DanDrit Biotech USA, Inc. — Q1 2015 Form 10-Q Summary
Business Context and Reporting Period
The filing is for DanDrit Biotech USA, Inc. (formerly Putnam Hills Corp.), not Lunai Bioworks Inc. It covers the unaudited quarter ended March 31, 2015, with comparative results for the quarter ended March 31, 2014. The company develops, manufactures and conducts clinical trials for dendritic-cell cancer therapies through its approximately 96.92%-owned Danish subsidiary, DanDrit Biotech A/S. Its lead candidate is MelCancerVac (MCV), a colorectal cancer vaccine.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Cost of goods sold | $44,622 | $17,739 |
| Gross loss | $(44,622) | $(17,739) |
| Operating expenses | $820,862 | $394,367 |
| Loss from operations | $(865,484) | $(412,106) |
| Net loss | $(1,253,345) | $(426,054) |
| Basic and diluted loss per share | $(0.13) | $(0.06) |
| Net cash used in operating activities | $(2,043,787) | $(437,746) |
| Cash at period end | $3,434,935 | $54,472 |
Gross and operating margins are not meaningful because the company reported no revenue. Operating expenses included general and administrative expenses of $372,996, research and development expenses of $151,813, amortization of $4,055 and consulting expenses of $291,998. The company also recorded a $392,474 loss on currency transactions.
At March 31, 2015, total assets were $3,643,443, including $3,434,935 of cash, compared with total assets of $5,239,909 at December 31, 2014. Current liabilities were $971,968, consisting principally of $622,187 of accounts payable, $200,857 of related-party accounts payable and $99,305 of related-party notes payable. Reported working capital was $2,504,087.
All $99,305 of related-party notes payable was classified as current and shown as maturing in 2015. The filing reports no long-term debt. Cash increased by $426,104 during the quarter, primarily because the release of $2,029,502 from cash held in escrow more than offset operating cash use. There were no financing proceeds in Q1 2015.
Material Changes Versus the Prior Comparable Period
- Revenue remained $0, while cost of goods sold increased 152% to $44,622.
- Operating expenses increased 108% to $820,862, driven largely by financing-related consulting costs, audit and salary expenses, and newly incurred clinical research and development costs.
- Research and development expense increased from $0 to $151,813 as the company engaged an entity to perform a Phase IIb/III MCV clinical trial.
- Consulting expense increased 378% to $291,998, including $240,000 paid to Northern Biotech Fund SARL, an entity controlled by a shareholder, for fundraising-related consulting.
- Net loss increased 194% to $1,253,345, and loss per share increased to $0.13 from $0.06.
- Operating cash use increased approximately 366% to $2,043,787.
- The company released $2,029,502 of cash held in escrow during the quarter; this was the principal source of the increase in ending cash.
- Other comprehensive income included a $442,575 currency translation gain, while the income statement included a $392,474 currency transaction loss.
Outlook, Risks, Contingencies and Unusual Items
Management stated that the company depends on additional capital investment or other financing from related parties or external sources to fund ongoing operations. Management indicated that available cash, existing credit lines and potential related-party loans were expected to fund anticipated needs for the next 12 months, but also stated that additional financing may be required and may not be available on acceptable terms or at all.
The filing expressly notes circumstances that may hinder the company’s ability to continue as a going concern, including the absence of revenue, continuing losses, dependence on financing and uncertainty regarding FDA approval and commercial success of MCV. No formal revenue or earnings guidance was provided.
MCV sales have been limited to compassionate-use activity in Singapore and are not approved for current sale for other uses or locations. The company is pursuing a Phase III adjuvant colorectal cancer study in Italy and subsequently entered into agreements supporting clinical-trial services and potential manufacturing and marketing cooperation in Saudi Arabia.
Additional risks include clinical and regulatory failure, product liability, foreign-currency exposure, reliance on related parties, future dilution from equity financing, and potential inability to monetize tax attributes. The company reported Danish net operating loss carryforwards of approximately $2.4 million and U.S. federal carryforwards of approximately $179,661, but recorded a full valuation allowance against deferred tax assets.
Subsequent events included the resignation of the CFO on April 28, 2015, the appointment of Lone Degn as CFO on May 1, 2015, and new clinical-trial and commercial collaboration agreements. Management reported no material pending legal proceedings, no material off-balance-sheet arrangements and effective disclosure controls as of March 31, 2015.
Important Facts for Investors to Verify
- Confirm the registrant identity: the supplied filing is for DanDrit Biotech USA, Inc., whereas the request metadata names Lunai Bioworks Inc.
- Assess the company’s ability to continue funding operations given $0 of revenue, $2.04 million of quarterly operating cash burn and stated dependence on additional financing.
- Review the terms, maturity and related-party nature of the $99,305 of notes payable and $200,857 of related-party accounts payable.
- Investigate the $240,000 related-party consulting expense and other fundraising-related costs included in Q1 2015 expenses.
- Evaluate the clinical, regulatory and commercialization status of MCV, including the planned Phase III study and its lack of broad regulatory approval.
- Reconcile the share-count disclosures: the operations statement shows weighted-average shares of 9,553,290, while the notes and balance sheet generally show 9,533,290 shares.
- Verify the availability and restrictions, if any, on the $3.43 million of reported cash and the accounting treatment of the $2.03 million escrow release.