Propanc Biopharma, Inc. — Form 10-Q summary
Reporting period: The filing covers the fiscal quarter and nine months ended March 31, 2021, not calendar 2020 Q3. The interim financial statements are unaudited. Propanc is a pre-revenue development-stage biotechnology company focused on PRP, a preclinical pro-enzyme cancer therapy.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $0 in 2021 and 2020 | $0 in 2021 and 2020 |
| Operating expenses | $427,952 in 2021; $607,168 in 2020 | $1,085,207 in 2021; $2,900,186 in 2020 |
| Net loss | $417,738 in 2021; $2,585,662 in 2020 | $1,246,926 in 2021; $5,944,711 in 2020 |
| Cash used in operations | Not presented by quarter | $908,977 in 2021; $1,349,931 in 2020 |
- At March 31, 2021, cash was $14,439 and current assets were $18,518, against current liabilities of $3,031,721. Working capital deficit was $3,013,203; total assets were $28,043.
- Current liabilities included $950,180 of convertible notes and accrued interest, net of discounts and premiums; accounts payable and accrued expenses totaled $1,506,185. Total stockholders’ deficit was $3,003,678 and accumulated deficit was $57,028,696.
- Nine-month financing cash inflows were $808,044: $526,044 from warrant exercises and $325,000 from convertible notes, offset by $43,000 in note repayments. Cash declined from $67,007 at June 30, 2020 to $14,439.
- Gross margin and operating margin are not meaningful to assess because the company reported no revenue.
Changes versus the comparable period
- Nine-month operating expenses fell by about $1.8 million, largely because stock-based service expenses, capital-raising costs, consulting and legal fees, and marketing expenses were lower. Research and development expense rose to $145,898 from $122,893, mainly reflecting the University of Jaén collaboration.
- Nine-month net loss improved by about $4.7 million. This reflects lower operating and interest expenses and a much smaller foreign-currency transaction loss than in 2020; the company remains pre-revenue, so the improvement does not reflect commercial sales.
- Convertible notes and related accrued interest, net, declined from $1,557,734 at June 30, 2020 to $950,180 at March 31, 2021. The company converted substantial debt into shares, and also raised funds through note issuance and warrant exercises.
- A one-for-one-thousand reverse stock split took effect November 17, 2020. Common shares outstanding were 4,968,824 at March 31, 2021; 5,967,110 were reported outstanding as of May 14, 2021.
Outlook, risks and notable items
- Funding and going concern: Management says available cash and current commitments are insufficient for the next 12 months. The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Operations and development depend on obtaining additional debt or equity financing; no assurance is given that financing will be available on acceptable terms.
- Development plans: PRP remains preclinical. Subject to sufficient funding, management planned to compile and submit a clinical trial application in 2021 and begin a Phase Ib first-in-human study in early 2022. These are plans, not assured milestones. PRP has no products at the clinical-trial stage, according to the filing.
- Debt defaults: The company disclosed defaults on notes issued in August 2019 and October 2019, with $201,825 of principal and accrued interest past due at March 31, 2021. It said it was discussing maturity extensions with the lenders. Some other note arrangements have variable, discounted conversion prices and default provisions that may contribute to dilution or additional obligations.
- Equity dilution: Debt conversions and warrant exercises increased shares issued. The company also disclosed 801,162,107 shares reserved for future issuance under lender reserve requirements at March 31, 2021. Subsequent to quarter-end, it reported additional warrant exercises and note conversions.
- Settlements and contingencies: The company settled a former counsel’s claim for $51,032, compared with $142,660 previously accrued, and recorded a $91,628 gain. A separate settlement related to the Regal dispute involved a $100,000 convertible note and a $43,238 loss relative to recorded liabilities. The filing also describes a $30,000 IRS penalty plus accrued interest related to late information returns; it was awaiting an IRS response.
- Related parties: The CEO/CFO is a significant preferred-stock holder and has employment compensation and amounts payable disclosed in the filing. The company leases its office from an entity associated with the CEO and his wife; related-party director/officer loans and advances were also outstanding.
- Controls and external risks: Management concluded disclosure controls were ineffective and reported continuing material weaknesses, including inadequate written control documentation, limited segregation of duties, no audit committee, and insufficient financial-reporting review. The filing also identifies uncertainty from COVID-19 and foreign-currency movements.
Important facts for investors to verify
- Whether the company obtained financing after the filing date sufficient to fund operations and planned PRP development, and on what dilution and repayment terms.
- Current status of the past-due notes, negotiations with lenders, and the amount and terms of any subsequent conversions or new debt.
- Current cash, working-capital deficit, and cash runway; the filing reported only $14,439 of cash at quarter-end.
- Whether PRP’s clinical-trial application and first-in-human timeline advanced, and what regulatory, manufacturing, and study costs remain.
- Subsequent share issuance, warrant exercises, reserved shares, and the potential dilution from convertible securities.
- Progress in remediating the disclosed internal-control material weaknesses and any updates to litigation, IRS matters, or related-party balances.