Propanc Biopharma, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended December 31, 2021 (fiscal Q2 2022). The interim financial statements are unaudited and report in U.S. dollars.
Business context
Propanc is a development-stage biotechnology company focused on cancer treatments. Its lead candidate, PRP, is a pro-enzyme formulation targeting solid tumors and remains in preclinical development. The company reported no product revenue.
Key financial metrics
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $403,467 | $889,497 | $274,094; $657,255 |
| Operating loss | $403,467 | $889,497 | $274,094; $657,255 |
| Net loss | $799,977 | $1,290,635 | $403,643; $829,188 |
| Net loss available to common stockholders | $893,375 | $1,498,877 | $403,643; $829,188 |
| Net cash used in operating activities | Not separately stated | $711,093 | $440,975 |
Margins: Not meaningful because the company had no revenue. For the six months, research and development expense was $97,307, compared with $101,011 in 2020. Administration expense rose to $777,904 from $539,290.
Liquidity at Dec. 31, 2021: Cash was $73,616; current assets were $84,878; current liabilities were $3,040,370; and working capital deficit was $2,955,492. Total assets were $110,177, versus $13,101 at June 30, 2021. Stockholders’ deficit was $2,930,193.
Debt and cash flows: Convertible notes and related accrued interest, net, were $972,670; embedded conversion option liabilities were $221,977. Six-month financing cash inflows were $789,500, including $414,500 net proceeds from convertible notes and $375,000 from warrant exercises. Cash increased from $2,255 at June 30 to $73,616 at December 31.
Material changes versus the prior comparable periods
- Quarterly net loss increased to $799,977 from $403,643; six-month net loss increased to $1,290,635 from $829,188.
- Six-month operating cash use increased to $711,093 from $440,975, while financing inflows increased to $789,500 from $358,044.
- Quarterly administration expense rose by about $130,000, which management attributed mainly to consulting, legal and investor-relations fees. Six-month administration expense rose by about $239,000, including higher stock-based service costs and professional fees.
- The company’s common shares outstanding increased from 14,055,393 at June 30 to 53,062,209 at December 31, chiefly reflecting conversions of debt and shares issued for services. The filing reports 61,417,527 shares outstanding as of February 14, 2022.
- Derivative fair-value expense was $167,757 for the six months, compared with a $48,002 gain in the prior-year period. A $208,242 deemed dividend from a down-round feature reduced income available to common stockholders for the six months.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern for at least 12 months after the report date. It said available cash and current commitments are insufficient to meet obligations over the next 12 months and that continued operations depend on additional financing. No assurance of financing is given.
- Defaults: At December 31, the company was in default on notes issued in 2017, 2019 and 2020, with $185,280 of principal and $39,461 of accrued interest past due. It was discussing maturity extensions with the lenders.
- Financing and dilution: The company relies on debt and equity financing. Many notes have discounted, variable-price conversion terms, default penalties and potential share dilution. It also agreed to a $5 million equity line with Dutchess, but purchases are conditional, including effectiveness of a resale registration statement; draw amounts are limited and priced at 92% of the lowest trading price over a specified five-day period.
- Development and patents: PRP remains preclinical, and advancement toward a first-in-human study depends on financing, development progress and other factors. The company reported 35 granted patents and 30 applications under examination. In November 2021 it appointed a strategic advisor to begin establishing a U.S.-based R&D subsidiary and identify potential strategic partners.
- Other items: The company received a $55,463 Australian R&D tax credit, recognized as a tax benefit. It disclosed an accrued IRS penalty of $30,000 plus interest relating to late historical Form 5471 filings; it was awaiting an IRS response. COVID-19 impacts on operations and financing remained uncertain.
- Controls: Management concluded disclosure controls were ineffective and reported continuing material weaknesses, including lack of documented controls, limited segregation of duties, no audit committee and inadequate financial-reporting review resources. Planned remediation is subject to raising sufficient capital.
- Guidance: The filing provides no quantified revenue, earnings or cash-flow guidance.
Most important facts for investors to verify
- Whether the company can obtain sufficient financing to meet obligations and fund PRP development, and the resulting dilution and financing terms.
- Status of past-due notes and lender discussions, including any defaults, extensions or additional penalties.
- Current cash runway, unpaid liabilities and subsequent financing or share issuances after December 31, 2021.
- Whether the Dutchess equity line’s registration conditions are met and whether funds are actually available under its draw limits and pricing terms.
- Progress and timing of PRP development, regulatory steps and the proposed U.S. R&D subsidiary.
- Progress in remediating disclosed internal-control weaknesses and the outcome of the IRS penalty matter.