ABVC Biopharma, Inc. (American BriVision (Holding) Corporation) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company filed under a 45-day SEC filing extension related to COVID-19. Financial statements are unaudited and presented in U.S. dollars.
Business context
The company develops drugs and medical devices, conducts contract development and manufacturing (CDMO) work, and sells dietary supplements. Its strategy includes clinical development and licensing products to pharmaceutical partners. The filing says COVID-19 materially affected first-quarter CDMO revenue and could continue to constrain operations and revenue while restrictions remained in place.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $78,786 | $212,242; down about 63% |
| Gross profit / gross margin | $74,827 / about 95% | $210,743 / about 99% |
| Operating expenses | $1,246,204 | $941,309; up about 32% |
| Operating loss | $(1,171,377) | $(730,566) |
| Net loss | $(1,309,262) | $(873,317); loss increased about 50% |
| Net loss per share, basic and diluted | $(0.06) | $(0.05) |
| Cash used in operating activities | $(630,944) | $(599,528) |
| Cash and cash equivalents at March 31 | $123,645 unrestricted; $16,148 restricted | Unrestricted cash was $144,295 at December 31, 2019 |
Revenue fell primarily because of COVID-19’s impact on CDMO operations. SG&A rose $642,086, or 126%, mainly due to salary expense; R&D fell $329,167, or 78%, primarily because there were no major milestone payments. Interest expense was $131,517, including $95,214 associated with convertible notes. The company reported a $70,411 loss from equity-method investments.
At March 31, 2020, current assets were $802,491 and current liabilities were $7,654,601, producing a working-capital deficit of $6,852,110, versus a $5,935,955 deficit at year-end. Total liabilities were $7,837,475, compared with total assets of $6,665,209; total equity was negative $1,172,266. Current obligations included $1,910,250 of short-term bank loans, $820,000 of current convertible notes, $1,187,500 of current related-party convertible notes, and a $100,000 short-term loan. Convertible-note carrying value was $2,007,500, with $277,066 of accrued interest.
Financing activities provided $610,387, down from $1,373,791 in Q1 2019. The company reported no investing cash flows in Q1 2020. Cash and cash equivalents, including restricted cash, declined by $20,650 during the quarter.
Material changes, outlook, and risks
- COVID-19 reduced first-quarter revenue, and management warned that shelter-in-place restrictions could further affect revenue until normal operations resumed. No quantitative revenue or earnings guidance was provided.
- Management described CDMO activity as seasonal, typically stronger in the first three quarters and slower in the fourth.
- After quarter-end, certain noteholders exchanged notes and accrued interest for common shares and warrants. The company also reported approximately $1.6 million raised in May 2020 through private placements of common stock with attached warrants. These transactions were subsequent events and were not included in the March 31 balance sheet.
- The company extended its $1 million Cathay Bank credit facility through October 31, 2020. Various short-term and convertible obligations had 2020 maturities; several were later extended or exchanged, as described in the filing.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2020. Planned remediation included additional accounting training and greater use of external consultants.
- The filing reports no legal proceedings and no material changes to the risk factors disclosed in the company’s 2019 Form 10-K. Management stated there were no material off-balance-sheet arrangements.
- The company had $3.264 million in long-term investments, including a $1.980 million cost-method investment in BioHopeKing and a $1.254 million equity-method investment in BioFirst. BioFirst reported a quarterly net loss of $325,652.
Key investor verification points
- Confirm post-quarter financing proceeds, share and warrant issuance terms, and the resulting fully diluted share count; the filing reports 19,488,168 shares outstanding as of June 26, 2020.
- Assess near-term liquidity and the company’s ability to fund operations given the substantial working-capital deficit, limited cash, operating cash burn, and short-term debt maturities.
- Review the terms, repayment status, and potential dilution from convertible notes and other borrowings, including related-party financing.
- Evaluate the extent and duration of COVID-19’s effect on CDMO demand and whether revenue can recover from the year-over-year decline.
- Examine related-party balances and transactions, including amounts due from related parties ($337,778) and due to related parties ($715,303) at March 31.
- Track remediation of ineffective disclosure controls and verify whether later filings clarify the company’s impairment conclusions and liquidity position.