Business Context and Reporting Period
This Form 8-K is filed by American BriVision (Holding) Corporation (also referenced as ABVC Biopharma, Inc.) with a report date of February 22, 2017, covering events occurring on January 12, 2017, and February 22, 2017. The company operates in the biopharmaceutical sector, focusing on licensing and developing therapeutic products through a collaborative agreement with BioLite Inc.
Key Financial Metrics and Transactions
- Equity Issuance: The company issued 2,925,000 shares of common stock at $2.00 per share to satisfy a portion of a contractual payment obligation.
- Contractual Liability: A total payment obligation of $6,500,000 was due under the Collaborative Agreement. This was settled with $650,000 in cash and $5,850,000 in newly issued equity.
- Restated Financials: Due to accounting errors regarding the accrual of $10,000,000 in related party payables and expenses, previously filed financial statements for periods ending March 31, 2016, June 30, 2016, and September 30, 2016, have been restated.
- Restated Losses:
- For the year ended September 30, 2016, the restated Net Loss is $(11,007,739) compared to a previously reported $(4,507,799).
- Restated Accumulated Deficit as of September 30, 2016, is $(11,323,341).
Material Changes Versus Prior Period
The primary material change is the restatement of financial results for 2016. The company failed to accrue $10,000,000 in liabilities and expenses related to the Collaborative Agreement in the correct periods. Specifically, the upfront payment (3.5% of total) and the IND submission payment (6.5% of total) were not recorded when incurred. Consequently, Research and Development expenses were understated, and Net Loss was significantly understated in all prior reported periods. Additionally, the company expanded its product portfolio by adding a "Sixth Product" (Maitake Combination Therapy) with worldwide territory rights.
Guidance, Outlook, Risks, and Unusual Items
- Collaborative Agreement Addendum: On January 12, 2017, the company amended its agreement with BioLite to include a sixth product. The company retains ownership of clinical trial data and IP and assumes all costs for clinical trials. No additional milestone payments are required for the sixth product.
- Royalty Structure: The base royalty is 5% of net sales. However, if BioLite's obligation to its licensor exceeds 3% of net sales, the royalty rate is subject to renegotiation and increase.
- Non-Reliance on Financial Statements: Management and the independent auditor concluded that financial statements for Q1, Q2, and the full year of 2016 should not be relied upon due to the accounting errors described above.
- Unusual Item: The issuance of a significant block of shares (2.925 million) to settle a cash obligation represents a dilutive event and a non-cash settlement of debt.
Investor Verification Checklist
- Verify the amended financial statements filed as amendments to the 10-Q and 10-K reports for 2016.
- Confirm the status of the "First IND submission" by BioLite that triggered the $6.5 million payment obligation.
- Review the full text of the Addendum to the Collaborative Agreement (Exhibit 99.1) for specific terms regarding the "Maitake Combination Therapy."
- Assess the company's remaining cash liquidity following the $650,000 cash payment made on February 22, 2017.
- Monitor for any future renegotiation of the royalty rate if BioLite's upstream costs exceed the 3% threshold.