ABVC BioPharma(ABVC) - 2021 Q4 - Annual Report

Part I Business ABVC BioPharma is an early-stage biotechnology company developing six botanical drugs and one medical device, with minimal CDMO revenue and a focus on advancing licensed candidates through Phase II trials - The company is an early-stage biotechnology firm with a pipeline of six new drugs and one medical device under development, all licensed from related parties[11] - The company's business model involves licensing medical discoveries, conducting Phase II clinical trials in the U.S., Australia, and Taiwan, then seeking larger partners for Phase III and commercialization[13][14] Key Pipeline Products and Development Status | Product Code | Indication | Development Phase | Key Partners | | :--- | :--- | :--- | :--- | | ABV-1504 | Major Depressive Disorder (MDD) | Phase II completed | Stanford University, Taipei Veterans General Hospital | | ABV-1505 | Adult ADHD | Phase II Part 1 completed, Part 2 in progress | UCSF, National Taiwan University Hospital | | ABV-1601 | Major Depression in Cancer Patients | Phase I/II | Cedars Sinai Medical Center | | ABV-1703 | Pancreatic Cancer | Phase II | Cedars Sinai Medical Center | | ABV-1701 | Vitargus® (Medical Device) | Phase II Study | Ramathibodi Hospital, Srinagarind Hospital | - Through its subsidiary BioKey, the company operates a GMP-certified manufacturing facility for clinical trial drug production and plans to launch a new maitake mushroom-based dietary supplement in 2022[15][16] - The company's common stock was listed on The Nasdaq Capital Market under ticker "ABVC" on August 3, 2021, raising gross proceeds of $6,875,000 from a public offering[19] Risk Factors The company faces significant risks including global economic impacts, limited operating history, clinical trial failures, intellectual property challenges, and insider control - The COVID-19 pandemic poses ongoing risks to operations, including potential disruptions to clinical trial recruitment, supply chains, and access to capital[86][87] - As a clinical-stage company with limited operating history and revenue, ABVC faces significant risks in implementing its business plan, raising sufficient funds, and achieving profitability[89][90] - The company has no history of obtaining regulatory approval for or commercializing a new drug candidate, and failure to do so would materially harm the business[95] - Clinical trials conducted outside the United States may not have their data accepted by the FDA, which could require costly and time-consuming additional trials[108][109] - The company's licensors may terminate license agreements if certain milestones are not met, which could abruptly halt research and development of key drug candidates[131][132] - Insiders, including executive officers, directors, and principal shareholders, control approximately 70.8% of the outstanding common stock, giving them substantial control over shareholder matters[198] Unresolved Staff Comments This item is not applicable as the company does not meet the criteria for accelerated or large accelerated filers - Not applicable as the registrant is not an accelerated filer, a large accelerated filer, or a well-known seasoned issuer[219] Properties The company leases laboratory and office spaces for its subsidiaries BioLite in Taiwan and BioKey in California, including GMP-certified manufacturing facilities Leased Properties Overview | Subsidiary | Location | Size (sq. ft.) | Lease Expiration | FY2021 Rental Expense ($) | | :--- | :--- | :--- | :--- | :--- | | BioLite | Hsinchu, Taiwan | ~7,298 | Dec 31, 2024 | $60,296 | | BioKey | Fremont, CA | ~28,186 | Feb 28, 2026 | $331,482 | Legal Proceedings The company is not currently involved in any material legal or administrative proceedings - The company is not currently a party to any material legal or administrative proceedings[222] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[223] Part II Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities The company's common stock began trading on Nasdaq in August 2021, with significant insider control and no anticipated dividends, alongside details of equity compensation plans and recent unregistered security sales - The company's common stock is quoted on the Nasdaq Capital Markets under the symbol "ABVC" as of August 3, 2021[224] - As of March 30, 2022, there were approximately 706 shareholders of record, with no dividends ever paid or anticipated in the foreseeable future[226][227] Equity Compensation Plan Information (as of Dec 31, 2021) | Category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities remaining for future issuance | | :--- | :--- | :--- | :--- | | Total | 1,825,184 | $2.70 | 2,979,264 | - In August 2021, the company closed a public offering of 1,100,000 units at $6.25 per unit, resulting in gross proceeds of $6,875,000[245] - In November 2021, the company received $4,244,452 in gross proceeds from the exercise of 673,405 Series A warrants at $6.30 per share and 200 Series B warrants at $10.00 per share[251] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased by 26% in FY2021 due to COVID-19, while operating expenses and net loss increased, though liquidity improved significantly from financing activities Results of Operations Comparison (2021 vs. 2020) | Metric | FY 2021 ($) | FY 2020 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $355,797 | $483,045 | (26.3)% | | Operating Expenses | $12,056,679 | $8,970,105 | 34.4% | | Loss from Operations | ($11,705,968) | ($8,505,776) | 37.6% | | Net Loss | ($12,035,851) | ($10,593,584) | 13.6% | Working Capital (as of Dec 31) | | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Current Assets | $9,625,120 | $6,172,966 | | Current Liabilities | $3,692,312 | $4,844,391 | | Working Capital | $5,932,808 | $1,328,575 | Cash Flow Summary (Year Ended Dec 31) | Category | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,597,719) | ($4,563,919) | | Net cash used in investing activities | ($805,966) | ($225,431) | | Net cash provided by financing activities | $9,995,550 | $9,567,843 | - The company established a joint venture, BioLite Japan K.K., with Lucidaim Co., Ltd. in October 2021 to focus on R&D, distribution, and marketing in Japan, with ABVC holding a 49% stake[277][278] - The company received three Paycheck Protection Program (PPP) loans totaling $360,898 in 2020 and 2021, all fully forgiven by the U.S. government and recognized as grant income in 2021[288][289][290][596] Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to the company - Not applicable[427] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, including balance sheets, statements of operations, cash flows, equity, and detailed notes Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $5,828,548 | $4,273,208 | | Total Assets | $13,698,033 | $11,606,705 | | Total Liabilities | $4,827,691 | $8,944,638 | | Total Equity | $8,870,342 | $2,662,067 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Revenues | $355,797 | $483,045 | | Gross Profit | $350,711 | $464,329 | | Loss from Operations | ($11,705,968) | ($8,505,776) | | Net Loss | ($12,035,851) | ($10,593,584) | | Net Loss Per Share (Basic & Diluted) | ($0.51) | ($0.50) | - The independent auditor's report from KCCW Accountancy Corp. identifies the recognition of stock-based compensation cost as a critical audit matter due to significant management judgments in developing underlying assumptions[435][436][437] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with the company's accountants regarding accounting and financial disclosure - None[671] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2021, with no significant changes during the year - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[672] - Based on an evaluation using the COSO 2013 framework, management concluded that internal controls over financial reporting were effective as of December 31, 2021[673] Other Information There is no other information to report for this item - None[675] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[675] Part III Directors, Executive Officers and Corporate Governance This section outlines the biographical information for directors and executive officers, board structure, committee compositions, and the company's code of ethics - The Board of Directors consists of 11 members, with a majority determined to be independent as per NASDAQ rules[696] - The Board has established an Audit Committee, a Compensation Committee, and a Corporate Governance and Nominating Committee, with charters available on the company's website[699][700][701] - The company has separate individuals serving as CEO (Dr. Howard Doong) and Chairman (Eugene Jiang)[705] - A code of ethics applicable to all employees, officers, and directors has been adopted[706] Executive Compensation Executive compensation for 2021 and 2020 primarily comprised salary and stock option awards, with significant grants in October 2021 and no pension plans Summary Compensation for Named Executive Officers (2021) | Name and Principal Position | Year | Salary ($) | Total ($) | | :--- | :--- | :--- | :--- | | Howard Doong, CEO | 2021 | 200,000 | 1,036,002 | | Chihliang An, CFO | 2021 | 200,000 | 687,668 | | Tsung-Shann Jiang, CSTRO | 2021 | 200,000 | 262,700 | | Richard Chi-Hsin King, CSO | 2021 | 200,000 | 861,834 | | Eugene Jiang, Chairman/CBO | 2021 | 200,000 | 262,700 | - On October 15, 2021, the company granted 30,000 stock options to each director and significant option awards to executives, all with an exercise price of $3.00 per share[717][718] - The company does not provide pension, retirement, or similar benefit plans for its directors or executive officers[722] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 30, 2022, insiders, including officers and directors, beneficially owned approximately 43.4% of the outstanding common stock, indicating significant control Beneficial Ownership (as of March 30, 2022) | Name of Beneficial Owner | Beneficial Ownership (shares) | Percent of Class (%) | | :--- | :--- | :--- | | Dr. Tsung-Shann Jiang | 12,047,746 | 39.8% | | YuanGene Corporation | 8,296,968 | 27.4% | | All officers and directors as a group (14 persons) | 13,141,674 | 43.4% | - As of March 30, 2022, there were 30,307,329 shares of common stock issued and outstanding[730] Certain Relationships and Related Transactions, and Director Independence This section details significant related party transactions, including amended co-development agreements, a new joint venture in Japan, and inter-company debt settlements and loans - The company amended its co-development agreement with Rgene Corporation and its collaboration agreement with BioFirst Corporation in November 2020 to update the products being developed[739][740] - On October 6, 2021, the company entered into a Joint Venture Agreement with Lucidaim Co., Ltd. to operate BioLite Japan K.K., with the company holding a 49% stake and Lucidaim holding 51%[744][745] - In February 2022, the Board approved settling a $5,000,000 milestone payment due to its subsidiary BioLite, Inc. by cancelling an equivalent amount of debt that BioLite owed to the company[667][754] - The company has numerous outstanding loans and advances with related parties, including BioFirst, Rgene, AsiaGene, and YuanGene, for working capital and R&D cost allocation[757][759][760][761] Principal Accountant Fees and Services The company discloses the fees billed by its principal accountant for the fiscal years 2021 and 2020 Accountant Fees | Fee Category | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Audit Fees | $249,350 | $280,000 | | Audit Related Fees | $78,750 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total Fees | $328,100 | $280,000 | Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, including corporate documents and certifications - This section provides a list of all financial statements and exhibits filed with the annual report, including corporate governance documents, material agreements, and required certifications[773][774] Form 10-K Summary This item is not applicable - Not applicable[776]