NanoViricides(NNVC) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The unaudited financial statements for the period ended December 31, 2018, show a net loss of approximately $4.1 million for the six months, a decrease in cash and cash equivalents to $3.9 million, and an accumulated deficit of $87.8 million. The company has not generated any revenue and notes raise substantial doubt about its ability to continue as a going concern Balance Sheets As of December 31, 2018, total assets decreased to $15.0 million from $18.5 million at June 30, 2018, primarily due to a reduction in cash and cash equivalents from $7.1 million to $3.9 million. Total liabilities increased to $1.2 million from $0.9 million, driven by a significant rise in accounts payable to a related party. Consequently, total stockholders' equity declined from $17.7 million to $13.8 million Balance Sheet Summary (Unaudited) | Balance Sheet Items | Dec 31, 2018 | June 30, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,903,672 | $7,081,771 | | Total current assets | $4,072,620 | $7,322,028 | | Property and equipment, net | $10,555,494 | $10,841,093 | | Total assets | $15,004,219 | $18,546,212 | | Liabilities & Equity | | | | Total current liabilities | $1,163,660 | $881,948 | | Total stockholders' equity | $13,840,559 | $17,664,264 | | Total liabilities and stockholders' equity | $15,004,219 | $18,546,212 | Statements of Operations For the six months ended December 31, 2018, the company reported a net loss of $4.1 million, or ($0.06) per share, compared to a net loss of $4.8 million, or ($0.08) per share, for the same period in 2017. The reduced loss was primarily due to the absence of interest expense, loss on extinguishment of debt, and discount on convertible debenture related to a debenture redeemed in November 2017, partially offset by a smaller gain from the change in fair value of derivatives Statement of Operations Highlights (Unaudited) | Metric | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Research and development | $3,024,779 | $3,091,549 | | General and administrative | $1,383,517 | $1,532,678 | | Loss from operations | ($4,408,296) | ($4,624,227) | | Net loss | ($4,072,455) | ($4,802,449) | | Net loss per share | ($0.06) | ($0.08) | Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $17.7 million at June 30, 2018, to $13.8 million at December 31, 2018. The decline was primarily driven by a net loss of $4.1 million for the six-month period, partially offset by non-cash compensation through the issuance of preferred and common stock for employee, consulting, and director services - The primary driver for the decrease in stockholders' equity was the net loss of $4,072,455 for the six months ended December 31, 2018[10][12] - The company issued Series A Preferred Stock and common stock for employee compensation, consulting services, and director fees, which increased additional paid-in capital[12] Statements of Cash Flows For the six months ended December 31, 2018, net cash used in operating activities was $3.1 million, a slight increase from $3.0 million in the prior-year period. The company's cash and cash equivalents decreased by $3.2 million during the period, ending at $3.9 million, compared to $12.0 million at the end of the same period in 2017 Cash Flow Summary (Unaudited) | Metric | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,120,563) | ($2,960,521) | | Net change in cash and cash equivalents | ($3,178,099) | ($3,053,061) | | Cash and cash equivalents at end of period | $3,903,672 | $12,046,400 | Notes to the Financial Statements The notes detail the company's business as a pre-revenue nano-biopharmaceutical firm focused on antiviral drugs, primarily through licenses from TheraCour Pharma, Inc. Key disclosures include a going concern warning due to an accumulated deficit of $87.8 million and recurring losses, significant related-party transactions, and details on equity compensation. A subsequent event notes the resignation of the CEO in January 2019 - The company is a nano-biopharmaceutical R&D company specializing in antiviral drugs, with its lead program being HerpeCide™ for herpes viruses. It operates under exclusive licenses from TheraCour Pharma, Inc[18][19][20] - There is substantial doubt about the company's ability to continue as a going concern due to an accumulated deficit of approximately $87.8 million, a net loss of $4.1 million for the six months ended Dec 31, 2018, and no revenue generation[30] - The company has significant related-party transactions with TheraCour Pharma, Inc., an entity controlled by a significant stockholder, for license and development fees, totaling $1.75 million for the six months ended Dec 31, 2018[37][39] - Subsequent to the reporting period, on January 24, 2019, CEO Irach Taraporewala resigned for personal reasons and transitioned to a consulting role[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on the HerpeCide™ program, particularly the shingles drug candidate (NV-HHV-101), which has commenced IND-enabling studies. The report details the nanoviricide® platform technology, the extensive product pipeline, and the company's in-house manufacturing capabilities. Financially, the company remains a pre-revenue entity with a net loss of $4.1 million for the six months ended December 31, 2018, and highlights the critical need to raise additional capital to fund operations and clinical trials Recent Developments The company has formally commenced IND-Enabling Safety/Toxicology studies for its first drug candidate, NV-HHV-101, in the HerpeCide™ program for shingles rash. Key personnel changes include the resignation of CEO Dr. Irach Taraporewala (subsequent to the period) and the appointment of Mr. James Sapirstein to the Board of Directors, which restored compliance with NYSE-American listing requirements. The company has also increased investor outreach efforts - A major milestone was achieved with the formal commencement of IND-Enabling Safety/Toxicology studies for the first drug candidate, NV-HHV-101, for shingles rash[88][89] - Mr. James Sapirstein joined the Board of Directors, bringing over 35 years of pharmaceutical industry experience and helping the company regain full compliance with NYSE-American listing requirements[92][98] - Subsequent to the reporting period, CEO Irach Taraporewala resigned for personal reasons and was retained as a consultant[91] Our Product Pipeline The company's primary focus is the HerpeCide™ program, which includes candidates for shingles (VZV), cold sores (HSV-1), genital herpes (HSV-2), herpes keratitis (HK), and viral Acute Retinal Necrosis (v-ARN). The shingles candidate is the most advanced, moving towards clinical trials. Pre-clinical studies have shown strong effectiveness and a good safety profile for these candidates. Other programs like FluCide™, DengueCide™, and HIVCide™ are at a lower priority due to budget constraints. The total market size for all development programs is estimated at around $100 billion - The company has at least 9 drug development programs, with the HerpeCide™ program being the highest priority, targeting five indications: Shingles (VZV), cold sores (HSV-1), genital herpes (HSV-2), ocular herpes keratitis (HK), and viral Acute Retinal Necrosis (v-ARN)[112][113][114] - The anti-shingles drug candidate could reach peak annual sales of up to $2 billion if it proves effective in reducing post-herpetic neuralgia (PHN)[126] - Pre-clinical studies in a human skin model showed that nanoviricide drug candidates markedly inhibited VZV (shingles virus) infection, replication, and spread, with effectiveness equivalent to a 1% cidofovir topical formulation[140][141][142] - The total market size for the company's drug development programs, including herpes, influenza, and HIV, is estimated at around $100 billion[184] Analysis of Financial Condition, and Result of Operations For the six months ended December 31, 2018, the company had no revenue and a net loss of $4.1 million, down from $4.8 million in the prior-year period. The decrease in net loss is mainly due to the absence of expenses related to a convertible debenture redeemed in 2017. Research and development expenses were stable at $3.0 million, while general and administrative expenses decreased to $1.4 million from $1.5 million due to lower officer compensation. Cash and cash equivalents stood at $3.9 million as of December 31, 2018 Comparison of Operating Results (Six Months Ended Dec 31) | Metric | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | Research & Development | $3,024,779 | $3,091,549 | ($66,770) | | General & Administrative | $1,383,517 | $1,532,678 | ($149,161) | | Net Loss | ($4,072,455) | ($4,802,449) | $730,000 | - The decrease in net loss for the six-month period was primarily attributable to the redemption of the Series C Debenture in November 2017, which eliminated interest expense, amortization of debt discount, and the loss on extinguishment of debt recorded in the prior year[256][257][260] - As of December 31, 2018, the company had cash and cash equivalents of $3.9 million, down from $7.1 million at June 30, 2018[242][243] Liquidity and Capital Reserves The company's liquidity is a significant concern, with cash and cash equivalents of $3.9 million as of December 31, 2018, and an accumulated deficit of approximately $87.8 million. Management states that current funds are insufficient for projected work leading to an IND filing and clinical trials. The company is actively exploring debt or equity financing but provides no assurance of success, noting that failure to raise additional funds will significantly delay its business plan - The company had cash and cash equivalents of $3.9 million and an accumulated deficit of approximately $87.8 million as of December 31, 2018[262] - Management believes current funds are insufficient for the projected work required for an IND filing and is actively seeking additional funding through debt or equity financing[263] - There is no assurance the company will be successful in obtaining sufficient financing on acceptable terms. Failure to do so will cause significant delays to the business plan[263][265] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk associated with its short-term cash equivalent investments, which is considered non-material. The company has no foreign operations, no exposure to foreign currency fluctuations, and does not use derivative financial instruments for speculative purposes - The company's market risk is limited to interest rate risk on its cash equivalents, which is deemed non-material[270] Controls and Procedures Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were not effective. This was due to unremediated material weaknesses in internal control over financial reporting previously identified in the Form 10-K for the fiscal year ended June 30, 2018. A remediation plan is underway, including enhanced review of financial transactions and additional training for finance staff - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018[273] - The ineffectiveness is due to material weaknesses in internal control that remained unremediated from the fiscal year ended June 30, 2018[273] - A remediation plan is in place, involving enhanced review processes and additional training for accounting and finance staff[275][277] PART II OTHER INFORMATION Legal Proceedings As of the filing date, there are no pending legal proceedings against the company, and to the company's knowledge, no action, suit, or proceeding has been threatened - There are no pending or threatened legal proceedings against the Company[281] Unregistered Sales of Equity Securities and Use of Proceeds During the six months ended December 31, 2018, the company issued unregistered equity securities as compensation. This included 525,000 shares of Series A preferred stock to the President, 15,432 shares of Series A preferred stock for employee compensation, warrants to purchase common stock to the Scientific Advisory Board, and common stock for consulting and director services - Issued 525,000 shares of Series A preferred stock to the Company's President, Dr. Anil Diwan, as part of an employment agreement extension[283] - Issued a total of 275,453 shares of common stock for consulting services and 54,161 shares for Director services during the six-month period[286][287] Other Information The company disclosed a significant subsequent event: on January 24, 2019, CEO Irach Taraporewala resigned for personal reasons. He has since entered into a two-year consulting agreement with the company - On January 24, 2019, after the reporting period, CEO Irach Taraporewala resigned for personal reasons and transitioned to a consultant for the company for a two-year period[290]