Business Context and Reporting Period
The filing is DanDrit Biotech USA, Inc.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2016. The supplied metadata identifies “Lunai Bioworks Inc.” and “2016 Q2,” which does not match the registrant or period stated in the filing. DanDrit develops dendritic-cell cancer vaccines, principally MelCancerVac for colorectal cancer, through its Danish subsidiary. The fiscal year ends June 30.
Key Financial Metrics
| Metric | Three Months Ended Dec. 31, 2016 | Six Months Ended Dec. 31, 2016 | Comparable Period |
|---|---|---|---|
| Revenue | $0 | $0 | $42,525 |
| Gross profit | $0 | $0 | $37,281 |
| Operating expenses | $548,785 | $1,401,076 | $632,221 / $973,616 |
| Operating loss | $(548,785) | $(1,401,076) | $(594,940) / $(936,335) |
| Net loss | $(918,604) | $(1,711,785) | $(421,776) / $(772,078) |
| Loss per share | $(0.10) | $(0.18) | $(0.04) / $(0.08) |
| Cash used in operating activities | Not separately provided | $(650,839) | $(1,082,871) |
Margins are not meaningful because the Company reported no revenue in the current period. The six-month net loss included $626,487 of non-cash stock-based compensation. Foreign-currency transaction losses were $376,701 for the quarter and $353,617 for the six months.
At December 31, 2016, cash was $117,605, compared with $23,368 at June 30, 2016. Total assets were $430,965, total liabilities were $1,715,117, and stockholders’ deficit was $1,284,152. Working capital deficit was $(1,433,516), compared with $(775,750) at June 30, 2016.
Debt included $360,900 of convertible notes issued during the period, recorded net of discounts at $309,621, plus $103,196 of related-party notes payable. The convertible notes generally mature December 31, 2017 and are convertible at $2.00 per share. Accounts payable and related-party accounts payable totaled $1,064,693.
Material Changes Versus the Prior Comparable Period
- Revenue declined to zero from $42,525, and gross profit declined to zero from $37,281.
- Quarterly operating expenses decreased 13%, primarily because research and development spending fell 95%, but six-month operating expenses increased 44% because of the $626,487 stock-option compensation charge.
- Consulting expense increased to $182,779 for both the quarter and six months, primarily for financing-related services.
- Net loss increased 118% for the quarter and approximately 122% for the six months, driven principally by non-cash compensation, consulting costs, and foreign-currency losses.
- Operating cash burn improved to $650,839 from $1,082,871, while $360,900 of convertible-note proceeds provided financing during the current six-month period.
- The Company granted 900,000 fully vested stock options at a $2.00 exercise price, exercisable through December 31, 2019. These options were excluded from diluted EPS because they were anti-dilutive.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that substantial doubt exists regarding the Company’s ability to continue as a going concern because of recurring losses, lack of profitable operations, and short-term obligations exceeding anticipated cash.
- Management plans to raise at least $15 million through debt and/or equity financing. A Form D disclosed a proposed private placement of up to $16.5 million, but the filing provides no assurance that financing will close.
- The proposed OncoSynergy asset acquisition and related financing remained unresolved. The purchase agreement expired by its terms on December 31, 2016, although the parties continued discussions regarding timing.
- MCV sales have been limited to compassionate use in Singapore and are not approved for current sale for other uses or locations. FDA approval and successful clinical development are uncertain.
- The Company reported that disclosure controls and procedures were not effective as of December 31, 2016, citing inadequate accounting resources and insufficient segregation of duties. Consultants were engaged to review and compile financial information.
- The Company reported no material pending legal proceedings and no material off-balance-sheet arrangements.
- Management provided no quantitative revenue or earnings guidance. The stated near-term plan is continued capital raising and advancement of the MCV program.
Facts Investors Should Verify
- Whether the Company can obtain sufficient financing to address the going-concern uncertainty and fund operations.
- The status, enforceability, and revised terms, if any, of the expired OncoSynergy purchase agreement and proposed financing.
- The maturity, conversion terms, and potential dilution from the $360,900 of convertible notes and 900,000 stock options.
- Whether MCV clinical trials, regulatory approvals, manufacturing arrangements, and commercial sales can generate sustainable revenue.
- The remediation of disclosed material weaknesses in disclosure controls and internal control over financial reporting.
- The reconciliation of the supplied metadata with the filing, which names DanDrit Biotech USA, Inc. and reports the period ended December 31, 2016.