Business Context and Reporting Period
Company: Propanc Biopharma, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 23, 2018
Event: Entry into a Material Definitive Agreement involving the issuance of convertible promissory notes to raise capital for general working capital purposes.
Key Financial Metrics and Transaction Details
- Total Principal Amount: $212,000.00 (comprising two 8% unsecured convertible promissory notes).
- First Note Principal: $106,000.00.
- Net Proceeds (First Note): $100,700.00 (after transaction-related expenses).
- Back End Note Principal: $106,000.00 (initially funded via an offsetting collateralized secured note from the investor).
- Interest Rate: 8% per annum (accrued interest payable in shares upon conversion).
- Conversion Price: 62% of the lowest closing bid price over the ten prior trading days (reduces to 52% during a DTC "chill").
- Share Reserve: 4,750,000 shares reserved for conversion under the First Note.
- Investor: GS Capital Partners, LLC.
Material Changes and Transaction Structure
The Company entered into a complex financing arrangement with GS Capital Partners, LLC. The transaction consists of two distinct notes:
- First Note: Funded in cash on March 26, 2018. Matures on March 23, 2019. Convertible at the investor's option after September 23, 2018. Subject to significant prepayment penalties (115% or 125% of face value depending on timing).
- Back End Note: Not immediately funded in cash. Funding is contingent on the Company's stock price remaining above $0.045 and trading volume exceeding $40,000 for five consecutive days prior to the funding deadline of November 23, 2018. If the First Note is redeemed within six months, the Back End Note is cancelled.
The investor also issued a collateralized secured note to the Company for $106,000 to offset the Back End Note, creating a net zero cash flow for that portion until the funding conditions are met.
Guidance, Risks, and Contingencies
Management Commentary: Proceeds from the First Note are intended for general working capital purposes.
Key Risks and Contingencies:
- Default Interest: Interest rate increases to 24% per annum upon an event of default.
- Liquidated Damages:
- 20% increase in principal if the Company loses its "bid" price.
- 50% increase in principal if the Company is delisted.
- 10% increase in principal if the note is not paid on the Maturity Date.
- Conversion Penalties: $250 per day (increasing to $500 per day after day 10) if shares are not issued within three business days of a conversion notice.
- Share Ownership Cap: Investor conversion is restricted if it would cause beneficial ownership to exceed 4.99% (expandable to 9.9% with notice).
- Legal Fees: Investor may deduct $5,300 from principal payments for legal fees and expenses.
Investor Verification Checklist
- Verify the Company's current stock price and trading volume to assess the likelihood of the Back End Note funding conditions being met by November 23, 2018.
- Confirm the Company's ability to maintain the required share reserve of 4,750,000 shares to avoid conversion discount penalties.
- Review the Company's liquidity position to ensure it can meet the 8% interest obligations (payable in shares) and potential prepayment penalties if the First Note is redeemed early.
- Assess the risk of delisting or loss of "bid" price, which would trigger significant principal increases (20% or 50%).
- Check for any subsequent filings regarding the status of the Back End Note funding or potential defaults.