Business Context and Reporting Period
Propanc Biopharma, Inc. filed this Form 8-K on June 29, 2018, to report the entry into a Material Definitive Agreement. The Company, incorporated in Delaware with principal offices in Australia, entered into a securities purchase agreement with Coventry Enterprises, LLC to secure financing for general working capital purposes.
Key Financial Metrics and Transaction Details
- Total Principal Amount: $200,000.00 in aggregate principal across two 8% unsecured convertible promissory notes.
- First Note Funding: $100,000 principal paid in cash on July 2, 2018. Net proceeds to the Company were $95,000 after legal fees and expenses.
- Back End Note Funding: $100,000 principal initially funded via an offsetting collateralized secured note issued by Coventry Enterprises. Cash funding is required on or before February 29, 2019, subject to specific stock price and volume conditions.
- Interest Rate: 8% per annum on both notes. Interest on the First Note is payable in shares of common stock upon conversion notice.
- Share Reserve: The Company reserved 8,606,000 shares for conversions under the First Note.
Material Changes and Transaction Structure
The filing details a complex financing structure involving two distinct notes with different funding and conversion mechanics:
- First Note: Matures June 29, 2019. Convertible at the investor's option after December 29, 2018, at a price equal to 61% of the lowest closing bid price over the prior ten trading days (reduced to 51% during a DTC "chill"). Prepayment is permitted with significant penalties (115% or 128% of face amount depending on timing).
- Back End Note: Not convertible until cash-funded. Funding is contingent on the Company's stock maintaining a closing bid price of at least $0.03 and aggregate trading volume of at least $30,000 for five consecutive trading days prior to funding. This note cannot be prepaid.
- Coventry Enterprises Note: An offsetting $100,000 secured note issued by the investor to the Company, bearing 8% interest, due December 29, 2018. It is secured by the pledge of the Back End Note.
Guidance, Risks, and Contingencies
Management intends to use proceeds for general working capital. The agreement contains significant risks and contingencies for the Company:
- Default Interest: Upon an event of default, interest accrues at 24% per annum.
- Liquidated Damages: Failure to maintain a "bid" price increases the principal by 20%. Failure to pay on the Maturity Date increases principal by 8%.
- Penalties for Delay: Failure to issue shares upon conversion notice incurs penalties of $250 per day (increasing to $500 per day after day 10).
- Events of Default: Include insolvency, breach of covenants, judgments exceeding $250,000, and failure to maintain specific stock price or volume thresholds for the Back End Note.
- Conversion Restrictions: Investor conversion is capped at 9.9% of outstanding common stock.
Key Facts for Investor Verification
- Verify the Company's ability to maintain the $0.03 closing bid price and $30,000 daily trading volume required to trigger cash funding of the Back End Note.
- Assess the dilution impact of the 61% conversion discount and the 8,606,000 shares currently reserved.
- Confirm the Company's liquidity position to meet the 8% interest payments (in shares) and potential prepayment penalties if the First Note is redeemed early.
- Monitor compliance with periodic filing requirements to avoid the investor's right to use the lowest closing bid price during delinquency periods as a conversion base.
- Review the offsetting Coventry Enterprises Note terms to understand the net cash flow implications if the Back End Note funding conditions are not met.