ABVC BioPharma, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; financial statements are unaudited. ABVC is a clinical-stage biotechnology and medical-device developer, with CDMO and related services provided through BioKey.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $98,999 | $115,553 | $393,590 | $420,852 |
| Gross profit | $98,606 | $106,934 | $391,306 | $404,038 |
| Gross margin | 99.6% | 92.5% | 99.4% | 96.0% |
| Operating expenses | $2,069,160 | $1,396,700 | $5,650,120 | $4,059,195 |
| Operating loss | $(1,970,554) | $(1,289,766) | $(5,258,814) | $(3,655,157) |
| Net loss | $(1,886,244) | $(2,131,131) | $(5,134,523) | $(5,624,450) |
| Net loss per share, basic and diluted | $(0.07) | $(0.09) | $(0.20) | $(0.25) |
| Cash used in operating activities | — | $(5,541,538) | $(2,375,873) |
Balance sheet and liquidity
- At September 30, 2021, cash and cash equivalents were $3.716 million, plus $734,163 of restricted cash; total cash and restricted cash was $4.450 million.
- Current assets were $7.111 million and current liabilities $3.439 million, yielding working capital of $3.672 million, up from $1.329 million at December 31, 2020.
- Total assets were $12.355 million, total liabilities $4.765 million, and total equity $7.590 million.
- Debt and financing obligations included $1.637 million of short-term bank loans, $104,167 of PPP loans payable, and $1.554 million of operating lease liabilities. Convertible notes were zero at quarter-end, versus $2.750 million at year-end 2020; the $2.5 million note was converted into shares and warrants in July 2021.
- Operating cash outflow increased by $3.166 million year over year to $5.542 million. Investing cash outflow was $764,377, including a $636,174 prepayment for an equity investment. Financing provided $5.743 million, primarily reflecting the public stock offering, partly offset by debt repayments.
Changes versus prior comparable periods
- Nine-month revenue declined 6.5% year over year; management attributed the decrease to COVID-19 effects on CDMO activity. Q3 revenue declined 14.3%.
- Nine-month operating expenses rose 39%, including increased SG&A and R&D; management cited marketing and uplisting costs and new vendor service agreements. Operating loss widened, while net loss narrowed 9%, helped by lower investment losses and PPP loan forgiveness income.
- Nine-month operating cash use more than doubled from 2020. The company raised $6.875 million gross in an August public offering of 1.1 million units, before $850,429 of fees and expenses. Common shares issued and outstanding increased to 27,935,783 at September 30 from 24,420,526 at December 31, 2020.
Outlook, risks, and notable items
- No numerical revenue, earnings, or cash-flow guidance is provided. Management said CDMO demand remained below pre-pandemic levels and that COVID-19 restrictions, lab activity, supply disruptions, and recovery timing could continue to affect business and forecasts.
- Management described a pipeline spanning CNS, oncology, and ophthalmology. Trials for ABV-1701 and ABV-1501 were expected to begin in Q4 2021 or Q1 2022; the company also planned to pursue a 510(k) submission for ABV-2002 before year-end 2021 and sought a commercialization partner for Vitargus. These are stated plans, not assured outcomes.
- The company reported no royalty revenue to date. Commercialization, clinical and regulatory success, financing needs, competition, and the ability to increase sales remain material uncertainties.
- PPP forgiveness contributed $256,731 of government grant income for the nine months, including $132,331 in Q3. The balance sheet still showed $104,167 of PPP debt at quarter-end.
- The filing states goodwill was impaired based on the company’s financial condition and uncertain future operating cash flows; goodwill on the balance sheet was zero. No goodwill impairment expense appears in the presented 2021 statement of operations.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2021. Planned remediation included additional U.S. GAAP/internal-control training and greater use of external consultants.
- Subsequent events: an October 2021 BioLite Japan joint venture reduced ABVC’s ownership to 49% and could require a guarantee of up to approximately $134,000 of a venture bank facility. In November, warrant exercises generated $4.244 million gross proceeds.
- The filing reports no pending or threatened legal proceedings as of its date and no material off-balance-sheet arrangements as of September 30.
Most important facts for investors to verify
- Reconcile revenue: the financial statements report $393,590 for the nine months, while one MD&A sentence says $393,509; the stated components total $393,590.
- Assess cash runway against the $5.542 million nine-month operating cash burn, considering restricted cash, future trial spending, and any further financing.
- Confirm the status and timing of planned trials, the ABV-2002 regulatory submission, and Vitargus partnering efforts; the filing provides targets rather than confirmed milestones.
- Review dilution from the offering, debt conversions, outstanding warrants, and subsequent warrant exercises, including exercise terms and shares issued.
- Track remediation of ineffective disclosure controls and the accounting and governance implications of related-party investments, balances, and the BioLite Japan joint venture.