Business context and reporting period
American BriVision (Holding) Corporation, formerly METU Brands, Inc., filed this unaudited Form 10-Q for the three months ended December 31, 2016 (its fiscal 2017 first quarter). The company operates through wholly owned American BriVision Corporation, a biotechnology developer pursuing drug and medical-device candidates through clinical proof of concept and potential licensing. The February 2016 reverse merger made BriVision the accounting acquirer; the company abandoned its former business plan.
Key financial results
| Metric | Quarter ended Dec. 31, 2016 | Quarter ended Dec. 31, 2015 |
|---|---|---|
| Revenue | $70,000 | $0 |
| Cost of sales | $0 | $0 |
| SG&A | $185,188 | $1,605 |
| Research and development | $25,198 | $3,500,000 |
| Net loss | $140,337 | $3,501,413 |
| Cash used in operating activities | $154,892 | $874,279 |
The $70,000 of revenue was from a one-time consulting service to shareholder Liongene Corporation, not product sales. The statements report no cost of sales, but label the $70,000 gross result as a “gross loss”; the filing text does not provide a clear gross-margin value. Basic and diluted loss per share was reported as $0.00 for the quarter, with 210,821,647 weighted-average shares outstanding.
At December 31, 2016, cash was $18,645, down from $173,537 at September 30, 2016. Total assets were $18,645; total liabilities were $6,538,100, including $6,500,000 due to related party BioLite; and stockholders’ equity was negative $6,519,455. The MD&A reports working capital of negative $19,455, using current liabilities of $38,100, but that figure excludes the $6.5 million related-party balance shown on the balance sheet. No investing or financing cash flows were reported for the quarter. Interest and income taxes paid were zero.
Changes, commitments and outlook
- Net loss was substantially lower than the prior-year quarter, primarily because R&D expense fell from $3.5 million to $25,198. SG&A increased by $183,583, which management attributed to professional fees and salary and welfare.
- The BioLite licensing agreement covers five drug candidates in the United States and Canada and specifies aggregate payments of $100 million, tied to development and regulatory milestones. The company reports that the $3.5 million upfront payment was completed in June 2016 ($2.6 million cash and $900,000 in shares), and that $6.5 million associated with the first IND submission was recorded as payable at quarter-end. Further milestone payments are described in the agreement; the filing does not establish that all future payments are currently due.
- Management says the company does not believe it has sufficient funds to operate for the next 12 months and expects to need additional capital. It warns that financing may not be available on acceptable terms, equity financing may dilute shareholders, and inability to raise capital could impede the business plan or force cessation of operations. The financial statements include a going-concern warning; accumulated deficit was $11,463,678.
- Management reported disclosure controls and procedures were not effective as of December 31, 2016. It reported no material changes in internal control over financial reporting during the quarter, and no legal proceedings.
- The filing provides no specific operating or financial guidance. Management’s plan is to advance candidates through clinical development and seek out-licensing after proof of concept. Forward-looking statements are subject to risks including competition, market volatility, penny-stock trading rules, and financing constraints.
Important facts for investors to verify
- Reconcile the $6.5 million BioLite related-party payable, its due-date and classification, and the MD&A working-capital calculation that excludes it.
- Confirm the terms, milestone triggers, and remaining potential obligations under the $100 million licensing agreement, including delivery of the related data and IND materials.
- Assess near-term cash needs and the feasibility, timing, terms, and dilution implications of additional financing.
- Review the ineffective disclosure controls and any remediation plans, and note the filing’s inconsistencies, including the reported “gross loss” despite zero cost of sales and differing descriptions of the prior-period result.