Propanc Biopharma, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2020; filed February 12, 2021. This is the fiscal second quarter of the year ending June 30, 2021. Financial figures are in U.S. dollars and unaudited.
Business context and financial results
Propanc is a development-stage biotechnology company with no product revenue. Its lead candidate, PRP, is a pro-enzyme cancer treatment in preclinical development; it has not entered clinical trials.
| Metric | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2020 | Six months ended Dec. 31, 2019 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $274,094 | $657,255 | $2,293,018 |
| Operating loss | $274,094 | $657,255 | $2,293,018 |
| Net loss | $403,643 | $829,188 | $3,359,049 |
| Net cash used in operations | Not stated for quarter | $440,975 | $1,142,877 |
Six-month R&D expense was $101,011, up from $65,409; administration expense fell to $539,290 from $2,209,385, principally due to lower stock-based service expense, fundraising costs, and professional and investor-relations fees. Interest expense decreased to $317,116 from $1,121,307. The company reported a $48,002 gain from changes in derivative fair value, versus a $156,068 loss in the prior-year period. Lower reported losses therefore reflect, in part, noncash financing and valuation items, not revenue growth. Gross margin is not applicable because there was no revenue.
Liquidity, debt, and capital
- Cash was $21,243 at December 31, 2020, down from $67,007 at June 30, 2020. Current assets were $23,183 versus current liabilities of $3,648,657, resulting in a $3,625,474 working-capital deficit.
- Total liabilities were $3,648,657; convertible notes and related accrued interest, net, were $1,209,186. Accounts payable and accrued expenses totaled approximately $1.89 million. Stockholders’ deficit was $3,608,041.
- Operating cash use of $440,975 was partly funded by $200,000 of convertible-note proceeds and $201,044 from warrant exercises, offset by $43,000 of note repayments. Financing cash flow was $358,044.
- Management says existing cash and committed resources are insufficient to meet obligations for the next 12 months and that additional debt or equity financing is required. The filing concludes that substantial doubt exists about the company’s ability to continue as a going concern.
Changes, outlook, and material risks
- On November 17, 2020, the company completed a 1-for-1,000 reverse stock split. Common shares outstanding at December 31 were 1,446,834; 3,635,290 were reported issued and outstanding as of February 9, 2021. Debt conversions and warrant exercises contributed to significant share issuance and potential dilution.
- Management planned to prepare and submit a clinical trial application for PRP during 2021, with a Phase Ib first-in-human study targeted for the fourth quarter of 2021, subject to sufficient financing. These are plans, not assured milestones. The filing also describes research on POP1 and a portfolio of 29 granted patents and 36 applications under examination.
- Several convertible notes were past maturity. The company disclosed default on notes issued in August 2017, August 2019, October 2019, and October 2019, with $320,423 of principal and accrued interest in default at December 31; it was discussing maturity extensions with lenders. Many notes have variable-price conversion terms, default interest, or penalties.
- After period-end, the company disclosed further conversions of $227,021 principal, $33,157 interest, and $3,000 conversion fees into 1,834,604 shares through February 6, 2021. It also received $100,000 from a January warrant exercise and issued additional shares. These events may affect dilution and liquidity.
- COVID-19 effects on operations and access to financing remained uncertain. The company also cited foreign-currency exposure, including its Australian operations, and uninsured Australian bank deposits.
- Legal contingencies include a former-counsel claim seeking $151,031 plus interest and costs, and a Regal Consulting dispute seeking approximately $400,000, 60 shares, and other amounts. The company disputes the claims; the Regal matter was in settlement discussions. Accruals reflect management’s minimum estimate of potential loss.
- Disclosure controls were deemed ineffective due to continuing material weaknesses: no written internal-control documentation, inadequate segregation of duties, no audit committee, and insufficient financial-close review and U.S. GAAP expertise. Management’s proposed remediation depends on raising capital.
Key facts investors should verify
- Available cash, near-term obligations, financing commitments, and whether the company can fund operations and clinical-trial preparation for the next 12 months.
- Current status and terms of past-due or defaulted notes, including conversions, maturity extensions, default charges, and any subsequent financing.
- Post-split share count, shares issuable, lender share reserves, warrant overhang, and the dilution impact of variable-price conversions.
- Actual progress, financing, regulatory requirements, and timing for the PRP clinical-trial application and proposed Phase Ib study.
- Developments and potential exposure in the Foley Shechter and Regal disputes, and progress in remediating the disclosed control weaknesses.