ABVC Biopharma, Inc. (reported as American BriVision (Holding) Corporation) — Form 10-Q
Reporting period: Quarter and six months ended March 31, 2017 (the company’s fiscal second quarter); filed May 22, 2017. The financial statements are unaudited. The filing describes a biotechnology business developing drugs and medical devices, conducting clinical trials and seeking to out-license products. BriVision became the holding company’s wholly owned subsidiary in a 2016 reverse merger.
Financial performance and position
| Metric | Three months ended March 31, 2017 | Six months ended March 31, 2017 |
|---|---|---|
| Revenue | $0 | $70,000 |
| Cost of sales | $0 | $0 |
| Operating expenses | $236,841 | $447,227 |
| Net loss | $256,671 | $397,008 |
| Loss per share, basic and diluted | $(0.00), rounded | $(0.00), rounded |
- Six-month gross profit was $70,000; gross margin was 100% based on reported revenue and no cost of sales. No quarterly revenue was reported.
- Cash was $106,410 at March 31, 2017, versus $173,537 at September 30, 2016. Total assets were $106,410; total liabilities were $1,029,160; stockholders’ deficit was $922,750.
- Current liabilities consisted principally of $950,000 owed to related party BioFirst Corporation and $79,160 in accrued expenses. The BioFirst loan is unsecured, bears 1% monthly interest (12% annually), and matures February 1, 2018. The company recorded $19,000 interest expense for the six months.
- Working capital deficit was $922,750 at March 31, 2017, compared with $6,382,933 at September 30, 2016. The reduced deficit largely reflects settlement of the BioLite related-party balance.
- Six-month operating cash flow was negative $1,017,127; financing provided $950,000; investing cash flow was zero. Cash decreased by $67,127 to $106,410.
Changes versus the prior comparable period
- Six-month net loss improved to $397,008 from restated net loss of $10,110,147 in 2016, primarily because research and development expense fell to $50,348 from $10,000,000. The prior-period R&D expense reflected the immediate expensing of product-license rights, rather than a comparable current-period operating trend.
- Six-month revenue was $70,000 versus none in 2016. Selling, general and administrative expense increased to $393,503 from $110,359; stock-based compensation was $3,376 versus none.
- Operating cash use increased to $1,017,127 from $428,849, which management primarily attributed to a $650,000 cash payment to BioLite under the collaborative agreement. Financing cash inflow rose to $950,000 from $306,658, primarily due to the BioFirst loan.
- Shares outstanding were 213,746,647 at March 31, 2017, compared with 210,821,647 at September 30, 2016; the February BioLite settlement included issuing 2,925,000 shares.
Outlook, commitments and risks
- Management states that products remain in development and clinical trials and that significant near-term revenue is not expected. It expects to need additional capital and says it does not believe existing funds are sufficient to operate for the next 12 months; future financing is not assured and equity financing could dilute shareholders.
- The company has a collaborative licensing agreement with related party BioLite covering five drug candidates and total milestone payments of $100 million. It paid the $3.5 million upfront milestone in 2016 and settled the $6.5 million first-IND milestone in February 2017 with $650,000 cash and $5.85 million of stock. The agreement schedules a further 15% payment, or $15 million, upon completion of the first Phase II trial, with a stated deadline of September 15, 2017; later milestones are also scheduled. The filing does not clarify how these future payments will be funded.
- The company reports an accumulated deficit of $11,720,409 and identifies substantial doubt about its ability to continue as a going concern. Its statements contain no adjustments that might be required if it cannot continue as a going concern.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2017. The filing reports no material changes in internal control over financial reporting during the quarter.
- The 2016 comparative financial statements were restated after the company identified delayed accrual of $10 million in BioLite-related R&D expense and liability. The filing also describes corrections to previously filed 2016 annual financial statements.
- The filing reports no legal proceedings and no material off-balance-sheet arrangements. Management cautions that competition, pricing and margin pressures, securities-market volatility and penny-stock regulation may affect results.
Important facts for investors to verify
- How the company plans to fund operations, the BioFirst loan repayment and upcoming BioLite milestone obligations, particularly the stated $15 million Phase II milestone.
- The nature and collectability of the reported $70,000 six-month revenue; the filing also says no significant revenue is expected and elsewhere states that the company had not generated operating revenue.
- Progress, development costs and clinical milestones for the five licensed candidates, and the terms and status of the related-party BioLite agreement.
- Remediation of ineffective disclosure controls and the causes and implications of the financial-statement restatements.
- The share issuance and dilution implications of settling license payments in stock and any additional financing.