ABVC BioPharma, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. ABVC is a clinical-stage biotechnology company developing botanical drugs and medical devices, alongside CDMO and regulatory services through BioKey. The filing says it has not generated substantial revenue from its drug and medical-device development business.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior balance-sheet date |
|---|---|---|
| Revenue | $128,272 | $25,660 |
| Gross profit / margin | $68,036 / 53.0% | $23,764 / 92.6% |
| Operating expenses | $1,974,220 | $6,242,485 |
| Operating loss | $(1,906,184) | $(6,218,721) |
| Net loss | $(1,897,230); $(0.06) per share | $(6,087,615); $(0.20) per share |
| Operating cash flow | $(1,497,633) | $(2,994,257) |
| Cash and restricted cash | $1,791,878 | $1,391,728 at Dec. 31, 2022 |
| Working capital | $(1,594,879) | $(2,832,282) at Dec. 31, 2022 |
| Total liabilities | $9,000,430 | $6,619,336 at Dec. 31, 2022 |
- Revenue increased about 400%, mainly from CDMO services. One customer represented 84.78% of Q1 revenue; one vendor represented all reported purchases.
- Operating expenses fell 68%, principally because non-employee stock-based compensation declined by $4.33 million, to $366,489 from $4.69 million. R&D expense was $334,979, versus $359,404.
- Gross margin contracted substantially as cost of revenue rose to $60,236 from $1,896. Interest expense was $56,663, compared with $18,213.
- Financing provided $2,206,587 of net cash, reflecting $3,206,587 in convertible-note proceeds and repayment of $1,000,000 of short-term loans. Investing cash flow was zero. Foreign-exchange effects reduced cash and restricted cash by $308,804.
Material changes and financing
- On February 23, 2023, ABVC issued Lind Global Fund II a secured, non-interest-bearing convertible note with $3,704,167 principal for $3,175,000 purchase consideration, convertible initially at $1.05 per share, subject to adjustment. It also issued a warrant for up to 5,291,667 shares at an initial $1.05 exercise price. The note is guaranteed by subsidiaries and secured by collateral.
- Monthly payments of $308,650.58 begin six months after issuance; the company may pay in cash, shares, or a combination, subject to the note’s terms. Cash payments carry a 5% premium. An event of default requires payment of 120% of outstanding principal, in addition to other remedies. The filing reports $3,206,587 carrying value for convertible notes at quarter-end.
- Short-term bank loans declined to $902,000 from $1,893,750, including repayment of the $1 million Cathay Bank loan. Current liabilities also include $1,011,347 due to related parties.
- Common shares outstanding were 33,080,740 at March 31 and May 11, 2023. The Lind note and warrant may result in substantial additional share issuance and dilution.
Outlook, risks, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing Q1 net loss of $1.90 million, operating cash outflow of $1.50 million, and a $1.59 million working-capital deficit. Management plans to improve operations and raise capital; failure to generate cash or obtain financing could impair its ability to meet short-term obligations.
- Business outlook: The company aims to advance Vitargus and its drug candidates, complete the ABV-1505 ADHD Phase II Part II study, and out-license candidates. It expected to seek its first commercialization partner for Vitargus in 2023. The filing provides no quantified revenue, earnings, or cash-flow guidance.
- Vitargus Phase II began in Thailand in March 2023; Australian site approvals remained in progress. Further clinical development of ABV-2002 was on hold due to lack of funding. Clinical and regulatory progress, partner financing, and commercialization are uncertain.
- The company reported that goodwill was impaired based on its financial condition and uncertain prospects for future operating income; the filing text does not provide a clear impairment amount.
- Nasdaq had granted an extension through August 14, 2023 to regain the $1.00 minimum bid-price requirement. Failure to regain compliance could lead to delisting, subject to appeal.
- Nasdaq raised questions about the uncapped, adjustable Lind securities. The company obtained shareholder approval for issuance of shares underlying the transaction and agreed not to issue shares below $0.51 under the described restriction.
- The filing cites COVID-19-related disruption and recovery uncertainty, customer and vendor concentration, foreign-exchange exposure, financing needs, competition, and clinical, regulatory, and development risks. It reports no legal proceeding expected to have a material adverse effect. Management concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Available unrestricted cash, near-term cash requirements, and the company’s plan and capacity to fund operations beyond the disclosed going-concern warning.
- The Lind note’s current balance, repayment or conversion schedule, adjustment mechanics, collateral, default provisions, and potential dilution from the note, warrants, and placement-agent warrants.
- Whether Nasdaq listing compliance was regained by August 14, 2023 and the status of any delisting or appeal process.
- The amount and accounting treatment of the disclosed goodwill impairment, and whether any additional impairments or liquidity changes occurred after quarter-end.
- Collection of receivables, including related-party amounts, and the continued reliance on one customer for most revenue and one vendor for purchases.
- Clinical-trial enrollment, site approvals, funding, and partner milestones for Vitargus and the ABVC drug pipeline; the filing’s stated 2023 partnering objective is not a guarantee.