Business context and reporting period
Propanc Biopharma, Inc. is a development-stage biotechnology company focused on cancer treatments. Its lead candidate, PRP, is a pro-enzyme formulation in preclinical development; the company had no marketed products or revenue. This unaudited Form 10-Q covers the quarter and six months ended December 31, 2019, corresponding to fiscal Q2 and the first half of fiscal 2020.
Key financial metrics
| Metric | Three months ended Dec. 31, 2019 | Six months ended Dec. 31, 2019 | Comparison / balance date |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in comparable 2018 periods |
| Operating expenses | $1.384 million | $2.293 million | Up from $0.758 million and $1.207 million, respectively |
| Operating loss | $1.384 million | $2.293 million | Compared with $0.758 million and $1.207 million |
| Net loss | $1.867 million | $3.359 million | Compared with $1.450 million and $3.575 million |
| Interest expense | $446,082 | $1.121 million | Six-month amount was broadly level with 2018 |
| Cash used in operations | Not separately provided | $1.143 million | $1.057 million used in the 2018 first half |
| Cash from financing | Not separately provided | $1.130 million | $1.226 million in the 2018 first half |
At December 31, 2019, cash was $12,022; current assets were $20,788, current liabilities $5.714 million, total assets $65,425, total liabilities $5.737 million, and stockholders’ deficit $5.672 million. The company reported a working capital deficit of $5.694 million. Net convertible notes and accrued interest were $2.934 million, and embedded conversion-option liabilities were $924,744. The filing does not present a meaningful revenue margin because revenue was zero.
Material changes versus the prior comparable period
- Quarterly net loss rose by about $417,000, primarily as operating loss increased; administration expense rose substantially, including higher share-based compensation.
- Six-month net loss improved by about $216,000, despite higher operating loss, mainly because the prior-year period included a larger derivative-liability loss and a larger gain on debt extinguishment.
- Six-month R&D expense declined to $65,409 from $150,970. Management attributed the reduction to completion of earlier process-development work.
- Cash increased from $2,394 at June 30, 2019 to $12,022 at December 31, 2019, after $1.143 million of operating cash use and $1.130 million of financing inflows.
- Current liabilities increased by about $1.311 million from June 30, 2019. During the six-month period, common shares issued increased to 2,234,901 from 968,042, primarily through debt conversions and equity-based compensation.
Outlook, risks, contingencies and unusual items
- Going concern and funding: Management states that available cash and existing commitments are insufficient to meet obligations over the next 12 months and that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations and development depend on obtaining additional financing; there is no assurance it will be available on acceptable terms.
- Development plans: Subject to financing, the company planned PRP clinical-trial preparation during 2020, CTA compilation and submission in the second half of 2020, and a first-in-human Phase Ib study targeted for Q4 2020. These are conditional plans, not assured milestones; PRP remained preclinical.
- Debt and dilution: The company reported $833,122 of principal and accrued interest in default on certain notes as of December 31, 2019, with maturity extensions under discussion. Many notes have variable-price conversion terms, default interest and penalty provisions. The filing reports about 10.2 million potential shares from convertible notes at quarter-end, in addition to warrants and options.
- Subsequent financing and conversions: From January 1 through the filing date, 2,804,424 shares were issued for conversions of $267,187 of principal and interest. The company also disclosed several post-quarter convertible-note financings. On February 4, 2020, directors resolved to seek an increase in authorized common shares from 100 million to 1 billion; it had not yet taken effect as of the filing date.
- Litigation: Former counsel seeks $151,031.50 plus interest and costs; the company disputes the claim and is pursuing a motion to dismiss. Regal Consulting seeks approximately $400,000 and 60,000 shares; a default judgment was entered but was expected to be vacated by stipulation, and the company disputes the claim. The company says the Regal loss cannot currently be estimated.
- Controls and governance: Management concluded disclosure controls were ineffective, citing material weaknesses including no written internal-control procedures, inadequate segregation of accounting duties, no audit committee, and insufficient financial-reporting review and U.S. GAAP expertise.
- Other items: Derivative valuations and foreign-exchange movements materially affected reported results. The filing describes a $575,700 exchange loss on intercompany loans for the six months, while reporting an $82,411 foreign-currency transaction gain in the income statement; investors should review the accounting and presentation in context.
Important facts for investors to verify
- Current cash runway, near-term obligations, and the status and terms of additional financing or debt-maturity extensions.
- The scale and potential dilution from variable-price convertible notes, warrants, subsequent conversions, and the proposed authorized-share increase.
- Progress toward PRP manufacturing, CTA submission, and clinical-trial readiness, including whether funding supports the stated timelines.
- Developments and potential financial exposure in the Foley Shechter and Regal Consulting disputes, and the status of defaulted notes.
- Share-count reconciliation: the filing reports 2,234,901 shares issued at December 31, 2019 and 5,189,370 issued and outstanding at February 13, 2020; verify the intervening issuances and any relevant share adjustments.
- Resolution of the disclosed material weaknesses and the company’s ability to produce timely, reliable financial reporting.