Business context and reporting period
American BriVision (Holding) Corporation, operating through wholly owned BriVision, is a development-stage biotechnology company focused on drug and medical-device development, clinical proof-of-concept work, and licensing. The 10-Q covers the quarter and nine months ended June 30, 2017; it was filed August 21, 2017. The company’s business model and reported activity center on licensed products, most of which remain in development.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Nine months ended June 30, 2017 |
|---|---|---|
| Revenue | $90,000 | $160,000 |
| Operating expenses | $189,479 | $636,706 |
| Net loss | $127,879 | $524,887 |
| Loss per share, basic and diluted | $0.00 (rounded) | $0.00 (rounded) |
Revenue was attributed to the May 2017 co-development agreement with related party Rgene. Cost of sales was zero in the 2017 periods. The statements show a $90,000 gross result for the quarter, although the line is labeled “gross loss”; the implied gross margin is 100% if the reported revenue and zero cost of sales are used. The filing’s labeling should be verified.
For the nine months, R&D expense was $67,848, SG&A was $562,930, and interest expense was $47,500. Cash used in operating activities was $1,115,484; financing provided $950,000, producing a $165,484 net decrease in cash. Cash was $8,053 at June 30, down from $173,537 at September 30, 2016. Total assets were $8,053, total liabilities were $1,056,130, and stockholders’ deficit was $1,048,077. Current liabilities consisted principally of $953,000 due to related parties and $103,130 of accrued expenses; no conventional bank debt balance is reported.
The $950,000 unsecured BioFirst loan bears interest at 1% per month (12% annually) and matures February 1, 2018. Accrued expenses include $42,990 of rental expense and $9,500 of accrued interest. The company reported a $1,048,077 working-capital deficit.
Material changes versus comparable periods
- Quarterly revenue rose from zero to $90,000, while net loss narrowed to $127,879 from $293,237. Lower SG&A and new revenue were partly offset by $28,500 of interest expense, primarily on related-party borrowing.
- Nine-month revenue rose from zero to $160,000, and net loss narrowed to $524,887 from $10,353,605. The principal driver was the absence of the prior-year $10 million R&D charge for BioLite product rights; management said no corresponding milestone was met in the current period. Current-period SG&A increased by $213,444, and interest expense increased to $47,500.
- The prior-year comparative was restated. The company recorded $10 million of R&D expense and related liability for BioLite milestone payments that had been recognized late, materially increasing the previously reported 2016 loss. The filing also describes other presentation and correction adjustments.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: The company reported an accumulated deficit of $11,848,288, continuing losses, and stated it did not believe it had sufficient funds to operate for the next 12 months. Continued operations depend on profitable operations and/or additional financing; the filing cautions that financing may not be available on acceptable terms or at all.
- Related-party arrangements: The company has a $100 million BioLite licensing payment schedule tied to milestones. It reported paying the initial $3.5 million and the $6.5 million first-IND milestone in cash and shares. The CEO is associated with BioLite and BioFirst. Rgene, also a shareholder, agreed to pay $3 million under a co-development agreement; the filing reports $240,000 received by the report date and says the schedule for the outstanding balance remained under discussion. The company is entitled to 50% of future licensing income or net sales profit under that agreement, if any, and shares development costs equally.
- Subsequent event: On July 24, 2017, the company entered a global license and co-development agreement with related party BioFirst for a vitreous substitute product. It agreed to pay $3 million by September 30, 2018 and reported a $300,000 upfront payment. The company is entitled to 50% of future net licensing income.
- Controls and reporting: Management concluded disclosure controls and procedures were not effective as of June 30, 2017. The filing identifies no material changes in internal control during the quarter. Legal proceedings were reported as nil, and the company reported no material off-balance-sheet arrangements.
- Forward-looking risks: The filing highlights competition, securities-market volatility, penny-stock trading regulations, limited capital, and the uncertainty of achieving development and commercialization plans. No quantified operating guidance is provided.
Important facts for investors to verify
- Whether the company can obtain enough financing to fund operations and meet obligations, given $8,053 of cash and its stated 12-month funding concern.
- Collections and payment timing under the Rgene agreement, including the difference between the $240,000 received by the report date and the $3 million contracted amount.
- Milestone status, remaining payment obligations, and related-party terms under the BioLite licensing agreement and BioFirst agreement.
- The nature and recognition of the reported $90,000 quarterly revenue and the inconsistency in the gross-result label; also reconcile the MD&A’s prior-year net-loss figure with the financial statements.
- Remediation plans for ineffective disclosure controls and the implications of the 2016 financial-statement restatements.