ABVC Biopharma, Inc. (American BriVision (Holding) Corporation) — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; unaudited consolidated results also cover the nine months ended that date. The company changed its fiscal year to the calendar year beginning January 1, 2018.
Business context
The company operates through wholly owned American BriVision Corporation and is focused on developing drug candidates and medical devices, advancing them through proof-of-concept clinical studies, and potentially licensing them to pharmaceutical companies. Its products remain in development, and it reported no operating revenue in either 2018 or the comparable 2017 periods.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $175,722 | $3,359,636 | $678,663 | $3,785,956 |
| Operating loss | $(175,722) | $(3,359,636) | $(678,663) | $(3,785,956) |
| Interest expense | $42,851 | $27,460 | $114,682 | $74,960 |
| Net loss | $(218,573) | $(3,387,096) | $(795,195) | $(3,861,646) |
- The 2018 nine-month loss per share was reported as $(0.00), versus $(0.02) in 2017; the displayed 2018 figure is rounded. With no revenue or gross profit, meaningful gross or operating margins are not available.
- Cash was $4,389 at September 30, 2018, down from $93,332 at December 31, 2017. Total assets were $2.59 million; current liabilities were $4.48 million, producing a $1.88 million working-capital deficit.
- Operating cash use was $531,943 for the first nine months, compared with $1.38 million in 2017. Financing provided $443,000, including $550,000 of convertible-note proceeds; ending cash decreased by $88,943.
- Total liabilities were $5.04 million, including $4.04 million due to related parties, $550,000 of convertible notes, and $14,567 of noncurrent accrued interest. Stockholders’ deficit was $2.45 million.
- Assets include a $2.55 million receivable from a collaboration partner, Rgene, for which the company said collection/payment arrangements remained under discussion. A further $40,000 was due from a related party.
Changes versus prior comparable periods
- Nine-month operating expenses fell 82.1% and net loss fell 79.4% versus 2017. Management attributed most of the reduction to a $3.0 million BioFirst-related R&D charge recognized in 2017, rather than to revenue growth.
- Interest expense increased 53.0% for the nine-month period, which management attributed to related-party loans and convertible notes.
- Cash used in operations improved by $844,851 year over year, while financing cash provided declined by $1.12 million.
- Shares outstanding were 213,926,475 at September 30, 2018, compared with 213,746,647 at December 31, 2017; 213,926,475 were reported outstanding as of November 13, 2018.
Outlook, risks and unusual items
- Going concern: The filing reports a $16.57 million accumulated deficit, a $795,195 nine-month net loss, and a $1.88 million working-capital deficit. Management said additional capital is needed and that it did not believe available funds were sufficient to operate for the next 12 months. Plans include equity sales and borrowing, but management gave no assurance of success.
- Convertible financing: Two unsecured notes issued in 2018 total $550,000, bear 8% interest, and mature in November and December 2019. They are convertible at the lower of $2.00 per share or 80% of the price in a qualifying equity offering. A sale of at least $5 million of common stock triggers repayment within five days.
- Related-party exposure: The company disclosed substantial related-party balances and agreements. The $3.0 million BioFirst licensing obligation remained unpaid; the company said it was negotiating repayment in shares. BioFirst’s related-party loan had a $793,000 balance and was extended to February 1, 2019. The $2.55 million Rgene receivable remained outstanding.
- Development and transaction outlook: No financial guidance or specific revenue forecast is provided. A merger agreement with BioLite Holding and BioKey remained subject to closing conditions and shareholder approvals; the company filed an S-4 registration statement in July 2018. The filing does not state that these mergers had closed.
- Controls and contingencies: Management concluded disclosure controls and procedures were not effective as of September 30, 2018. The filing reported no legal proceedings and no material off-balance-sheet arrangements. It cautioned that financing, clinical-development, regulatory, competitive, market and penny-stock-related risks could affect results.
Important facts for investors to verify
- Whether the company obtained financing after the reporting date and can meet near-term obligations, given its very low cash balance and stated 12-month funding shortfall.
- Recoverability and timing of the $2.55 million Rgene receivable and the $3.0 million BioFirst obligation, including any agreed settlement terms.
- Status and closing conditions for the proposed BioLite Holding and BioKey mergers, and the potential share issuance and dilution if completed.
- Terms, conversion outcomes and repayment requirements of the $550,000 convertible notes, including any effect of a future equity offering.
- Progress of clinical programs toward milestones and any prospect of revenue; the filing reports no revenue and does not provide clear quantified forward guidance.
- Remediation of the ineffective disclosure controls identified by management.