ABVC BioPharma, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. The consolidated financial statements were audited by WWC P.C.; the auditor issued an unqualified opinion with an emphasis-of-matter paragraph describing substantial doubt about the Company’s ability to continue as a going concern.
Business context
ABVC is an early-stage, clinical-stage biotechnology company developing plant-derived drug candidates and a medical device. Its pipeline includes CNS and oncology/hematology programs and Vitargus, a vitreous substitute. Most revenue is generated by BioKey’s contract development and manufacturing (CDMO) services; the Company reports no product royalties to date.
Financial performance and liquidity
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Revenue | $969,783 | $355,797 |
| Gross profit; gross margin | $683,368; 70.5% | $350,711; 98.6% |
| Operating expenses | $15,797,780 | $12,056,679 |
| Loss from operations | $(15,114,412) | $(11,705,968) |
| Consolidated net loss | $(16,312,374) | $(12,035,851) |
| Net loss per share, basic and diluted | $(0.52) | $(0.51) |
| Net cash used in operating activities | $(7,398,391) | $(7,597,719) |
| Cash and cash equivalents | $85,265 | $5,828,548 |
| Restricted cash | $1,306,463 | $736,667 |
| Current assets / current liabilities | $2,987,247 / $5,819,529 | $7,653,782 / $3,692,312 |
| Working capital | $(2,832,282) | $3,691,470 |
| Total liabilities | $6,619,336 | $4,827,691 |
Revenue rose 173%, mainly from increased contract services with Rgene. Growth was more than offset by higher expenses and other-income deterioration: operating expenses increased about $3.74 million, including increased R&D spending and stock-based compensation. Stock-based compensation totaled $7.04 million in 2022, including $5.79 million for non-employees. Other income/expense moved from $495,141 of income in 2021 to approximately $400,000 of expense in 2022. The Company recorded a $110,125 impairment loss on prepaid expenses and reported a $259,463 foreign-exchange loss.
Cash used in investing activities was $1,721,684, principally reflecting $1,601,992 of prepayments for equity investments. Financing activities provided $4,013,925, primarily from common-stock issuance, compared with $9,995,550 in 2021. Year-end cash plus restricted cash was $1,391,728. Short-term bank loans were $1,893,750; current liabilities also included accrued expenses and other current liabilities of $2,909,587 and related-party payables of $635,893. The filing reports no material off-balance-sheet arrangements.
Material changes and developments
- Revenue increased from $355,797 to $969,783, but the Company’s consolidated net loss widened by about 36% to $16.31 million.
- Cash and cash equivalents fell from $5.83 million to $85,265, while working capital shifted from a $3.69 million surplus to a $2.83 million deficit.
- In May 2022, ABVC completed a registered direct offering of 2 million shares at $2.11 per share, raising $4.22 million gross, and issued warrants for up to 2 million additional shares at $2.45.
- In June 2022, BioKey entered a related-party clinical development services agreement with Rgene, eligible for up to $3 million over three years subject to regulatory milestones. ABVC also lent Rgene $1 million at 5%; $500,000 remained outstanding at year-end, with accrued interest of $13,819.
- Year-end common shares outstanding were 32,857,329, compared with 28,926,322 a year earlier. The filing reports 33,080,740 shares outstanding as of March 31, 2023.
Outlook, risks and unusual items
- Going concern and financing: The auditor highlighted substantial doubt based on recurring losses, the working-capital deficit and operating cash outflows. Management’s plan is to improve operations and raise capital through private or public offerings; the filing does not provide a quantified forecast or assurance of financing.
- Subsequent financing: On February 23, 2023, ABVC issued Lind Global Fund II a secured convertible note with $3,704,167 principal for $3,175,000 proceeds, convertible initially at $1.05 per share, plus a warrant for up to 5,291,667 shares at an initial $1.05 exercise price. The note provides for monthly payments beginning six months after issuance; cash payments carry a 5% premium. The Company and subsidiaries provided guarantees and collateral. These terms create potential dilution and repayment risk.
- Clinical and regulatory execution: Management described plans to advance ABV-1505’s Phase II Part II study and pursue Phase II trials or study starts for Vitargus, ABV-1601, ABV-1519, ABV-1703 and ABV-1702. Timelines are forward-looking and dependent on funding, enrollment, trial results, regulatory decisions and partners. ABV-1504’s Phase II results were reported as positive in 2019; Phase III funding and commercialization remain uncertain.
- Revenue concentration and related parties: Rgene, a related party, represented 93.22% of 2022 revenue. Related-party balances and agreements include loans, service arrangements and shared development activity; assess collectability, terms and governance.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to insufficient skilled accounting personnel. Management was working to hire qualified personnel; the independent auditor did not attest to internal-control effectiveness.
- Listing: Nasdaq notified ABVC in August 2022 that its bid price had remained below $1 for 30 consecutive business days. The Company received an extension through August 14, 2023 to regain compliance; delisting remained possible if it failed to do so.
- Legal contingency: A former CFO filed an employment lawsuit in October 2022 seeking, among other items, unpaid wages, shares and options. The Company is defending the matter and says it believes the claims lack merit; the filing does not provide a clear estimate of potential exposure.
- Other risks: The Company depends on future capital, has no history of obtaining approval for or commercializing a new drug candidate, relies on third parties and a key maitake API supplier, and faces clinical, product-liability, intellectual-property, international-operation and foreign-exchange risks. The filing states it does not maintain general product-liability insurance.
Key facts for investors to verify
- Cash runway, near-term obligations, access to additional financing and the ability to meet the going-concern plan.
- Terms, collateral, payment mechanics and potential dilution from the Lind note and warrants, as well as any subsequent financing.
- Whether Rgene receivables and the outstanding related-party loan are collected or converted, and whether revenue concentration changes.
- Clinical-trial progress, funding, enrollment and regulatory milestones for the lead programs, including Vitargus and ABV-1505.
- Progress in remediating the accounting-personnel material weakness and the outcome or estimated exposure of the former CFO lawsuit.
- Nasdaq bid-price compliance status and any changes in listing or share-count disclosures.