugs have significantly advanced through the US FDA and international regulatory process. If and as these
advances occur, the Company may attempt to partner with more established pharmaceutical companies to advance the various
drugs through the approval process.
The Company intends to perform the regulatory
filings and own all the regulatory licenses for the drugs it is currently developing. The Company will develop these drugs in part
via subcontracts to TheraCour, the exclusive source for these nanomaterials. The Company may manufacture these drugs itself, or
under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have appropriate
capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements.
The Company plans to market these drugs either on its own or in conjunction with marketing partners. The Company also plans to
actively pursue co-development, as well as other licensing agreements with other pharmaceutical companies. Such agreements may
entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other instruments that may
bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing and development
options that the Company may pursue. The Company has received significant interest from certain pharmaceutical companies for potential
licensing or co-development of some of our drug candidates. However, none of these distributor or co-development agreements is
in place at the current time.
There can be no assurance that the Company
will be able to develop effective nanoviricides, or if developed, that we will have sufficient resources to be able to successfully
manufacture and market these products to commence revenue-generating operations.
There can be no assurance that other developments
in the field would not impact our business plan adversely. For example, successful creation and availability of an effective vaccine
may reduce the potential market size for a particular viral disease, or an effective drug may be developed by competitors that
becomes difficult to compete against with our limited resources. Our goal, which we can give no assurance
that we will achieve, is for NanoViricides, Inc. to become the premier company developing highly safe and effective drugs
that employ an integrated multiplicity of actions as enabled by our nanomedicine approach for anti-viral therapy.
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To date, we have engaged in organizational
activities; developing and sourcing compounds and preparing nano-materials; and experimentation involving preclinical studies using
cell cultures and animal models of efficacy and safety. We have generated funding through the issuances of debt and the sales of
securities under our shelf registration and the private placement of common stock (See, Item 5). The Company does not
currently have any long-term debt. We have not generated any revenues and we do not expect to generate revenues in the near future.
We may not be successful in developing our drugs and start selling our products when planned, or we may not become profitable in
the future. We have incurred net losses in each fiscal period since inception of our operations.
Current Financial Status
NanoViricides technology is now maturing
rapidly toward clinical drug trials, with the new facility, expanded staff, and the financial strength that we have attained since
uplisting to NYSE-MKT (now NYSE American) in September 2013.
As of June 30, 2020, the end of the
reporting period, we have $13,708,594 in cash and cash equivalents, prepaid expenses of $277,063 and $9,544,431 of property and
equipment, net of accumulated depreciation. Our liabilities are $2,156,377 including a short term mortgage loan of $1,081,987 payable
to Dr. Diwan, accounts payable of $380,727 payable to third parties and accounts payable to TheraCour of $561,580 of which
$300,000 of such accounts payable is deferred until the filing of an IND. Stockholders’ equity was $21,757,962 at June 30,
2020. In comparison, as of June 30, 2019, we had $2,555,207 in cash and cash equivalents, prepaid expenses of $270,214 and
property and equipment was $10,227,247, net of accumulated depreciation. Our liabilities were $2,848,153 with $1,645,606 attributable
to derivative liabilities of warrants, accounts payable of $309,893 payable to third parties, and accounts payable to TheraCour
of $823,783 of which $200,000 is deferred until an IND filing. Stockholders’ equity was $10,600,360 at June 30, 2019.
During the year ended June 30, 2020, we
spent approximately $6.7 million in cash toward operating activities and approximately $8,600 in capital investment. In contrast,
we spent approximately $6.8 million in cash toward operating activities and approximately $74,000 in capital investment in the
year ended June 30, 2019. We anticipate capital costs of approximately $200,000 in the next twelve months.
As of June 30, 2020, we have a cash
and cash equivalent balance of $13,708,594 that is expected to be sufficient to fund our currently budgeted operations for more
than one year from the filing of the Company’s Form 10K. Additionally, on
July 8, 2020, subsequent to the date of the reporting period, the Company entered into an underwriting agreement (the “Underwriting
Agreement”) with Kingswood Capital Markets, a Division of Benchmark Investments, Inc. (“Kingswood”). The offering
was consummated on July 10, 2020, whereby the Company sold 1,369,863 shares of Common Stock and a fully exercised Underwriters’
over-allotment option of 205,479 additional shares the public offering price of $7.30 per share. No warrants were issued in this
Offering. The net proceeds to the Company from the offering was approximately $10.53 million after deducting underwriting discounts
and commissions and other estimated offering expenses payable by the Company.
On July 31, 2020, the Company entered into
an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. and Kingswood Capital
Markets, a division of Benchmark Investments, Inc. (each a “Sales Agent” and collectively, the “Sales Agents”),
pursuant to which the Company may offer and sell, from time to time, through or to the Sales Agents, shares of Common Stock (the
“Placement Shares”), having an aggregate offering price of up to $50 million (the “ATM Offering”). Sales
pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agents, and the Company cannot
provide any assurances that it will issue any Shares pursuant to the Sales Agreement. Actual sales will depend on a variety of
factors to be determined by the Company from time to time, including (among others) market conditions, the trading price of the
Company’s Common Stock, capital needs and determinations by the Company of the appropriate sources of funding for the Company.
The Company is not obligated to make any sales of Common Stock under the Sales Agreement and the Company cannot provide any assurances
that it will issue any shares pursuant to the Sales Agreement. The Company will pay a commission rate of up to 3.5% of the gross
sales price per share sold and agreed to reimburse the Sales Agents for certain specified expenses, including the fees and disbursements
of its legal counsel in an amount not to exceed $50,000 and have agreed to reimburse the Sales Agents an amount not to exceed $2,500
per quarter during the term of the Sales Agreement for legal fees to be incurred by the Sales Agents. The Company has also agreed
pursuant to the Sales Agreement to provide each Sales Agent with customary indemnification and contribution rights.
The Company has
incurred significant operating losses since its inception resulting in an accumulated deficit of $105,563,124 at June 30,
2020. For the year ended June 30, 2020, the Company had a net loss of $13,446,538. Such losses are expected to continue for
the foreseeable future and until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations.
The Company believes that it has several important milestones that it will be achieving in the ensuing year. Management believes
that as it achieves these milestones, the Company’s ability to raise additional funds in the public markets would be enhanced.
Management believes that the Company’s
existing resources will be sufficient to fund the Company’s planned operations and expenditures through October 2021. However,
the Company cannot provide assurance that its plans will not change or that changed circumstances will not result in the depletion
of its capital resources more rapidly than it currently anticipates. The accompanying audited financial statements do not include
any adjustments that may result from the outcome of such unidentified uncertainties.
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Results of Operations
The Company is a biopharmaceutical company
and does not have any revenue for the years ended June 30, 2020, 2019 and 2018.
Comparison of the Year End June 30,
2020 to the Year Ended June 30, 2019
Revenues
- The Company is a non-revenue producing entity.
Operating
Expenses - Research and development expenses for the year ended June 30, 2020 decreased $1,226,196 to $4,695,524
from $5,921,720 for the year ended June 30, 2019. This year-to-year decrease is generally attributable to a decrease in lab
supplies and chemicals, and a decrease in employee compensation expenses and by a decrease in lab fees for pre IND studies. General
and administrative expenses increased $562,973 to $3,300,935 for the year ended June 30, 2020 from $2,737,962 for the year
ended June 30, 2019. The increase in general and administrative expenses is generally attributable to an increase in legal
and professional expenses offset by a decrease in salary and stock compensation paid to retired executive officers and to employees
other than research scientists and a decrease in consultants costs unrelated to research and development.
Interest
Income - Interest income was $17,079 and $55,497 for the years ended June 30, 2020 and 2019, respectively.
Interest income decreased due to lower cash and cash equivalents for the majority of the year ended June 30, 2020 as well as lower
interest rates.
Interest
Expense- The Company has incurred interest expense of $93,670 and $0 for the years ended June 30, 2020 and
June 30, 2019, respectively. The increase is as a result of interest paid on the mortgage note, amortization of the mortgage
loan origination fee, and interest paid on a short term loan payable.
Loss
on issuance of Series A preferred stock for accounts payable – related party – Loss of $142,669
for the year ended June 30, 2020 represents the difference on the exchange of 100,000 shares of Series A preferred stock with a
fair value of $392,669 for $250,000 of previously deferred development fees owed to Theracour.
Gain
on Warrant Settlement- For the year ended June 30, 2020, the gain on warrant settlement resulted from an Exchange
Agreement with certain Investors pursuant to a Settlement Agreement with the same investors. The Investors exchanged 347,222 old
warrants for 647,224 shares of common stock and 347,222 new warrants. The aggregate fair value of the common stock and New Warrants
issued as part of the Exchange Agreement was $7,788,968. The Old Warrants were remeasured to a fair value of $8,403,462 on January 24,
2020 immediately prior to the exchange. As a result of the Exchange Agreement, a gain on warrant settlement was recognized in the
amount of $614,494 calculated as the difference between the fair value of the Old Warrants immediately prior to the exchange and
the aggregate fair value of the common stock and New Warrants issued in the exchange.
Change
in fair value of derivative - Change in fair value of derivative for the year ended June 30, 2020 decreased
$6,025,058 to ($5,845,313) from $179,745 for the year ended June 30, 2019. For the year ended June 30, 2020, the change
in fair value of derivatives resulted from an Exchange Agreement with certain Investors pursuant to a Settlement Agreement with
the same investors. For the year ended June 30, 2019, the change in the fair value of derivative liabilities was calculated
primarily on the change in fair value of 5.5 year warrants issued on February 27, 2019.
Income
Taxes - There is no provision for income taxes due to ongoing operating losses. As of June 30, 2020,
we had estimated cumulative tax benefits and development tax credits and other deferred tax credits resulting in a deferred tax
asset of $35,089,911. This amount has been offset by a full valuation allowance.
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Net
Loss - For the year ended June 30, 2020, the Company had a net loss of $13,446,538, or a basic and fully diluted
loss per share of $2.39 compared to a net loss of $8,424,440, or a basic and fully diluted loss per share of $2.35 for the year
ended June 30, 2019. The increase in the Company’s net loss for the year ended June 30, 2020 from the year ended
June 30, 2019 of $5,022,098 is generally attributable to the change in fair value of derivatives, and an increase in general
and administrative expenses, offset by a decrease in research and development costs.
Comparison of the Year End June 30,
2019 to the Year Ended June 30, 2018
Revenues
- The Company is a non-revenue producing entity.
Operating
Expenses - Research and development expenses for the year ended June 30, 2019 increased $8,000 to $5,921,720
from $5,913,720 for the year ended June 30, 2018. This year-to-year increase is generally attributable to an increase in lab
supplies and chemicals, and a decrease in employee compensation expenses offset by increases in lab fees for pre IND studies. General
and administrative expenses decreased $673,487 to $2,737,962 for the year ended June 30, 2019 from $3,411,449 for the year
ended June 30, 2018. The decrease in general and administrative expenses is generally attributable to a decrease in salary
and stock compensation paid to retired executive officers and to employees other than research scientists, a decrease in consultants
costs unrelated to research and development offset by an increase in legal, and professional expenses.
Other
Income (Expenses) - Interest income was $55,497 and $100,429 for the years ended June 30, 2019, and 2018, respectively.
Interest income included interest on cash or cash equivalent deposits in interest-bearing account. Interest income decreased due
to a decrease in deposits. The Company has incurred interest expense of $0 and $185,274 for the years ended June 30, 2019
and June 30, 2018, respectively. The decrease was due to the redemption of the Series B Debentures at maturity, and the
Series C Debentures pursuant to a redemption agreement. The Company amortized the discount on its Series B and Series C
Debenture, which were calculated at issuance. The Company recognized an amortization of bond discount expense of $0 and $359,214
for the years ended June 30, 2019 and 2018, respectively.
Change
in fair value of derivative - Change in fair value of derivative for the year ended June 30, 2019 decreased
$2,374,275 to $179,745 from $2,554,020 for the year ended June 30, 2018. The decrease was due to the reduction of the fair
value of derivative liability in the fiscal year ending June 30, 2018 of the obligation to issue shares related to the redemption
of the Company’s Series C Convertible Debenture of $819,994, a change of the fair value of the derivative liability
of the Series C Convertible Debenture, and a change of the fair value in the derivative liabilities of the Company’s
warrants expiring September 12, 2018 and January 14, 2019. For the year ended June 30, 2019, the change in the fair
value of derivative liabilities was calculated primarily on the change in fair value of 5.5 year warrants issued on February 27,
2019.
Income
Taxes - There is no provision for income taxes due to ongoing operating losses. As of June 30, 2019,
we had estimated cumulative tax benefits and development tax credits and other deferred tax credits resulting in a deferred tax
asset of approximately $34,157,707. This amount has been offset by a full valuation allowance.
Net
Loss - For the year ended June 30, 2019, the Company had a net loss of $8,424,440, or a basic and fully diluted
loss per share of $2.35 compared to a net loss of $8,563,455, or a basic and fully diluted loss per share of $2.64 for the year
ended June 30, 2018. The decrease in the Company’s net loss for the year ended June 30, 2019 from the year ended
June 30, 2018 of $139,015 is generally attributable to the decrease in general and administrative expenses, decreases in interest
expenses, and discount on convertible debentures, offset by the net of a Loss on extinguishment of debt and change in fair value
of derivatives for the year ended June 30, 2018.
Liquidity and Capital Reserves
The Company had cash and cash equivalents
of $13,708,594 and $2,555,207 as of June 30, 2020 and 2019, respectively. On the same dates, current liabilities outstanding
totaled $2,156,377 and $2,848,153, respectively. As of June 30, 2020, the total current liabilities included a mortgage note payable-related
party of $1,081,987 and loan payable of $62,843. As of June 30, 2020 and 2019, the derivative liability associated with its
outstanding warrants was reported as a current liability of $0 and $1,645,606, respectively.
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Since inception, the Company has expended
substantial resources on research and development. Consequently, we have sustained substantial losses. The Company has an accumulated
deficit of $105,563,124 and $92,116,586 at June 30, 2020 and 2019, respectively.
The Company anticipates
several important milestones that it will be achieving in the ensuing year. Management believes that as it achieves these milestones,
the Company’s ability to raise additional funds in the public markets would be enhanced.
Management believes that the Company’s
existing resources will be sufficient to fund the Company’s planned operations and expenditures through October, 2021. However,
the Company cannot provide assurance that its plans will not change or that changed circumstances will not result in the depletion
of its capital resources more rapidly than it currently anticipates. The accompanying audited financial statements do not include
any adjustments that may result from the outcome of such unidentified uncertainties.
As of June 30, 2020, we have a cash
and cash equivalent balance of $13,708,594 that is expected to be sufficient to fund our currently budgeted operations for more
than one year from the filing of the Company’s Form 10K. Additionally, on
July 8, 2020, subsequent to the date of the reporting period, the Company entered into an underwriting agreement (the “Underwriting
Agreement”) with Kingswood Capital Markets, a Division of Benchmark Investments, Inc. (“Kingswood”). The offering
was consummated on July 10, 2020, whereby the Company sold 1,369,863 shares of Common Stock and a fully exercised Underwriters’
over-allotment option of 205,479 additional shares the public offering price of $7.30 per share. No warrants were issued in this
Offering. The net proceeds to the Company from the offering was approximately $10.53 million after deducting underwriting discounts
and commissions and other estimated offering expenses payable by the Company.
Research and Development Costs
The Company does not maintain separate
accounting line items for each project in development. The Company maintains aggregate expense records for all research and development
conducted. Because at this time all of the Company’s projects share a common core material, the Company allocates expenses
across all projects at each period-end for purposes of providing accounting basis for each project. Project costs are allocated
based upon labor hours performed for each project.
The Company has signed several cooperative
research and development agreements with different agencies and institutions.
The Company expects to enter into additional
cooperative agreements with other governmental and non-governmental, academic, or commercial, agencies, institutions, and companies.
There can be no assurance that a final agreement may be achieved and that the Company will execute any of these agreements. However,
should any of these agreements materialize, the Company will implement a system to track these costs by project and account for
these projects as customer-sponsored activities and show these project costs separately.
The following Table 4 summarizes the primary
components of our research and development expenses as allocated, during the periods presented in this Annual Report on Form 10-K.
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Table 4: R&D Cost Allocations
EKC-CideTM, other Eye Viral Infections - - -
Dengue - - -
Other (Ebola, and other projects) - - -
Anticipated Budgets and Expenditures in the Near Future
The Company has ended the year on a reasonable
financial footing by controlling costs and expenditures. We project that our
current available financing is sufficient for accomplishing the goal of filing one IND or equivalent regulatory applications. We
will need additional financing to execute on our business plan and to complete human clinical trials of our drug candidates into
drug approval. Our Coronavirus drug candidate is entering IND-enabling studies, and is expected to rapidly move into human clinical
studies in response to the COVID-19 pandemic. Our Shingles Skin Cream, is in IND-writing and Clinical Trials Design stage, and
we intend to file an IND for this drug once the COVID-19 situation abates. At present, we are working on the scale up of manufacturing
of these drug candidates in a manner that will be compliant with US FDA cGMP and corresponding ICH guidelines. We intend to request
a pre-IND meeting with the USFDA for the Coronavirus drug candidate at an appropriate time, as we develop the dataset for this
discussion. A pre-IND meeting will help us determine the level of detail needed in the cGLP Safety/Toxicology study required for
the IND application, and also to refine our human clinical trials design. We anticipate that these drug candidates will move forward
into IND or equivalent regulatory filings, and ensuing human clinical trials. As these drug candidates are advancing into the clinic,
we believe that our additional drug candidates, including two or more drug candidates in the HerpeCide program will also move forward
into IND-enabling studies. We intend to further re-engage our FluCide and HIVCide drug development programs once we have established
our platform technology with the Coronavirus and HerpeCide program drug candidates. We are thus poised for strong growth with a
number of drug candidates in a number of disease indications.
Financings
Management engaged in efforts to raise
financing in September 2019. On September 24, 2019, the Company effected a reverse stock split of its outstanding shares of common
stock and shares of preferred stock at a ratio of one for twenty (the “Reverse Stock Split”). The Reverse Stock split,
which was approved by the Company’s Board of Directors under authority granted under the laws of the State of Nevada, was
consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Nevada on September 23, 2019.
On December 16, 2019, the Company entered
into an Open End Mortgage Note (the “Note”) with Dr. Anil Diwan, the Company’s founder, Chairman and President,
to loan the Company up to $2,000,000 in two traches of $1,000,000 (the “Loan”). The Note bears interest at a rate of
12% per annum and is secured by a mortgage granted against the Company’s headquarters. Dr. Anil Diwan received 10,000 shares
of the Company’s Series A preferred stock as a loan origination fee. As of June 30, 2020, the Company has drawn down $1.1
million on this loan. On April 30, 2020, the Company and Dr. Diwan have mutually agreed to extend the maturity date of the note,
at the Company’s option, to May 15, 2021, with the rest of the terms remaining the same.
On December 17, 2019, the Company entered
into a Deferred Expense Exchange Agreement with TheraCour, whereby the Company and TheraCour agreed to exchange 100,000 shares
of Series A preferred stock with a fair value of $392,669 for $250,000 previously deferred development fees owed to TheraCour.
The Company recognized a loss on the exchange of $142,669. Dr. Diwan is principal shareholder of TheraCour.
These two transactions together provided a much needed cash
infusion of up to $2.3 million to the Company at a critical time. There were no agents or brokers in these transactions and no
commissions or agency fees were paid other than legal and regulatory fees. Dr. Diwan, being a party with interest, recused
himself from, and was not present at, the discussions and negotiations of the independent members of Company’s Board of Directors
on both of these transactions.
On January 24, 2020, the Company announced
in a press release that it had completed an underwritten public offering (the “Offering”) with gross proceeds of $8,625,000
before deducting underwriting discounts and other estimated offering expenses. The Offering included 2,500,000 shares of the Company’s
common stock, and 375,000 additional shares from the exercise of the underwriter’s option to purchase to cover over-allotments
at the public offering price of $3.00 per share. No warrants were issued in this Offering. The net proceeds to the Company After
deducting offering costs was $7,457,575.
On May 26, 2020, the Company announced in a press release
that it had raised $10,220,000 in gross proceeds from the sale of 1,400,000, shares of common stock, at a price of $7.30 per share,
in a previously announced registered direct offering (the “May Offering”). No warrants were issued in this May Offering.
The net proceeds to the Company were approximately $9,219,400 after deducting placement agent fees and other costs. The May
Offering closed on May 22, 2020.
With these financings and continued control
of expenditures, the Company ended the current fiscal year with approximately $13.7 million in cash and cash equivalents,
and $9.5 million in property and equipment, net of accumulated depreciation. As of June 30, 2020, the Company had a mortgage note
payable-related party of approximately $1.1 million and a loan payable of approximately $60,000 that will mature on December 15,
2020.
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On July 8, 2020, subsequent to the date of the reporting period,
the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Kingswood Capital Markets, a
Division of Benchmark Investments, Inc. (“Kingswood”). The offering was consummated on July 10, 2020, whereby the Company
sold 1,369,863 shares of Common Stock and a fully exercised Underwriters’ over-allotment option of 205,479 additional shares
the public offering price of $7.30 per share. No warrants were issued in this Offering. The net proceeds to the Company from the
offering was approximately $10.53 million after deducting underwriting discounts and commissions and other estimated offering expenses
payable by the Company.
The Company thus believes that it is in
a strong financial position now and can undertake the COVID-19 clinical program, and also, when opportune, reengage the NV-HHV-101
clinical program. The Company also believes that additional non-dilutive financing will be available under the COVID-19 program
upon advancing it further toward or into human clinical trials. The Company also believes that due to the pandemic, it will be
possible to rapidly take our anti-coronavirus drug into human clinical trials under the COVID-19 regulatory pathways of the US
FDA.
Requirement for Additional Capital
As of June 30, 2020, we had a cash
and cash equivalent balance of $13,708,594 that is expected to be sufficient to fund our currently budgeted operations for more
than one year from the filing of the Company’s Form 10-K.
On July 8, 2020, subsequent to the date of the reporting period,
the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Kingswood Capital Markets, a
Division of Benchmark Investments, Inc. (“Kingswood”). The offering was consummated on July 10, 2020, whereby the Company
sold 1,369,863 shares of Common Stock and a fully exercised Underwriters’ over-allotment option of 205,479 additional shares
the public offering price of $7.30 per share. No warrants were issued in this Offering. The net proceeds to the Company from the
offering was approximately $10.53 million after deducting underwriting discounts and commissions and other estimated offering expenses
payable by the Company.
On July 31, 2020, the Company entered into
an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. and Kingswood Capital
Markets, a division of Benchmark Investments, Inc. (each a “Sales Agent” and collectively, the “Sales Agents”),
pursuant to which the Company may offer and sell, from time to time, through or to the Sales Agents, shares of Common Stock (the
“Placement Shares”), having an aggregate offering price of up to $50 million (the “ATM Offering”). Sales
pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agents, and the Company cannot
provide any assurances that it will issue any Shares pursuant to the Sales Agreement. Actual sales will depend on a variety of
factors to be determined by the Company from time to time, including (among others) market conditions, the trading price of the
Company’s Common Stock, capital needs and determinations by the Company of the appropriate sources of funding for the Company.
The Company is not obligated to make any sales of Common Stock under the Sales Agreement and the Company cannot provide any assurances
that it will issue any shares pursuant to the Sales Agreement. The Company will pay a commission rate of up to 3.5% of the gross
sales price per share sold and agreed to reimburse the Sales Agents for certain specified expenses, including the fees and disbursements
of its legal counsel in an amount not to exceed $50,000 and have agreed to reimburse the Sales Agents an amount not to exceed $2,500
per quarter during the term of the Sales Agreement for legal fees to be incurred by the Sales Agents. The Company has also agreed
pursuant to the Sales Agreement to provide each Sales Agent with customary indemnification and contribution rights.
The Company believes that our cash and
cash equivalent balance and the proceeds from the aforesaid Securities Purchase Agreement will provide sufficient funds for us
to continue our operations beyond October, 2021 and to be able to advance at least one of its drug candidates into human clinical
trial stage with the available cash. The Company estimates that it will need additional funding to continue further development
of its drug candidates through later stages of human clinical trials if it does not form a collaborative licensing or partnership
agreement with a party that would provide such funding such as Big Pharma.
Based on our current rate of
expenditures and anticipated changes, we have estimated a total cash expenditure budget of approximately $16 million from
October 2020 through October 2021, of which approximately $12.0 million is expected to go towards research and
development for our drug candidates, including IND-enabling studies and anticipated human critical trial of our antiviral
treatment for COVID, and approximately $4.0 million is budgeted for general and administrative expenses.
These anticipated expenses for the ensuing one year period commencing
about October 16, 2021 can be summarized as follows:
Thereafter, we estimate that beyond the current budgetary
one-year period ending October 15, 2021, over the following two years for human clinical development of the Skin Cream
for Topical Treatment of Shingles, for further clinical studies towards full-fledged approval of our Coronavirus drug
candidate as may be necessary, and for developing additional drug indications based on the Shingles skin cream candidate,
NV-HHV-101, in the HerpeCide program, we may need approximately an additional $24 million, or approximately $16 million more than our current cash reserves. The additional funds will be needed to pay additional, subcontract costs
related to the expansion and further development of our drug pipeline, for human clinical trials, and for additional capital
and operational expenditures
These anticipated additional expenses for
the two-year period commencing October 16, 2021 can be summarized as follows:
3. Clinical Trials Costs budgeted at $5,000,000 for the Skin Cream for Shingles.
5. Capital costs for laboratory and pilot manufacturing equipment of $2,000,000.
We believe that as we become a clinical
stage company, and as our programs mature towards FDA approval, the Company’s market capitalization should improve substantially,
based on market capitalizations of comparable public companies in clinical stages. If so, we believe that we will be able to raise
the additional necessary funds through public financings as needed. We believe that our coronavirus program is maturing rapidly
towards human clinical trials, and if we are successful in achieving an emergency use approval for a coronavirus drug candidate,
we may be able to generate substantial revenues during the current pandemic using our existing cGMP-capable manufacturing capacity
itself.
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We believe we have sufficient funding for
taking both a Coronavirus drug candidate and our NV-HHV-101 skin cream for the treatment of Shingles rash into initial human clinical
trials. We will need to raise additional funds to take additional Topical HerpeCide drug candidate indications into an IND application
stage. There is no assurance that the Company will be successful in obtaining sufficient financing on terms acceptable to the Company
to fund these programs. Management believes that as a result of the management plan, the Company’s existing resources
and access to the capital markets will permit the Company to fund planned operations and expenditures. However, the Company cannot
provide assurance that its plans will not change or that changed circumstances will not result in the depletion of its capital
resources more rapidly than it currently anticipates.
The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.
We believe that the coming year’s
workplan will lead us to obtain certain information about the safety and efficacy of some of the drugs under development in animal
models and very likely, our coronavirus drug candidate in human clinical trials. If our studies are not successful, we will have
to develop additional drug candidates and perform further studies. If our studies are successful, then we expect to be able to
undertake further studies in animal models to obtain necessary data regarding the pharmaco-kinetic and pharmaco-dynamic profiles
and further human clinical studies, expanding into Phase 2b, and Phase 3 human clinical trials of our drug candidates.
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Our strategy is to minimize capital expenditure.
We therefore rely on third party collaborations for the testing of our drug candidates. We continue to engage with our previous
collaborators.
Our animal efficacy studies as well as
safety/toxicology studies are performed by third parties. We opt into drug developments against specific disease indications for
which we have appropriate partners that can perform the necessary cell culture and animal efficacy studies.
The Company reports summaries of its studies
as the data becomes available to the Company, after analyzing and verifying same, in its press releases. The studies of biological
testing of materials provide information that is relatively easy to understand and therefore readily reported. In addition, we
continue to engage in substantial work that is needed for the optimization of synthesis routes and for the chemical characterization
of the nanoviricide drug candidates. We also continue to work on improving the drug candidates and the virus binding ligands where
necessary. We continue to work on creating the information needed for the development of controlled chemical synthesis procedures
that is vital for developing c-GMP manufacturing processes.
We cannot accurately project the timeline
of when we would be able to take a drug candidate into clinical studies, nor can we predict when we may be able to achieve our
first drug approval, if any. As such we do not provide any guidance on expected timelines. The Company has no experience in having
taken a single drug through the US FDA or any international drug approval process as of now. As such, we may not be able to estimate
the time or cost of these studies accurately. However, we try to do our best by using expert consultants and preparing reasonable
estimates based on quotations from various contract research organizations.
Our timelines depend upon several assumptions,
many of which are outside the control of the Company, and thus are subject to delays.
Management intends to use capital and debt
financing, as required, to fund the Company’s operations. There can be no assurance that the Company will be able to obtain
the additional capital resources necessary to fund its anticipated obligations for the next twelve months.
The Company is considered to be a development
stage company and will continue in the development stage until it generates revenues from the sales of its products or services.
Off Balance Sheet Arrangements
We have not entered into any off-balance
sheet arrangements during the year ended June 30, 2020.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Accounting
for Stock Based Compensation – The Company follows the provisions of ASC
718 – Stock Compensation, which requires the measurement of compensation expense
for all shared-based payment awards made to employees, non-employee directors, and non-employees
including employee stock options. Shared-based compensation expense is based on the grant
date fair value estimated in accordance with the provisions of ASC 718 and is generally
recognized as an expense over the requisite service period, net of forfeitures.
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RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In June 2018, the FASB issued ASU 2018-07,
“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share Based Payment Accounting,”
which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies
to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s
own operations by issuing share-based payment awards. The Company’s adoption of this ASU as of July 1, 2019 had no impact
on the financial statements.
In July 2017, the FASB issued Accounting
Standards Update (“ASU”) No. 2017-11. “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity
(Topic 480); Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features, II.
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Non-controlling Interests with a Scope Exception (“ASU 2017-11”) ASU 2017-11 revises the guidance
for instruments with down round features in Subtopic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity,
which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative
accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic
815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round
features are no longer classified as liabilities. The Company has adopted ASU 2017-11 retrospectively as of January 1, 2019. The
adoption of this ASU did not have any impact on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to market risk
related to interest rates on foreign currencies.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The information required by Item 8 appears
after the signature page to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
Item
9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports
that we file under the Exchange Act is accumulated and communicated to our management including our chief executive officer and
our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitation of
controls systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of a simple error or mistakes. Additionally, controls can be circumvented by
the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and
procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.
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As of June 30, 2020, an evaluation
was carried out under the supervision and with the participation of our management, of the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(f) under the Securities Exchange Act of 1934).
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure
controls and procedures are not effective as of June 30, 2020 because of a material weakness in our internal control over financial
reporting described below.
Management’s Report on Internal Control Over Financial
Reporting
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness, as of June 30, 2020, of our internal control over financial
reporting based on the framework in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over
financial reporting was not effective as of June 30, 2020 due to the material weakness described below :
Management did not maintain effective procedures
pertaining to the review of the 10-K. The material weakness resulted from the lack of timely and effective review of the Company’s
period-end closing process and adequate personnel and resources. Specifically, the Company has established procedures for thorough
review by management, on a timely basis, of Form 10-K and other filings. Management’s responsibility is
to oversee that the Company is capable of developing accurate and timely financial information. The Company must continue to reinforce
additional procedures ensuring that Form 10-K as well as other required filings are done on a timely and accurate basis.
Changes in Internal Control over Financial
Reporting
The following changes in our internal control
over financial reporting during the quarter ended June 30, 2020 have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management previously reported a material
weakness in our internal control over financial reporting in our 2019 Form 10-K, filed on August 23, 2019, related to
the review of all financial transactions including engagement of outside specialists to evaluate our financial transactions and
to assist the preparation of the Company’s tax provisions and Company’s personnel in preparing the Company’s
income tax provision footnote.
We remediated the material weaknesses by,
among other things, implementing a process of enhanced review of all financial transactions including engagement of outside specialists
to evaluate our financial transactions as they arise. The actions that we are taking are subject to ongoing senior management
review and Audit Committee oversight.
The Company engaged outside tax counsel
to assist in the preparation of the Company’s tax provisions and Company’s personnel in preparing the Company’s
income tax provision footnote.
We believe that the previously reported material weakness related
to the third party valuation reports and income taxes has been remediated as of June 30, 2020.
Remediation Plan
The Company has established a financial
reporting controls committee comprised of members of senior management and a member of the Audit Committee of the Board of Directors.
The committee will provide oversight to the Company’s efforts for ensuring appropriate internal control over financial reporting
including, but not limited to, remediation of the aforesaid material weakness and identifying and testing for potential internal
control weakness in the financial reporting process to assure reliability and accuracy.
Management believes the foregoing efforts
will effectively remediate the material weakness identified above. As we continue to evaluate and work to improve our internal
control over financial reporting, management may execute additional measures to address potential control deficiencies or modify
the remediation plan described above and will continue to review and make necessary changes to the overall design of our internal
controls
Other than was described above, there were no material changes
in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934)
during the quarter ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
ITEM
9B. Other Information
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CORPORATE GOVERNANCE
The following table sets forth the names
and ages of our current directors and executive officers, their principal offices and positions and the date each such person became
a director or executive officer. Each executive officer holds the office until he/she resigns, is removed by the Board or his/her
successor is appointed by the Board upon appropriate due diligence. Directors are elected biannually by our stockholders at the
annual meeting. Each director holds his/her office until the successor is elected and qualified or his/her earlier resignation
or removal.
The following persons are the directors
and executive officers of our company:
Name Age Title
Anil Diwan, PhD. 62 President; Chairman of the Board, CEO
Stanley Glick, CPA 84 Director, Independent
Makarand “Mak” Jawadekar 69 Director, Independent
Theodore Edward (“Todd”) Rokita 50 Director, Independent
Meeta Vyas 62 Chief Financial Officer
The Company’s directors are elected
biannually and serve until their term expires, and may be re-elected for an additional term at the annual meeting of shareholders.
The executive officers that become members of the Board of Directors are elected via biennial election and serve as director through
the term, and may be re-elected for an additional term at the annual meeting of shareholders.
Anil
Diwan, PhD, age 62, has been President and the Chairman of the Board of Directors of the Company since
consummation of the merger on June 1, 2005. Dr. Diwan simultaneously therewith and since its formation, has also