ABVC BioPharma, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 31, 2022. This is an annual report, not a standalone fourth-quarter report. The company is an early-stage botanical drug and medical-device developer. Its limited revenue principally comes from BioKey’s contract development, manufacturing and regulatory services; its pipeline products were not commercialized.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $355,797 | $483,045 |
| Gross profit / gross margin | $350,711 / 98.6% | $464,329 / 96.1% |
| Operating expenses | $12,056,679 | $8,970,105 |
| Operating loss | $(11,705,968) | $(8,505,776) |
| Net loss | $(12,035,851) | $(10,593,584) |
| Basic and diluted loss per share | $(0.51) | $(0.50) |
| Net cash used in operating activities | $(7,597,719) | $(4,563,919) |
| Cash and cash equivalents at year-end | $5,828,548 | $4,273,208 |
| Restricted cash at year-end | $736,667 | $728,163 |
Current assets were $9.63 million and current liabilities $3.69 million, resulting in working capital of $5.93 million and a current ratio of about 2.6. Total liabilities were $4.83 million; year-end short-term bank loans were $1.64 million, and operating lease liabilities totaled $1.47 million. Total equity was $8.87 million. Cash plus restricted cash was $6.57 million, below annual operating cash use; restricted funds may not be available for general use.
Material changes and notable items
- Revenue declined 26% year over year, attributed mainly to lower contract-services activity amid COVID-19 effects. Operating expenses rose about $3.09 million, including higher selling, general and administrative costs, research and development, and stock-based compensation. Employee and nonemployee stock-based compensation together was approximately $5.31 million.
- Net loss increased approximately 14%. Other income/expense improved to $495,141 from expense of $2.31 million, including $360,898 of PPP loan forgiveness income and a $426,316 foreign-exchange gain. Equity-investment losses were $269,844, versus $1.17 million in 2020.
- Operating cash use increased about $3.03 million. Financing provided $10.00 million, principally reflecting stock issuance; investing used $805,966. The August 2021 public offering generated $6.875 million gross, and warrant exercises generated a further $4.24 million gross in November. Shares outstanding were 28.93 million at year-end, versus 24.42 million a year earlier.
- Goodwill was reported as zero at both year-ends. The filing describes impairment testing but the financial statements show no 2021 impairment-loss charge; the 2020 impairment loss was $961,217.
- The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an ICFR attestation.
Filing inconsistency: The overview says 2021 revenue was $483,045, but the MD&A comparison and audited statements report $355,797 for 2021 and $483,045 for 2020. The audited statements support the latter comparison; investors should confirm the discrepancy against the filed exhibits.
Outlook, risks and contingencies
- Management’s stated strategy is to advance candidates through Phase I and II and seek partners for later-stage trials and commercialization. The filing anticipated, among other milestones, ABV-1505’s Phase II Part 2 beginning in 2022, ABV-1703 Phase II beginning in the third quarter of 2022, and ABV-1702 Phase II beginning in the fourth quarter of 2022. These are expectations, not assurances.
- ABV-1504 completed Phase II; reported trial results showed a 13.2-point MADRS reduction for the high dose versus 9.2 points for placebo in the ITT analysis. The company said it planned to use the high dose in Phase III and seek a development partner. ABV-1505 Part I results were based on six patients, and the company planned a larger controlled Part II study.
- BioKey planned a mid-2022 launch of maitake dietary supplements. A three-year distribution agreement provides for the distributor to purchase $3 million of product, subject to performance and execution; the filing reports no such sales in 2021.
- The company cautions that it is pre-profit, has no approved drug or medical device, and depends on additional capital, successful trials, regulatory approvals, partners and suppliers. COVID-19 may affect trial recruitment, lab activity, supply chains and revenue. Other material risks include competition, clinical and safety failures, dependence on licensed intellectual property and a single maitake-extract supplier, international and currency exposure, and potential dilution.
- Related-party exposures include $1.43 million in accounts receivable and amounts due from related parties, and $393,424 due to related parties. A Japanese joint venture agreement may require ABVC to guarantee up to approximately $134,000 of a bank facility. In February 2022, the company arranged to satisfy a $5 million BioLite milestone payment by cancelling an equal amount of BioLite debt owed to ABVC; verify the accounting and collectability implications.
- The filing reports no material pending legal proceedings and no material off-balance-sheet arrangements. It also states that the company does not maintain general product-liability insurance, although it has clinical-trial liability coverage.
Important facts for investors to verify
- Resolve the 2021 revenue inconsistency and confirm the audited revenue figure.
- Review the audited statements and cash-flow assumptions, including cash availability, restricted cash, related-party receivables and the company’s financing needs relative to its operating cash burn.
- Check actual progress and funding for the stated 2022 clinical, regulatory and product-launch milestones, and assess the evidence behind trial claims, particularly small-sample results.
- Confirm the status and terms of the $5 million BioLite debt cancellation/payment, the Japanese joint venture license agreement and any guarantee exposure.
- Assess potential dilution from outstanding options and warrants, future financing, and subsequent share issuances; compare year-end shares with the March 2022 reported 30.31 million outstanding.