Business context and reporting period
American BriVision (Holding) Corporation, formerly Metu Brands, Inc., filed this Form 10-K for the fiscal year ended September 30, 2016. The filing describes a clinical-stage biopharmaceutical business following a February 2016 reverse merger; BriVision is treated as the accounting acquirer. The company reports no revenue from its principal operations. The comparative period is July 21, 2015 (inception) through September 30, 2015, so it is a short and not directly comparable period. The filing also notes earlier bankruptcy and fresh-start accounting for the former corporate shell.
Key financial metrics
| Metric | Fiscal year ended September 30, 2016 | Comparable period in 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross loss | $32 | $0 |
| Operating expenses | $4,497,263 | $315,602 |
| Operating loss | $4,497,295 | $315,602 |
| Net loss | $4,507,799 | $315,602 |
| Basic and diluted loss per share | $(0.02) | $(0.00) |
| Cash used in operating activities | $3,474,707 | $517 |
| Cash and cash equivalents | $173,537 | $994,830 |
| Total assets | $177,352 | $1,002,460 |
| Total liabilities | $56,470 | $369,103 |
| Working capital | $117,067 | $629,542 |
| Stockholders’ equity | $120,882 | $633,357 |
Financing activities provided approximately $2.65 million; cash declined by $821,293 over the year. The filing reports $2,050,000 of short-term debt as of June 30, 2016, subsequently paid off on August 9, 2016; no debt is shown on the September 30 balance sheet. No margin trend is meaningful given the absence of revenue.
Material changes versus the prior period
- Operating expenses rose by approximately $4.18 million, which management attributed mainly to higher professional fees and the $3.5 million BioLite milestone payment.
- Cash fell by approximately $821,000, and working capital decreased by approximately $512,000.
- The February 2016 reverse merger shifted the company from its former apparel-related business to BriVision’s drug-development business. The company also completed a 1-for-3.141 forward stock split in April 2016.
- The company issued shares in connection with the BioLite payment and a separate August 2016 offering to BioLite, a related party.
Outlook, risks, and unusual items
Management plans to advance five licensed product candidates through Phase II proof-of-concept studies, then seek out-licensing or co-development partners. ABV-1504’s Phase II study was underway in Taiwan; U.S. site review was pending. Other candidates were at varying stages of IND preparation, site discussions, or clinical planning. The filing gives anticipated study schedules but does not provide revenue or profitability guidance, and states that no near-term revenue is expected.
The BioLite collaboration is central to the business and involves a related party: CEO Eugene Jiang is also a BioLite director. The agreement calls for aggregate milestone payments of $100 million, plus 5% of net sales. The initial $3.5 million payment was made as $2.6 million cash and $900,000 in shares. The filing says the license rights were fully expensed because they had no alternative future use.
The company reported recurring losses, negative operating cash flow, and an accumulated deficit of $4,823,401. The auditor’s report and management disclosures state that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management said it would need additional financing and did not believe available funds were sufficient for the next 12 months. Additional funding was not assured.
Other material risks include clinical and regulatory failure or delay, dependence on BioLite and future commercial partners, potential product side effects and lack of product-liability insurance, competition, financing and dilution risk, and limited trading liquidity. Disclosure controls and internal control over financial reporting were deemed ineffective, citing inadequate monitoring and lack of segregation of duties. The auditor did not attest to internal-control effectiveness. The filing also warns that the Hong Kong-based auditor was not then subject to PCAOB inspection.
Important facts for investors to verify
- Confirm current cash, liquidity, financing needs, and any subsequent financing; management disclosed a going-concern uncertainty and limited runway.
- Review the BioLite agreement and payment schedule, related-party governance, and any remaining milestone obligations under the $100 million commitment.
- Verify the actual clinical and regulatory status of each candidate and whether anticipated trials, approvals, and partnerships occurred; filing timelines are forward-looking.
- Reconcile the reported $92,823 of R&D spending with the note stating that the $3.5 million license milestone was expensed as R&D, while the income statement presents operating expenses as SG&A.
- Reconcile financing cash flow, reported as $2,653,414 in the cash-flow statement but $2,653,314 in MD&A, and confirm the applicable share count: the filing reports 210,821,647 shares at September 30 and January 6, 2017, but also gives a different December 2016 outstanding-share figure.
- Assess progress in remediating ineffective disclosure controls and internal financial reporting controls.