Business Context and Reporting Period
Propanc Biopharma, Inc. filed a Form 8-K on December 24, 2018, reporting the entry into a material definitive agreement. The Company is incorporated in Delaware with principal executive offices in Camberwell, Australia.
Key Financial Metrics and Transaction Details
The filing details a financing transaction rather than periodic financial performance metrics. Key terms of the transaction include:
- Instrument: 8% Convertible Redeemable Note (the "December 2018 Eagle Note").
- Investor: Eagle Equities, LLC.
- Principal Amount: $126,000.
- Net Proceeds: $120,000 (after a $6,000 deduction for legal expenses).
- Use of Proceeds: Repayment of an outstanding convertible promissory note prior to its conversion date.
- Maturity Date: December 24, 2019.
- Interest Rate: 8% per annum, payable in shares of common stock upon conversion.
Material Changes and Terms
The Company entered into a new debt obligation with specific conversion and penalty features:
- Conversion Terms: Convertible at the investor's option after six months. The conversion price is 61% of the lowest closing bid price over the ten prior trading days. This discount deepens to 51% if the stock is restricted by the Depository Trust Company or increases by 10% if the Company fails to maintain a share reserve of 2.5x the issuable shares for 60 days.
- Prepayment Penalties: Prepayment within 90 days requires 115% of principal plus interest; prepayment between 90 and 181 days requires 125% of principal plus interest.
- Change of Control: In the event of a transfer of assets or merger, the investor may demand redemption at 150% of principal plus accrued interest.
- Default Provisions: Default interest rate is 24% per annum. Additional penalties include a 20% principal increase if the stock loses its bid price and a 50% increase if the stock is delisted or trading is suspended for more than ten days.
Outlook, Risks, and Contingencies
The filing highlights significant risks associated with the debt instrument:
- Liquidity Risk: The Company must maintain a reserve of shares at least 2.5 times the number of shares issuable upon conversion to avoid an increased conversion discount.
- Reporting Risk: Failure to file periodic reports under the Exchange Act after six months allows the investor to use the lowest closing bid price during the delinquency period as the conversion base price.
- Liquidated Damages: Failure to issue shares within three business days of a conversion notice incurs damages of $250 per day (days 4-9) and $500 per day thereafter.
- Ownership Cap: Conversion is restricted if the investor's beneficial ownership exceeds 4.99% of outstanding shares (increasable to 9.9% with notice).
Investor Verification Checklist
- Verify the current status of the outstanding convertible promissory note that was repaid with these proceeds.
- Confirm the Company's ability to maintain the required 2.5x share reserve to prevent the conversion discount from increasing.
- Review the Company's compliance with periodic reporting obligations to avoid the 50% principal increase penalty and unfavorable conversion pricing.
- Assess the dilution impact of the 61% conversion discount on existing shareholders.
- Check for any subsequent filings regarding the repayment or conversion of the December 2018 Eagle Note.