Business Context and Reporting Period
American BriVision (Holding) Corporation, referred to here as ABVC, filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The company develops drugs and medical devices, conducts contract development and manufacturing (CDMO) work, and also sells dietary supplements. Its reported operations include biotechnology research and development and BioKey’s pharmaceutical and nutraceutical services.
Financial Performance and Position
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Revenue | $226,513 | $305,299 |
| Gross profit / margin | $222,277 / 98.1% | $297,104 / 97.3% |
| Operating loss | $1,194,013 | $2,365,390 |
| Net loss | $2,184,057 | $3,493,319 |
| Net loss per share, basic and diluted | $0.09 | $0.16 |
- For the six months, operating cash outflow was $2,047,071, investing cash inflow was $33,300, and financing cash inflow was $2,255,107. Cash and cash equivalents were $390,221 at June 30; including restricted cash, the balance was $406,369.
- Current assets were $1,604,854 and current liabilities $7,574,311, resulting in a working-capital deficit of $5,969,457. Total assets were $6,432,361, total liabilities $7,876,386, and total equity deficit $1,444,025.
- Current debt included $1,685,000 of short-term bank loans, $2,007,500 of convertible notes, a $100,000 short-term loan, and $147,518 of notes payable. The company also reported a $124,400 PPP loan as a noncurrent liability. Bank loans and notes are not a complete measure of all obligations; lease liabilities and other accrued liabilities are also reported.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue rose 18% from $191,782 a year earlier, which management attributed to CDMO project work. Six-month revenue fell 24% from $404,024, as COVID-19 led customers to postpone current and new projects.
- Six-month net loss increased from $1,487,770 in 2019 to $3,493,319 in 2020. Operating expenses rose 66% to $2,662,494, largely because SG&A increased 124% to $2,430,022, including marketing, uplisting-related and salary costs. R&D expense declined 55% to $231,872.
- Other expense included a $944,204 impairment loss on equity investments, a $38,937 investment loss, and $180,067 of losses on equity-method investments. These items contributed to the wider reported loss.
- Cash increased from $144,295 at December 31, 2019 to $390,221 at June 30, 2020, supported in part by financing. Current liabilities exceeded current assets by $5,969,457, compared with a $5,935,955 deficit at year-end.
Outlook, Risks and Unusual Items
- Management said COVID-19 continued to affect revenue and that it had not seen a clear signal of a broader economic recovery in the third quarter. The filing provides no quantified revenue, earnings or cash-flow guidance.
- Management cited potential COVID-19 effects on project schedules, supply chains, partner due diligence, access to capital, and customers’ and suppliers’ ability to meet obligations. The company also identifies competition, market volatility and its ability to execute cost-containment and recovery plans as risks.
- Management concluded that disclosure controls and procedures were not effective as of June 30, 2020. Planned remediation included additional accounting and internal-control training and greater use of external consultants.
- ABVC received $1,697,051 from private placements in May; the related shares had not been issued by June 30, and the proceeds were recorded as subscribed stock. The company also received a $124,400 PPP loan; forgiveness depends on meeting program conditions, including eligible use of funds and payroll requirements.
- Several borrowings had near-term maturities or extensions, including a $100,000 short-term loan due August 17, 2020 and bank facilities. Certain convertible-note balances were exchanged for shares and warrants under April 2020 agreements. Related-party balances are significant: due from related parties was $769,421 and due to related parties was $478,231.
- The filing reports no legal proceedings and no material off-balance-sheet arrangements. It cautions that actual outcomes may differ from forward-looking statements.
Most Important Facts for Investors to Verify
- Whether ABVC can fund operations given its $5.97 million working-capital deficit, operating cash burn and limited cash balance.
- The repayment, extension, conversion or refinancing status of near-term bank loans, short-term borrowings and convertible notes, including any dilution from shares and warrants.
- The recoverability and valuation basis of investments, particularly the $944,204 impairment, and the collection and terms of substantial related-party receivables and advances.
- Whether COVID-19 project deferrals have eased, and whether CDMO revenue and development milestones can recover; the filing gives no quantified outlook.
- Progress in remediating ineffective disclosure controls and the conditions and ultimate forgiveness status of the PPP loan.