ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial condition should be read in conjunction with our
financial statements and the notes to those financial statements that are included elsewhere in this Report. Our discussion includes
forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. See “Cautionary Note Concerning Forward-Looking Statements.”
As used in this Report, the terms “we”,
“us”, “our”, and “our Company” and “the Company” refer to American BriVision (Holding)
Corporation and its subsidiaries, unless otherwise indicated.
Introduction
Currently,
we are a holding company operating through our wholly owned subsidiary, American BriVision Corporation, a Delaware corporation
(“BriVision”). BriVision was incorporated in 2015 in the State of Delaware. It is a biotechnology company focused
on the development of new drugs and innovative medical devices to fulfill unmet medical needs. Following the Share
Exchange (as described herein below), we have abandoned our prior business plan and we are now pursuing BriVision’s historical
businesses and proposed businesses, which focus on the development of new drugs and innovative medical devices to fulfill unmet
medical needs. Our business model is to integrate research achievements from world-famous institutions, conduct clinical
trials of translational medicine for Proof of Concept (“POC”), out-license to international pharmaceutical companies,
and exploit global markets.
Overview
Prior
to the Share Exchange, we were a company operating a web site for the sale of women’s apparel.
We
have had limited operations and have been issued a “going concern” opinion by our auditor, based upon our reliance on
the sale of our common stock as the sole source of funds for our future operations.
On February 8, 2016, a Share Exchange Agreement
(“Share Exchange Agreement”) was entered into by and among American BriVision (Holding) Corporation (the “Company”), American
BriVision Corporation, a Delaware Corporation (“BriVision”), Euro-Asia Investment & Finance Corp. Limited,
a company incorporated under the laws of Hong Kong Special Administrative Region of the People’s Republic of China (“Euro-Asia”),
being the owners of record of 164,387,376 shares of common stock of the Company, and the persons listed in Exhibit A thereof
(the “BriVision Shareholders”), being the owners of record of all of the issued share capital of BriVision (the “BriVision
Stock”).
Pursuant
to the Share Exchange Agreement, upon surrender by the BriVision Shareholders and the cancellation by BriVision of the certificates
evidencing the BriVision Stock as registered in the name of each BriVision Shareholder, and pursuant to the registration of the
Company in the register of members maintained by BriVision as the new holder of the BriVision Stock and the issuance of the certificates
evidencing the aforementioned registration of the BriVision Stock in the name of the Company, the Company should issue 166,273,921(52,936,583
pre-stock split) shares (the “Acquisition Stock”) (subject to adjustment for fractionalized shares as set forth
below) of the Company’s common stock to the BriVision Shareholders (or their designees), and 163,159,952 (51,945,225 pre-stock
split) shares of the Company’s common stock owned by Euro-Asia should be cancelled and retired to treasury.
The
Acquisition Stock collectively represented 79.70% of the issued and outstanding common stock of the Company immediately after
the Closing, in exchange for the BriVision Stock, representing 100% of the issued share capital of BriVision in a reverse merger,
or the Merger. Pursuant to the Merger, all of the issued and outstanding shares of BriVision’s common stock were converted,
at an exchange ratio of 0.2536-for-1, into an aggregate of 166,273,921(52,936,583 pre-stock split) shares of Company’s common
stock and BriVision became a wholly owned subsidiary, of the Company. The holders of the Company’s common stock as of immediately
prior to the Merger held an aggregate of 205,519,223 (65,431,144 pre-stock split) shares of the Company’s common stock. Because
of the exchange of the BriVision Stock for the Acquisition Stock (the “Share Exchange”), BriVision became a wholly
owned subsidiary (the “Subsidiary”) of the Company and there was a change of control of the Company following the
closing. There were no warrants, options or other equity instruments issued in connection with the share exchange agreement.
As
a result of the consummation of the Share Exchange, BriVision is now our wholly-owned subsidiary and its shareholders
own approximately 79.70% of our issued and outstanding common stock.
All
references to the “Combined Company” refer to American BriVision (Holding) Corporation and its wholly owned subsidiary,
American BriVision Corporation.
Accounting
Treatment of the Merger
For
financial reporting purposes, the Share Exchange represented a “reverse merger” rather than a business combination
and BriVision was deemed to be the accounting acquirer in the transaction. The Share Exchange was accounted for as a reverse-merger
and recapitalization. BriVision is the acquirer for financial reporting purposes and the Company is the acquired company. Consequently,
the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Share Exchange
are those of BriVision and are recorded at the historical cost basis of BriVision, and the consolidated financial statements after
completion of the Share Exchange includes the assets and liabilities of the Company and BriVision, and the historical operations
of BriVision and operations of the combined entities (American Brivision (Holding) Corporation and its wholly owned subsidiary
Brivision) from the closing date of the Share Exchange.
For
more information about the Share Exchange, please refer to the current report on Form 8-K filed on February 12, 2016.
Following
the Share Exchange, we have abandoned our prior business plan and we are now pursuing BriVision’s historical businesses
and proposed businesses. BriVision is a biotechnology company focused on the development of new drugs to fulfill unmet medical
needs. Our business model is integrating research achievements from world-famous institutions, such as Memorial Sloan
Kettering Cancer Center (“MSKCC”) and MD Anderson Cancer Center, conducting clinical trials for Proof of Concept (“POC”),
out-licensing to pharmaceutical companies.
Forward
Stock Split
On
March 21, 2016, our Board approved an amendment to our Articles of Incorporation to effect a forward split at a ratio of 1 to
3.141 and increase the number of our authorized shares of common stock, par value $0.001 per share, to 360,000,000, which became
effective on April 8, 2016. The amendment to our Articles of Incorporation was approved by the majority of the shareholders of
the Company.
Collaborative
Agreement
On
December 29, 2015, BriVision, our wholly-owned subsidiary, entered into a Collaboration Agreement with BioLite, of which Eugene
Jiang, our chairman, is a director and principal shareholder. Pursuant to the Collaboration Agreement, BioLite granted BriVision
sole licensing rights for drug and therapeutic use of five products (the “Products”): BLI-1005 CNS-Major Depressive
Disorder; BLI-1008 CNS-Attention Deficit Hyperactivity Disorder; BLI-1401-1 Anti-Tumor Combination Therapy-Solid Tumor with Anti-PD-1;
BLI-1401-2 Anti-Tumor Combination Therapy-Triple Negative Breast Cancer, BLI-1501 Hematology-Chronic Lymphocytic Leukemia in the
U.S. and Canada.
This
Collaborative Agreement has a term of fifteen years from the first commercial sales of the Products in the U.S. or Canada and
automatically renews for five more years unless either party gives the other party six month written notice of termination prior
to the expiration date of the term.
Pursuant
to the Collaborative Agreement, an upfront payment of $3,500,000 (the “Milestone Payment”), which is 3.5% of total
payments due under the Collaborative Agreement, was to be paid upon execution of that agreement.
Under
the Collaborative Agreement, BriVision is obligated to pay a total of up to $100,000,000 in cash or stock of BriVision with equivalent
value, according to the following schedule:
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upfront
payment was payable upon the signing of this Collaborative Agreement: 3.5% of total payment. After receiving upfront payment
from BriVision, BioLite has to deliver all data to BriVision in one week.
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upon
the first IND submission, BriVision was obligated to pay, but no later than December 15, 2016: 6.5% of total payment. After
receiving the second payment from BriVision, BioLite has to deliver the IND package to BriVision in one week.
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at
the completion of first phase II clinical trial, BriVision was obligated to pay, but no later than September 15, 2017: 15%
of total payment. After receiving third payment from BriVision, BioLite has to deliver the phase II clinical study report
to BriVision in three months.
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upon
the phase III IND submission, BriVision is obligated to pay, but no later than December 15, 2018: 20% of total payment. After
receiving the fourth payment from BriVision, BioLite has to deliver the IND package to BriVision in one week.
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at
the completion of phase III, BriVision is obliged to pay, but no later than September 15, 2019: 25% of total payment. After
receiving the fifth payment from BriVision, BioLite has to deliver phase III clinical study report to BriVision in three months.
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upon
the NDA submission, BriVision obliged to pay, but no later than December 15, 2020, 30% of total payment. After receiving the
sixth payment from BriVision, BioLite has to deliver NDA package to BriVision in one week.
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On
May 6, 2016, we and Biolite entered into the Milestone Payment Agreement in order to amend the Collaborative Agreement, whereby
BriVision has agreed to pay the Milestone Payment to BioLite as in the form of $2,600,000 in cash and $900,000 in newly issued
shares of our common stock, at the price of $1.60 per share, for an aggregate number of 562,500 shares.
Under
the Collaborative Agreement, BioLite is also entitled to 5% of net sales of the Products. There have not been any commercial sales
since the Collaborative Agreement became effective.
As
our collaboration with BioLite continues under the Collaborative Agreement, we intend to work together to select potential drug
candidates (including but not limited to botanical drugs) from different research institutes, start to develop it from pre-clinical
stage (including all CMC process and animal study) to clinical study stage. When the phase II clinical trial is finished and the
efficacy is approved, we will have reached the “proof of concept” stage. We then plan to out license our drugs to
big pharmaceutical companies, coordinate with them to develop and enhance the drugs and exploit global markets.
On
January 12, 2017, we entered into an Addendum (the “Addendum”) to the Collaboration Agreement dated December 29, 2015 and
as amended May 6, 2016. Pursuant to the Addendum, BioLite agreed to license us to research and develop an additional new
drug, “Maitake Combination Therapy” (the “Sixth Product”) worldwide. The ownership of any clinical trial
data and Intellectual Property as defined in the Collaboration Agreement shall belong to us. We shall pay for all clinical trials
and other expenses associated with all clinical trials and shall have the right to sublicense Five Products in the North America
Region and the Sixth Product worldwide. There is no additional Milestone Payments as defined in paragraph 3 of the Collaboration
Agreement that need to be made now or in the future with respect to the Sixth Product. In the event that BioLite is obligated
to pay its licensor in excess of 3% of the net sales, BioLite and us shall renegotiate and increase the Royalty Charge to a percentage
to be later agreed upon as opposed to the original amount of 5% of the net sales as defined in paragraph 4 of the Collaboration
Agreement.
On
July 24, 2017, BriVision, one of our wholly-owned subsidiaries entered into a collaboration agreement (the “BioFirst Agreement”)
with BioFirst Corporation (“BioFirst”), a corporation incorporated under the laws of Taiwan, pursuant to which BioFirst
granted BriVision the global license to co-develop BFC-1401 Vitreous Substitute for Vitrectom (“BFC-1401”) for medical
purposes. BioFirst is a related party to the Company because BioFirst and Yuangene Corporation (“Yuangene”), the Company’s
controlling shareholder, are under common control of the controlling beneficiary shareholder of Yuangene.
According to the BioFirst Agreement, we co-develop
and commercialize BFC-1401 with BioFirst and should pay BioFirst $3,000,000 (the “Total Payment”) in cash or common
stock of the Company on or before September 30, 2018 in two installments. An upfront payment of $300,000, representing 10% of
the Total Payment due under the Collaboration Agreement, shall be paid upon execution of the Collaboration Agreement. The Company
is entitled to receive 50% of the future net licensing income or net sales profit when BFC-1401 is sublicensed or commercialized.
For more information about the BioFirst Agreement, please refer to the current report on Form 8-K filed on July 24, 2017. As
of the date of this report, we have not made the payment of $3,000,000 to BioFirst.
As
disclosed on a current report on Form 8-k filed with the SEC on February 14, 2019, on February 8, 2019, the parties of the Merger
Agreement consummated the merger transactions contemplated thereunder. Pursuant to the terms of the Merger Agreement, BioLite
and BioKey have become two wholly-owned subsidiaries of the Company on February 8, 2019. The Company is in the process of issuing
shares of its Common Stock as the consideration to the shareholders of BioLite and BioKey pursuant to the registration statement
(the “Registration Statement on S-4”) on Form S-4 Amendment No. 3 filed with the SEC on January 16, 2019 which became
effective by operation of law on or about February 5, 2019.
Co-development
Agreement with Rgene
On
May 26, 2017, BriVision entered into a co-development agreement (the “Co-Dev Agreement”) with Rgene Corporation,
a corporation incorporated under the laws of Taiwan (“Rgene”), to co-develop and commercialize in the global markets
three new drug products that are included in the Sixth Product as defined in the Addendum. The three drugs licensed to Rgene
are ABV-1507 HER2/neu Positive Breast Cancer Combination Therapy, ABV-1511 Pancreatic Cancer Combination Therapy and ABV-1527
Ovary Cancer Combination Therapy.
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Pursuant
to the Co-Dev Agreement, Rgene should pay to the Company $3,000,000 in cash or stock of Rgene with equivalent value by August
15, 2017 in three installments. The payment is for the compensation of BriVision’s past research efforts and contributions
made by BriVision before the Co-Dev Agreement was signed and it does not relate to any future commitments made by BriVision and
Rgene in this Co-Dev Agreement. Besides of $3,000,000, the Company is entitled to receive 50% of the future net licensing income
or net sales profit earned by Rgene, if any, and any development cost shall be equally shared by both BriVision and Rgene.
On June 1, 2017, the Company has delivered
all research, technical, data and development data to Rgene. Since both Rgene and the Company are related parties and under common
control by a controlling beneficiary shareholder of YuanGene Corporation and the Company, the Company has recorded the full amount
of $3,000,000 in connection with the Co-Dev Agreement as additional paid-in capital during the year ended September 30, 2017.
As of the date of this report, the Company has received $450,000 in cash. For more information about the Co-Dev Agreement, please
refer to the current report on Form 8-K we filed on May 30, 2017.
On
December 24, 2018, the Company received the remaining balance of $2,550,000 in the form of newly issued shares of Rgene’s
Common Stock, at the price of NT$50 (approximately equivalent to $1.60 per share), for an aggregate number of 1,530,000 shares,
which accounted for equity method long-term investment as of December 31, 2018. During the year ended December 31, 2018, the Company
has recognized investment loss of $549. On December 31, 2018, the Company has determined to fully write off this investment based
on the Company’s assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of
the operating performance of the investee, adverse changes in market conditions and the regulatory or economic environment, changes
in operating structure of Rgene, additional funding requirements, and Rgene’s ability to remain in business. However, all
projects that have been initiated and scheduled will be continuously managed and supported by the Company and Rgene.
Revenue
Generation
Most
of our licensed products are still under development and trial stage. Therefore, no revenue is expected in the near term.
Research
and Development
During
the year ended December 31, 2018, we spent approximately $669,668 on research and development.
Critical
Accounting Policies and Estimates
We
believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s
Discussion and Analysis of Financial Condition and Results of Operation.”
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with the generally accepted accounting principles
in the United States of America (the “U.S. GAAP”). All significant intercompany transactions and account balances
have been eliminated.
This
basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned,
and expenses and losses are recognized when incurred. The Company’s financial statements are expressed in U.S. dollars.
Fiscal
Year
The
Company changed its fiscal year from the period beginning on October 1
st
and ending on September 30
th
to
the period beginning on January 1
st
and ending on December 31
st
, beginning January 1, 2018. As a result,
the current fiscal period is a three-month transition period ended on December 31, 2017. In these consolidated statements, including
the notes thereto, the current period financial results ended December 31, 2017 are for a three-month period. Audited results
for the twelve months ended September 30, 2017 and 2016 are both for twelve-month periods. In addition, the Company’s consolidated
statements of operations and consolidated statements of cash flows include unaudited comparative amounts for the three-month period
ended December 31, 2016. All references herein to a fiscal year prior to December 31, 2017 refer to the twelve months ended
September 30
th
of such year.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses
during the reporting periods. Actual results could differ materially from those results.
Reclassifications
Certain
classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification
had no impact on previously reported net loss or accumulated deficit.
Forward
Stock split
On
March 21, 2016, the Board of Directors of the Company approved an amendment to its Articles of Incorporation to effect a forward
split at a ratio of 1 to 3.141 and increase the number of our authorized shares of common stock, par value $0.001 per share, to
360,000,000, which was effective on April 8, 2016. The majority of the shareholders of the Company approved the amendment to its
Articles of Incorporation.
Fair
Value Measurements
The
Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements”, for fair value measurements
of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed
at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands
disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities,
the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market
participants would use when pricing the asset or liability.
ASC
820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy are as follows:
-
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial
instruments.
-
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
There
were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as
of December 31, 2018 and 2017.
Cash
and Cash Equivalents
The
Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents. As
of December 31, 2018, the Company’s cash and cash equivalents amounted to $40,044. Some of the Company’s cash
deposits are held in financial institutions located in Taiwan where there is currently regulation mandated on obligatory insurance
of bank accounts. The Company believes this financial institution is of high credit quality.
Concentration
of Credit Risk
The
Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents.
The Company places its cash and temporary cash investments in high quality credit institutions, but these investments may be in
excess of Taiwan Central Deposit Insurance Corporation’s insurance limits. The Company does not enter into financial instruments
for hedging, trading or speculative purposes. Concentration of credit risk with respect to trade and notes receivables is limited
due to the wide variety of customers and markets in which the Company transacts business, as well as their dispersion across many
geographical areas. The Company performs ongoing credit evaluations of its customers and generally does not require collateral,
but does require advance deposits on certain transactions.
Receivable
from Collaboration Partners
Receivable
from collaboration partners is stated at carrying value less estimates made for doubtful receivables. An allowance for impairment
of receivable from collaboration partners is established if the collection of a receivable becomes doubtful. Such receivable becomes
doubtful when there is objective evidence that the Company will not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy
or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired.
The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate. An impairment loss is recognized in the statement of operations,
as are subsequent recoveries of previous impairments.
Research
and Development Expenses
The
Company accounts for the cost of using licensing rights in research and development cost according to ASC Topic 730-10-25-1. This
guidance provides that absent alternative future uses the acquisition of product rights to be used in research and development
activities must be charged to research and development expenses when incurred.
Stock-based
Compensation
The
Company measures expense associated with all employee stock-based compensation awards using a fair value method and recognizes
such expense in the consolidated financial statements on a straight-line basis over the requisite service period in accordance
with ASC Topic 718 “Compensation-Stock Compensation”. Total employee stock-based compensation expenses were $0 and
$0 for the years ended December 31, 2018 and 2017, respectively.
The
Company accounted for stock-based compensation to non-employees in accordance with ASC Topic 505-50 “Equity-Based Payments
to Non-Employees” which requires that the cost of services received from non-employees is measured at fair value at the
earlier of the performance commitment date or the date service is completed and recognized over the period the service is provided.
Total non-employee stock-based compensation expenses were $28,800 and $155,400 for the years ended December 31, 2018 and 2017,
respectively.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach which allows the recognition and measurement of deferred
tax assets to be based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach,
deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred
tax assets if it is more likely than not these items will expire before the Company is able to realize their benefits, or future
deductibility is uncertain.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position
would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a
two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon
examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The
second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefits recognized
in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period
in which the threshold is no longer satisfied. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the year incurred. No significant penalty or interest relating to income taxes has been incurred for
the years ended December 31, 2018 and 2017. GAAP also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition.
For
the years ended December 31, 2018 and 2017, the Company’s income tax expense amounted to $1,850 and $830, respectively.
On
December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for
tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment
date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax
effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting
for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record
a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be
included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were
in effect immediately before the enactment of the Tax Act. While the Company is able to make reasonable estimates of the impact
of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from
these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued
by the I.R.S., and actions we may take. The Company is continuing to gather additional information to determine the final impact.
Loss
Per Share of Common Stock
The
Company reports loss per share in accordance with ASC Topic 260-10 “Earnings per Share.” Basic earnings (loss) per share
are computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available.
Commitments
and Contingencies
The
Company has adopted ASC Topic 450 “Contingencies” subtopic 20, in determining its accruals and disclosures with respect
to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information
available before financial statements are issued or are available to be issued indicates that it is probable that an assets had
been impaired or a liability had been incurred at the date of the financial statements and the amount of the loss can be reasonably
estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably
estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that
a material loss could be incurred.
Recent
Accounting Pronouncements
Revenue
Recognition:
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue
from Contracts with Customers: Topic
606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance
under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to
customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09
defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be
required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance
obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating
the transaction price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal
2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain
practical expedients as defined within ASU 2014-09 (full retrospective method); or (ii) retrospective with the cumulative
effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures
as defined per ASU 2014-09 (modified retrospective method). We are currently assessing the materiality of the impact to our consolidated
financial statements, and have not yet selected a transition approach.
Disclosure
of Going Concern Uncertainties:
In August 2014, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern
(ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether
there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures.
ASU 2014-15 is effective for us in our fourth quarter of fiscal 2017 with early adoption permitted. We do not believe the impact
of our pending adoption of ASU 2014-15 on the Company’s financial statements will be material.
Leases
:
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on
lease amendments to the FASB Accounting should Standard Codification. This ASU will be effective for us beginning in May 1,
2019. We are currently in the process of evaluating the impact of the adoption of ASU 2016-2 on our consolidated financial
statements.
Stock-based
Compensation
: In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Stock-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes how companies account
for certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory
tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for us in the
first quarter of 2018, and earlier adoption is permitted. We are still evaluating the effect that this guidance will have
on our consolidated financial statements and related disclosures.
Financial
Instruments - Credit Losses:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic
326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis
to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider
in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted
information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to
users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. The Company is still evaluating the effect that this guidance will
have on the Company’s consolidated financial statements and related disclosures.
Statement
of Cash Flows:
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in
this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a
statement of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow
issues. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing
the current and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s
consolidated financial statements and related disclosures.
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash”(“ASU
2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 will become effective
for us beginning April 1, 2018, or fiscal 2019. ASU 2016-18 is required to be applied retrospectively. Upon the adoption, amounts
described as restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
amounts shown on the statements of cash flows.
Business
Combination
: In January 2017, the FASB issued ASU No. 2017-1 “Topic 805, Business Combinations: Clarifying
the Definition of a Business”. The amendments in this update provide a screen to determine when a set is not a business.
The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated
in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number
of transactions that need to be further evaluated. The amendments in this update affect all reporting entities that must determine
whether they have acquired or sold a business. Public business entities should apply the amendments in this update to annual periods
beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments
to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
We do not expect the adoption of ASU 2017-1 to have a material impact on our consolidated financial statements.
From
time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date.
If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have
a material impact on the Company’s financial statements upon adoption. Management does not believe that any recently issued, but
not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying financial statements.
Limited
Operating History; Need for Additional Capital
There
is no historical financial information about us upon which to base an evaluation of our performance. As of the date
of this filing, we have not generated any revenues from operations. We cannot guarantee we will be successful in our business
operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including
limited capital resources, possible delays in the launching of our games and market or wider economic downturns. We do not believe
we have sufficient funds to operate our business for the next 12 months.
We
have no assurance that future financing will be available to us on acceptable terms, or at all. If financing is not
available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could
result in additional dilution to existing shareholders.
If
we are unable to raise additional capital to maintain our operations in the future, we may be unable to carry out our full business
plan or we may be forced to cease operations.
The
following discussion and analysis should be read in conjunction with our audited financial statements for the years ended
December 31, 2018 and accompanying notes that appear in our Annual Report on Form 10-K.
Results
of Operation
Our
financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be
unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We
expect to raise additional capital through, among other things, the sale of equity or debt securities, but we cannot guarantee
that we will be able to achieve the same.
Results
of Operations — Year Ended December 31, 2018 Compared to Year Ended December 31, 2017.
The
following table presents, for the period indicated, our consolidated statements of operations information.
|
|
Year Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
695,148
|
|
|
|
811,685
|
|
Research and development expenses
|
|
|
669,668
|
|
|
|
3,171,665
|
|
Stock based compensation expenses
|
|
|
28,800
|
|
|
|
155,400
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,393,616
|
)
|
|
|
(4,138,750
|
)
|
|
|
|
|
|
|
|
|
|
Other income(expenses)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
93
|
|
|
|
180
|
|
Interest expense
|
|
|
(155,930
|
)
|
|
|
(103,460
|
)
|
Investment Loss
|
|
|
(549
|
)
|
|
|
-
|
|
Loss on investment in equity securities
|
|
|
(2,549,451
|
)
|
|
|
-
|
|
Total other income (expenses)
|
|
|
(2,705,837
|
)
|
|
|
103,280
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before provision income tax
|
|
|
(4,099,453
|
)
|
|
|
(4,242,030
|
)
|
|
|
|
|
|
|
|
|
|
Provision income tax
|
|
|
1,850
|
|
|
|
8,30
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(4,101,303
|
)
|
|
|
(4,242,860
|
)
|
Revenues.
We
did not generate any revenue during the year ended December 31, 2018 and 2017. As such, we did not incur any cost associated with
revenues during the same periods.
Operating Expenses.
Our operating
expenses were $1,393,616 for the year ended December 31, 2018 as compared to $4,138,750 for the year ended December 31, 2017.
The decrease in operating expenses in the amount of $2,745,134 or (66.33)% in the year ended December 31, 2018 was primarily caused
by the decrease in research and development expense, which was operating at a normal rate in 2018, after the Company has established
meaningful collaborative agreements with strategic partners, such as BioFirst.
Loss on investment in equity securities.
The loss on investment in equity securities was $2,549,451 for the year ended December 31, 2018 as compared to $0 for
the year ended December 31, 2017. The increase of expenses by $2,549,451 was attributable to the other-than temporary impairment
on equity investment for Rgene due to the operating performance and adverse changes in market conditions of Rgene. However, all
projects that have been initiated and scheduled will be continuously managed and supported by the Company and Rgene.
Net Loss.
As a result of
the above factors, the net loss was $4,101,303 and $4,242,860 for the years ended December 31, 2018 and 2017. The decrease of net
loss in the year ended December 31, 2018 as compared to the same period ended December 31, 2017 was in an amount of $141,557 or
by (3.34)%.
Liquidity
and Capital Resources
Working
Capital Summary
|
|
As of December 31, 2018
($)
|
|
|
As of December 31, 2017
($)
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
96,273
|
|
|
|
2,643,332
|
|
Current Liabilities
|
|
|
5,568,224
|
|
|
|
4,400,247
|
|
Working Capital (Deficit)
|
|
|
(5,471,951
|
)
|
|
|
(1,756,915
|
)
|
Cash
Flows
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash Flows Used in Operating Activities
|
|
$
|
(630,195
|
)
|
|
$
|
(1,485,313
|
)
|
Cash Flows Provided by Financing Activities
|
|
|
593,000
|
|
|
|
1,560,000
|
|
Net (Decrease) Increase in Cash During Period
|
|
$
|
(37,195
|
)
|
|
$
|
74,687
|
|
Cash
Flow from Operating Activities
During the years ended December 31, 2018 and
2017, the net cash used in operating activities were $630,195 and $1,485,313, respectively, reflecting a decrease of $855,118
or (57.57)%. Such decrease was primarily caused by the recognition of loss on investment in equity securities and the change in
accrued expenses and due to related parties during the year ended December 31, 2018.
Cash
Flow from Investing Activities
There was no net cash used or generated from
investing activities during the years ended December 31, 2018 and 2017.
Cash
Flow from Financing Activities
During the year ended December 31, 2018 and 2017, net cash generated from financing activities was 593,000
and $1,560,000, respectively. The decrease of $967,000 or (61.99)% in net cash generated from financing activities was because
the Company borrowed less money from related parties and also made repayments for outstanding loans in the fiscal year of 2018.
Critical
Accounting Policy and Estimates
We
believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s
Discussion and Analysis of Financial Condition and Results of Operation.”
Going
Concern Consideration
We have incurred losses since its
inception resulting in an accumulated deficit of $19,877,901 and $15,776,598 as of December 31, 2018 and 2017, respectively,
and net loss of $4,101,303 during the fiscal year ended December 31, 2018. These conditions raise substantial doubt about our
ability to continue as a going concern for the next twelve months.
We expect to finance operations primarily
through capital contributions from the principal shareholders and other sources. We are in the process of raising funds publicly
as stated on a registration statement on Form S-1, as amended on February 14, 2019. Our continuing operation depends on the success
of our financing, including both debt and equity.
Off-Balance
Sheet Arrangements
As of December 31, 2018,
we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures,
or capital resources that is material to investors.
Item
8. Financial Statements and Supplementary Data
INDEX
TO FINANCIAL INFORMATION
|
A
udit
●
T
ax
● C
onsulting
● F
inancial
A
dvisory
|
Registered with Public Company Accounting
Oversight Board (PCAOB)
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
American
BriVision (Holding) Corporation and Subsidiaries
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of American BriVision (Holding) Corporation and subsidiaries (collectively
“the Company”) as of December 31, 2018 and 2017, the related statement of operations, stockholders’ equity(deficit),
and cash flows for the years ended December 31, 2018 and 2017, and the related notes
(collectively
referred to as the “financial statements”)
. In our opinion, the financial statements present fairly, in all
material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the
consolidated results of its operations and its cash flows for the years ended December 31, 2018 and 2017, in conformity with
the U.S. generally accepted accounting principles.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public
Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement
,
whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
The
accompanying consolidated financial statements have been prepared assuming that American BriVision (Holding) Corporation and subsidiaries
will continue as a going concern. As described in Note 3 to the consolidated financial statements, the Company has incurred losses
from operations, has a working capital deficit, and is in need of additional capital to grow its operations so that it can become
profitable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans with regard to these matters are described in Note 3. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/
KCCW Accountancy Corp.
|
|
|
|
We
have served as the Company’s auditor since 2017.
|
|
Diamond
Bar, California
|
|
April 4, 2019
|
|
KCCW
Accountancy Corp.
3333
South Brea Canyon Rd. #206, Diamond Bar, CA 91765, USA
Tel: +1
909 348 7228 ● Fax: +1 909 895 4155 ● info@kccwcpa.com
AMERICAN
BRIVISION (HOLDING) CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
40,044
|
|
|
$
|
93,332
|
|
Restricted cash and cash equivalents
|
|
|
16,093
|
|
|
|
-
|
|
Receivable from collaboration partners – related parties
|
|
|
-
|
|
|
|
2,550,000
|
|
Due from related parties
|
|
|
40,000
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
136
|
|
|
|
-
|
|
Total Current Assets
|
|
|
96,273
|
|
|
|
2,643,332
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
96,273
|
|
|
$
|
2,643,332
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Accrued expense
|
|
$
|
555,449
|
|
|
$
|
170,927
|
|
Due to related parties
|
|
|
4,462,775
|
|
|
|
4,229,320
|
|
Convertible notes payable, current portion
|
|
|
300,000
|
|
|
|
-
|
|
Convertible notes payable - related parties, current portion
|
|
|
250,000
|
|
|
|
-
|
|
Total Current Liabilities
|
|
$
|
5,568,224
|
|
|
$
|
4,400,247
|
|
Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Convertible notes payable - related parties
|
|
|
250,000
|
|
|
|
-
|
|
Accrued interest
|
|
|
27,467
|
|
|
|
-
|
|
Total Liabilities
|
|
$
|
5,845,691
|
|
|
$
|
4,400,247
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common Stock 360,000,000 authorized at $0.001 par value; shares issued and outstanding 213,926,475 and 213,746,647 at December 31, 2018 and December 31, 2017, respectively
|
|
|
213,927
|
|
|
|
213,747
|
|
Additional paid-in capital
|
|
|
13,914,556
|
|
|
|
13,805,936
|
|
Accumulated deficit
|
|
|
(19,877,901
|
)
|
|
|
(15,776,598
|
)
|
Total stockholders’ deficit
|
|
|
(5,749,418
|
)
|
|
|
(1,756,915
|
)
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
96,273
|
|
|
$
|
2,643,332
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMERICAN
BRIVISION (HOLDING) CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
695,148
|
|
|
|
811,685
|
|
Research and development expenses
|
|
|
669,668
|
|
|
|
3,171,665
|
|
Stock based compensation
|
|
|
28,800
|
|
|
|
155,400
|
|
Total operating expenses
|
|
|
1,393,616
|
|
|
|
4,138,750
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,393,616
|
)
|
|
|
(4,138,750
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
93
|
|
|
|
180
|
|
Interest expense
|
|
|
(155,930
|
)
|
|
|
(103,460
|
)
|
Investment loss
|
|
|
(549
|
)
|
|
|
-
|
|
Loss on investment in equity securities
|
|
|
(2,549,451
|
)
|
|
|
-
|
|
Total other expenses
|
|
|
(2,705,837
|
)
|
|
|
(103,280
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision income tax
|
|
|
(4,099,453
|
)
|
|
|
(4,242,030
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
1,850
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,101,303
|
)
|
|
|
(4,242,860
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
213,884,105
|
|
|
|
213,321,921
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMERICAN
BRIVISION (HOLDING) CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Stockholders’
|
|
|
|
Number of
|
|
|
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
equity
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
(deficit)
|
|
Balance at December 31, 2016
|
|
$
|
210,821,647
|
|
|
$
|
210,822
|
|
|
$
|
4,803,461
|
|
|
|
11,533,738
|
|
|
$
|
(6,519,455
|
)
|
Issuance of common shares
|
|
|
2,925,000
|
|
|
|
2,925
|
|
|
|
5,847,075
|
|
|
|
-
|
|
|
|
5,850,000
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
85,400
|
|
|
|
-
|
|
|
|
85,400
|
|
Capital contribution from related parties under common control
|
|
|
-
|
|
|
|
-
|
|
|
|
3,070,000
|
|
|
|
-
|
|
|
|
3,070,000
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,242,860
|
)
|
|
|
(4,242,860
|
)
|
Balance at December 31, 2017
|
|
|
213,746,647
|
|
|
|
213,747
|
|
|
|
13,805,936
|
|
|
|
(15,776,598
|
)
|
|
|
(1,756,915
|
)
|
Issuance of common shares
|
|
|
179,828
|
|
|
|
180
|
|
|
|
79,820
|
|
|
|
-
|
|
|
|
80,000
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
28,800
|
|
|
|
-
|
|
|
|
28,800
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,101,303
|
)
|
|
|
(4,101,303
|
)
|
Balance at December 31, 2018
|
|
|
213,926,475
|
|
|
|
213,927
|
|
|
|
13,914,556
|
|
|
|
(19,877,901
|
)
|
|
|
(5,749,418
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMERICAN
BRIVISION (HOLDING) CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(4,101,303
|
)
|
|
$
|
(4,242,860
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation for nonemployees
|
|
|
28,800
|
|
|
|
155,400
|
|
Investment loss
|
|
|
549
|
|
|
|
-
|
|
Loss on investment in equity securities
|
|
|
2,549,451
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaid expenses and deposits
|
|
|
(136
|
)
|
|
|
-
|
|
Decrease (increase) in due from related parties
|
|
|
(40,000
|
)
|
|
|
-
|
|
Increase (decrease) in accrued expenses and other current liabilities
|
|
|
491,989
|
|
|
|
132,827
|
|
Increase (decrease) in due to related parties
|
|
|
440,455
|
|
|
|
2,469,320
|
|
Net cash used in operating activities
|
|
|
(630,195
|
)
|
|
|
(1,485,313
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Capital contribution from related parties under common control
|
|
|
-
|
|
|
|
450,000
|
|
Proceeds from convertible notes
|
|
|
800,000
|
|
|
|
-
|
|
Borrowings from related parties
|
|
|
50,000
|
|
|
|
1,110,000
|
|
Repayment of borrowings from related parties
|
|
|
(257,000
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
593,000
|
|
|
|
1,560,000
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(37,195
|
)
|
|
|
74,687
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
93,332
|
|
|
|
18,645
|
|
Ending
|
|
$
|
56,137
|
|
|
$
|
93,332
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
127,056
|
|
|
$
|
86,000
|
|
Income taxes paid
|
|
$
|
1,850
|
|
|
$
|
830
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities
|
|
|
|
|
|
|
|
|
Common shares issued for employees and consultants
|
|
$
|
80,000
|
|
|
|
-
|
|
Common shares issued for due to related parties
|
|
|
-
|
|
|
$
|
5,850,000
|
|
Capital contribution from related parties under common control
|
|
$
|
-
|
|
|
$
|
2,550,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AMERICAN
BRIVISION (HOLDING) CORPORATION AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2018
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
American
BriVision (Holding) Corporation (the “Company” or “Holding entity”), a Nevada corporation, through the
Company’s operating entity, American BriVision Corporation (the “BriVision”), which was incorporated in July
2015 in the State of Delaware, engages in biotechnology and focuses on the development of new drugs and innovative medical devices
to fulfill unmet medical needs. The business model of the Company is to integrate research achievements from world-famous
institutions (such as Memorial Sloan Kettering Cancer Center (“MSKCC”) and MD Anderson Cancer Center), conduct clinical
trials of translational medicine for Proof of Concept (“POC”), out-license to international pharmaceutical companies,
and exploit global markets. BriVision had to predecessor operations prior to its formation on July 21, 2015.
Reverse
Merger
On
February 8, 2016, a Share Exchange Agreement (the “Share Exchange Agreement”) was entered into by and among American
BriVision (Holding) Corporation, American BriVision Corporation (“BriVision”), and Euro-Asia Investment &
Finance Corp. Limited, a company incorporated under the laws of Hong Kong Special Administrative Region of the People’s
Republic of China (“Euro-Asia”), being the owners of record of 164,387,376 (52,336,000 pre-stock split) shares of
Common Stock of the Company, and the owners of record of all of the issued share capital of BriVision (the “BriVision
Stock”).
Pursuant
to the Share Exchange Agreement, upon surrender by the BriVision Shareholders and the cancellation by BriVision of the certificates
evidencing the BriVision Stock as registered in the name of each BriVision Shareholder, and pursuant to the registration of the
Company in the register of members maintained by BriVision as the new holder of the BriVision Stock and the issuance of the certificates
evidencing the aforementioned registration of the BriVision Stock in the name of the Company, the Company should issue 166,273,921(52,936,583
pre-stock split) shares (the “Acquisition Stock”) (subject to adjustment for fractionalized shares as set forth
below) of the Company’s Common Stock to the BriVision Shareholders (or their designees), and 163,159,952 (51,945,225 pre-stock
split) shares of the Company’s Common Stock owned by Euro-Asia should be cancelled and retired to treasury. The Acquisition
Stock collectively should represent 79.70% of the issued and outstanding Common Stock of the Company immediately after the Closing,
in exchange for the BriVision Stock, representing 100% of the issued share capital of BriVision in a reverse merger (the “Merger”).
Pursuant
to the Merger, all of the issued and outstanding common shares of BriVision were converted, at an exchange ratio of 0.2536-for-1,
into an aggregate of 166,273,921(52,936,583pre-stock split) common shares of the Company and BriVision has become a wholly owned
subsidiary of the Company. The holders of Company’s Common Stock as of immediately prior to the Merger held an aggregate
of 205,519,223(65,431,144 pre-stock split) shares of Company’s Common Stock. Because of the exchange of the BriVision
Stock for the Acquisition Stock (the “Share Exchange”), BriVision has become a wholly owned subsidiary (the “Subsidiary”)
of the Company and there was a change of control of the Company following the closing. There were no warrants, options or other
equity instruments issued in connection with the share exchange agreement.
Because of
the consummation of the Share Exchange, BriVision is now our wholly owned subsidiary and its shareholders own approximately 79.70%
of our issued and outstanding Common Stock.
Following
the Share Exchange, we have abandoned our prior business plan and we are now pursuing BriVision’s historically
proposed businesses, which focus on the development of new drugs and innovative medical devices to fulfill unmet medical needs. The
business model of the Company is to integrate research achievements from world-famous institutions, conduct clinical trials of
translational medicine for Proof of Concept (“POC”), out-license to international pharmaceutical companies, and exploit
global markets.
Accounting
Treatment of the Reverse Merger
For
financial reporting purposes, the Share Exchange represents a “reverse merger” rather than a business combination
and BriVision is deemed the accounting acquirer in the transaction. The Share Exchange is being accounted for as
a reverse-merger and recapitalization. BriVision is the acquirer for financial reporting purposes and the Company is
the acquired company. Consequently, the assets and liabilities and the operations reflected in the historical financial statements
prior to the Share Exchange will be those of BriVision and recorded at the historical cost basis of BriVision.
In addition, the consolidated financial statements after completion of the Share Exchange will include the assets and liabilities
of the Company and BriVision, and the historical operations of BriVision and operations of the Combined Company from
the closing date of the Share Exchange.
Merger
As
disclosed in a registration statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”) on
July 23, 2018, as amended from time to time, the Company, BioLite Holding, Inc. (“BioLite”), BioKey, Inc. (“BioKey”),
BioLite Acquisition Corp., a direct wholly-owned subsidiary of Parent (“Merger Sub 1”), and BioKey Acquisition Corp.,
a direct wholly-owned subsidiary of Parent (“Merger Sub 2”) (
collectively referred
to as the “Parties”)
were in the process of completing business combination pursuant to the Agreement and Plan
of Merger (the “Merger Agreement”) dated as of January 31, 2018 where ABVC would acquire BioLite and BioKey via issuing
additional Common Stock of ABVC to the shareholders of BioLite and BioKey.
On
February 8, 2019, the Parties of the Merger Agreement consummated the Merger transactions. Pursuant to the terms of the Merger
Agreement, BioLite and BioKey became two wholly-owned subsidiaries of the Company on February 8, 2019. As of the date of this
report, the Company is in the process of issuing shares of its Common Stock as Merger Consideration to the shareholders of BioLite
and BioKey pursuant to the registration statement (the “Registration Statement on S-4”) on Form S-4 Amendment No.
3 filed with the SEC on January 16, 2019 which became effective by operation of law on or about February 5, 2019.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with the generally accepted accounting principles
in the United States of America (the “U.S. GAAP”). All significant intercompany transactions and account balances
have been eliminated.
This
basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned,
and expenses and losses are recognized when incurred. The Company’s financial statements are expressed in U.S. dollars.
Fiscal
Year
The
Company changed its fiscal year from the period beginning on October 1st and ending on September 30th to the period beginning
on January 1st and ending on December 31st, beginning January 1, 2018. All references herein to a fiscal year prior to December
31, 2017 refer to the twelve months ended September 30th of such year.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses
during the reporting periods. Actual results could differ materially from those results.
Reclassifications
Certain
classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification
had no impact on previously reported net loss or accumulated deficit.
Forward
Stock split
On
March 21, 2016, the Board of Directors of the Company approved an amendment to Articles of Incorporation to effect a forward split
at a ratio of 1 to 3.141 and increase the number of our authorized shares of Common Stock, par value $0.001 per share, to 360,000,000,
which was effective on April 8, 2016. The majority of the shareholders of the Company approved the amendment to Articles of Incorporation.
Fair
Value Measurements
The
Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements”, for fair value measurements
of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed
at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures
about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities,
the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market
participants would use when pricing the asset or liability.
ASC
820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy are as follows:
|
-
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
-
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
-
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
The
carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, due from related parties,
accrued expenses, and due to related parties approximate fair value due to their relatively short maturities. The carrying value
of the Company’s convertible notes payable and accrued interest approximates their fair value as the terms of the borrowing
are consistent with current market rates.
Cash
and Cash Equivalents
The
Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents. As
of December 31, 2018 and 2017, the Company’s cash and cash equivalents amounted $40,044 and $93,332, respectively. Some of
the Company’s cash deposits are held in financial institutions located in Taiwan where there is currently regulation mandated
on obligatory insurance of bank accounts. The Company believes this financial institution is of high credit quality.
Restricted
Cash Equivalents
Restricted
cash equivalents primarily consist of cash held in a reserve bank account in Taiwan.
Concentration
of Credit Risk
The
Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents.
The Company places its cash and temporary cash investments in high quality credit institutions, but these investments may be in
excess of Taiwan Central Deposit Insurance Corporation and the U.S. Federal Deposit Insurance Corporation’s insurance limits.
The Company does not enter into financial instruments for hedging, trading or speculative purposes.
Revenue
Recognition
The
Company has yet to realize revenues from operations.
During
the fiscal year 2018, the Company adopted Accounting Standards Codification (“ASC”), Topic 606 (ASC 606), Revenue
from Contracts with Customers, using the modified retrospective method to all contracts that were not completed as of January
1, 2018, and applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning
of 2018 for the cumulative effect. The results for the Company’s reporting periods beginning on and after January 1, 2018
are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards
in effect for the prior period. Based on the Company’s review of existing collaborative agreements as of January 1, 2018,
the Company concluded that the adoption of the new guidance did not have a significant change on the Company’s revenue during
all periods presented.
Pursuant
to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that
reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition
for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or
as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable
that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers
to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company
assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses
whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price
that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The
following are examples of when the Company recognizes revenue based on the types of payments the Company receives.
Collaborative
Revenues
—
The Company recognizes collaborative revenues generated through collaborative research, development
and/or commercialization agreements. The terms of these agreements typically include payment to the Company related to one or
more of the following: nonrefundable upfront license fees, development and commercial milestones, partial or complete reimbursement
of research and development costs, and royalties on net sales of licensed products. Each type of payments results in collaborative
revenues except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. To date,
we have not received any royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring
control of a good or service to the collaboration partners.
As
part of the accounting for these arrangements, the Company applies judgment to determine whether the performance obligations are
distinct, and develop assumptions in determining the stand-alone selling price for each distinct performance obligation identified
in the collaboration agreements. To determine the stand-alone selling price, the Company relies on assumptions which may include
forecasted revenues, development timelines, reimbursement rates for R&D personnel costs, discount rates and probabilities
of technical and regulatory success.
The
Company had multiple deliverables under the collaborative agreements, including deliverables relating to grants of technology
licenses, regulatory and clinical development, and marketing activities. Estimation of the performance periods of the Company’s
deliverables requires the use of management’s judgment. Significant factors considered in management’s evaluation
of the estimated performance periods include, but are not limited to, the Company’s experience in conducting clinical development,
regulatory and manufacturing activities. The Company reviews the estimated duration of its performance periods under its collaborative
agreements on an annually basis, and makes any appropriate adjustments on a prospective basis. Future changes in estimates of
the performance period under its collaborative agreements could impact the timing of future revenue recognition.
|
(i)
|
Nonrefundable
upfront payments
|
If
a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified
in an arrangement, the Company recognizes revenue from the related nonrefundable upfront payments based on the relative standalone
selling price prescribed to the license compared to the total selling price of the arrangement. The revenue is recognized when
the license is transferred to the collaboration partners and the collaboration partners are able to use and benefit from the license.
To date, the receipt of nonrefundable upfront fees was solely for the compensation of past research efforts and contributions
made by the Company before the collaborative agreements entered into and it does not relate to any future obligations and commitments
made between the Company and the collaboration partners in the collaborative agreements.
The
Company is eligible to receive milestone payments under the collaborative agreement with collaboration partners based on achievement
of specified development, regulatory and commercial events. Management evaluated the nature of the events triggering these contingent
payments, and concluded that these events fall into two categories: (a) events which involve the performance of the Company’s
obligations under the collaborative agreement with collaboration partners, and (b) events which do not involve the performance
of the Company’s obligations under the collaborative agreement with collaboration partners.
The
former category of milestone payments consists of those triggered by development and regulatory activities in the territories
specified in the collaborative agreements. Management concluded that each of these payments constitute substantive milestone payments.
This conclusion was based primarily on the facts that (i) each triggering event represents a specific outcome that can be achieved
only through successful performance by the Company of one or more of its deliverables, (ii) achievement of each triggering event
was subject to inherent risk and uncertainty and would result in additional payments becoming due to the Company, (iii) each of
the milestone payments is nonrefundable, (iv) substantial effort is required to complete each milestone, (v) the amount of each
milestone payment is reasonable in relation to the value created in achieving the milestone, (vi) a substantial amount of time
is expected to pass between the upfront payment and the potential milestone payments, and (vii) the milestone payments relate
solely to past performance. Based on the foregoing, the Company recognizes any revenue from these milestone payments in the period
in which the underlying triggering event occurs.
|
(iii)
|
Multiple
Element Arrangements
|
The
Company evaluates multiple element arrangements to determine (1) the deliverables included in the arrangement and (2) whether
the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of
accounting. This evaluation involves subjective determinations and requires management to make judgments about the individual
deliverables and whether such deliverables are separate from other aspects of the contractual relationship. Deliverables are considered
separate units of accounting provided that: (i) the delivered item(s) has value to the customer on a standalone basis and
(ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of
the undelivered item(s) is considered probable and substantially within its control. In assessing whether an item under a collaboration
has standalone value, the Company considers factors such as the research, manufacturing, and commercialization capabilities of
the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers
whether its collaboration partners can use the other deliverable(s) for their intended purpose without the receipt of the remaining
element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors
that can provide the undelivered element(s).
The
Company recognizes arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria
in ASC 606 are satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate
unit of accounting, the Company recognizes revenue from the combined unit of accounting over the Company’s contractual or
estimated performance period for the undelivered elements, which is typically the term of the Company’s research and development
obligations. If there is no discernible pattern of performance or objectively measurable performance measures do not exist, then
the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected to complete
its performance obligations. Conversely, if the pattern of performance in which the service is provided to the customer can be
determined and objectively measurable performance measures exist, then the Company recognizes revenue under the arrangement using
the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received
or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance method, as
applicable, as of the period ending date.
At
the inception of an arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive
and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of
whether: (1) the consideration is commensurate with either the Company’s performance to achieve the milestone or the
enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from its performance to achieve
the milestone, (2) the consideration relates solely to past performance and (3) the consideration is reasonable relative
to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, clinical,
regulatory, commercial, and other risks that must be overcome to achieve the particular milestone and the level of effort and
investment required to achieve the particular milestone in making this assessment. There is considerable judgment involved in
determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. Milestones
that are not considered substantive are recognized as earned if there are no remaining performance obligations or over the remaining
period of performance, assuming all other revenue recognition criteria are met.
|
(iv)
|
Royalties
and Profit Sharing Payments
|
Under
the collaborative agreement with the collaboration partners, the Company is entitled to receive royalties on sales of products,
which is at certain percentage of the net sales. The Company recognizes revenue from these events based on the revenue recognition
criteria set forth in ASC 606. Based on those criteria, the Company considers these payments to be contingent revenues, and recognizes
them as revenue in the period in which the applicable contingency is resolved.
Receivable
from Collaboration Partners
Receivable
from collaboration partners is stated at carrying value less estimates made for doubtful receivables. An allowance for impairment
of receivable from collaboration partners is established if the collection of a receivable becomes doubtful. Such receivable becomes
doubtful when there is objective evidence that the Company will not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy
or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired.
The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate.
Long-term
Equity Investment
The
Company acquires the equity investments to promote business and strategic objectives. The Company accounts for non-marketable
equity and other equity investments for which the Company does not have control over the investees as:
|
●
|
Equity
method investments when the Company has the ability to exercise significant influence,
but not control, over the investee. Its proportionate share of the income or loss is
recognized monthly and is recorded in gains (losses) on equity investments.
|
|
●
|
Non-marketable
cost method investments when the equity method does not apply.
|
Significant
judgment is required to identify whether an impairment exists in the valuation of the Company’s non-marketable equity investments,
and therefore the Company considers this a critical accounting estimate. Its yearly analysis considers both qualitative and quantitative
factors that may have a significant impact on the investee’s fair value. Qualitative analysis of its investments involves
understanding the financial performance and near-term prospects of the investee, changes in general market conditions in the investee’s
industry or geographic area, and the management and governance structure of the investee. Quantitative assessments of the fair
value of its investments are developed using the market and income approaches. The market approach includes the use of comparable
financial metrics of private and public companies and recent financing rounds. The income approach includes the use of a discounted
cash flow model, which requires significant estimates regarding the investees’ revenue, costs, and discount rates. The Company’s
assessment of these factors in determining whether an impairment exists could change in the future due to new developments or
changes in applied assumptions.
Other-Than-Temporary
Impairment
The
Company’s long-term equity investments are subject to a periodic impairment review. Impairments affect earnings as follows:
|
●
|
Marketable
equity securities include the consideration of general market conditions, the duration and extent to which the fair value is below
cost, and our ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the
foreseeable future. The Company also considers specific adverse conditions related to the financial health of, and the business
outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing
cash flow factors, and changes in the investee’s credit rating. The Company records other-than-temporary impairments on
marketable equity securities and marketable equity method investments in gains (losses) on equity investments.
|
|
●
|
Non-marketable
equity investments based on the Company’s assessment of the severity and duration of the impairment, and qualitative and
quantitative analysis of the operating performance of the investee; adverse changes in market conditions and the regulatory or
economic environment; changes in operating structure or management of the investee; additional funding requirements; and the investee’s
ability to remain in business. A series of operating losses of an investee or other factors may indicate that a decrease in value
of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is
in excess of what would otherwise be recognized by application of the equity method. A loss in value of an investment that is
other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited
to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings
capacity that would justify the carrying amount of the investment. The Company records other-than-temporary impairments for non-marketable
cost method investments and equity method investments in gains (losses) on equity investments. Other-than-temporary impairments
of equity investments were $2,549,451 and $0 for the years ended December 31, 2018 and 2017, respectively.
|
Research
and Development Expenses
The
Company accounts for the cost of using licensing rights in research and development cost according to ASC Topic 730-10-25-1. This
guidance provides that absent alternative future uses the acquisition of product rights to be used in research and development
activities must be charged to research and development expenses when incurred.
Stock-based
Compensation
The
Company measures expense associated with all employee stock-based compensation awards using a fair value method and recognizes
such expense in the consolidated financial statements on a straight-line basis over the requisite service period in accordance
with FASB ASC Topic 718 “Compensation-Stock Compensation”. Total employee stock-based compensation expenses were $0
for the years ended December 31, 2018 and 2017.
The
Company accounted for stock-based compensation to non-employees in accordance with FASB ASC Topic 718 “Compensation-Stock
Compensation” and FASB ASC Topic 505-50 “Equity-Based Payments to Non-Employees” which requires that the cost
of services received from non-employees is measured at fair value at the earlier of the performance commitment date or the date
service is completed and recognized over the period the service is provided. Total non-employee stock-based compensation expenses
were $28,800 and $155,400 for the years ended December 31, 2018 and 2017, respectively.
Beneficial
Conversion Feature
From
time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial
conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which
the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation
of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value
of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital.
The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach which allows the recognition and measurement of deferred
tax assets to be based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach,
deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred
tax assets if it is more likely than not these items will expire before the Company is able to realize their benefits, or future
deductibility is uncertain.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position
would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a
two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon
examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The
second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefits recognized
in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period
in which the threshold is no longer satisfied. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the year incurred. No significant penalty or interest relating to income taxes has been incurred for
the years ended December 31, 2018 and 2017. GAAP also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition.
On
December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for
tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment
date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax
effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting
for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record
a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be
included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were
in effect immediately before the enactment of the Tax Act. While the Company is able to make reasonable estimates of the impact
of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from
these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued
by the I.R.S., and actions we may take. The Company is continuing to gather additional information to determine the final impact.
For
the years ended December 31, 2018 and 2017, the Company’s income tax expense amounted $1,850 and $830, respectively.
Loss
Per Share of Common Stock
The
Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share”. Basic loss per share
is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss
per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional
common shares were dilutive. Diluted earnings per share excludes all dilutive potential shares if their effect is anti-dilutive.
Commitments
and Contingencies
The
Company has adopted ASC Topic 450 “Contingencies” subtopic 20, in determining its accruals and disclosures with respect
to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information
available before financial statements are issued or are available to be issued indicates that it is probable that an assets had
been impaired or a liability had been incurred at the date of the financial statements and the amount of the loss can be reasonably
estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably
estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that
a material loss could be incurred.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (ASC 842), which was
amended by ASU 2018-11, Leases (ASC 842): Targeted Improvements. The new guidance requires lessee recognition on the balance sheet
of a right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payments. It further
requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over
the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities
in the statement of cash flows. The standard is effective for public companies for fiscal years beginning after December 15, 2018
and early adoption is permitted. The standard requires a transition adoption election using either 1) a modified retrospective
approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment
recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. The Company anticipates
adopting this standard with an effective date of January 1, 2019 using the prospective adoption approach. The Company has evaluated
the changes from this standard to its future financial reporting and disclosures, and has designed and implemented related processes
and controls to address these changes. The Company believes the most significant effects relate to (1) the recognition of new
ROU assets and lease liabilities on its balance sheet for its office operating lease; and (2) providing significant new disclosures
about its leasing activities related to the amount, timing and uncertainty of cash flows arising from leases. The Company is continuing
its assessment, which may identify additional impacts this guidance will have on its financial statements and disclosures.
On
December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for
tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment
date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax
effects of those aspects of the Act for which the accounting under ASC 740 is complete.
In
March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update),
Income Taxes (Topic 740). ASU 2018-05 provides guidance regarding the recording of tax impacts where uncertainty exists, in the
period of adoption of the 2017 U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”).
To the extent that a company’s
accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must
record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate
to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws
that were in effect immediately before the enactment of the Tax Act. While the Company is able to make reasonable estimates of
the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may
differ from these estimates, due to, among other things, changes in its interpretations and assumptions, additional guidance that
may be issued by the I.R.S., and actions that the Company may take. The Company has accounted for the tax effects of the Tax Cuts
and Jobs Act under the guidance of SAB 118, on a provisional basis. The Company’s accounting for certain income tax effects
is incomplete, but the Company has determined reasonable estimates for those effects The Company is continuing to gather additional
information to determine the final impact on its condensed consolidated financial statements.
In
February 2018, the FASB issued Accounting Standards Update No. 2018-02 (“ASU 2018-02”), Income Statement - Reporting
Comprehensive Income (Topic 220). The guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects
related to the Tax Cuts and Jobs Act (the Tax Act) of 2017 from accumulated other comprehensive income into retained earnings.
ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently
evaluating the effect this standard will have on its condensed consolidated financial statements.
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments
(“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. The effective date for the standard is for interim periods in fiscal years beginning after
December 15, 2018, with early adoption permitted, but no earlier than the Company’s adoption date of Topic 606. U
nder
the new guidance, the measurement of nonemployee equity awards is fixed on the grant date.
The
new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application.
The Company is currently evaluating the effect ASU 2018-07 will have on the condensed consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“Topic 820”): Disclosure Framework - Changes to
the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The ASU modifies the disclosure requirements
in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying
existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing
the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value
measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods
and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect,
if any, that the ASU 2018-13 will have on its financial statements.
3.
GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company
has incurred losses since its inception resulting in an accumulated deficit of $19,877,901 and $15,776,598 as of December 31,
2018 and 2017, respectively, and incurred net loss of $4,101,303 and $4,242,860 for the years ended December 31, 2018 and 2017,
respectively. The Company also had working capital deficiency of $5,471,951 and $1,756,915 at December 31, 2018 and 2017, respectively.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future
and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations
when they become due. These consolidated financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company upon signing of that agreement.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s
plans to obtain such resources for the Company include (1) obtaining capital from the sale of its equity securities (2) short-term
and long-term borrowings from banks and third-parties, and (3) short-term borrowings from stockholders or other related party(ies)
when needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its
plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually to secure other sources of financing and attain profitable operations.
4. COLLABORATIVE
AGREEMENTS
Collaborative
agreement with BioLite Inc., a related party
On
December 29, 2015, American BriVision Corporation entered into a collaborative agreement (the “BioLite Collaborative Agreement”)
with BioLite Inc. (the “BioLite”), a related party (See Note 8), pursuant to which BioLite granted BriVision sole
licensing rights for drug and therapeutic use of five products, including BLI-1005 CNS-Major Depressive Disorder, BLI-1008 CNS-Attention
Deficit Hyperactivity Disorder, BLI-1401-1 Anti-Tumor Combination Therapy-Solid Tumor with Anti-PD-1, BLI-1401-2 Anti-Tumor Combination
Therapy-Triple Negative Breast Cancer, and BLI-1501 Hematology-Chronic Lymphocytic Leukemia, in the U.S.A and Canada. Under the
BioLite Collaborative Agreement, BriVision should pay a total of $100,000,000 in cash or stock of BriVision with equivalent value,
according to the following schedule:
|
●
|
upfront
payment shall upon the signing of this BioLite Collaborative Agreement: 3.5% of total payment. After receiving upfront payment
from BriVision, BioLite has to deliver all data to BriVision in one week.
|
|
●
|
upon
the first IND submission, BriVision shall pay, but no later than December 15, 2016: 6.5% of total payment. After receiving second
payment from BriVision, BioLite has to deliver IND package to BriVision in one week.
|
|
●
|
at
the completion of first phase II clinical trial, BriVision shall pay, but no later than September 15, 2017: 15% of total payment.
After receiving third payment from BriVision, BioLite has to deliver phase II clinical study report to BriVision in three months.
|
|
●
|
upon
the phase III IND submission, BriVision shall pay, but no later than December 15, 2018: 20% of total payment. After receiving
forth payment from BriVision, BioLite has to deliver IND package to BriVision in one week.
|
|
●
|
at
the completion of phase III, BriVision shall pay, but no later than September 15, 2019:25% of total payment. After receiving fifth
payment from BriVision, BioLite has to deliver phase III clinical study report to BriVision in three months.
|
|
●
|
upon
the NDA submission, BriVision shall pay, but no later than December 15, 2020, BriVision shall pay: 30% of total payment. After
receiving sixth payment from BriVision, BioLite has to deliver NDA package to BriVision in one week.
|
This
BioLite Collaborative Agreement shall, once signed by both Parties, remain in effect for fifteen years as of the first commercial
sales of the Product in the Territory and automatically renew for five more years unless either party gives the other party six
month written notice of termination prior to the expiration date of the term.
Pursuant
to the BioLite Collaborative Agreement, an upfront payment of $3,500,000 (the “Milestone Payment”), which is 3.5%
of total payments due under the BioLite Collaborative Agreement, was to be paid by the Company upon signing of that agreement.
On May 6, 2016, the Company and BioLite agreed to amend the BioLite Collaborative Agreement, through entry into the Milestone
Payment Agreement, whereby the Company agreed to pay the Milestone Payment to BioLite with $2,600,000 in cash and $900,000 in
the form of newly issued shares of its Common Stock, at the price of $1.60 per share, for an aggregate number of 562,500 shares.
The cash payment and shares issuance were completed in June 2016.
Pursuant
to the BioLite Collaborative Agreement, the 6.5% of total payment, $6,500,000 shall be made upon the first IND submission which
was submitted in March 2016. On February 2017, the Company agreed to pay this amount to BioLite with $650,000 in cash and $5,850,000
in the form of newly issued shares of its Common Stock, at the price of $2.0 per share, for an aggregate number of 2,925,000 shares.
The cash payment and shares issuance were completed in February 2017.
Pursuant
to the BioLite Collaborative Agreement, the 15% of total payment, $15,000,000 shall be made at the completion of first phase II
clinical trial. As of December 31, 2018, the first phase II clinical trial research has not completed yet.
The
Company determined to fully expense the entire amount of $10,000,000 since currently the related licensing rights do not have
alternative future uses. According to ASC 730-10-25-1, absent alternative future uses the acquisition of product rights to be
used in research and development activities must be charged to research and development expenses immediately. Hence the entire
amount is fully expensed as research and development expense.
On
January 12, 2017, the Company entered into an Addendum (the “Addendum”) to the BioLite Collaborative Agreement which
was previously entered into with BioLite. Pursuant to the Addendum, the Company and BioLite agreed to include one more product,
namely, “Maitake Combination Therapy” as one of the Products defined in the BioLite Collaborative Agreement (the “Sixth
Product’) and defined the Territory of the Sixth Product to be worldwide and restate the Territory of the Five Products
to be the U.S.A and Canada.
Co-Development
agreement with Rgene Corporation, a related party
On
May 26, 2017, American BriVision Corporation entered into a co-development agreement (the “Co-Dev Agreement”) with
Rgene Corporation (the “Rgene”), a related party under common control by controlling beneficiary shareholder of YuanGene
Corporation and the Company (See Note 8). Pursuant to Co-Dev Agreement, BriVision and Rgene agreed to co-develop and commercialize
certain products that are included in the Sixth Product as defined in the Addendum. Under the terms of the Co-Dev Agreement, Rgene
should pay the Company $3,000,000 in cash or stock of Rgene with equivalent value by August 15, 2017. The payment is for the compensation
of BriVision’s past research efforts and contributions made by BriVision before the Co-Dev Agreement was signed and it does
not relate to any future commitments made by BriVision and Rgene in this Co-Dev Agreement. Besides of $3,000,000, the Company
is entitled to receive 50% of the future net licensing income or net sales profit earned by Rgene, if any, and any development
cost shall be equally shared by both BriVision and Rgene.
On
June 1, 2017, the Company has delivered all research, technical, data and development data to Rgene. Since both Rgene and the
Company are related parties and under common control by a controlling beneficiary shareholder of Yuangene Corporation and the
Company, the Company has recorded the full amount of $3,000,000 in connection with the Co-Dev Agreement as additional paid-in
capital during the year ended September 30, 2017. During the year ended December 31, 2017, the Company has received $450,000 in
cash. On December 24, 2018, the Company received the remaining balance of $2,550,000 in the form of newly issued shares of Rgene’s
Common Stock, at the price of NT$50 (approximately equivalent to $1.60 per share), for an aggregate number of 1,530,000 shares,
which accounted for equity method long-term investment as of December 31, 2018. During the year ended December 31, 2018, the Company
has recognized investment loss of $549. On December 31, 2018, the Company has determined to fully write off this investment based
on the Company’s assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of
the operating performance of the investee, adverse changes in market conditions and the regulatory or economic environment, changes
in operating structure of Rgene, additional funding requirements, and Rgene’s ability to remain in business. However, all
projects that have been initiated and scheduled will be continuously managed and supported by the Company and Rgene (See Note
5).
Collaborative
agreement with BioFirst Corporation, a related party
On
July 24, 2017, American BriVision Corporation entered into a collaborative agreement (the “BioFirst Collaborative Agreement”)
with BioFirst Corporation (“BioFirst”), pursuant to which BioFirst granted the Company the global licensing right
for medical use of the product (the “Product”): BFC-1401 Vitreous Substitute for Vitrectomy. BioFirst is a related
party to the Company because a controlling beneficiary shareholder of Yuangene Corporation and the Company is one of the directors
and Common Stock shareholders of BioFirst (See Note 8).
Pursuant
to the BioFirst Collaborative Agreement, the Company will co-develop and commercialize the Product with BioFirst and pay BioFirst
in a total amount of $3,000,000 in cash or stock of the Company before September 30, 2018. The amount of $3,000,000 is in connection
with the compensation for BioFirst’s past research efforts and contributions made by BioFirst before the BioFirst Collaborative
Agreement was signed and it does not relate to any future commitments made by BioFirst and BriVision in this BioFirst Collaborative
Agreement. In addition, the Company is entitled to receive 50% of the future net licensing income or net sales profit, if any,
and any development cost shall be equally shared by both BriVision and BioFirst.
On
September 25, 2017, BioFirst has delivered all research, technical, data and development data to BriVision. No payment has been
made by the Company as of the date of this report. The Company determined to fully expense the entire amount of $3,000,000 since
currently the related licensing rights do not have alternative future uses. According to ASC 730-10-25-1, absent alternative future
uses the acquisition of product rights to be used in research and development activities must be charged to research and development
expenses immediately. Hence, the entire amount of $3,000,000 is fully expensed as research and development expense during the
year ended September 30, 2017.
5.
LONG-TERM INVESTMENT
On
December 24, 2018, the Company received the remaining balance of $2,550,000 in the form of newly issued shares of Rgene’s
Common Stock, at the price of NT$50 (approximately equivalent to $1.60 per share), for an aggregate number of 1,530,000 shares(See
Note 4). As of December 31, 2018, the Company owns 23.90% common stock shares of Rgene, accounting for its equity interest using
the equity method to its equity investment as prescribed in ASC 323, Investments—Equity Method and Joint Ventures (“ASC
323”). Equity method adjustments include the Company’s proportionate share of investee’s income or loss and
other adjustments required by the equity method.
|
(1)
|
The
ownership percentages of the investee are listed as follows:
|
|
|
Ownership percentage
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Accounting
|
Name of related party
|
|
2018
|
|
|
2017
|
|
|
treatment
|
Rgene Corporation
|
|
|
23.90
|
%
|
|
|
N/A
|
|
|
Equity Method
|
|
(2)
|
The
extent the investee relies on the company for its business are summarized as follows:
|
Name
of related party
|
|
The
extent the investee relies on the Company for its business
|
Rgene Corporation
|
|
Collaborating with the Company to develop and commercialize drugs
|
|
(3)
|
Long-term
investment mainly consists of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Equity Method Investments, net of impairment
|
|
|
|
|
|
|
|
|
Rgene Corporation
|
|
$
|
-
|
|
|
|
N/A
|
|
Total
|
|
$
|
-
|
|
|
|
N/A
|
|
|
(4)
|
Summarized
financial information for the Company’s equity method investee, Rgene, is as follows:
|
Balance Sheets
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Current Assets
|
|
$
|
98,168
|
|
|
|
N/A
|
|
Noncurrent Assets
|
|
|
14,779
|
|
|
|
N/A
|
|
Current Liabilities
|
|
|
261,685
|
|
|
|
N/A
|
|
Shareholders’ Deficit
|
|
|
(148,738
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Statements of operation
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net sales
|
|
$
|
-
|
|
|
|
N/A
|
|
Gross Profit
|
|
|
-
|
|
|
|
N/A
|
|
Net loss
|
|
|
(120,065
|
)
|
|
|
N/A
|
|
Share of loss from investments accounted for using the equity method
|
|
|
(549
|
)
|
|
|
N/A
|
|
|
(5)
|
Losses
on Equity Investments
|
The
components of losses on equity investments for each period were as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Share of equity method investee losses
|
|
$
|
(549
|
)
|
|
|
N/A
|
|
Impairments
|
|
|
(2,549,451
|
)
|
|
|
N/A
|
|
Total losses on equity investments
|
|
$
|
(2,550,000
|
)
|
|
|
N/A
|
|
6.
ACCRUED EXPENSES
Accrued
expenses as of December 31, 2018 and 2017 consisted of:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Accrued payroll
|
|
$
|
444,400
|
|
|
$
|
110,800
|
|
Accrued rent
|
|
|
4,941
|
|
|
|
|
|
Accrued interest expense – related party (Note 7)
|
|
|
18,868
|
|
|
|
17,460
|
|
Accrued expenses
|
|
|
87,240
|
|
|
|
42,667
|
|
Total
|
|
$
|
555,449
|
|
|
$
|
170,927
|
|
7. CONVERTIBLE NOTES PAYABLE
On May 9, 2018, the Company issued an eighteen-month
term unsecured convertible promissory note (the “Yu and Wei Note”) in an aggregate principal amount of $300,000 to
Guoliang Yu and Yingfei Wei Family Trust (the “Yu and Wei”), pursuant to which the Company received $300,000. The Yu
and Wei Note bears interest at 8% per annum. The Company shall pay to the Yu and Wei an amount in cash representing all outstanding
principal and accrued and unpaid interest on the Eighteenth (18) month anniversary of the issuance date of the Yu and Wei Note,
which is on November 8, 2019. In the event that the Company raises gross proceeds from the sale of its common stock of at least
$5,000,000 (an “Equity Offering”) then within five days of the closing for such offering, the Company must repay the
outstanding amount of this Yu and Wei Note. At any time from the date hereof until this Yu and Wei Note has been satisfied, the
Yu and Wei may convert the unpaid and outstanding principal plus any accrued and unpaid interest and or default interest, if any,
into shares of the Company’s common stock at a conversion price (the “Conversion Price”) equal to the lower of
(i) $2.00 per share (the “Fixed Conversion Price”), subject to adjustment or (ii) 80% of the per share offering price
(the “Alternative Conversion Price”) of any completed equity offering of the Company in an amount exceeding $500,000
that occurs when any part of the Yu and Wei Note is outstanding, subject to adjustments set forth in the Yu and Wei Note. In accordance
with FASB ASC 470-20, the Company recognized none of the intrinsic value of embedded beneficial conversion feature present in the
Yu and Wei Note as of December 31, 2018.
On June 27, 2018, the Company issued an
eighteen-month term unsecured convertible promissory note (the “Keypoint Note”) in the aggregate principal amount of
$250,000 to Keypoint Technology Ltd. (“Keypoint”), a related party, pursuant to which the Company received $250,000.
The Keypoint Note bears interest at 8% per annum. The Company shall pay to the Keypoint an amount in cash representing all outstanding
principal and accrued and unpaid interest on the Eighteenth (18) month anniversary of the issuance date of the Keypoint Note, which
is on December 26, 2019. In the event that the Company raises gross proceeds from the sale of its common stock of at least $5,000,000
(an “Equity Offering”) then within five days of the closing for such offering, the Company must repay the outstanding
amount of this Keypoint Note. At any time from the date hereof until this Keypoint Note has been satisfied, Keypoint may convert
the unpaid and outstanding principal plus any accrued and unpaid interest and or default interest, if any, into shares of the Company’s
common stock at a conversion price (the “Conversion Price”) equal to the lower of (i) $2.00 per share (the “Fixed
Conversion Price”), subject to adjustment or (ii) 80% of the per share offering price (the “Alternative Conversion
Price”) of any completed equity offering of the Company in an amount exceeding $500,000 that occurs when any part of the
Keypoint Note is outstanding, subject to adjustments set forth in the Keypoint Note. In accordance with FASB ASC 470-20, the Company
recognized none of the intrinsic value of embedded beneficial conversion feature present in the Keypoint Note as of December 31,
2018.
On August 25, 2018, the Company issued
an eighteen-month term unsecured convertible promissory note (the “Odaira Note”) in the aggregate principal amount
of $250,000 to the Company’s director, Yoshinobu Odaira. (“Odaira), pursuant to which the Company received $250,000
on November 29, 2018. The Odaira Note bears interest at 8% per annum. The Company shall pay to the Odaira an amount in cash representing
all outstanding principal and accrued and unpaid interest on the Eighteenth (18) month anniversary of the issuance date of the
Odaira Note, which is on February 24, 2020. In the event that the Company raises gross proceeds from the sale of its common stock
of at least $5,000,000 (an “Equity Offering”) then within five days of the closing for such offering, the Company must
repay the outstanding amount of this Odaira Note. At any time from the date hereof until this Odaira Note has been satisfied, Odaira
may convert the unpaid and outstanding principal plus any accrued and unpaid interest and or default interest, if any, into shares
of the Company’s common stock at a conversion price (the “Conversion Price”) equal to the lower of (i) $2.00
per share (the “Fixed Conversion Price”), subject to adjustment or (ii) 80% of the per share offering price (the “Alternative
Conversion Price”) of any completed equity offering of the Company in an amount exceeding $500,000 that occurs when any part
of the Odaira Note is outstanding, subject to adjustments set forth in the Odaira Note. In accordance with FASB ASC 470-20, the
Company recognized none of the intrinsic value of embedded beneficial conversion feature present in the Odaira Note as of December
31, 2018.
As of December 31, 2018, the aggregate
carrying values of the convertible debentures and accrued convertible interest were $800,000 and $27,467, respectively. Interest
expense was $27,467 and $0 for the years ended December 31, 2018 and 2017, respectively.
8. RELATED PARTIES TRANSACTIONS
The related parties of the company with
whom transactions are reported in these financial statements are as follows:
Name of entity or Individual
|
|
Relationship with the Company and its subsidiaries
|
BioLite Inc. (the “BioLite”)
|
|
Shareholder of the Company; entity controlled by controlling beneficiary shareholder of YuanGene
|
BioFirst Corporation (the “BioFirst”)
|
|
Entity controlled by controlling beneficiary shareholder of YuanGene
|
BioFirst (Australia) Pty Ltd. (the BioFirst (Australia)”)
|
|
100% owned by BioFirst; Entity controlled by controlling beneficiary shareholder of YuanGene
|
Rgene Corporation (the “Rgene”)
|
|
Shareholder of the Company; entity controlled by controlling beneficiary shareholder of YuanGene
|
LionGene Corporation (the “LionGene”)
|
|
Shareholder of the Company; entity controlled by controlling beneficiary shareholder of YuanGene
|
YuanGene Corporation (the “YuanGene”)
|
|
Controlling beneficiary shareholder of the Company
|
AsianGene Corporation (the “AsianGene”)
|
|
Shareholder; entity controlled by controlling beneficiary shareholder of YuanGene
|
Eugene Jiang
|
|
Former President and Chairman
|
Keypoint Technology Ltd. (the “Keypoint’)
|
|
The Chairman of Keypoint is Eugene Jiang’s mother.
|
Yoshinobu Odaira (the “Odaira”)
|
|
Director of the Company
|
Euro-Asia Investment & Finance Corp Ltd. (the “Euro-Asia”)
|
|
Shareholder of the Company
|
Kimho Consultants Co., Ltd. (the “Kimho”)
|
|
Shareholder of the Company
|
BioKey, Inc. (the “BioKey”)
|
|
One of wholly-owned subsidiaries of ABVC upon closing of the Mergers on February 8, 2019
|
Other receivable - related parties
Amount due from related parties consisted
of the following as of the periods indicated:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
BioFirst (Australia)
|
|
$
|
40,000
|
|
|
$
|
-
|
|
Total
|
|
$
|
40,000
|
|
|
$
|
-
|
|
Due to related parties
Amount due to related parties consisted
of the following as of the periods indicated:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
BioLite Inc.
|
|
$
|
58,684
|
|
|
$
|
109,220
|
|
BioFirst Corporation
|
|
|
4,151,301
|
|
|
|
3,957,000
|
|
AsianGene Corporation
|
|
|
160,000
|
|
|
|
160,000
|
|
YuanGene Corporation
|
|
|
92,690
|
|
|
|
3,000
|
|
Eugene Jiang
|
|
|
100
|
|
|
|
100
|
|
Total
|
|
$
|
4,462,775
|
|
|
$
|
4,229,320
|
|
Related party transactions
|
(1)
|
During
the years ended December 31, 2018 and 2017, BioLite has advanced funds to the Company for working capital purpose. The advances
bear 0% interest rate and are due on demand. As of December 31,2018 and 2017, the outstanding advance balance was $58,684 and
$109,2220, respectively.
|
|
(2)
|
On
January 26, 2017, the Company and BioFirst entered into a loan agreement for a total commitment (non-secured indebtedness) of
$950,000 to meet its working capital needs. Under the terms of the loan agreement, the loan bears interest at 1% per month (or
equivalent to 12% per annum) and the Company is required to pay interest monthly to the lender. The loan will be matured on February
1, 2018. As of December 31, 2018 and 2017, the outstanding loan balance is $692,980 and $950,000, and accrued interest is $281
and $17,460, respectively. Interest expenses in connection with this loan were $104,331 and $103,460 for the years ended December
31, 2018 and 2017, respectively.
|
|
(3)
|
On
July 24, 2017, BriVision entered into a collaborative agreement (the “BioFirst Collaborative Agreement”) with BioFirst
(See Note 4). On September 25, 2017, BioFirst has delivered all research, technical, data and development data to BriVision, and
the Company has recorded the full amount of $3,000,000 due to BioFirst. No payment has been made by the Company as of the date
of this report.
|
|
(4)
|
During
the years ended December 31, 2018 and 2017, BioFirst has also advanced funds to the Company for working capital purpose. The advances
bear 0% interest rate and are due on demand. As of December 31,2018 and 2017, the outstanding advance balance was $458,321 and
$7,000, respectively.
|
|
(5)
|
In
September 2017, AsianGene entered an investment and equity transfer agreement (the “Investment and Equity Transfer Agreement”)
with Everfront Biotech Inc. (the “Everfront”), a third party. Pursuant to the Investment and Equity Transfer Agreement,
Everfront agreed to purchase 2,000,000 common shares of the Company owned by AsianGene at $1.60 per share in a total amount of
$3,200,000, of which $160,000 is due before September 15, 2017 and the remaining amount of $3,040,000 is due before December 15,
2017. AsianGene also agreed to loan the proceeds to the Company for working capital purpose. The non-secured loan bears 0% interest
rate and is due on demand. As of December 31, 2018 and 2017, the outstanding loan balance was $160,000 and accrued interest was
$12,866 and $0, respectively. Interest expenses in connection with this loan were $18,411 and $0 for the years ended December
31, 2018 and 2017, respectively.
|
|
(6)
|
As
of December 31, 2018 and 2017, YuanGene Corporation has advanced an aggregate amount of $42,690 and $3,000, respectively, to the
Company for working capital purpose. The advances bear 0% interest rate and are due on demand.
|
|
(7)
|
On
January 18, 2018, the Company and YuanGene entered into a loan agreement for a total of $50,000 to meet its working capital needs.
Under the terms of the loan agreement, the loan bears interest at 1% per month (or equivalent to 12% per annum) and the Company
is required to pay interest monthly to the lender. The maturity date of this loan is January 19, 2019. As of December 31, 2018
and December 31, 2017, the outstanding loan balance was $50,000 and $0, and accrued interest was $5,721 and $0, respectively.
Interest expenses in connection with this loan were $5,721 and $0 for the years ended December 31, 2018 and 2017, respectively.
|
|
(8)
|
As of December 31, 2018 and December 31, 2017, the Chairman,
Eugene Jiang, of the Company has advanced an aggregate amount of $100 to the Company for working capital purpose. The advances
bear 0% interest rate and are due on demand.
|
|
(9)
|
On
June 27, 2018, the Company issued an eighteen-month term unsecured convertible promissory note (the “Keypoint Note”)
in the aggregate principal amount of $250,000 to Keypoint Technology Ltd. (“Keypoint”) (See Note 7). The Company received
$250,000 which bears interest at 8% per annum. Interest expense in connection with this Keypoint Note was $10,222 and $0 for the
years ended December 31, 2018 and 2017, respectively.
|
|
(10)
|
On August 25, 2018, the Company issued an eighteen-month
term unsecured convertible promissory note (the “Odaira Note”) in the aggregate principal amount of $250,000 to Yoshinobu
Odaira (“Odaira”) (See Note 7). The Company received $250,000 on November 29, 2018 which bears interest at 8% per
annum. Interest expense in connection with this Odaira Note was $1,778 and $0 for the years ended December 31, 2018 and 2017,
respectively.
|
|
(11)
|
On January 1, 2017, Kimho Consultants Co., Ltd. and the Company entered into a service agreement
(the “Kimho Agreement”) for the maintenance of the listing in the U.S. stock exchange market. During the years ended
December 31, 2018 and 2017, the Company recognized non-employee stock based compensation expenses of $0 and $90,000 in connection
with the terms in the Kimho Agreement, respectively.
|
|
(12)
|
On
January 1, 2017, Euro-Asia Investment & Finance Corp Ltd. and the Company entered into a service agreement (the “Euro-Asia
Agreement”) for the maintenance of the listing in the U.S. stock exchange market. During the years ended December 31, 2018
and 2017, the Company recognized non-employee stock based compensation expenses of $0 and $60,000 in connection with the terms
in the Euro-Asia Agreement, respectively.
|
|
(13)
|
During
the year ended December 31, 2017, the Company provided a one-time consulting service to LionGene Corporation for $70,000. Since
both LionGene and the Company are related parties and under common control by a controlling beneficiary shareholder of YuanGene
Corporation, the Company has recorded the full amount of $70,000 as additional paid-in capital during the year ended September
30, 2017.
|
|
(14)
|
During
the year ended September 30, 2017, the Company entered an operating lease agreement with AsianGene for an office space in Taiwan
for the period from October 1, 2016 to July 31, 2017. The monthly base rent is approximately $5,000. Rent expenses under this
lease agreement amounted to $0 and $52,205 for the years ended December 31, 2018 and 2017, respectively.
|
|
(15)
|
On
October 2, 2018, the Company and BioKey entered into an operating lease agreement for an office space in Fremont, California.
The lease can be terminated one month in advance provided with written notice. The monthly base rent is $800. Rent expenses under
this lease agreement amounted to $2,400 and $0 for the years ended December 31, 2018 and 2017, respectively.
|
9. EQUITY
During October 2015, $350,000 of subscription
receivable was fully collected from the shareholders.
On February 8, 2016, a Share Exchange Agreement
(“Share Exchange Agreement”) was entered into by and among American BriVision (Holding) Corporation (the “Company”),
American BriVision Corporation (“BriVision”), Euro-Asia Investment & Finance Corp. Limited, a company incorporated
under the laws of Hong Kong Special Administrative Region of People’s Republic of China (“Euro-Asia”), being
the owners of record of 164,387,376 (52,336,000 pre-stock split) shares of Common Stock of the Company, and the owners of record
of all of the issued share capital of BriVision (the “BriVision Stock”). Pursuant to the Share Exchange Agreement,
upon surrender by the BriVision Shareholders and the cancellation by BriVision of the certificates evidencing the BriVision Stock
as registered in the name of each BriVision Shareholder, and pursuant to the registration of the Company in the register of members
maintained by BriVision as the new holder of the BriVision Stock and the issuance of the certificates evidencing the aforementioned
registration of the BriVision Stock in the name of the Company, the Company should issue 166,273,921(52,936,583 pre-stock split)
shares (the “Acquisition Stock”) (subject to adjustment for fractionalized shares as set forth below) of the Company’s
Common Stock to the BriVision Shareholders (or their designees), and 163,159,952 (51,945,225 pre-stock split) shares of the Company’s
Common Stock owned by Euro-Asia should be cancelled and retired to treasury. The Acquisition Stock collectively should represent
79.70% of the issued and outstanding Common Stock of the Company immediately after the Closing, in exchange for the BriVision Stock,
representing 100% of the issued share capital of BriVision in a reverse merger, or the Merger. Pursuant to the Merger, all of the
issued and outstanding shares of BriVision’s Common Stock were converted, at an exchange ratio of 0.2536-for-1, into an aggregate
of 166,273,921(52,936,583 pre-stock split) shares of Company’s Common Stock and BriVision became a wholly owned subsidiary,
of the Company. The holders of Company’s Common Stock as of immediately prior to the Merger held an aggregate of 205,519,223
(65,431,144 pre-stock split) shares of Company’s Common Stock, Because of the exchange of the BriVision Stock for the
Acquisition Stock (the “Share Exchange”), BriVision became a wholly owned subsidiary (the “Subsidiary”)
of the Company and there was a change of control of the Company following the closing. There were no warrants, options
or other equity instruments issued in connection with the share exchange agreement.
On February 17, 2016, pursuant to the 2016
Equity Incentive Plan (the “2016 Plan”), 157,050 (50,000 pre-stock split) shares were granted to the employees.
On March 21, 2016, the Board of Directors
of the Company approved an amendment to Articles of Incorporation to effect a forward split at a ratio of 1 to 3:141 (the “Forward Stock Split”)
and increase the number of our authorized shares of Common Stock, par value $0.001 per share, to 360,000,000, which was effective
on April 8, 2016.
The majority of the shareholders of the
Company approved the amendment to Articles of Incorporation.
On May 6, 2016, the Company and BioLite
agreed to amend the BioLite Collaborative Agreement, through entry into the Milestone Payment Agreement, whereby the Company has
agreed to issue shares of our Common Stock, at the price of $1.60 per share, for an aggregate number of 562,500 shares, as part
of our first installation of payment pursuant to the Milestone Payment. The shares issuance was completed in June 2016.
On August 26, 2016, the Company issued
1,468,750 shares (“Shares”) of the Company’s Common Stock, par value $0.001 (the “Offering”) to BioLite,
Inc., a non-U.S. accredited investor (the “Purchaser”) pursuant to a certain Stock Purchase Agreement dated August
26, 2016 (the “SPA”). The Shares are exempt from the registration requirements of the Securities Act of 1933, as amended
(the “Securities Act”), pursuant to Regulation S of the Securities Act promulgated thereunder. The purchase price
per share of the Offering is $1.60. The net proceeds to the Company from the Offering are approximately $2,350,000. The proceeds
may be used for general corporate purposes.
Pursuant to the BioLite Collaborative Agreement
(See Note 4), BriVision should pay a total of $100,000,000 in cash or stock of the Company with equivalent value according to the
milestone achieved. The agreement requires that 6.5% of total payment, $6,500,000 shall be made upon the first IND submission which
was submitted in March 2016. In February 2017, the Company remitted this amount to BioLite with $650,000 in cash and $5,850,000
in the form of newly issued shares of our Common Stock, at the price of $2.0 per share, for an aggregate number of 2,925,000 shares.
On October 1, 2016, the Company entered
into a consulting agreement with Kazunori Kameyama (“Kameyama”) for the provision of services related to the clinical
trials and other administrative work, public relation work, capital raising, trip coordination, In consideration for providing
such services, the Company agreed to indemnify the consultant in an amount of $150 per hour in cash up to $3,000 per month, and
issue to Kameyama the Company’s Common Stock at $1.00 per share for any amount exceeding $3,000. The Company’s stocks
shall be calculated and issued in December every year. On October 1, 2017, the Company and Kameyama agreed to extend the service
period for one more year expiring on September 30, 2018. As a result, the non-employee stock-based compensation related to this
consulting agreement was $28,800 and $5,400 for the years ended December 31, 2018 and 2017, respectively. On March 28, 2018, the
Company issued 4,828 shares of the Company’s common stock at $1.60 per share in a total of $7,725 to Kameyama in connection
with this consulting agreement.
On January 1, 2017, Euro-Asia Investment
& Finance Corp Ltd. and the Company entered into a service agreement (the “Euro-Asia Agreement”) for the maintenance
of the listing in the U.S. stock exchange market. During the years ended December 31, 2018 and 2017, the Company recognized non-employee
stock based compensation expenses of $0 and $60,000 in connection with the terms in the Euro-Asia Agreement, respectively. On March
28, 2018, the Company issued 50,000 shares of the Company’s common stock at $1.60 per share in a total of $80,000 to Euro-Asia
in connection with the Euro-Asia Agreement.
On January 1, 2017, Kimho Consultants Co.,
Ltd. and the Company entered into a service agreement (the “Kimho Agreement”) for the maintenance of the listing in
the U.S. stock exchange market. During the years ended December 31, 2018 and 2017, the Company recognized non-employee stock based
compensation expenses of $0 and $90,000 in connection with the terms in the Kimho Agreement, respectively. On March 28, 2018, the
Company issued 75,000 shares of the Company’s common stock at $1.60 per share in a total of $120,000 to Kimho in connection
with the Kimho Agreement.
Pursuant to ASC 505-50-30, the transactions
with the non-employees were measured based on the fair value of the equity instruments issued as the Company determined that the
fair value of the equity instruments issued in a stock-based payment transaction with nonemployees was more reliably measurable
than the fair value of the consideration received. The Company measured the fair value of the equity instruments in these transactions
using the stock price on the date at which the commitments Kameyama, Euro-Asia, and Kimho for performance were rendered.
On March 28, 2018, the Company also issued
an aggregate of 50,000 shares of the Company’s common stock at $1.60 per share for salaries in a total of $80,000 to three
officers.
10. INCOME TAX
The Company files income tax returns in
the U.S. federal jurisdiction, and various state and local jurisdictions. The Company is no longer subject to U.S. federal, state
and local income tax examinations by tax authorities for years before 2013.
On December 22, 2017 H.R. 1, originally
known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal
Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective
January 1, 2018. The 21% Federal Tax Rate will apply to earnings reported for the full 2018 fiscal year. In addition, the Company
must re-measure its net deferred tax assets and liabilities using the Federal Tax Rate that will apply when these amounts are expected
to reverse. As of December 31, 2017, the Company can determine a reasonable estimate for certain effects of tax reform and recorded
that estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and allowance valuation of deferred
tax assets at December 31, 2017 resulted in a net effect of $0 discrete tax expenses (benefit) which lowered the effective tax
rate by 14% for the year ended December 31, 2017. The provisional remeasurement amount is anticipated to change as data becomes
available allowing more accurate scheduling of the deferred tax assets and liabilities primarily related to net operating loss
carryover.
Components of income tax (benefits) for
the twelve months ended December 31, 2018 and 2017 are as follows:
|
|
Year ended
December 31, 2018
|
|
|
Year ended
December 31, 2017
|
|
|
|
Federal
|
|
|
State
|
|
|
Total
|
|
|
Federal
|
|
|
State
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
1,850
|
|
|
$
|
1,850
|
|
|
$
|
-
|
|
|
$
|
830
|
|
|
$
|
830
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
1,850
|
|
|
$
|
1,850
|
|
|
$
|
-
|
|
|
$
|
830
|
|
|
$
|
830
|
|
Significant components of the Company’s
deferred tax accounts at December 31, 2018 and September 30, 2017:
Deferred Tax Account - noncurrent:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Tax losses carryforwards
|
|
$
|
913,954
|
|
|
$
|
594,501
|
|
Less: Valuation allowance
|
|
|
(913,954
|
)
|
|
|
(594,501
|
)
|
Total deferred tax account - noncurrent
|
|
$
|
-
|
|
|
$
|
-
|
|
The difference between the effective rate
reflected in the provision for income taxes on loss before taxes and the amounts determined by applying the applicable statutory
U.S. tax rate are analyzed below:
|
|
Years ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Statutory federal tax benefit, net of state tax effects
|
|
|
19
|
%
|
|
|
31
|
%
|
State income taxes
|
|
|
8.84
|
%
|
|
|
8.84
|
%
|
Provisional remeasurement of deferred taxes
|
|
|
-
|
%
|
|
|
(13
|
)%
|
Nondeductible/nontaxable items
|
|
|
(1
|
)%
|
|
|
(4
|
)%
|
Change in valuation allowance
|
|
|
(26.84
|
)%
|
|
|
(22.84
|
)%
|
Effective income tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
11. LOSS PER SHARE
Basic loss per share is computed by dividing
net loss by the weighted-average number of common shares outstanding during the year. Diluted loss per share is computed by dividing
net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the years ended
December 31, 2018 and 2017.
|
|
Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,101,303
|
)
|
|
$
|
(4,242,860
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - Basic
|
|
|
213,884,105
|
|
|
|
213,321,921
|
|
Stock options
|
|
|
-
|
|
|
|
-
|
|
Weighted-average shares outstanding - Diluted
|
|
|
213,884,105
|
|
|
|
213,321,921
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
-Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
-Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Diluted loss per share takes into account
the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised and converted into
Common Stock.
12. COMMITMENTS AND CONTINGENCIES
Operating Commitment
The Company leased an office space in Taiwan
under non-cancelable operating leases expired on June 30, 2018. As of December 31, 2018, there was no future minimum lease payments
under non-cancelable operating and capital leases.
Rental expense was $7,497 and $49,245 for
the years ended December 31, 2018 and 2017, respectively.
13. PRO FORMA FINANCIAL STATEMENTS
On January 31, 2018, American BriVision
(Holding) Corporation (“ABVC”, the “Company”) entered into an agreement and plan of merger (the “Merger
Agreement”) with BioLite Holding, Inc. (“BioLite”), a Nevada corporation, BioKey, Inc. (“BioKey”),
a California corporation, BioLite Acquisition Corp. (“Merger Sub 1”), a Nevada corporation and wholly-owned subsidiary
of the Company, and BioKey Acquisition Corp. (“Merger Sub 2”), a California corporation and wholly-owned subsidiary
of the Company.
Pursuant to the Merger Agreement, on or
before the Closing of the Merger, each issued and outstanding share of BioLite shall be converted into the right to receive one
point eighty-two (1.82) validly issued, fully-paid and non-assessable shares of the Company and all shares of BioLite shall be
cancelled and cease to exist. Also on or before the Closing of the Merger, each issued and outstanding share of BioKey shall be
converted into the right to receive one (1) validly issued, fully-paid and non-assessable share of the Company and all shares of
BioKey shall be cancelled and cease to exist. Simultaneously upon Closing, BioLite and Merger Sub 1 shall merge together with Merger
Sub 1’s articles of incorporation and bylaws as the surviving corporation’s (the “BioLite Surviving Corporation”)
articles of incorporation and bylaws and all shares of Merger Sub 1 shall be converted into one share of Common Stock of the BioLite
Surviving Corporation, which shall remain a wholly-owned subsidiary of the Company. In addition, upon Closing, BioKey and Merger
Sub 2 shall merge together with Merger Sub 2’s articles of incorporation and bylaws as the surviving corporation’s
(the “BioKey Surviving Corporation’s”) articles of incorporation and bylaws and all shares of Merger Sub 2 shall
be converted into one share of Common Stock of the BioKey Surviving Corporation, which shall remain a wholly-owned subsidiary of
the Company.
The following unaudited pro forma condensed
consolidated combined financial statements reflect the combination of the historical consolidated results of ABVC and its subsidiaries,
BioLite, and BioKey on a pro forma basis to give effect to the Merger Agreement.
The unaudited
pro forma condensed consolidated combined balance sheet of the combined company is based on (i) the audited historical consolidated
balance sheet of ABVC as of December 31, 2018, (ii) the audited historical balance sheet of BioLite as of December 31,
2018, and the (iii) the audited historical balance sheet of BioKey as of December 31, 2018, and includes pro forma adjustments
as of the Merger had occurred on December 31, 2018.
The unaudited
pro forma condensed consolidated combined statement of operations of the combined company are based on the following details,
and includes pro forma adjustments as of the Merger had occurred on January 1, 2018.
|
(i)
|
the
unaudited historical consolidated statement of operations of ABVC for the year ended December 31, 2018.
|
|
(ii)
|
the
audited historical statement of operations of BioLite for the year ended December 31, 2018.
|
|
(iii)
|
the
audited historical statement of operations of BioKey for the year ended December 31, 2018.
|
The unaudited
pro forma data presented herein reflects events that are directly attributable to the described transactions, factually supportable,
and as it relates to the unaudited pro forma condensed consolidated combined statement of operations, expected to have a continuing
impact. The unaudited pro forma data presented herein also reflects certain assumptions which management believes are reasonable.
Such pro forma data is not necessarily indicative of financial results that would have been attained had the described transactions
occurred on the dates indicated above, or the results of the combined company that may be achieved in the future. The adjustments
are based on currently available information and certain estimates and assumptions. Therefore, the actual results may differ from
the pro forma results indicated herein. However, management believes that the assumptions provide a reasonable basis for presenting
the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited pro forma condensed consolidated combined financial statements.
The unaudited
pro forma condensed consolidated combined financial statements are provided for illustrative purposes only and are not intended
to represent or be indicative of the consolidated results of operations or consolidated financial position of the combined company
that would have been recorded had the Merger been completed as of the dates presented, and they should not be taken as representative
of the expected future results of operations or financial position of the combined company. The unaudited pro forma condensed consolidated
combined financial statements do not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings
or economies of scale that the combined company may achieve with respect to the operations of the combined company. Additionally,
the unaudited pro forma condensed consolidated combined statement of operations does not include non-recurring charges
or credits, and the related tax effects, which result directly from the Merger.
UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET
AS OF DECEMBER
31, 2018
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
Pro Forma
|
|
|
|
ABVC
|
|
|
BioKey
|
|
|
BioLite
|
|
|
Adjustment
|
|
|
Note
|
|
Combined
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,044
|
|
|
$
|
636,666
|
|
|
$
|
186,644
|
|
|
|
-
|
|
|
|
|
$
|
863,354
|
|
Restricted cash and cash equivalents
|
|
|
16,093
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
16,093
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
43,204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
43,204
|
|
Accounts receivable - related parties, net
|
|
|
-
|
|
|
|
147,848
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
147,848
|
|
Other receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
39,005
|
|
|
|
-
|
|
|
|
|
|
39,005
|
|
Due from related parties
|
|
|
40,000
|
|
|
|
-
|
|
|
|
79,287
|
|
|
|
(59,810
|
)
|
|
{f}
|
|
|
59,477
|
|
Inventory
|
|
|
-
|
|
|
|
-
|
|
|
|
1,318
|
|
|
|
-
|
|
|
|
|
|
1,318
|
|
Prepaid expense and other current assets
|
|
|
136
|
|
|
|
-
|
|
|
|
223,759
|
|
|
|
-
|
|
|
|
|
|
223,895
|
|
Total Current Assets
|
|
|
96,273
|
|
|
|
827,718
|
|
|
|
530,013
|
|
|
|
(59,810
|
)
|
|
|
|
|
1,394,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
58,150
|
|
|
|
510,066
|
|
|
|
|
|
|
|
|
|
568,216
|
|
Goodwill, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,531,445
|
|
|
{e}
|
|
|
43,531,445
|
|
Long-term investments
|
|
|
-
|
|
|
|
-
|
|
|
|
3,488,169
|
|
|
|
|
|
|
|
|
|
3,448,169
|
|
Deferred tax assets
|
|
|
-
|
|
|
|
-
|
|
|
|
1,347,995
|
|
|
|
|
|
|
|
|
|
1,347,995
|
|
Security Deposits
|
|
|
-
|
|
|
|
10,440
|
|
|
|
27,418
|
|
|
|
|
|
|
|
|
|
37,858
|
|
Total Assets
|
|
$
|
96,273
|
|
|
$
|
896,308
|
|
|
$
|
5,903,661
|
|
|
$
|
43,471,635
|
|
|
|
|
$
|
50,367,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loan
|
|
|
-
|
|
|
|
-
|
|
|
|
899,250
|
|
|
|
-
|
|
|
|
|
|
899,250
|
|
Long-term bank loan - current portion
|
|
|
-
|
|
|
|
-
|
|
|
|
39,835
|
|
|
|
-
|
|
|
|
|
|
39,835
|
|
Notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
510,447
|
|
|
|
-
|
|
|
|
|
|
510,447
|
|
Accrued expenses and other current liabilities
|
|
|
555,449
|
|
|
|
83,026
|
|
|
|
687,709
|
|
|
|
-
|
|
|
|
|
|
1,326,184
|
|
Due to related parties
|
|
|
4,462,775
|
|
|
|
-
|
|
|
|
3,341,005
|
|
|
|
(58,684
|
)
|
|
{f}
|
|
|
7,745,096
|
|
Convertible notes payable
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Convertible notes payable - related parties
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Total Current Liabilities
|
|
|
5,568,224
|
|
|
|
83,026
|
|
|
|
5,478,246
|
|
|
|
(58,684
|
)
|
|
|
|
|
11,070,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loan
|
|
|
-
|
|
|
|
-
|
|
|
|
15,257
|
|
|
|
-
|
|
|
|
|
|
15,257
|
|
Tenant security deposit
|
|
|
-
|
|
|
|
2,880
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
2,880
|
|
Convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
Convertible notes payable - related parties
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
250,000
|
|
Accrued interest
|
|
|
27,467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
27,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
5,845,691
|
|
|
|
85,906
|
|
|
|
5,493,503
|
|
|
|
(58,684
|
)
|
|
|
|
|
11,366,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
-
|
|
|
|
18,633,097
|
|
|
|
-
|
|
|
|
(18,633,097
|
)
|
|
{c}
|
|
|
-
|
|
Common stock
|
|
|
213,927
|
|
|
|
774,293
|
|
|
|
4,121
|
|
|
|
(4,121
|
)
|
|
{a}
|
|
|
318,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,998
|
|
|
{a}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(771,793
|
)
|
|
{b}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,428
|
|
|
{b}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,133
|
|
|
{c}
|
|
|
|
|
Additional paid-in capital
|
|
|
13,914,556
|
|
|
|
82,265
|
|
|
|
10,862,995
|
|
|
|
(70,877
|
)
|
|
{a}
|
|
|
59,018,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,265
|
)
|
|
{e}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,312,285
|
|
|
{e}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,000,000
|
)
|
|
{g}
|
|
|
|
|
Stock subscription receivable
|
|
|
-
|
|
|
|
(1,667
|
)
|
|
|
-
|
|
|
|
1,667
|
|
|
{e}
|
|
|
-
|
|
Accumulated deficit
|
|
|
(19,877,901
|
)
|
|
|
(18,677,586
|
)
|
|
|
(11,445,109
|
)
|
|
|
18,677,586
|
|
|
{e}
|
|
|
(12,209,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,817,848
|
|
|
{g}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,295,716
|
|
|
{h}
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
{g}
|
|
|
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
670,541
|
|
|
|
(14,689
|
)
|
|
{g,h}
|
|
|
655,852
|
|
Treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,750,000
|
)
|
|
{g}
|
|
|
(9,100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,350,000
|
)
|
|
{h}
|
|
|
|
|
Total Stockholders’ deficit
|
|
|
(5,749,418
|
)
|
|
|
810,402
|
|
|
|
92,548
|
|
|
|
43,530,319
|
|
|
|
|
|
38,683,851
|
|
Noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
317,610
|
|
|
|
-
|
|
|
|
|
|
317,610
|
|
Total Equity
|
|
|
(5,749,418
|
)
|
|
|
810,402
|
|
|
|
410,158
|
|
|
|
43,530,319
|
|
|
|
|
|
39,001,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
96,273
|
|
|
$
|
896,308
|
|
|
$
|
5,903,661
|
|
|
$
|
43,471,635
|
|
|
|
|
|
50,367,877
|
|
UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR
ENDED DECEMBER 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
ABVC
|
|
|
BioKey
|
|
|
BioLite
|
|
|
Adjustment
|
|
|
Note
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
510,197
|
|
|
$
|
6,956
|
|
|
|
|
|
|
|
|
|
|
$
|
517,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
-
|
|
|
|
4,809
|
|
|
|
185,280
|
|
|
|
|
|
|
|
|
|
|
|
190,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
505,388
|
|
|
|
(178,324
|
)
|
|
|
|
|
|
|
|
|
|
|
327,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
695,148
|
|
|
|
669,322
|
|
|
|
893,570
|
|
|
|
|
|
|
|
|
|
|
|
2,258,040
|
|
Research and development expenses
|
|
|
669,668
|
|
|
|
430,917
|
|
|
|
319,053
|
|
|
|
|
|
|
|
|
|
|
|
1,419,638
|
|
Stock based compensation
|
|
|
28,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
28,800
|
|
Total operating expenses
|
|
|
1,393,616
|
|
|
|
1,100,239
|
|
|
|
1,212,623
|
|
|
|
|
|
|
|
|
|
|
|
3,706,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,393,616
|
)
|
|
|
(594,851
|
)
|
|
|
(1,390,947
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,379,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
93
|
|
|
|
4,598
|
|
|
|
5,119
|
|
|
|
|
|
|
|
|
|
|
|
9,810
|
|
Interest expense
|
|
|
(155,930
|
)
|
|
|
-
|
|
|
|
(306,821
|
)
|
|
|
|
|
|
|
|
|
|
|
(462,751
|
)
|
Rental income
|
|
|
-
|
|
|
|
-
|
|
|
|
11,924
|
|
|
|
|
|
|
|
|
|
|
|
11,924
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,663
|
)
|
|
|
|
|
|
|
|
|
|
|
(63,663
|
)
|
Investment loss
|
|
|
(549
|
)
|
|
|
-
|
|
|
|
(395,476
|
)
|
|
|
|
|
|
|
|
|
|
|
(396,025
|
)
|
Gain/Loss on foreign exchange changes
|
|
|
-
|
|
|
|
-
|
|
|
|
7,307
|
|
|
|
|
|
|
|
|
|
|
|
7,307
|
|
Gain/Loss on investment in equity securities
|
|
|
(2,549,451
|
)
|
|
|
-
|
|
|
|
(192,463
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,741,914
|
)
|
Other income (expense)
|
|
|
-
|
|
|
|
630
|
|
|
|
(5,154
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,524
|
)
|
Total other income (expenses)
|
|
|
(2,705,837
|
)
|
|
|
5,228
|
|
|
|
(939,227
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,639,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income tax
|
|
|
(4,099,453
|
)
|
|
|
(589,623
|
)
|
|
|
(2,330,174
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,019,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax (benefit)
|
|
|
1,850
|
|
|
|
800
|
|
|
|
(366,947
|
)
|
|
|
|
|
|
|
|
|
|
|
(364,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,101,303
|
)
|
|
|
(590,423
|
)
|
|
|
(1,963,227
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,654,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
489,151
|
|
|
|
|
|
|
|
|
|
|
|
489,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ABVC and subsidiaries
|
|
|
(4,101,303
|
)
|
|
|
(590,423
|
)
|
|
|
(1,474,067
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,144,104
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
86,786
|
|
|
|
|
|
|
|
|
|
|
|
86,786
|
|
Comprehensive Income (Loss)
|
|
$
|
(4,101,303
|
)
|
|
$
|
(590,423
|
)
|
|
$
|
(1,560,862
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(7,230,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
213,884,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,156,988
|
|
Notes
to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements
1. Basis of Presentation
The unaudited
pro forma condensed consolidated combined balance sheet as of December 31, 2018 is based on the audited consolidated balance sheet
of ABVC, the audited consolidated balance sheet of BioLite, and the audited balance sheet of BioKey as if the Merger had occurred
on December 31, 2018.
The unaudited
pro forma condensed consolidated combined statement of operations for the year ended December 31, 2018 is based on the audited
consolidated statement of operations of ABVC for the year ended December 31, 2018, the audited consolidated statement of operations
of BioLite for the year ended December 31, 2018, and the audited statement of operations of BioKey for the year ended December
31, 2018, as if the Merger had occurred on January 1, 2018.
BioLite and the
Company are related parties because the two companies are under common control by Dr. Tsung-Shann Jiang.
2. Pro Forma Adjustments
The
following adjustments were made in the preparation of the audited pro forma condensed consolidated combined balance sheet and unaudited
pro forma condensed consolidated combined statements of operations:
|
{a}
|
Reconciliation
of ABVC common stock to be issued to BioLite shareholders:
|
BioLite Outstanding shares as of December 31, 2018
|
|
|
41,207,444
|
|
Exchange of each BioLite share of common stock outstanding as of December 31, 2018, for 1.82 shares of ABVC common stock
|
|
|
1.82
|
|
ABVC common stock to be issued to BioLite as a result of the Merger
|
|
|
74,997,548
|
|
Par value $0.001 per share of ABVC
|
|
$
|
74,998
|
|
|
{b}
|
ABVC
common stock to be issued to BioKey shareholders in exchange of BioKey’s common stock outstanding:
|
BioKey Outstanding shares as of December 31, 2018
|
|
|
7,428,134
|
|
Exchange of each BioKey share of common stock outstanding as of December 31, 2018, for one share of ABVC common stock
|
|
|
1
|
|
ABVC common stock to be issued to BioKey as a result of the Merger
|
|
|
7,428,134
|
|
Par value $0.001 per share of ABVC
|
|
$
|
7,428
|
|
|
{c}
|
ABVC
common stock to be issued to BioKey shareholders in exchange of BioKey’s preferred stock outstanding:
|
BioKey Outstanding shares as of December 31, 2018
|
|
|
|
7,000,000 shares of Series A
|
|
|
7,000,000
|
|
1,160,000 shares of Series B
|
|
|
1,160,000
|
|
13,973,097 shares of Series C
|
|
|
13,973,097
|
|
BioKey’s total shares of preferred stock outstanding as of December 31, 2018
|
|
|
22,133,097
|
|
Exchange of each BioKey share of preferred stock outstanding as of December 31, 2018, for one share of ABVC common stock
|
|
|
1
|
|
ABVC common stock to be issued to BioKey as a result of the Merger
|
|
|
22,133,097
|
|
Par value $0.001 per share of ABVC
|
|
$
|
22,133
|
|
|
{d}
|
Common
stock outstanding as of December 31, 2018 following the Merger:
|
ABVC common stock issued as of December 31, 2018
|
|
|
213,926,475
|
|
ABVC common stock held by BioLite pursuant to the BioLite Collaborative Agreement (see Note {g})
|
|
|
(3,487,500
|
)
|
ABVC common stock held by BioLite for cash issuance (see Note {h})
|
|
|
(1,468,750
|
)
|
ABVC common stock to be issued to BioLite as a result of the Merger
|
|
|
74,997,548
|
|
ABVC common stock to be issued to BioKey as a result of the Merger
|
|
|
29,561,231
|
|
Total common stock of the combined company outstanding following the Merger
|
|
|
313,529,004
|
|
|
{e}
|
Unless
otherwise noted, adjustments to reflect the elimination of BioKey’s total equity, the estimated value of consideration to
be paid in the Merger and to adjust, where required, the historical book values of BioKey’s assets and liabilities as of
December 31, 2018 to the preliminary estimated fair value, in accordance with the acquisition method of accounting. The preliminary
valuations were determined as of and, where applicable, are based on the bid-and-ask share price of ABVC common stock on
the final day of trading, February 5, 2019. The fair value of the consideration given and assets and liabilities acquired will
be determined based on the underlying fair values as of the February 5, 2019.
|
Purchase consideration:
|
|
|
|
Common stock (1)
|
|
$
|
44,341,847
|
|
Estimated Fair Value of Assets Acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
636,666
|
|
Accounts receivable
|
|
|
43,204
|
|
Accounts receivable - related parties
|
|
|
147,848
|
|
Property and equipment
|
|
|
58,150
|
|
Security deposits
|
|
|
10,440
|
|
Total assets acquired
|
|
$
|
896,308
|
|
Estimated Fair Value of Liabilities Assumed:
|
|
|
|
|
Due to shareholders
|
|
$
|
|
|
Accrued expenses and other current liabilities
|
|
|
83,026
|
|
Tenant security deposit
|
|
|
2,880
|
|
Total liabilities assumed
|
|
$
|
85,906
|
|
Total net assets acquired
|
|
$
|
810,402
|
|
Goodwill as a result of the Merger
|
|
$
|
43,531,445
|
|
|
(1)
|
29,561,231
shares of ABVC common stock to be issued to BioKey in connection with the Merger. Those shares were valued at $1.50 per share,
the closing share price of ABVC on February 5, 2019.
|
|
{f}
|
As
of December 31, 2018, BioLite had $59,810 due from ABVC; and ABVC had $58,684 due to BioLite. The difference was mainly due to
the translation adjustment, which would be reflected in accumulated other comprehensive income in equity section.
|
|
{g}
|
Collaborative
agreement with BioLite Inc., a related party
|
On December 29, 2015, American
BriVision Corporation (“BriVision”) entered into a collaborative agreement (the “BioLite Collaborative Agreement”)
with BioLite, a related party, pursuant to which BioLite granted BriVision sole licensing rights for drug and therapeutic use of
five products, including BLI-1005 CNS-Major Depressive Disorder, BLI-1008 CNS-Attention Deficit Hyperactivity Disorder, BLI-1401-1
Anti-Tumor Combination Therapy-Solid Tumor with Anti-PD-1, BLI-1401-2 Anti-Tumor Combination Therapy-Triple Negative Breast Cancer,
and BLI-1501 Hematology-Chronic Lymphocytic Leukemia, in the U.S.A and Canada. Under the BioLite Collaborative Agreement, BriVision
should pay a total of $100,000,000 in cash or stock of BriVision with equivalent value, according to the following schedule:
|
●
|
upfront
payment shall upon the signing of this BioLite Collaborative Agreement: 3.5% of total payment. After receiving upfront payment
from BriVision, BioLite has to deliver all data to BriVision in one week.
|
|
●
|
upon the first IND submission, BriVision shall pay, but no later than December 15, 2016: 6.5% of total payment. After receiving second payment from BriVision, BioLite has to deliver IND package to BriVision in one week.
|
|
|
|
|
●
|
at the completion of first phase II clinical trial, BriVision shall pay, but no later than September 15, 2017: 15% of total payment. After receiving third payment from BriVision, BioLite has to deliver phase II clinical study report to BriVision in three months.
|
|
|
|
|
●
|
upon the phase III IND submission, BriVision shall pay, but no later than December 15, 2018: 20% of total payment. After receiving forth payment from BriVision, BioLite has to deliver IND package to BriVision in one week.
|
|
|
|
|
●
|
at the completion of phase III, BriVision shall pay, but no later than September 15, 2019:25% of total payment. After receiving fifth payment from BriVision, BioLite has to deliver phase III clinical study report to BriVision in three months.
|
|
|
|
|
●
|
upon the NDA submission, BriVision shall pay, but no later than December 15, 2020, BriVision shall pay: 30% of total payment. After receiving sixth payment from BriVision, BioLite has to deliver NDA package to BriVision in one week.
|
This BioLite Collaborative Agreement
shall, once signed by both Parties, remain in effect for fifteen years as of the first commercial sales of the Product in the Territory
and automatically renew for five more years unless either party gives the other party six month written notice of termination prior
to the expiration date of the term.
Pursuant to the BioLite Collaborative
Agreement, an upfront payment of $3,500,000 (the “Milestone Payment”), which is 3.5% of total payments due under the
BioLite Collaborative Agreement, was to be paid by BriVision upon signing of that agreement. On May 6, 2016, BriVision and BioLite
agreed to amend the BioLite Collaborative Agreement, through entry into the Milestone Payment Agreement, whereby BriVision agreed
to pay the Milestone Payment to BioLite with $2,600,000 in cash and $900,000 in the form of newly issued shares of its common stock,
at the price of $1.60 per share, for an aggregate number of 562,500 shares. The cash payment and shares issuance were completed
in June 2016.
Pursuant to the BioLite Collaborative
Agreement, the 6.5% of total payment, $6,500,000 shall be made upon the first IND submission which was submitted in March 2016.
On February 2017, BriVision agreed to pay this amount to BioLite with $650,000 in cash and $5,850,000 in the form of newly issued
shares of its common stock, at the price of $2.0 per share, for an aggregate number of 2,925,000 shares. The cash payment and shares
issuance were completed in February 2017.
Pursuant to the BioLite Collaborative
Agreement, the 15% of total payment, $15,000,000 shall be made at the completion of first phase II clinical trial. As of December
31, 2018 and, 2017, the first phase II clinical trial research has not completed yet.
The aggregate common stock shares
of American BriVision Corporation issued to BioLite pursuant to the BioLite Collaborative Agreement was 3,487,500 shares, the value
of which was $6,750,000. The unaudited pro forma adjustments were made as if the Merger occurred on December 31, 2018. As such,
these common stock shares of ABVC held by BioLite shall not be treated as outstanding shares, and shall be reflected as treasury
shares. The corresponding long-term investment of BioLite has been written off in full amount, included in the accumulated deficit
as of December 31, 2018. Such amount has been eliminated in the pro forma condensed balance sheet. Investment loss recognized as
a result of the write-off amounted to $4,313,725 for the year ended December 31, 2018. Such amount has been eliminated in the pro
forma condensed statement of operations.
American BriVision Corporation
determined to fully expense the entire amount of $10,000,000 according to ASC 730-10-25-1. The entire amount is fully expensed
as research and development expense during the year ended December 31, 2016, included in the accumulated deficit of ABVC as of
December 31, 2018. The aggregate amount of $10,000,000 was recorded and remained as additional paid-in capital on BioLite as of
December 31, 2018. Such amount has been eliminated in the pro forma condensed balance sheet.
|
{h}
|
On
August 26, 2016, ABVC issued 1,468,750 shares of common stock, par value $0.001 to BioLite pursuant to a certain Stock Purchase
Agreement dated August 26, 2016. The purchase price per share of the Offering is $1.60. The net proceeds to the Company from the
Offering are approximately $2,350,000. The unaudited pro forma adjustments were made as if the Merger occurred on December
31, 2018. As such, these common stock shares of ABVC held by BioLite shall be treated be treated as outstanding shares, and shall
be reflected as treasury shares. The corresponding long-term investment of BioLite has been written off in full amount, included
in the accumulated deficit as of December 31, 2018. Such amount has been eliminated in the pro forma condensed balance sheet.
|
14. SUBSEQUENT EVENTS
On January 21, 2019, the Company received
a loan in the amount of $500,000 from Cathay Bank (the “Bank”) pursuant to a business loan agreement (the “Loan
Agreement”) entered by and between the Company and Bank on January 8, 2019 and a promissory note (the “Note”)
executed by the Company on the same day. The Loan Agreement provides for a revolving line of credit in the principal amount of
$1,000,000 with a maturity date (the “Maturity Date”) of January 1, 2020. The Note executed in connection with the
Loan Agreement bears an interest rate (the “Regular Interest Rate”) equal to the sum of one percent (1%) and the prime
rate as published in the Wall Street Journal (the “Index”) and the accrued interest shall become payable each month
from February 1, 2019. Pursuant to the Note, the Company shall pay the entire outstanding principal plus accrued unpaid interest
on the Maturity Date and may prepay portion or all of the Note before the Maturity Date without penalty. If the Company defaults
on the Note, the default interest rate shall become five percent (5%) plus the Regular Interest Rate.
In connection with the Note and Loan Agreement,
on January 8, 2019, each of Dr. Tsung Shann Jiang and Dr. George Lee, executed a commercial guaranty (the “Guaranty”)
to guaranty the loans for the Company pursuant to the Loan Agreement and Note, severally and individually, in the amount not exceeding
$500,000 each until the entire Note plus interest are fully paid and satisfied. Dr. Tsung Shann Jiang is the Chairman and Chief
Executive Officer of BioLite Holding, Inc. and Dr. George Lee serves as the Chairman of the board of directors of BioKey, Inc,
which became a wholly-owned subsidiaries of the Company effective by operation of law on or about February 5, 2019.
In addition, on January 8, 2019, each of
the Company and BriVision, a wholly-owned subsidiary of the Company, signed a commercial security agreement (the “Security
Agreement”) to secure the loans under the Loan Agreement and the Note. Pursuant to the Security Agreements, each of the Company
and BriVision (each, a “Grantor”, and collectively, the “Grantors”) granted security interest in the collaterals
as defined therein, comprised of almost all of the assets of each Grantor, to secure such loans for the benefit of the Bank.
The Company has evaluated subsequent events
through the date which the financial statements were available to be issued. All subsequent events requiring recognition as of
December 31, 2018 have been incorporated into these financial statements and there are no subsequent events that require disclosure
in accordance with FASB ASC Topic 855, “Subsequent Events.”
******