Papyrus Australia’s Cash Flow Correction Highlights Funding and Reporting Risks

Background and Correction Details

Papyrus Australia Ltd (ASX: PPY) has released a revised Appendix 4C quarterly cash flow report for the March 2025 quarter, addressing a material accounting treatment error related to research and development (R&D) expenditure. The company clarified that $527,000 of R&D costs, initially recorded as cash payments offset against a loan account with its Egyptian joint venture entity PPYeg, should have been treated as a non-cash transaction.

This misclassification led to an overstatement of cash outflows in the original filings. Following discussions with auditors, Papyrus Australia corrected the treatment, removing the R&D expenditure from cash payments and adjusting the loan account accordingly. The revision also affects prior monthly and quarterly reports from November 2024 through to February 2025, ensuring consistency across the company’s financial disclosures.

Impact on Cash Flow and Financing

The corrected figures show a less negative net cash flow from operating activities and a slight adjustment in investing activities. For example, the net cash used in operating activities for the March 2025 quarter was revised from -$685,000 to -$284,000, reflecting the non-cash nature of the R&D expenditure. Similarly, investing activities were adjusted to reflect the true cash movements.

On the financing front, Papyrus Australia detailed its loan facilities, including a $250,000 facility with Ramy Azer, which remains undrawn, and a $131,000 loan arrangement with Radium Capital tied to the Australian Government’s R&D Tax Incentive Program. The company is seeking to extend the Radium Capital facility based on additional eligible R&D expenses incurred year to date.

Governance and Compliance Assurance

The company reaffirmed that the revised Appendix 4C complies with Australian Accounting Standards and ASX Listing Rules. It also confirmed that the financial records have been properly maintained and that the report provides a true and fair view of cash flows. Payments to related parties, including company secretarial services and director reimbursements, were disclosed transparently.

Notably, Papyrus Australia does not consolidate the financials of Papyrus Egypt, its joint venture, as it lacks control despite significant equity interests. Instead, Papyrus Egypt’s activities are equity accounted in the half-year and annual reports, maintaining clear separation in financial reporting.

Looking Ahead

With approximately $513,000 in available funding combining cash and unused loan facilities, Papyrus Australia estimates it has just over three quarters of operating runway based on current cash burn rates. The company’s ability to extend financing arrangements and manage cash flow prudently will be critical as it advances its R&D programs and operational objectives.

Investors and analysts will be watching closely for consistent application of accounting standards in future reports and for updates on funding strategies amid ongoing R&D investments.