Business context and reporting period
American BriVision (Holding) Corporation, now identified as ABVC Biopharma, Inc., filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The company operates through American BriVision Corporation, a biotechnology business developing drugs and medical devices, with a model centered on clinical proof-of-concept development and licensing. The company changed its fiscal year to the calendar year beginning January 1, 2018; 2017 comparative figures are identified as restated.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $276,396 | $502,941 |
| Operating loss | $(276,396) | $(502,941) |
| Interest expense | $38,186 | $71,831 |
| Net loss | $(314,582) | $(576,622) |
Gross margin is not meaningful because the company reported no revenue. Six-month R&D expense was $90,705, versus $42,650 in 2017; SG&A was $396,410, versus $377,742. Basic and diluted loss per share was reported as $(0.00), rounded.
At June 30, 2018, cash was $57,397; total current assets were $2,649,532, including $2,550,000 due from collaboration partners and $42,135 of other related-party receivables. Current liabilities were $4,333,677, producing a $1,684,145 working-capital deficit. Total liabilities were $4,887,243, and stockholders’ deficit was $2,237,711. Convertible notes totaled $550,000, plus $3,566 accrued noncurrent interest. Cash used in operating activities was $478,935 for the six months; financing provided $443,000. Cash declined by $35,935 to $57,397.
Changes versus the prior comparable period
Compared with Q2 2017, Q2 2018 operating expenses rose 46% to $276,396 and net loss increased 44% to $314,582. Management attributed higher SG&A mainly to professional fees and higher R&D primarily to an additional R&D employee. For the six months, operating expenses rose 18% and net loss rose 22%; management cited increased R&D staffing and work on the vitreous-substitute project, as well as higher professional fees. Six-month interest expense increased 51%, mainly due to related-party borrowing and the convertible notes. Operating cash use was lower than the 2017 comparator, while financing cash inflow also declined.
Outlook, risks and unusual items
- Going concern and funding: The company reported an accumulated deficit of $16,353,220 and a six-month net loss of $576,622. Management stated it did not believe available funds were sufficient to operate for the next 12 months and that additional financing was needed. Planned sources include equity, third-party borrowing and related-party loans; management gave no assurance these would be available or successful.
- Related-party exposures: The $2.55 million collaboration receivable is owed by Rgene; only $450,000 of the agreed $3 million had been received, and the company remained in discussions over collection timing. BioFirst, a related party, was owed $3 million under a collaboration agreement, with no payment made as of the report date; the agreement called for payment by September 30, 2018. The total due to related parties was $4,020,100.
- Convertible financing: Two unsecured 18-month notes issued in May and June 2018 raised $550,000 at 8% interest. Conversion prices may be the lower of $2.00 per share or 80% of the price in a qualifying later equity offering. A qualifying $5 million equity raise triggers repayment of the outstanding notes.
- Development and merger plans: BioLite licensing terms contemplate up to $100 million of milestone payments; the first Phase II trial milestone had not been completed by June 30, 2018. The company’s planned mergers with BioLite Holding and BioKey remained subject to closing conditions and approvals; it filed a Form S-4 on July 23, 2018.
- Controls and other risks: Management concluded disclosure controls and procedures were not effective at June 30, 2018. The filing lists no legal proceedings. Forward-looking plans are subject to financing, development, regulatory, competition and market risks. No specific financial guidance was provided.
Important facts for investors to verify
- Whether the $2.55 million Rgene receivable and other related-party amounts are collectible, and on what schedule.
- Available funding, near-term cash needs and the company’s ability to continue as a going concern.
- Terms, repayment triggers and potential dilution from the $550,000 convertible notes and any future equity financing.
- Status and funding obligations for the BioFirst and BioLite agreements, including milestones and related-party conflicts.
- Whether the BioLite Holding and BioKey mergers closed and what their final consideration and financing effects were.
- Remediation of the disclosed ineffective disclosure controls and procedures.