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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

Commission File No. 001-33498

 

 

BIONOVO, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-5526892

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5858 Horton Street, Suite 400,

Emeryville, California 94608

  (510) 601-2000

(Address of principal executive offices,

including zip code)

  (Telephone Number)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act of 1934).    Yes  ¨    No  x

As of November 3, 2009, 107,518,690 shares of the registrant’s common stock, par value $0.0001, were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page
PART I FINANCIAL INFORMATION   

Item 1.

   Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
   1
   Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 and from February 1, 2002 (date of inception) to September 30, 2009    2
   Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 and from February 1, 2002 (date of inception) to September 30, 2009    3
   Notes to Condensed Consolidated Financial Statements    4

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    13

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    21

Item 4.

   Controls and Procedures    21
PART II OTHER INFORMATION   

Item 1.

   Legal Proceedings    21

Item 1a.

   Risk Factors    22

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    24

Item 3.

   Defaults Upon Senior Securities    24

Item 4.

   Submission of Matters to a Vote of Security Holders    24

Item 5.

   Other Information    24

Item 6.

   Exhibits    25

Signatures

   26

 

i


Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Bionovo, Inc.

(A Development Stage Company)

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

 

     September 30,
2009
    December 31,
2008
 
     (unaudited)     (Note 1)  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 2,252      $ 3,270   

Short-term investments

     —          10,292   

Receivables

     56        126   

Prepaid expenses and other current assets

     651        805   
                

Total current assets

     2,959        14,493   

Property and equipment, net

     6,141        6,938   

Other assets and patent pending, net

     1,349        1,073   
                

Total assets

   $ 10,449      $ 22,504   
                
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 406      $ 521   

Accrued clinical and costs of other studies

     67        73   

Accrued compensation and benefits

     406        456   

Current portion of lease obligations

     544        682   

Current portion of notes payable

     57        —     

Other current liabilities

     772        595   
                

Total current liabilities

     2,252        2,327   

Non-current portion of lease obligations

     180        545   

Non-current portion of notes payable

     136        —     
                

Total liabilities

     2,568        2,872   
                

Commitments and contingencies

    

Shareholders’ equity:

    

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued and outstanding

     —          —     

Common stock $0.0001 par value, 190,000,000 shares authorized, 76,585,550 and 76,363,101 shares outstanding at September 30, 2009 and December 31, 2008, respectively

     8        8   

Additional paid-in capital

     59,852        59,050   

Accumulated other comprehensive gain

     —          24   

Accumulated deficit

     (51,979     (39,450
                

Total shareholders’ equity

     7,881        19,632   
                

Total liabilities and shareholders’ equity

   $ 10,449      $ 22,504   
                

See accompanying notes to these condensed consolidated financial statements

 

1


Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)

 

     Three months ended
September 30,
    Nine months ended
September 30,
    Accumulated from
February 1, 2002
(Date of inception)
to September 30,
 
     2009     2008     2009     2008     2009  

Revenues

   $ 155      $ —        $ 162      $ —        $ 1,054   
                                        

Operating expenses:

          

Research and development

     2,938        3,942        9,493        8,881        36,701   

General and administrative

     926        1,222        3,110        4,853        16,660   

Merger cost

     —          —          —          —          1,964   
                                        

Total operating expenses

     3,864        5,164        12,603        13,734        55,325   
                                        

Loss from operations

     (3,709     (5,164     (12,441     (13,734     (54,271

Change in fair value of warrant liability

     —          —          —          —          831   

Interest income

     5        143        75        639        2,066   

Interest expense

     (22     (36     (77     (98     (443

Other expense

     —          (1     (86     (21     (162
                                        

Net loss

   $ (3,726   $ (5,058   $ (12,529   $ (13,214   $ (51,979
                                        

Basic and diluted net loss per common share

   $ (0.05   $ (0.07   $ (0.16   $ (0.17   $ (1.14
                                        

Shares used in computing basic and diluted net loss per share

     76,436        76,363        76,388        76,350        45,444   
                                        

See accompanying notes to these condensed consolidated financial statements

 

2


Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

     Nine Months Ended
September 30,
    Accumulated
from February 1,
2002 (Date of
inception) to
September 30,
 
     2009     2008     2009  

Cash flows from operating activities:

      

Net loss

   $ (12,529   $ (13,214   $ (51,979

Adjustments to reconcile net loss to net cash used in operating activities:

      

Depreciation and amortization

     1,181        774        3,278   

Stock-based compensation expense

     682        1,059        3,963   

Amortization and accretion of investments

     34        48        101   

Non-cash compensation for warrants issued

     —          —          1,964   

Amortization of note discount

     —          —          139   

Amortization of deferred stock compensation

     —          —          16   

Change in fair value of warrant liability

     —          —          (831

Loss on disposal of property and equipment

     86        —          98   

Noncash adjustment to available-for-sale securities

     (1     —          —     

Changes in assets and liabilities:

      

Receivables

     70        24        (56

Prepaid expenses and other current assets

     154        (754     (651

Deposits and other

     (73     (473     (536

Accounts payable

     (115     989        406   

Accrued clinical trial costs

     (6     (196     67   

Other accrued liabilities

     127        (416     1,178   
                        

Net cash used in operating activities

     (10,390     (12,159     (42,843
                        

Cash flows from investing activities:

      

Capital expenditures

     (188     (2,758     (6,239

Acquisition of intangible assets

     (242     (300     (839

Advance to officers

     —          —          (2

Purchases of available-for-sale securities

     —          (15,989     (27,611

Proceeds from sales and maturities of investments

     10,235        10,062        27,513   
                        

Net cash provided by (used in) investing activities

     9,805        (8,985     (7,178
                        

Cash flows from financing activities:

      

Proceeds from issuance of common stock and warrants, net

     —          —          49,734   

Payments under capital lease obligation

     (543     (682     (2,314

Payments under notes payable

     (10     —          (10

Proceeds from exercise of warrants and options

     120        18        5,000   

Proceeds from convertible notes payable

     —          —          (50

Payments for financing costs for convertible notes

     —          —          (87
                        

Net cash (used in) provided by financing activities

     (433     (664     52,273   
                        

Net (decrease) increase in cash and cash equivalents

     (1,018     (21,808     2,252   

Cash and cash equivalents at the beginning of the period

     3,270        28,472        —     
                        

Cash and cash equivalents at the end of the period

   $ 2,252      $ 6,664      $ 2,252   
                        

Supplemental disclosure of cash flow information:

      

Interest paid

   $ 70      $ 98      $ 425   

Income taxes paid

     2        1        14   

Supplemental disclosure of non-cash investing and financing

      

Non-cash warrant expense for warrants issued

   $ —        $ —        $ 1,964   

Adjustment in warrant liability

     —          —          7,030   

Conversion of notes payable to common stock

     —          —          450   

Assets acquired under capital lease

     40        870        3,071   

Assets acquired under notes payable

     204        —          204   

Issuance of common stock for services

     —          —          165   

Conversion of accrued interest payable

     —          —          12   

Issuance of common stock with reverse merger

     —          —          4   

See accompanying notes to these condensed consolidated financial statements

 

3


Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1. BUSINESS

Bionovo, Inc. (“Bionovo” or the “Company”) is a clinical stage drug discovery and development company focusing on cancer and women’s health. Currently, the Company is conducting research and development activity which integrates scientific research with natural substances derived from botanical sources which have novel mechanisms of action. The company is developing drugs for the treatment of cancer and conditions associated with menopause. Based on the results of our clinical trials and preclinical studies to date, we believe that we have discovered new classes of drug candidates with the potential to be leaders in their markets.

Bionovo, Inc. was incorporated in Nevada on January 29, 1998. Bionovo Biopharmaceuticals, Inc. (“Biopharma”), was incorporated and began operations in the State of California in February 2002. BioPharma completed a reverse merger transaction on April 6, 2005 with Bionovo, Inc. and on April 6, 2005, Bionovo, Inc. acquired all the outstanding shares of BioPharma in a reverse triangular merger. Effective with the merger, the directors and management of BioPharma thereupon became the directors and management of Bionovo, Inc. which has been considered the acquirer in this transaction, accounted for as a recapitalization. The business of BioPharma is now the sole business of the Company. BioPharma remains a wholly-owned subsidiary of Bionovo, Inc.

Liquidity

The Company anticipates that any revenue or income through at least 2010 may be limited to grant revenue, payments under potential strategic collaboration agreements, investment income and other payments from other collaborators and licensees under future arrangements, to the extent that the Company enters into any future arrangements. The Company also expects to continue to incur expenses relating to its research and development efforts. As a result, the Company expects to incur losses over the next several years unless it is able to realize additional revenues under any future agreements. The timing and amounts of such revenues, if any, cannot be predicted with certainty. Accordingly, results of operations for any period may be unrelated to the results of operations for any other period.

On October 7, 2009, the Company completed a registered public offering of common stock and warrants resulting in net proceeds of $17.7 million. See Footnote 12, “Subsequent Events” for further details.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or for any other future period.

The condensed consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Bionovo, Inc. Annual Report on Form 10-K for the year ended December 31, 2008.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of Bionovo, Inc. and its wholly owned subsidiary. Our operations are treated as one operating segment. All inter-company balances and transactions have been eliminated.

Use of Estimates

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

 

4


Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

Revenue Recognition

Revenue is generated from collaborative research and development arrangements, technology licenses, and government grants. Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured.

Revenue from technology licenses or other payments under collaborative agreements where the Company has a continuing obligation to perform is recognized as revenue over the expected period of the continuing performance obligation. Revenue on government contracts is recognized on a qualified cost reimbursement basis.

In the second quarter of 2009, the Company began performing limited research services for one customer and for the nine months ended September 30, 2009 has recognized approximately $46,000 in related revenue. Prior to the second quarter of 2009, only revenue from technology licenses and grant proceeds had been received.

Research and Development

Research and development expenses include internal and external costs. Internal costs include salaries and employment related expenses and allocated facility costs. External expenses consist of costs associated with outsourced clinical research organization activities, sponsored research studies, product registration, and investigator sponsored trials. All such costs are charged to expense as incurred.

Development Stage Company

The Company has not generated any significant revenue since inception. The accompanying financial statements have, therefore, been prepared using the accounting formats prescribed for a development stage enterprise (DSE). Although the Company has recognized some nominal amount of revenue, the Company still believes it is devoting substantially all its efforts on developing the business and therefore qualifies as a DSE.

Recent Accounting Pronouncements

In June of 2009, the FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for the Company for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on the Company’s financial condition or results of operations, but will impact the financial reporting process by eliminating all references to pre-codification standards. On its effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.

In April of 2009, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification on determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The guidance provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The guidance is effective for interim or annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted this guidance effective for the quarter ending June 30, 2009. There is no impact of the adoption on the Company’s financial statements as of September 30, 2009.

In April of 2009, FASB issued guidance in the Financial Instruments Topic of the Codification on interim disclosures about fair value of financial instruments. The guidance requires disclosures about the fair value of financial instruments for both interim reporting periods, as well as annual reporting periods. The guidance is effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. The adoption of this guidance had no impact on the Company’s financial statements as of September 30, 2009.

 

5


Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

In May of 2009, the FASB issued SFAS No. 165, Subsequent Events (ASC Topic 855). This guidance establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance was effective for the Company in the second quarter of 2009 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements (See footnote 12).

In October of 2009, the FASB issued the following ASU No. 2009-13, Revenue Recognition (ASC Topic 605) – Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force. This guidance modifies the fair value requirements of ASC subtopic 605-25 Revenue Recognition-Multiple Element Arrangements by allowing the use of the “best estimate of selling price” for determining the selling price of a deliverable. A vendor is now required to use its best estimate of the selling price when vendor specific objective evidence or third-party evidence of the selling price cannot be determined. In addition, the residual method of allocating arrangement consideration is no longer permitted. This guidance is effective in 2011. The Company is currently evaluating the impact of adopting this update on its condensed consolidated financial statements.

3. INVESTMENTS

Cash, Cash Equivalents and Short-Term Investments

The Company maintains a portfolio of marketable investment securities. The securities are investment grade and generally mature within one year and may include tax exempt securities and certificates of deposit. The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market. The Company maintains its cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents.

The following is a summary of cash, cash equivalents, and available-for-sale securities at September 30, 2009 and December 31, 2008 (in thousands):

 

     September 30, 2009
     Cost
Basis
   Unrealized
Gains
   Unrealized
Losses
   Estimated
Fair Value

Cash and cash equivalents:

           

Cash

   $ 134    $ —      $ —      $ 134

Money market funds

     2,118      —        —        2,118
                           

Total cash and cash equivalents

   $ 2,252    $ —      $ —      $ 2,252
                           

Available-for-sale investments:

           

US govt. agency obligations

   $ —      $ —      $ —      $ —  

Corporate notes

     —        —        —        —  
                           

Total available-for-sale investments

   $ —      $ —      $ —      $ —  
                           
     December 31, 2008
     Cost
Basis
   Unrealized
Gains
   Unrealized
Losses
   Estimated
Fair Value

Cash and cash equivalents:

           

Cash

   $ 378    $ —      $ —      $ 378

Money market funds

     2,433      —        —        2,433

US term deposits

     458      1      —        459
                           

Total cash and cash equivalents

   $ 3,269    $ 1    $ —      $ 3,270
                           

Available-for-sale investments:

           

US govt. agency obligations

   $ 6,500    $ 20    $ —      $ 6,520

Corporate notes

     3,769      3      —        3,772
                           

Total available-for-sale investments

   $ 10,269    $ 23    $ —      $ 10,292
                           

 

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Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

As of September 30, 2009 and December 31, 2008, unrealized gain on cash equivalents and available-for-sale securities of $0 and $24,000, respectively was included in accumulated other comprehensive income in the accompanying Condensed Consolidated Balance Sheets.

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of September 30, 2009 and December 31, 2008 (in thousands):

 

          Fair Value Measurements at
Reporting Date Using
          Quoted Prices
in Active
Markets for
Identical Assets
   Significant
Other
Observable
Inputs
September 30, 2009    Total    (Level 1)    (Level 2)
                    

Money market funds

   $ 2,118    $ 2,118    $ —  

US government agencies

     —        —        —  
                    

Total

   $ 2,118    $ 2,118    $ —  
                    
December 31, 2008    Total    (Level 1)    (Level 2)
                    

Money market funds

   $ 2,433    $ 2,433    $ —  

US term deposits

     459      —        459

US government agencies

     6,520      —        6,520

US corporate debt

     3,772      —        3,772
                    

Total

   $ 13,184    $ 2,433    $ 10,751
                    

4. PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

 

Office and Laboratory equipment    3 to 5 years
Computer equipment and software    3 years
Leasehold improvements    Term of lease agreement

The following is a summary of property and equipment at cost less accumulated depreciation as of September 30, 2009 and December 31, 2008 (in thousands):

 

     September 30,
2009
    December 31,
2008
 

Office and lab equipment

   $ 5,571      $ 5,290   

Leasehold improvements

     3,359        3,440   

Computer equipment and software

     276        249   
                
     9,206        8,979   

Less: accumulated depreciation

     (3,065     (2,041
                

Property and equipment, net

   $ 6,141      $ 6,938   
                

 

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Table of Contents

Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

Leasehold improvements include $0.2 million in gross assets acquired under two notes payable with the lessor of the Company’s headquarters (see Note 5, “Notes Payable” for further details). Office and lab equipment include gross assets acquired under capital leases of approximately $1.6 million as of September 30, 2009 and $3.0 million as of December 31, 2008. Amortization of assets under capital leases is included in depreciation expense. For the three and nine months ended September 30, 2009 the Company recorded depreciation expense of approximately $0.4 million and $1.1 million, respectively. For the same periods of 2008, the Company recorded depreciation expense of approximately $0.3 million and $0.8 million, respectively.

Intangible assets - Patent Costs

Intangible assets consist of patent licensing costs incurred to date. The Company is amortizing the patent cost incurred to date, over a 15 year period. If the patents are not awarded, the costs related to those patents will be expensed in the period that determination is made. As of September 30, 2009, the Company had capitalized $0.8 million in patent licensing costs. For the three and nine months ended September 30, 2009 the Company recorded amortization expense of approximately $15,000 and $38,000, respectively. For the same periods of 2008, the Company recorded amortization expense of approximately $9,000 and $22,000, respectively.

5. NOTES PAYABLE

In connection with the move to its new headquarters, the Company financed leasehold improvements under a two notes payable with the lessor of the building. The first note of $100,000 bears interest at 9.5% and is payable in monthly payments of interest and principal amounting to approximately $1,000 beginning May 1, 2009 and continuing over the remaining lease term with a due date of December 31, 2018. The second note of $104,000 bears interest at 9.5% and is payable in 24 monthly payments of interest and principal amounting to approximately $5,000 beginning August 1, 2009. The future minimum payments as of September 30, 2009 are as follows (in thousands):

 

     Principal    Interest

2009(1)

   $ 14    $ 4

2010

     59      15

2011

     40      9

2012

     9      7

2013

     9      6

Thereafter

     62      17
             

Total minimum payments

   $ 193    $ 58
             

 

(1) For the three months ending December 31, 2009

6. BASIC AND DILUTED LOSS PER SHARE

Basic net loss per common share is based on the weighted average number of common shares outstanding during the period. Diluted net loss per common share is based on the weighted average number of common shares and other dilutive securities outstanding during the period, provided that including these dilutive securities does not increase the net loss per share.

Potentially dilutive securities are excluded from the calculation of earnings per share if their inclusion is antidilutive. The effect of the options and warrants was antidilutive for the nine months ended September 30, 2009 and 2008. The following table shows the total outstanding securities considered antidilutive and therefore excluded from the computation of diluted net loss per share:

 

     Nine Months Ended
September 30,
     2009    2008

Options to purchase common stock

   5,072,255    5,137,088

Options to purchase common stock - outside plan

   103,212    103,212

Warrants to purchase common stock

   10,244,184    10,466,633
         

Total

   15,419,651    15,706,933
         

 

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Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

7. COMPREHENSIVE LOSS

Comprehensive loss includes net loss and other comprehensive income, which for us is primarily comprised of unrealized holding gains or losses on our available-for-sale securities that are excluded from the statement of operations in computing net loss and reported separately in shareholders’ equity (deficit). Comprehensive loss and its components are as follows (in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Net loss

   $ (3,726   $ (5,058   $ (12,529   $ (13,214

Unrealized loss on securities available-for-sale

     (2     (20     (24     (58
                                

Comprehensive loss

   $ (3,728   $ (5,078   $ (12,553   $ (13,272
                                

8. SHARE-BASED COMPENSATION

In 2005, the board of directors adopted the Stock Incentive Plan, as amended, of Bionovo Biopharmaceuticals and authorized 3,496,788 shares of common stock for issuance under the Plan. In May 2006 and June 2008, shareholders approved increases of 3,000,000 additional shares for the option plan resulting in a total of 9,496,788 shares reserved for issuance under the plan.

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s stock at the dates of grant. Stock options are typically granted throughout the year and generally vest four years thereafter, and expire five years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.

The following table shows total share-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended September, 2009 and 2008 (in thousands).

 

     Three Months Ended
September 30,
   Nine Months Ended
September 30,
     2009    2008    2009    2008

Research and development

   $ 138    $ 170    $ 362    $ 379

General and administrative

     123      179      320      680
                           

Total share-based compensation expense

   $ 261    $ 349    $ 682    $ 1,059
                           

There was no capitalized share-based compensation cost as of September 30, 2009 and there were no recognized tax benefits during the nine months ended September 30, 2009 and 2008.

To estimate the value of an award, the Company uses the Black-Scholes option pricing model. This model requires inputs such as expected life, expected volatility and risk-free interest rate. The forfeiture rate also impacts the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop. While estimates of expected life, volatility and forfeiture rate are derived primarily from the Company’s historical data, the risk-free rate is based on the yield available on U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards.

 

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Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the three and nine months ended September 30, 2009 and 2008:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Dividend yield

   0   0   0   0

Expected volatility

   140.1   92.9   126.9   92.9

Risk-free interest rate

   1.48   2.80   1.42   2.80

Expected life

   3.75 years      5.0 years      3.75 years      5.0 years   

Share option activity for the nine months ended September 30, 2009 was as follows:

 

     Options     Weighted
Average
Exercise Price
   Weighted
Average
Remaining
Contractual
Life (Years)
   Aggregate
Intrinsic Value
(in thousands)

Options outstanding at December 31, 2008

   5,214,588      $ 1.89      

Granted

   484,000        0.48      

Exercised

   —          —        

Forfeited, expired or canceled

   (626,333     2.56      
                        

Options outstanding at September 30, 2009

   5,072,255      $ 1.68    3.34    $ 392
                        

Options exercisable at September 30, 2009

   3,376,421      $ 1.50    3.31    $ 303
                        

Options exercisable and options expected to vest at September 30, 2009

   4,915,770      $ 1.67    3.16    $ 369
                        

Unvested share activity for the nine months ended September 30, 2009 was as follows:

 

     Unvested
Number of
Options
    Weighted
Average Grant
Date Fair Value

Unvested balance at December 31, 2008

   2,303,583      $ 1.62

Granted

   484,000        0.38

Vested

   (577,250     1.56

Forfeited

   (514,499     1.73
            

Unvested balance at September 30, 2009

   1,695,834      $ 1.25
            

As of September 30, 2009, the Company had approximately 4.0 million common shares reserved for future grant under its share option plan and there were no shares exercised during the first nine months of 2009.

At September 30, 2009, there was $1.6 million of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 1.9 years.

9. STOCK WARRANTS

The Company has issued warrants to investors as part of its overall financing strategy. There were no warrants issued for the nine months ended September 30, 2009. As of September 30, 2009, there were 10.2 million warrants to purchase Bionovo shares outstanding with a weighted average price of $2.63 and an aggregate exercise price of $27.0 million. Warrants to purchase approximately 5.3 million shares have a provision for cashless exercise under certain circumstances (i.e. if the Company has withdrawn or suspended effectiveness of the registration statement covering the resale of the shares that may be issued upon exercise of the warrant). At this time there is an effective registration statement and no warrants meet the requirements for a cashless exercise.

 

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Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

The estimated fair value of the warrants was calculated using the Black-Scholes valuation model. The following assumptions were used: (i) no expected dividends, (ii) risk free interest rate of 4.0%, (iii) expected volatility of 90%, and (iv) expected life in the stated life of the warrant. The fair value of the warrants ranged from $0.10 to $0.89. The fair value of warrants granted is included in additional paid-in capital along with the proceeds from issuance of common stock.

The following table summarizes information about all callable warrants outstanding as of September 30, 2009:

 

Issue Date

  

Expiration Date

     Number
Outstanding
     Weighted Average
Exercise Price
     Weighted Average
Remaining
Contractual Life
(years)

April 2005

   April 2010      926,040      0.57      0.52

May 2005

   May 2010      402,000      0.77      0.59

January 2007

   January 2012      3,592,369      2.13      2.30

October 2007

   October 2012      5,323,775      3.50      3.09
                   
        10,244,184          
                   

10. LEASES, COMMITMENTS AND CONTINGENCIES

The Company leases certain office and laboratory equipment under agreements that are classified as capital leases. The cost of equipment under capital leases is included in the Balance Sheets as property and equipment and was $1.6 million at September 30, 2009 and $3.0 million at December 31, 2008. Amortization of assets under capital leases is included in depreciation expense and accumulated amortization at September 30, 2009 and December 31, 2008 was $0.6 million and $1.0 million, respectively.

The Company leases its laboratory and office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2019. The leases provide for increases in future minimum annual rental payments and the agreements generally require the Company to pay executory costs (real estate taxes, insurance, and repairs), which are approximately $45,000 per month. In addition, the Company pays monthly payments of approximately $6,000 toward $0.2 million in notes payable to the lessor for leasehold improvements associated with the Company’s relocation to new office and laboratory facilities. Operating lease expense totaled approximately $0.5 million and $1.6 million for the three and nine months ended September 30, 2009 compared with $0.2 million and $0.5 million for the same periods of 2008.

Future minimum lease payments under non-cancelable capital and operating leases are as follows (in thousands):

 

     Capital Leases     Operating Leases

2009(1)

   $ 166      $ 462

2010

     501        1,833

2011

     94        1,888

2012

     7        1,945

2013

     —          2,003

Thereafter

     —          11,049
              

Total minimum lease payments

   $ 768      $ 19,180
        

Less: Amount representing interest

     (44  
          

Present value of minimum lease payments

   $ 724     

Less: Current portion

     (544  
          

Obligations under capital lease, net of current portion

   $ 180     
          

 

(1) For the three months ending December 31, 2009

 

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Bionovo, Inc.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

 

11. INCOME TAX

The Company does not have any unrecognized tax benefits and does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized for the period ended September 30, 2009. As of September 30, 2009, the Company had recorded a full valuation reserve for all of our recognized tax benefits.

The U.S. Tax Code limits the annual use of net operating loss and tax credit carry forwards in certain situations where changes occur in stock ownership of a company. Bionovo, Inc. has not performed an ownership analysis but it is possible that there has been a change in ownership. In the event the Company has a change in ownership, as defined, the annual utilization of such carry forwards could be limited and the loss and credit carry forwards may expire unused. Net operating losses and tax credit carry forwards are more fully described in the Company’s 2008 Annual Report on Form 10-K.

Bionovo, Inc. files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is subject to U.S. federal or state income tax examinations by tax authorities for all years in which it reported net operating losses that are being carried forward for tax purposes.

12. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after September 30, 2009 through November 5, 2009, the issue date of these condensed consolidated financial statements.

Registered Public Offering

On October 7, 2009, the Company completed a registered public offering and issued 30,933,140 shares of its common stock and 29,324,570 warrants. In addition, the Company granted the placement agent 1,546,657 warrants, each warrant entitling the holder to purchase one share of common stock at $0.97 per share at any time for a period commencing six months after the date of the closing, and continuing for five years following the closing date of the offering. The warrants may also be executed on a cashless basis, in accordance with the terms of the warrant. The Company received gross proceeds of $19.1 million and net proceeds of $17.7 million after placement agent fees.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with our consolidated financial statements located in this Quarterly Report and in our Form 10-K for the year ended December 31, 2008 and other documents filed by us from time to time with the Securities and Exchange Commission. Statements made in this Item other than statements of historical fact, including statements about us and our subsidiaries and our respective clinical trials, research programs, product pipeline, current and potential corporate partnerships, licenses and intellectual property, the adequacy of capital reserves and anticipated operating results and cash expenditures, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. As such, they are subject to a number of uncertainties that could cause actual results to differ materially from the statements made, including risks associated with the success of research and product development programs, the issuance and validity of patents, the development and protection of proprietary technologies, the ability to raise capital, operating expense levels and the ability to establish and retain corporate partnerships. We do not undertake any obligation to update forward-looking statements.

Overview

Bionovo, Inc. was incorporated in Nevada on January 29, 1998. Bionovo Biopharmaceuticals, Inc. (“Biopharma”), was incorporated and began operations in the State of California in February 2002. BioPharma completed a reverse merger transaction on April 6, 2005 with Bionovo, Inc. and on April 6, 2005, Bionovo, Inc. acquired all the outstanding shares of BioPharma in a reverse triangular merger. Effective with the merger, the directors and management of BioPharma thereupon became the directors and management of Bionovo, Inc. which has been considered the acquirer in this transaction, accounted for as a recapitalization. The business of BioPharma is now the sole business of the Company. BioPharma remains a wholly-owned subsidiary of Bionovo, Inc.

The historical information in this report is that of Bionovo Biopharmaceuticals as if Bionovo Biopharmaceuticals had been the registrant for all the periods presented in this report. The historical information in the Management’s Discussion and Analysis or Plan of Operation and the condensed consolidated financial statements presented in this report include those of Bionovo Biopharmaceuticals prior to the reverse merger, as these provide the most relevant information for us on a continuing basis.

Business

We are a clinical stage drug discovery and development company focusing on women’s health and cancer, two large markets with significant unmet needs. Building on our understanding of the biology of menopause and cancer, we design new drugs derived from botanical sources which have novel mechanisms of action. Based on the results of our clinical trials and preclinical studies to date, we believe that we have discovered new classes of drug candidates with the potential to be leaders in their markets.

Our lead drug candidate, Menerba® (previously referred to as “MF101”), is designed and conceived for the treatment of vasomotor symptoms of menopause, or “hot flashes.” We have designed Menerba® to selectively modulate estrogen receptor beta (ERß) and to provide a safe and effective alternative to existing FDA approved therapies that pose a significant risk to the patient for developing breast cancer and other serious diseases. In preclinical studies, Menerba® inhibited tumor growth as well as bone resorption known to cause osteoporosis, which is commonly developed once women become postmenopausal This activity, if confirmed in clinical testing, would differentiate Menerba® from some existing therapies and other therapies in clinical development. In our completed, randomized, placebo-controlled Phase 2 trial involving 217 postmenopausal women for which we announced results in 2007, the higher of two Menerba® doses tested was well tolerated and resulted in a statistically significant reduction of hot flashes as well as a statistically significant reduction in night awakenings, when compared to placebo at 12 weeks of treatment, which represents superior efficacy to existing non-hormonal therapies. We plan to seek FDA approval to conduct further clinical testing at multiple clinical sites in the U.S. We believe that Menerba® ’s novel mechanism of action could lead to a more favorable safety profile than currently approved hormone therapies (HT) and other therapies under development and testing.

We are also developing Bezielle® (previously referred to as “BZL101”), an oral anti-cancer agent for advanced breast cancer. Unlike most other anti-cancer drugs and drug candidates, which try to control cancer through genomic and proteomic signaling pathways, Bezielle® is designed to take advantage of the unique metabolism of cancer cells. Bezielle® inhibits glycolysis, a metabolic pathway on which cancer cells rely. Glycolysis inhibition leads to DNA damage and death of cancer cells without harm to normal cells. We believe that Bezielle® may have a preferential effect on hormone-independent cancers, a subset with few treatment options. To date, 48 women with metastatic breast cancer have been treated with Bezielle® in two separate Phase 1 clinical trials. As predicted by the mechanism of action, Bezielle® had very limited toxicities with an extremely favorable tolerability profile. Moreover, Bezielle® showed encouraging clinical activity among a cohort of women with metastatic breast cancer who had been heavily pretreated with other regimens. A Phase 2 trial has been approved by the FDA and the IRBs at several prestigious breast cancer clinical sites in the U.S. We plan to evaluate Bezielle® for the treatment of other forms of cancer, including pancreatic cancer and adjuvant use in breast cancer.

 

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We have a diverse pipeline of additional preclinical drug candidates in both women’s health and cancer, including our second women’s health drug candidate, Seala® (formerly referred to as “VG101”), for the treatment of post-menopausal vulvar and vaginal atrophy, or “vaginal dryness”.

We have identified or begun preclinical work on other drug candidates for a variety of indications within women’s health and cancer. We have internally discovered and developed all of our drug candidates using our proprietary biological and chemical techniques.

Our drug discovery and development process utilizes botanical species used in Traditional Chinese Medicine believed to produce biologically active compounds. We apply our clinical knowledge, experience with natural compounds and knowledge of proper scientific screening tools to isolate and purify botanical compounds and extracts for pharmaceutical development. In June 2004, the FDA released a document to provide drug developers with guidance on the approval for botanical drugs. This guidance states that applicants may submit reduced documentation of nonclinical (preclinical) safety to support an IND application for initial clinical studies of botanicals. The first botanical extract drug developed pursuant to these guidelines was approved by the FDA in October 2006. To date, all of our drug candidates are derived from botanical extracts and are being developed in accordance with this FDA guidance. In addition, we have identified the active chemical components underpinning the mechanism of action for our novel drugs, and in some cases, we have developed synthetic methods of production.

We expect to continue to incur operating losses for the foreseeable future, and do not expect to generate profits until and unless our drug candidates have been approved and are being marketed with commercial partners. As of September 30, 2009, we had an accumulated deficit of $52.0 million. Historically we have funded our operations primarily through private placements and public offerings of our capital stock, equipment lease financings, license fees and interest earned on investments.

Development Stage Company

We have not generated any significant revenue since inception. The accompanying financial statements have, therefore, been prepared using the accounting formats prescribed for a development stage enterprise (DSE). Although the Company has recognized some nominal amount of revenue, the Company still believes it is devoting, substantially, all its efforts on developing the business and, therefore, still qualifies as a DSE.

The Company is primarily engaged in the development of pharmaceuticals, derived from botanical sources, to treat cancer and women’s health. The initial focus of the Company’s research and development efforts will be the generation of products for the treatment of breast and other cancers, and to alleviate the symptoms of menopause. The production and marketing of the Company’s products, and its ongoing research and development activities, are and will continue to be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical and clinical testing and an extensive regulatory approval process implemented by the Food and Drug Administration (FDA) under the Food, Drug and Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory approval. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantage resulting in the Company’s transition from Development Stage Enterprise reporting.

 

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Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates, including those related to clinical trial accruals, income taxes (including the valuation allowance for deferred tax assets), restructuring costs and stock-based compensation. Estimates are based on historical experience, information received from third parties and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

We consider the following accounting policies related to revenue recognition, clinical trial accruals, stock-based compensation, income tax and research and development expenses to be the most critical accounting policies, because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Revenue Recognition

Our revenues are derived from collaborative research and development arrangements, technology licenses, and government grants.

Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured.

Revenue from technology licenses or other payments under collaborative agreements where we have a continuing obligation to perform is recognized as revenue over the expected period of the continuing performance obligation.

Revenue on government contracts is recognized on a qualified cost reimbursement basis.

Accruals

As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with selected service providers and make adjustments, if necessary. Examples of estimated accrued expenses include:

 

   

fees paid to contract research organizations in connection with preclinical and toxicology studies and clinical trials;

 

   

fees paid to investigative sites in connection with clinical trials;

 

   

fees paid to contract manufacturers in connection with the production of clinical trial materials; and

 

   

professional service fees.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

Share-Based Compensation

Stock-based compensation to outside consultants is recorded at fair market value in general and administrative expense. We record expenses relating to stock options granted to employees based on the fair value at the time of grant. The fair value of stock options and warrants is calculated using the Black-Scholes pricing method on the date of grant. This option valuation model requires input of highly subjective assumptions. Because employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our management’s opinion, the existing model does not necessarily provide a reliable single measure of fair value of our employee stock options.

 

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In order to determine the fair value of our stock for periods prior to the date of our reverse merger transaction, we estimated the fair value per share by reviewing values of other development stage biopharmaceutical organizations, comparing products in development, status of clinical trials, and capital received from government and private organizations. Once a total value was determined, we then factored the number of shares outstanding, or possibly outstanding, resulting in an estimated value per share. Once we completed our reverse merger transaction on April 6, 2005, the trading price of our common stock was used.

For periods prior to our reverse merger transaction, we chose not to obtain contemporaneous valuations of our stock by any unrelated valuation specialist after realizing the cost of services would be substantial and that the benefit derived would not be substantially different from our estimate as we had used a multi-tiered approach to estimate the value of our stock.

Income Tax

We file income tax returns in the U.S. federal jurisdiction and the California state jurisdiction. To date, we have not been audited by the Internal Revenue Service or any state income tax jurisdiction. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. As of September 30, 2009, there have been no interest or penalties charged to us in relation to the underpayment of income taxes.

We generated net losses since inception through the year ended December 31, 2008, and accordingly did not record a provision for federal income taxes. Deferred tax assets of $15.1 million as of December 31, 2008 were primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding our ability to continue to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. Additionally, the future utilization of our NOL carry-forwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. We have not yet determined whether such an ownership change has occurred. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

Recent Accounting Pronouncements

In June of 2009, the FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for the Company for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of operations, but will impact our financial reporting process by eliminating all references to pre-codification standards. On its effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.

In April of 2009, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification on determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The guidance provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The guidance is effective for interim or annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We adopted this guidance effective for the quarter ending June 30, 2009 and there is no impact of the adoption on our financial statements as of September 30, 2009.

In April of 2009, FASB issued guidance in the Financial Instruments Topic of the Codification on interim disclosures about fair value of financial instruments. The guidance requires disclosures about the fair value of financial instruments for both interim reporting periods, as well as annual reporting periods. The guidance is effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. The adoption of this guidance had no impact on our financial statements as of September 30, 2009.

 

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In May of 2009, the FASB issued SFAS No. 165, Subsequent Events (ASC Topic 855). This guidance establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance was effective for us in the second quarter of 2009 and its adoption did not have a material impact on our condensed consolidated financial statements (See footnote 12).

In October of 2009, the FASB issued the following ASU No. 2009-13, Revenue Recognition (ASC Topic 605) – Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force. This guidance modifies the fair value requirements of ASC subtopic 605-25 Revenue Recognition-Multiple Element Arrangements by allowing the use of the “best estimate of selling price” for determining the selling price of a deliverable. A vendor is now required to use its best estimate of the selling price when vendor specific objective evidence or third-party evidence of the selling price cannot be determined. In addition, the residual method of allocating arrangement consideration is no longer permitted. This guidance is effective in 2011. We are currently evaluating the impact of adopting this update on its condensed consolidated financial statements.

Research and Development Activities

Research and development costs are charged to expense when incurred. The major components of research and development costs include clinical manufacturing costs, pre-clinical and clinical trial expenses, consulting and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and facilities costs.

Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial sites and clinical research organizations. In the normal course of business we contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation and variation from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, and the completion of portions of the clinical trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract. We monitor service provider activities to the extent possible; however, if we underestimate activity levels associated with various studies at a given point in time, we could record significant research and development expenses in future periods.

During the three and nine months ended September 30, 2009, we incurred research and development expenses of $2.9 million and $9.5 million.

Most of our product development programs are at an early stage. Accordingly, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Product candidates that may appear promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to progress through clinical trials than anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at a reasonable cost and with acceptable quality. The lengthy process of seeking FDA approvals requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining regulatory approvals could adversely affect our product development efforts. Because of these risks and uncertainties, we cannot predict when or whether we will successfully complete the development of our product candidates or the ultimate product development cost or whether we will obtain any approval required by the FDA on a timely basis, if at all.

 

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Results of Operations

Revenues

 

     Three Months Ended
September 30,
   Change in    Nine Months Ended
September 30,
   Change in
     2009    2008    %    2009    2008    %
     (000’s)    (000’s)         (000’s)    (000’s)     

NIH grant

   $ 116    $ —      —      $ 116    $ —      —  

Service revenue

     39      —      —        46      —      —  
                                 

Total

   $ 155    $ —      —      $ 162    $ —      —  
                                 

Revenue recognized during the three and nine months ended September 30, 2009 was primarily due to $0.1 million from our National Institute of Health (NIH) grant. The difference in NIH grant funds as compared with the same periods of 2008 is due to a timing difference that resulted in the NIH funds being recognized in the fourth quarter of 2008. The remaining revenue is due to limited research services provided to one customer. We expect to continue performing the research services throughout the remainder of 2009; however, the total revenue recognized is not expected to be significant to our operations.

Research and Development Expenses

 

     Three Months Ended
September 30,
   Change in     Nine Months Ended
September 30,
   Change in  
     2009    2008    %     2009    2008    %  
     (000’s)    (000’s)          (000’s)    (000’s)       

Research and development expenses

   $ 2,938    $ 3,942    -25   $ 9,493    $ 8,881    7

Research and development (R&D) expenses reflect costs for the development of drugs and include salaries, contractor and consultant fees and other support costs, including employee stock-based compensation expense. The decrease of $1.0 million for the three months ended September 30, 2009 compared with the same period of 2008 is primarily due to $0.9 million in clinical trial costs for Bezielle® in the third quarter of 2008 compared with only $0.1 million in the third quarter of 2009 in addition to a decrease of approximately $0.3 million in R&D related salaries and benefits. The increase of $0.6 million for the nine months ended September 30, 2009 compared with the same periods of 2008 is primarily due to the increase in R&D related depreciation, facilities and information technology charges combined with an increase in purchases of lab supplies and raw materials to support the Menerba® manufacturing process development.

For the three months and nine months ended September 30, 2009, we recognized $138,000 and $362,000 in employee stock-based compensation expenses charged to R&D expenses, compared to $170,000 and $379,000 for the same periods in 2008. The decreases are primarily related to forfeitures of unvested shares due to employee terminations in 2009. All research and development costs are expensed as incurred.

General and Administrative Expenses

 

     Three Months Ended
September 30,
   Change in     Nine Months Ended
September 30,
   Change in  
     2009    2008    %     2009    2008    %  
     (000’s)    (000’s)          (000’s)    (000’s)       

General and administrative expense

   $ 926    $ 1,222    -24   $ 3,110    $ 4,853    -36

General and administrative (G&A) expense includes personnel costs for finance, administration, information systems, marketing, professional fees as well as facilities expenses. We do not currently have any dedicated sales support or marketing personnel. Marketing and communications expenses include public relations related to our drug development and clinical trials, participation in conventions and tradeshows, and website related expenses. The decreases of $0.3 million and $1.8 million in G&A expenses in the three and nine months ended September 30, 2009 as compared to the same periods in 2008 was primarily due to decreases in G&A related depreciation, facilities and information technology expenses due to a decrease in the proportion of office to laboratory space as compared with our old location.

 

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For the three months and nine months ended September 30, 2009, we recognized $123,000 and $320,000 in employee stock-based compensation expenses charged to G&A expenses, compared to $179,000 and $680,000 for the same periods in 2008. The decrease is primarily related to forfeitures of unvested shares related to employee terminations in 2009 combined with decreased options granted to G&A personnel.

Interest Income, Interest Expense and Other Expense

 

     Three Months Ended
September 30,
    Change in     Nine Months Ended
September 30,
    Change in  
     2009     2008     %     2009     2008     %  
     (000’s)     (000’s)           (000’s)     (000’s)        

Interest income

   $ 5      $ 143      -97   $ 75      $ 639      -88

Interest expense

     (22     (36   -39     (77     (98   -21

Other income (expense), net

     —          (1   -100     (86     (21   310
                                    

Total

   $ (17   $ 106      -116   $ (88   $ 520      -117
                                    

Interest income is derived from cash balances and short term investments. The decrease in interest income for the three and nine months ended September 30, 2009 compared to the same periods in 2008 reflects lower average cash balances.

Interest expense includes interest expense from capital lease agreements for our laboratory equipment and two notes payable to Finance $0.2 million of leasehold improvements made in 2009. The increase in other expense is due to approximately $86,000 in loss on fixed asset disposal associated with the move to our new offices.

Income Taxes

We anticipate losses for the current fiscal year and no income tax provision for the current quarter has been provided. In addition, we have substantial net operating loss carry forwards available to offset future taxable income, if any, for federal and state income tax purposes. Our ability to utilize our net operating losses may be limited due to changes in our ownership as defined by Section 382 of the Internal Revenue Code.

Liquidity and Capital Resources

Since our inception, we have incurred losses, and we have relied primarily on leasing, public and private financing to fund our operations.

As of September 30, 2009 we had cash, equivalents and short term investments of $2.3 million compared to $13.6 million at December 31, 2008. This decrease in cash, cash equivalents and short term investments for the nine months ended September 30, 2009 is due to net cash used in operating activities of $10.4 million for the nine months ended September 30, 2009 and $1.0 million in expenditures for capital assets, patent costs and payments on our capital lease agreements.

Net cash provided by investing activities was $9.8 million in 2009 compared to net cash used in investing activities of $9.0 million in 2008. Cash provided by net short-term investment activities was $10.2 million in 2009 compared to cash used in net short-term investment activities of $5.9 million during the same period in 2008 due to the use of proceeds from short-term investments to fund operations in 2009. Expenditures for capital assets decreased approximately $2.6 million in 2009 compared with 2008 due to expenditures in 2008 supporting our move to new office and lab facilities.

Net cash used by financing activities for the first nine months of 2009 included $0.5 million in payments on capital lease obligations compared with $0.7 in the same period of 2008. The decrease is due to the completion of one lease during the third quarter of 2009. In addition, we received $120,000 from the exercise of warrants in 2009 as compared to $18,000 in 2008.

As of September 30, 2009, we had an accumulated deficit of $52.0 million, working capital of $0.7 million and shareholders’ equity of $7.9 million. On October 7, 2009 we completed a registered public offering of common stock and warrants resulting in net proceeds to us of $17.7 million. During the fourth quarter of 2009, we expect to continue using our cash, cash equivalents and short-term investments to fund ongoing operations. Based on anticipated spending levels and the proceeds from our public offering, we estimate that we have sufficient cash resources to meet our anticipated cash needs through at least the next twelve months.

 

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Notes Payable

In connection with the move to our new headquarters, we financed leasehold improvements under two notes payable with the lessor of the building. The first note of $100,000 bears interest at 9.5% and is payable in monthly payments of interest and principal amounting to approximately $1,000 beginning May 1, 2009 and continuing over the remaining lease term with a due date of December 31, 2018. The second note of $104,000 bears interest at 9.5% and is payable in 24 monthly payments of interest and principal amounting to approximately $5,000 beginning August 1, 2009. The future minimum payments as of September 30, 2009 are as follows (in thousands):

 

     Principal    Interest

2009(1)

   $ 14    $ 4

2010

     59      15

2011

     40      9

2012

     9      7

2013

     9      6

Thereafter

     62      17
             

Total minimum payments

   $ 193    $ 58
             

 

(1) For the three months ending December 31, 2009

Commitments and Contingencies

Our contractual obligations and future minimum lease payments that are non-cancelable at September 30, 2009 are disclosed in the following table (in thousands).

 

     Total    2009    2010    2011    2012    2013    2014 and
beyond

Unconditional purchase obligations

   $ 985    $ 985    $ —      $ —      $ —      $ —      $ —  

Operating lease obligations

     19,180      462      1,833      1,888      1,945      2,003      11,049

Capital lease obligations

     768      166      501      94      7      —        —  
                                                

Total contractual commitments

   $ 20,933    $ 1,613    $ 2,334    $ 1,982    $ 1,952    $ 2,003    $ 11,049
                                                

Off-Balance Sheet Financings and Liabilities

Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.

Subsequent Events

Registered Public Offering

On October 7, 2009, we completed a registered public offering and issued 30,933,140 shares of our common stock and 29,324,570 warrants. In addition, we granted the placement agent 1,546,657 warrants, each warrant entitling the holder to purchase one share of common stock at $0.97 per share at any time for a period commencing six months after the date of the closing, and continuing for five years following the closing date of the offering. The warrants may also be executed on a cashless basis, in accordance with the terms of the warrant. The offering resulted in gross proceeds of $19.1 million and we received net proceeds of $17.7 million after placement agent fees.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our financial position is routinely subject to a variety of risks, including market risk associated with interest rate movement. We regularly assess these risks and have established policies and business practices intended to protect against these and other exposures. As a result, we do not anticipate material potential losses in these areas.

As of September 30, 2009, we had cash, cash equivalents and short-term investments of $2.3 million, consisting of cash and cash equivalents. Our short-term investments will likely decline by an immaterial amount if market interest rates increase and, therefore, we believe our exposure to interest rate changes is immaterial. Declines of interest rates over time will, however, reduce our interest income from short-term investments.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures: We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2009 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Inherent Limitations on Effectiveness of Controls: We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our CEO and our CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level.

Changes in internal controls: There were no significant changes in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

On October 16, 2007, a former officer of the Company filed a complaint against Bionovo, Inc. and two of its officers, alleging breach of contract as a result of the rescission of the employment agreement in September 2007. This complaint was filed with the Superior Court of the State of California in and for the County of Alameda. As a part of his compensation, the former officer was to receive 600,000 shares of common stock, over a two-year period from the date of grant, subject to various limitations and vesting. In his complaint, he alleges that the Company failed to accelerate the vesting of 300,000 shares to him, thereby breaching an agreement.

In September of 2008 the Company was notified of an order by the Superior Court, dated August 29, 2008, granting in part a motion to compel binding arbitration for a subset of the claims. The arbitration was held on May 11 and 12, 2009 and on June 10, 2009 the arbitration decision was issued denying all claims alleged by the former officer against the Company and its officers.

Some residual claims not subject to the arbitration remain outstanding. In the opinion of management, the ultimate outcome of this matter will not materially affect the Company’s financial position, results of operations or cash flows and as a result we have not accrued for any contingent liability.

 

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ITEM 1a. RISK FACTORS

There have been no material changes to the risk factors disclosed in our 2008 Annual Report on Form 10-K as filed on March 13, 2009 other than those noted below.

We have a history of net losses, which we expect to continue for the foreseeable future and, as a result, we are unable to predict the extent of any future losses or when, if ever, we will become profitable or if we will be able to continue as a going concern.

We are a “development stage” company which commenced operations in 2002, and we are subject to all of the risks associated with having a limited operating history and pursuing the development of new products. Our cash flows may be insufficient to meet expenses relating to our operations and the development of our business, and may be insufficient to allow us to develop our products. We currently conduct research and development to develop anti-cancer drugs and women’s health products. We do not know whether we will be successful in the development of such products. As of September 30, 2009, we have incurred $52.0 million in cumulative net loss from our inception in 2002, and we expect losses to continue for the foreseeable future. Our net loss for 2008 was $16.7 million and for the nine months ended September 30, 2009 was $12.5 million. Our net loss for the fiscal year ended December 31, 2007 was $12.9 million, and for the fiscal year ended December 31, 2006 was $5.6 million. To date, we have mainly recognized revenues from a technology license and a National Institute of Health (“NIH”) grant drawdown. On October 15, 2007, we terminated the technology license agreement. We do not anticipate generating significant revenues from sales of our products, if approved, for at least several years, if at all. All of our product candidates are in development and none have been approved for commercial sale. We expect to increase our operating expenses over the next several years as we expand clinical trials for our product candidates currently in clinical development, including Menerba and Bezielle, advance our other anti-cancer and women’s health product candidates into clinical trials, expand our research and development activities, and seek regulatory approvals and eventually engage in commercialization activities in anticipation of potential FDA approval of our product candidates. Because of the numerous risks and uncertainties associated with developing our product candidates and their potential for commercialization, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline and we may not be able to continue as a going concern.

The current global economic environment poses severe challenges to our business strategy, which relies on access to capital from the markets and our collaborators, and creates other financial risks for us.

The global economy, including credit markets and the financial services industry, has been experiencing a period of substantial turmoil and uncertainty. These conditions have generally made equity and debt financing more difficult to obtain, and may negatively impact our ability to complete financing transactions. The duration and severity of these conditions is uncertain, as is the extent to which they may adversely affect our business and the business of current and prospective collaborators and vendors. If the global economy does not improve or worsens, we may be unable to secure additional funding to sustain our operations or to find suitable partners to advance our internal programs, even if we receive positive results from our research and development or business development efforts.

We maintain a portfolio of investments in marketable debt securities which are recorded at fair value. Although we have established investment guidelines relative to diversification and maturity with the objectives of maintaining safety of principal and liquidity, credit rating agencies may reduce the credit quality of our individual holdings which could adversely affect their value. Lower credit quality and other market events, such as changes in interest rates and further deterioration in the credit markets, may have an adverse effect on the fair value of our investment holdings and cash position.

If our securities are removed from NASDAQ listing, you may have more difficulty purchasing and selling our common stock.

Our securities are currently listed and traded on The NASDAQ Capital Market. To maintain our listing, we must meet NASDAQ’s continued listing standards, including minimum stockholders’ equity, number of stockholders, and bid price. As previously disclosed in our filings with the SEC, on September 15, 2009, we received a letter from The NASDAQ Stock Market stating that we were not in compliance with NASDAQ listing rules because we failed to maintain a minimum bid price of $1.00 per share. NASDAQ has granted us a period of 180 calendar days, or until March 15, 2010, to regain compliance. If, at anytime before March 15, 2010, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ has stated that it will provide us with written notification that compliance with the listing rule has been regained. In the event we do not regain compliance with NASDAQ listing standards, and in the event NASDAQ does not provide an exemption or waive such compliance with its listing standards, our common stock may be delisted from The NASDAQ Capital Market. There can be no assurance that we will comply with the continued listing standards in the future. If we are delisted from The NASDAQ Capital Market, we may not be able to secure listing on other exchanges or quotation systems. As a result, we believe that investors will have significantly less liquidity and more difficulty purchasing and selling shares of our common stock, which could have a material adverse effect on the market price of our common stock.

 

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If our common stock were delisted from the NASDAQ Capital Market and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market.

If our common stock were removed from listing with the NASDAQ Capital Market, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market. Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.

Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.

Our corporate headquarters are located at a single business park in Emeryville, California. Important documents and records, including copies of our regulatory documents and other records for our product candidates, are located at our facilities and we depend on our facilities for the continued operation of our business. Natural disasters and other catastrophic events, such as wildfires and other fires, earthquakes and extended power interruptions, which have not severely impacted Emeryville businesses in the past, and terrorist attacks, drought or flood, could significantly disrupt our operations and result in additional, unplanned expense. As a small company, we have limited capability to establish and maintain a comprehensive disaster recovery program. Since we do not have a formal business continuity or disaster recovery plan, any natural disaster or catastrophic event could delay our development and commercialization efforts. Even though we believe we carry commercially reasonable insurance, we might suffer losses that exceed the coverage available under these insurance policies. In addition, we are not insured against terrorist attacks or earthquakes.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential investors could lose confidence in our financial reporting, which could harm our business and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to annually furnish a report by our management on our internal control over financial reporting. Such report must contain, among other matters, an assessment by our principal executive officer and our principal financial officer on the effectiveness of our internal control over financial reporting, including a statement as to whether or not our internal control over financial reporting is effective as of the end of our fiscal year. This assessment must include disclosure of any material weakness in our internal control over financial reporting identified by management. Performing the system and process documentation and evaluation needed to comply with Section 404 is both costly and challenging. We have in the past discovered, and may in the future discover, areas of internal controls that need improvement. For example, during the second quarter of 2009, we discovered that we did not file timely our 2009 proxy statement within the required timeline set by the SEC. We determined that we had a deficiency in our internal control over financial reporting as of June 30, 2009, but it was not a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In the future if any material weaknesses are identified in our internal control over financial reporting, neither our management nor our independent registered public accounting firm will be able to assert that our internal control over financial reporting or our disclosure controls and procedures are effective, and we could be required to further implement expensive and time-consuming remedial measures. We cannot be certain that any measures we take will ensure that we implement and maintain adequate internal control over financial reporting and that we will remediate the material weakness. As a result of recent reductions in our workforce and other personnel departures, we have experienced turnover in our personnel responsible for performing activities related to our internal control over financial reporting. We have used third-party contractors to maintain effective internal control over financial reporting since 2007. However, if we fail to maintain effective internal control over financial reporting or disclosure controls and procedures we could lose investor confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on our stock price.

 

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There may be sales of our stock by our executive officers and directors, and these sales could adversely affect our stock price.

Sales of our stock by our executive officers and directors, or the perception that such sales may occur, could adversely affect the market price of our stock. None of our executive officers have adopted trading plans under SEC Rule 10b5-1 to dispose of a portion of their stock. Any of our executive officers or directors may adopt such trading plans in the future.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

 

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

Exhibit
Number

     
  3.1    Amended and Restated Certificate of Incorporation of the registrant dated as of May 9, 2007. (1)
  3.2    Amended and Restated By-Laws of the registrant. (2)
10.27    Letter Agreement, dated September 10, 2009, with Dawson James Securities, Inc. (3)
10.28    First Amendment to Letter Agreement, dated September 23, 2009, with Dawson James Securities, Inc. (4)
10.29    Second Amendment to Letter Agreement, dated September 28, 2009, with Dawson James Securities, Inc. (4)
10.30    Third Amendment to Letter Agreement, dated September 29, 2009, with Dawson James Securities, Inc. (4)
31.1    Certification of Chief Executive Officer, filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Chief Financial Officer, filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certification of Chief Executive Officer and Chief Financial Officer, furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(1) Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2008, filed with the SEC on November 4, 2008.
(2) Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on January 7, 2008.
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to the registrant’s Registration Statement on Form S-1 (File No. 333-161816) originally filed on September 10, 2009 (the “S-1 Registration Statement”) filed on September 22, 2009.
(4) Incorporated by reference to Pre-Effective Amendment No. 2 to the S-1 Registration Statement filed on September 30, 2009.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 5th day of November 2009.

 

BIONOVO, INC.
By:   /s/    ISAAC COHEN        
  Isaac Cohen
  Chairman and Chief Executive Officer
By:   /s/    THOMAS CHESTERMAN        
  Thomas Chesterman
  Senior Vice President and Chief Financial Officer

 

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