Business context and reporting period
American BriVision (Holding) Corporation, formerly METU Brands, Inc., filed this Form 10-Q for the quarter ended June 30, 2016, covering the nine months then ended. The filing’s comparisons are against the company’s July 21, 2015 inception-to-September 30, 2015 period, not a comparable prior-year quarter. The filing identifies the registrant as American BriVision (Holding) Corporation; the request metadata names ABVC Biopharma, Inc.
Following a February 2016 reverse merger, the company became a biotechnology business focused on drug and medical-device development. BriVision became its wholly owned subsidiary, and former BriVision shareholders held approximately 79.7% of the company after the transaction. The company also effected a forward stock split in April 2016. It reported 209,352,897 shares outstanding as of August 10, 2016.
Financial results and condition
| Metric | Reported amount |
|---|---|
| Revenue, three and nine months ended June 30, 2016 | $0 |
| Operating expenses, three months / nine months | $289,098 / $349,486 |
| Net loss, three months / nine months | $293,237 / $353,605 |
| Cash, June 30, 2016 | $84,904 |
| Current assets / current liabilities | $3,584,904 / $2,061,446 |
| Working capital | $1,523,458 |
| Total liabilities | $2,061,446, including a $2,050,000 short-term loan |
| Operating cash flow / financing cash flow, nine months | $(3,857,447) / $2,947,521 |
The company had no revenue, so a revenue margin is not meaningful. Its $3.5 million prepayment accounted for most current assets. Cash fell from $994,830 at September 30, 2015. Financing included $2.05 million in short-term loan proceeds and $897,521 from share issuance. The filing does not clearly state the loan’s interest rate, maturity, or repayment terms.
Changes, outlook, risks and unusual items
- Management attributed the three-month expense decrease versus the inception-period comparison to lower professional fees. Nine-month SG&A was $349,486; the filing’s comparison period was shorter and is not directly comparable.
- In June, the company completed a $3.5 million milestone payment to related party BioLite: $2.6 million cash and $900,000 in 562,500 shares valued at $1.60 per share. The license covers five drug candidates in the United States and Canada.
- The BioLite agreement contemplates total consideration of $100 million, with further milestone payments tied to development and regulatory events. The filing lists installments of 6.5% by December 15, 2016, 15% by September 15, 2017, 20% by December 15, 2018, 25% by September 15, 2019, and 30% by December 15, 2020, subject to the stated milestones. The filing says commercial sales had not begun and gives no reliable estimate of when they might begin.
- Management reported no R&D spending during the first nine months and said no near-term revenue was expected. It stated that the company did not believe it had sufficient funds to operate for the next 12 months, expected to need additional capital, and could not assure financing would be available. Failure to raise capital could limit the business plan or force cessation of operations; equity financing could dilute shareholders.
- Management concluded disclosure controls and procedures were ineffective as of June 30, 2016. It reported no material changes in internal control during the quarter. The filing reported no legal proceedings or material off-balance-sheet arrangements.
- The filing contains apparent inconsistencies: its nine-month statements report interest expense of $3,753, while MD&A elsewhere refers to $361; the latter amount matches reported interest income. The statements show income tax expense of $836, although one MD&A table labels the amount as positive.
Important facts for investors to verify
- Whether the company obtained financing after filing and the short-term loan’s lender, terms, and repayment status.
- The enforceability, related-party terms, remaining payment obligations, and development progress under the $100 million BioLite license.
- The accounting and recoverability of the $3.5 million prepayment, given that commercial sales had not begun.
- The interest-expense and income-tax presentation inconsistencies, and whether amended or later filings clarified them.
- Remediation of ineffective disclosure controls and the company’s ability to fund operations and clinical development.
- The filing identifies June 30, 2016 as the reporting-period end; verify the period intended by the “2016 Q3” request metadata.