ABVC BioPharma, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. ABVC is a clinical-stage biotechnology company developing plant-derived drugs and medical devices, alongside CDMO services through BioKey. The company reported that Q1 revenue came mainly from CDMO services.
Financial highlights
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $263,150 | $78,786; up about 234% |
| Gross profit / margin | $261,905 / about 99.5% | $74,827 / about 95.0% |
| Operating expenses | $1,514,650 | $1,246,204; up about 22% |
| Operating loss | $(1,252,745) | $(1,171,377) |
| Net loss | $(1,195,323) | $(1,309,262); loss narrowed about 9% |
| Net loss attributable to ABVC | $(1,128,505); $(0.05) per share | $(1,247,538); $(0.06) per share |
| Operating cash flow | $(1,413,074) | $(630,944) |
Cash and cash equivalents were $2.62 million at quarter-end, with a further $718,163 restricted, for combined cash and restricted cash of $3.33 million. Combined cash declined $1.67 million during the quarter. Investing used $281,952, primarily for a BioFirst equity investment prepayment; financing provided $42,226.
Working capital was positive at $539,153, down from $1.33 million at December 31, 2020. Total assets were $10.53 million, total liabilities $8.80 million, and total equity $1.73 million. Liabilities included $1.62 million of short-term bank loans, $2.50 million of noncurrent convertible notes, $236,498 of PPP loans, and $1.71 million of operating lease liabilities. Common shares outstanding were 24,420,526 at March 31 and May 10, 2021.
Changes and notable items
- Revenue increased as the CDMO business recovered from COVID-19 effects. Cost of revenue fell to $1,245 from $3,959.
- Operating expenses rose $268,446. Management attributed higher SG&A and stock-based compensation primarily to marketing and uplisting-related costs; R&D increased with new vendor service agreements. Nonemployee stock-based compensation was $225,740, compared with $525 a year earlier.
- Other income was $6,398 versus other expense of $178,453. The change included $124,400 of PPP loan forgiveness recorded as government grant income, higher interest income, and a smaller equity-investment loss. The company also received $236,498 in new PPP loans during the quarter.
- Management reported a $47,791 share of equity-method investment losses, primarily related to BioFirst. The company prepaid $281,952 for additional BioFirst shares.
- The company reported that goodwill was impaired due to its financial condition and uncertainty about achieving the sales increases needed to generate future operating income. Goodwill was already shown as zero on the balance sheet; the filing does not clearly identify a new Q1 impairment charge.
Outlook, risks, and controls
- Management expected the Vitargus ABV-1701 pivotal study in Australia and an ABV-1501 breast-cancer study to begin in Q2 or Q3 2021. It expected to seek a Vitargus commercialization partner in 2021 and planned an FDA 510(k) submission for ABV-2002 before year-end 2021. These are expectations, not assurances.
- Pipeline status included completed Phase II for ABV-1504, completed Phase II Part 1 for ABV-1505, Phase I/II for ABV-1601, and Phase II for ABV-1703. The company stated it had not yet earned royalties under its collaborative agreements.
- Management said COVID-19 could continue to disrupt revenue, supply availability, operations, and development timelines; it could not reasonably estimate the pandemic’s full financial impact. Other disclosed risks include competition, pricing and margin pressure, market volatility, and penny-stock trading rules.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2021. Planned remediation included staff training and greater use of qualified external consultants.
- Related-party activity is significant: the company reported $702,889 due from related parties and $312,152 due to related parties. It reported no pending or threatened legal proceedings as of the report date and no material off-balance-sheet arrangements.
Investor verification points
- Verify the quality and collectability of related-party receivables and advances, and the terms, maturity, and repayment expectations of related-party balances.
- Assess cash burn and funding needs: operating cash use increased substantially year over year while working capital declined.
- Confirm the status of clinical-trial starts, Vitargus partnering, and the planned ABV-2002 510(k) submission against subsequent company disclosures.
- Review PPP forgiveness and remaining PPP loan balances, as well as the terms and conversion or repayment risk of the $2.50 million convertible note.
- Track remediation of ineffective disclosure controls and clarify whether the goodwill impairment disclosure had any Q1 financial-statement effect.