Propanc Biopharma, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022 (the first quarter of fiscal 2023; the filing is not for calendar 2022 Q1). Financial statements are unaudited. The company is a pre-revenue biotechnology developer; its lead candidate, PRP, is in preclinical development.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2022 | Comparable 2021 quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $572,830 | $486,030 |
| Operating loss | $572,830 | $486,030 |
| Net loss | $617,295 | $490,658 |
| Net loss available to common stockholders | $1,006,530 | $605,502 |
| Net cash used in operations | $509,315 | $486,758 |
| Net cash provided by financing | $494,219 | $435,000 |
Cash was $19,396 at September 30, up from $4,067 at June 30, 2022. Current assets were $37,862 versus current liabilities of $2,822,426, producing a $2,784,564 working capital deficit. Total liabilities were $2,861,789; current convertible notes and accrued interest, net of discounts and premiums, were $913,641. Stockholders’ deficit was $2,767,535; accumulated deficit was $62,564,423. No operating margin is meaningful because the company reported no revenue.
Changes and financing
- Net loss rose about 26% year over year; operating expenses increased about 18%. Research and development expense increased to $101,325 from $46,554, while administration expense rose to $465,132 from $431,740. Management attributed the administration increase mainly to consulting, legal and investor-relations fees, partly offset by lower stock-based expenses.
- Interest expense increased to $162,752 from $109,853, primarily reflecting debt-discount amortization and accretion of put premiums. A $65,173 noncash gain from changes in derivative fair value partly offset expenses; the filing attributes the gain mainly to falling share prices.
- Financing cash included $345,750 net proceeds from convertible notes, $100,000 from warrant exercises, $24,711 from common-stock sales and $23,758 collected on a subscription receivable.
- Common shares outstanding increased from 220,350,921 at June 30 to 677,177,717 at September 30, largely reflecting debt conversions and warrant exercises. The filing reports 889,745,790 shares outstanding as of November 11, 2022. The company increased authorized common shares to 10 billion, effective November 4, 2022.
Outlook, risks and unusual items
- Going concern: Management states that cash is 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 depend on obtaining additional financing; no assurance is given that funding will be available on acceptable terms. Management says losses and operating cash use are expected to continue.
- Debt and dilution: One $65,280 convertible note, plus $28,398 accrued interest, was past due and in default at September 30; the company was discussing an extension with the lender. Multiple notes have discounted, variable-price conversion terms and default penalties. The company issued 264,492,661 shares for conversions of principal and interest during the quarter. Excluded potential securities totaled approximately 10.4 billion shares, including warrants and convertible debt, although these were excluded from diluted loss per share as anti-dilutive.
- Research and development: The company reported synthetic production of trypsinogen and continued optimization work, including chymotrypsinogen purification and yield. It also reported research findings on proenzyme effects on the tumor microenvironment and a European Patent Office notice of allowance for certain cancer-treatment composition claims. PRP remains preclinical; the filing provides no clinical-trial timetable or revenue guidance.
- Subsequent events: After quarter-end, the company issued 97.9 million shares for debt conversions and entered into additional financing arrangements, including a $53,750 convertible note in October and a Coventry financing facility and $125,000 note in November. The filing also describes a new $5 million equity line subject to conditions, including an effective resale registration statement; it is not equivalent to committed cash available immediately.
- Controls and governance: Management concluded disclosure controls were not effective. Reported material weaknesses include no written internal-control procedures, insufficient segregation of accounting duties, no audit committee, and inadequate review controls and U.S. GAAP expertise. Planned remediation is subject to raising sufficient capital.
- Other considerations: A $389,235 deemed dividend associated with a down-round feature on Series A warrants increased the loss attributable to common stockholders but was not an operating expense. The company reported no material pending litigation. The CEO/CFO’s salary was increased to AUD 600,000 annually, effective July 1, 2022; an October amended agreement limits his discretionary bonus to 100% of base salary.
Investor facts to verify
- Current cash, near-term obligations and financing actually available, including the status and conditions of the equity line and post-quarter notes.
- Whether the past-due note was amended or repaid, and the full maturity, conversion, discount and default terms of outstanding convertible debt.
- Fully diluted share exposure, warrant and conversion reserves, and the impact of the authorized-share increase on potential dilution.
- Progress toward preclinical milestones, any future clinical-trial application, and the funding required to reach clinical development.
- Whether management addresses the disclosed material weaknesses and improves reporting controls.