ABVC BIOPHARMA, INC. The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements and Industry Data" for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
From its inception, the Company has not generated substantial revenue from its
medical device and new drug development. For the three months ended
Business Overview
The Company operates through
Medicines derived from plants have a long history of relieving or preventing many diseases and, typically, have exhibited fewer side effects than drugs developed from animals or chemical ingredients. Perhaps the most famous example is aspirin, which evolved from a compound found in the bark and leaves of the willow tree and was later marketed by Bayer starting in 1899. Aspirin has very few serious side effects and has proven to be one of the most successful drugs in medical history. Some 50 years later, scientists identified anticancer compounds in the rosy periwinkle, which Eli Lilly subsequently produced for the treatment of leukemia and Hodgkins disease. Other well-known examples of successful botanical drugs include the cancer-fighting Taxol, isolated from the Pacific yew tree.
The Company develops its pipeline by carefully tracking new medical discoveries
or medical device technologies in research institutions in the
Currently, institutions that have or are now conducting phase II clinical trials in partnership with ABVC include:
? Drug: ABV-1504, Major Depressive Disorder (MDD), Phase II completed. NCE drug
Principal Investigators: Charles DeBattista M.D . and Alan F. Schatzberg ,
MD, Stanford University Medical Center , Cheng-Ta Li , MD, Ph.D - Taipei
Veterans General Hospital
? Drug: ABV-1505, Adult Attention-Deficit Hyperactivity Disorder (ADHD), Phase
II Part 1 completed. NCE drug Principal Investigators: Keith McBurnett , Ph.D.
and Linda Pfiffner , Ph.D., University of California San Francisco (UCSF),
School of Medicine
? Drug: ABV-1601, Major Depression in Cancer Patients, Phase I/II, NCE drug
Principal Investigator: Scott Irwin , MD, Ph.D. - Cedars Sinai Medical Center
(CSMC)
? Drug: ABV-1703, Advanced Inoperable or Metastatic Pancreatic Cancer, Phase II,
NCE drug Principal Investigator: Andrew E. Hendifar , MD - Cedars Sinai Medical
Center (CSMC)
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The following trials are expected to begin in the second or third quarter of 2021:
? Medical Device: ABV-1701, Vitargus® in vitrectomy surgery, Pivotal Study in
Australia , Principal Investigator: Andrew Chang , MD, Ph.D., Sydney Eye
Hospital , Australia
? Drug: ABV-1501, A Phase I/II, Open Label Study to Evaluate the Safety and
Efficacy of BLEX 404 Oral Liquid Combined with Docetaxel Monotherapy in
Patients with Stage IV or Recurrent Breast Cancer Patients
Upon successful completion of the Phase II trial, the Company will seek a partner - a large pharmaceutical company - to complete a Phase III study, submit the New Drug Application (NDA), and commercialize the drug upon approval by the FDA and Taiwan FDAs. The Company expects to seek its first commercialization partner in 2021 for Vitargus, its vitreous substitute that helps to maintain a round shape and retinal location during vitrectomy surgery.
Another part of the Company's business is conducted by BioKey, a wholly owned subsidiary, that is engaged in a wide range of services, including, API characterization, pre-formulation studies, formulation development, analytical method development, stability studies, IND/NDA/ANDA/510K submissions, and manufacturing clinical trial materials (phase I through phase III) and commercial manufacturing.
On
BioLite was incorporated under the laws of the
BioLite and BioLite BVI are holding companies and have not carried out substantive business operations of their own.
In
BioKey was incorporated on
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Common Stock Reverse Split
On
On
Series A Convertible Preferred Stock
On
Pursuant to the Series A COD, the Company designated 3,500,000 shares of
preferred stock as Series A Stock, par value of
As of
Increasing the Authorized Shares
On
Financings Financing inNovember 2020
On
The Company paid the following fees to a
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Financing in October 2020 On
The October Note was issued on
In connection with the October Note and pursuant to the terms of an agreement
entered into between the Company and a
The issuance and sale of the Common Stock, the Investor Warrants, Comp Warrants, Note Warrants and the shares of Common Stock underlying the Investor Warrants, the Comp Warrants and the October Note were made in reliance on an exemption from registration contained in either Regulation D or Regulation S of the Securities Act.
Financing inMay 2020
In
Pursuant to the terms of an agreement entered into between the Company and a
Financing inApril 2020
On
On
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Recent PPP Loan
On
On
On
Recent Research Results
On
The Phase II clinical study was a randomized, double-blind, placebo-controlled, multi-center trial, in which 60 adult patients with confirmed moderate to severe MDD were treated with PDC-1421 in either low dose (380 mg) or high dose (2 x 380 mg) compared with placebo administration, three times a day for six weeks. PDC-1421 high dose (2 x 380 mg) met the pre-specified primary endpoint by demonstrating a highly significant 13.2-point reduction in the Montgomery-Åsberg Depression Rating Scale (MADRS) total score by Intention-To-Treat (ITT) analysis, averaged over the 6-week treatment period (overall treatment effect) from baseline, as compared to 9.2-point reduction of the placebo group. By Per-Protocol (PP) analysis, PDC-1421 showed a dose dependent efficacy toward MDD in which high dose (2 x 380 mg) gave 13.4-point reduction in MADRS total score from baseline and low dose (380 mg) gave 10.4-point reduction as compared to a 8.6-point in the placebo group. The Company has decided to use the high dose formula in the Phase III clinical trial of ABV-1504.
On
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The study was an open label, Phase I study undertaken at a single study center
in
On
On
Initially the Company will focus on BFC-1404, a solution utilized to store a donor cornea prior to either penetrating keratoplasty (full thickness cornea transplant) or endothelial keratoplasty (back layer cornea transplant). Designated ABV-2002 under the Company's product identification system, the solution is comprised of a specific poly amino acid that protects ocular tissue from damage caused by external osmolarity exposure during pre-surgery storage. The specific polymer in ABV 2002 can adjust osmolarity to maintain a range of 330 to 390 mOsM thereby permitting hydration within the corneal stroma during the storage period. Stromal hydration results in (a) maintaining acceptable corneal transparency and (b) prevents donor cornea swelling. ABV-2002 also contains an abundant phenolic phytochemical found in plant cell walls that provides antioxidant antibacterial properties and neuroprotection.
Early testing by BioFirst indicates that ABV-2002 may be more effective for protecting the cornea and retina during long-term storage than other storage media available today and can be manufactured at lower cost. Categorized as a Class I Medical Device which has the lowest risk to patients, the Company intends to submit a Premarket Notification 510(K) submission to the FDA before the end of 2021 to demonstrate the device is at least as safe and effective as current products on the market.
Strategy
Key elements of our business strategy include:
? 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.
? Focusing on licensing ABV-1504 for the treatment of major depressive disorder,
MDD, after the successful completion of its Phase II clinical trials.
? Completing Phase II, Part 2 clinical trial for ABV-1505 for the treatment of
attention deficit hyperactivity disorder, ADHD.
? 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.
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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
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:
? nonrefundable upfront license fees, ? development and commercial milestones, ? partial or complete reimbursement of research and development costs and ? royalties on net sales of licensed products.
Each type of payments results in revenue except for revenue from royalties on net sales of licensed products, which are classified as royalty revenues. To date, we have not received any royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the joint venture partner.
As part of the accounting for these arrangements, the Company applies judgment to determine whether the performance obligations are distinct and develop assumptions in determining the stand-alone selling price for each distinct performance obligation identified in the collaboration agreements. To determine the stand-alone selling price, the Company relies on assumptions which may include forecasted revenues, development timelines, reimbursement rates for R&D personnel costs, discount rates and probabilities of technical and regulatory success.
The Company had multiple deliverables under the collaborative agreements, including deliverables relating to grants of technology licenses, regulatory and clinical development, and marketing activities. Estimation of the performance periods of the Company's deliverables requires the use of management's judgment. Significant factors considered in management's evaluation of the estimated performance periods include, but are not limited to, the Company's experience in conducting clinical development, regulatory and manufacturing activities. The Company reviews the estimated duration of its performance periods under its collaborative agreements on an annually basis, and makes any appropriate adjustments on a prospective basis. Future changes in estimates of the performance period under its collaborative agreements could impact the timing of future revenue recognition.
(i) Nonrefundable upfront payments
If a license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes revenue from the related nonrefundable upfront payments based on the relative standalone selling price prescribed to the license compared to the total selling price of the arrangement. The revenue is recognized when the license is transferred to the collaboration partners and the collaboration partners are able to use and benefit from the license. To date, the receipt of nonrefundable upfront fees was solely for the compensation of past research efforts and contributions made by the Company before the collaborative agreements entered into and it does not relate to any future obligations and commitments made between the Company and the collaboration partners in the collaborative agreements.
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(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.
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(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) In February and December of 2015,
joint venture agreements with BioHopeKing to jointly develop ABV-1501 for
Triple Negative Breast Cancer (TNBC), ABV-1504 for MDD and ABV-1505 for ADHD.
The agreements granted marketing rights to BioHopeKing for certain Asian
countries in return for a series of milestone payments totaling $10 million
in cash and equity of BioHopeKing or equity securities owned by BioHopeKing.
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The milestone payments are determined by a schedule of BioLite development achievements as shown below:
Milestone Payment
Execution of BHK Co-Development Agreement
$ 1,000,000
Initiation of Phase III Clinical Trial
$ 10,000,000
(ii) In December of 2015, BHK paid the initial cash payment of
the execution of the BHK Agreement. The Company concluded that certain
deliverables are considered separate units of accounting as the delivered
items have value to the customer on a standalone basis and recognized this
cash payment as collaboration revenue when all research, technical, and
development data was delivered to BHK in 2015. The payment included
compensation for past research efforts and contributions made by BioLite
Taiwan before the BHK agreement was signed and does not relate to any future
commitments made by BioLite Taiwan and BHK in the BHK Agreement.
(iii) In
million, and recognized collaboration revenue for the year ended December
31, 2016 . As of March 31, 2021 , the Company had not completed the first
phase II clinical trial.
(iv) In addition to the milestone payments, BioLite Taiwan is entitled to receive
a royalty equal to 12% of BHK's net sales related to ABV-1501, ABV-1504 and
ABV-1505 Products. As of March 31, 2021 , the Company has not earned
royalties under the BHK Co-Development Agreement.
(v) The BHK Co-Development Agreement will remain in effect for fifteen years from
the date of first commercial sale of the Product in in Asia excluding Japan .
Co-Development agreement with
On
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The Company and Rgene signed an amendment to the Rgene Agreement on
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Collaborative agreement with
On
Pursuant to the BioFirst Agreement, the Company and BioFirst will co-develop and
commercialize BFC-1401. The Company will pay BioFirst a total amount of
On
On
On
On
Initially the Company will focus on ABV-2002, a solution utilized to store a donor cornea prior to either penetrating keratoplasty (full thickness cornea transplant) or endothelial keratoplasty (back layer cornea transplant). ABV-2002 is a solution comprised of a specific poly amino acid that protects ocular tissue from damage caused by external osmolarity exposure during pre-surgery storage. The specific polymer in ABV-2002 can adjust osmolarity to maintain a range of 330 to 390 mOsM thereby permitting hydration within the corneal stroma during the storage period. Stromal hydration results in (a) maintaining acceptable corneal transparency and (b) prevents donor cornea swelling. ABV-2002 also contains an abundant phenolic phytochemical found in plant cell walls that provides antioxidant antibacterial properties and neuroprotection.
Early testing by BioFirst indicates that ABV-2002 may be more effective for protecting the cornea and retina during long-term storage than other storage media available today and can be manufactured at lower cost. Categorized as a lower risk Class I Medical Device, the Company intends to submit a Premarket Notification 510(K) submission to the FDA before the end of 2021 to demonstrate the device is at least as safe and effective as current products on the market.
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BioKey Revenues
In addition to collaborative agreements, ABVC earns revenue through its wholly
owned BioKey subsidiary which provides a wide range of
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
Due to the COVID-19, our revenue for the first half of fiscal 2020 was significantly impacted. As we have not seen a stronger signal to indicate that overall global economic will be back to normal in the third quarter, our business's overall revenue stream may be impacted further until the restrictions of COVID-19 can be released, then the company can start operating normally. The global pandemic of COVID-19 continues to evolve rapidly, and we will continue to monitor the situation closely, including its potential effect on our plans and timelines.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived assets and current obligations.
Summary of Critical Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the generally accepted accounting principles in
This basis of accounting involves the application of accrual accounting and
consequently, revenues and gains are recognized when earned, and expenses and
losses are recognized when incurred. The Company's financial statements are
expressed in
Fiscal Year
The Company changed its fiscal year from the period beginning on
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Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in
Inventory
Inventory consists of raw materials, work-in-process, finished goods, and merchandise. Inventories are stated at the lower of cost or market and valued on a moving weighted average cost basis. Market is determined based on net realizable value. The Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge to operations for known and anticipated inventory obsolescence.
Reclassifications
Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.
Forward Stock Split
On
Stock Reverse Split
On
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.
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? Level 2 - Inputs other than quoted prices in active markets that are either
directly or indirectly observable as of the measurement date, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
? 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
Restricted Cash Equivalents
Restricted cash equivalents primarily consist of cash held in a reserve bank
account in
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
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
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Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Property and Equipment
Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally based on the following useful lives:
Estimated Life
in Years
Buildings and leasehold improvements 5 ~ 50
Machinery and equipment 5 ~ 10
Office equipment 3 ~ 6
Impairment of Long-Lived Assets
The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
Long-term Equity Investment
The Company acquires the equity investments to promote business and strategic objectives. The Company accounts for non-marketable equity and other equity investments for which the Company does not have control over the investees as:
? Equity method investments when the Company has the ability to exercise
significant influence, but not control, over the investee. Its proportionate
share of the income or loss is recognized monthly and is recorded in gains
(losses) on equity investments.
? Non-marketable cost method investments when the equity method does not apply.
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Significant judgment is required to identify whether an impairment exists in the valuation of the Company's non-marketable equity investments, and therefore the Company considers this a critical accounting estimate. Its yearly analysis considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative analysis of its investments involves understanding the financial performance and near-term prospects of the investee, changes in general market conditions in the investee's industry or geographic area, and the management and governance structure of the investee. Quantitative assessments of the fair value of its investments are developed using the market and income approaches. The market approach includes the use of comparable financial metrics of private and public companies and recent financing rounds. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees' revenue, costs, and discount rates. The Company's assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.
Other-Than-Temporary Impairment
The Company's long-term equity investments are subject to a periodic impairment review. Impairments affect earnings as follows:
? 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
and $0 for the three months ended March 31, 2021 and 2020, 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.
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The Company completed the required testing of goodwill for impairment as of
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
Stock-based Compensation
The Company measures expense associated with all employee stock-based
compensation awards using a fair value method and recognizes such expense in the
consolidated financial statements on a straight-line basis over the requisite
service period in accordance with FASB ASC Topic 718 "Compensation-Stock
Compensation". Total employee stock-based compensation expenses were
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
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.
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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 three months ended
On
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.
58
Loss Per Share of Common Stock
The Company calculates net loss per share in accordance with ASC Topic 260, "Earnings per Share". Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. Diluted earnings per share excludes all dilutive potential shares if their effect is anti-dilutive.
Commitments and Contingencies
The Company has adopted ASC Topic 450 "Contingencies" subtopic 20, in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available before financial statements are issued or are available to be issued indicates that it is probable that an assets had been impaired or a liability had been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Foreign-currency Transactions
For the Company's subsidiaries in
Translation Adjustment
The accounts of the Company's subsidiaries in
Recent Accounting Pronouncements
In
In
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Estimates and Assumptions
In preparing our consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts.
Results of Operations - Three Months Ended
The following table presents, for the three months indicated, our consolidated statements of operations information.
March 31, March 31,
2021 2020
Revenues $ 263,150 $ 78,786
Cost of revenues 1,245 3,959
Gross profit 261,905 74,827
Operating expenses
Selling, general and administrative expenses 1,167,595 1,152,889
Research and development expenses 121,315 92,790
Stock-based compensation 225,740 525
Total operating expenses 1,514,650 1,246,204
Loss from operations (1,252,745 ) (1,171,377 )
Other income (expense)
Interest income 52,529 10,720
Interest expense (130,229 ) (131,517 )
Rent income 4,867 5,231
Rent income - related parties 1,600 1,200
Gain/Loss on foreign exchange changes 951 2
Gain/Loss on investment in equity securities (47,791 ) (70,411 )
Other income (expense) 71 6,322
Government grant income 124,400 -
Total other income (expenses) 6,398 (178,453 )
Loss before provision income tax (1,246,347 ) (1,349,830 )
Provision for income tax (51,024 ) (40,568 )
Net loss (1,195,323 ) (1,309,262 )
Net loss attributable to noncontrolling interests (66,818 ) (61,724 )
Net loss attributed to ABVC and subsidiaries (1,128,505 ) (1,247,538 )
Foreign currency translation adjustment 36,140 (6,451 )
Comprehensive Loss $ (1,092,365 ) $ (1,253,989 )
Net loss per share:
Basic and diluted $ (0.05 ) $ (0.06 )
Weighted average number of common shares outstanding:
Basic and diluted 24,420,526 19,484,542
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Revenues. We generated
Operating Expenses. Our operating expenses have increased by
Our selling, general and administrative expenses and stock-based compensation
increased by
Our research and development expenses increased by
Other Income (Expense). Our other income was
Interest income was
Loss on investment in equity securities was
Other income and government grant income totaled
Net Loss. As a result of the above factors, our net loss was
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Liquidity and Capital Resources
Working Capital
As of As of
March 31, December 31,
2021 2020
(Unaudited)
Current Assets $ 5,205,453 $ 6,172,966
Current Liabilities $ 4,666,300 $ 4,844,391
Working Capital (deficit) $ 539,153 $ 1,328,575 Cash Flow from Operating Activities
During the three months ended
Cash Flow from Investing Activities
During the three months ended
Cash Flow from Financing Activities
During the three months ended
Off-Balance Sheet Arrangements
As of
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