Business Context and Reporting Period
Company: Propanc Biopharma, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 2, 2018
Event: Entry into Material Definitive Agreements involving the issuance of convertible promissory notes to secure working capital.
Key Financial Metrics and Debt Obligations
The filing details two separate financing transactions involving convertible debt. No revenue, profit, or cash flow data is provided in this specific report.
- Eagle Equities, LLC Note:
- Principal Amount: $210,000
- Net Proceeds: $200,000 (after $10,000 deduction for legal expenses)
- Interest Rate: 8% per annum (payable in shares upon conversion)
- Maturity Date: October 2, 2019
- GS Capital Partners, LLC Notes:
- Total Principal: $212,000 (split into two notes of $106,000 each)
- First Note (Cash Funded): Net proceeds of $100,700 (after legal fees). Maturity: October 2, 2019.
- Back End Note (Deferred Funding): Funded via a collateralized secured note from GS Capital to the Company. Cash funding required by June 2, 2019.
- Interest Rate: 8% per annum
Material Changes and Transaction Terms
The Company entered into significant debt agreements with aggressive conversion terms and penalties designed to protect the lenders.
- Conversion Discounts:
- Eagle Note: Convertible at 60% of the lowest closing bid price over the prior 10 trading days. Drops to 50% if the stock is restricted by DTC. Increases by 10% if share reserves are not maintained.
- GS Capital First Note: Convertible at 61% of the lowest closing bid price over the prior 10 trading days. Drops to 52% during a DTC "chill". Increases by 10% if share reserves are not maintained.
- Prepayment Penalties:
- Eagle Note: Prepayment premiums range from 130% to 150% of principal plus accrued interest depending on the timing (within 60, 120, or 180 days).
- GS Capital First Note: Prepayment premiums of 115% (within 90 days) or 125% (90-180 days) of principal plus accrued interest.
- Default Penalties:
- Default interest rate increases to 24% per annum.
- Liquidated damages for failure to issue shares upon conversion: $250/day (days 4-9) increasing to $500/day thereafter.
- Principal increase of 20% if the stock loses its bid price.
- Principal increase of 50% if the stock is delisted, trading is suspended for >10 days, or reporting obligations are failed.
Outlook, Risks, and Contingencies
Use of Proceeds: The Company intends to use the net proceeds from both transactions for general working capital purposes.
Key Risks and Contingencies:
- Dilution Risk: Significant dilution is possible due to the deep discounts (40-50%) on conversion prices and the potential for principal increases upon default events.
- Liquidity Constraints: The "Back End Note" from GS Capital is contingent on cash funding by June 2, 2019, subject to stock price ($0.045) and volume ($40,000) thresholds. If these are not met, the note may not be funded.
- Reporting Obligations: Failure to maintain periodic reporting or listing status triggers severe financial penalties (50% principal increase) and conversion price adjustments.
- Share Reserve Requirements: The Company must maintain specific share reserves (4x for Eagle, 2.5x for GS Capital) to avoid increased conversion discounts.
Investor Verification Checklist
- Verify the current outstanding share count to assess the potential dilution impact of the 60% and 61% conversion discounts.
- Confirm the Company's ability to maintain the required share reserves (4x and 2.5x) to avoid penalty increases.
- Monitor the stock's bid price and trading volume to ensure the GS Capital "Back End Note" funding conditions are met by June 2, 2019.
- Review the Company's compliance status with SEC reporting obligations to avoid the 50% principal increase penalty.
- Assess the Company's cash runway given the high prepayment penalties (130%-150%) which make early repayment of debt prohibitively expensive.