ABVC BIOPHARMA, INC. annual report, FY2015

Business context and reporting period

This filing is for Metu Brands, Inc. (formerly Ecology Coatings, Inc.), not ABVC Biopharma, Inc.; the company-name mismatch in the request should be verified. It reports the fiscal year ended September 30, 2015—not a standalone 2015 fourth quarter. Following a Chapter 7 bankruptcy and fresh-start accounting in September 2014, the company operated a website selling women’s apparel. It reported no employees.

The company states that post-bankruptcy results are not comparable with pre-bankruptcy results. The 2014 financial statements also split results into pre- and post-bankruptcy periods.

Financial performance and position

MetricFiscal year ended September 30, 2015
Revenue$3,360
Cost of sales / gross profit$521 / $2,839
Gross marginApproximately 84.5%
Operating expenses$35,120
Net loss$32,281
Cash at period end$3,360
Total assets$68,228, including $64,594 of net intangible assets
Total liabilities$39,150
Equity$29,078

Current assets were $3,634, versus $39,150 of reported liabilities, implying a $35,516 working-capital deficit. Liabilities included $7,000 on a zero-interest note described as in default and a $9,000 unsecured, zero-interest related-party demand note. The filing reports no interest expense.

The cash-flow statement reports $3,360 of net cash provided by operating activities for 2015, while the auditor’s going-concern discussion refers to net cash used in operating activities. The filing text does not provide a clear reconciliation of this inconsistency.

Changes, outlook, and risks

  • Revenue was $3,360 in 2015, versus zero in the two separately presented 2014 periods; because of bankruptcy, fresh-start accounting, and different period lengths, these are not directly comparable.
  • The company issued 30 million common shares to its sole officer and director, Shulamit Lazar, for services. The filing gives differing compensation values: $30,000 in the financial-statement note and $60,000 in the executive compensation table.
  • Management said additional capital is needed for working capital, but provided no assurance financing would be available. The auditor stated that accumulated losses, limited operations, and a working-capital deficit raised substantial doubt about the company’s ability to continue as a going concern.
  • Disclosure controls and internal control over financial reporting were reported ineffective, citing inadequate monitoring and lack of segregation of duties in a one-person financial staff. The auditor did not provide an internal-control attestation.
  • Management identified risks including the ability to generate revenue and achieve profitability, obtain capital, commercialize the business, compete, and build sales, supplier, and manufacturing capabilities. No quantitative guidance was provided.
  • The auditor gave an unqualified opinion on the financial statements but included a going-concern emphasis. The company reported no legal proceedings or lease commitments.

Important facts for investors to verify

  • Confirm the issuer’s identity: this filing is for Metu Brands, Inc., not ABVC Biopharma, Inc.
  • Reconcile the operating-cash-flow presentation with the auditor’s statement that operating cash was used.
  • Confirm the actual value and accounting treatment of the 30 million shares issued for services, given the $30,000 and $60,000 disclosures.
  • Verify the status, maturity, and repayment prospects of the defaulted $7,000 note and the $9,000 related-party demand note.
  • Assess available financing, liquidity, and the company’s ability to continue as a going concern.
  • Review the highly concentrated ownership and preferred-stock conversion and voting terms; the filing describes an amendment to preferred-share rights after year-end.