This Prospectus Supplement No. 2 (the “Prospectus
Supplement”) updates and supplements the prospectus of ABVC BioPharma, Inc., a Nevada corporation (the “Company,” “we,”
“us,” or “our”) dated December 15, 2020, as updated and amended by Preliminary Prospectus Amendment No. 1 dated
April 15, 2021, as updated and amended by the Prospectus Supplement dated May 11, 2021, the Prospectus Supplement No. 1 dated May 14,
2021 and the Prospectus Supplement No. 2 dated August 13, 2021 (collectively, the “Prospectus”), with the following attached
document which we filed with the Securities and Exchange Commission:
This Prospectus Supplement should be read in conjunction
with the Prospectus, which is required to be delivered with this Prospectus Supplement. This Prospectus Supplement updates, amends
and supplements the information included in the Prospectus. If there is any inconsistency between the information in the Prospectus and
this Prospectus Supplement, you should rely on the information in this Prospectus Supplement.
This Prospectus Supplement is not complete without,
and may not be delivered or utilized except in connection with, the Prospectus, including any amendments or supplements to it.
As of November 12, 2021, there were 28,609,388
shares of common stock, par value per share $0.001, issued and outstanding.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements.
ABVC
BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,715,609
|
|
|
$
|
4,273,208
|
|
Restricted cash and cash equivalents
|
|
|
734,163
|
|
|
|
728,163
|
|
Short-term Investment
|
|
|
111,320
|
|
|
|
-
|
|
Accounts receivable, net
|
|
|
331,367
|
|
|
|
159,712
|
|
Accounts receivable - related parties, net
|
|
|
141,826
|
|
|
|
143,435
|
|
Due from related parties
|
|
|
561,085
|
|
|
|
696,255
|
|
Inventory, net
|
|
|
60,007
|
|
|
|
-
|
|
Prepayment for long-term investments
|
|
|
639,738
|
|
|
|
-
|
|
Prepaid expense and other current assets
|
|
|
815,916
|
|
|
|
172,193
|
|
Total Current Assets
|
|
|
7,111,031
|
|
|
|
6,172,966
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
527,764
|
|
|
|
514,834
|
|
Operating lease right-of-use assets
|
|
|
1,554,280
|
|
|
|
1,772,747
|
|
Goodwill, net
|
|
|
-
|
|
|
|
-
|
|
Long-term investments
|
|
|
1,006,533
|
|
|
|
1,190,727
|
|
Deferred tax assets
|
|
|
1,993,789
|
|
|
|
1,790,597
|
|
Prepaid expenses – noncurrent
|
|
|
120,320
|
|
|
|
119,315
|
|
Security deposits
|
|
|
41,099
|
|
|
|
45,519
|
|
Total Assets
|
|
$
|
12,354,816
|
|
|
$
|
11,606,705
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
16,497
|
|
|
$
|
23,044
|
|
Short-term bank loans
|
|
|
1,637,250
|
|
|
|
1,629,000
|
|
Short-term loan
|
|
|
-
|
|
|
|
100,000
|
|
Notes payable
|
|
|
-
|
|
|
|
106,800
|
|
Accrued expenses and other current liabilities
|
|
|
1,133,748
|
|
|
|
2,118,854
|
|
Advance from customers
|
|
|
10,985
|
|
|
|
12,070
|
|
Operating lease liabilities – current portion
|
|
|
342,131
|
|
|
|
316,178
|
|
Due to related parties
|
|
|
298,269
|
|
|
|
288,445
|
|
Convertible notes payable - related parties, current portion
|
|
|
-
|
|
|
|
250,000
|
|
Total Current Liabilities
|
|
|
3,438,880
|
|
|
|
4,844,391
|
|
Paycheck Protection Program loan payable
|
|
|
104,167
|
|
|
|
124,400
|
|
Tenant security deposit
|
|
|
9,880
|
|
|
|
19,280
|
|
Operating lease liability – noncurrent portion
|
|
|
1,212,148
|
|
|
|
1,456,567
|
|
Convertible notes payable – noncurrent portion
|
|
|
-
|
|
|
|
2,500,000
|
|
Total Liabilities
|
|
|
4,765,075
|
|
|
|
8,944,638
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 20,000,000 authorized, nil shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 100,000,000 authorized, 27,935,783 and 24,420,526 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
|
|
|
27,935
|
|
|
|
24,420
|
|
Additional paid-in capital
|
|
|
49,716,411
|
|
|
|
40,751,807
|
|
Stock subscription receivable
|
|
|
(2,483,140
|
)
|
|
|
(3,160,360
|
)
|
Accumulated deficit
|
|
|
(30,548,946
|
)
|
|
|
(25,642,387
|
)
|
Accumulated other comprehensive income
|
|
|
981,718
|
|
|
|
564,860
|
|
Treasury stock
|
|
|
(9,100,000
|
)
|
|
|
(9,100,000
|
)
|
Total Stockholders’ Equity
|
|
|
8,593,978
|
|
|
|
3,438,340
|
|
Noncontrolling interest
|
|
|
(1,004,237
|
)
|
|
|
(776,273
|
)
|
Total Equity
|
|
|
7,589,741
|
|
|
|
2,662,067
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
12,354,816
|
|
|
$
|
11,606,705
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ABVC
BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues
|
|
$
|
98,999
|
|
|
$
|
115,553
|
|
|
$
|
393,590
|
|
|
$
|
420,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
393
|
|
|
|
8,619
|
|
|
|
2,284
|
|
|
|
16,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
98,606
|
|
|
|
106,934
|
|
|
|
391,306
|
|
|
|
404,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,579,996
|
|
|
|
1,262,199
|
|
|
|
3,979,283
|
|
|
|
2,693,001
|
|
Research and development expenses
|
|
|
263,424
|
|
|
|
134,501
|
|
|
|
743,617
|
|
|
|
366,374
|
|
Stock-based compensation
|
|
|
225,740
|
|
|
|
-
|
|
|
|
927,220
|
|
|
|
999,820
|
|
Total operating expenses
|
|
|
2,069,160
|
|
|
|
1,396,700
|
|
|
|
5,650,120
|
|
|
|
4,059,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,970,554
|
)
|
|
|
(1,289,766
|
)
|
|
|
(5,258,814
|
)
|
|
|
(3,655,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,333
|
|
|
|
19,571
|
|
|
|
72,584
|
|
|
|
39,641
|
|
Interest expense
|
|
|
(38,677
|
)
|
|
|
(16,311
|
)
|
|
|
(251,577
|
)
|
|
|
(288,353
|
)
|
Rent income
|
|
|
2,624
|
|
|
|
4,774
|
|
|
|
60,822
|
|
|
|
15,254
|
|
Rent income – related parties
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
3,600
|
|
|
|
3,600
|
|
Impairment loss
|
|
|
-
|
|
|
|
(8,507
|
)
|
|
|
-
|
|
|
|
(952,711
|
)
|
Investment loss
|
|
|
-
|
|
|
|
665
|
|
|
|
-
|
|
|
|
(38,272
|
)
|
Gain/Loss on foreign exchange changes
|
|
|
(5,999
|
)
|
|
|
(90
|
)
|
|
|
(10,806
|
)
|
|
|
8,569
|
|
Gain/Loss on investment in equity securities
|
|
|
(91,765
|
)
|
|
|
(887,231
|
)
|
|
|
(193,147
|
)
|
|
|
(1,067,298
|
)
|
Other (expense) income
|
|
|
(404
|
)
|
|
|
(171
|
)
|
|
|
(171
|
)
|
|
|
176,330
|
|
Government grant income
|
|
|
132,331
|
|
|
|
-
|
|
|
|
256,731
|
|
|
|
-
|
|
Total other expenses
|
|
|
8,643
|
|
|
|
(886,100
|
)
|
|
|
(61,964
|
)
|
|
|
(2,103,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision income tax
|
|
|
(1,961,911
|
)
|
|
|
(2,175,866
|
)
|
|
|
(5,320,778
|
)
|
|
|
(5,758,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
(75,667
|
)
|
|
|
(44,735
|
)
|
|
|
(186,255
|
)
|
|
|
(133,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,886,244
|
)
|
|
|
(2,131,131
|
)
|
|
|
(5,134,523
|
)
|
|
|
(5,624,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
(79,756
|
)
|
|
|
(285,085
|
)
|
|
|
(227,964
|
)
|
|
|
(681,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributed to ABVC and subsidiaries
|
|
|
(1,806,488
|
)
|
|
|
(1,846,046
|
)
|
|
|
(4,906,559
|
)
|
|
|
(4,942,881
|
)
|
Foreign currency translation adjustment
|
|
|
16,137
|
|
|
|
(25,384
|
)
|
|
|
416,858
|
|
|
|
(42,403
|
)
|
Comprehensive loss
|
|
$
|
(1,790,351
|
)
|
|
$
|
(1,871,430
|
)
|
|
$
|
(4,489,701
|
)
|
|
$
|
(4,985,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
26,882,181
|
|
|
|
19,488,168
|
|
|
|
25,053,522
|
|
|
|
19,486,959
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ABVC
BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,134,523
|
)
|
|
$
|
(5,624,450
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
8,725
|
|
|
|
30,329
|
|
Stock based compensation for non employees
|
|
|
927,220
|
|
|
|
999,820
|
|
Gain/Loss on investment in equity securities
|
|
|
193,147
|
|
|
|
1,067,298
|
|
Government grant income
|
|
|
(256,731
|
)
|
|
|
-
|
|
Other non-cash income and expenses
|
|
|
-
|
|
|
|
(15,360
|
)
|
Investment loss
|
|
|
-
|
|
|
|
990,982
|
|
Deferred tax
|
|
|
(187,055
|
)
|
|
|
(136,797
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
(171,655
|
)
|
|
|
14,051
|
|
Decrease (increase) in prepaid expenses and deposits
|
|
|
(647,219
|
)
|
|
|
47,310
|
|
Decrease (increase) in due from related parties
|
|
|
(45,784
|
)
|
|
|
381,918
|
|
Increase (decrease) in accounts payable
|
|
|
(6,547
|
)
|
|
|
(921
|
)
|
Increase (decrease) in inventory
|
|
|
(59,673
|
)
|
|
|
-
|
|
Increase (decrease) in notes payable
|
|
|
-
|
|
|
|
22,806
|
|
Increase (decrease) in accrued expenses and other current liabilities
|
|
|
(338,928
|
)
|
|
|
429,051
|
|
Increase (decrease) in advance from others
|
|
|
(1,085
|
)
|
|
|
332
|
|
Increase (decrease) in due to related parties
|
|
|
178,570
|
|
|
|
(582,242
|
)
|
Net cash used in operating activities
|
|
|
(5,541,538
|
)
|
|
|
(2,375,873
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Sale of investments
|
|
|
-
|
|
|
|
137,088
|
|
Loan to related parties
|
|
|
-
|
|
|
|
(469,627
|
)
|
Purchase of investments
|
|
|
(110,700
|
)
|
|
|
-
|
|
Purchases of property, plant and equipment
|
|
|
(17,503
|
)
|
|
|
|
|
Prepayment for equity investment
|
|
|
(636,174
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(764,377
|
)
|
|
|
(332,539
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from short-term loan
|
|
|
-
|
|
|
|
100,000
|
|
Proceeds from short-term borrowing from third parties
|
|
|
-
|
|
|
|
512,212
|
|
Proceeds from short-term borrowing from related parties
|
|
|
-
|
|
|
|
72,433
|
|
Issuance of common stock
|
|
|
6,875,000
|
|
|
|
2,153,231
|
|
Payment for offering costs
|
|
|
(850,429
|
)
|
|
|
|
|
Repayment of convertible notes
|
|
|
(306,836
|
)
|
|
|
-
|
|
Repayment of short-term loan
|
|
|
(100,000
|
)
|
|
|
-
|
|
Repayment of notes payable
|
|
|
(107,100
|
)
|
|
|
-
|
|
Proceeds from long-term loans
|
|
|
236,498
|
|
|
|
124,400
|
|
Repayment of long-term bank loans
|
|
|
(4,396
|
)
|
|
|
(263,483
|
)
|
Net cash provided by financing activities
|
|
|
5,742,737
|
|
|
|
2,698,793
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash
|
|
|
11,579
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
|
|
(551,599
|
)
|
|
|
(8,590
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
5,001,371
|
|
|
|
160,443
|
|
Ending
|
|
$
|
4,449,772
|
|
|
$
|
151,853
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest expense paid
|
|
$
|
327,642
|
|
|
$
|
130,309
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash financing and investing activities
|
|
|
|
|
|
|
Common shares issued for debt conversion
|
|
$
|
2,693,550
|
|
|
$
|
1,446,780
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ABVC
BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
|
|
Common Stock
|
|
|
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
Treasury Stock
|
|
|
Non
|
|
|
|
Total
|
|
|
|
Number of
shares
|
|
|
Amounts
|
|
|
Subscribed
Stock
|
|
|
Subscription
Receivable
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Comprehensive
Income
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
controlling
Interest
|
|
|
|
Equity
(Deficit)
|
|
Balance at December 31, 2019
|
|
|
19,478,168
|
|
|
$
|
19,478
|
|
|
$
|
|
|
|
$
|
(4,063,320
|
)
|
|
$
|
28,180,348
|
|
|
$
|
(15,851,223
|
)
|
|
$
|
663,753
|
|
|
|
(275,347
|
)
|
|
$
|
(9,100,000
|
)
|
|
$
|
26,147
|
|
|
$
|
(124,817
|
)
|
Issuance of common shares
|
|
|
10,000
|
|
|
|
10
|
|
|
|
-
|
|
|
|
225,740
|
|
|
|
41,989
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267,739
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
525
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(1,247,538
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(61,724
|
)
|
|
|
(1,309,262)
|
|
Cumulative transaction adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(6,451
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,451
|
)
|
Balance at March 31, 2020
|
|
|
19,488,168
|
|
|
|
19,488
|
|
|
|
-
|
|
|
|
(3,837,580
|
)
|
|
|
28,222,862
|
|
|
|
(17,098,761
|
)
|
|
|
657,302
|
|
|
|
(275,347
|
)
|
|
|
(9,100,000
|
)
|
|
|
(35,577
|
)
|
|
|
(1,172,266)
|
|
Issuance of common shares
|
|
|
|
|
|
|
|
|
|
|
1,697,051
|
|
|
|
225,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,922,791
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,849,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334,760
|
)
|
|
|
(2,184,057
|
)
|
Cumulative transaction adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,568
|
)
|
Balance at June 30, 2020
|
|
|
19,488,168
|
|
|
|
19,488
|
|
|
|
1,697,051
|
|
|
|
(3,611,840
|
)
|
|
|
28,222,937
|
|
|
|
(18,948,058
|
)
|
|
|
646,734
|
|
|
|
(275,347
|
)
|
|
|
(9,100,000
|
)
|
|
|
(370,337
|
)
|
|
|
(1,444,025
|
)
|
Issuance of common shares
|
|
|
905,735
|
|
|
|
906
|
|
|
|
456,180
|
|
|
|
225,740
|
|
|
|
1,725,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,408,700
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,846,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(285,085
|
)
|
|
|
(2,131,131
|
)
|
Cumulative transaction adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,384
|
)
|
Balance at September 30, 2020
|
|
|
20,393,903
|
|
|
$
|
20,394
|
|
|
|
2,153,231
|
|
|
$
|
(3,386,100
|
)
|
|
$
|
29,948,811
|
|
|
$
|
(20,794,104
|
)
|
|
$
|
621,350
|
|
|
|
(275,347
|
)
|
|
$
|
(9,100,000
|
)
|
|
$
|
(655,422
|
)
|
|
$
|
(1,191,840
|
)
|
|
|
Common Stock
|
|
|
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
Treasury Stock
|
|
|
Non
|
|
|
|
|
|
|
Number of
shares
|
|
|
Amounts
|
|
|
Subscribed
Stock
|
|
|
Subscription
Receivable
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Comprehensive
Income
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
controlling
Interest
|
|
|
Total
Equity
|
|
Balance at December 31, 2020
|
|
|
24,420,526
|
|
|
$
|
24,420
|
|
|
$
|
|
|
|
$
|
(3,160,360
|
)
|
|
$
|
40,751,807
|
|
|
$
|
(25,642,387
|
)
|
|
$
|
564,860
|
|
|
|
(275,347
|
)
|
|
$
|
(9,100,000
|
)
|
|
$
|
(776,273
|
)
|
|
$
|
2,662,067
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
225,740
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,740
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(1,128,505
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(66,818
|
)
|
|
|
(1,195,323
|
)
|
Cumulative transaction adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
36,140
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,140
|
|
Balance at March 31, 2021
|
|
|
24,420,526
|
|
|
|
24,420
|
|
|
|
-
|
|
|
|
(2,934,620
|
)
|
|
|
40,751,807
|
|
|
|
(26,770,892
|
)
|
|
|
601,000
|
|
|
|
(275,347
|
)
|
|
|
(9,100,000
|
)
|
|
|
(843,091
|
)
|
|
|
1,728,624
|
|
Issuance of common shares for consulting service
|
|
|
50,000
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
249,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,740
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,971,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,390
|
)
|
|
|
(2,052,956
|
)
|
Cumulative transaction adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,581
|
|
Balance at June 30, 2021
|
|
|
24,470,526
|
|
|
|
24,470
|
|
|
|
-
|
|
|
|
(2,708,880
|
)
|
|
|
41,001,757
|
|
|
|
(28,742,458
|
)
|
|
|
965,581
|
|
|
|
(275,347
|
)
|
|
|
(9,100,000
|
)
|
|
|
(924,481
|
)
|
|
|
515,989
|
|
Issuance of common shares for cash
|
|
|
2,354,145
|
|
|
|
2,354
|
|
|
|
|
|
|
|
|
|
|
|
6,022,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,024,571
|
|
Issuance of common shares for debt conversion
|
|
|
1,111,112
|
|
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
2,692,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,693,548
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,740
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,806,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,756
|
)
|
|
|
(1,886,244
|
)
|
Cumulative transaction adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,138
|
|
Balance at September 30, 2021
|
|
|
27,935,783
|
|
|
$
|
27,935
|
|
|
$
|
-
|
|
|
$
|
(2,483,140
|
)
|
|
$
|
49,716,411
|
|
|
$
|
(30,548,946
|
)
|
|
$
|
981,718
|
|
|
|
(275,347
|
)
|
|
$
|
(9,100,000
|
)
|
|
$
|
(1,004,237
|
)
|
|
$
|
7,589,741
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ABVC
BIOPHARMA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
ABVC
BioPharma, Inc. (the “Company”), formerly known as American BriVision (Holding) Corporation, a Nevada corporation, through
the Company’s operating entity, American BriVision Corporation (“BriVision”), which was incorporated in July 2015 in
the State of Delaware, engages in biotechnology to fulfill unmet medical needs and focuses on the development of new drugs and medical
devices derived from plants. BriVision develops its pipeline by carefully tracking new medical discoveries or medical device technologies
in research institutions in the Asia-Pacific region. Pre-clinical, disease animal model and Phase I safety studies are examined closely
by the Company to identify drugs that BriVision believes demonstrate efficacy and safety. Once a drug appears to be a good candidate
for development and ultimately commercialization, BriVision licenses the drug or medical device from the original researchers and begins
to introduce the drugs clinical plan to highly respected principal investigators in the United States, Australia and Taiwan to conduct
a Phase II clinical trial. At present, clinical trials for the Company’s drugs and medical devices are being conducted at such
world-famous institutions as Memorial Sloan Kettering Cancer Center (“MSKCC”) and MD Anderson Cancer Center. BriVision had
no predecessor operations prior to its formation on July 21, 2015.
Name
Change
The
Company’s shareholders approved an amendment to the Company’s Articles of Incorporation to change the Company’s corporate
name from American BriVision (Holding) Corporation to ABVC BioPharma, Inc. and approved and adopted the Certificate of Amendment to affect
same at the 2020 annual meeting of shareholders (the “Annual Meeting”). The name change amendment to the Company’s
Articles of Incorporation was filed with Nevada’s Secretary of State and became effective on March 8, 2021 and FINRA processed
our request to change our name on April 30, 2021, which became effective as of May 3, 2021.
The
Company’s stock symbol remains ABVC.
Reverse
Merger
On
February 8, 2016, a Share Exchange Agreement (the “Share Exchange Agreement”) was entered into by and among the Company,
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 issued 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 were 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 (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 had 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 had 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.
Upon
the consummation of the Share Exchange, BriVision became a wholly owned subsidiary of the Company.
Following
the Share Exchange, the Company has abandoned prior business plan and is 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 explore 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
On
February 8, 2019, 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”) completed the business combination pursuant
to the Agreement and Plan of Merger (the “Merger Agreement”) dated as of January 31, 2018 where ABVC acquired BioLite and
BioKey via issuing additional Common Stock of ABVC to the shareholders of BioLite and BioKey.
Pursuant
to the terms of the Merger Agreement, BioLite and BioKey became two wholly-owned subsidiaries of the Company on February 8, 2019. ABVC
issued an aggregate of 104,558,777 shares (prior to the reverse stock split in 2019) to the shareholders of both BioLite and BioKey under
a registration statement on Form S-4 (file number 333-226285), which became effective by operation of law on or about February 5, 2019.
BioLite
Holding, Inc. (the “BioLite Holding”) was incorporated under the laws of the State of Nevada on July 27, 2016. BioLite BVI,
Inc. (the “BioLite BVI”), a wholly owned subsidiary of BioLite Holding, was incorporated in the British Virgin Islands on
September 13, 2016. BioLite Holding and BioLite BVI are holding companies and have not carried out substantive business operations of
their own.
BioLite,
Inc., (the “BioLite Taiwan”) was incorporated on February 13, 2006 under the laws of Taiwan. BioLite is in the business of
developing and commercialization of new botanical drugs with application in central nervous system, autoimmunity, inflammation, hematology,
and oncology. In addition, BioLite Taiwan distributes dietary supplements made from extracts of Chinese herbs and Maitake mushroom.
In
January 2017, BioLite Holding, BioLite BVI, BioLite Taiwan, and certain shareholders of BioLite Taiwan entered into a share purchase
/ exchange agreement (the “BioLite Share Purchase / Exchange Agreement”). Pursuant to the BioLite Share Purchase / Exchange
Agreement, the shareholder participants to the BioLite Share Purchase / Exchange Agreement have sold their equity in BioLite Taiwan and
were using the proceeds from such sales to purchase shares of Common Stock of BioLite Holding at the same price per share, resulting
in their owning the same number of shares of Common Stock as they owned in the BioLite Taiwan. Upon closing of the Share Purchase/ Exchange
Agreement in August 2017, BioLite Holding ultimately owns via BioLite BVI approximately 73% of BioLite Taiwan. The other shareholders
who did not enter this Share Purchase/ Exchange Agreement retain their equity ownership in BioLite Taiwan.
BioKey,
Inc. was incorporated on August 9, 2000 in the State of California. BioKey provides a wide range of services, including, API characterization,
pre-formulation studies, formulation development, analytical method development, stability studies, IND/NDA/ANDA/510K submissions, and
manufacturing clinical trial materials (Phase I through phase III) and commercial manufacturing. It also licenses out its technologies
and initiates joint research and development processes with other biotechnology, pharmaceutical, and nutraceutical companies.
Accounting
Treatment of the Merger
The
Company adopted ASC 805, “Business Combination” to record the merger transactions of BioKey. Since the Company and BioLite
Holding are the entities under Dr. Tsung-Shann Jiang’s common control, the transaction is accounted for as a restructuring transaction. All
the assets and liabilities of BioLite Holding, BioLite BVI, and BioLite Taiwan were transferred to the Company at their respective carrying
amounts on the closing date of the Merger. The Company has recast prior period financial statements to reflect the conveyance of BioLite
Holding’s common shares as if the restructuring transaction had occurred as of the earliest date of the financial statements. All
material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings
per share (EPS) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated
and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.
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.
Inventory
Inventory
consists of raw materials, work-in-process, finished goods, and merchandise. Inventories are stated at the lower of cost or market and
valued on a moving weighted average cost basis. Market is determined based on net realizable value. The Company periodically reviews
the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge
to operations for known and anticipated inventory obsolescence.
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.
Stock
Reverse Split
On
March 12, 2019, the Board of Directors of the Company by unanimous written consent in lieu of a meeting approved to i) effect a stock
reverse split at the ratio of 1-for-18 (the “Reverse Split”) of both the authorized common stock of the Company (the “Common
Stock”) and the issued and outstanding Common Stock and ii) to amend the articles of incorporation of the Company to reflect the
Reverse Split. The Board approved and authorized the Reverse Split without obtaining approval of the Company’s shareholders pursuant
to Section 78.207 of Nevada Revised Statutes. On May 3, 2019, the Company filed a certificate of amendment to the Company’s articles
of incorporation (the “Amendment”) to effect the Reverse Split with the Secretary of State of Nevada. The Financial Industry
Regulatory Authority (“FINRA”) informed the Company that the Reverse Split was effective on May 8, 2019. All shares and related
financial information in this Form 10-K reflect this 1-for-18 reverse stock split.
Fair
Value Measurements
FASB
ASC 820, “Fair Value Measurements” defines fair value for certain financial and nonfinancial assets and liabilities that
are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It
requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and
minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related
disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs
be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets
or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the
Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based
on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability
of the inputs as follows:
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Level
1 - Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at
the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted
prices in active markets that are readily and regularly available.
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Level
2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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●
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Level
3 - Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities
is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions
a market participant would use in pricing the asset or liability.
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The
carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, restricted cash, accounts receivable,
due from related parties, inventory, prepaid expenses and other current assets, accounts payable, accrued liabilities, and due to related
parties approximate fair value due to their relatively short maturities. The carrying value of the Company’s short-term bank loan,
convertible notes payable, and accrued interest approximates their fair value as the terms of the borrowing are consistent with current
market rates and the duration to maturity is short. The carrying value of the Company’s long-term bank loan approximates fair value
because the interest rates approximate market rates that the Company could obtain for debt with similar terms and maturities.
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 September 30, 2021 and December 31, 2020, the Company’s
cash and cash equivalents amounted $3,715,609 and $4,273,208, 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. As of September 30, 2021 and December 31, 2020, the Company’s restricted cash
equivalents amounted $734,163 and $728,163, respectively.
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
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: non-refundable
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, the Company has 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)
Non-refundable 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 non-refundable 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 non-refundable 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.
(ii)
Milestone payments
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 non-refundable,
(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.
Revenues
Derived from Research and Development Activities Services — Revenues related to research and development and regulatory activities
are recognized when the related services or activities are performed, in accordance with the contract terms. The Company typically has
only one performance obligation at the inception of a contract, which is to perform research and development services. The Company may
also provide its customers with an option to request that the Company provides additional goods or services in the future, such as active
pharmaceutical ingredient, API, or IND/NDA/ANDA/510K submissions. The Company evaluates whether these options are material rights at
the inception of the contract. If the Company determines an option is a material right, the Company will consider the option a separate
performance obligation.
If
the Company is entitled to reimbursement from its customers for specified research and development expenses, the Company accounts for
the related services that it provides as separate performance obligations if it determines that these services represent a material right.
The Company also determines whether the reimbursement of research and development expenses should be accounted for as revenues or an
offset to research and development expenses in accordance with provisions of gross or net revenue presentation. The Company recognizes
the corresponding revenues or records the corresponding offset to research and development expenses as it satisfies the related performance
obligations.
The
Company then determines the transaction price by reviewing the amount of consideration the Company is eligible to earn under the contracts,
including any variable consideration. Under the outstanding contracts, consideration typically includes fixed consideration and variable
consideration in the form of potential milestone payments. At the start of an agreement, the Company’s transaction price usually
consists of the payments made to or by the Company based on the number of full-time equivalent researchers assigned to the project and
the related research and development expenses incurred. The Company does not typically include any payments that the Company may receive
in the future in its initial transaction price because the payments are not probable. The Company would reassess the total transaction
price at each reporting period to determine if the Company should include additional payments in the transaction price.
The
Company receives payments from its customers based on billing schedules established in each contract. Upfront payments and fees may be
recorded as advance from customers upon receipt or when due, and may require deferral of revenue recognition to a future period until
the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the right of the Company
to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation
at contract inception is such that the period between payment by the customers and the transfer of the promised goods or services to
the customers will be one year or less.
Property
and Equipment
Property
and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that
improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise
disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method
over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method,
including property and equipment under capital leases, generally based on the following useful lives:
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Estimated Life
in Years
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Buildings
and leasehold improvements
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5
~ 50
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Machinery
and equipment
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5
~ 10
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Office
equipment
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3
~ 6
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Impairment
of Long-Lived Assets
The
Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC
360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived
assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over
an extended period. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates
of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed
of be reported at the lower of the carrying amount or the fair value less costs to sell.
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:
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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.
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Non-marketable
cost method investments when the equity method does not apply.
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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:
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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.
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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 impairment of equity investments were
$0 for the three and nine months ended September 30, 2021. Other-than-temporary impairment of equity investments were $8,507 and
$952,711 for the three and nine months ended September 30, 2020.
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Goodwill
The
Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the
carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment
to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative
assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests
goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting
units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not
that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair
value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts
of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category
expansion, pricing, market segment share, and general economic conditions.
The
Company completed the required testing of goodwill for impairment as of September 30, 2021, and determined that goodwill was impaired
because of the current financial condition of the Company and the Company’s inability to generate future operating income without
substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that
the recoverability of goodwill is not reasonably assured.
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.
For
CDMO business unit, the Company accounts for R&D costs in accordance with Accounting Standards Codification (“ASC”) 730,
Research and Development (“ASC 730”). Research and development expenses are charged to expense as incurred unless there is
an alternative future use in other research and development projects or otherwise. Research and development expenses are comprised of
costs incurred in performing research and development activities, including personnel-related costs, facilities-related overhead, and
outside contracted services including clinical trial costs, manufacturing and process development costs for both clinical and preclinical
materials, research costs, and other consulting services. Non-refundable advance payment for goods and services that will be used in
future research and development activities are expensed when the activity has been performed or when the goods have been received rather
than when the payment is made. In instances where the Company enters into agreements with third parties to provide research and development
services, costs are expensed as services are performed.
Post-retirement
and post-employment benefits
The Company’s subsidiaries in Taiwan adopted
the government mandated defined contribution plan pursuant to the Labor Pension Act (the “Act”) in Taiwan. Such labor regulations
require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker’s
monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’
pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee
benefits, which were expensed as incurred, were $2,906 and $3,612 for the three months ended September 30, 2021 and 2020, respectively.
The total amounts for such employee benefits, which were expensed as incurred, were $8,268 and $10,969 for the nine months ended September
30, 2021 and 2020, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.
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 three and nine months
ended September 30, 2021 and 2020, respectively.
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 $225,740 and $0 for the three months ended September 30, 2021 and 2020, respectively.
Total non-employee stock-based compensation expenses were $927,220 and $999,820 for the nine months ended September 30, 2021 and 2020,
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 nine months ended September 30, 2021 and 2020. 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 the Company may take. The Company is continuing to
gather additional information to determine the final impact.
Valuation
of Deferred Tax Assets
A
valuation allowance is recorded to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized.
In assessing the need for the valuation allowance, management considers, among other things, projections of future taxable income and
ongoing prudent and feasible tax planning strategies. If the Company determines that sufficient negative evidence exists, then it will
consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording
a valuation allowance, the Company’s projections of future taxable income and other positive evidence considered in evaluating
the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove to be more difficult to support
the realization of its deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse
impact on its effective income tax rate and results. Conversely, if, after recording a valuation allowance, the Company determines that
sufficient positive evidence exists in the jurisdiction in which the valuation allowance was recorded, it may reverse a portion or all
of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable
impact on its effective income tax rate and results in the period such determination was made.
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 asset 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.
Foreign-currency
Transactions
For
the Company’s subsidiaries in Taiwan, the foreign-currency transactions are recorded in New Taiwan dollars (“NTD”)
at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange
rates when cash in foreign currency is converted into New Taiwan dollars, or when foreign-currency receivables or payables are settled,
are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency
assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except
for those foreign currencies denominated investments in shares of stock where such differences are accounted for as translation adjustments
under the Statements of Stockholders’ Equity (Deficit).
Translation
Adjustment
The
accounts of the Company’s subsidiaries in Taiwan were maintained, and their financial statements were expressed, in New Taiwan
Dollar (“NT$”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance
ASC 830, “Foreign Currency Matters”, with the NT$ as the functional currency. According to the Statement, all assets and
liabilities are translated at the current exchange rate, stockholder’s deficit are translated at the historical rates and income
statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under other
comprehensive income (loss) as a component of stockholders’ equity (deficit).
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity’s Own Equity (Subtopic 815-40), to reduce the complexity associated with applying U.S. GAAP principles
for certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting
models for convertible instruments and expand the existing disclosure requirements over earnings per share as it relates to convertible
instruments. This ASU will be effective for the fiscal year beginning January 1, 2022 and interim periods therein. Early adoption is
permitted, but no earlier than fiscal years beginning after December 15, 2020. The amendments may be adopted through either a modified
retrospective method, or a fully retrospective method. The Company is currently evaluating the impact of adopting ASU 2020-06.
3.
COLLABORATIVE AGREEMENTS
Collaborative
agreements with BHK
(i)
On February 24, 2015, BioLite Taiwan and BioHopeKing Corporation (the “BHK”) entered into a co-development agreement, (the
“BHK Co-Development Agreement”), pursuant to which it is collaborative with BHK to develop and commercialize BLI-1401-2 (Botanical
Drug) Triple Negative Breast Cancer (TNBC) Combination Therapy (BLI-1401-2 Products) in Asian countries excluding Japan for all related
intellectual property rights, and has developed it for medicinal use in collaboration with outside researchers. The development costs
shall be shared 50/50 between BHK and the Company. The BHK Co-Development Agreement will remain in effect for fifteen years from the
date of first commercial sale of the Product in in Asia excluding Japan.
On
July 27, 2016, BioLite Taiwan and BHK agreed to amend the payment terms of the milestone payment in an aggregate amount of $10 million
based on the following schedule:
|
●
|
Upon
the signing of the BHK Co-Development Agreement: $1 million, or 10% of total payment
|
|
●
|
Upon
the first Investigational New Drug (IND) submission and BioLite Taiwan will deliver all data to BHK according to FDA Reviewing requirement:
$1 million, or 10% of total payment
|
|
●
|
At
the completion of first phase II clinical trial: $1 million, or 10% of total payment
|
|
●
|
At
the initiation of phase III of clinical trial research: $3 million, or 30% of total payment
|
|
●
|
Upon
the New Drug Application (NDA) submission: $4 million, or 40% of total payment
|
In
December 2015, BHK has paid a non-refundable upfront cash payment of $1 million, or 10% of $10,000,000, upon the signing of BHK Co-Development
Agreement. The Company concluded that the deliverables are considered separate units of accounting as the delivered items have value
to the customer on a standalone basis and recognized this cash receipt as collaboration revenue when all research, technical, and development
data was delivered to BHK in 2015. The receipt is for the compensation of past research efforts and contributions made by BioLite Taiwan
before this collaborative agreement was signed and it does not relate to any future commitments made by BioLite Taiwan and BHK in this
collaborative agreement. In August 2016, the Company has received the second milestone payment of NT$31,649,000, approximately equivalent
to $1 million, and recognized collaboration revenue for the year ended December 31, 2016. As of the date of this report, the Company
has not completed the first phase II clinical trial.
In
addition to the milestone payments, BioLite Taiwan is entitled to receive royalty on 12% of BHK’s net sales related to BLI-1401-2
Products. As of September 30, 2021 and December 31, 2020, the Company has not earned the royalty under the BHK Co-Development Agreement.
(ii)
On December 9, 2015, BioLite Taiwan entered into another two collaborative agreements (the “BHK Collaborative Agreements”),
pursuant to which it is collaborative with BHK to co-develop and commercialize BLI-1005 for “Targeting Major Depressive Disorder”
(BLI-1005 Products) and BLI-1006 for “Targeting Inflammatory Bowel Disease” (BLI-1006 Products) in Asia excluding Japan for
all related intellectual property rights, and has developed it for medicinal use in collaboration with outside researchers. The development
costs shall be shared 50/50 between BHK and the Company. The BHK Co-Development Agreement will remain in effect for fifteen years from
the date of first commercial sale of the Product in in Asia excluding Japan.
In
2015, the Company recognized the cash receipt in a total of NT$50 million, approximately equivalent to $1.6 million, as collaboration
revenue when all research, technical, and development data was delivered to BHK. The Company concluded that the deliverables are considered
separate units of accounting as the delivered items have value to the customer on a standalone basis and recognized this payment as collaboration
revenue when all research, technical, data and development data was delivered to BHK. The cash receipt is for the compensation of past
research efforts and contributions made by BioLite Taiwan before this BHK Collaborative Agreements was signed and it does not relate
to any future commitments made by BioLite Taiwan and BHK in this BHK Collaborative Agreements.
In
addition to the total of NT$50 million, approximately equivalent to $1.60 million, BioLite Taiwan is entitled to receive 50% of the future
net licensing income or net sales profit. As of September 30, 2021 and December 31, 2020, the Company has not earned the royalty under
the BHK Collaborative Agreements.
Co-Development
agreement with Rgene Corporation, a related party
On
May 26, 2017, BriVision 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 12). Pursuant
to Co-Dev Agreement, BriVision and Rgene agreed to co-develop and commercialize ABV-1507 HER2/neu Positive Breast Cancer Combination
Therapy, ABV-1511 Pancreatic Cancer Combination Therapy and ABV-1527 Ovary Cancer Combination Therapy. Under the terms of the Co-Dev
Agreement, Rgene is required to 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. In addition to $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
costs 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
December 31, 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 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. All projects that have been initiated will be managed and supported by the Company and Rgene.
The
Company and Rgene signed an amendment to the Co-Dev Agreement on November 10, 2020, pursuant to which both parties agreed to delete AB-1507
HER2/neu Positive Breast Cancer Combination Therapy and AB 1527 Ovary Cancer Combination Therapy and add ABV-1519 EGFR Positive Non-Small
Cell Lung Cancer Combination Therapy and ABV-1526 Large Intestine / Colon / Rectal Cancer Combination Therapy to the products to be co-developed
and commercialized. Other provisions of the Co-Dev Agreement remain in full force and effect.
Collaborative
agreement with BioFirst Corporation, a related party
On
July 24, 2017, BriVision 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 12).
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. 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 December 31, 2017.
On
September 30, 2019, BriVision entered into a Stock Purchase Agreement (the “Purchase Agreement”) with BioFirst Corporation.
Pursuant to the Purchase Agreement, the Company issued 428,571 shares of the Company’s common stock to BioFirst in consideration
for $3,000,000 owed by the Company to BioFirst (the “Total Payment”) in connection with a certain collaborative agreement
between the Company and BioFirst dated July 24, 2017 (the “Collaborative Agreement”). Pursuant to the Collaborative Agreement,
BioFirst granted the Company the global licensing right to co-develop BFC-1401 or ABV-1701 Vitreous Substitute for Vitrectomy for medical
purposes in consideration for the Total Payment.
On
August 5, 2019, BriVision entered into a second Stock Purchase Agreement (“Purchase Agreement 2”) with BioFirst Corporation.
Pursuant to Purchase Agreement 2, the Company issued 414,702 shares of the Company’s common stock to BioFirst in consideration
for $2,902,911 owed by the Company to BioFirst in connection with a loan provided to BriVision from BioFirst.
4.
INVENTORY
Inventory
consists of the following:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Finished goods
|
|
$
|
101,818
|
|
|
$
|
100,967
|
|
Work-in-process
|
|
|
56,329
|
|
|
|
22,038
|
|
Raw materials
|
|
|
88,140
|
|
|
|
61,718
|
|
Allowance for inventory valuation and obsolescence loss
|
|
|
(186,280
|
)
|
|
|
(184,723
|
)
|
Inventory, net
|
|
$
|
60,007
|
|
|
$
|
-
|
|
5.
PROPERTY AND EQUIPMENT
Property
and equipment as of September 30, 2021 and December 31, 2020 are summarized as follows:
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Land
|
|
$
|
398,979
|
|
|
$
|
395,645
|
|
Buildings and leasehold improvements
|
|
|
2,234,689
|
|
|
|
2,233,573
|
|
Machinery and equipment
|
|
|
1,013,044
|
|
|
|
994,544
|
|
Office equipment
|
|
|
191,308
|
|
|
|
189,760
|
|
|
|
|
3,838,020
|
|
|
|
3,813,522
|
|
Less: accumulated depreciation
|
|
|
(3,310,256
|
)
|
|
|
(3,298,688
|
)
|
Property and equipment, net
|
|
$
|
527,764
|
|
|
$
|
514,834
|
|
Depreciation expenses were $2,856 and $8,730 for
three months ended September 30, 2021 and 2020, respectively.
Depreciation expenses were $8,725 and $30,329
for nine months ended September 30, 2021 and 2020, respectively.
6.
LONG-TERM INVESTMENTS
(1)
|
The
ownership percentages of each investee are listed as follows:
|
|
|
Ownership
percentage
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Accounting
|
Name
of related party
|
|
2021
|
|
|
2020
|
|
|
treatments
|
Braingenesis
Biotechnology Co., Ltd.
|
|
|
0.17
|
%
|
|
|
0.17
|
%
|
|
Cost
Method
|
Genepharm
Biotech Corporation
|
|
|
0.70
|
%
|
|
|
0.70
|
%
|
|
Cost
Method
|
BioHopeKing
Corporation
|
|
|
5.90
|
%
|
|
|
5.90
|
%
|
|
Cost
Method
|
BioFirst
Corporation
|
|
|
15.99
|
%
|
|
|
15.99
|
%
|
|
Equity
Method
|
Rgene
Corporation
|
|
|
31.62
|
%
|
|
|
31.62
|
%
|
|
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
|
Braingenesis Biotechnology Co., Ltd.
|
|
No specific business relationship
|
Genepharm Biotech Corporation
|
|
No specific business relationship
|
BioHopeKing Corporation
|
|
Collaborating with the Company to develop and commercialize drugs
|
BioFirst Corporation
|
|
Loaned from the investee and provides research and development support service
|
Rgene Corporation
|
|
Collaborating with the Company to develop and commercialize drugs
|
(3)
|
Long-term investment mainly consists of the following:
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Non-marketable Cost Method Investments, net
|
|
|
|
|
|
|
Braingenesis Biotechnology Co., Ltd.
|
|
$
|
7,919
|
|
|
$
|
7,853
|
|
Genepharm Biotech Corporation
|
|
|
24,177
|
|
|
|
23,974
|
|
BioHopeKing Corporation
|
|
|
898,068
|
|
|
|
890,564
|
|
Sub total
|
|
|
930,164
|
|
|
|
922,391
|
|
Equity Method Investments, net
|
|
|
|
|
|
|
|
|
BioFirst Corporation
|
|
|
76,369
|
|
|
|
268,336
|
|
Rgene Corporation
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,006,533
|
|
|
$
|
1,190,727
|
|
(a)
|
BioFirst Corporation (the “BioFirst”):
|
The Company holds an equity interest
in BioFirst Corporation, accounting for its equity interest using the equity method to accounts for 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. As of September 30, 2021 and
December 31, 2020, the Company owns 15.99% and 15.99% common stock shares of BioFirst, respectively. During the nine months ended September
30, 2021, the Company made prepayment for equity investment in BioFirst to purchase additional 297,000 shares to be issued by BioFirst
in the aggregate amount of $639,738, recorded as prepayment for long-term investments as of September 30, 2021.
Summarized financial information for the Company’s
equity method investee, BioFirst, is as follows:
Balance Sheet
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
$
|
1,752,070
|
|
|
$
|
1,299,822
|
|
Non-current Assets
|
|
|
2,533,136
|
|
|
|
2,540,041
|
|
Current Liabilities
|
|
|
2,680,177
|
|
|
|
1,986,340
|
|
Non-current Liabilities
|
|
|
40,008
|
|
|
|
73,197
|
|
Stockholders’ Equity
|
|
|
1,565,021
|
|
|
|
1,780,326
|
|
Statement of Operations
|
|
Nine months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
Net sales
|
|
$
|
17,451
|
|
|
$
|
134,759
|
|
Gross profit
|
|
|
5,414
|
|
|
|
6,397
|
|
Net loss
|
|
|
(887,230
|
)
|
|
|
(4,936,294
|
)
|
Share of losses from investments accounted for using the equity method
|
|
|
(193,147
|
)
|
|
|
(1,067,298
|
)
|
(b)
|
Rgene Corporation (the “Rgene”)
|
Both Rgene and the Company are under
common control by Dr. Tsung-Shann Jiang, the CEO and chairman of the BioLite Inc. Since Dr. Tsung-Shann Jiang is able to exercise significant
influence, but not control, over the Rgene, the Company determined to use the equity method to accounts for 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. As of September 30, 2021 and
December 31, 2020, the Company owns 31.62% and 31.62% Common Stock shares of Rgene, respectively.
Summarized financial information for the Company’s
equity method investee, Rgene, is as follows:
Balance Sheets
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
$
|
81,599
|
|
|
$
|
123,958
|
|
Noncurrent Assets
|
|
|
376,369
|
|
|
|
412,342
|
|
Current Liabilities
|
|
|
1,765,628
|
|
|
|
1,392,756
|
|
Noncurrent Liabilities
|
|
|
9,897
|
|
|
|
38,953
|
|
Shareholders’ Deficit
|
|
|
(1,317,557
|
)
|
|
|
(895,409
|
)
|
Statement of Operations
|
|
Nine months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
16,449
|
|
Gross Profit
|
|
|
-
|
|
|
|
(332,763
|
)
|
Net loss
|
|
|
(411,897
|
)
|
|
|
(441,678
|
)
|
Share of loss from investments accounted for using the equity method
|
|
|
-
|
|
|
|
-
|
|
(4)
|
Disposition of long-term investment
|
During the year ended December 31,
2020, the Company sold 218,000 shares of common stock of BioHopeKing Corporation at price of NT$24, equivalent $0.85, to several individuals,
and the percentage of ownership decreased to 5.90% as of December 31, 2020. As a result of the transactions, the Company recognized investment
loss of $40,589 and impairment loss of $961,217 for the same period. During the nine months ended September 30, 2021, there is no disposition
of long-term investment.
(5)
|
Losses on Equity Investments
|
The components of losses on equity investments
for each period were as follows:
|
|
Nine months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
Share of equity method investee losses
|
|
$
|
(193,147
|
)
|
|
$
|
(1,067,298
|
)
|
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. On January 21, 2020, Yu and Wei entered into a new agreement that the new Note bears
interest at 20% 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 Twelve (12) month anniversary of the issuance date of the new “Yu and Wei” Note, which is on January
20, 2021. On April 5, 2020, the Company entered into an exchange agreement with “Yu and Wei”. The aggregate principal amount
plus accrued interest expenses were $354,722, and the Company agreed to issue to the Holders an aggregate of 192,784 shares of the Company’s
common stock, and warrants to purchase 192,784 shares of the Company’s common stock. As of September 30, 2021, these common shares
have been issued.
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. On January 21, 2020, Keypoint entered into a new agreement that the new Note bears interest at 20% per annum.
The Company shall pay to the Keypoint an amount in cash representing all outstanding principal and accrued and unpaid interest on the
Twelve (12) month anniversary of the issuance date of the new “Keypoint” Note, which is on January 20, 2021. On April 5, 2020,
the Company entered into an exchange agreement with “Keypoint”. The aggregate principal amount plus accrued interest expenses
were $292,826, and the Company agreed to issue to the Holders an aggregate of 159,145 shares of the Company’s common stock, and
warrants to purchase 159,145 shares of the Company’s common stock. As of September 30, 2021, these common shares have been issued.
On August 25, 2018, the Company issued an eighteen-month
term unsecured convertible promissory notes (the “Odaira Note”) in the aggregate principal amount of $250,000 to Yoshinobu
Odaira. (“Odaira”), pursuant to which the Company received $250,000. 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. On January 21,
2020, Odaira entered into a new agreement that the new Note bears interest at 20% per annum. The Company shall pay to the Odaira an amount
in cash representing all outstanding principal and accrued and unpaid interest on the Twelve (12) month anniversary of the issuance date
of the new “Odaira” Note, which is on January 20, 2021. On April 5, 2020, the Company entered into an exchange agreement with
“Odaira”. The aggregate principal amount plus accrued interest expenses were $284,036, and the Company agreed to issue to
the Holders an aggregate of 154,368 shares of the Company’s common stock, and warrants to purchase 154,368 shares of the Company’s
common stock. As of September 30, 2021, these common shares have been issued.
On May 30 and July 10, 2019, the Company issued
two (2) twelve-month term unsecured convertible promissory notes (the “KSL Note”) in an aggregate principal amount of $250,000
to Kuo Sheng Lung (the “KSL”), pursuant to which the Company received $160,000 and $90,000, respectively. The KSL Note bears
interest at 20% per annum. The Company shall pay to KSL an amount in cash representing all outstanding principal and accrued and unpaid
interest on the Twelve (12) month anniversary of the issuance date of the KSL Note, which is on May 29, 2020 and July 9, 2020. At any
time from the issuance date until the KSL Note has been satisfied, the KSL 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) $0.50 per share (the “Fixed Conversion Price”), subject to adjustment, or (ii) 70%
of the per share offering price (the “Alternative Conversion Price”) of the completed public equity offering of the Company
in an amount exceeding $10,000,000 as stated on the registration statement on a Form S-1 filed with the Securities and Exchange Commission
on November 14, 2018 (the “Public Offering”), as amended from time to time. In accordance with FASB ASC 470-20, the Company
recognized none of the intrinsic value of the embedded beneficial conversion feature present in the KSL Note. On May 13, 2020, the Company
received an acknowledgement letter from KSL that they will not claim the repayment of loan for 12 months. On November 9, 2020, the Company
entered into an agreement with “KSL”. The aggregate principal amount plus accrued interest expenses are $270,272, and KSL
agreed to use the full amount to purchase certain securities pursuant to a securities purchase agreement; KSL agreed to purchase and the
Company agreed to issue 120,121 shares of the Company’s common stock and warrants for a purchase price of $270,272. As of September
30, 2021, the Company issued to the Holders an aggregate of 120,121 shares of the Company’s common stock.
On July 10, 2019, the Company issued a twelve-month
term unsecured convertible promissory note (the “NEA Note”) in an aggregate principal amount of $250,000 to New Eastern Asia
(the “NEA”), a related party, pursuant to which the Company received $250,000 on July 10, 2019. The NEA Note bears interest
at 20% per annum. The Company shall pay to the NEA an amount in cash representing all outstanding principal and accrued and unpaid interest
on the Twelve (12) month anniversary of the issuance date of the NEA Note, which is on July 9, 2020. At any time from the date hereof
until this NEA Note has been satisfied, the NEA 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) $.50 per share (the “Fixed Conversion Price”), subject to adjustment, or (ii) 70% of the per share
offering price (the “Alternative Conversion Price”) of the completed public equity offering of the Company in an amount exceeding
$10,000,000 as stated on the registration statement on a Form S-1 filed with the Securities and Exchange Commission on November 14, 2018
(the “Public Offering”), as amended from time to time. In accordance with FASB ASC 470-20, the Company recognized none of
the intrinsic value of embedded beneficial conversion feature present in the NEA Note. As of September 30, 2021, the Company paid off
the convertible promissory note of $306,667, including principal and accrued and unpaid interest expense.
On August 28, 2019, the Company issued a twelve-month
term unsecured convertible promissory note (the “KLS Note”) in an aggregate principal amount of $200,000 to Kuo Li Shen (the
“KLS”), pursuant to which the Company received $200,000 on August 28, 2019. The KLS Note bears interest at 20% per annum.
The Company shall pay to the KLS an amount in cash representing all outstanding principal and accrued and unpaid interest on the Twelve
(12) month anniversary of the issuance date of the KLS Note, which is on August 27, 2020. At any time from the date hereof until this
KLS Note has been satisfied, the KLS 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) $.50 per share (the “Fixed Conversion Price”), subject to adjustment, or (ii) 70% of the per share offering
price (the “Alternative Conversion Price”) of the completed public equity offering of the Company in an amount exceeding $10,000,000
as stated on the registration statement on a Form S-1 filed with the Securities and Exchange Commission on November 14, 2018 (the “Public
Offering”), as amended from time to time. In accordance with FASB ASC 470-20, the Company recognized none of the intrinsic value
of embedded beneficial conversion feature present in the KLS Note. On April 20, 2020, the Company entered into an exchange agreement with
KLS. The aggregate principal amount plus accrued interest expenses were $225,222, and the Company agreed to issue to the Holders an aggregate
of 126,530 shares of the Company’s common stock, and warrants to purchase 126,530 shares of common stock. As of September 30, 2021,
these common shares have been issued.
On September 4, 2019, the Company issued 3 twelve-month
term unsecured convertible promissory note (the “C.L.L. Note”) in an aggregate principal amount of $257,500 to Chang Ping
Shan, Lin Shan Tyan, and Liu Ching Hsuan (together the “C.L.L.”), pursuant to which the Company received $257,500 on September
4, 2019. Chang Ping Shan and Liu Ching Hsuan are related parties to the Company. The C.L.L. Note bears interest at 20% per annum. The
Company shall pay to the C.L.L. an amount in cash representing all outstanding principal and accrued and unpaid interest on the Twelve
(12) month anniversary of the issuance date of the C.L.L. Note, which is on September 3, 2020. At any time from the date hereof until
this C.L.L. Note has been satisfied, the C.L.L. 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) $.50 per share (the “Fixed Conversion Price”), subject to adjustment, or (ii) 70% of the per share
offering price (the “Alternative Conversion Price”) of the completed public equity offering of the Company in an amount exceeding
$10,000,000 as stated on the registration statement on a Form S-1 filed with the Securities and Exchange Commission on November 14, 2018
(the “Public Offering”), as amended from time to time. In accordance with FASB ASC 470-20, the Company recognized none of
the intrinsic value of embedded beneficial conversion feature present in the C.L.L. Note. On April 20, 2020, the Company entered into
an exchange agreement with C.L.L.. The aggregate principal amount plus accrued interest expenses were $289,974, and the Company agreed
to issue to the Holders an aggregate of 162,908 shares of the Company’s common stock, and warrants to purchase 162,908 shares of
common stock. As of September 30, 2021, these common shares have been issued.
On October 29, 2019, the Company issued a twelve-month
term unsecured convertible promissory note (the “Lee Note”) in an aggregate principal amount of $250,000 to Hwalin Lee (the
“Lee”), a related party, pursuant to which the Company received $250,000 on October 29, 2019. The Lee Note bears interest
at 20% per annum. The Company shall pay to the Lee an amount in cash representing all outstanding principal and accrued and unpaid interest
on the Twelve (12) month anniversary of the issuance date of the Lee Note, which is on October 28, 2020. At any time from the date hereof
until this Lee Note has been satisfied, the Lee 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) $.50 per share (the “Fixed Conversion Price”), subject to adjustment, or (ii) 70% of the per share
offering price (the “Alternative Conversion Price”) of the completed public equity offering of the Company in an amount exceeding
$10,000,000 as stated on the registration statement on a Form S-1 filed with the Securities and Exchange Commission on November 14, 2018
(the “Public Offering”), as amended from time to time. In accordance with FASB ASC 470-20, the Company recognized none of
the intrinsic value of embedded beneficial conversion feature present in the Lee Note. As of September 30, 2021, the Company paid off
the convertible promissory note of $311,233, including principal and accrued and unpaid interest expense.
On October 23, 2020, the Company entered into
a Securities Purchase Agreement (the “October SPA”) with one accredited investor. Pursuant to the October SPA, the Company
sold and issued a convertible promissory note (the “October Note”) in the principal amount of $2,500,000 to the investor and
received the payment from such investor on October 30, 2020. The October Note was issued on October 23, 2020 and the maturity date of
the October Note is the twenty-four (24) month anniversary from the issuance date (the “Maturity Date”). Upon the Maturity
Date, the Company shall pay to the holder, in cash, an amount representing all outstanding principal amount and accrued and unpaid interest
under the October Note. The October Note bears an interest rate of ten percent (10%) per annum and may be convertible into shares of the
Company’s common stock at a fixed conversion price of $2.25 per share. The holder of the October Note may elect to convert part
or all of the outstanding balance of the October Note from the issuance date until the Maturity Date. The Company may prepay the outstanding
amount at any time, in whole or in part, without any penalty.
On May 17, 2021, the parties to the October
SPA signed Amendment No. 1 to Promissory Note (the “Amendment”). Pursuant to the Amendment, the Note shall also be
automatically converted into shares of the Company’s common stock immediately following the Company’s receipt of
conditional approval to list its common stock on the NASDAQ stock market, if and when the Company receives such approval, at a conversion price equal to $2.25 per share. On July 21, 2021, The Company converted all convertible
promissory note amounted $2,500,000 into 1,111,112 shares of the Company’s common stock and warrants.
As of September 30, 2021 and December 31, 2020,
the aggregate carrying values of the convertible debentures were $0 and $2,750,000, respectively; and accrued convertible interest was
$0 and $104,551, respectively.
Total interest expenses in connection with the
above convertible note payable were $20,833 and ($23,472) for the three months ended September 30, 2021 and 2020, respectively.
Total interest expenses in connection with the
above convertible note payable were $150,230 and $ $172,117 for the nine months ended September 30, 2021 and 2020, respectively.
8. BANK LOANS
(1)
|
Short-term bank loan consists of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cathay United Bank
|
|
$
|
269,250
|
|
|
$
|
267,000
|
|
CTBC Bank
|
|
|
718,000
|
|
|
|
712,000
|
|
Cathay Bank
|
|
|
650,000
|
|
|
|
650,000
|
|
Total
|
|
$
|
1,637,250
|
|
|
$
|
1,629,000
|
|
Cathay United Bank
On June 28, 2016, BioLite Taiwan and Cathay United
Bank entered into a one-year bank loan agreement (the “Cathay United Loan Agreement”) in an amount of NT$7,500,000, equivalent
to $269,250. The term started June 28, 2016 with maturity date at June 28, 2017. The loan balance bears interest at a floating rate of
prime rate plus 1.15%. The prime rate is based on term deposit saving interest rate of Cathay United Bank. On September 6, 2017, BioLite
Taiwan extended the Cathay United Loan Agreement for one year, which was due on September 6, 2018, with the principal amount of NT$7,500,000,
equivalent to $269,250. On October 1, 2018, BioLite Taiwan extended the Cathay United Loan Agreement with the same principal amount of
NT$7,500,000, equivalent to $269,250 for one year, which was due on September 6, 2019. On September 6, 2019, BioLite Taiwan extended the
Cathay United Loan Agreement with the same principal amount of NT$7,500,000, equivalent to $269,250 for one year, which is due on September
6, 2020. On September 6, 2020, BioLite Taiwan extended the Cathay United Loan Agreement with the same principal amount of NT$7,500,000,
equivalent to $269,250 for one year, which is due on September 6, 2021. As of September 30, 2021 and December 31, 2020, the effective
interest rates per annum was 2.1%. The loan is collateralized by the building and improvement of BioLite Taiwan, and is also personal
guaranteed by the Company’s chairman.
Interest expenses were $1,417 and $1,256 for the
three months ended September 30, 2021 and 2020, respectively.
Interest expenses were $4,221 and $3,919 for the
nine months ended September 30, 2021 and 2020, respectively.
CTBC Bank
On June 12, 2017 and July 19, 2017, BioLite Taiwan
and CTBC Bank entered into short-term saving secured bank loan agreements (the “CTBC Loan Agreements”) in an amount of NT$10,000,000,
equivalent to $359,000, and NT$10,000,000, equivalent to $359,000, respectively. Both two loans with the same maturity date at January
19, 2018. In February 2018, BioLite Taiwan combined two loans and extended the loan contract with CTBC for one year. On January 18, 2019,
BioLite Taiwan and CTBC Bank agreed to extend the loan with a new maturity date, which was July 18, 2019. On July 18, 2019, BioLite Taiwan
extended the CTBC Loan Agreement with the same principal amount of NT$20,000,000, equivalent to $718,000 for nine months, which is due
on January 17, 2020. On January 19, 2020, BioLite Taiwan extended the CTBC Loan Agreement with the same principal amount of NT$20,000,000,
equivalent to $718,000 for nine months, which is due on July 19, 2020. On July 17, 2020, BioLite Taiwan extended the CTBC Loan Agreement
with the same principal amount of NT$20,000,000, equivalent to $718,000 for nine months, which is due on January 15, 2021. On January
15, 2021, BioLite Taiwan extended the CTBC Loan Agreement with the same principal amount of NT$20,000,000, equivalent to $718,000 for
nine months, which is due on July 15, 2021. On July 15, 2021, BioLite Taiwan extended the CTBC Loan Agreement with the same principal
amount of NT$20,000,000, equivalent to $718,000 for nine months, which is due on January 14, 2022. The loan balances bear interest at
a fixed rate of 1.68% per annum. The loan is secured by the money deposited in a savings account with the CTBC Bank. This loan was also
personal guaranteed by the Company’s chairman and BioFirst. During the year ended December 31, 2020, BioLite Taiwan has opened a
TCD account with CTBC bank to guarantee the loan going forward.
Interest expenses were $3,023 and $2,896 for the
three months ended September 30, 2021 and 2020, respectively.
Interest expenses were $9,005 and $8,479 for the
nine months ended September 30, 2021 and 2020, respectively.
Cathay Bank
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. On December 29, 2020, the Company
entered into a new loan extension agreement and assignment of deposit account with the Bank, which allowed Dr. Tsung Shann Jiang and Dr.
George Lee to be removed as guarantees from the list of Guaranty.
In addition, on January 8, 2019, each of the Company
and BioKey, 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 BioKey (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. On March 31, 2020, the Company extended the Loan Agreement
with the same term for seven months, which is due on October 31, 2020. On April 8, 2020 and October 3, 2020, the Company repaid an aggregated
principal amount of $350,000. On December 3, 2020, The Company renewed the Loan Agreement with the principal amount of $650,000 for ten
months, which is due on October 31, 2021. On September 30, 2021, the Cathay Bank has increased the line of credit to $1,000,000 from $650,000.
The outstanding loan balance was $650,000 as of September 30, 2021.
Interest expenses were $4,014 and $12,458 for
the three months ended September 30, 2021 and 2020, respectively.
Interest expenses were $11,911 and $46,780 for
the nine months ended September 30, 2021 and 2020, respectively.
9. PAYCHECK PROTECTION PROGRAM LOAN PAYABLE
On April 14, 2020, the Company received a loan
in the amount of $124,400 under the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration
(the “SBA”) from East West Bank. According to the Coronavirus Aid, Relief, and Economic Security Act (the “Cares Act”),
PPP loan provides for forgiveness of up to the full principal amount and accrued interest if the funds are used for payroll costs, interest
on mortgages, rent, and utilities. However, at least 60% of the forgiven amount must have been used for payroll.
The loan was granted pursuant to a promissory
note dated April 14, 2020 issued by the Company, which matures on April 13, 2022 and bears interest at a rate of 1.00% per annum. The
Company will pay the principal in one payment of all outstanding principal plus all accrued unpaid interest on that date that is two years
after the date of the promissory note. In addition, the Company will pay regular monthly payments in an amount equal to one month’s
accrued interest commencing on the date that is seven months after the date of the promissory note, with all subsequent interest payments
to be due on the same day of each month after that. No collateral or personal guarantees are required.
On January 29, 2021, BioKey received a loan in
the amount of $132,331 under the Paycheck Protection Program administered by the United States Small Business Administration from East
West Bank. According to the Coronavirus Aid, Relief, and Economic Security Act, PPP loan provides for forgiveness of up to the full principal
amount and accrued interest if the funds are used for payroll costs, interest on mortgages, rent, and utilities. However, at least 60%
of the forgiven amount must have been used for payroll. The loan was granted pursuant to a promissory note dated January 27, 2021 issued
by the Company, which matures on January 28, 2026 and bears interest at a rate of 1.00% per annum. The Company will pay the principal
in one payment of all outstanding principal plus all accrued unpaid interest on that date that is five years after the date of the promissory
note. No collateral or personal guarantees are required.
On February 7, 2021, the Company received a loan
in the amount of $104,167 under the Paycheck Protection Program administered by the United States Small Business Administration from Cathay
Bank. According to the Coronavirus Aid, Relief, and Economic Security Act, PPP loan provides for forgiveness of up to the full principal
amount and accrued interest if the funds are used for payroll costs, interest on mortgages, rent, and utilities. However, at least 60%
of the forgiven amount must have been used for payroll. The loan was granted pursuant to a promissory note dated February 7, 2021 issued
by the Company, which matures on February 6, 2026 and bears interest at a rate of 1.00% per annum. The Company will pay the principal
in one payment of all outstanding principal plus all accrued unpaid interest on that date that is five years after the date of the promissory
note. No collateral or personal guarantees are required.
PPP loan Forgiveness
On February 27, 2021, the Company submitted all
required to East West Bank for the application of forgiveness. During 2021, the PPP loan from East West Bank of $124,400 was forgiven
by the SBA as a gesture of supporting the operation of the Company. On September 28, 2021, the second round of PPP loan of $132,331 was
forgiven. The Company recorded the forgiveness of the PPP loan as government grant income in the amount of $132,331 and $256,731 for the
three and nine months ended September 30, 2021.
10. NOTES PAYABLE
In January, 2019, BioLite Taiwan entered an unsecured
loan agreement with one individual bearing interest at fixed rates at 12% per annum of NT$3,000,000, equivalent to $106,800, for working
capital purpose. On September 11, 2021 the outstanding balance has been repaid in full. As of September 30, 2021 and December 31, 2020,
the balance due to this individual amounted to $0 and $106,800, respectively. Interest expense was $2,142 and $3,014 for the three
months ended September 30, 2021 and 2020, respectively. Interest expense was $8,568 and $6,002 for the nine months ended September 30,
2021 and 2020, respectively.
11. SHORT-TERM LOAN
On
February 18, 2020, the Company entered an unsecured loan agreement with a third-party in the amount of $100,000. This loan bears the
interest rate of 1.5% per annum and will be matured on August 17, 2020. On August 18, 2020, the Company extended the contract for nine
months under the same term. On February 18, 2021, the Company extended the contract for nine months under the same term. On August 26,
2021, the loan with interest totaling $102,272 has been repaid in full. Accrued interest expense was $0 and $1,302 as of September 30,
2021 and December 31, 2020, respectively.
12. 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
|
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
|
YuanGene Corporation (the “YuanGene”)
|
|
Controlling beneficiary shareholder of the Company
|
AsiaGene Corporation (the “AsiaGene”)
|
|
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.
|
Lion Arts Promotion Inc. (the “Lion Arts”)
|
|
Shareholder of the Company
|
Yoshinobu Odaira (the “Odaira”)
|
|
Director of the Company
|
GenePharm Inc. (the “GenePharm”)
|
|
Dr. George Lee, Board Director of Biokey, is the Chairman of GenePharm.
|
Euro-Asia Investment & Finance Corp Ltd. (the “Euro-Asia”)
|
|
Shareholder of the Company
|
LBG USA, Inc. (the “LBG USA”)
|
|
100% owned by BioFirst; Entity controlled by controlling beneficiary shareholder of YuanGene
|
LionGene Corporation (the “LionGene”)
|
|
Shareholder of the Company; Entity controlled by controlling beneficiary shareholder of YuanGene
|
Kimho Consultants Co., Ltd. (the “Kimho”)
|
|
Shareholder of the Company
|
|
|
Mr. Tsung-Shann Jiang, the controlling beneficiary shareholder of the Company and Rgene, the Chairman and CEO of the BioLite Holding Inc. and BioLite Inc. and the President and a member of board of directors of BioFirst
Ms. Shu-Ling Jiang, Mr. Tsung-Shann Jiang’s wife, is the Chairman of Keypoint; and a member of board of directors of BioLite Inc.
Mr. Eugene Jiang is Mr. and Ms. Jiang’s son. Mr. Eugene Jiang is the chairman, and majority shareholder of the Company and a member of board of directors of BioLite Inc.
Mr. Chang-Jen Jiang is Mr. Tsung-Shann Jiang’s sibling and the director of the Company.
Ms. Mei-Ling Jiang is Ms. Shu-Ling Jiang’s sibling.
|
Amkey Ventures, LLC (“Amkey”)
|
|
An entity controlled by Dr. George Lee, who serves as one of the board directors of BioKey, Inc
|
BioLite Japan
|
|
Entity controlled by controlling beneficiary shareholder of ABVC
|
Accounts receivable - related parties
Accounts receivable due from related parties consisted
of the following as of the periods indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
GenePharm Inc.
|
|
$
|
141,826
|
|
|
$
|
142,225
|
|
Amkey
|
|
|
-
|
|
|
|
1,210
|
|
Total
|
|
$
|
141,826
|
|
|
$
|
143,435
|
|
Due from related parties
Amount due from related parties consisted of the
following as of the periods indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Rgene
|
|
$
|
47,756
|
|
|
$
|
42,911
|
|
AsiaGene
|
|
|
-
|
|
|
|
4,241
|
|
BioFirst
|
|
|
1,110
|
|
|
|
-
|
|
BioFirst (Australia)
|
|
|
234,606
|
|
|
|
373,235
|
|
BioHopeKing Corporation
|
|
|
124,625
|
|
|
|
123,583
|
|
LBG USA
|
|
|
675
|
|
|
|
675
|
|
BioLite Japan
|
|
|
150,000
|
|
|
|
150,000
|
|
Keypoint
|
|
|
1,610
|
|
|
|
1,610
|
|
The Jiangs
|
|
|
703
|
|
|
|
-
|
|
Total
|
|
$
|
561,085
|
|
|
$
|
696,255
|
|
(1)
|
As of September 30, 2021, and December 31, 2020, the Company has advanced an aggregate amount of $47,756 and $42,911 to Rgene for working capital purpose. Under the terms of the loan agreement, the loan bears interest at 1% per month (or equivalent to 12% per annum) and the maturity date was December 31, 2020. As of September 30, 2021, and December 31, 2020, the outstanding loan balance was $33,431 and $31,684; and accrued interest was $12,704 and $11,227, respectively. On January 1, 2021, BioLite Taiwan entered into a consultant services agreement with Rgene. The respective amount due from Rgene for the nine months ended September 30, 2021 and December 31, 2020 was $1,621 and $0, respectively.
|
(2)
|
On May 27, 2019, the Company entered into loan agreements with AsiaGene for NT $100,000, equivalent to $3,560, 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 loan maturity date was December 31, 2020. As of September 30, 2021, and December 31, 2020, the outstanding loan balance was $0 and $3,560, and accrued interest was $0 and $681, respectively.
|
(3)
|
On May 11, 2018, the Company and BioFirst (Australia) entered into a loan agreement for a total amount of $40,000 to meet its working capital needs. The advances bear 0% interest rate and are due on demand prior to September 30, 2020. Afterwards, all outstanding load will bear interest rate at 12% per annum. On July 1, 2020, the Company entered into a loan agreement with BioFirst (Australia) for $361,487 to properly record R&D cost and tax refund allocation based on co-development contract executed on July 24, 2017. The loan will be matured on September 30, 2021 with an interest rate of 6.5% per annum. On September 7, 2021, the Company entered into a loan agreement with BioFirst (Australia) for $67,873 to meet its new project needs. As of September 30, 2021 and December 31, 2020, the aggregate amount of outstanding loan and accrued interest was $234,606 and $373,235, respectively.
|
(4)
|
On February 24, 2015, BioLite Taiwan and BioHopeKing Corporation (the “BHK”) entered into a co-development agreement, (the “BHK Co-Development Agreement”, see Note 3). The development costs shall be shared 50/50 between BHK and the Company. Under the term of the agreement, BioLite issued relevant development cost to BHK. As of September 30, 2021 and 2020, due from BHK was $124,625 and $123,583, respectively.
|
(5)
|
On February 27, 2019, the Company has advanced funds to LBG USA for working capital purpose. The advances bear 0% interest rate and are due on demand. As of September 30, 2021 and 2020, the outstanding advance balances was $675 and $675, respectively.
|
(6)
|
On May 8, 2020, the Company and Lucidaim entered into a Letter of Intent (LOI) in regard to a potential joint venture of BioLite Japan. Based on the LOI, each party will advance an aggregated amount of $150,000 to meet BioLite Japan’s working capital needs, which the Company advanced an amount of $150,000 and the advance bear 0% interest rate. As of September 30, 2021 and December 31, 2020, the outstanding advance balances was $150,000 and $150,000, respectively.
|
(7)
|
On October 31, 2020, the Company has advanced an aggregate amount of $1,610 to Keypoint for working capital purpose. Under the terms of the loan agreement, the loan bears interest at 6.5% per annum and the loan will be matured on October 30, 2021. The amount was settled during the third quarter of 2021. As of September 30, 2021 and December 31, 2020, the outstanding loan balance was $1,610 and $1,610, respectively.
|
(8)
|
In January 2021, the Company has advanced funds to the Jiangs. The advances bear 0% interest rate and are due on demand. As of September 30, 2021 and December 31, 2020, the outstanding advance balances was $703 and $0, respectively
|
Due to related parties
Amount due to related parties consisted of the
following as of the periods indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
BioFirst Corporation
|
|
$
|
19,611
|
|
|
$
|
23,647
|
|
BioFirst (Australia)
|
|
|
59,392
|
|
|
|
-
|
|
AsiaGene
|
|
|
24,017
|
|
|
|
-
|
|
YuanGene
|
|
|
9,205
|
|
|
|
9,205
|
|
The Jiangs
|
|
|
18,750
|
|
|
|
16,627
|
|
Due to shareholders
|
|
|
167,294
|
|
|
|
166,261
|
|
Due to employee
|
|
|
-
|
|
|
|
72,704
|
|
Total
|
|
$
|
298,269
|
|
|
$
|
288,445
|
|
(1)
|
Since 2019, BioFirst has advanced funds to the Company for working capital purpose. The advances bear interest 1% per month (or equivalent to 12% per annum). As of September 30, 2021 and December 31, 2020, the aggregate amount of outstanding balance and accrued interest is $19,611 and $23,647, respectively.
|
|
|
(2)
|
As of September 30, 2021, and December 31, 2020, BioFirst (Australia)
has advanced the Company an aggregate amount of $59,392 and $0, respectively for new project purpose.
|
(3)
|
As of September 30, 2021, and December 31, 2020, AsiaGene has advanced the Company an aggregate amount of $24,017 and $0, respectively for working capital purpose. This advance bears 0% interest rate and is due on demand.
|
(4)
|
As of September 30, 2021, and December 31, 2020, YuanGene has advanced the Company an aggregate amount of $9,205 for working capital purpose. This advance bears 0% interest rate and is due on demand.
|
(5)
|
Since 2019, the Jiangs advanced funds to the Company for working capital purpose. As of September 30, 2021, and December 31, 2020, the outstanding balance due to the Jiangs amounted to $18,750 and $16,627, respectively. These loans bear interest rate of 0% to 1% per month, and are due on demand.
|
(6)
|
Since
2018, the Company’s shareholders have advanced funds to the Company for working capital purpose. The advances bear interest
rate from 12% to 13.6224% per annum. As of September 30, 2021 and December 31, 2020, the outstanding principal and accrued interest
was $167,294 and $166,261, respectively. Interest expenses in connection with these loans were $5,679 and $5,440 for the three
months ended September 30, 2021 and 2020, respectively. Interest expenses in connection with these loans were $16,670 and $17,430
for the nine months ended September 30, 2021 and 2020, respectively.
|
(7)
|
Commencing January, 2020, the Company had advances from one employee for working capital purpose. The outstanding balance including accrued interest due to this employee amounted to $0 and $72,704 as of September 30, 2021 and December 31, 2020, respectively. This loan bears interest rate of 1.5% per annum, and the loan with interest has been paid off during the third quarter of
2021.
|
13. EQUITY
On February 8, 2016, a Share Exchange Agreement
(“Share Exchange Agreement”) was entered into by and among the Company, 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.
On May 6, 2016, the Company and BioLite Taiwan
agreed to amend the BioLite Collaborative Agreement, through entry into the Milestone Payment Agreement, whereby the Company has agreed
to issue shares of Common Stock of the Company, at the price of $1.60 per share, for an aggregate number of 562,500 shares, as part of
the Company’s 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 Taiwan 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. Pursuant to the BioLite Collaborative Agreement, 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 the Company’s
Common Stock, at the price of $2.0 per share, for an aggregate number of 2,925,000 shares. Upon the consummation of the restructuring
transaction between the Company and BioLite on February 8, 2019, the Company’s Common Stock held by BioLite Taiwan was accounted
for treasury stocks in the statement of equity (deficit). On February 8, 2019, after the Merger, the Company issued 74,997,546 shares
to the shareholders of BioLite and 29,561,231 shares to the shareholders of BioKey.
On May 3, 2019, the Company filed a Certificate
of Amendment with the Secretary of State of Nevada, which was effective May 8, 2019 upon its receipt of the written notice from Financial
Industry Regulatory Authority (“FINRA”). Pursuant to the Certificate of Amendment, the Company effectuated a 1-for-18 reverse
stock split of its issued and outstanding shares of common stock, $0.001 par value, whereby 318,485,252 outstanding shares of the Company’s
common stock were exchanged for 17,693,625 shares of the Company’s Common Stock.
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 November 21, 2020, the Company entered into an agreement with Kameyama, pursuant to which the Company granted and issued
24,694 stock options to Kameyama related to unpaid consulting fees of $49,388 (see Note 14).
During the year ended December 31, 2019, the Company
entered into service agreements with Euro-Asia Investment & Finance Corp Ltd. (a related party), Ever Adventure inv. (Formosa) Consultant
Co., Ltd., New Eastern Asia (a related party), and Kimho Consultants Co., Ltd. (a related party) for the maintenance of the listing in
the U.S. stock exchange market, investor relations, and business development. Pursuant to the agreements, the Company issued 644,972 shares
of the Company’s common stock for the consulting service from July 2019 to July 2024 for the service fee of $4,514,800 in aggregate,
and recorded as stock subscription receivable. As of September 30, 2021 and December 31, 2020, stock subscription receivable was $2,483,140
and $3,160,360, respectively.
On July 24, 2017, BriVision entered into a collaborative
agreement (the “BioFirst Collaborative Agreement”) with BioFirst (See Note 3). 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.
On September 30, 2019, the Company entered into a Stock Purchase Agreement with BioFirst, pursuant to which the Company agreed to issue
428,571 shares of the Company’s common stock to BioFirst in consideration for $3,000,000 owed by the Company to BioFirst. These
common shares were issued during the year ended December 31, 2019.
In August, 2019, the Company entered into several
Conversion Agreements to all creditors that are listed under below table of “due to related parties” in consideration for
a total of $4,872,340 owed by the Company to various creditors based on outstanding loan agreements. Under the Conversion Agreements,
creditor agrees to convert the amount of debt into the Company’s common stock at a price of $7.00 per share.
|
|
Amount of
Debt
Converted
|
|
|
Number of
Shares
Issued
|
|
|
|
|
|
|
|
|
Lion Arts Promotion Inc
|
|
$
|
97,864
|
|
|
|
13,981
|
|
LionGene Corporation
|
|
|
428,099
|
|
|
|
61,157
|
|
BioFirst Corporation
|
|
|
2,902,911
|
|
|
|
414,702
|
|
AsiaGene Corporation
|
|
|
160,000
|
|
|
|
22,858
|
|
YuanGene Corporation
|
|
|
92,690
|
|
|
|
13,242
|
|
The Jiangs
|
|
|
1,190,776
|
|
|
|
170,111
|
|
Total
|
|
$
|
4,872,340
|
|
|
|
696,051
|
|
On March 12, 2020, the board of directors of the
Company approved and adopted an amendment to the Company’s Articles of Incorporation, to increase the authorized shares of its common
stock, par value $0.001 per share, from 20,000,000 to 100,000,000 shares.
On July 8, 2020, the Company entered an agreement
with View Trade Securities Inc. (“ViewTrade”) to engage ViewTrade as the placement agent and the Company’s advisor/consultant
with respect to its ongoing capital events. Pursuant to the agreement, the Company agreed to pay View Trade 60,000 restricted common shares
of the Company and 60,000 warrants to purchase common shares of the Company at an exercise price of $6 per share for a period of 5 years
with cashless exercise provision. As of December 31, 2020, the Company has issued 60,000 shares of common stock to ViewTrade for the consulting
fee with an estimated value of $135,000. The warrants were never issued and the parties mutually agreed to terminate the agreement on
November 19, 2020. Pursuant to the termination agreements, the Company issued 50,000 shares of the Company’s common stock at a price
of $5 per share as a termination fee on June 29, 2021, of which 6,000 shares were issued to WallachBeth Capital LLC (“WallachBeth”).
In January 2021, WallachBeth entered into a consulting agreement with the Company pursuant to which the Company engaged WallachBeth to
conduct due diligence and research work with respect to the Company. On June 29, 2021, WallachBeth was issued 6,000 shares of common stock
as compensation for those services.
Also on November 19,
2020, the Company and ViewTrade agreed to a new Advisory agreement under which ViewTrade was engaged to provide advisory services only.
In addition to a retainer fee, the Company agreed to issue 200,000 warrants, with an exercise price of $2.25, an industry standard cashless
exercise provision, and a term of 5 years from November 19, 2020.
During the year ended December 31, 2020,
the Company entered into a consulting agreement with a service provider for consulting and advisory services, pursuant to which the Company
agreed to pay the service fee by issuing 50,000 shares of unrestricted common shares, valued at the closing price of $2.9 per share on
the grant date. As of December 31, 2020, these shares have been issued.
During
the year ended December 31, 2020, the Company received aggregated capital contributions of $7,615,331 in cash from 45 investors through
private placements of the sale of the Company’s common stock for the purchase price of $2.25 per share and a free warrant
attached with each common stock purchased. In December 2020, 3,384,615 shares of the Company’s common stock have been issued.
During the year ended December 31, 2020, the Company
entered into consulting agreements with four service providers for consulting and advisory services, pursuant to which the Company agreed
to pay the service fee by issuing 521,887 shares of unrestricted common shares, valued at the closing price from $2 to $3.68 per share
on the grant date. These shares have been issued in October and December 2020.
As of September 30, 2021, the Company issued aggregated
common shares of 915,856 to six previous note holders, who had converted their outstanding principals and accrued and unpaid interests,
including the debt conversion to the following:
|
a.
|
Keypoint converted the aggregated amount of $292,826 at the conversion price of $1.84 on April 5, 2020, in exchange for 159,145 shares of the Company’s common stock, and warrants to purchase 159,145 shares of the Company’s common stock.
|
|
b.
|
Odaira converted the aggregated amount of $284,036 at the conversion price of $1.84 on April 5, 2020, in exchange for 154,368 shares of the Company’s common stock, and warrants to purchase 154,368 shares of the Company’s common stock.
|
|
c.
|
C.L.L. converted the aggregated amount of $289,974 at the conversion price of $1.78 on April 20, 2020, in exchange for 162,908 shares of the Company’s common stock, and warrants to purchase 162,908 shares of the Company’s common stock.
|
|
d.
|
KLS converted the aggregated amount of $225,222 at the conversion price of $1.78 on April 20, 2020, in exchange for 126,530 shares of the Company’s common stock, and warrants to purchase 126,530 shares of the Company’s common stock.
|
|
e.
|
Yu and Wei converted the aggregated amount of $354,722 at the conversion price of $1.84 on April 5, 2020, in exchange for 192,784 shares of the Company’s common stock, and warrants to purchase 192,784 shares of the Company’s common stock.
|
|
f.
|
KSL converted the aggregated amount of $270,272 at the conversion price of $2.25 on November 9, 2020, in exchange for 120,121 shares of the Company’s common stock, and warrants to purchase 120,121 shares of the Company’s common stock.
|
See Note 7 for more details in connection with the above debt conversion.
In July 2021, 1,111,112 shares of the Company’s
common stock and warrants were issued pursuant to the conversion of convertible promissory note of $2,500,000 entered in October 2020
(see Note 7).
On August 5, 2021, the Company closed its public
offering (the “Public Offering”) of 1,100,000 units (the “Units”), with each Unit consisting of one share of the
Company’s common stock, one Series A warrant (the “Series A Warrants”) to purchase one share of common stock at an exercise
price equal to $6.30 per share, exercisable until the fifth anniversary of the issuance date, and one Series B warrant (the “Series
B Warrants,” and together with the Series A Warrants, the “Public Warrants”) to purchase one share of common stock at
an exercise price equal to $10.00 per share, exercisable until the fifth anniversary of the issuance date; the exercise price of the Public
Warrants are subject to certain adjustment and cashless exercise provisions as described therein. The Company completed the Public Offering
pursuant to its registration statement on Form S-1 (File No. 333-255112), originally filed with the Securities and Exchange Commission
(the “SEC”) on April 8, 2021 (as amended, the “Original Registration Statement”), that the SEC declared effective
on August 2, 2021 and the registration statement on Form S-1 (File No. 333-258404) that was filed and automatically effective on August
4, 2021 (the “S-1MEF,” together with the Original Registration Statement, the “Registration Statement”). The Units
were priced at $6.25 per Unit, before underwriting discounts and offering expenses, resulting in gross proceeds of $6,875,000. The Public
Offering was conducted on a firm commitment basis. In August 2021, 2,354,145 shares of the Company’s common stock were issued for
gross proceeds of $6,875,000, before placement agent fees and legal fees of $850,429.
14. STOCK OPTIONS
On October 30, 2020, the Company issued an aggregate
of 545,182 shares of common stock in lieu of unpaid salaries of certain employees and unpaid consulting fees under the 2016 Equity Incentive
Plan, as amended, at a conversion price of $2 per share; the total amount of converted salaries and consulting fees was $1,090,361. On
November 21, 2020, the Company has entered into acknowledgement agreements and stock option purchase agreements with these
employees and consultant; pursuant to which the Company granted stock options to purchase 545,182 shares of the Company’s common
stock in lieu of common stock. The options were vested at the grant date and become exercisable for 10 years from the grant date.
Options issued and outstanding as of December
31, 2020, and their activities during the year then ended are as follows:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Aggregate
|
|
|
|
Underlying
Shares
|
|
|
Price
Per Share
|
|
|
Remaining
in Years
|
|
|
Intrinsic
Value
|
|
Outstanding as of January 1, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Granted
|
|
|
545,182
|
|
|
|
2.00
|
|
|
|
9.89
|
|
|
|
616,056
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
545,182
|
|
|
|
2.00
|
|
|
|
9.89
|
|
|
$
|
616,056
|
|
Exercisable as of December 31, 2020
|
|
|
545,182
|
|
|
|
2.00
|
|
|
|
9.89
|
|
|
$
|
616,056
|
|
Vested and expected to vest
|
|
|
545,182
|
|
|
$
|
2.00
|
|
|
|
9.89
|
|
|
$
|
616,056
|
|
The fair value of stock options granted for the
year ended December 31, 2020 was calculated using the Black-Scholes option-pricing model applying the following assumptions:
|
|
Year ended
|
|
|
|
December 31,
2020
|
|
|
|
|
|
Risk free interest rate
|
|
|
0.38
|
%
|
Expected term (in years)
|
|
|
5.00
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
89.01
|
%
|
The weighted average grant date fair value of
options granted during 2020 was $3.13. There are 2,812,949 options available for grant under the 2016 Equity Incentive Plan as of December
31, 2020. Compensation costs associated with the Company’s stock options are recognized, based on the grant-date fair values of
these options over vesting period. Accordingly, the Company recognized stock-based compensation expense of $0 for the three and nine months
ended September 30, 2021 and 2020, respectively. As of September 30, 2021, there were no unvested options.
15. 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 three and nine months ended
September 30, 2021 and 2020.
|
|
For the Three Months Ended
|
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to ABVC’s common stockholders
|
|
$
|
(1,806,488
|
)
|
|
$
|
(1,846,046
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - Basic
|
|
|
26,882,181
|
|
|
|
19,488,168
|
|
Stock options
|
|
|
|
|
|
|
–
|
|
Weighted-average shares outstanding - Diluted
|
|
|
26,882,181
|
|
|
|
19,488,168
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
-Basic
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
-Diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
|
For the Nine months Ended
|
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to ABVC’s common stockholders
|
|
$
|
(4,906,559
|
)
|
|
$
|
(4,942,881
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - Basic
|
|
|
25,053,522
|
|
|
|
19,486,959
|
|
Stock options
|
|
|
|
|
|
|
–
|
|
Weighted-average shares outstanding - Diluted
|
|
|
25,053,522
|
|
|
|
19,486,959
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
-Basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.25
|
)
|
-Diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.25
|
)
|
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.
16. LEASE
The Company adopted FASB Accounting Standards
Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach, electing the practical expedient that
allows the Company not to restate its comparative periods prior to the adoption of the standard on January 1, 2019.
The Company applied the following practical expedients in the transition
to the new standard and allowed under ASC 842:
|
●
|
Reassessment of expired or existing contracts: The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.
|
|
●
|
Use of hindsight: The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.
|
|
●
|
Reassessment of existing or expired land easements: The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.
|
|
●
|
Separation of lease and non- lease components: Lease agreements that contain both lease and non-lease components are generally accounted for separately.
|
|
●
|
Short-term lease recognition exemption: The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.
|
The new leasing standard requires recognition
of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the
Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make
lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present
value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used
to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of Company’s leases do not
provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement
date in determining the present value of lease payments.
The Company recognized lease liabilities, with
corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months.
The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized
lease incentives provided by lessors, and restructuring liabilities. Operating lease cost is recognized as a single lease cost on a straight-line
basis over the lease term and is recorded in Selling, general and administrative expenses. Variable lease payments for common area maintenance,
property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which
the variable lease payments are based occur.
The Company has no finance leases. The Company’s
leases primarily include various office and laboratory spaces, copy machine, and vehicles under various operating lease arrangements.
The Company’s operating leases have remaining lease terms of up to approximately five years.
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
1,554,280
|
|
|
$
|
1,772,747
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Operating lease liabilities (current)
|
|
|
342,131
|
|
|
|
316,178
|
|
Operating lease liabilities (noncurrent)
|
|
|
1,212,148
|
|
|
|
1,456,567
|
|
Supplemental Information
The following provides details of the Company’s
lease expenses:
|
|
Nine months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Operating lease expenses
|
|
$
|
250,122
|
|
|
$
|
233,262
|
|
Other information related to leases is presented
below:
|
|
Nine months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
250,122
|
|
|
$
|
233,262
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Weighted Average Remaining Lease Term:
|
|
|
|
|
|
|
Operating leases
|
|
|
3.15 years
|
|
|
|
3.33 years
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
1.41
|
%
|
|
|
0.55
|
%
|
The minimum future annual payments under non-cancellable
leases during the next five years and thereafter, at rates now in force, are as follows:
|
|
|
Operating leases
|
|
2021(excluding nine months ended September 30, 2021)
|
|
$84,906
|
|
2022
|
|
353,713
|
|
2023
|
|
360,838
|
|
2024
|
|
375,788
|
|
2025
|
|
338,676
|
|
Thereafter
|
|
56,916
|
|
Total future minimum lease payments, undiscounted
|
|
1,570,837
|
|
Less: Imputed interest
|
|
16,557
|
|
Present value of future minimum lease payments
|
|
$1,554,280
|
17. BUSINESS COMBINATION
On February 8, 2019, the Company consummated the
Merger transactions of BioLite and BioKey (See Note 1). Pursuant to the terms of the Merger Agreement, BioLite and BioKey became two wholly-owned
subsidiaries of the Company on February 8, 2019. The Company adopted ASC 805, “Business Combination” to record the merger
transactions of BioKey. The acquisition was accounted for as a business combination under the purchase method of accounting. BioKey’s
results of operations were included in the Company’s results beginning February 8, 2019. The purchase price has been allocated to
the assets acquired and the liabilities assumed based on their fair value at the acquisition date as summarized in the following:
Purchase consideration:
|
|
|
|
Common Stock (*)
|
|
$
|
44,341,847
|
|
Allocation of the purchase price:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
531,147
|
|
Accounts receivable, net
|
|
|
188,550
|
|
Property and equipment, net
|
|
|
56,075
|
|
Operating lease right-of-use assets
|
|
|
485,684
|
|
Security deposits
|
|
|
10,440
|
|
Total assets acquired
|
|
|
1,271,896
|
|
Accounts payable
|
|
|
(56,204
|
)
|
Accrued expenses and other current liabilities
|
|
|
(251,335
|
)
|
Operating lease liability
|
|
|
(267,256
|
)
|
Tenant security deposit
|
|
|
(2,880
|
)
|
Total liabilities assumed
|
|
|
(577,675
|
)
|
Total net assets acquired
|
|
|
694,221
|
|
Goodwill as a result of the Merger
|
|
$
|
43,647,626
|
|
*
|
29,561,231 shares (1,642,291 after stock reverse split) of common stock of the Company was issued to BioKey in connection with the Merger. Those shares were valued at $1.50 per share, based on the bid-and-ask share price of common stock of the Company on the final day of trading, February 8, 2019.
|
On February 8, 2019, the Company has recorded
a 100% goodwill write-down of $43,647,626. Goodwill was determined to have been impaired because of the current financial condition of
the Company and the Company’s inability to generate future operating income without substantial sales volume increases, which are
highly uncertain. Furthermore, the Company’s anticipated future cash flows indicate that the recoverability of goodwill is not reasonably
assured. The goodwill write-down was reflected as a decrease in additional paid-in capital in the statement of equity upon the consummation
of the Merger.
18. SUBSEQUENT EVENTS
On October 6, 2021 (the “Completion Date”),
the Company, Lucidaim Co., Ltd., a Japanese corporation (“Lucidaim,” together with the Company, the “Shareholders”),
and BioLite Japan K.K., a Japanese corporation (“Biolite”) entered into a Joint Venture Agreement (the “Agreement”).
Biolite is a private limited company (a Japanese Kabushiki Kaisha) incorporated on December 18, 2018 and at the date of the
Agreement has 10,000 ordinary shares authorized, with 3,049 ordinary shares issued and outstanding (the “Ordinary Shares”).
Immediately prior to the execution of the Agreement, Lucidaim owned 1,501 ordinary shares and the Company owned the 1,548 ordinary shares.
The Shareholders entered into the joint venture to formally reduce to writing their desire to invest in and operate Biolite as a joint
venture. The business of the joint venture shall be the research and development of drugs, medical device and digital media, investment,
fund running and consulting, distribution and marketing of supplements carried on by Biolite and its subsidiaries in Japan, or any other
territory or businesses as may from time to time be agreed by an amendment to the Agreement. The closing of the transaction is conditioned
upon the approval and receipt of all necessary government approvals, which have been received.
Pursuant to the Agreement and the related share
transfer agreement, the Company shall transfer 54 of its Ordinary Shares to Lucidaim for no consideration, such that following the transfer,
Lucidaim shall own 1,555 Ordinary Shares (51%) and the Company shall own 1,494 Ordinary Shares (49%). Also pursuant to the Agreement,
there shall be 3 directors of Biolite, consisting of 1 director appointed by the Company and 2 appointed by Lucidiam. The Company shall
appoint Eugene Jiang, the Company’s current Chairman and Chief Business Officer and Lucidaim shall appoint Michihito Onishi; the
current director of Biolite, Toru Seo (who is also a director of BioLite Japan’s other shareholder), is considered the second Lucidaim
director. The Agreement further provides that the Company and Biolite shall assign the research collaboration and license agreement between
them to Biolite or prepare the same (the “License Agreement”). The aforementioned transactions occurred on the Completion
Date.
As per the Agreement, the Shareholders shall supervise
and manage the business and operations of Biolite. The directors shall not be entitled to any renumeration for their services as a director
and each Shareholder can remove and replace the director he/she/it appointed. If a Shareholder sells or disposes of all of its Ordinary
Shares, the director such Shareholder appointed must tender his/her resignation. The Agreement also sets forth certain corporate actions
that must be pre-approved by all Shareholders (the “Reserved Matters”). If the Shareholders are unable to make a decision
on any Reserved Matter, then either Shareholder can submit a deadlock notice to the other shareholder, 5 days after which they must refer
the matter to each Shareholder’s chairman and use good faith to resolve the dispute. If such dispute is not resolved within 10 days
thereafter, then either Shareholder can offer to buy all of the other Shareholder’s Ordinary Shares for cash at a specified price;
if there is not affirmative acceptance of the sale, the sale shall proceed as set forth in the sale offer.
Each of the Shareholders maintains a pre-emptive
right to purchase such number of additional Ordinary Shares as would allow such Shareholder to maintain its ownership percentage in Biolite
if Biolite issues any new Ordinary Shares. However, the Agreement provides that the Company shall lose its pre-emptive rights under certain
conditions. The Shareholders also maintain a right of first refusal if the other Shareholder receives an offer to buy such shareholder’s
Ordinary Shares.
The Agreement also requires Biolite to obtain
a bank facility in the amount of JPY 30,460,000 (approximately USD272,000), for its initial working capital purposes. Pursuant to the
Agreement, each Shareholder agrees to guarantee such bank facility if the bank requires a guarantee. Accordingly, the Company may be liable
for the bank facility in an amount up to JPY 14,925,400 (approximately USD134,000), which represents 49% of the maximum bank facility.
The Agreement further provides that Biolite shall issue annual dividends at the rate of at least 1.5% of Biolite’s profits, if it
has sufficient cash to do so.
Pursuant to the Agreement, the Company and Biolite
agree to use their best efforts to execute the License Agreement by the end of December 2021. The Company agreed that any negotiation
on behalf of Biolite regarding the terms of the License Agreement shall be handled by the directors appointed by Lucidaim. If the Company
and such Lucidaim directors do not reach agreement on the terms, Biolite may at its sole discretion determine not to execute the License
Agreement without any liability to the Company.
The Agreement contains non-solicitation and non-compete
clauses for a period of 2 years after a Shareholder or its subsidiaries ceases to be a Shareholder, with such restrictive covenants limited
to business within the ophthalmologic filed or central neurological field. Any rights to intellectual property that arise from Biolite’s
activities, shall belong to Biolite.
The Agreement contains standard indemnification
terms, except that no indemnifying party shall have any liability for an individual liability unless it exceeds JPY 500,000 (approximately
USD4,500) and until the aggregate amount of all liabilities exceeds JPY 2,000,000 (approximately USD18,000) and then only to the extent
such liability exceed such limit.
The Company paid $100,000 towards the setup of
the joint venture after the parties signed a letter of intent regarding the joint venture (the “Letter of Intent”)
and shall pay an additional $50,000 before the end of this calendar year; BioLite Japan’s other shareholder paid $150,000 after
the Letter of Intent was signed.
The Agreement shall continue for 10 years, unless
earlier terminated. The Agreement also allows a Shareholder to terminate the agreement upon certain defaults committed by another Shareholder,
as set forth in the Agreement.
This was a related party transaction.
In November 2021, the Company received $4,244,452
in gross proceeds from the exercise of warrants issued in the Company’s August 3, 2021, public offering of securities. Investors
exercised a total of 673,405 Series A warrants at a price of $6.30 per share, and 200 Series B warrants at a price of $10 per share.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should
be read together with our financial statements and the related notes appearing elsewhere in this prospectus. This discussion contains
forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Cautionary Note Regarding
Forward-Looking Statements and Industry Data” for a discussion of the uncertainties, risks and assumptions associated with these
statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as
a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
From its inception, the Company has not generated
substantial revenue from its medical device and new drug development. For the nine months ended September 30, 2021, the Company generated
$393,509 in revenue, contributed by $389,843 from the sale of Contract Development & Manufacturing Organization (“CDMO”)
services, and $3,747 from consulting services provided to a related party.
Business Overview
The Company operates through American BriVision
Corporation (“BriVision”), which was incorporated in July 2015 in the State of Delaware, is a clinical stage biopharmaceutical
company focused on development of new drugs and medical devices, all of which are derived from plants.
Medicines derived from plants have a long history
of relieving or preventing many diseases and, typically, have exhibited fewer side effects than drugs developed from animals or chemical
ingredients. Perhaps the most famous example is aspirin, which evolved from a compound found in the bark and leaves of the willow tree
and was later marketed by Bayer starting in 1899. Aspirin has very few serious side effects and has proven to be one of the most successful
drugs in medical history. Some 50 years later, scientists identified anticancer compounds in the rosy periwinkle, which Eli Lilly subsequently
produced for the treatment of leukemia and Hodgkins disease. Other well-known examples of successful botanical drugs include the cancer-fighting
Taxol, isolated from the Pacific yew tree.
The Company develops its pipeline by carefully
tracking new medical discoveries or medical device technologies in research institutions in the Asia-Pacific region. Pre-clinical, disease
animal model and Phase I safety studies are examined closely by the Company’s scientists and other specialists known to the Company
to identify drugs that it believes demonstrate efficacy and safety based on the Company’s internal qualifications. Once a drug is
shown to be a good candidate for further development and ultimately commercialization, BriVision licenses the drug or medical device from
the original researchers and begins to introduce the drugs clinical plan to highly respected principal investigators in the United States,
Australia and Taiwan. In almost all cases, we have found that research institutions in each of those countries are eager to work with
the Company to move forward with Phase II clinical trials.
Currently, institutions that have or are now conducting
phase II clinical trials in partnership with ABVC include:
|
●
|
Drug: ABV-1504, Major Depressive Disorder (MDD), Phase II completed. NCE drug Principal Investigators: Charles DeBattista M.D. and Alan F. Schatzberg, MD, Stanford University Medical Center, Cheng-Ta Li, MD, Ph.D – Taipei Veterans General Hospital
|
|
●
|
Drug: ABV-1505, Adult Attention-Deficit Hyperactivity Disorder (ADHD), Phase II Part 1 completed. NCE drug Principal Investigators: Keith McBurnett, Ph.D. and Linda Pfiffner, Ph.D., University of California San Francisco (UCSF), School of Medicine
|
|
●
|
Drug: ABV-1601, Major Depression in Cancer Patients, Phase I/II, NCE drug Principal Investigator: Scott Irwin, MD, Ph.D. – Cedars Sinai Medical Center (CSMC)
|
|
●
|
Drug: ABV-1703, Advanced Inoperable or Metastatic Pancreatic Cancer, Phase II, NCE drug Principal Investigator: Andrew E. Hendifar, MD – Cedars Sinai Medical Center (CSMC)
|
The following trials are expected to begin in the
fourth quarter of 2021 and first quarter of 2022:
|
●
|
Medical Device: ABV-1701, Vitargus® in vitrectomy surgery, Pivotal Study in Australia, Principal Investigator: Andrew Chang, MD, Ph.D., Sydney Eye Hospital, Australia
|
|
●
|
Drug: ABV-1501, A Phase I/II, Open Label Study to Evaluate the Safety and Efficacy of BLEX 404 Oral Liquid Combined with Docetaxel Monotherapy in Patients with Stage IV or Recurrent Breast Cancer Patients
|
Upon successful completion of the Phase II trial,
the Company will seek a partner – a large pharmaceutical company – to complete a Phase III study, submit the New Drug Application
(NDA), and commercialize the drug upon approval by the FDA and Taiwan FDAs. The Company expects to seek its first commercialization partner
in 2021 for Vitargus, its vitreous substitute that helps to maintain a round shape and retinal location during vitrectomy surgery.
Another part of the Company’s business is
conducted by BioKey, a wholly owned subsidiary, that is engaged in a wide range of services, including, API characterization, pre-formulation
studies, formulation development, analytical method development, stability studies, IND/NDA/ANDA/510K submissions, and manufacturing clinical
trial materials (phase I through phase III) and commercial manufacturing.
On February 8, 2019, the Company, BioLite Holding,
Inc. (“BioLite”), BioKey, Inc. (“BioKey”), BioLite Acquisition Corp., a direct wholly-owned subsidiary of the
Company and BioKey Acquisition Corp., a direct wholly-owned subsidiary of the Company completed the business combination pursuant to that
certain Agreement and Plan of Merger dated January 31, 2018, pursuant to which the Company acquired BioLite and BioKey via issuing shares
of the Company’s Common Stock to the shareholders of BioLite and BioKey. As a result, BioLite and BioKey became two wholly-owned
subsidiaries of the Company on February 8, 2019. The Company issued an aggregate of 104,558,777 shares of Common Stock (prior to the reverse
stock split in 2019) to the shareholders of both BioLite and BioKey under a registration statement on Form S-4 (file number 333-226285),
which became effective by operation of law on or about February 5, 2019.
BioLite was incorporated under the laws of the
State of Nevada on July 27, 2016, with 500,000,000 shares authorized, par value $0.0001. BioLite’s key subsidiaries include BioLite
BVI, Inc. (“BioLite BVI”) that was incorporated in the British Virgin Islands on September 13, 2016 and BioLite, Inc. (“BioLite
Taiwan”), a Taiwanese corporation that was founded in February 2006. BioLite Taiwan has been in the business of developing new drugs
for over ten years.
BioLite and BioLite BVI are holding companies
and have not carried out substantive business operations of their own.
In January 2017, BioLite, BioLite BVI, BioLite
Taiwan, and certain shareholders of BioLite Taiwan entered into a share purchase / exchange agreement (the “BioLite Share Purchase
/ Exchange Agreement”). Pursuant to the BioLite Share Purchase / Exchange Agreement, the shareholder participants to the BioLite
Share Purchase / Exchange Agreement sold their equity in BioLite Taiwan and used the proceeds from such sales to purchase shares of Common
Stock of BioLite at the same price per share, resulting in their owning the same number of shares of Common Stock as they owned in BioLite
Taiwan. Upon closing of the Share Purchase/ Exchange Agreement in August 2017, BioLite owns, via BioLite BVI, approximately 73% of BioLite
Taiwan. The other shareholders who did not enter this Share Purchase/ Exchange Agreement retain their equity ownership in BioLite Taiwan.
BioKey was incorporated on August 9, 2000 in the
State of California. It is engaged primarily in research and development, manufacturing, and distribution of generic drugs and nutraceuticals
with strategic partners. BioKey provides a wide range of services, including, API characterization, pre-formulation studies, formulation
development, analytical method development, stability studies, IND/NDA/ANDA/510K submissions, and manufacturing clinical trial materials
(phase 1 through phase 3) and commercial manufacturing. It also licenses out its technologies and initiates joint research and development
processes with other biotechnology, pharmaceutical, and nutraceutical companies.
Common Stock Reverse Split
On March 12, 2019, the Board by unanimous written
consent in lieu of a meeting approved to i) effect a stock reverse split at the ratio of 1-for-18 (the “Reverse Split”) of
both the authorized common stock of the Company and the issued and outstanding common stock and ii) to amend the articles of incorporation
of the Company to reflect the Reverse Split. The Board approved and authorized the Reverse Split without obtaining approval of the Company’s
shareholders pursuant to Section 78.207 of Nevada Revised Statutes.
On May 3, 2019, the Company filed a certificate
of amendment to the Company’s articles of incorporation (the “Amendment”) to effect the Reverse Split with the Secretary
of State of the State of Nevada. The Reverse Split took effect on May 8, 2019.
Series A Convertible Preferred Stock
On June 28, 2019, the Company filed a certificate
of designation (the “Series A COD”) of Series A Convertible Preferred Stock (the “Series A Stock”) with the Secretary
of the State of Nevada.
Pursuant to the Series A COD, the Company designated
3,500,000 shares of preferred stock as Series A Stock, par value of $0.001 per share. Subject to the laws of Nevada, the Company will
pay cumulative dividends on the Series A Stock on each anniversary from the date of original issue for a period of four calendar years.
The Series A Stock will rank senior to the outstanding common stock of the Company, par value $0.001 (the “Common Stock”)
with respect to dividend rights, rights upon liquidation, dissolution or winding up in the amount of accrued but unpaid dividend. Holders
of the Series A Stock will have the same voting rights as the Company’s Common Stock holders. Each share of Series A Stock is initially
convertible at any time at the option of the holder into one share of Common Stock and automatically converts into one share of Common
Stock on the four-year anniversary of its issuance.
As of September 30, 2021, no Series A Convertible
Preferred Stock has been issued by the Company.
Increasing the Authorized Shares
On March 12, 2020, our board of directors approved
and adopted an amendment to the Company’s Articles of Incorporation, to increase the authorized shares of the common stock, par
value $0.001 per share, from 20,000,000 to 100,000,000, such that, after including the previously authorized 20,000,000 shares of preferred
stock, par value $0.001 per share, the aggregate number of shares of stock that the Company has authority to issue is 120,000,000 shares.
The amendment became effective on April 2, 2020.
Financings
Financing in November 2020
On November 11, 2020, we conducted a closing with
regard to certain securities purchase agreements (the “SPAs”) dated October 23, 2020, separately with two non-U.S.
investors (the “Investors”). Each of the Investors agreed to purchase and the Company agreed to sell to each of the
Investors 1,111,112 shares of the Company’s Common Stock, and warrants (the “November Warrants”) to purchase
1,111,112 shares of Common Stock, for a purchase price of $2,500,000. The November Warrants are exercisable upon issuance and will expire
three years from the date of issuance. The initial exercise price of the November Warrants is $6.00, subject to stock, splits, stock dividend
and other similar events. In addition, when the closing price of the Common Stock equals or exceeds $9.00 per share for twenty Trading
Days (as defined in the SPAs) during any thirty-day period, the Company shall have the right to require the Investors to exercise all
or any portion of the November Warrants for a cash exercise. The aggregate net proceeds were $5,000,000. The Company and the Investors
further agreed to amend the terms of the SPA to permit the closing of the offering to occur on a rolling basis.
The Company paid the following fees to a FINRA
member firm in connection with such offering: (i) a cash success fee of $175,000 and (ii) warrants to purchase a number of shares
of Common Stock equal to 7% of the number of shares of Common Stock sold in the Offering, at an exercise price per share equal to $6.00
subject to adjustment (the “Comp Warrants”). The Comp Warrants are exercisable on a cashless basis, at the holder’s
discretion.
Financing
in October 2020
On
October 23, 2020, we entered into a Securities Purchase Agreement (the “October SPA”) with one accredited investor.
Pursuant to the October SPA, the Company sold and issued a convertible promissory note (the “October Note”) in the
principal amount of $2,500,000 to the investor and received the payment from such investor on October 30, 2020.
The
October Note was issued on October 23, 2020 and the maturity date of the October Note is the twenty-four (24) month anniversary from
the issuance date (the “Maturity Date”). Upon the Maturity Date, the Company shall pay to the holder, in cash, an
amount representing all outstanding principal amount and accrued and unpaid interest under the October Note. The October Note bears an
interest rate of ten percent (10%) per annum and may be convertible into shares of the Company’s common stock at a fixed conversion
price of $2.25 per share. The October Note was initially only convertible at the holder’s discretion. However, on May 17, 2021,
the parties signed an amendment, pursuant to which the October Note shall now also automatically convert into shares of Common Stock
immediately following the Company’s receipt of conditional approval to list its Common Stock on the NASDAQ stock market, if and
when we receive such approval, which cannot be guaranteed, at a conversion price equal to the then current conversion price. The Company
may prepay the outstanding amount at any time, in whole or in part, without any penalty.
In
connection with the October Note and pursuant to the terms of an agreement entered into between the Company and a FINRA member firm,
such firm shall receive (i) a cash success fee of $78,750 and (ii) upon conversion of the October Note, warrants equal to 7.0% of the
number of shares of Common Stock received by the investor at the time of conversion (“Note Warrants”). The warrants
are exercisable on a cashless basis, at the holder’s discretion.
The
issuance and sale of the Common Stock, the Investor Warrants, Comp Warrants, Note Warrants and the shares of Common Stock underlying
the Investor Warrants, the Comp Warrants and the October Note were made in reliance on an exemption from registration contained in either Regulation
D or Regulation S of the Securities Act.
Financing
in May 2020
In
May 2020, the Company received capital contributions of approximately $1,697,051 in cash from 42 investors through private placements
with the term of $2.25 per share and a free warrant attaches with each Common stock that was purchased. The exercise price of the warrant
will be at $6.00 with a mandatory exercise price of $9.00.
Pursuant
to the terms of an agreement entered into between the Company and a FINRA member firm, such firm shall receive (i) a cash success fee
of $60,831.65 (ii) a warrant to purchase 37,852 shares of Common Stock with an exercise price of $2.25 per share, and (iii) a warrant
to purchase 37,852 shares of Common Stock with an exercise price of $6.00 per share.
Financing
in April 2020
On
January 21, 2020, the Company entered into three note agreements with existing note investors who executed the agreements in 2018. These
three investors are Guoliang Yu and Yingfei Wei Family Trust, Keypoint Technology Ltd., and Yoshinobu Odaira. The new agreements bear
the same term as other notes investors who executed the contract in 2019. On April 5, 2020, the Company entered into exchange agreements
with such note holders. Pursuant to the exchange agreements, the Holders agreed to deliver the Notes to the Company for cancellation,
of which the aggregate principal amount plus accrued interest expenses are $931,584, and the Company agreed to issue to the Holders an
aggregate of 506,297 shares of the Company’s common stock and warrants to purchase 506,297 shares of the Company’s common
stock.
On
August 28, 2019 and September 4, 2019, the Company issued convertible promissory notes in the aggregate principal amount plus accrued
interest expenses are $515,196 to Kuo, Li Shen, Chang, Ping Shan, Lin, Shan Tyan, and Liu, Ching Hsuan. On April 20, 2020, the Company
entered into separate exchange agreements with each note holder. Pursuant to the exchange agreements, the note holders agreed to cancel
the notes and the Company agreed to issue to the holders an aggregate of 289,438 shares of the Company’s common stock and warrants
to purchase 289,438 shares of the Company’s common stock.
Recent
PPP Loan
On
April 14, 2020, the Company received a loan in the amount of $124,400 under the Paycheck Protection Program (“PPP”) administered
by the United States Small Business Administration (the “SBA”) from East West Bank. According to the Coronavirus Aid, Relief,
and Economic Security Act (the “Cares Act”), PPP loan provides for forgiveness of up to the full principal amount and accrued
interest if the funds are used for payroll costs, interest on mortgages, rent, and utilities. However, at least 60% of the forgiven amount
must have been used for payroll. The loan was granted pursuant to a promissory note dated April 14, 2020 issued by the Company, which
matures on April 13, 2022 and bears interest at a rate of 1.00% per annum. The Company will pay the principal in one payment of all outstanding
principal plus all accrued unpaid interest on that date that is two years after the date of the promissory note. On October 23, ABVC
BioPharma, Inc.(the “Company”) has started the application with the US Government regarding the loan forgiveness program.
On January 29, 2021, BioKey received a loan
in the amount of $132,331 under the Paycheck Protection Program (“PPP”) administered by the United States Small Business Administration
(the “SBA”) from East West Bank. According to the Coronavirus Aid, Relief, and Economic Security Act (the “Cares Act”),
PPP loan provides for forgiveness of up to the full principal amount and accrued interest if the funds are used for payroll costs, interest
on mortgages, rent, and utilities. However, at least 60% of the forgiven amount must have been used for payroll. The loan was granted
pursuant to a promissory note dated January 27, 2021 issued by the Company, which matures on January 28, 2026 and bears interest at a
rate of 1.00% per annum. The Company will pay the principal in one payment of all outstanding principal plus all accrued unpaid interest
on that date that is five years after the date of the promissory note. In addition, the Company will start the application with the US
Government regarding the loan forgiveness program as soon as the US Government allows. No collateral or personal guarantees are required.
On September 28, 2021, the “SBA” accepted the loan forgiveness application in the amount of $132,331 under the PPP.
On February 7, 2021, the Company received a loan
in the amount of $104,167 under the Paycheck Protection Program (“PPP”) administered by the United States Small Business
Administration (the “SBA”) from Cathay Bank. According to the Coronavirus Aid, Relief, and Economic Security Act (the “Cares
Act”), PPP loan provides for forgiveness of up to the full principal amount and accrued interest if the funds are used for payroll
costs, interest on mortgages, rent, and utilities. However, at least 60% of the forgiven amount must have been used for payroll. The
loan was granted pursuant to a promissory note dated February 7, 2021 issued by the Company, which matures on February 6, 2026 and bears
interest at a rate of 1.00% per annum. The Company will pay the principal in one payment of all outstanding principal plus all accrued
unpaid interest on that date that is five years after the date of the promissory note. In addition, the Company will start the application
with the US Government regarding the loan forgiveness program as soon as the US Government allows. No collateral or personal guarantees
are required.
Recent
Research Results
On
May 23, 2019, the Company announced its internal Phase II clinical study results of ABV-1504 for Major Depression Disorder (“MDD”).
The clinical study results showed that PDC-1421, the active pharmaceutical ingredient of ABV-1504, met the pre-specified primary endpoint
of the Phase II clinical trial and significantly improved the symptoms of MDD.
The
Phase II clinical study was a randomized, double-blind, placebo-controlled, multi-center trial, in which 60 adult patients with confirmed
moderate to severe MDD were treated with PDC-1421 in either low dose (380 mg) or high dose (2 x 380 mg) compared with placebo administration,
three times a day for six weeks. PDC-1421 high dose (2 x 380 mg) met the pre-specified primary endpoint by demonstrating a highly significant
13.2-point reduction in the Montgomery-Åsberg Depression Rating Scale (MADRS) total score by Intention-To-Treat (ITT) analysis,
averaged over the 6-week treatment period (overall treatment effect) from baseline, as compared to 9.2-point reduction of the placebo
group. By Per-Protocol (PP) analysis, PDC-1421 showed a dose dependent efficacy toward MDD in which high dose (2 x 380 mg) gave 13.4-point
reduction in MADRS total score from baseline and low dose (380 mg) gave 10.4-point reduction as compared to a 8.6-point in the placebo
group. The Company has decided to use the high dose formula in the Phase III clinical trial of ABV-1504.
On
September 9, 2020, the Company issued a full clinical study report (CSR) of Vitargus® First-in-Human Phase I Clinical Trial. The
safety and preliminary efficacy findings from this study, combined with the unique properties of Vitargus® (BFC-1401), are supportive
of further development for its use during vitrectomy surgery in patients requiring vitreous replacement.
The
study was an open label, Phase I study undertaken at a single study center in Sydney, Australia. A total of 11 participants were
enrolled for the study in which each participant had been diagnosed with either (1) a complex or rhegmatogenous retinal detachment or
chronic retinal detachment with failure of gas or silicone oil treatment or (2) a vitreous hemorrhage that requires vitrectomy surgery.
The study found that Vitargus® was well-tolerated as a vitreous substitute without any apparent toxicity to ocular tissues. Further,
there was no indication of an increased overall safety risk with Vitargus®.
On
November 9, 2020 the Company issued a full clinical study report (CSR) of its ABV-1505 Phase II Part I clinical trial conducted at the
University of California, San Francisco (UCSF) for the treatment of Adult Attention-Deficit Hyperactivity Disorder (ADHD). The Phase
II Part I clinical study for treating ADHD found that the active ingredient of ABV-1505, PDC-1421, was safe, well tolerated and efficacious
during its treatment and the follow-up period with six adult patients. For the primary endpoints, the percentages of improvement in Adult
Attention-Deficit/Hyperactivity Disorder Rating Scale-Investigator Rated-IV (ADHD-RS-IV) score from baseline to 8 weeks treatment were
83.3% (N=5) in the Intention-To-Treat (ITT) population and 80.0% (N=4) in the Per-Protocol (PP) population. Both low and high doses of
PDC-1421 Capsule met the primary end points by passing the required 40% population in ADHD-RS-IV test scores. Overall, the results from
this study, which demonstrate the therapeutic value of PDC-1421, support further clinical development of ABV-1505 for the treatment of
adult ADHD.
On
November 4, 2020, the Company executed an amendment to its collaboration agreement with BioFirst to add BFC-1403 Intraocular Irrigation
Solution and BFC-1404 Corneal Storage Solution to our agreement. BFC-1404 is utilized during a corneal transplant procedure to replace
a damaged or diseased cornea while BFC-1403 has broader utilization during a variety of ocular procedures.
Initially
the Company will focus on BFC-1404, a solution utilized to store a donor cornea prior to either penetrating keratoplasty (full thickness
cornea transplant) or endothelial keratoplasty (back layer cornea transplant). Designated ABV-2002 under the Company’s product
identification system, the solution is comprised of a specific poly amino acid that protects ocular tissue from damage caused by external
osmolarity exposure during pre-surgery storage. The specific polymer in ABV 2002 can adjust osmolarity to maintain a range of 330 to
390 mOsM thereby permitting hydration within the corneal stroma during the storage period. Stromal hydration results in (a) maintaining
acceptable corneal transparency and (b) prevents donor cornea swelling. ABV-2002 also contains an abundant phenolic phytochemical found
in plant cell walls that provides antioxidant antibacterial properties and neuroprotection.
Early
testing by BioFirst indicates that ABV-2002 may be more effective for protecting the cornea and retina during long-term storage than
other storage media available today and can be manufactured at lower cost. Categorized as a Class I Medical Device which has the lowest
risk to patients, the Company intends to submit a Premarket Notification 510(K) submission to the FDA before the end of 2021 to demonstrate
the device is at least as safe and effective as current products on the market.
Strategy
Key
elements of our business strategy include:
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Advancing
to the pivotal trial phase of ABV-1701 Vitargus for the treatments of Retinal Detachment or Vitreous Hemorrhage, which we expect
to generate revenues in the future.
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Focusing
on licensing ABV-1504 for the treatment of major depressive disorder, MDD, after the successful completion of its Phase II clinical
trials.
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Completing
Phase II, Part 2 clinical trial for ABV-1505 for the treatment of attention deficit hyperactivity disorder, ADHD.
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Out
licensing drug candidates and medical device candidates to major pharmaceutical companies for phase III and pivotal clinical trials,
as applicable, and further marketing if approved by the FDA.
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We
plan to augment our core research and development capability and assets by conducting Phase I and II clinical trials for investigational
new drugs and medical devices in the fields of CNS, Hematology/Oncology and Ophthalmology.
Our
management team has extensive experiences across a wide range of new drug and medical device development and we have in-licensed new
drug and medical device candidates from large research institutes and universities in both the U.S. and Taiwan. Through an assertive
product development approach, we expect that we will build a substantial portfolio of Oncology/ Hematology, CNS and Ophthalmology products.
We primarily focus on Phase I and II research of new drug candidates and out license the post-Phase-II products to pharmaceutical companies;
we do not expect to devote substantial efforts and resources to building the disease-specific distribution channels.
Business
Objectives
The
Company is operating its core business based on collaborative activities that can generate current and future revenues through research,
development and/or commercialization joint venture agreements. The terms of these agreements typically include payment to the Company
related to one or more of the following:
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nonrefundable
upfront license fees,
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development
and commercial milestones,
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partial
or complete reimbursement of research and development costs and
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royalties
on net sales of licensed products.
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Each
type of payments results in revenue except for revenue 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 joint venture partner.
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.
(ii)
Milestone payments
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.
Revenues
Derived from Research and Development Activities Services — Revenues related to research and development and regulatory activities
are recognized when the related services or activities are performed, in accordance with the contract terms. The Company typically has
only one performance obligation at the inception of a contract, which is to perform research and development services. The Company may
also provide its customers with an option to request that the Company provides additional goods or services in the future, such as active
pharmaceutical ingredient, API, or IND/NDA/ANDA/510K submissions. The Company evaluates whether these options are material rights at
the inception of the contract. If the Company determines an option is a material right, the Company will consider the option a separate
performance obligation.
If
the Company is entitled to reimbursement from its customers for specified research and development expenses, the Company accounts for
the related services that it provides as separate performance obligations if it determines that these services represent a material right.
The Company also determines whether the reimbursement of research and development expenses should be accounted for as revenues or an
offset to research and development expenses in accordance with provisions of gross or net revenue presentation. The Company recognizes
the corresponding revenues or records the corresponding offset to research and development expenses as it satisfies the related performance
obligations.
The
Company then determines the transaction price by reviewing the amount of consideration the Company is eligible to earn under the contracts,
including any variable consideration. Under the outstanding contracts, consideration typically includes fixed consideration and variable
consideration in the form of potential milestone payments. At the start of an agreement, the Company’s transaction price usually
consists of the payments made to or by the Company based on the number of full-time equivalent researchers assigned to the project and
the related research and development expenses incurred. The Company does not typically include any payments that the Company may receive
in the future in its initial transaction price because the payments are not probable. The Company would reassess the total transaction
price at each reporting period to determine if the Company should include additional payments in the transaction price.
The
Company receives payments from its customers based on billing schedules established in each contract. Upfront payments and fees may be
recorded as advance from customers upon receipt or when due, and may require deferral of revenue recognition to a future period until
the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the right of the Company
to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation
at contract inception is such that the period between payment by the customers and the transfer of the promised goods or services to
the customers will be one year or less.
Examples
of collaborative agreements the Company has entered into are as follows:
Collaborative
agreements with BHK
(i)
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In
February and December of 2015, BioLite, Inc. entered into a total of three joint venture agreements with BioHopeKing to jointly develop
ABV-1501 for Triple Negative Breast Cancer (TNBC), ABV-1504 for MDD and ABV-1505 for ADHD. The agreements granted marketing rights
to BioHopeKing for certain Asian countries in return for a series of milestone payments totaling $10 million in cash and equity of
BioHopeKing or equity securities owned by BioHopeKing.
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The
milestone payments are determined by a schedule of BioLite development achievements as shown below:
Milestone
|
|
Payment
|
|
Execution of BHK Co-Development Agreement
|
|
$
|
1,000,000
|
|
Investigational New Drug (IND) Submission
|
|
$
|
1,000,000
|
|
Phase II Clinical Trial Complete
|
|
$
|
1,000,000
|
|
Initiation of Phase III Clinical Trial
|
|
$
|
3,000,000
|
|
New Drug Application (NDA) Submission
|
|
$
|
4,000,000
|
|
Total
|
|
$
|
10,000,000
|
|
(ii)
|
In
December of 2015, BHK paid the initial cash payment of $1 million upon the execution of the BHK Agreement. The Company concluded
that certain deliverables are considered separate units of accounting as the delivered items have value to the customer on a standalone
basis and recognized this cash payment as collaboration revenue when all research, technical, and development data was delivered
to BHK in 2015. The payment included compensation for past research efforts and contributions made by BioLite Taiwan before the BHK
agreement was signed and does not relate to any future commitments made by BioLite Taiwan and BHK in the BHK Agreement.
|
(iii)
|
In
August 2016, the Company received the second milestone payment of $1 million, and recognized collaboration revenue for the year ended
December 31, 2016. As of September 30, 2021, the Company had not completed the first phase II clinical trial.
|
(iv)
|
In
addition to the milestone payments, BioLite Taiwan is entitled to receive a royalty equal to 12% of BHK’s net sales related
to ABV-1501, ABV-1504 and ABV-1505 Products. As of September 30, 2021, the Company has not earned royalties under the BHK Co-Development
Agreement.
|
(v)
|
The
BHK Co-Development Agreement will remain in effect for fifteen years from the date of first commercial sale of the Product in in
Asia excluding Japan.
|
Co-Development
agreement with Rgene Corporation, a related party
On
May 26, 2017, BriVision entered into a co-development agreement (the “Rgene Agreement”) with Rgene Corporation (the “Rgene”),
a related party under common control by the controlling beneficiary shareholder of YuanGene Corporation and the Company (See Note 12).
Pursuant to the Rgene Agreement, BriVision and Rgene agreed to co-develop and commercialize ABV-1507 HER2/neu Positive Breast Cancer
Combination Therapy, ABV-1703 Pancreatic Cancer Combination Therapy and ABV-1527 Ovary Cancer Combination Therapy. Under the terms of
the Rgene Agreement, Rgene is required to pay the Company $3,000,000 in cash or stock of Rgene with equivalent value by August 15,
2017 as compensation of BriVision’s past research efforts and contributions made by BriVision before the Rgene Agreement was executed.
The payment does not relate to any future milestones attained by BriVision. In addition to $3,000,000, the Company is entitled to receive
50% of the future net licensing income or net sales profit earned by Rgene. All development costs shall be equally shared by both BriVision
and Rgene.
On
June 1, 2017, the Company delivered all research, technical data and development data to Rgene pursuant to the Rgene Agreement in return
for a cash payment of $450,000 and 1,530,000 common shares of Rgene stock valued at $2,550,000, which in 2018 was accounted for using
the equity method long-term investment. On December 31, 2018, the Company 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, the regulatory or economic environment, changes in operating structure
of Rgene, additional funding requirements and Rgene’s ability to remain in business. All research projects that were initiated
will be managed and funded equally by the Company and Rgene.
The
Company and Rgene signed an amendment to the Rgene Agreement on November 10, 2020, pursuant to which both parties agreed to delete AB-1507
HER2/neu Positive Breast Cancer Combination Therapy and AB-1527 Ovary Cancer Combination Therapy and add ABV-1519 EGFR Positive Non-Small
Cell Lung Cancer Combination Therapy and ABV-1526 Large Intestine / Colon / Rectal Cancer Combination Therapy to the products to be co-developed
and commercialized. Other provisions of the Rgene Agreement remain in full force and effect.
Collaborative
agreement with BioFirst Corporation, a related party
On
July 24, 2017, BriVision entered into a collaborative agreement (the “BioFirst Agreement”) with BioFirst Corporation, a corporation
incorporated under the laws of Taiwan (“BioFirst”), pursuant to which BioFirst granted the Company global licensing rights
to medical use of ABV-1701 Vitreous Substitute for Vitrectomy. BioFirst is a related party to the Company because a controlling beneficiary
shareholder of YuanGene Corporation and the Company is a Director and shareholders of BioFirst (See Note 12).
Pursuant
to the BioFirst Agreement, the Company and BioFirst will co-develop and commercialize BFC-1401. The Company will pay BioFirst a total
amount of $3,000,000 in cash or stock of the Company before September 30, 2018 as payment in full for BioFirst’s past research
efforts and contributions made by BioFirst before the BioFirst Agreement was executed. The Company is entitled to receive 50% of any
future net licensing revenue or net profit associated with Vitargus. All development cost will be equally shared by both BriVision and
BioFirst.
On
September 25, 2017, BioFirst delivered all research, technical, data and development data to BriVision. For the year ended September
30, 2017, the Company determined to fully expense the entire amount of $3,000,000 since 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.
On
September 30, 2019, BriVision entered into a Stock Purchase Agreement (the “Purchase Agreement”) with BioFirst. Pursuant
to the Purchase Agreement, the Company issued 428,571 shares of the Company’s common stock to BioFirst as payment for $3,000,000
owed by the Company to BioFirst in connection with the BioFirst Agreement.
On
August 5, 2019, BriVision entered into a second Stock Purchase Agreement with BioFirst whereby the Company issued 414,702 shares of the
Company’s common stock to BioFirst as repayment in full for a loan in the amount of $2,902,911 provided to BriVision from BioFirst.
On
November 4, 2020, the Company executed an amendment to the BioFirst Agreement with BioFirst to add ABV-2001 Intraocular Irrigation Solution
and ABV-2002 Corneal Storage Solution to the agreement. ABV-2002 is utilized during a corneal transplant procedure to replace a damaged
or diseased cornea while ABV-2001 has broader utilization during a variety of ocular procedures.
Initially
the Company will focus on ABV-2002, a solution utilized to store a donor cornea prior to either penetrating keratoplasty (full thickness
cornea transplant) or endothelial keratoplasty (back layer cornea transplant). ABV-2002 is a solution comprised of a specific poly amino
acid that protects ocular tissue from damage caused by external osmolarity exposure during pre-surgery storage. The specific polymer
in ABV-2002 can adjust osmolarity to maintain a range of 330 to 390 mOsM thereby permitting hydration within the corneal stroma during
the storage period. Stromal hydration results in (a) maintaining acceptable corneal transparency and (b) prevents donor cornea swelling.
ABV-2002 also contains an abundant phenolic phytochemical found in plant cell walls that provides antioxidant antibacterial properties
and neuroprotection.
Early
testing by BioFirst indicates that ABV-2002 may be more effective for protecting the cornea and retina during long-term storage than
other storage media available today and can be manufactured at lower cost. Categorized as a lower risk Class I Medical Device, the Company
intends to submit a Premarket Notification 510(K) submission to the FDA before the end of 2021 to demonstrate the device is at least
as safe and effective as current products on the market.
BioKey
Revenues
In
addition to collaborative agreements, ABVC earns revenue through its wholly owned BioKey subsidiary which provides a wide range of Contract
Development & Manufacturing Organization (“CDMO”) services including API characterization, pre-formulation studies, formulation
development, analytical method development, stability studies, IND/NDA/ANDA/510K submissions, and manufacturing clinical trial materials
(from Phase I through Phase III) and commercial manufacturing of pharmaceutical products.
In
addition, BioKey provides a variety of regulatory services tailored to the needs of its customers, which include proofreading and regulatory
review of submission documents related to formulation development, clinical trials, marketed products, generics, nutraceuticals and OTC
products and training presentations. In addition to supporting ABVC’s new drug development, BioKey submits INDs, NDAs, ANDAs, and
DMFs to the FDA, on ABVC’s behalf in compliance with new electronic submission guidelines of the FDA.
Impact
of COVID-19 Outbreak
On
January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern”
and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include
restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The
coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial
markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement,
domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of the
supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Company, which in
turn could materially interrupt the Company’s business operations. Given the speed and frequency of the continuously evolving developments
with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations.
We have taken every precaution possible to ensure the safety of our employees.
Due to the COVID-19
pandemic, our revenue for the first half of fiscal 2020 and 2021 were significantly impacted. As we have not seen a stronger signal to
indicate that overall global economies will be back to normal in the fourth quarter, our business’s overall revenue stream may
be impacted further until the restrictions of COVID-19 can be released, then the company can start operating normally.
The COVID-19 pandemic,
including variants, has adversely affected, and is expected to continue to adversely affect, elements of our CDMO business sector. The
COVID-19 pandemic controls constrained researcher access to labs globally. These constraints limited scientific discovery capacity
and we observed that demand in those labs fell well below historic levels. As constraints on social distancing were gradually lifted around
the world recently, labs were able to increase research activity. While we believe that underlying demand is still not yet at pre-COVID-19 levels
as lab operations remain below their normal capacity, we are hopeful that the vaccination programs that are underway combined with policy
changes planned for the summer will further increase research activity and support a return to pre-COVID-19 demand levels worldwide.
The global pandemic
of COVID-19 continues to evolve rapidly, and we will continue to monitor the situation closely, including its potential effect on our
plans and timelines.
Additionally,
it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in
the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived
assets and current obligations.
Summary
of Critical 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.
Inventory
Inventory
consists of raw materials, work-in-process, finished goods, and merchandise. Inventories are stated at the lower of cost or market and
valued on a moving weighted average cost basis. Market is determined based on net realizable value. The Company periodically reviews
the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge
to operations for known and anticipated inventory obsolescence.
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.
Stock
Reverse Split
On
March 12, 2019, the Board of Directors of the Company by unanimous written consent in lieu of a meeting approved to i) effect a stock
reverse split at the ratio of 1-for-18 (the “Reverse Split”) of both the authorized common stock of the Company (the “Common
Stock”) and the issued and outstanding Common Stock and ii) to amend the articles of incorporation of the Company to reflect the
Reverse Split. The Board approved and authorized the Reverse Split without obtaining approval of the Company’s shareholders pursuant
to Section 78.207 of Nevada Revised Statutes. On May 3, 2019, the Company filed a certificate of amendment to the Company’s articles
of incorporation (the “Amendment”) to effect the Reverse Split with the Secretary of State of Nevada. The Financial Industry
Regulatory Authority (“FINRA”) informed the Company that the Reverse Split was effective on May 8, 2019. All shares and related
financial information in this Form 10-Q reflect this 1-for-18 reverse stock split.
Fair
Value Measurements
FASB
ASC 820, “Fair Value Measurements” defines fair value for certain financial and nonfinancial assets and liabilities that
are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It
requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and
minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related
disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs
be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets
or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the
Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based
on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability
of the inputs as follows:
|
●
|
Level
1 - Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at
the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted
prices in active markets that are readily and regularly available.
|
|
●
|
Level
2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
●
|
Level
3 - Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities
is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions
a market participant would use in pricing the asset or liability.
|
The
carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, restricted cash, accounts receivable,
due from related parties, inventory, prepaid expenses and other current assets, accounts payable, accrued liabilities, and due to related
parties approximate fair value due to their relatively short maturities. The carrying value of the Company’s short-term bank loan,
convertible notes payable, and accrued interest approximates their fair value as the terms of the borrowing are consistent with current
market rates and the duration to maturity is short. The carrying value of the Company’s long-term bank loan approximates fair value
because the interest rates approximate market rates that the Company could obtain for debt with similar terms and maturities.
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 September 30, 2021 and December 31, 2020, the Company’s cash
and cash equivalents amounted $3,715,609 and $4,273,208, 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. As of September 30, 2021 and December 31, 2020, the Company’s restricted cash
equivalents amounted $734,163 and $728,163, respectively.
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
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.
Property
and Equipment
Property
and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that
improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise
disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method
over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method,
including property and equipment under capital leases, generally based on the following useful lives:
|
|
Estimated Life
in Years
|
|
Buildings
and leasehold improvements
|
|
5
~ 50
|
|
Machinery
and equipment
|
|
5
~ 10
|
|
Office
equipment
|
|
3
~ 6
|
|
Impairment
of Long-Lived Assets
The
Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC
360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived
assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over
an extended period. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates
of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed
of be reported at the lower of the carrying amount or the fair value less costs to sell.
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
$0 for the three and nine months ended September 30, 2021. Other-than-temporary impairments of equity investments were $944,204 for
the three and nine months ended September 30, 2020.
|
Goodwill
The
Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the
carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment
to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative
assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests
goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting
units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not
that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair
value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts
of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category
expansion, pricing, market segment share, and general economic conditions.
The
Company completed the required testing of goodwill for impairment as of September 30, 2021, and determined that goodwill was impaired
because of the current financial condition of the Company and the Company’s inability to generate future operating income without
substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that
the recoverability of goodwill is not reasonably assured.
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.
For
CDMO business unit, the Company accounts for R&D costs in accordance with Accounting Standards Codification (“ASC”) 730,
Research and Development (“ASC 730”). Research and development expenses are charged to expense as incurred unless there is
an alternative future use in other research and development projects or otherwise. Research and development expenses are comprised of
costs incurred in performing research and development activities, including personnel-related costs, facilities-related overhead, and
outside contracted services including clinical trial costs, manufacturing and process development costs for both clinical and preclinical
materials, research costs, and other consulting services. Non-refundable advance payment for goods and services that will be used in
future research and development activities are expensed when the activity has been performed or when the goods have been received rather
than when the payment is made. In instances where the Company enters into agreements with third parties to provide research and development
services, costs are expensed as services are performed.
Post-retirement
and post-employment benefits
The Company’s subsidiaries in Taiwan adopted
the government mandated defined contribution plan pursuant to the Labor Pension Act (the “Act”) in Taiwan. Such labor regulations
require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker’s
monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’
pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee
benefits, which were expensed as incurred, were $2,906 and $3,759 for the three months ended September 30, 2021 and 2020, respectively.
The total amounts for such employee benefits, which were expensed as incurred, were $8,268 and $7,357 for the nine months ended September
30, 2021 and 2020, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.
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 three and nine months
ended September 30, 2021 and 2020, respectively.
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 $225,740 and $0 for the three months ended September 30, 2021 and 2020, respectively.
Total non-employee stock-based compensation expenses were $927,220 and $999,820 for the nine months ended September 30, 2021 and 2020,
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 nine months ended September 30, 2021 and 2020. 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 the Company may take. The Company is continuing to
gather additional information to determine the final impact.
Valuation
of Deferred Tax Assets
A
valuation allowance is recorded to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized.
In assessing the need for the valuation allowance, management considers, among other things, projections of future taxable income and
ongoing prudent and feasible tax planning strategies. If the Company determines that sufficient negative evidence exists, then it will
consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording
a valuation allowance, the Company’s projections of future taxable income and other positive evidence considered in evaluating
the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove to be more difficult to support
the realization of its deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse
impact on its effective income tax rate and results. Conversely, if, after recording a valuation allowance, the Company determines that
sufficient positive evidence exists in the jurisdiction in which the valuation allowance was recorded, it may reverse a portion or all
of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable
impact on its effective income tax rate and results in the period such determination was made.
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.
Foreign-currency
Transactions
For
the Company’s subsidiaries in Taiwan, the foreign-currency transactions are recorded in New Taiwan dollars (“NTD”)
at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange
rates when cash in foreign currency is converted into New Taiwan dollars, or when foreign-currency receivables or payables are settled,
are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency
assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except
for those foreign currencies denominated investments in shares of stock where such differences are accounted for as translation adjustments
under the Statements of Stockholders’ Equity (Deficit).
Translation
Adjustment
The
accounts of the Company’s subsidiaries in Taiwan were maintained, and their financial statements were expressed, in New Taiwan
Dollar (“NT$”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance
ASC 830, “Foreign Currency Matters”, with the NT$ as the functional currency. According to the Statement, all assets and
liabilities are translated at the current exchange rate, shareholder’s deficit are translated at the historical rates and income
statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under other
comprehensive income (loss) as a component of shareholders’ equity (deficit).
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity’s Own Equity (Subtopic 815-40), to reduce the complexity associated with applying U.S. GAAP principles
for certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting
models for convertible instruments and expand the existing disclosure requirements over earnings per share as it relates to convertible
instruments. This ASU will be effective for the fiscal year beginning January 1, 2022 and interim periods therein. Early adoption is
permitted, but no earlier than fiscal years beginning after December 15, 2020. The amendments may be adopted through either a modified
retrospective method, or a fully retrospective method. The Company is currently evaluating the impact of adopting ASU 2020-06.
Estimates
and Assumptions
In
preparing our consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our
estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently
uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated
amounts.
Results
of Operations — Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020.
The
following table presents, for the three months indicated, our consolidated statements of operations information.
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
98,999
|
|
|
$
|
115,553
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
393
|
|
|
|
8,619
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
98,606
|
|
|
|
106,934
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,579,996
|
|
|
|
1,262,199
|
|
Research and development expenses
|
|
|
263,424
|
|
|
|
134,501
|
|
Stock-based compensation
|
|
|
225,740
|
|
|
|
|
|
Total operating expenses
|
|
|
2,069,160
|
|
|
|
1,396,700
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,970,554
|
)
|
|
|
(1,289,766
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,333
|
|
|
|
19,571
|
|
Interest expense
|
|
|
(38,677
|
)
|
|
|
(16,311
|
)
|
Rent income
|
|
|
2,624
|
|
|
|
4,774
|
|
Rent income – related parties
|
|
|
1,200
|
|
|
|
1,200
|
|
Impairment loss
|
|
|
-
|
|
|
|
(8,507
|
)
|
Investment loss
|
|
|
-
|
|
|
|
665
|
|
Gain/Loss on foreign exchange changes
|
|
|
(5,999
|
)
|
|
|
(90
|
)
|
Gain/Loss on investment in equity securities
|
|
|
(91,765
|
)
|
|
|
(887,231
|
)
|
Other income (expense)
|
|
|
(404
|
)
|
|
|
(171
|
)
|
Government grant income
|
|
|
132,331
|
|
|
|
|
|
Total other income (expenses)
|
|
|
8,643
|
|
|
|
(886,100
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision income tax
|
|
|
(1,961,911
|
)
|
|
|
(2,175,866
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
(75,667
|
)
|
|
|
(44,735
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,886,244
|
)
|
|
|
(2,131,131
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
(79,756
|
)
|
|
|
(285,085
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributed to ABVC and subsidiaries
|
|
|
(1,806,488
|
)
|
|
|
(1,846,046
|
)
|
Foreign currency translation adjustment
|
|
|
16,137
|
|
|
|
(25,384
|
)
|
Comprehensive Loss
|
|
$
|
(1,790,351
|
)
|
|
$
|
(1,871,430
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
26,882,181
|
|
|
|
19,488,168
|
|
Revenues. We generated $98,999
and $115,553 in revenues for the three months ended September 30, 2021 and 2020, respectively; and incurred $393 and $8,619 in cost of
sales for the three months ended September 30, 2021 and 2020, respectively. The decrease in revenues was mainly due to the impact of COVID-19
on our CDMO business sector.
Operating Expenses. Our
operating expenses have increased by $672,460, or 48%, to $2,069,160 for the three months ended September 30, 2021 from $1,396,700 for
the three months ended September 30, 2020. Such increase in operating expenses was mainly due to the increase in selling, general and
administrative expenses and research and development expenses.
Our selling, general and administrative expenses
and stock-based compensation increased by $543,537, or 43%, mainly due to the increase in company’s marketing and up-list related
expenses.
Our research and development expenses increased
by $128,923 or approximately 96% primarily because of new service agreements signed with vendors during the three months ended September
30, 2021.
Other Income (Expense). Our other
income (expense) was $8,643 and ($886,100) for the three months ended September 30, 2021 and 2020, respectively. The change was principally
caused by the decrease in interest income and rental income, as well as decreasing loss on investment in equity securities and the
increase in government grant income.
Interest income was $9,333 for the three months
ended September 30, 2021 as compared to $19,571 for the three months ended September 30, 2020. The decrease of $10,238, or approximately
49%, was primarily due to the repayment of certain related-party loans.
Loss on investment in equity securities was $0
for the three months ended September 30, 2021 as compared to $8,507 for the three months ended September 30, 2020. The decrease was primarily
due to the loss on investment in BioFirst in 2020.
Other income and
government grant income totaled $131,927 for the three months ended September 30, 2021 as compared to other expense of $171 for
the three months ended September 30, 2020. The increase of $132,098, or approximately 77,250%, was primarily due to the receipt of the
second round of PPP loan forgiveness during the third quarter of 2021.
Net Loss. As a result of the
above factors, our net loss was $1,886,244 for the three months ended September 30, 2021 compared to $2,131,131 for the three months ended
September 30, 2020, representing a decrease of $244,887, or 11%.
Results
of Operations — Nine months Ended September 30, 2021 Compared to Nine months Ended September 30, 2020.
The
following table presents, for the nine months indicated, our consolidated statements of operations information.
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
393,590
|
|
|
$
|
420,852
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
2,284
|
|
|
|
16,814
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
391,306
|
|
|
|
404,038
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
3,979,283
|
|
|
|
2,693,001
|
|
Research and development expenses
|
|
|
743,617
|
|
|
|
366,374
|
|
Stock-based compensation
|
|
|
927,220
|
|
|
|
999,820
|
|
Total operating expenses
|
|
|
5,650,120
|
|
|
|
4,059,195
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,258,814
|
)
|
|
|
(3,655,157
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
72,584
|
|
|
|
39,641
|
|
Interest expense
|
|
|
(251,577
|
)
|
|
|
(288,353
|
)
|
Rent income
|
|
|
60,822
|
|
|
|
15,254
|
|
Rent income – related parties
|
|
|
3,600
|
|
|
|
3,600
|
|
Impairment loss
|
|
|
-
|
|
|
|
(952,711
|
)
|
Investment loss
|
|
|
-
|
|
|
|
(38,272
|
)
|
Gain/Loss on foreign exchange changes
|
|
|
(10,806
|
)
|
|
|
8,659
|
|
Gain/Loss on investment in equity securities
|
|
|
(193,147
|
)
|
|
|
(1,067,298
|
)
|
Other income (expense)
|
|
|
(171
|
)
|
|
|
176,330
|
|
Government grant income
|
|
|
256,731
|
|
|
|
-
|
|
Total other income (expenses)
|
|
|
(61,964
|
)
|
|
|
(2,103,240
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision income tax
|
|
|
(5,320,778
|
)
|
|
|
(5,758,397
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
(186,255
|
)
|
|
|
(133,947
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,134,523
|
)
|
|
|
(5,624,450
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
(227,964
|
)
|
|
|
(681,569
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributed to ABVC and subsidiaries
|
|
|
(4,906,559
|
)
|
|
|
(4,942,881
|
)
|
Foreign currency translation adjustment
|
|
|
416,858
|
|
|
|
(42,403
|
)
|
Comprehensive Loss
|
|
$
|
(4,489,701
|
)
|
|
$
|
(4,985,284
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
25,053,522
|
|
|
|
19,486,959
|
|
Revenues. We generated $393,590
and $420,852 in revenues for the nine months ended September 30, 2021 and 2020, respectively; and incurred $2,284 and $16,814 in cost
of sales for the nine months ended September 30, 2021 and 2020, respectively. The decrease in revenues was mainly due to the impact of
COVID-19 onto our CDMO business sector.
Operating Expenses. Our
operating expenses have increased by $1,590,925, or 39%, to $5,650,120 for the nine months ended September 30, 2021 from $4,059,195 for
the nine months ended September 30, 2020. Such increase in operating expenses was mainly due to the increase in selling, general and administrative
expenses and research and development expenses.
Our selling, general and administrative expenses
and stock-based compensation increased by $1,213,682, or 33%, mainly due to the increase in company’s marketing and up-list related
expenses.
Our research and development expenses increased
by $377,243 or approximately 103% primarily because of new service agreements signed with vendors during the nine months ended September
30, 2021.
Other Income (Expense). Our other
expense was $61,964 for the nine months ended September 30, 2021 as compared to $2,103,240 for the nine months ended September 30, 2020.
The change was principally caused by the decrease in the impairment loss and loss on investment in equity securities, and the increase in
government grant income of $256,731 due to the forgiveness of PPP loans during the nine months ended September 30, 2021.
Interest income was $72,584 for the nine months
ended September 30, 2021 as compared to $39,641 for the nine months ended September 30, 2020. The increase of $32,943, or approximately
83%, was primarily due to the increase of certain related-party loans.
Loss on investment in equity securities was $193,147
for the nine months ended September 30, 2021 as compared to $1,067,298 for the nine months ended September 30, 2020. The decrease was
primarily due to the loss on investment in BioFirst in 2020.
Other income and government grant income totaled
$256,560 for the nine months ended September 30, 2021 as compared to $176,330 for the nine months ended September 30, 2020. The increase
of $80,230, or approximately 45%, was primarily due to the forgiveness of the PPP loans of $256,731, offsetting the decrease in other
income of $176,501.
Net Loss. As a result of the
above factors, our net loss was $5,134,523 for the nine months ended September 30, 2021 compared to $5,624,450 for the nine months ended
September 30, 2020, representing a decrease of $489,927, or 9%.
Liquidity
and Capital Resources
Working
Capital
|
|
As of
September 30,
2021
|
|
|
As of
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
$
|
7,111,031
|
|
|
$
|
6,172,966
|
|
Current Liabilities
|
|
$
|
3,438,880
|
|
|
$
|
4,844,391
|
|
Working Capital (deficit)
|
|
$
|
3,672,151
|
|
|
$
|
1,328,575
|
|
Cash
Flow from Operating Activities
During the nine months ended September 30, 2021
and 2020, the net cash used in operating activities were $5,541,538 and $2,375,873, respectively. The increase in the amount used in operating
activities of $3,165,665 was primarily due to the increased accounts receivables, prepaid expenses and deposits, non-cash government grant
income, and decreased accrued expenses and other current liabilities, non-cash investment loss, the decrease in amount due from related
parties, decrease in non-cash stock based compensation for nonemployees and decrease in net loss during the nine months ended September
30, 2021.
Cash
Flow from Investing Activities
During the nine months ended September 30, 2021,
the net cash used in investing activities was $764,377, compared to the net cash used in investing activities was $332,539 for the nine
months ended September 30, 2020. The increase was due to the prepayment for equity investment during the nine months ended September
30, 2021.
Cash
Flow from Financing Activities
During the nine months ended September 30, 2021,
the net cash used in financing activities was $5,742,737, while the net cash provided by the nine months ended September 30, 2020 was
$2,698,793, respectively. The increase in net cash provided by financing activities were primarily due to proceeds from issuance of common
stock, partially offset by the repayment of convertible notes during the nine months ended September 30, 2021.
Off-Balance
Sheet Arrangements
As
of September 30, 2021, we did 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
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As
a smaller reporting company, we are not required to provide the information required by this item.
ITEM
4. CONTROLS AND PROCEDURES.
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed
by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end
of the period covered by this report.
Based
on their evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure
controls and procedures were not effective as of September 30, 2021.
We
do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure
controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all
our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures is also based partly on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.