Business context and reporting period
Propanc Biopharma, Inc. is a development-stage biotechnology company focused on cancer therapies. Its lead candidate, PRP, is a pro-enzyme formulation in preclinical development; the company had no marketed products or revenue. Although the request metadata says 2018 Q3, this filing is a Form 10-Q for the quarter ended March 31, 2019, covering the three and nine months ended that date. Financial statements are unaudited and reported in U.S. dollars.
Financial results and liquidity
- Revenue: $0 for both the three and nine months ended March 31, 2019, and the comparable 2018 periods. Margins are not meaningful because there was no revenue.
- Operating expenses and loss: Q3 operating expenses were $571,725, down from $807,135; operating loss was $571,725, versus $807,135. Nine-month expenses were $1,778,416, down from $3,448,180; operating loss was $1,778,416, versus $3,448,180.
- Net loss: Q3 loss was $581,856, compared with $1,491,006. Nine-month loss was $4,156,830, compared with $5,616,728. Nine-month results included a $1,914,980 loss from changes in derivative fair value, partly offset by a $1,204,242 gain on debt extinguishment.
- Cash flow: Nine-month operating cash use was $1,793,805, versus $1,730,085; investing cash use was $2,874; financing cash provided was $1,920,159. Cash increased by $87,289 to $107,210.
- Balance sheet and liquidity: At March 31, 2019, current assets were $248,602 and current liabilities were $3,672,939, resulting in a $3,424,337 working-capital deficit. Total assets were $259,916; stockholders’ deficit was $3,413,023; accumulated deficit was $49,439,508.
- Debt: Convertible notes and accrued interest, net of discounts and premiums, were $2,067,717. The company reported $597,435 of principal and accrued interest past maturity on certain notes and said it was negotiating extensions. Some notes carry variable-price conversion discounts and default rates up to 24%.
- Share count and financing: Common shares issued rose from 46.4 million at June 30, 2018 to 385.2 million at March 31, 2019, largely from debt conversions and equity puts. The cover reports 420.8 million shares outstanding as of May 10, 2019. The company increased authorized common shares to 4 billion.
Material changes versus the prior comparable period
- Q3 and nine-month operating expenses and net losses declined year over year. Management attributes lower R&D expense primarily to completion of earlier process-development work; it describes the lower nine-month net loss as also reflecting lower interest expense and a larger gain on debt extinguishment, despite materially worse derivative and foreign-currency losses.
- Cash was higher than at June 30, 2018 ($107,210 versus $19,921), but remained small relative to current liabilities and operating needs. Net cash used in operations increased modestly year over year.
- Convertible debt carrying value and current liabilities declined from June 30, 2018, while common shares issued increased substantially through conversions and equity financing.
Outlook, risks and unusual items
- Development plans: Management planned to prepare and submit a PRP clinical trial application in Q4 2019 and, subject to sufficient financing, begin a first-in-human Phase Ib study in Q1 2020. These are plans, not assured milestones. PRP remained preclinical; a bio-analytical assay was in development.
- Funding and going concern: Management and the financial-statement note state that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months. Management said available cash was insufficient for the next 12 months and future operations and trials depended on additional financing. A new equity purchase agreement with Oasis Capital had a stated $10 million maximum commitment, but draws were conditional; the prior L2 facility was terminated in February 2019. The filing gives no assurance that financing will be available on acceptable terms.
- Dilution and note terms: Variable-price convertible notes, lender share-reserve obligations and equity-put financing expose shareholders to substantial dilution. The company disclosed reserves of 1.251 billion shares for lender requirements and estimated that outstanding convertible notes could convert into approximately 118.2 million shares based on the quarter-end closing price.
- Controls and governance: Management concluded disclosure controls were not effective. Reported material weaknesses included no written control procedures, inadequate segregation of duties, no audit committee, and insufficient financial-reporting review and U.S. GAAP expertise. Corrective actions were contingent on raising capital.
- Other notable matters: The company reported no material pending litigation. It had a $30,000 IRS penalty for late historical filings and was negotiating a payment plan. After quarter-end, May 2019 management agreements included substantial equity awards and adoption of a 117 million-share incentive plan.
Important facts for investors to verify
- Whether the Oasis equity facility can actually provide timely cash, and its draw conditions, pricing, remaining capacity and dilution effects.
- The status, maturity extensions and default terms of past-due notes, along with total cash debt obligations and any penalties.
- Current fully diluted share count, including conversions since quarter-end, variable-price notes, equity awards and reserved shares.
- Available cash runway and whether financing can support the stated PRP application and clinical-trial timetable.
- Progress toward remediating control weaknesses and the effect of the post-quarter management awards and equity incentive plan.
- Several filing details warrant reconciliation against underlying exhibits and subsequent filings, including the post-quarter conversion-price text and the share-count disclosures.