ABVC BioPharma(ABVC) - 2018 Q4 - Annual Report

Part I Business Overview American BriVision is a clinical-stage biopharmaceutical company developing drugs and a medical device, primarily through out-licensing - The company is a clinical-stage biopharmaceutical firm with a pipeline of six new drugs and one medical device, all licensed from related parties, focusing on cancer and central nervous system (CNS) indications[7][8] - The business model involves conducting clinical trials for Proof of Concept (POC) and then out-licensing results to larger pharmaceutical companies for further development and commercialization[8] - On February 8, 2019, the company completed a merger with BioLite Holding, Inc. and BioKey, Inc., making them wholly-owned subsidiaries[10] Key Development Pipeline | Product Candidate | Indication | Development Stage/Status | | :--- | :--- | :--- | | ABV-1501 | Triple Negative Breast Cancer | Phase II IND approved by U.S. FDA in March 2016 | | ABV-1504 | Major Depressive Disorder (MDD) | Phase I completed. Phase II Part I completed; Part II in-live study completed, awaiting data analysis | | ABV-1505 | Attention Deficit Hyperactivity Disorder (ADHD) | Phase II IND approved by U.S. FDA in January 2016. Part I trial planned for Q2 2019 | | ABV-1702 | Myelodysplastic Syndromes (MDS) | Phase II IND approved by U.S. FDA in July 2016. Planned to commence in Q4 2019 | | ABV-1703 | Pancreatic Cancer | Phase II trial approved by FDA in August 2017. Planned to initiate in Q4 2019 | | ABV-1601 | Depression in Cancer Patients | Phase II clinical protocol approved by FDA in December 2018 | | ABV-1701 (Vitargus) | Retinal Detachment / Vitreous Hemorrhage | Phase I clinical trial completed in Australia with positive results in July 2018. Pivotal study is being planned | - The company provides Contract Development and Manufacturing Organization (CDMO) services, including formulation development, analytical services, and GMP manufacturing for clinical trial materials[35][36] Risk Factors Risk factors disclosure is not applicable for a smaller reporting company - Risk factors disclosure is not applicable for a smaller reporting company[65] Properties The company and its subsidiaries lease office, laboratory, and manufacturing facilities in Fremont, CA and Hsinchu, Taiwan Key Leased Properties and Rental Expenses (FY 2018) | Subsidiary | Location | Property Type | 2018 Rental Expense | | :--- | :--- | :--- | :--- | | ABVC | Fremont, CA | Office | $800/month (sublease from BioKey) | | BioLite | Hsinchu, Taiwan | Dormitory | ~$20,497 | | BioLite | Hsinchu, Taiwan | Laboratories | ~$9,000/month | | BioKey | Fremont, CA | Office, Labs, Mfg. | $275,638 | Legal Proceedings The company is not currently a party to any material legal or administrative proceedings - As of the report date, the company is not involved in any material legal proceedings[68] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is quoted on the OTCQB under "ABVC", with 262 shareholders, and no dividends are anticipated - The company's common stock is quoted on the OTCQB under the symbol "ABVC"[69] Common Stock Price Range (High/Low Bid) | Quarter Ended | 2018 High Bid | 2018 Low Bid | 2017 High Bid | 2017 Low Bid | | :--- | :--- | :--- | :--- | :--- | | March 31 | $2.00 | $1.50 | $2.00 | $2.00 | | June 30 | $2.00 | $1.65 | $2.00 | $2.00 | | Sept 30 | $2.00 | $1.89 | $2.00 | $2.00 | | Dec 31 | $2.00 | $2.00 | $2.00 | $2.00 | - As of April 8, 2019, there were approximately 262 shareholders of record[70] - No dividends have ever been paid, and none are anticipated in the foreseeable future[71] - From January 1, 2018, the company issued convertible notes totaling $800,000 to three non-U.S. investors for general working capital[73] Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a $4.1 million net loss in 2018 with no revenue, a $5.5 million working capital deficit, and a going concern opinion Consolidated Statement of Operations Summary (Years Ended Dec 31) | Metric | 2018 | 2017 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $0 | $0 | N/A | | Research & Development Expenses | $669,668 | $3,171,665 | (78.9%) | | Total Operating Expenses | $1,393,616 | $4,138,750 | (66.3%) | | Loss on Investment in Equity Securities | ($2,549,451) | $0 | N/A | | Net Loss | ($4,101,303) | ($4,242,860) | (3.3%) | - The decrease in operating expenses was primarily due to a reduction in research and development costs, which were at a more normalized rate in 2018 after establishing key collaborative agreements in the prior year[149] Working Capital Summary (As of Dec 31) | Metric | 2018 | 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 Flow Summary (Years Ended Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($630,195) | ($1,485,313) | | Net Cash Provided by Financing Activities | $593,000 | $1,560,000 | - The company has incurred significant losses since inception, resulting in an accumulated deficit of $19.9 million as of December 31, 2018, raising substantial doubt about its ability to continue as a going concern[159] Controls and Procedures Management concluded that disclosure and internal controls were ineffective due to monitoring and segregation of duties issues - Management concluded that disclosure controls and procedures were not effective as of the end of the reporting period[349] - Internal controls over financial reporting were deemed not effective due to a lack of monitoring and segregation of duties, stemming from a small financial staff of only one person[350] Part III Directors, Executive Officers and Corporate Governance This section lists the company's directors and executive officers, including Chairman Eugene Jiang and CEO Dr. Howard Doong Key Executive Officers and Directors | Name | Position | | :--- | :--- | | Eugene Jiang | Chairman of the Board and Interim CFO | | Dr. Howard Doong | Chief Executive Officer (CEO) | | Dr. Tsung-Shann (T.S.) Jiang | Chief Strategy Officer and Director | | Dr. Chi-Hsin (Richard) King | Chief Scientific Officer (CSO) | Executive Compensation Executive compensation for 2018 is detailed, with CEO Dr. Howard Doong receiving $100,000 and Chairman Eugene Jiang receiving $60,000 Summary Compensation Table (2018) | Name and Principal Position | Year | Salary ($) | Total ($) | | :--- | :--- | :--- | :--- | | Howard Doong (CEO) | 2018 | 100,000 | 100,000 | | Chun Mu Hung (former CFO) | 2018 | 14,434 | 14,434 | | Eugene Jiang (Chairman & interim CFO) | 2018 | 60,000 | 60,000 | - The company adopted an Equity Incentive Plan in 2016, but no new securities were issued under the plan during fiscal year 2018[375][376] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of April 8, 2019, Dr. Tsung-Shann Jiang is the principal beneficial owner, holding approximately 57.0% of the company's outstanding shares Beneficial Ownership of Common Stock (as of April 8, 2019) | Name of Beneficial Owner | Amount of Beneficial Ownership | Percent of Class | | :--- | :--- | :--- | | Dr. Tsung-Shann Jiang | 121,891,654 | 57.0% | | All officers and directors as a group (12 persons) | 123,280,745 | 57.63% | - Dr. Tsung-Shann Jiang holds his shares primarily through YuanGene Corporation, as well as LionArts Promotion Inc., Rgene Corporation, and BioLite, Inc[393] Certain Relationships and Related Transactions, Director Independence The company has extensive related-party transactions, including collaboration agreements and significant loans for working capital - The company has a collaboration agreement with BioLite Inc., a related party, for five drug products, with total potential payments of $100 million based on milestones, of which $10 million has been paid in cash and stock[395][396] - A collaboration agreement with BioFirst Corporation, another related party, requires the company to pay $3 million for a global license to co-develop a vitreous substitute medical device, which remains unpaid as of the report date[401][402] - The company has received multiple loans and advances from related parties for working capital, including from BioLite, BioFirst, AsianGene, and YuanGene Corporation[400][403][409] - In 2018, the company issued convertible promissory notes to related parties: $250,000 to Keypoint Technology Ltd. and $250,000 to director Yoshinobu Odaira, both bearing 8% interest[410][411] Principal Accountant Fees and Services This section details the fees paid to the company's principal accountant for 2018 and 2017, with all fees for audit services Accountant Fees | Fee Category | 2018 | 2017 | | :--- | :--- | :--- | | Audit Fees | $27,400 | $36,930 | | Audit Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total Fees | $27,400 | $36,930 | Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The auditor issued a fair opinion on financial statements but highlighted a going concern uncertainty due to recurring losses and working capital deficit - The auditor's report highlights a "going concern" uncertainty due to the company's history of losses, working capital deficit, and need for additional capital[168] Consolidated Financial Statements The consolidated financial statements show no revenue, significant operating losses, a growing accumulated deficit, and reliance on financing Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets | $96,273 | $2,643,332 | | Total Liabilities | $5,845,691 | $4,400,247 | | Total Stockholders' Deficit | ($5,749,418) | ($1,756,915) | | Accumulated Deficit | ($19,877,901) | ($15,776,598) | Consolidated Statement of Operations Highlights (Years Ended Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Revenues | $0 | $0 | | Loss from Operations | ($1,393,616) | ($4,138,750) | | Net Loss | ($4,101,303) | ($4,242,860) | | Net Loss Per Share (Basic & Diluted) | ($0.02) | ($0.02) | Consolidated Statement of Cash Flows Highlights (Years Ended Dec 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($630,195) | ($1,485,313) | | Net Cash Provided by Financing Activities | $593,000 | $1,560,000 | | Net (Decrease) Increase in Cash | ($37,195) | $74,687 | Notes to Consolidated Financial Statements The notes detail accounting policies, financial position, and significant related-party transactions, including a going concern issue and reliance on related-party financing - Note 3 (Going Concern): The company has an accumulated deficit of $19,877,901 as of Dec 31, 2018, and its ability to continue as a going concern depends on obtaining additional financing and achieving profitable operations[240] - Note 4 (Collaborative Agreements): The company has significant financial commitments under its collaboration agreement with BioLite, with total potential payments of $100 million contingent on development milestones, and a $3 million commitment to BioFirst[243][257] - Note 5 (Long-Term Investment): The company received 1,530,000 shares of Rgene Corporation common stock valued at $2.55 million in December 2018, but fully wrote off this investment in the same period due to impairment[254][259] - Note 8 (Related Parties Transactions): The company is heavily reliant on related parties for financing, with amounts due totaling $4.46 million as of Dec 31, 2018, primarily to BioFirst Corporation ($4.15 million)[274] - Note 14 (Subsequent Events): In January 2019, the company secured a $1 million revolving line of credit from Cathay Bank, guaranteed by key individuals from its merger partners, BioLite and BioKey[345][346] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements and exhibits filed with the report, including key agreements and officer certifications - This section provides an index of all financial statements and exhibits filed with the Form 10-K[416][417]