Business Context and Reporting Period
This filing is an unaudited Form 10-Q for DanDrit Biotech USA, Inc. and subsidiary, not Lunai Bioworks Inc. It covers the three and nine months ended March 31, 2017, within the fiscal year ending June 30. The company develops dendritic-cell cancer vaccines, principally MelCancerVac (MCV), for colorectal cancer. MCV sales were limited to compassionate use in Singapore and were not approved for general sale.
Financial Highlights
| Metric | Three Months Ended March 31, 2017 | Nine Months Ended March 31, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating loss | $(351,030) | $(1,752,106) |
| Net loss | $(246,171) | $(1,957,956) |
| Loss per share | $(0.03) | $(0.21) |
| Operating cash flow | Not separately provided | $(678,508) |
- Gross profit was $0 for both the quarter and year-to-date period.
- Cash was $33,699 at March 31, 2017, compared with $23,368 at June 30, 2016.
- Total assets declined to $382,285 from $870,831, while total current liabilities increased to $1,988,381 from $1,508,229.
- Stockholders’ deficit increased to $(1,606,096) from $(637,398).
- Working capital deficit was $(1,753,707) at March 31, 2017, compared with $(775,750) at June 30, 2016.
- Debt included $104,003 of related-party notes, $77,750 of related-party convertible notes, and $258,298 of other convertible notes, all classified as current.
- Nine-month financing activities provided $413,670, consisting of $120,300 of related-party note proceeds and $293,370 of other note proceeds.
Material Changes Versus Prior Comparable Period
- Nine-month revenue declined from $42,525 to $0, and gross profit declined from $37,281 to $0.
- Quarterly operating expenses decreased 32% to $351,030, primarily because research and development spending fell 93% to $16,290 and general and administrative expenses fell 35% to $168,503.
- Nine-month operating expenses increased 18% to $1,752,106, primarily due to $626,487 of non-cash compensation for stock options and higher consulting costs.
- Nine-month consulting expense increased to $345,518 from $64,374, largely due to financing-related services.
- Nine-month research and development expense decreased to $47,181 from $615,334, despite the company’s stated efforts relating to a Phase III MCV clinical trial.
- Nine-month net loss nearly doubled to $1,957,956 from $979,641. The increase was principally attributed to non-cash stock compensation and higher consulting expenses.
- Operating cash use improved to $678,508 from $1,162,022, but the company remained dependent on external financing.
- The company granted 900,000 fully vested options at an exercise price of $2.00 per share, expiring December 31, 2019.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that the company’s plan for the next twelve months is to continue raising capital. No revenue or profitability guidance was provided.
- The financial statements include a substantial doubt regarding the company’s ability to continue as a going concern because of recurring losses, lack of profitable operations, and short-term obligations exceeding anticipated cash.
- As of May 15, 2017, after the reporting date, the company raised $3,510,000 through the sale of 2,700,000 shares at $1.30 per share and warrants to purchase 5,400,000 shares at $1.30 per share. Shares outstanding increased to 12,433,290.
- Convertible notes totaling $413,670 were convertible into approximately 206,835 shares at $2.00 per share; additional dilution could result from the 900,000 outstanding options and the May 2017 warrants.
- A $52,770 convertible note was scheduled to mature June 30, 2017; other convertible notes generally matured December 31, 2017.
- Management disclosed material weaknesses and ineffective disclosure controls, citing inadequate accounting resources and insufficient segregation of duties. Consultants were engaged to review and compile financial information.
- The board terminated CEO and CFO Eric J. Leire on March 30, 2017. Aldo Petersen became CEO and Søren Degn became CFO.
- MCV remains subject to clinical, regulatory, manufacturing, market-acceptance, and product-liability risks. FDA approval and commercially sustainable revenue are not assured.
- The company reports no material pending legal proceedings and no material off-balance-sheet arrangements.
Facts Investors Should Verify
- Confirm the issuer identity and reporting period, because the supplied metadata identifies Lunai Bioworks and “2016 Q3,” while the filing identifies DanDrit Biotech USA, Inc. and the quarter ended March 31, 2017.
- Verify the use and sufficiency of the $3.51 million post-period financing relative to current obligations and ongoing operating cash burn.
- Review the maturity, conversion terms, and potential dilution from all convertible notes, options, and warrants.
- Assess the going-concern disclosure and whether additional financing or profitable operations have been achieved.
- Evaluate the status, funding, and regulatory prospects of the Phase III MCV clinical program.
- Review remediation of the disclosed material weaknesses in internal controls.