Propanc Biopharma, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2018 (the company’s fiscal first quarter); filed November 9, 2018. The interim financial statements are unaudited. Propanc is a development-stage biotechnology company; its lead candidate, PRP, remained in preclinical development, and the company reported no product revenue.
Financial Results and Position
| Metric | Three months ended September 30, 2018 | Comparable 2017 period / prior balance-sheet date |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $448,871 | $1,203,975 |
| Operating loss | $(448,871) | $(1,203,975) |
| Net loss | $(2,124,936) | $(1,923,743) |
| Net loss per share | $(0.02) | $(0.36) |
| Cash used in operations | $(419,196) | $(785,668) |
| Cash at period end | $38,914 | $142,565 at September 30, 2017 |
- At September 30, 2018, total assets were $82,775, current liabilities were $5,640,819, and stockholders’ deficit was $5,558,044. The reported working-capital deficit was $5,567,788.
- Current liabilities included $3,758,891 of convertible notes and related accrued interest, net of discounts and premiums; accounts payable and accrued expenses totaled approximately $1.495 million. The balance sheet presents liabilities as current.
- Financing activities provided net cash of $480,419, including $533,389 of convertible-note proceeds and $53,000 of repayments. There were no investing cash flows.
- Operating expenses fell year over year, principally as R&D expense declined to $56,193 from $563,739 and administration expense declined to $384,600 from $631,406. The filing attributes the R&D reduction to completion of process-development work and preparation for manufacturing, not to revenue-generating activity.
- Net loss increased despite the lower operating loss, largely reflecting a $1,971,116 loss from the fair-value change in derivative liabilities and a $280,707 foreign-currency transaction loss. A $1,185,871 gain on debt extinguishment partly offset these charges. Interest expense was $624,538.
Material Changes, Financing and Dilution
- During the quarter, 129,142,548 common shares were issued upon conversion of approximately $1.413 million of note principal and interest, at an average conversion price of about $0.01. Common shares outstanding at September 30 were 175,559,493; the filing reports 204,183,564 issued and outstanding as of November 9.
- Authorized common shares increased from 400 million to 4 billion in September 2018. The company reported 232,471,581 shares reserved for future issuance to lenders at September 30.
- Many borrowings are convertible at substantial discounts to recent market prices, and certain notes carry default interest rates of up to 24% and potential penalties. The filing states that the company was in default on certain notes with an aggregate $610,773 of principal and accrued interest at their stated maturity dates and was negotiating extensions.
- After quarter-end, the company entered into an equity purchase facility with a stated maximum commitment of $10 million, subject to conditions and share-volume limits. It received $79,398 from a post-quarter put notice and expected approximately $72,000 from another. These proceeds do not establish that the full facility will be available or drawn.
- Further post-quarter financing included an October 2018 $210,000 Eagle Equities convertible note and GS Capital notes with $106,000 cash-funded at closing plus a separate back-end note subject to later funding conditions. The filing also reports additional note conversions after quarter-end.
Outlook, Risks and Other Notable Items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for the next 12 months. It says available cash is insufficient for obligations over that period and operations depend on additional debt or equity financing. The financial statements include no adjustments for the possible outcome of this uncertainty.
- Development plans: Management described plans to submit a UK clinical-trial application in the first half of 2019 and to initiate a Phase Ib study in the third quarter of 2019, subject to financing and regulatory approval. It estimated approximately $2.5 million for the planned Phase Ib study and indicated that progress toward Phase IIa proof of concept could take three to four years. These are conditional plans, not assured guidance.
- Research and manufacturing commitments: A two-year University of Jaén research collaboration includes payments of approximately €52,000 in year one and up to €40,000 in year two, plus 2% royalties on net revenue. The company also described anticipated Amatsigroup manufacturing payments of $2.5 million to $5 million over three years, subject to manufacturing milestones.
- Controls: Management concluded disclosure controls were not effective at September 30, citing continuing material weaknesses: inadequate written control documentation, insufficient segregation of duties, no audit committee, and inadequate financial-reporting review and U.S. GAAP expertise. Remediation plans depend in part on raising capital.
- Other items: The filing reports no material pending or threatened litigation. It records $30,000 of IRS penalties for late information returns, plus accrued interest, and says payment arrangements were being negotiated. Related-party disclosures include an increase in the CEO’s annual base salary and an approved AU$300,000 bonus, of which a balance remained accrued at quarter-end.
Important Facts for Investors to Verify
- Whether the company can obtain sufficient financing, access the equity facility on usable terms, and meet near-term obligations without further defaults or substantial dilution.
- The current status and terms of overdue notes, maturity extensions, default provisions, and any post-quarter repayments or conversions.
- Whether the planned regulatory submission, GMP manufacturing, and Phase Ib study can proceed on the stated timeline and within the estimated cost.
- The expected share issuance from discounted convertible debt and the equity facility, including current shares outstanding and the adequacy of authorized and reserved shares.
- Progress in remediating the disclosed material weaknesses and the reliability of future financial reporting.