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 July 11, 2022, as later updated (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.
☒ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark whether the issuer (1)
filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 11, 2022, there
were 32,632,329 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, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
Current Assets | |
| | |
| |
Cash and cash equivalents | |
$ | 1,323,543 | | |
$ | 5,828,548 | |
Restricted cash and cash equivalents | |
| 646,604 | | |
| 736,667 | |
Accounts receivable, net | |
| 47,680 | | |
| 280,692 | |
Accounts receivable – related parties, net | |
| - | | |
| 145,399 | |
Due from related party – current | |
| 500,000 | | |
| - | |
Inventory, net | |
| 20,489 | | |
| 25,975 | |
Short-term Investment | |
| 77,583 | | |
| 108,147 | |
Prepaid expense and other current assets | |
| 287,181 | | |
| 528,354 | |
Total Current Assets | |
| 2,903,080 | | |
| 7,653,782 | |
| |
| | | |
| | |
Property and equipment, net | |
| 566,751 | | |
| 525,881 | |
Operating lease right-of-use assets | |
| 1,243,930 | | |
| 1,471,899 | |
Goodwill, net | |
| - | | |
| - | |
Long-term investments | |
| 816,160 | | |
| 932,755 | |
Deferred tax assets | |
| 1,013,159 | | |
| 981,912 | |
Prepaid expenses – noncurrent | |
| 103,218 | | |
| 119,309 | |
Security deposits | |
| 57,656 | | |
| 41,157 | |
Prepayment for long-term investments | |
| 2,586,658 | | |
| 1,153,155 | |
Due from related parties – noncurrent | |
| 1,190,255 | | |
| 818,183 | |
Total Assets | |
$ | 10,480,567 | | |
$ | 13,698,033 | |
| |
| | | |
| | |
LIABILITIES AND EQUITY | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Short-term bank loans | |
$ | 1,866,250 | | |
$ | 1,640,000 | |
Accrued expenses and other current liabilities | |
| 1,201,497 | | |
| 1,300,803 | |
Advance from customers | |
| 10,985 | | |
| 10,985 | |
Operating lease liabilities – current portion | |
| 363,752 | | |
| 347,100 | |
Due to related parties | |
| 451,826 | | |
| 393,424 | |
Total Current Liabilities | |
| 3,894,310 | | |
| 3,692,312 | |
| |
| | | |
| | |
Tenant security deposit | |
| 12,880 | | |
| 10,580 | |
Operating lease liability – noncurrent portion | |
| 880,178 | | |
| 1,124,799 | |
Total Liabilities | |
| 4,787,368 | | |
| 4,827,691 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
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, 32,632,329 and 28,926,322 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | |
| 32,632 | | |
| 28,926 | |
Additional paid-in capital | |
| 66,493,649 | | |
| 58,113,667 | |
Stock subscription receivable | |
| (1,580,180 | ) | |
| (2,257,400 | ) |
Accumulated deficit | |
| (50,040,501 | ) | |
| (38,481,200 | ) |
Accumulated other comprehensive income | |
| 113,081 | | |
| 539,660 | |
Treasury stock | |
| (9,100,000 | ) | |
| (9,100,000 | ) |
Total Stockholders’ Equity | |
| 5,918,681 | | |
| 8,843,653 | |
Noncontrolling interest | |
| (225,482 | ) | |
| 26,689 | |
Total Equity | |
| 5,693,199 | | |
| 8,870,342 | |
| |
| | | |
| | |
Total Liabilities and Equity | |
$ | 10,480,567 | | |
$ | 13,698,033 | |
The accompanying notes
are an integral part of these unaudited 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, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenues | |
$ | 42,269 | | |
$ | 98,999 | | |
$ | 380,789 | | |
$ | 393,590 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| 10,741 | | |
| 393 | | |
| 21,004 | | |
| 2,284 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 31,528 | | |
| 98,606 | | |
| 359,785 | | |
| 391,306 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| 3,216,146 | | |
| 1,579,996 | | |
| 6,000,055 | | |
| 3,979,283 | |
Research and development expenses | |
| 305,483 | | |
| 263,424 | | |
| 1,197,669 | | |
| 743,617 | |
Stock-based compensation | |
| 225,740 | | |
| 225,740 | | |
| 5,143,483 | | |
| 927,220 | |
Total operating expenses | |
| 3,747,369 | | |
| 2,069,160 | | |
| 12,341,207 | | |
| 5,650,120 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (3,715,841 | ) | |
| (1,970,554 | ) | |
| (11,981,422 | ) | |
| (5,258,814 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 48,164 | | |
| 9,333 | | |
| 127,354 | | |
| 72,584 | |
Interest expense | |
| (126,536 | ) | |
| (38,677 | ) | |
| (159,507 | ) | |
| (251,577 | ) |
Operating sublease income | |
| 21,597 | | |
| 2,624 | | |
| 78,523 | | |
| 60,822 | |
Operating sublease income – related parties | |
| - | | |
| 1,200 | | |
| - | | |
| 3,600 | |
Gain/Loss on foreign exchange changes | |
| (177 | ) | |
| (5,999 | ) | |
| 17,865 | | |
| (10,806 | ) |
Gain/Loss on investment in equity securities | |
| - | | |
| (91,765 | ) | |
| - | | |
| (193,147 | ) |
Other (expense) income | |
| 491 | | |
| (404 | ) | |
| (59,381 | ) | |
| (171 | ) |
Government grant income | |
| - | | |
| 132,331 | | |
| - | | |
| 256,731 | |
Total other income (expenses) | |
| (56,461 | ) | |
| 8,643 | | |
| 4,854 | | |
| (61,964 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before provision income tax | |
| (3,772,302 | ) | |
| (1,961,911 | ) | |
| (11,976,568 | ) | |
| (5,320,778 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision for income tax | |
| 4,222 | | |
| (75,667 | ) | |
| (165,096 | ) | |
| (186,255 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (3,776,524 | ) | |
| (1,886,244 | ) | |
| (11,811,472 | ) | |
| (5,134,523 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss attributable to noncontrolling interests | |
| (71,660 | ) | |
| (79,756 | ) | |
| (252,171 | ) | |
| (227,964 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss attributed to ABVC and subsidiaries | |
| (3,704,864 | ) | |
| (1,806,488 | ) | |
| (11,559,301 | ) | |
| (4,906,559 | ) |
Foreign currency translation adjustment | |
| (190,019 | ) | |
| 16,137 | | |
| (426,579 | ) | |
| 416,858 | |
Comprehensive loss | |
$ | (3,894,883 | ) | |
$ | (1,790,351 | ) | |
$ | (11,985,880 | ) | |
$ | (4,489,701 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.11 | ) | |
$ | (0.07 | ) | |
$ | (0.37 | ) | |
$ | (0.20 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 32,574,551 | | |
| 26,882,181 | | |
| 31,193,397 | | |
| 25,035,522 | |
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
ABVC BIOPHARMA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Cash flows from operating activities | |
| | |
| |
Net loss | |
$ | (11,811,472 | ) | |
$ | (5,134,523 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 17,364 | | |
| 8,725 | |
Stock based compensation for non employees | |
| 5,143,483 | | |
| 927,220 | |
Gain/Loss on investment in equity securities | |
| - | | |
| 193,147 | |
Government grant income | |
| - | | |
| (256,731 | ) |
Provision for doubtful accounts | |
| 521,955 | | |
| - | |
Other non-cash income and expenses | |
| 30,564 | | |
| - | |
Deferred tax | |
| (31,247 | ) | |
| (187,055 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Decrease (increase) in accounts receivable | |
| (31,909 | ) | |
| (171,655 | ) |
Decrease (increase) in prepaid expenses and deposits | |
| 243,065 | | |
| (647,219 | ) |
Decrease (increase) in due from related parties | |
| (983,707 | ) | |
| 422,651 | |
Increase (decrease) in inventory | |
| 5,486 | | |
| (59,673 | ) |
Increase (decrease) in accounts payable | |
| - | | |
| (6,547 | ) |
Increase (decrease) in accrued expenses and other current liabilities | |
| (99,306 | ) | |
| (338,928 | ) |
Increase (decrease) in advance from others | |
| - | | |
| (1,085 | ) |
Increase (decrease) in due to related parties | |
| 58,402 | | |
| 178,570 | |
Net cash used in operating activities | |
| (6,937,322 | ) | |
| (5,073,103 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchase of equipment | |
| (119,603 | ) | |
| - | |
Purchase of investment | |
| - | | |
| (110,700 | ) |
Purchase of property, plant and equipment | |
| - | | |
| (17,503 | ) |
Prepayment for equity investment | |
| (1,518,793 | ) | |
| (1,104,609 | ) |
Net cash used in investing activities | |
| (1,638,396 | ) | |
| (1,232,812 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Issuance of common stock | |
| 3,917,425 | | |
| 6,875,000 | |
Payment for offering costs | |
| - | | |
| (850,429 | ) |
Proceeds from short-term loan | |
| 350,000 | | |
| - | |
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 | |
Repayment of long-term bank loans | |
| - | | |
| (4,396 | ) |
Net cash provided by (used in) financing activities | |
| 4,267,425 | | |
| 5,742,737 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | |
| (286,775 | ) | |
| 11,579 | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents and restricted cash | |
| (4,595,068 | ) | |
| (551,599 | ) |
| |
| | | |
| | |
Cash and cash equivalents and restricted cash | |
| | | |
| | |
Beginning | |
| 6,565,215 | | |
| 5,001,371 | |
Ending | |
$ | 1,970,147 | | |
$ | 4,449,772 | |
| |
| | | |
| | |
Supplemental disclosure of cash flows | |
| | | |
| | |
Cash paid during the year for: | |
| | | |
| | |
Interest expense paid | |
$ | 161,741 | | |
$ | 327,642 | |
Income taxes paid | |
$ | 1,600 | | |
$ | - | |
The accompanying notes are an integral part
of these unaudited consolidated financial statements.
ABVC BIOPHARMA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2022 AND 2021
(UNAUDITED)
| |
Common
Stock | | |
Stock | | |
Additional | | |
| | |
Accumulated
Other | | |
Treasury
Stock | | |
Non | | |
Total | |
| |
Number of
shares | | |
Amounts | | |
Subscription
Receivable | | |
Paid-in
Capital | | |
Accumulated
Deficit | | |
Comprehensive
Income | | |
Number of
Shares | | |
Amount | | |
controlling
Interest | | |
Equity
(Deficit) | |
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 | | |
| - | | |
| - | | |
| - | | |
| 16,137 | |
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 | |
|
|
Common Stock |
|
|
Stock |
|
|
Additional |
|
|
|
|
|
Accumulated
Other |
|
|
Treasury Stock |
|
|
Non |
|
|
Total |
|
|
|
Number of
shares |
|
|
Amounts |
|
|
Subscription
Receivable |
|
|
Paid-in
Capital |
|
|
Accumulated
Deficit |
|
|
Comprehensive
Income |
|
|
Number of
Shares |
|
|
Amount |
|
|
controlling
Interest |
|
|
Equity
(Deficit) |
|
Balance at December 31, 2021 |
|
|
28,926,322 |
|
|
$ |
28,926 |
|
|
$ |
(2,257,400 |
) |
|
$ |
58,113,667 |
|
|
$ |
(38,481,200 |
) |
|
$ |
539,660 |
|
|
|
(275,347 |
) |
|
$ |
(9,100,000 |
) |
|
$ |
26,689 |
|
|
$ |
8,870,342 |
|
Issuance of common shares for consulting service |
|
|
1,381,007 |
|
|
|
1,381 |
|
|
|
- |
|
|
|
4,464,882 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,466,263 |
|
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
225,740 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
225,740 |
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(5,995,440 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(92,175 |
) |
|
|
(6,087,615 |
) |
Cumulative transaction adjustments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(113,339 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(113,339 |
) |
Balance at March 31, 2022 |
|
|
30,307,329 |
|
|
|
30,307 |
|
|
|
(2,031,660 |
) |
|
|
62,578,549 |
|
|
|
(44,476,640 |
) |
|
|
426,321 |
|
|
|
(275,347 |
) |
|
|
(9,100,000 |
) |
|
|
(65,486 |
) |
|
|
7,361,391 |
|
Issuance of common shares for cash |
|
|
2,000,000 |
|
|
|
2,000 |
|
|
|
- |
|
|
|
3,661,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,663,925 |
|
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
225,740 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
225,740 |
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(1,858,997 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(88,336 |
) |
|
|
(1,947,333 |
) |
Cumulative transaction adjustments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(123,221 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(123,221 |
) |
Balance at June 30, 2022 |
|
|
32,307,329 |
|
|
|
32,307 |
|
|
|
(1,805,920 |
) |
|
|
66,240,474 |
|
|
|
(46,335,637 |
) |
|
|
303,100 |
|
|
|
(275,347 |
) |
|
|
(9,100,000 |
) |
|
|
(153,822 |
) |
|
|
9,180,502 |
|
Issuance of common shares for consulting service |
|
|
325,000 |
|
|
|
325 |
|
|
|
- |
|
|
|
253,175 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
253,500 |
|
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
225,740 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
225,740 |
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,704,864 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(71,660 |
) |
|
|
(3,776,524 |
) |
Cumulative transaction adjustments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(190,019 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(190,019 |
) |
Balance at September 30, 2022 |
|
|
32,632,329 |
|
|
$ |
32,632 |
|
|
$ |
(1,580,180 |
) |
|
$ |
66,493,649 |
|
|
$ |
(50,040,501 |
) |
|
$ |
113,081 |
|
|
|
(275,347 |
) |
|
$ |
(9,100,000 |
) |
|
$ |
(225,482 |
) |
|
$ |
5,693,199 |
|
The accompanying notes are an integral part
of these unaudited 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 (52,936,583
pre-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.
Going Concern
The accompanying unaudited financial statements have been prepared
in conformity with U.S. GAAP which contemplates continuation of the Company on a going concern basis. The going concern basis assumes
that assets are realized, and liabilities are settled in the ordinary course of business at amounts disclosed in the financial statements.
The Company’s ability to continue as a going concern depends upon its ability to market and sell its products to generate positive
operating cash flows. For the nine months ended September 30, 2022, the Company reported net loss of $11,811,472. As of September 30,
2022, the Company’s working capital deficit was $991,230. In addition, the Company had net cash outflows of $6,937,322 from operating
activities for the nine months ended September 30, 2022. These conditions give rise to substantial doubt as to whether the Company will
be able to continue as a going concern.
Management’s plan is to continue improve
operations to generate positive cash flows and raise additional capital through private of public offerings. If the Company is not able
to generate positive operating cash flows, and raise additional capital, there is the risk that the Company may not be able to meet its
short-term obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim consolidated financial statements do not include
all the information and footnotes required by the U.S. GAAP for complete financial statements. Certain information and note disclosures
normally included in the annual financial statements prepared in accordance with the U.S. GAAP have been condensed or omitted consistent
with Article 10 of Regulation S-X. In the opinion of the Company’s management, the unaudited interim consolidated financial statements
have been prepared on the same basis as the audited financial statements and include all adjustments, in normal recurring nature, as necessary
for the fair statement of the Company’s financial position as of September 30, 2022, and results of operations and cash flows for
the nine months ended September 30, 2022 and 2021. The unaudited interim consolidated balance sheet as of December 31, 2021 has been derived
from the audited financial statements at that date but does not include all the information and footnotes required by the U.S. GAAP. Interim
results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period. These
financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December
31, 2021 and 2020, and related notes included in the Company’s audited consolidated financial statements.
The accompanying unaudited 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 unaudited financial statements are expressed in U.S. dollars.
Reclassifications of Prior Year Presentation
Certain prior year unaudited consolidated balance
sheet and unaudited consolidated cash flow statement amounts have been reclassified for consistency with the current year presentation.
These reclassifications had no effect on the reported results of operations.
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.
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:
|
● |
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, 2022 and December 31, 2021, the
Company’s cash and cash equivalents amounted $1,323,543 and $5,828,548, 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, 2022 and December 31, 2021, the Company’s restricted cash
equivalents amounted $646,604 and $736,667, 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.
We perform ongoing credit evaluation of our customers
and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable.
We determine the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the
credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from our estimates.
Concentration of clients
As of September 30, 2022, the most major client,
specializes in developing and commercializing of dietary supplements and therapeutics in dietary supplement industry, accounted for 36.71%
of the Company’s total account receivable; the second major client, GenePharm Inc., with its Chairman being the Board of Director
of Biokey, accounted for 27.44% of the Company’s total account receivable; the least major client, manufactures drugs in pharmaceutical
preparations in pharmaceutical industry, accounted for 22.98% of the Company’s total accounts receivable.
For the nine months ended September 30, 2022,
one major client, Rgene Corporation, Shareholder of the Company which works in development and commercialization of new drugs in Taiwan,
accounted for 79.18% of the Company's total revenues. For the nine months ended September 30, 2021, two major clients, which develops
novel treatment for ocular Graft-versus-Host Disease, and manufacture drugs in pharmaceutical preparations, in pharmaceutical industry,
accounted for 39.61% and 25.09% of the Company's total revenues, respectively.
For the three months ended September 30, 2022,
three major clients, in biotech, agriculture and pharmaceutical industries, which commercialize dietary supplement products in Taiwan
and China, grow and develop Maitake dietary supplement products in Canada and the US, and develop novel treatment for ocular Graft-versus-Host
Disease, accounted for 47.84%, 16.47% and 15.6% of the Company's total revenues, respectively. For the three months ended September 30,
2021, two major clients, in pharmaceutical and agriculture industry, which develop novel treatment for ocular Graft-versus-Host Disease,
and grow and develop Maitake dietary supplement products in Canada and the US, accounted for 47.57% and 14.43% of the Company's total
revenues, respectively.
Concentration of vendors
For the nine months ended September 30, 2022, one vendor in dietary
supplement industry, who provides dietary supplement and manufacturing consultation, accounted for 40.5% of the Company’s total
purchases. For the nine months ended September 30, 2021, three vendors, in research, chemical and monitoring and testing industry, who
provides life science product and service solution, manufacture and distribute fine chemicals and laboratory products, as well as distributing
manufacturers of data logging, data acquisition products, accounted for 29.7%, 24.9% and 24.7% of the Company’s total purchases,
respectively.
For the three months ended September 30, 2022, one vendor in dietary
supplement industry, who provides dietary supplement and manufacturing consultation, accounted for 79.1% of the Company’s total
purchase. For the three months ended September 30, 2021, two vendors, in pharmaceutical and scientific instrumentation industry, who provides
pharmaceutical and contract service, as well as manufacture analytical instrumentation, accounted for 89.1% and 10.9% of the Company’s
total purchases, respectively.
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:
|
|
Estimated Life
in Years |
Buildings and leasehold
improvements |
|
3 ~ 50 |
Machinery and equipment |
|
2 ~ 8 |
Office equipment |
|
3 ~ 10 |
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
impairment of equity investments were $0 for the three and nine months ended September 30, 2022
and 2021, respectively. |
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, 2022, 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 $3,302 and $2,906 for the three months ended September 30, 2022 and 2021, respectively.
The total amounts for such employee benefits, which were expensed as incurred, were $9,948 and $8,268 for the nine months ended September
30, 2022 and 2021, 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 unaudited 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, 2022 and 2021, 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 $225,740 for the three months ended September 30, 2022 and 2021, respectively. Total
non-employee stock-based compensation expenses were $5,143,483 and $927,220 for the nine months ended September 30, 2022 and 2021, 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,
2022 and 2021. 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 — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).
ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models.
Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not
clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will
reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings
per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For
contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features
that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements
to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted,
and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The
Company is currently evaluating the impact that the standard will have on its unaudited consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Troubled
Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors
that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU also enhances the disclosure requirements
for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU
amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for
financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning
after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early
adoption is also permitted, including adoption in an interim period. The Company is currently evaluating the impact that the standard
will have on its unaudited consolidated financial statements.
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, 2022 and December
31, 2021, 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, 2022 and December 31, 2021, 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.
On June 10, 2022, the Company expanded its co-development
partnership with Rgene. On that date, BioKey, ABVC has entered into a Clinical Development Service Agreement with Rgene to guide three
Rgene drug products, RGC-1501 for the treatment of Non-Small Cell Lung Cancer (NSCLC), RGC-1502 for the treatment of pancreatic cancer
and RGC 1503 for the treatment of colorectal cancer patients, through completion of Phase II clinical studies under the U.S. FDA IND
regulatory requirements. Under the terms of the new Services Agreement, BioKey is eligible to receive payments totaling $3.0 million
over a 3-year period with each payment amount to be determined by certain regulatory milestones obtained during the agreement period.
The Service Agreement shall remain in effect until the expiration date of the last patent and automatically renew for 5 more years unless
terminated earlier by either party with six months written notice. Either party may terminate the Service Agreement for cause by providing
30 days written notice.
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 June 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,
2022 | | |
December 31,
2021 | |
| |
(Unaudited) | | |
| |
Finished goods | |
$ | 93,901 | | |
$ | 96,725 | |
Raw materials | |
| 62,537 | | |
| 84,620 | |
Allowance for inventory valuation and obsolescence loss | |
| (135,949 | ) | |
| (155,370 | ) |
Inventory, net | |
$ | 20,489 | | |
$ | 25,975 | |
5. PROPERTY AND EQUIPMENT
Property and equipment as of
September 30, 2022 and December 31, 2021 are summarized as follows:
| |
September 30,
2022 | | |
December 31,
2021 | |
| |
| (Unaudited) | | |
| | |
Land | |
$ | 350,079 | | |
$ | 400,091 | |
Buildings and leasehold improvements | |
| 2,222,965 | | |
| 2,235,061 | |
Machinery and equipment | |
| 1,113,379 | | |
| 1,013,376 | |
Office equipment | |
| 168,606 | | |
| 191,824 | |
| |
| 3,855,029 | | |
| 3,840,352 | |
Less: accumulated depreciation | |
| (3,288,278 | ) | |
| (3,314,471 | ) |
Property and equipment, net | |
$ | 566,751 | | |
$ | 525,881 | |
Depreciation expenses were $6,462
and $2,856 for three months ended September 30, 2022 and 2021, respectively.
Depreciation expenses were $17,364
and $8,725 for nine months ended September 30, 2022 and 2021, 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 | |
2022 | | |
2021 | | |
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 |
|
Collaborating with the Company to develop and commercialize drugs |
Rgene Corporation |
|
Collaborating with the Company to develop and commercialize drugs |
| (3) | Long-term
investment mainly consists of the following: |
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
| |
Non-marketable Cost Method Investments, net | |
| | |
| |
Braingenesis Biotechnology Co., Ltd. | |
$ | 6,948 | | |
$ | 7,941 | |
Genepharm Biotech Corporation | |
| 21,213 | | |
| 24,244 | |
BioHopeKing Corporation | |
| 787,999 | | |
| 900,570 | |
Sub total | |
| 816,160 | | |
| 932,755 | |
Equity Method Investments, net | |
| | | |
| | |
BioFirst Corporation | |
| - | | |
| - | |
Rgene Corporation | |
| - | | |
| - | |
Total | |
$ | 816,160 | | |
$ | 932,755 | |
| (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, 2022 and December 31, 2021, the Company owns 15.99% and 15.99% common stock shares of BioFirst, respectively. The Company
made prepayment for equity investment in BioFirst to purchase additional 317,000 shares to be issued by BioFirst in the aggregate amount
of $599,130 and $684,720, recorded as prepayment for long-term investments as of September 30, 2022 and December 31, 2021, respectively.
In 2021, the Company and BioFirst entered
into several loan agreements for a total amount of $465,000 to meet its working capital needs. All the loans period was twelve months
and all with an interest rate of 6.5% per annum. In 2022, the Company and BioFirst entered into several loan agreements for a total amount
of $1,365,000 to meet its working capital needs. All the loans period was twelve months and with an interest rate of 6.5% per annum. As
of September 30, 2022, and December 31, 2021, the outstanding loan balance was $1,830,000 and $465,000; and accrued interest was $81,404
and $2,325, respectively. In 2021, the Company and BioFirst entered into a collaborative agreement to allocate R&D cost, of which
the amount due from BioFirst was $75,824 and $1,110 as of September 30, 2022 and December 31, 2021, respectively. The Board of the Company
agreed to convert its amount due from BioFirst into equity, due to BioFirst’s capital raise, subject to the valuation report which
justify the debt-to-equity transaction, by the end of 2022.
As of September 30, 2022 and December
31, 2021, the Company has an aggregate amount of $2,586,658 and $1,153,155, respectively.
Summarized financial information
for the Company’s equity method investee, BioFirst, is as follows:
Balance Sheet
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
| |
Current Assets | |
$ | 1,680,108 | | |
$ | 2,205,669 | |
Non-current Assets | |
| 740,874 | | |
| 959,454 | |
Current Liabilities | |
| 2,512,708 | | |
| 2,909,703 | |
Non-current Liabilities | |
| 100,261 | | |
| 32,522 | |
Stockholders’ Equity (Deficit) | |
| (191,987 | ) | |
| 222,898 | |
Statement of Operations
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
| |
Net sales | |
$ | 23,079 | | |
$ | 17,451 | |
Gross profit | |
| 5,747 | | |
| 5,414 | |
Net loss | |
| (993,643 | ) | |
| (887,230 | ) |
Share of losses from investments accounted for using the equity method | |
| - | | |
| (193,147 | ) |
(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 account 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, 2022 and December 31, 2021, the Company owns 31.62% and 31.62% Common Stock shares of Rgene, respectively. On
September 30, 2022, Dr. Tsung-Shann Jiang has been elected to become the Chairman of Rgene.
Summarized financial information
for the Company’s equity method investee, Rgene, is as follows:
Balance Sheets
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
(Unaudited) | | |
| |
Current Assets | |
$ | 497,633 | | |
$ | 73,452 | |
Noncurrent Assets | |
| 311,612 | | |
| 374,423 | |
Current Liabilities | |
| 1,796,491 | | |
| 1,934,786 | |
Noncurrent Liabilities | |
| 20,340 | | |
| - | |
Shareholders’ Deficit | |
| (1,007,586 | ) | |
| (1,486,911 | ) |
Statement of Operations
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | |
Net sales | |
$ | - | | |
$ | - | |
Gross Profit | |
| - | | |
| - | |
Net loss | |
| (450,995 | ) | |
| (411,897 | ) |
Share of loss from investments accounted for using the equity method | |
| - | | |
| - | |
(4) |
Disposition of long-term investment |
During the three
and nine months ended September 30, 2022 and 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, | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | |
Share of equity method investee losses | |
$ | - | | |
$ | (193,147 | ) |
| |
| | | |
| | |
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. These
common shares have been issued during the year ended December 31, 2020.
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. These common shares have been issued during
the year ended December 31, 2020.
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. These common shares have been issued during the year ended December 31,
2020.
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. During the year ended December 31, 2020, 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. During the year ended December
31, 2020, the Company issued 111,112 shares of common stock to repay the outstanding balance.
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. These common shares have been issued during the year ended December 31, 2020
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. These common shares have been issued during the year ended December 31, 2020
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. In January 2021, the Company
paid off the convertible promissory note of $306,836, 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.
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, 2022 and
December 31, 2021, the aggregate carrying values of the convertible debentures were both $0; and accrued convertible interest were both
$0.
Total interest expenses in connection
with the above convertible note payable were $0 and $20,833 for the three months ended September 30, 2022 and 2021, respectively.
Total interest expenses in connection
with the above convertible note payable were $0 and $150,230 for the nine months ended September 30, 2022 and 2021, respectively.
8. BANK LOANS
(1) |
Short-term bank loan consists of the following: |
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Cathay United Bank | |
$ | 236,250 | | |
$ | 270,000 | |
CTBC Bank | |
| 630,000 | | |
| 720,000 | |
Cathay Bank | |
| 1,000,000 | | |
| 650,000 | |
Total | |
$ | 1,866,250 | | |
$ | 1,640,000 | |
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 $236,250.
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 $236,250. On October 1, 2018, BioLite Taiwan extended the Cathay United Loan Agreement with the same principal amount of NT$7,500,000,
equivalent to $236,250 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 $236,250 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 $236,250 for one year, which is due on September 6, 2021. On September 6, 2021, BioLite Taiwan extended the Cathay United Loan Agreement
with the same principal amount of NT$7,500,000, equivalent to $236,250 for one year, which is due on September 6, 2022. On September
6, 2022, BioLite Taiwan extended the Cathay United Loan Agreement with the same principal amount of NT$7,500,000, equivalent to $236,250 for one
year, which is due on September 6, 2023. As of September 30, 2022 and December 31, 2021, the effective interest rates per annum
was 2.54% and 2.10%, respectively. 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 $1,604
and $1,417 for the three months ended September 30, 2022 and 2021, respectively.
Interest expenses were $4,401
and $4,221 for the nine months ended September 30, 2022 and 2021, 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 $315,000, and NT$10,000,000, equivalent to $315,000, 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 $630,000 for six 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 $630,000 for six 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 $630,000 for six 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 $630,000 for six 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 $630,000 for six months, which is due on January 14, 2022. On January 14, 2022, BioLite Taiwan extended the CTBC Loan Agreement
with the same principal amount of NT$20,000,000, equivalent to $630,000 for six months, which is due on July 14, 2022. On July 14, 2022,
BioLite Taiwan extended the CTBC Loan Agreement with the same principal amount of NT$20,000,000, equivalent to $630,000 for six months,
which is due on January 14, 2023. The loan balances bear interest at a fixed rate of 2.00% 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 $3,289
and $3,023 for the three months ended September 30, 2022 and 2021, respectively.
Interest expenses were $9,002
and $9,005 for the nine months ended September 30, 2022 and 2021, 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 June 30, 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 October 31, 2021, the Company renewed the Loan Agreement with the principal amount of $650,000
for twelve months, which is due on October 30, 2022. On September 24, 2021, the Cathay Bank has increased the line of credit
to $1,000,000 from $650,000. As of September 30, 2022 and December 31, 2021, the effective interest rates per annum was 6.25%
and 3.75%, respectively and the outstanding loan balance were $1,000,000 and $650,000.
Interest expenses were $12,446
and $4,014 for the three months ended September 30, 2022 and 2021, respectively.
Interest expenses were
$28,109 and $11,911 for the nine months ended September 30, 2022 and 2021, 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 documents, such as application form and use of funds, to East West Bank for the application of forgiveness.
The PPP loan from East West Bank of $124,400 and $132,331 was forgiven by the SBA as a gesture of supporting the operation of the Company
on March 15, 2021 and September 28, 2021, respectively.
On September 23, 2021, the Company
submitted the required documents, such as application form and use of funds, to Cathay Bank for the application of forgiveness.
The PPP loan from Cathay Bank of $104,167 was forgiven by the SBA as a gesture of supporting the operation of the Company on November
15, 2021.
As a result, the Company recorded
the forgiveness of the PPP loans as government grant income in the aggregate amount of $360,898 during the year ended December 31, 2021.
As of September 30, 2022, there was no outstanding balance payable to the bank.
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 $94,500, for working capital purpose. On September 11, 2021 the outstanding balance has been repaid in full. As of September 30,
2022 and December 31, 2021, the balance due to this individual amounted to both $0. Interest expense were $0 and $2,142 for the
three months ended September 30, 2022 and 2021, respectively. Interest expense were $0 and $8,568 for the nine months ended September
30, 2022 and 2021, 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 six months under the same term. On
February 18, 2021, the Company extended the contract for six months under the same term. On August 26, 2021, the loan with interest has
been repaid in full. Accrued interest expense were both $0 as of September 30, 2022 and December 31, 2021.
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;
the Chairman of Rgene is Mr. Tsung-Shann Jiang |
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 |
The Jiangs |
|
Mr. Tsung-Shann Jiang, the controlling beneficiary shareholder of the Company; the Chairman of
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 |
ABVC BioPharma (HK), Limited |
|
An entity 100% owned by Mr. Tsung-Shann Jiang |
Accounts receivable - related
parties
Accounts receivable due from
related parties consisted of the following as of the periods indicated:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
GenePharm Inc. | |
$ | - | | |
$ | 142,225 | |
Rgene | |
| - | | |
| 2,374 | |
Amkey | |
| - | | |
| 800 | |
Total | |
$ | - | | |
$ | 145,399 | |
| (1) | During
the third quarter of 2022, the Company made an impairment to write off the long-due balance
from GenePharm Inc. as it existed over 1 year. |
Due from related parties
Amount due from related parties
consisted of the following as of the periods indicated:
Due from related party - Current
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Rgene | |
$ | 500,000 | | |
$ | - | |
Total | |
$ | 500,000 | | |
$ | - | |
Due from related parties – Non-Current
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Rgene | |
$ | 1,480 | | |
$ | 49,110 | |
BioFirst (Australia) | |
| 1,038,775 | | |
| 491,816 | |
BioHopeKing Corporation | |
| - | | |
| 124,972 | |
LBG USA | |
| - | | |
| 675 | |
BioLite Japan | |
| 150,000 | | |
| 150,000 | |
Keypoint | |
| - | | |
| 1,610 | |
Total | |
$ | 1,190,255 | | |
$ | 818,183 | |
| (1) | As
of September 30, 2022, and December 31, 2021, the Company has advanced an aggregate amount of $500,000 and $0 as current amount due from
related party, and $1,480 and $49,110 to Rgene as non-current amount due from related party 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). As of September 30, 2022, and December
31, 2021, the outstanding loan balance was $501,480 and $33,520, which including the loan agreement signed in June 2022 amounted $500,000,
according to the agreement, the Company provided a one-year convertible loan with a principal amount of $1,000,000 to Rgene which bears
interest at 5% per annum for the use of working capital that, if fully converted, would result in ABVC owning an additional 6.4% of Rgene.
The Company may convert the Note at any time into shares of Rgene’s common stock at either (i) a fixed conversion price equal to
$1.00 per share or (ii) 20% discount of the stock price of the then most recent offering, whichever is lower; the conversion price is
subject to adjustment as set forth in the Note. The Note includes standard events of default, as well as a cross default provision pursuant
to which a breach of the Service Agreement will trigger an event of default under the convertible note if not cured after 5 business
days of written notice regarding the breach is provided. The Company is expected to receive the outstanding loan from the related party
by the end of 2022, either by cash or conversion of shares of Rgene. On January 1, 2021, BioLite Taiwan entered into a consultant services
agreement with Rgene. The outstanding amount was settled during September 2022, and the amount due from Rgene was $0 and $1,889 as of
September 30, 2022 and December 31, 2021, respectively. |
| (2) | 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 was originally set to be mature on September 30,
2021 with an interest rate of 6.5% per 2annum, but $249,975 of which has been settled in July 2021. On September 7, 2021, the Company
entered into a loan agreement with BioFirst (Australia) for $67,873 to meet its new project needs. On December 1, 2021, the Company entered
into a loan agreement with BioFirst (Australia) for $250,000 to increase the cost for upcoming projects. The loan will be matured on
November 30, 2022 with an interest rate of 6.5% per annum. In 2022, the Company entered into several loan agreements with BioFirst (Australia)
for a total amount of $507,000 to increase the cost for upcoming projects. All the loans period was twelve months with an interest rate
of 6.5% per annum. As of September 30, 2022 and December 31, 2021, the aggregate amount of outstanding loan and accrued interest and
allocated research fee was $1,038,775 and $491,816, respectively. The Company is expected to receive the outstanding amount in full by
the end of 2022. |
| (3) | 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, 2022
and December 31, 2021, due from BHK was $0 and $124,972, respectively. The Company made an
impairment to write off the amount due from BHK. |
| (4) | 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, 2022 and December 31, 2021, the outstanding advance balances was $0 and $675, respectively. The Company
made an impairment to write off the amount due from LBG USA. |
| (5) | 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, 2022 and December 31, 2021, the
outstanding advance balances was $150,000 and $150,000, respectively. The Company is expected to receive the outstanding amount by the
end of 2022. |
| (6) | 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. As of September 30, 2022
and December 31, 2021, the outstanding loan balance was $0 and $1,610, respectively. The Company made an impairment to write off the
amount due from Keypoint. |
Due to related parties
Amount due to related parties
consisted of the following as of the periods indicated:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
BioFirst Corporation | |
$ | 40,878 | | |
$ | 40,878 | |
BioFirst (Australia) | |
| 211,147 | | |
| 132,443 | |
AsiaGene | |
| 24,017 | | |
| 24,017 | |
YuanGene | |
| 9,205 | | |
| 9,205 | |
The Jiangs | |
| 19,789 | | |
| 18,750 | |
Due to shareholders | |
| 146,790 | | |
| 168,131 | |
Total | |
$ | 451,826 | | |
$ | 393,424 | |
(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, 2022 and December
31, 2021, the aggregate amount of outstanding balance and accrued interest is $40,878. |
|
|
(2) |
As of September 30, 2022, and December 31, 2021, BioFirst (Australia)
has advanced the Company an aggregate amount of $211,147 and $132,443, respectively for new project purpose. |
(3) |
As of September 30, 2022, and December 31, 2021, AsiaGene has advanced
the Company an aggregate amount of $24,017 for working capital purpose. This advance bears 0% interest rate and is due on demand. |
(4) |
As of September 30, 2022, and December 31, 2021, 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, 2022, and December 31, 2021, the outstanding balance due to the Jiangs amounted to $19,789 and $18,750,
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 of 12% per annum. As of September 30, 2022 and December
31, 2021, the outstanding principal and accrued interest was $146,790 and $168,131, respectively. Interest expenses in connection
with these loans were $5,208 and $5,679 for the three months ended September 30, 2022 and 2021, respectively. Interest expenses in
connection with these loans were $15,922 and $16,670 for the nine months ended September 30, 2022 and 2021, respectively. |
13. INCOME
TAXES
Income
tax expense for the three-month and nine-month periods ended September 30, 2022 and 2021 consisted of the following:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Current: | |
| | |
| | |
| | |
| |
Federal | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
State | |
| 800 | | |
| - | | |
| 1,600 | | |
| 800 | |
Foreign | |
| - | | |
| - | | |
| - | | |
| - | |
Total Current | |
$ | 800 | | |
$ | - | | |
$ | 1,600 | | |
$ | 800 | |
Deferred: | |
| | | |
| | | |
| | | |
| | |
Federal | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
State | |
| - | | |
| - | | |
| - | | |
| - | |
Foreign | |
| 3,422 | | |
| (75,667 | ) | |
| (166,696 | ) | |
| (187,055 | ) |
Total Deferred | |
$ | 3,422 | | |
$ | (75,667 | ) | |
$ | (166,696 | ) | |
$ | (187,055 | ) |
Total provision for income taxes | |
$ | 4,222 | | |
$ | (75,667 | ) | |
$ | (165,096 | ) | |
$ | (186,255 | ) |
Deferred tax assets
(liability) as of September 30, 2022 and December 31, 2021 consist approximately of:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Loss on impairment of Assets | |
| 648,716 | | |
| 741,390 | |
Net operating loss carryforwards in the Taiwan | |
| 402,245 | | |
| 283,725 | |
Tax credit of investment | |
| 610,914 | | |
| 698,187 | |
Gross | |
| 1,661,875 | | |
| 1,723,302 | |
Valuation allowance | |
| (648,716 | ) | |
| (741,390 | ) |
Net | |
$ | 1,013,159 | | |
$ | 981,912 | |
14. 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.
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 June 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.
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, 2022 and December 31, 2021, stock subscription
receivable was $1,580,180 and $2,257,400, respectively.
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 agreement,
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. These shares have been issued during the year ended December 31, 2020.
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.
During the year ended December
31, 2020, 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.
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. 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.
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. Pursuant to these exercises, the Company issued an aggregate of 673,605 shares of Common
Stock.
In November 2021, the Company
entered into consulting agreements with service providers for consulting and advisory services, pursuant to which the Company agreed
to pay the service fee amounted $1,478,590 by issuing 316,934 shares of unrestricted common shares, valued at the closing price from
$2.31 to $6.3 per share on the grant date. These shares have been issued during the year ended December 31, 2021.
In January 2022, the Company
agreed to pay the deferred service fees related to Public Offering amounted $4,296,763 by issuing 1,306,007 shares of unrestricted common
shares, valued at $3.29 per share on the grant date. These shares have been issued in January 2022.
In March 2022, the Company issued
75,000 common shares to BarLew Holdings, LLC for consulting and advisory services amounted to $169,500, valued at $2.26 per share.
In May 2022, the Company and
an institutional investor entered into certain securities purchase agreement relating to the offer and sale of 2,000,000 shares of common
stock at an offering price of $2.11 per share in a registered direct offering. The shares of the Company’s common stock were issued
for gross proceeds of $4,220,000, before placement agent fees and legal fees of $556,075. Pursuant to the offering, the Company will
also issue 5-year warrants to purchase 2,000,000 shares of common stock, exercisable at a price of $2.45 per share. As of September 30, 2022,
these warrants have been issued but not exercised.
On July 10, 2022, the Board approved the issuance
of 75,000 shares of common stock to Barlew Holdings, LLC pursuant to the consulting agreement by and between Barlew Holdings, LLC and
the Company dated July 1, 2022, and 250,000 shares of common stock to Inverlew Advisors, LLC, in accordance with the consulting agreement
by and between Inverlew Advisors, LLC and the Company dated July 1, 2022.
15. 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 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.
On October 15, 2021, the Company
entered into stock option agreements with 11 directors and 3 employees, pursuant to which the Company granted options to purchase
an aggregate of 1,280,002 shares of common stock under the 2016 Equity Incentive Plan, as amended, at an exercise price of $3 per
share. 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, 2021, and their activities during the year then ended are as follows:
| |
Number of
Underlying Shares | | |
Weighted-
Average Exercise Price Per Share | | |
Weighted-
Average Contractual Life Remaining in Years | | |
Aggregate
Intrinsic Value | |
Outstanding as of January 1, 2021 | |
| 545,182 | | |
$ | 2.00 | | |
| | | |
$ | - | |
Granted | |
| 1,280,002 | | |
| 3.00 | | |
| | | |
| | |
Forfeited | |
| - | | |
| - | | |
| | | |
| | |
Outstanding as of December 31, 2021 | |
| 1,825,184 | | |
| 2.70 | | |
| 9.51 | | |
$ | 616,056 | |
Exercisable as of December 31, 2021 | |
| 1,825,184 | | |
| 2.70 | | |
| 9.51 | | |
$ | 616,056 | |
Vested and expected to vest | |
| 1,825,184 | | |
$ | 2.70 | | |
| 9.51 | | |
$ | 616,056 | |
The fair value of stock options
granted for the year ended December 31, 2021 was calculated using the Black-Scholes option-pricing model applying the following assumptions:
| |
Year ended | |
| |
December 31, 2021 | |
| |
| |
Risk free interest rate | |
| 1,13 | % |
Expected term (in years) | |
| 5.00 | |
Dividend yield | |
| 0 | % |
Expected volatility | |
| 108.51 | % |
The weighted average grant date
fair value of options granted during the years ended December 31, 2021 was $2.09. There are 2,979,264 options available for
grant under the 2016 Equity Incentive Plan as of December 31, 2021. 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 and $0 for the three and nine months ended September 30, 2022 and 2021, respectively. There were no options
exercised during the three and nine months ended September 30, 2022. As of September 30, 2022, there were no unvested options.
On April 16, 2022, the Company
entered into stock option agreements with 5 directors, pursuant to which the Company agreed to grant options to purchase an aggregate
of 761,920 shares of common stock under the 2016 Equity Incentive Plan, at an exercise price of $3 per share, exercisable for 10 years
from the grant date. As of September 30, 2022, these stock options have not been granted.
16. 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, 2022 and 2021.
| |
For the Three Months Ended | |
| |
September 30, 2022 | | |
September 30, 2021 | |
Numerator: | |
| | |
| |
Net loss attributable to ABVC’s common stockholders | |
$ | (3,704,864 | ) | |
$ | (1,806,488 | ) |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Weighted-average shares outstanding: | |
| | | |
| | |
Weighted-average shares outstanding - Basic | |
| 32,574,551 | | |
| 26,882,181 | |
Stock options | |
| – | | |
| – | |
Weighted-average shares outstanding - Diluted | |
| 32,574,551 | | |
| 26,882,181 | |
| |
| | | |
| | |
Loss per share | |
| | | |
| | |
-Basic | |
$ | (0.11 | ) | |
$ | (0.07 | ) |
-Diluted | |
$ | (0.11 | ) | |
$ | (0.07 | ) |
|
|
For the Nine Months
Ended |
|
|
|
September 30,
2022 |
|
|
September 30,
2021 |
|
Numerator: |
|
|
|
|
|
|
Net loss attributable to ABVC’s common stockholders |
|
$ |
(11,559,301 |
) |
|
$ |
(4,906,559 |
) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - Basic |
|
|
31,193,397 |
|
|
|
25,053,522 |
|
Stock options |
|
|
– |
|
|
|
– |
|
Weighted-average shares outstanding - Diluted |
|
|
31,193,397 |
|
|
|
25,053,522 |
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
-Basic |
|
$ |
(0.37 |
) |
|
$ |
(0.20 |
) |
-Diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.20 |
) |
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.
17. 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, 2022 | | |
December 31, 2021 | |
ASSETS | |
| | |
| |
Operating lease right-of-use assets | |
$ | 1,243,930 | | |
$ | 1,471,899 | |
LIABILITIES | |
| | | |
| | |
Operating lease liabilities (current) | |
| 363,752 | | |
| 347,100 | |
Operating lease liabilities (noncurrent) | |
| 880,178 | | |
| 1,124,799 | |
Supplemental Information
The following provides details
of the Company’s lease expenses:
| |
Three Months
Ended September 30, | |
| |
2022 | | |
2021 | |
Operating lease expenses | |
$ | 87,367 | | |
$ | 86,280 | |
| |
| | | |
| | |
| |
Nine Months
Ended September 30, | |
| |
2022 | | |
2021 | |
Operating lease expenses | |
$ | 261,494 | | |
$ | 165,127 | |
| |
| | | |
| | |
Other information related to
leases is presented below:
| |
Nine Months
Ended September 30, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of operating lease liabilities | |
$ | 261,494 | | |
$ | 165,127 | |
| |
| | | |
| | |
| |
September 30,
2022 | | |
December 31,
2021 | |
Weighted Average Remaining Lease Term: | |
| | |
| |
Operating leases | |
| 2.79 years
| | |
| 2.90 years | |
| |
| | | |
| | |
Weighted Average Discount Rate: | |
| | | |
| | |
Operating leases | |
| 1.52 | % | |
| 1.39 | % |
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 |
|
2022 (excluding nine months ended September 30, 2022) |
|
$ |
91,387 |
|
2023 |
|
|
371,055 |
|
2024 |
|
|
386,244 |
|
2025 |
|
|
348,525 |
|
Thereafter |
|
|
56,915 |
|
Total future minimum lease payments, undiscounted |
|
|
1,254,126 |
|
Less: Imputed interest |
|
|
10,196 |
|
Present value of future minimum lease payments |
|
$ |
1,243,930 |
|
18. 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.
19. SUBSEQUENT EVENTS
The Company has evaluated subsequent events and transactions that occurred
after September 30, 2022 up through the date the Company issued these unaudited consolidated financial statements on November 14, 2022.
All subsequent events requiring recognition as of September 30, 2022 have been incorporated into these unaudited consolidated financial
statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Caution Regarding Forward-Looking Information
FORWARD-LOOKING INFORMATION
The following information should
be read in conjunction with ABVC BioPharma, Inc. and its subsidiaries (“we”, “us”, “our”, or the
“Company”) condensed unaudited financial statements and the notes thereto contained elsewhere in this report. Information
in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere
in this Form 10-Q that does not consist of historical facts, are “forward-looking statements.” Statements accompanied or
qualified by, or containing words such as “may,” “will,” “should,” “believes,” “expects,”
“intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,”
“outlook,” “forecast,” “anticipates,” “presume,” and “assume” constitute
forward-looking statements, and as such, are not a guarantee of future performance.
Forward-looking statements are
subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated
as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission (“SEC”)
filings. Risks and uncertainties can include, among others, international, national and local general economic and market conditions:
demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully
make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations
and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; the ability to obtain sufficient financing to continue and expand
business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual
property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and
previous filings. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.
Because of these risks and uncertainties,
the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that
cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more
fully described elsewhere in this report and in the “Risk Factors” section of our annual report on form 10-K.
The Company disclaims any obligation
to update the forward-looking statements in this report.
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, 2022,
the Company generated $336,961 in revenue, mainly from the sale of Contract Development & Manufacturing Organization (“CDMO”)
services, and $1,559 from consulting services provided to a related party.
Business Overview
ABVC BioPharma Inc., which was
incorporated in July 2015 in the State of Delaware, is a clinical stage biopharmaceutical company focused on the development of medical
devices and new drugs derived from plants.
Medicines derived from plants
have a long history of relieving or preventing many diseases and have typically 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 and medical device technologies of 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 conducting phase II clinical
trials in partnership with ABVC include:
|
● |
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-1504, Major Depressive Disorder (MDD), Phase II, 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, 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) |
|
● |
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 |
|
● |
Medical Device: ABV-2002, Class I/II through 510K for market launch,
Corneal Storage Media, Technology Licensing in progress |
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 U.S. and Taiwan FDAs. The Company expects to seek its
first commercialization partner in 2023 for Vitargus, a vitreous substitute that helps to maintain the retina’s round
shape and 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 (“Merger Sub 1”), and BioKey Acquisition Corp., a direct wholly-owned subsidiary of the Company
(“Merger Sub 2”) (collectively referred to as the “Parties”) completed the business combination pursuant to that
certain Agreement and Plan of Merger (the “Merger Agreement”), 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”), which 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 share ownership in BioLite Common Stock equal to the number
of shares they had held in BioLite Taiwan Common Stock. Upon closing of the Share Purchase/ Exchange Agreement in August 2017, BioLite
owned, via BioLite BVI, approximately 73% of BioLite Taiwan. The other shareholders who did not enter this Share Purchase/ Exchange Agreement
retained 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) implement 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 implement 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 December 31, 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.
NASDAQ Listing
On August 5, 2021, we closed
a public offering (the “Offering”) of 1,100,000 units (the “Units”), with each Unit consisting of one
share of our common stock (the “Common Stock”) and 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 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 Offering was conducted on a firm commitment basis. The Common Stock was approved for listing on The Nasdaq
Capital Market and commenced trading under the ticker symbol “ABVC” on August 3, 2021.
On August
19, 2022, we received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq
Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid
price for the Company’s common stock has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital
Market pursuant to Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”). The Nasdaq deficiency letter has no immediate
effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market under
the symbol “ABVC” at this time.
In accordance
with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until February 14, 2023, to regain compliance
with Rule 5550(a)(2). If at any time before February 14, 2023, the bid price of the Company’s common stock closes at $1.00 per
share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved
compliance.
If the
Company does not regain compliance with Rule 5550(a)(2) by February 14, 2023, the Company may be afforded a second 180 calendar day period
to regain compliance. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital Market, except for the minimum bid price requirement. In addition,
the Company would be required to provide written notice to Nasdaq of its intent to cure the deficiency during the second compliance period,
by effecting a reverse stock split, if necessary.
The
Company intends to actively monitor the closing bid price for its common stock and will consider available options to resolve the deficiency
and regain compliance with Rule 5550(a)(2).
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.
Joint Venture Agreement
On October 6, 2021 (the “Completion
Date”), ABVC BioPharma, Inc. (the “Company”), Lucidaim Co., Ltd., a Japanese corporation (“Lucidaim,”
together with the Company, the “Shareholders”), and BioLite Japan K.K., a Japanese corporation (“Biolite
JP”) entered into a Joint Venture Agreement (the “Agreement”). Biolite JP is a private limited company (a
Japanese Kabushiki Kaisha) incorporated on December 18, 2018 and at the date of the Agreement had 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 1,548 ordinary shares. The Shareholders entered into the
joint venture to formally reduce to writing their intention to invest in and operate Biolite JP 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 raising and consulting,
distribution and marketing of supplements carried by Biolite JP and its subsidiaries in Japan, or any other territory or business, as
the Agreement may with mutual consent be amended from time to time. The closing of the transaction was conditioned upon the approval
and receipt of all necessary government approvals, which have all 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 JP, 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 JP, 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 JP shall assign the research collaboration and license
agreement between them to Biolite JP 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 JP. 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 Shareholder-appointed director 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
JP if Biolite JP 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 JP 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 JP shall issue annual dividends at the rate of at least 1.5% of Biolite JP’s profits,
if it has sufficient cash to do so.
Pursuant to the Agreement, the Company and Biolite
JP 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 JP 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 JP 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
JP’s activities, shall belong to Biolite JP.
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 $150,000 towards the setup of
the joint venture and 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 and shall continue until terminated by: (i) either party by giving the other party at least 6 months written notice,
until the end of the 10 years, after which the parties can terminate at any time or (ii) or by written agreement of all Shareholders,
in which case it shall terminate automatically on the date upon which all Ordinary Shares are owned by one Shareholder. 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
and was conducted at arm’s length. In addition to the Company’s board of directors providing approval for the Company to
enter into the Agreement, the Company’s audit committee approved the Company’s entry into the Agreement. The Board believes
that this joint venture will enhance the Company’s ability to provide therapeutic solutions to significant unmet medical needs
and to develop innovative botanical drugs to treat central nervous system (“CNS”) and oncology/ hematology diseases. The
Company’s Board of Directors believes that the joint venture has the potential to provide the Company with access to additional
early-stage product candidates that it would not otherwise have access to and to introduce the Company to early-stage opportunities,
and therefore the Board believes the joint venture is in the best interest of the Company and its shareholders.
Recent PPP
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 March 15, 2021 the US Government
approved our application of the loan forgiveness program, so there will be no obligation to pay back this loan.
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, on September 28,
2021, the US Government approved our application of the loan forgiveness program, so there will be no obligation to pay back this loan.
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, on November 15, 2021, the US Government
approved our application of the loan forgiveness program, so there will be no obligation to pay back this loan.
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 completed Phase II clinical
study indicated that the drug can be administered chronically over at least 42 days with the daily dose administered three times per day,
wherein each dose contains from 380 mg to 760 mg of the botanical extraction.
On October 20, 2022, the Company received a Notice of Allowance for
ABV-1504 from the US Patent and Trademark Office that extends the existing patent life of ABV-1504 from 2021 to the year 2041. The patent,
entitled “Polygala Extract for the Treatment of Major Depressive Disorder,” outlines a method for treating major depressive
disorder by oral administration of a composition, ABV-1504, containing Radix Polygalae (Polygala tenuifolia Willd). The polygala extract,
designated PDC-1421, is the key active ingredient in ABV-1504 which was orally administered to healthy volunteers and proved to be safe
and well-tolerated for a daily dose from 380 mg to 3800 mg.
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 August 2, 2022 the Company received the formal approval from Central
Research Ethics Committee (CREC) of The National Research Council of Thailand for Vitargus® Phase II Study Protocol (ABV-1701-02)
to be conducted at Ramathibodi Hospital, Mahidol University and Srinagarind Hospital, Khon Kaen University of Thailand. On November 2,
2022, both hospitals received Thai FDA investigational product (IP) import licenses allowing them to initiate the clinical study in Thailand.
The Phase II clinical study entitled “A Prospective Multi-Site Randomized Controlled Clinical Investigation of the Safety and Effectiveness
of the ABV1701 Ocular Endotamponade (OE)” will be initiated in Thailand. In parallel, Vitargus Phase II Study protocol
documents were accepted by the Australian Bellberry Human Research Ethics Committee (HREC) and a Clinical Trial Notification (“CTN”)
was submitted to the Australian Therapeutic Goods Administration (TGA) to initiate the study in Australia.
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 PDC-1421 Capsule 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 July 12, 2022, the Company announced the enrollment progress in
the Phase II Part II clinical study of the company’s ADHD medicine (ABV-1505). Since the first-treated subject reported on May 10,
2022, a total of thirty-five (35) subjects have been enrolled in the study, including 20 who have completed the 56-day treatment. The
study, a randomized, double-blind, placebo-controlled study entitled “A Phase II Tolerability and Efficacy Study of PDC-1421 Treatment
in Adult Patients with Attention-Deficit Hyperactivity Disorder (ADHD), Part II, is expected to eventually involve approximately 100 patients.
Five prestigious research hospitals in Taiwan and the research hospital at the University of California, San Francisco (UCSF) are participating
in the study which is a continuation of the Phase II part 1 study of ABV-1505 completed successfully at UCSF and accepted by the U.S.
Food & Drug Administration in October of 2020. The UCSF Medical Center Institutional Review Board has approved participation in the
Part 2 study, which the Company expects to start setting up in the first quarter of 2023.
On November 4, 2020, we executed an amendment
to our 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.
The Cedars-Sinai Medical Center (CSMC, West Hollywood CA) Institutional
Review Board (IRB) has approved their institution joining the Phase I study of ABV-1601 for treating depression in cancer patients. The
Principal Investigator of the CSMC study will be Dr. Scott A. Irwin, MD, PhD., an eminent Professor of Psychiatry & Behavioral Neurosciences.
The Phase I study is open label and will be conducted with 12 cancer patients with moderate to severe depressive symptoms. The main objective
of the study is to evaluate the safety of PDC-1421, the primary active ingredient in ABV-1601. The second objective is to determine the
most effective dosages for a randomized, double-blind, non-inferiority Phase II trial of PDC-1421 that ABVC expects to initiate in 2023.
The Company then intends to compare results of the Phase II study of ABV-1601 to Wellbutrin XL, a commonly used medicine to treat cancer
patients suffering with depression.
Public Offering & Financings
Financing in May 2022
On May 11, 2022, the Company and an institutional
investor entered into certain securities purchase agreement relating to the offer and sale of 2,000,000 shares of common stock, par value
$0.001 per share in a registered direct offering. Pursuant to the Offering, the Company also issued 5-year warrants to purchase 2,000,000
shares of Common Stock, exercisable at a price of $2.45 per share to the Purchasers. The sale and offering of the shares and the warrants
pursuant to such securities purchase agreement was implemented as a takedown off the Company’s shelf registration statement on
Form S-3, as amended (File No. 333-260588), which became effective on November 29, 2021. WallachBeth Capital LLC and ViewTrade Securities,
Inc. acted as co-placement agents for the aforementioned offering of the shares and warrants. The Company paid to the co-placement agents
an aggregate cash fee equal to 8% of the aggregate sales price of the securities sold and issued them warrants to purchase up to 160,000
shares of Common Stock, on the same terms as the warrants issued to the institutional investor.
Financing in August 2021
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.
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 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. 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 its convertible promissory note totaling $2,500,000 into 1,111,112 shares of the Company’s
common stock and warrants.
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. As of the date of this filing, the cash success fee was paid, while the principal amount and related interest is due to be
paid.
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 of 1933, as amended (the “Securities Act”).
Financing in May 2020
In May 2020, the Company received capital contributions
of approximately $1,602,040 in cash from 40 investors through private placements with the terms specifying a purchase price of $2.25
per share and a free warrant attached to 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 terms as that of other note 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 of $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.
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. |
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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. |
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. |
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 annual 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 were entered
into and 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) 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:
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Upon the signing of the BHK Co-Development Agreement: $1 million, or 10% of total payment |
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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 |
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At the completion of first phase II clinical trial: $1 million, or 10% of total payment |
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At the initiation of phase III of clinical trial research: $3 million, or 30% of total payment |
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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, 2022 and December
31, 2021, 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, 2022 and December 31, 2021, 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 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.
On June 10, 2022, the Company expanded its co-development
partnership with Rgene. On that date, BioKey, ABVC has entered into a Clinical Development Service Agreement with Rgene to guide three
Rgene drug products, RGC-1501 for the treatment of Non-Small Cell Lung Cancer (NSCLC), RGC-1502 for the treatment of pancreatic cancer
and RGC 1503 for the treatment of colorectal cancer patients, through completion of Phase II clinical studies under the U.S. FDA IND
regulatory requirements. Under the terms of the new Services Agreement, BioKey is eligible to receive payments totaling $3.0 million
over a 3-year period with each payment amount to be determined by certain regulatory milestones obtained during the agreement period.
The Service Agreement shall remain in effect until the expiration date of the last patent and automatically renew for 5 more years unless
terminated earlier by either party with six months written notice. Either party may terminate the Service Agreement for cause by providing
30 days written notice.
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 June 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.
Co-Development agreement with BioLite Japan
K.K.
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 $150,000 towards the setup of
the joint venture; BioLite Japan’s other shareholder also 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.
Agreement with BioLite, Inc.
The Company entered into a Collaborative Agreement
with BioLite, Inc., a company incorporated under the laws of Taiwan, and a subsidiary of the Company, (“BioLite”) on December
29, 2015, and then entered into two addendums to such agreement (as amended and revised, (the “Agreement”). The majority
shareholder of BioLite is one of the Company’s subsidiaries, the Company’s Chairman is a director of BioLite and Dr. Jiang,
the Company’s Chief Strategy Officer and a director, is the Chairman of BioLite.
Pursuant to the Agreement, the Company acquired
the sole licensing rights to develop and commercialize for therapeutic purposes six compounds from BioLite. In accordance with the terms
of the Agreement, the Company shall pay BioLite (i) milestone payments of up to $100 million in cash and equity of the Company or equity
securities owned by it at various stages on a schedule dictated by BioLite’s achievements of certain milestones, as set forth in
the Agreement (the “Milestone Payments”) and (ii) a royalty payment equal to 5% of net sales of the drug products when ABV-1501
is approved for sale in the licensed territories. If BioLite fails to reach any of the milestones in a timely manner, it may not receive
the rest of the payments from the Company. According to the Agreement, after Phase II clinical trials are completed, 15% of the Milestone
Payment becomes due and shall be paid in two stages: (i) 5% no later than December 31, 2021 (the “December 2021 Payment”)
and (ii) 10% no later than December 31, 2022. On February 12, 2022, the Company’s Board of Directors determined that the December
2021 Payment, which is equal to $5,000,000, shall be paid via the cancellation of certain outstanding debt, in the amount of $5,000,000,
that BioLite owes the Company as of December 31, 2021. On February 22, 2022, the parties entered into an amendment to the Agreement allowing
the Company to make all payments due under the Agreement via the forgiveness of debt, in equal value, owed by BioLite to the Company.
This was a related party transaction and was
conducted at arm’s length. In addition to the Company’s board of directors approving the modification of terms of the Agreement,
the Company’s audit committee approved them too. The Board believes it is in the Company’s best interest to cancel outstanding
debt and apply it to the December 2021 Payment.
Following such approval, the Company and BioLite
entered into an amendment to the Agreement reflecting the modified payment method.
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, 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 revenues for
the 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 first half of fiscal 2022, our business’s overall revenue stream may be impacted further until the
restrictions of COVID-19 can be released, after which we expect the Company can resume normal operations.
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
government-imposed restrictions 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 have been able to increase research activity. While we believe that underlying demand is still not yet
at pre-COVID-19 levels since 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 unaudited interim consolidated financial statements do not include
all the information and footnotes required by the U.S. GAAP for complete financial statements. Certain information and note disclosures
normally included in the annual financial statements prepared in accordance with the U.S. GAAP have been condensed or omitted consistent
with Article 10 of Regulation S-X. In the opinion of the Company’s management, the unaudited interim consolidated financial statements
have been prepared on the same basis as the audited financial statements and include all adjustments, in normal recurring nature, as necessary
for the fair statement of the Company’s financial position as of September 30, 2022, and results of operations and cash flows for
the nine months ended September 30, 2022 and 2021. The unaudited interim consolidated balance sheet as of December 31, 2021 has been derived
from the audited financial statements at that date but does not include all the information and footnotes required by the U.S. GAAP. Interim
results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period. These
financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December
31, 2021 and 2020, and related notes included in the Company’s audited consolidated financial statements.
The accompanying unaudited 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 unaudited financial statements are expressed in U.S. dollars.
Reclassifications of Prior Year Presentation
Certain prior year unaudited consolidated balance
sheet and unaudited consolidated cash flow statement amounts have been reclassified for consistency with the current year presentation.
These reclassifications had no effect on the reported results of operations.
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.
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, 2022 and December 31, 2021, the
Company’s cash and cash equivalents amounted $1,323,543 and $5,828,548, 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, 2022 and December 31, 2021, the Company’s restricted cash
equivalents amounted $646,604 and $736,667, 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.
We perform ongoing credit evaluation of our customers
and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable.
We determine the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the
credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from our estimates.
Concentration of clients
As of September 30, 2022, the most major client,
specializes in developing and commercializing of dietary supplements and therapeutics in dietary supplement industry, accounted for 36.71%
of the Company’s total account receivable; the second major client, GenePharm Inc., with its Chairman being the Board of Director
of Biokey, accounted for 27.44% of the Company’s total account receivable; the least major client, manufactures drugs in pharmaceutical
preparations in pharmaceutical industry, accounted for 22.98% of the Company’s total accounts receivable.
For the nine months ended September 30, 2022,
one major client, Rgene Corporation, Shareholder of the Company which works in development and commercialization of new drugs in Taiwan,
accounted for 79.18% of the Company's total revenues. For the nine months ended September 30, 2021, two major clients, which develops
novel treatment for ocular Graft-versus-Host Disease, and manufacture drugs in pharmaceutical preparations, in pharmaceutical industry,
accounted for 39.61% and 25.09% of the Company's total revenues, respectively.
For the three months ended September 30, 2022, three major clients,
in biotech, agriculture and pharmaceutical industries, which commercialize dietary supplement products in Taiwan and China, grow and develop
Maitake dietary supplement products in Canada and the US, and develop novel treatment for ocular Graft-versus-Host Disease, accounted
for 47.84%, 16.47% and 15.6% of the Company's total revenues, respectively. For the three months ended September 30, 2021, two major clients,
in pharmaceutical and agriculture industry, which develop novel treatment for ocular Graft-versus-Host Disease, and grow and develop Maitake
dietary supplement products in Canada and the US, accounted for 47.57% and 14.43% of the Company's total revenues, respectively.
Concentration of vendors
For the nine months ended September 30, 2022, one vendor in dietary
supplement industry, who provides dietary supplement and manufacturing consultation, accounted for 40.5% of the Company’s total
purchases. For the nine months ended September 30, 2021, three vendors, in research, chemical and monitoring and testing industry, who
provides life science product and service solution, manufacture and distribute fine chemicals and laboratory products, as well as distributing
manufacturers of data logging, data acquisition products, accounted for 29.7%, 24.9% and 24.7% of the Company’s total purchases,
respectively.
For the three months ended September 30, 2022,
one vendor in dietary supplement industry, who provides dietary supplement and manufacturing consultation, accounted for 79.1% of the
Company’s total purchase. For the three months ended September 30, 2021, two vendors, in pharmaceutical and scientific instrumentation
industry, who provides pharmaceutical and contract service, as well as manufacture analytical instrumentation, accounted for 89.1% and
10.9% of the Company’s total purchases, respectively.
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:
| |
Estimated Life in Years |
Buildings and leasehold improvements | |
3 ~ 50 |
Machinery and equipment | |
2 ~ 8 |
Office equipment | |
3 ~ 10 |
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, 2022 and 2021, respectively. |
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, 2022, 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 $3,302 and $2,906 for the three months ended September 30, 2022 and 2021, respectively.
The total amounts for such employee benefits, which were expensed as incurred, were $9,948 and $8,268 for the nine months ended
September 30, 2022 and 2021, 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 unaudited 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, 2022 and 2021, 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 $225,740 for the three months ended September 30, 2022 and 2021, respectively.
Total non-employee stock-based compensation expenses were $5,143,483 and $927,220 for the nine months ended September 30, 2022 and 2021,
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, 2022 and 2021. 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, 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 — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).
ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models.
Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not
clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will
reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings
per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For
contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features
that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements
to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted,
and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The
Company is currently evaluating the impact that the standard will have on its unaudited consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Troubled
Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors
that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU also enhances the disclosure requirements
for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU
amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for
financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning
after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early
adoption is also permitted, including adoption in an interim period. The Company is currently evaluating the impact that the standard
will have on its unaudited consolidated financial statements.
Results of Operations — Three Months
Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.
The following table presents, for the three months
indicated, our consolidated statements of operations information.
| |
September 30, 2022 | | |
September 30, 2021 | |
| |
| | |
| |
Revenues | |
$ | 42,269 | | |
$ | 98,999 | |
| |
| | | |
| | |
Cost of revenues | |
| 10,741 | | |
| 393 | |
| |
| | | |
| | |
Gross profit | |
| 31,528 | | |
| 98,606 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling, general and administrative expenses | |
| 3,216,146 | | |
| 1,579,996 | |
Research and development expenses | |
| 305,483 | | |
| 263,424 | |
Stock-based compensation | |
| 225,740 | | |
| 225,740 | |
Total operating expenses | |
| 3,747,369 | | |
| 2,069,160 | |
| |
| | | |
| | |
Loss from operations | |
| (3,715,841 | ) | |
| (1,970,554 | ) |
| |
| | | |
| | |
Other income (expense) | |
| | | |
| | |
Interest income | |
| 48,164 | | |
| 9,333 | |
Interest expense | |
| (126,536 | ) | |
| (38,677 | ) |
Operating sublease income | |
| 21,597 | | |
| 2,624 | |
Operating sublease income – related parties | |
| - | | |
| 1,200 | |
Gain/Loss on foreign exchange changes | |
| (177 | ) | |
| (5,999 | ) |
Gain/Loss on investment in equity securities | |
| - | | |
| (91,765 | ) |
Other (expense) income | |
| 491 | | |
| (404 | ) |
Government grant income | |
| - | | |
| 132,331 | |
Total other income (expense) | |
| (56,461 | ) | |
| 8,643 | |
| |
| | | |
| | |
Loss before provision income tax | |
| (3,772,302 | ) | |
| (1,961,911 | ) |
| |
| | | |
| | |
Provision for income tax | |
| 4,222 | | |
| (75,667 | ) |
| |
| | | |
| | |
Net loss | |
| (3,776,524 | ) | |
| (1,886,244 | ) |
| |
| | | |
| | |
Net loss attributable to noncontrolling interests | |
| (71,660 | ) | |
| (79,756 | ) |
| |
| | | |
| | |
Net loss attributed to ABVC and subsidiaries | |
| (3,704,864 | ) | |
| (1,806,488 | ) |
Foreign currency translation adjustment | |
| (190,019 | ) | |
| 16,137 | |
Comprehensive Loss | |
$ | (3,783,248 | ) | |
$ | (1,790,351 | ) |
| |
| | | |
| | |
Net loss per share: | |
| | | |
| | |
Basic and diluted | |
$ | (0.11 | ) | |
$ | (0.07 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | |
Basic and diluted | |
| 32,574,551 | | |
| 26,882,181 | |
Revenues. We generated $42,269 and $98,999 in revenues for the three months ended
September 30, 2022 and 2021, respectively. The decrease in revenues was mainly due to the completion of certain contract services during
Q3 2021.
Operating Expenses. Our operating expenses have increased by $1,678,209, or 81%, to $3,747,369
for the three months ended September 30, 2022 from $2,069,160 for the three months ended September 30, 2021. Such increase in operating
expenses was mainly attributable to the increase in selling, general and administrative expenses by $1,636,150 which relates to costs
in conjunction with our recent stock issuance, and increase in research and development expenses of $42,059 to continue developing our
pipeline.
Other Income (Expense). Our other
(expense) income was $(56,461) for the three months ended September 30, 2022, compared to $8,643 for the three months ended September
30, 2021. The change was principally caused by the increase in interest expense, while being offset by the increase in interest income
for the three months ended September 30, 2022,and loss on investment in equity securities and government grant income for the three months
ended September 30, 2021.
Interest income (expense), net, was $(78,372)
for the three months ended September 30, 2022, compared to $(29,344) for the three months ended September 30, 2021. The increase of $49,028,
or approximately 167%, was primarily due to the increase in interest expense due to recognition of interest expense for the converted
notes for proper accounting purpose.
Net Loss. As a result of the above factors, our net loss was $3,776,524 for the
three months ended September 30, 2022 compared to $1,886,244 for the three months ended September 30, 2021, representing an increase of
$1,890,280, or 100%.
Results of Operations — Nine Months
Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.
The following table presents, for the nine months
indicated, our consolidated statements of operations information.
| |
September 30, 2022 | | |
September 30, 2021 | |
| |
| | |
| |
Revenues | |
$ | 380,789 | | |
$ | 393,590 | |
| |
| | | |
| | |
Cost of revenues | |
| 21,004 | | |
| 2,284 | |
| |
| | | |
| | |
Gross profit | |
| 359,785 | | |
| 391,306 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling, general and administrative expenses | |
| 6,000,055 | | |
| 3,979,283 | |
Research and development expenses | |
| 1,197,669 | | |
| 743,617 | |
Stock-based compensation | |
| 5,143,483 | | |
| 927,220 | |
Total operating expenses | |
| 12,341,207 | | |
| 5,650,120 | |
| |
| | | |
| | |
Loss from operations | |
| (11,869,787 | ) | |
| (5,258,814 | ) |
| |
| | | |
| | |
Other income (expense) | |
| | | |
| | |
Interest income | |
| 127,354 | | |
| 72,584 | |
Interest expense | |
| (159,507 | ) | |
| (251,577 | ) |
Operating sublease income | |
| 78,523 | | |
| 60,822 | |
Operating sublease income – related parties | |
| - | | |
| 3,600 | |
Gain/Loss on foreign exchange changes | |
| 17,865 | | |
| (10,806 | ) |
Gain/Loss on investment in equity securities | |
| - | | |
| (193,147 | ) |
Other (expense) income | |
| (59,381 | ) | |
| (171 | ) |
Government grant income | |
| - | | |
| 256,731 | |
Total other income (expense) | |
| 4,854 | | |
| (61,964 | ) |
| |
| | | |
| | |
Loss before provision income tax | |
| (11,976,568 | ) | |
| (5,320,778 | ) |
| |
| | | |
| | |
Provision for income tax | |
| (165,096 | ) | |
| (186,255 | ) |
| |
| | | |
| | |
Net loss | |
| (11,811,472 | ) | |
| (5,134,523 | ) |
| |
| | | |
| | |
Net loss attributable to noncontrolling interests | |
| (252,171 | ) | |
| (227,964 | ) |
| |
| | | |
| | |
Net loss attributed to ABVC and subsidiaries | |
| (11,559,301 | ) | |
| (4,906,559 | ) |
Foreign currency translation adjustment | |
| (426,579 | ) | |
| 416,858 | |
Comprehensive Loss | |
$ | (11,874,245 | ) | |
$ | (4,489,701 | ) |
| |
| | | |
| | |
Net loss per share: | |
| | | |
| | |
Basic and diluted | |
$ | (0.37 | ) | |
$ | (0.20 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | |
Basic and diluted | |
| 31,193,397 | | |
| 25,053,522 | |
Revenues. We generated $380,789 and $393,590 in revenues for the nine months ended
September 30, 2022 and 2021, respectively. The decrease in revenue was mainly due to the decrease in CDMO sector.
Operating Expenses. Our operating expenses have increased by $6,691,087, or 118%, to $12,341,207
for the nine months ended September 30, 2022 from $5,650,120 for the nine months ended September 30, 2021. Such increase in operating
expenses was mainly attributable to the increase in stock-based compensation and selling, general and administrative expenses by $6,237,035
which relates to costs in conjunction with our recent stock issuance, as well as the increase in research and development expenses of
$454,052 to continue developing our pipeline.
Other Income (Expense). Our other
income (expense), net was $4,854 for the nine months ended September 30, 2022, compared to $(61,964) for the nine months ended September
30, 2021. The change was principally caused by the decrease in interest expense, as well as the loss on investment in equity securities
and government grant income which occurred in the nine months ended September 30, 2021.
Interest income (expense), net, was $(32,153)
for the nine months ended September 30, 2022, compared to $(178,993) for the nine months ended September 30, 2021. The decrease of $146,840,
or approximately 82%, was primarily due to the repayment of convertible notes payable during the year ended 2021.
Government grant income totaled $0 for the nine
months ended September 30, 2022, compared to $256,731 for the nine months ended September 30, 2021, which was recorded as receipt of
the first round of PPP loan forgiveness.
Net Loss. As a result of the above factors, our net loss was $11,811,472 for
the nine months ended September 30, 2022 compared to $5,134,523 for the nine months ended September 30, 2021, representing an increase
of $6,676,949, or 130%.
Liquidity and Capital Resources
Working Capital
| |
As of September 30, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
| |
Current Assets | |
$ | 2,903,080 | | |
$ | 7,653,782 | |
Current Liabilities | |
$ | 3,894,310 | | |
$ | 3,692,312 | |
Working (Deficit) Capital | |
$ | (991,230 | ) | |
$ | 3,691,470 | |
Cash Flow from Operating Activities
During the nine months ended September 30, 2022 and 2021, the net cash
used in operating activities were $6,937,322 and $5,073,103, respectively. The increase in the amount used in operating activities of
$1,864,219 was primarily due to the increased amount due from related parties, inventory, accounts payable, non-cash stock-based compensation
for nonemployees, and decreased accounts receivable, prepaid expenses and deposits, accrued expenses and other current liabilities, investment
loss, deferred tax, advance from others, non-cash government grant income and increase in net loss during the nine months ended September
30, 2022.
Cash Flow from Investing Activities
During the nine months ended September 30, 2022
and 2021, the net cash used in investing activities were $1,638,396 and $1,232,812 respectively. The decreases were mainly due to
the increase in purchase of equipment during nine months ended September 30, 2022, as well as cash used in purchase of investments and
prepayment for equity investment during the nine months ended September 30, 2021.
Cash Flow from Financing Activities
During the nine months ended September 30, 2022 and 2021, the net cash
provided by financing activities were $4,267,425 and $5,742,737, respectively. The decrease in net cash provided by financing activities
was primarily due to the decrease in issuance of common stock and proceeds from short-term loans during the nine months ended September
31, 2022, and payment for offering cost, proceeds from long-term bank loans and repayment of convertible notes, notes payable and long-term
bank loans during the nine months ended September 30, 2021.
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.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design
and operation of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated
under the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2022 to provide
reasonable assurance that material information required to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Changes in Internal Control over Financial
Reporting
There has been no change in our internal control
over financial reporting during the nine months ended September 30, 2022.