ABVC BioPharma, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. ABVC is a clinical-stage biotechnology company developing plant-derived drugs and medical devices; its BioKey subsidiary provides contract development, manufacturing, and regulatory services.
Key financial results
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Revenue | $6,109 | $134,381 |
| Gross profit (loss) | $(66,872) | $1,164 |
| Operating expenses | $2,126,970 | $4,101,190 |
| Loss from operations | $(2,193,842) | $(4,100,026) |
| Net loss | $(2,315,225) | $(4,212,455) |
| Net loss per share, basic and diluted | $(0.68) | $(1.24) |
| Net cash used in operating activities | Not separately reported | $(2,397,460) |
- Q2 revenue fell from $312,860 in 2022, which management attributed mainly to lower CDMO services revenue. For the first half, revenue declined from $338,520 to $134,381.
- First-half gross profit was nearly zero versus $328,257 in 2022; Q2 gross profit turned into a loss. The filing does not provide a clear positive gross margin for the period.
- First-half net loss narrowed from $8.03 million in 2022 to $4.21 million in 2023. Operating expenses declined 52%, principally because non-employee stock-based compensation fell to $592,229 from approximately $4.92 million. By contrast, Q2 net loss increased to $2.32 million from $1.95 million.
- First-half interest expense rose to $171,415 from $32,971, including expense associated with the Lind convertible financing. Foreign-exchange losses were $30,566, compared with a gain of $18,042 in the prior-year period.
Balance sheet, cash flow, and financing
- At June 30, 2023, cash and cash equivalents were $99,290 and restricted cash was $642,899, for combined cash and restricted cash of $742,189. Combined cash was $1.39 million at December 31, 2022.
- Current assets were $2.13 million and current liabilities $5.77 million, yielding a working-capital deficit of $3.64 million, wider than the $2.83 million deficit at year-end. Total liabilities were $9.69 million versus total assets of $9.32 million; total equity was negative $367,010.
- First-half operating cash use was $2.40 million; investing cash use was $440,575, largely for prepayments for long-term investments. Financing provided $2.18 million, including $3.175 million proceeds from Lind and repayment of $1.0 million in bank loans.
- Short-term bank loans totaled $882,750. Convertible notes payable to third parties had a carrying value of $3.30 million at June 30. Operating lease liabilities totaled approximately $1.00 million.
- The February Lind financing had $3.704 million principal issued for $3.175 million, secured by company and subsidiary guarantees and collateral. Monthly payments of $308,650.58 begin six months after issuance; cash payments carry a 5% premium, and an event of default triggers payment of 120% of outstanding principal. The note and warrant conversion/exercise terms may create dilution.
Material changes, outlook, and risks
- Going concern: Management states that recurring losses, the working-capital deficit, and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern. Its plan is to improve operations and raise additional capital; failure to generate cash or obtain financing could impair its ability to meet obligations.
- Pipeline and clinical risk: The Vitargus Phase II study in Thailand was put on hold after serious adverse events in patients treated with Vitargus or the comparator. The company is investigating potential causes and developing a safer procedure before resuming the study. Australian site approvals were still progressing. Further development of ABV-2002 was on hold for lack of funding.
- Business priorities: Management’s stated objectives include advancing Vitargus, licensing ABV-1504 for major depressive disorder, completing the ABV-1505 ADHD Phase II Part II trial, and out-licensing candidates. No financial guidance or quantified revenue outlook is provided. The company reported no royalty revenue to date.
- Concentration and related parties: Two customers accounted for 43.64% and 34.75% of first-half revenue. One customer represented 97.28% of accounts receivable at June 30. The company also reports significant receivables, advances, investments, and payables involving related parties; collection and credit terms merit attention.
- Goodwill: The filing says goodwill was impaired based on financial condition and uncertain future cash flows, but the amount of impairment is not clear in the provided filing text.
- Listing and governance: Nasdaq had notified the company of bid-price and stockholders’ equity deficiencies. The filing described an equity-compliance deadline of August 31, 2023 and possible delisting if compliance was not demonstrated. Disclosure controls were deemed ineffective at June 30 because of a material weakness identified in the prior annual report; no change in internal control was reported during the half-year.
- Subsequent events: A 1-for-10 reverse stock split took effect July 25, 2023, intended in part to help regain Nasdaq listing compliance. A July registered direct offering generated $1.75 million gross proceeds before expenses; pre-funded warrants were exercised August 1. Lind converted $500,000 of notes into 142,857 shares on August 1, reducing stated principal to $3.204 million. A July term sheet contemplated a China license for ABV-1504 and ABV-1505, subject to definitive agreements.
Most important facts for investors to verify
- Whether ABVC can secure sufficient financing and address the disclosed going-concern uncertainty and working-capital deficit.
- The status of Nasdaq bid-price and stockholders’ equity compliance after the reverse split and subsequent offering.
- The terms, payment schedule, collateral, dilution potential, and remaining balance of the Lind note and warrants.
- Updates on the Vitargus safety investigation and trial restart, and on enrollment and progress in ABV-1505 and other clinical programs.
- Recoverability and timing of related-party receivables, customer concentration, and the amount and accounting presentation of the goodwill impairment.
- Remediation of the material weakness and improvement in disclosure controls.