UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 11, 2022, there were shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.
PROPANC BIOPHARMA INC.
Table of Contents
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| Item 4. | Controls and Procedures | 7 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 8 |
| Item 1A. | Risk Factors | 8 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
| Item 3. | Defaults Upon Senior Securities | 9 |
| Item 4. | Mine Safety Disclosures | 9 |
| Item 5. | Other Information | 9 |
| Item 6. | Exhibits | 9 |
| Signatures | 10 | |
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited interim condensed consolidated financial statements of Propanc Biopharma, Inc. are included in this Quarterly Report on Form 10-Q:
INDEX TO FINANCIAL STATEMENTS
| F-1 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2022 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| GST tax receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Security deposit - related party | ||||||||
| Operating lease right-of-use assets, net - related party | ||||||||
| Property and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Convertible notes and related accrued interest, net of discounts and premiums | ||||||||
| Operating lease liability - related party, current portion | ||||||||
| Embedded conversion option liabilities | ||||||||
| Due to former director - related party | ||||||||
| Loan from former director - related party | ||||||||
| Employee benefit liability | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liability - long-term portion - related party | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and Contingencies (See Note 8) | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, shares authorized, $ par value: | ||||||||
| Series A preferred stock, $ par value; shares authorized; shares issued and outstanding as of September 30, 2022 and June 30, 2022 | $ | $ | ||||||
| Series B preferred stock, $ par value; shares authorized; share issued and outstanding as of September 30, 2022 and June 30, 2022 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively | ||||||||
| Common stock issuable ( and shares as of September 30, 2022 and June 30, 2022, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Subscription receivable | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock ( share) | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| For the three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| REVENUE | ||||||||
| Revenue | $ | $ | ||||||
| OPERATING EXPENSES | ||||||||
| Administration expenses | ||||||||
| Occupancy expenses - related party | ||||||||
| Research and development | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Gain from settlement of accounts payable | ||||||||
| Loss on extinguishment of debt, net | ( | ) | ||||||
| Foreign currency transaction gain | ||||||||
| TOTAL OTHER EXPENSE, NET | ( | ) | ( | ) | ||||
| LOSS BEFORE TAXES | ( | ) | ( | ) | ||||
| Tax benefit | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Deemed Dividend | ( | ) | ( | ) | ||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| BASIC AND DILUTED NET LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE INCOME | ||||||||
| Unrealized foreign currency translation gain | ||||||||
| TOTAL OTHER COMPREHENSIVE INCOME | ||||||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Issuable | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| No. of Shares | Value | No. of Shares | Value | No. of Shares | Value | No. of Shares | Value | Paid-in Capital | Subscription Receivable | Accumulated Deficit | Comprehensive Income | Treasury Stock | Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services and accrued expenses | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation in connection with stock option grants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Issuable | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| No. of Shares | Value | No. of Shares | Value | No. of Shares | Value | No. of Shares | Value | Paid-in Capital | Subscription Receivable | Accumulated Deficit | Comprehensive Income | Treasury Stock | Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for issuable shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation in connection with stock warrant grant | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock warrant grant for settlement of accounts payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Issuance and amortization of common stock for services | ||||||||
| Foreign currency transaction gain | ( | ) | ( | ) | ||||
| Depreciation expense | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of right-of-use assets | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Loss on extinguishment of debt, net | ||||||||
| Gain from settlement of accounts payable | ( | ) | ||||||
| Stock option, stock warrants and restricted stock expense | ||||||||
| Non-cash interest expense | ||||||||
| Accretion of put premium | ||||||||
| Changes in Assets and Liabilities: | ||||||||
| GST receivable | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Employee benefit liability | ||||||||
| Accrued expenses and other payables | ( | ) | ||||||
| Accrued interest | ||||||||
| Operating lease liability | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible promissory notes, net of original issue discounts and issue costs | ||||||||
| Proceeds from the sale of common stock | ||||||||
| Collection of subscription receivable | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect of exchange rate changes on cash | ||||||||
| NET INCREASE IN CASH | ||||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during the period: | ||||||||
| Interest | $ | $ | ||||||
| Income Tax | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Subscription receivable | $ | $ | ||||||
| Reduction of put premium related to conversions of convertible notes | $ | $ | ||||||
| Conversion of convertible notes and accrued interest to common stock | $ | $ | ||||||
| Discounts related to derivative liability | $ | $ | ||||||
| Stock warrant grant for settlement of accounts payable | $ | $ | ||||||
| Common stock issued for accrued services | $ | $ | ||||||
| Warrants issued for accrued services | $ | $ | ||||||
| Deemed dividend upon alternate cashless exercise of warrants | $ | $ | ||||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations
Propanc Biopharma, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated in Melbourne, Victoria Australia on October 15, 2007 as Propanc PTY LTD, and continues to be based in Camberwell, Victoria Australia. Since its inception, substantially all of the operations of the Company have been focused on the development of new cancer treatments targeting high-risk patients, particularly cancer survivors, who need a follow-up, non-toxic, long-term therapy designed to prevent the cancer from returning and spreading. The Company anticipates establishing global markets for its technologies. Our lead product candidate, which we refer to as PRP, is an enhanced pro-enzyme formulation designed to enhance the anti-cancer effects of multiple enzymes acting synergistically. It is currently in the preclinical phase of development.
On November 23, 2010, the Company was incorporated in the state of Delaware as Propanc Health Group Corporation. In January 2011, to reorganize the Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned subsidiary of the Company.
On July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the purpose of submitting an orphan drug application to the European Medicines Agency as a small and medium-sized enterprise. As of September 30, 2022, there has been no activity within this entity.
Effective April 20, 2017, the Company changed its name to “Propanc Biopharma, Inc.” to better reflect the Company’s stage of operations and development.
In July 2020, a world first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 45 granted, allowed, or accepted patents and 20 patents filed, or under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
The Company hopes to capture and protect additional patentable subject matter based on the Company’s field of technology relating to pharmaceutical compositions of proenzymes for treating cancer by filing additional patent applications as it advances its lead product candidate, PRP, through various stages of development.
On May 18, 2022, the board of directors of the Company approved and authorized, and the holders of a majority in interest of the Company’s voting capital stock approved by written consent, in accordance with Section 228 of the Delaware General Corporation Law, for the Company to file a Certificate of Amendment to its Certificate of Incorporation (the “Certificate”) with the Secretary of State of the State of Delaware, which increased the Company’s authorized capital stock. The Certificate increased the number of authorized shares of the Company’s common stock, par value $ per share, from to . The number of authorized shares of preferred stock remains at , such that the total number of shares of all classes and series the Company is authorized to issue is shares. The Certificate was filed and became effective on July 6, 2022.
On September 21, 2022, the board of directors of the Company approved and authorized, and the holders of a majority in interest of the Company’s voting capital stock approved by written consent, in accordance with Section 228 of the Delaware General Corporation Law, for the Company to file a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware, which increased the Company’s authorized capital stock. The Certificate increased the number of authorized shares of the Company’s common stock, par value $ per share, from to . The number of authorized shares of preferred stock remains at , such that the total number of shares of all classes and series the Company is authorized to issue is shares. The Certificate was filed and became effective on November 4, 2022. This increase is presented retroactively on the condensed consolidated balance sheet.
Basis of Presentation
The Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our consolidated results of operations for the three months ended September 30, 2022 and 2021 and cash flows for the three months ended September 30, 2022 and 2021 and our consolidated financial position at September 30, 2022 have been made. The Company’s results of operations for the three months ended September 30, 2022 are not necessarily indicative of the operating results to be expected for the full fiscal year ending June 30, 2023.
Certain information and disclosures normally included in the notes to the Company’s annual audited consolidated financial statements have been condensed or omitted from the Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2022. The June 30, 2022 balance sheet is derived from those statements.
| F-6 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of Propanc Biopharma, Inc., the parent entity, and its wholly-owned subsidiary, Propanc PTY LTD. All inter-company balances and transactions have been eliminated in consolidation. Propanc (UK) Limited was an inactive wholly-owned subsidiary through September 30, 2022.
Use of Estimates
The preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation, valuation of the operating lease liability and related right-of-use asset, valuation of derivatives, allowance for uncollectable receivables, valuation of equity based instruments issued for other than cash, the valuation allowance on deferred tax assets and foreign currency translation due to certain average exchange rates applied in lieu of spot rates on transaction dates.
Foreign Currency Translation and Other Comprehensive Income (Loss)
The Company’s wholly owned subsidiary’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has been translated into the Company’s reporting currency which is the United States dollar ($) and/or (USD). Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as a component of other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of Australian dollars to USD after the balance sheet date.
Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
Assets
and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at
the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency included in the consolidated results of operations as incurred.
Effective fiscal year 2021, the parent company determined that the intercompany loans will not be repaid in the foreseeable future
and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation
adjustment, a component of accumulated other comprehensive income (loss). Prior to July 1, 2020, the Company recorded the foreign
currency transaction gains and losses from measuring the intercompany balances as a component of other income (expenses) titled
foreign currency transaction gain (loss). As of September 30, 2022 and 2021, the Company recognized a cumulative exchange gain of
approximately $
As of September 30, 2022 and June 30, 2022, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the consolidated financial statements were as follows:
| September 30, 2022 | June 30, 2022 | |||||||
| Exchange rate on balance sheet dates | ||||||||
| USD : AUD exchange rate | ||||||||
| Average exchange rate for the period | ||||||||
| USD : AUD exchange rate | ||||||||
The change in Accumulated Other Comprehensive Income by component during the three months ended September 30, 2022 was as follows:
| Foreign Currency Items: | ||||
| Balance, June 30, 2022 | $ | |||
| Unrealized foreign currency translation gain | ||||
| Ending balance, September 30, 2022 | $ | |||
Fair Value of Financial Instruments and Fair Value Measurements
The Company measures its financial assets and liabilities in accordance with US GAAP. For certain financial instruments, including cash and cash equivalents, receivables, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Amounts recorded for notes payable, net of discount, and loans payable also approximate fair value because current interest rates available for debt with similar terms and maturities are substantially the same.
The Company follows accounting guidance for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).
| F-7 |
PROPANC BIOPHARMA, INC. AND
SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs, other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
Also see Note 11 - Derivative Financial Instruments and Fair Value Measurements.
Cash and Cash Equivalents
Cash
and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less with financial
institutions, and bank overdrafts. Bank overdrafts are reflected as a current liability on the balance sheets. There were
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method. The depreciable amount is the cost less its residual value.
The estimated useful lives are as follows:
| Machinery and equipment | -
|
| Furniture | -
|
Patents
Patents are stated at cost and amortized on a straight-line basis over the estimated future periods if and once the patent has been granted by a regulatory agency. However, the Company will expense any patent costs as long as we are in the startup stage. Accordingly, as the Company’s products are not currently approved for market, all patent costs incurred from 2013 through September 30, 2022 were expensed immediately. This practice of expensing patent costs immediately ends when a product receives market authorization from a government regulatory agency.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, “Long-lived assets,” which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Employee Benefit Liability
Liabilities arising in respect of wages and salaries, accumulated annual leave, accumulated long service leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured based on the employee’s remuneration rates applicable at the reporting date. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. All employee liabilities are owed within the next twelve months.
Australian Goods and Services Tax (“GST”)
Revenues, expenses and balance sheet items are recognized net of the amount of GST, except payable and receivable balances which are shown inclusive of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.
Cash flows are presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.
As
of September 30, 2022, and June 30, 2022, the Company was owed $
| F-8 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Derivative Instruments
ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”), establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion or payoff of debt, the Company records the fair value of the conversion shares, removes the fair value of the related derivative liability, removes any discounts and records a net gain or loss on debt extinguishment. On July 1, 2019 the Company adopted ASU 2017-11 under which down-round Features in Financial Instruments will no longer cause derivative treatment. The Company applied the modified prospective method of adoption. There were no cumulative effects on adoption.
Convertible Notes With Variable Conversion Options
The Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at or around the time of conversion. The Company treats these convertible notes as stock settled debt under ASC 480, “Distinguishing Liabilities from Equity” and measures the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion and records the put premium as interest expense.
Income Taxes
The Company is governed by Australia and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. The Company follows ASC 740 “Accounting for Income Taxes,” when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The Company follows ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.
Research and Development Costs and Tax Credits
In
accordance with ASC 730-10, “Research and Development-Overall,” research and development costs are expensed when incurred.
Total research and development costs for the three months ended September 30, 2022 and 2021 were $
The Company may apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, the Company does not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If the Company has net income, then the Company can receive the credit which reduces its income tax liability. If the Company has net losses, then the Company may still receive a cash payment for the credit, however, the Company’s net operating loss carryforwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as tax benefit, in operations, upon receipt.
During
each of the three months ended September 30, 2022 and 2021, the Company applied for, and received from the Australian Taxation Office,
a research and development tax credit in the amount of $
The Company records stock-based compensation in accordance with ASC 718, “Stock Compensation”. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718 and recognizes the fair value of such awards over the service period. The Company used the modified prospective method of adoption.
Revenue Recognition
The Company applies ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. Subject to these criteria, the Company intends to recognize revenue relating to royalties on product sales in the period in which the sale occurs and the royalty term has begun.
| F-9 |
PROPANC BIOPHARMA, INC. AND
SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Legal Expenses
All legal costs for litigation are charged to expense as incurred.
Leases
The Company follows ASC Topic 842, Leases (Topic 842) and applies the package of practical expedients, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. Operating lease right of use assets (“ROU”) represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses.
Basic
net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.
Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for
the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental
common shares issuable upon exercise of common stock equivalents such as stock options, warrants and convertible debt instruments. Potentially
dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, the basic and diluted per share
amounts for all periods presented are identical.
| September 30, 2022 | September 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Stock Options | ||||||||
| Stock Warrants with no designations | ||||||||
| Series A Warrants as if converted at alternate cashless exercise price | ||||||||
| Series B Warrants | ||||||||
| Series C Warrants as if converted at alternate cashless exercise price* | ||||||||
| Unvested restricted stock | ||||||||
| Convertible Debt | ||||||||
| Total | ||||||||
| * |
Recent Accounting Pronouncements
We have reviewed the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40), which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments, amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions, and modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS calculation. The standard is effective for annual periods beginning after December 15, 2023 for smaller reporting companies, and interim periods within those reporting periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those reporting periods. The Company is currently assessing the impact the new guidance will have on our consolidated financial statements.
NOTE 2 – GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation
of the Company as a going concern. For the three months ended September 30, 2022, the Company had no revenues, had a net loss of $
The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities, acceptance of the Company’s patent applications, obtaining additional sources of suitable and adequate financing and ultimately achieving a level of sales adequate to support the Company’s cost structure and business plan. The Company’s ability to continue as a going concern is also dependent on its ability to further develop and execute on its business plan. However, there can be no assurances that any or all of these endeavors will be successful.
| F-10 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, Europe and Australia, including in each of the areas in which the Company operates. The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses, reduced investing activity and M&A transactions, among many other effects attributable to the COVID-19 (coronavirus), and there continue to be many unknowns. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19 (coronavirus) outbreak will impact our operations, ability to obtain financing or future financial results is uncertain.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following As of September 30, 2022 and June 30, 2022.
| September 30, 2022 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Office equipment at cost | $ | $ | ||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property, plant, and equipment | $ | $ | ||||||
Depreciation
expense for the three months ended September 30, 2022 and 2021 were $
NOTE 4 – DUE TO FORMER DIRECTOR - RELATED PARTY
Due
to former director - related party represents unsecured advances made primarily by a former director for operating expenses on behalf
of the Company such as intellectual property and formation expenses. The expenses were paid for on behalf of the Company and are due
upon demand. The Company is currently not being charged interest under these advances. The total amount owed the former director at September
30, 2022 and June 30, 2022 were $
NOTE 5 – LOAN FROM FORMER DIRECTOR – RELATED PARTY
Loan from Former Director - Related Party
Loan
from the Company’s former director at September 30, 2022 and June 30, 2022 was $
NOTE 6 – CONVERTIBLE NOTES
The Company’s convertible notes outstanding at September 30, 2022 and June 30, 2022 were as follows:
| September 30, 2022 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Convertible notes and debenture | $ | $ | ||||||
| Unamortized discounts | ( | ) | ( | ) | ||||
| Accrued interest | ||||||||
| Premium, net | ||||||||
| Convertible notes, net | $ | $ | ||||||
| F-11 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Convertible Note Issued with Consulting Agreement
August 10, 2017 Consulting Agreement
On
August 10, 2017, the Company entered into a consulting agreement, retroactive to May 16, 2017, with a certain consultant, pursuant to
which the consultant agreed to provide certain consulting and business advisory services in exchange for a $
On
March 15, 2021, the Company entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with the
consultant whereby both parties agreed to settle all claims and liabilities under the August 10, 2017 Convertible note for a total of
$
The
total principal and accrued interest outstanding under the August 10, 2017 Convertible Note was $
The
total principal and accrued interest outstanding under the August 10, 2017 Convertible Note was $
Crown Bridge Securities Purchase Agreements
Effective
October 3, 2019, the Company entered into a securities purchase agreement with Crown Bridge Partners, pursuant to which Crown Bridge
purchased a convertible promissory note (the “October 3, 2019 Crown Bridge Note”) from the Company in the aggregate principal
amount of $
Additionally,
Crown Bridge has the option to convert all or any amount of the principal face amount of the October 3, 2019 Crown Bridge Note at any
time from the date of issuance and ending on the later of the maturity date or the date the Default Amount is paid if an event of default
occurs, which is an amount between
The
October 3, 2019 Crown Bridge Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate
of
The
total principal amount outstanding under the above Crown Bridge financing agreement was $
There
were unissued shares which were considered issuable for accounting purposes during the 1st quarter of fiscal 2021 related
to a conversion notice dated and received on September 16, 2020. In November 2020, the Company was notified by the note holder of the
cancellation of this conversion notice as a result of the reverse stock split and as such the Company reversed the effects of this transaction
thereby increasing the principal balance by $
The
total principal amount outstanding under the above Crown Bridge financing agreement was $
| F-12 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
1800 Diagonal Lending (formerly known as Sixth Street Lending) Securities Purchase Agreements
October 21, 2021 Securities Purchase Agreement
Effective
October 21, 2021, the Company entered into a securities purchase agreement with Sixth Street Lending LLC (“Sixth Street”),
pursuant to which Sixth Street purchased a convertible promissory note (the “October 21, 2021 Sixth Street”) from the Company
in the aggregate principal amount of $
November 26, 2021 Securities Purchase Agreement
Effective
November 26, 2021, the Company entered into a securities purchase agreement with Sixth Street Lending LLC pursuant to which Sixth Street
purchased a convertible promissory note (the “November 26, 2021 Sixth Street”) from the Company in the aggregate principal
amount of $
January 4, 2022 Securities Purchase Agreement
Additionally,
effective January 4, 2022, the Company entered into a securities purchase agreement with Sixth Street Lending LLC pursuant to which Sixth
Street purchased a convertible promissory note (the “January 4, 2022 Sixth Street”) from the Company in the aggregate principal
amount of $
March 7, 2022 Securities Purchase Agreement
Additionally,
effective March 7, 2022, the Company entered into a securities purchase agreement with Sixth Street Lending LLC pursuant to which
Sixth Street purchased a convertible promissory note (the “March 7, 2022 Sixth Street”) from the Company in the
aggregate principal amount of $
April 12, 2022 Securities Purchase Agreement
Effective
April 12, 2022, the Company entered into a securities purchase agreement with Sixth Street Lending LLC, pursuant to which Sixth Street
purchased a convertible promissory note (the “April 12, 2022 Sixth Street”) from the Company in the aggregate principal amount
of $
May 12, 2022 Securities Purchase Agreement
Effective
May 12, 2022, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC (“1800 Diagonal”),
pursuant to which 1800 Diagonal purchased a convertible promissory note (the “May 12, 2022 1800 Diagonal Note”) from the
Company in the aggregate principal amount of $
| F-13 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
June 30, 2022 Securities Purchase Agreement
On
June 30, 2022, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC, which closed on July 11, 2022,
pursuant to which 1800 Diagonal purchased a convertible promissory note (the “July 11, 2022 1800 Diagonal Note”) from the
Company in the aggregate principal amount of $
The following terms shall apply to all the above 1800 Diagonal notes:
During
the first 60 to 180 days following the date of the above listed notes, the Company has the right to prepay the principal and accrued
but unpaid interest due under the above notes issued, together with any other amounts that the Company may owe the holder under the terms
of the note, at a premium ranging from
The
above 1800 Diagonal notes contain certain events of default, upon which principal and accrued interest will become immediately due and
payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of
Other than as described above, the above 1800 Diagonal notes contain certain events of default, including failure to timely issue shares upon receipt of a notice of conversion, as well as certain customary events of default, including, among others, breach of covenants, representations or warranties, insolvency, bankruptcy, liquidation and failure by the Company to pay the principal and interest due under the Note. Additional events of default shall include, among others: (i) failure to reserve at least five times the number of shares issuable upon full conversion of the Note; (ii) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company; provided, that in the event such event is triggered without the Company’s consent, the Company shall have sixty (60) days after such event is triggered to discharge such event, (iii) the Company’s failure to maintain the listing of the common stock on at least one of the OTC markets (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange, or the American Stock Exchange, (iv) The restatement of any financial statements filed by the Company with the SEC at any time after 180 days after the issuance date for any date or period until this note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement, have reasonably constituted a material adverse effect on the rights of 1800 Diagonal with respect to this note or the Purchase Agreement, and (v) the Company’s failure to comply with its reporting requirements of the Securities and Exchange Act of 1934 (the “Exchange Act”), and/or the Company ceases to be subject to the reporting requirements of the Exchange Act.
In
the event that the Company fails to deliver the shares of common stock issuable upon conversion of principal or interest under the above
1800 Diagonal notes within three business days of a notice of conversion by 1800 Diagonal, the Company shall incur a penalty of $
Upon the occurrence and during the continuation of certain events of default, the above 1800 Diagonal notes will become immediately due and payable and the Company will pay 1800 Diagonal in full satisfaction of its obligations in the amount equal to % of an amount equal to the then outstanding principal amount of the above 1800 Diagonal notes plus any interest accrued upon such event of default or prior events of default (the “Default Amount”). Further upon the occurrence and during the continuation of any event of default specified in section 3.2 as defined in the 1800 Diagonal note agreements and relates to the failure to issue shares of the Company’s common stock upon the conversion of 1800 Diagonal notes, such above 1800 Diagonal notes shall become immediately due and payable in an amount equal to the Default Amount multiplied by two.
The
total principal amount outstanding under the above 1800 Diagonal financing agreements were $
The
total principal amount outstanding under the above 1800 Diagonal financing agreements were $
| F-14 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
ONE44 Capital Securities Purchase Agreements
December 7, 2021 Securities Purchase Agreement
Effective
December 7, 2021, the Company entered into a securities purchase agreement with ONE44 Capital LLC (“ONE44”), pursuant to
which ONE44 purchased a convertible promissory note (the “December 7, 2021 ONE44”) from the Company in the aggregate principal
amount of $
March 29, 2022 Securities Purchase Agreement
Effective
March 29, 2022, the Company entered into a securities purchase agreement with ONE44 Capital LLC, pursuant to which ONE44 purchased a
convertible promissory note (the “March 29, 2022 ONE44”) from the Company in the aggregate principal amount of $
August 15, 2022 Securities Purchase Agreement
On
August 15, 2022, the Company entered into a securities purchase agreement with ONE44 Capital LLC, pursuant to which ONE44 Capital purchased
a convertible redeemable note (the “August 15, 2022 ONE44 Note”) from the Company in the aggregate principal amount of $
The following terms shall apply to all the above ONE44 notes:
During
the first 60 to 180 days following the date of these notes, the Company has the right to prepay the principal and accrued but unpaid
interest due under the above notes issued to ONE44, together with any other amounts that the Company may owe the holder under the terms
of the note, at a premium ranging from
The
above ONE44 notes contain certain events of default, upon which principal and accrued interest will become immediately due and payable.
In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of
The
total principal amount outstanding under the above ONE44 financing agreements were $
The
total principal amount outstanding under the above ONE44 financing agreements were $
| F-15 |
PROPANC BIOPHARMA, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
GS Capital Partners Securities Purchase Agreements
August 12, 2022 Securities Purchase Agreement
On
August 12, 2022, the Company entered into a securities purchase agreement (the “GS Capital Purchase Agreement”) with GS Capital
Partners, LLC (“GS Capital”), pursuant to which GS Capital purchased a convertible redeemable note (the “GS Capital
Note”) from the Company in the aggregate principal amount of $
The
maturity date of the GS Capital Note is
September 21, 2022 Securities Purchase Agreement
On
September 21, 2022, the Company entered into a securities purchase agreement with GS Capital Partners, LLC, pursuant to which GS Capital
purchased a convertible redeemable note from the Company in the aggregate principal amount of $
The
maturity date of the GS Capital Note is
During
the first 60 to 180 days following the date of the above GS Capital notes, the Company has the right to prepay the principal and accrued
but unpaid interest due under the above notes issued to GS Capital, together with any other amounts that the Company may owe the holder
under the terms of the notes, at a premium ranging from
Upon
the occurrence and during the continuation of certain events of default, interest shall accrue at a default interest rate of
The
total principal outstanding and accrued interest under the above GS Capital notes were $
Convertible notes in default
There
is one convertible note that is currently past due and in default, consisting of $
| F-16 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Amortization of debt discounts
The
Company recorded $
Amortization
of all debt discounts for the three months ended September 30, 2022 and 2021 was $
The
Company reclassified $
NOTE 7 – STOCKHOLDERS’ DEFICIT
Increase in Authorized Shares of Common Stock and Reverse Stock Split
On May 18, 2022, the board of directors of the Company approved and authorized, and the holders of a majority in interest of the Company’s voting capital stock approved by written consent, in accordance with Section 228 of the Delaware General Corporation Law, for the Company to file a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware, which increased the Company’s authorized capital stock. The Certificate increased the number of authorized shares of the Company’s common stock, par value $ per share, from to . The number of authorized shares of preferred stock remains at , such that the total number of shares of all classes and series the Company is authorized to issue is shares.
On September 21, 2022, the board of directors of the Company approved and authorized, and the holders of a majority in interest of the Company’s voting capital stock approved by written consent, in accordance with Section 228 of the Delaware General Corporation Law, for the Company to file a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware, which increased the Company’s authorized capital stock. The Certificate increased the number of authorized shares of the Company’s common stock, par value $ per share, from to . The number of authorized shares of preferred stock remains at , such that the total number of shares of all classes and series the Company is authorized to issue is shares. The Certificate was filed and became effective on November 4, 2022. This increase is presented retroactively on the condensed consolidated balance sheet.
Preferred Stock
The total number of shares of preferred stock that the Company is authorized to issue is , $ par value per share. These preferred shares have no rights to dividends, profit sharing or liquidation preferences.
Of the total preferred shares authorized, have been designated as Series A Preferred Stock (“Series A Preferred Stock”), pursuant to the Certificate of Designation filed with the Secretary of State of the State of Delaware on December 9, 2014. James Nathanielsz, the Company’s Chief Executive Officer and Chief Financial Officer, beneficially owns all of the outstanding shares of Series A Preferred Stock via North Horizon Pty Ltd., which entitles him, as a holder of Series A Preferred Stock, to vote on all matters submitted or required to be submitted to a vote of the Company’s stockholders, except election and removal of directors, and each share of Series A Preferred Stock entitles him to two votes per share of Series A Preferred Stock. North Horizon Pty Ltd. is a Nathanielsz Family Trust. Mr. James Nathanielsz, the Chief Executive Officer, Chief Financial Officer and a director of our Company, has voting and investment power over these shares. shares of Series A Preferred Stock are issued and outstanding as of September 30, 2022 and June 30, 2022.
Of the total preferred shares authorized, pursuant to the Certificate of Designation filed with the Secretary of State of the State of Delaware on June 16, 2015, up to five shares have been designated as Series B Preferred Stock (“Series B Preferred Stock”). Each holder of outstanding shares of Series B Preferred Stock is entitled to voting power equivalent to the number of votes equal to the total number of shares of common stock outstanding as of the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company and entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the Company. share of Series B Preferred Stock is issued and outstanding as of September 30, 2022 and June 30, 2022. Mr. Nathanielsz directly beneficially owns such share of Series B Preferred Stock.
additional shares of Series A Preferred Stock or Series B Preferred Stock were issued during the three months ended September 30, 2022 and fiscal year 2022.
Common Stock:
Shares issued for Common Stock Purchase Agreement
On
November 30, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Dutchess Capital
Growth Fund LP, a Delaware limited partnership, (“Dutchess”), providing for an equity financing facility (the “Equity
Line”). The Purchase Agreement provides that upon the terms and subject to the conditions in the Purchase Agreement, Dutchess is
committed to purchase up to Five Million Dollars ($
| F-17 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Under the terms of the Purchase Agreement, Dutchess will not be obligated to purchase shares of Common Stock unless and until certain conditions are met, including but not limited to a Registration Statement on Form S-1 (the “Registration Statement”) becoming effective which registers Dutchess’ resale of any Common Stock purchased by Dutchess under the Equity Line. From time to time over the 36-month term of the Purchase Agreement, commencing on the trading day immediately following the date on which the Registration Statement becomes effective, the Company, in our sole discretion, may provide Dutchess with a draw down notice (each, a “Draw Down Notice”), to purchase a specified number of shares of Common Stock (each, a “Draw Down Amount Requested”), subject to the limitations discussed below. The actual amount of proceeds the Company will receive pursuant to each Draw Down Notice (each, a “Draw Down Amount”) is to be determined by multiplying the Draw Down Amount Requested by the applicable purchase price. The purchase price of each share of Common Stock equals % of the lowest trading price of the Common Stock during the five (5) business days prior to the Closing Date. Closing Date shall mean the five (5) business days after the Clearing Date. Clearing Date shall mean the first business day that the Selling Shareholder holds the Draw Down Amount in its brokerage account and is eligible to trade the shares.
The
maximum number of shares of Common Stock requested to be purchased pursuant to any single Draw Down Notice cannot exceed the lesser of
(i)
On
July 13, 2022, the Company issued shares of its common stock at an average price per share of approximately $, as a result
of delivering one draw down notice to the Investor. Consequently, the Company received gross aggregate proceeds of $
Shares issued for conversion of convertible debt
As of June 30, 2022, there was common stock issuable of from the conversion of debt during fiscal 2022. The common stock issuable of were issued on July 12, 2022.
From
July 1, 2022 through September 14, 2022, the Company issued an aggregate of shares of its common stock at an average contractual
conversion price of $
The
Company reclassified $
During
the three months ended September 30, 2022, converted notes - principal of $
The Company has shares of its common stock reserved for future issuances based on lender reserve requirements pursuant to underlying financing agreements at September 30, 2022.
Shares issued for services and accrued expenses
As of June 30, 2022, there was common stock issuable of for services rendered during fiscal 2022. The common stock issuable of were issued on July 1, 2022.
Shares issued for exercise of warrants
Between
July 29, 2022 and September 9, 2022, the Company received gross proceeds of $
During
the three months ended September 30, 2022, the Company issued shares of common stock from the alternate cashless exercise
of
| F-18 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Restricted Stock Units
Pursuant
to employment agreements dated in May 2019, the Company granted an aggregate of and restricted stock units to the Company’s
Chief Executive Officer and Chief Scientific Officer, respectively. The total restricted stock units are subject to vesting terms
as defined in the employment agreements. The 117 restricted stock units were valued at the fair value of $ per unit or $
based on the quoted trading price on the date of grant. There were $
Warrants:
The following table summarizes warrant activity for the three months ended September 30, 2022:
| Weighted | ||||||||
| Number of | Average | |||||||
| Shares | Price Per Share | |||||||
| Outstanding at June 30, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Expired | ||||||||
| Outstanding at September 30, 2022 | * | $ | ||||||
| Exercisable at September 30, 2022 | $ | |||||||
| Outstanding and Exercisable: | ||||||||
| Weighted average remaining contractual term | ||||||||
| Aggregate intrinsic value | $ | |||||||
| * |
| Number of Warrants | Exercisable | |||||||
| Series A warrants | ||||||||
| Series B warrants | ||||||||
| Series C warrants | ||||||||
| Warrants with no class designation | ||||||||
| Total | ||||||||
On
August 16, 2022, the Company entered into an agreement with a certain consultant to provide services over a three-month period in exchange
for
On
August 16, 2022, the Company and a third-party investor relations consultant agreed to settle an outstanding payable of $
Options:
| Weighted | ||||||||
| Number of | Average Exercise | |||||||
| Shares | Price Per Share | |||||||
| Outstanding at June 30, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding at September 30, 2022 | $ | |||||||
| Exercisable at September 30, 2022 | $ | |||||||
| Outstanding and Exercisable: | ||||||||
| Weighted average remaining contractual term | ||||||||
| Weighted average fair value of options granted during the period | $ | |||||||
| Aggregate intrinsic value | $ | |||||||
| F-19 |
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
On the Effective Date, the Company’s board of directors approved and adopted the Company’s 2019 Equity Incentive Plan (the “2019 Plan”), which reserves a total of shares of the Company’s common stock for issuance under the 2019 Plan. Incentive awards authorized under the 2019 Plan include, but are not limited to, incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units.
During
the three months ended September 30, 2022 and 2021, the Company recognized stock-based compensation of $ and $, respectively related
to vested stock options. There was $
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be subject to litigation and claims arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings and the Company is not aware of any pending or threatened legal proceeding against the Company that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
IRS Liability
As
part of its requirement for having a foreign operating subsidiary, the Company’s parent U.S. entity is required to file an informational
Form 5471 to the Internal Revenue Service (the “IRS”), which is a form that explains the nature of the relationship between
the foreign subsidiary and the parent company. From 2012 through the 2014, the Company did not file this form in a timely manner. As
a result of the non-timely filings, the Company incurred a penalty from the IRS in the amount of $
Operating Agreements
In
November 2009, the Company entered into a commercialization agreement with the University of Bath (UK) (the “University”)
whereby the Company and the University co-owned the intellectual property relating to the Company’s pro-enzyme formulations. In
June 2012, the Company and the University entered into an assignment and amendment whereby the Company assumed full ownership of the
intellectual property while agreeing to pay royalties of
Collaboration Agreement
On
September 13, 2018, the Company entered into a two-year collaboration agreement with the University of Jaén (the “University”)
to provide certain research services to the Company. In consideration of such services, the Company agreed to pay the University approximately
On
July 27, 2022, the Company entered into a two-year research agreement with the University of Jaén to provide certain research
and experiment services to the Company. In exchange for full ownership of the intellectual property the Company agreed to pay royalties
of
-
-
-
-
-
The commencement date for the experiments was on September 1, 2022, and the estimated length of time for completion is 24 months.
| F-20 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
As
of September 30, 2022 and June 30, 2022, the Company has $
Consulting Agreement
On
July 1, 2022, the Company and a consultant agreed to extend the term of a consulting agreement from July 1, 2022 to June 30, 2023 to
provide media related services for a monthly fee of $
Operating Leases
On
May 4, 2022, the Company entered in a -year lease agreement with North Horizon Pty Ltd., a related party, (see Note 9) for a monthly
rent of $
ROU is summarized below:
| September 30, 2022 | June 30, 2022 | |||||||
| Office lease | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Right-of-use asset, net | $ | $ | ||||||
Operating Lease liabilities are summarized below:
| September 30, 2022 | June 30, 2022 | |||||||
| Office lease | $ | $ | ||||||
| Reduction of lease liability | ( | ) | ( | ) | ||||
| Less: office lease, current portion | ( | ) | ( | ) | ||||
| Long term portion of lease liability | $ | $ | ||||||
Remaining future minimum lease payments under non-cancelable operating lease at September 30, 2022 are as follows:
| Fiscal Year 2023 | $ | |||
| Fiscal Year 2024 | ||||
| Fiscal Year 2025 | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ |
The
weighted average remaining lease term for the operating lease is
NOTE 9 – RELATED PARTY TRANSACTIONS
Since its inception, the Company has conducted transactions with its directors and entities related to such directors. These transactions have included the following:
As
of September 30, 2022 and June 30, 2022, the Company owed its former director a total of $
As
of September 30, 2022 and June 30, 2022, the Company owed its former director a total of $
On
May 4, 2022, the Company entered into a -year lease agreement with North Horizon Pty Ltd., a related party, of which Mr. Nathanielsz,
our CEO, CFO and a director, and his wife are owners and directors, for a monthly rent of $
| F-21 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Employment and Services Agreements with Management
The
Company and Mr. Nathanielsz entered into an employment agreement as of February 25, 2015 (the “Nathanielsz Employment Agreement”)
setting forth the terms and conditions of Mr. Nathanielsz employment as the Company’s President and Chief Executive Officer. The
Nathanielsz Employment Agreement was scheduled to expire on
Mr.
Nathanielsz’s wife, Sylvia Nathanielsz, is and has been a non-executive part-time employee of the Company since October 2015. Effective
February 1, 2018, Mrs. Nathanielsz receives an annual salary of $
Pursuant
to a February 25, 2016 board resolution, James Nathanielsz shall be paid $
Pursuant
to the approval of the Company’s board of directors, on May 14, 2019, Mr. Nathanielsz was granted a $
Amended
and Restated Employment Agreement - On May 14, 2019 (the “Effective Date”), the Company entered into an Amended and Restated
Employment Agreement (the “Employment Agreement”) with James Nathanielsz, the Company’s Chief Executive Officer, Chairman,
acting Chief Financial Officer and a director, for a term of
| F-22 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Amended
and Restated Services Agreement - On May 14, 2019, the Company also entered into an Amended and Restated Services Agreement (the “Services
Agreement”) with Dr. Kenyon, the Company’s Chief Scientific Officer and a director, for a term of
Collaboration Agreement
On October 1, 2020, the Company entered into a two-year collaboration agreement with the University of Jaén to provide certain research services to the Company. One of the Company’s Scientific Advisory Board is the lead joint researcher of University of Jaén. Additionally, on July 27, 2022, the Company entered into a two-year research agreement with the University of Jaén to provide certain research and experiment services to the Company (see Note 8). Further, the Company agreed to pay royalties of 1% of net revenues each to two members of the Scientific Advisory Board.
Intercompany Loans
All Intercompany loans were made by the parent to the subsidiary, Propanc PTY LTD, which have not been repaid as of September 30, 2022. Effective fiscal year 2021, the parent company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment on the consolidated balance sheet as accumulated other comprehensive income.
NOTE 10 – CONCENTRATIONS AND RISKS
Concentration of Credit Risk
The Company maintains its cash in banks and financial institutions in Australia. Bank deposits in Australian banks are uninsured. The Company has not experienced any losses in such accounts through September 30, 2022.
The
Company primarily relied on funding from three convertible debt lenders and received net proceeds after deductions of $
The
Company primarily relied on funding from one convertible debt lender and received proceeds after deductions of $
Receivable Concentration
As
of September 30, 2022 and June 30, 2022, the Company’s receivables were
| F-23 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Patent and Patent Concentration
The Company has filed multiple patent applications relating to its lead product, PRP. The Company’s lead patent application has been granted and remains in force in the United States, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein, Turkey, United Kingdom, Australia, China, Japan, Indonesia, Israel, New Zealand, Singapore, Malaysia, South Africa, Mexico, Republic of Korea, India and Brazil. In Canada, the patent application remains under examination.
In 2016 and early 2017, we filed other patent applications. Three applications were filed under the Patent Cooperation Treaty (the “PCT”). The PCT assists applicants in seeking patent protection by filing one international patent application under the PCT, applicants can simultaneously seek protection for an invention in over 150 countries. Once filed, the application is placed under the control of the national or regional patent offices, as applicable, in what is called the national phase. One of the PCT applications filed in November 2016, entered national phase in July 2018 and another PCT application is currently entering national phase in August 2018. A third PCT application entered the national phase in October 2018.
In July 2020, a world first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 45 granted, allowed, or accepted patents and 20 patents filed, or under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
Further patent applications are expected to be filed to capture and protect additional patentable subject matter based on the Company’s field of technology relating to pharmaceutical compositions of proenzymes for treating cancer.
Foreign Operations
As of September 30, 2022 and June 30, 2022, the Company’s operations are based in Camberwell, Australia, however the majority of research and development is being conducted in the European Union.
On July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the purpose of submitting an orphan drug application with the European Medicines Agency as a small and medium-sized enterprise. As of September 30, 2022 and June 30, 2022, there has been no activity within this entity.
NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative Financial Instruments:
The
Company applies the provisions of ASC 815-40, Contracts in Entity’s Own Equity, under which convertible instruments and
warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative
accounting treatment. As a result, warrants and embedded conversion options in convertible debt are recorded as a liability and are revalued
at fair value at each reporting date. If the fair value of the warrants exceeds the face value of the related debt, the excess is recorded
as change in fair value in operations on the issuance date. The Company had $
The Company calculates the estimated fair values of the liabilities for derivative instruments using the Binomial Trees Method. The closing price of the Company’s common stock at September 30, 2022, the last trading day of the period ended September 30, 2022, was $. The volatility, expected remaining term and risk-free interest rates used to estimate the fair value of derivative liabilities at September 30, 2022 are indicated in the table that follows. The expected term is equal to the remaining term of the warrants or convertible instruments and the risk-free rate is based upon rates for treasury securities with the same term.
Convertible Debt
Initial Valuations (on new derivative instruments entered into during the three months ended September 30, 2022) | September 30, 2022 | |||||||
| Volatility | % | % | ||||||
| Expected Remaining Term (in years) | ||||||||
| Risk Free Interest Rate | % | % | ||||||
| Expected dividend yield | ||||||||
| F-24 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Fair Value Measurements:
The Company measures and reports at fair value the liability for derivative instruments. The fair value liabilities for price adjustable warrants and embedded conversion options have been recorded as determined utilizing the Binomial Trees model. The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and June 30, 2022:
Balance at September 30, | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Embedded conversion option liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Balance at June 30, | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Embedded conversion option liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following is a roll forward for the three months ended September 30, 2022 of the fair value liability of price adjustable derivative instruments:
| Fair Value of | ||||
| Liability for | ||||
| Derivative | ||||
| Instruments | ||||
| Balance at June 30, 2022 | $ | |||
| Initial fair value of embedded conversion option derivative liability recorded as debt discount | ||||
| Reduction of derivative liability upon debt conversion | ( | ) | ||
| Change in fair value included in statements of operations | ( | ) | ||
| Balance at September 30, 2022 | $ | |||
NOTE 12 – SUBSEQUENT EVENTS
Shares issued for conversion of convertible debt
Between
October 2022 and November 2022, the Company issued an aggregate of shares of its common stock at a contractual conversion
price of $
Red Road Holdings Securities Purchase Agreement
On
October 6, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Red Road Holdings
Corporation, a Virginia corporation (“Red Road”), pursuant to which Red Road purchased a convertible promissory note (the
“Note”) from the Company in the aggregate principal amount of $
The
conversion price for the Note shall be equal to the Variable Conversion Price (as defined herein) (subject to equitable adjustments for
stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any
subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
| F-25 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
In
the event that the Company fails to deliver to Red Road shares of common stock issuable upon conversion of principal or interest under
the Note within three business days of a notice of conversion by Red Road, the Company shall incur a penalty of $
Shares issued for exercise of warrants
In
October 2022, the Company issued shares of common stock from the alternate cashless exercise of 168 Series A warrants. The
Company recognized the value of the effect of a down round feature in such warrants when triggered. Upon the occurrence of the triggering
event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference
between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the
warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the
Company recognized deemed dividend of $
In
October 2022, the Company received aggregate gross proceeds of $
Shares issued for services
In
October 2022, the Company issued shares of the Company’s common stock to a consultant for services rendered in October
2022. The Company valued these shares based on quoted trading prices on the date of grant at $ per share or $
Amended and Restated Employment Agreement
On October 26, 2022, the Company entered into an Amended and Restated Employment Agreement (the “Amended Agreement”) with James Nathanielsz, the Company’s Chief Executive Officer and Chief Financial Officer (the “Executive”), effective as of July 1, 2022, (the “Effective Date”).
The
Amended Agreement provides the Executive with a base salary of $
In the event that the Company provides notice of non-renewal of Executive’s Amended Agreement, the Company terminates Executive without cause (as defined in the Amended Agreement) or Mr. Nathanielsz terminates his employment for good reason (as defined in the Amended Agreement), the Company has agreed to pay Executive a severance payment in an amount equal to Executive’s base salary for the year of termination in addition to accrued but unpaid salary, reimbursement of expenses, and certain other employee benefits as determined under the terms of the applicable plans (“Accrued Amounts”). In the event that Executive provides notice of non-renewal of the Amended Agreement, the Company terminates Mr. Nathanielsz for cause (as defined in the Amended Agreement) or Executive terminates his employment without good reason, Executive is only entitled to the Accrued Amounts.
The Company has agreed to indemnify Executive for any liabilities, costs and expenses incurred in the event that Executive is made a party to a proceeding due to his roles with the Company, other than any proceeding initiated by Executive or the Company relating to any dispute with respect to the Amended Agreement or Executive’s employment. Under the terms of the Amended Agreement, the Executive is also subject to certain restrictive covenants, including a one-year non-compete.
Increase in Authorized Shares
On September 21, 2022, the board of directors of the Company approved and authorized, and the holders of a majority in interest of the Company’s voting capital stock approved by written consent, in accordance with Section 228 of the Delaware General Corporation Law, for the Company to file a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware, which increased the Company’s authorized capital stock. The Certificate increased the number of authorized shares of the Company’s common stock, par value $ per share, from to . The number of authorized shares of preferred stock remains at , such that the total number of shares of all classes and series the Company is authorized to issue is shares. The Certificate was filed and became effective on November 4, 2022.
| F-26 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Common Stock Purchase Agreement
On
November 3, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Coventry Enterprises,
LLC, a Delaware limited company, (“Coventry”), providing for an equity financing facility (the “Equity Line”).
The Purchase Agreement provides that upon the terms and subject to the conditions in the Purchase Agreement, Coventry is committed to
purchase up to Five Million Dollars ($
Under the terms of the Purchase Agreement, Coventry will not be obligated to purchase shares of Common Stock unless and until certain conditions are met, including but not limited to a Registration Statement on Form S-1 (the “Registration Statement”) becoming effective which registers Coventry’s resale of any Common Stock purchased by Coventry under the Equity Line. From time to time over the 36-month term of the Purchase Agreement, commencing on the trading day immediately following the date on which the Registration Statement becomes effective, the Company, in our sole discretion, may provide Coventry with a draw down notice (each, a “Draw Down Notice”), to purchase a specified number of shares of Common Stock (each, a “Draw Down Amount Requested”), subject to the limitations discussed below. The actual amount of proceeds the Company will receive pursuant to each Draw Down Notice (each, a “Draw Down Amount”) is to be determined by multiplying the Draw Down Amount Requested by the applicable purchase price. The purchase price of each share of Common Stock equals 80% of the lowest volume weighted average price of the Common Stock during the 10 business days immediately preceding the Drawdown Notice date.
The
maximum number of shares of Common Stock requested to be purchased pursuant to any single Draw Down Notice cannot exceed the lesser of
(i)
Coventry Enterprises, LLC Securities Purchase Agreement
On
November 3, 2022, the Company entered into a securities purchase agreement with Coventry Enterprises, LLC pursuant to which Coventry
purchased a promissory note from the Company in the aggregate principal amount of $
The
Coventry note shall bear interest at a rate of
Additionally, in the event that while this note has been outstanding for four months, there is a REG A effective, then the Investor may choose to convert any amount up to the entire balance of the note including guaranteed interest into shares at the REG A offering price.
At any time following an event of default under 7(a)(i), this note shall become convertible, in whole or in part, into shares of Common Stock at the option of the holder, at any time and from time to time thereafter (subject to the beneficial ownership limitations set forth in Section 5d). The conversion price of this note is ninety percent (90%) per share of the lowest per-share VWAP during the twenty (20) trading day period before the conversion (each, a “Calculated Conversion Price”). In the event that, within 30 calendar days either before or after any conversion, the conversion price of which is based upon a Calculated Conversion Price, the Company consummates (in whole or in part) any financing (whether such financing is equity, equity-equivalent, or debt or any combination thereof ) or for any other reason issues any shares of its Common Stock or any Common Stock Equivalents at a price less than the such most recent Calculated Conversion Price (the “Alternative Conversion Price”), regardless of when that note or instrument was originated, then, in respect of such conversion and at the option of the Holder, (i) if the conversion shall not then have yet occurred, then the Alternative Conversion Price shall be substituted for the Calculated Conversion Price and (ii) if the conversion shall already have occurred, then, within two Trading Days following the written request from the Holder therefor, the Company shall issue to the Holder that number of shares of Common Stock equivalent to the difference between the number of shares of Common Stock that had been issued using the Calculated Conversion Price and the number of shares of Common Stock that would have been issued using the Alternative Conversion Price.
Upon the occurrence and during the continuation of certain events of default, interest shall accrue at a default interest rate which shall be equal to the lesser of i) 18% per annum or ii) the maximum rate permitted by law. Subject to the beneficial ownership limitation as set forth in Section 5(d), if any event of default occurs, then the outstanding principal amount of this note, the outstanding guaranteed interest amount of this note, plus accrued but unpaid default rate interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable at the holder’s option, in cash or in shares of Common Stock, at the mandatory default amount which payment is equal to 120% of the outstanding principal amount of this note and accrued and unpaid interest hereon, in addition to the payment of all other amounts, costs, expenses, and liquidated damages due in respect of this note. In the event that the Company fails to deliver to Coventry shares of Common Stock issuable upon conversion of principal or interest, the Company shall pay in cash which is equivalent to the amount in excess of the sales value of the shares of common stock that Coventry would be entitled to receive from the conversion over the principal amount and interest of the attempted conversion.
As
an additional inducement to the Coventry purchasing this note, the Company shall, as of the Original Issue Date and for no additional
consideration, issue to the holder an aggregate of shares of the Company’s Common Stock and shall be valued based on
the quoted trading price on date of grant of $ or $
| F-27 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note Regarding Forward-Looking Information
The following discussion and analysis of the results of operations and financial condition of Propanc Biopharma, Inc., and its wholly-owned Australian subsidiary, Propanc PTY LTD (“Propanc” or the “Company”) As of September 30, 2022 for the three months ended September 30, 2022 and 2021 should be read in conjunction with our unaudited financial statements and the notes to those unaudited financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to Propanc. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.
Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
At Propanc, our highest priority remains the safety, health and well-being of our employees, their families and our communities. The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer. We are complying health guidelines regarding safety procedures, including, but are not limited to, social distancing, remote working, and teleconferencing. The extent of the future impact of the COVID-19 pandemic on our business is uncertain and difficult to predict. Adverse global economic and market conditions as a result of COVID-19 could also adversely affect our business. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be adversely impacted.
U.S. Dollars are denoted herein by “USD,” “$” and “dollars”.
Overview
We were incorporated in the state of Delaware as Propanc Health Group Corporation on November 23, 2010. In January 2011, to reorganize our Company, we acquired all of the outstanding shares of Propanc PTY LTD, an Australian corporation, on a one-for-one basis and Propanc PTY LTD became our wholly-owned subsidiary. Effective April 20, 2017, we changed our name to “Propanc Biopharma, Inc.” to better reflect our current stage of operations and development.
We are a development-stage healthcare company that is currently focused on developing new cancer treatments for patients suffering from pancreatic, ovarian and colorectal cancer. Utilizing our scientific and oncology consultants, we have developed a rational, composite formulation of anti-cancer compounds, which together exert a number of effects designed to control or prevent tumors from recurring and spreading through the body. Our lead product candidate, PRP, is a variation upon our novel formulation and involves pro-enzymes, the inactive precursors of enzymes.
Recent Developments
On July 19, 2022, successful production of a synthetic recombinant version of the proenzyme trypsinogen was completed via the Proenzyme Optimization Project 1 (POP1) joint research and drug discovery program. The program is designed to produce a backup clinical compound to the Company’s lead product candidate, PRP, which is targeting metastatic cancer from solid tumors. On August 23, 2022, the initial success of producing trypsinogen synthetically has now advanced to the stage where optimization of protein production is underway, whereas purification and yield of chymotrypsinogen is currently the focus of research.
On August 3, 2022, a Joint Research Collaboration Agreement was established with the Universities of Jaén and Granada, Spain. Since late 2020, Mrs. Belén Toledo Cutillas MSc, has been investigating an important experimental thesis on the effects of proenzyme therapy and the tumor microenvironment, which is the key to the development, invasion, metastatic spread and recurrence of solid tumors. The work is being conducted at the laboratory of Professor Macarena Perán PhD, who is the lead researcher on the project and is the second Joint Research and Collaboration Agreement currently in progress with the two Spanish Universities. On September 8, 2022, proenzyme therapy was shown to have a favorable impact inhibiting, slowing, or reversing tumor development by acting as an anti-tumor agent, decreasing tumor cell proliferation, developing a non-malignant phenotype (observable characteristics) and promoting cell adhesion (sticking close to one another) and differentiation (cell specialization rather than stem cell like). It was concluded that proenzyme therapy could have a significant impact on the tumor microenvironment as a potential clinical application.
On August 16, 2022, a Notice of Allowance has been received from the European Patent Office (EPO) for claims involving compositions of proenzymes to treat cancer. This is the second patent application allowed in this jurisdiction and expires in November, 2036. A third patent application is currently under examination at the EPO for a method to treat cancer stem cells, which was allowed in March this year by the US Patent and Trademark Office (USPTO). The field of the invention covers future dosing in planned clinical studies for the Company’s lead product candidate, PRP.
| 3 |
Results of Operations
The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included elsewhere in this Report. The results discussed below are of the Company and its wholly-owned Australian subsidiary, Propanc PTY LTD.
For the Three months ended September 30, 2022, as compared to the Three months ended September 30, 2021.
Revenue
For the three months ended September 30, 2022 and 2021, we generated no revenue because we are currently undertaking research and development activities for market approval and no sales were generated in this period.
Administration Expense
Administration expense increased to $465,132 for the three months ended September 30, 2022 as compared to $431,740 for the three months ended September 30, 2021. This increase of approximately $33,000 is primarily attributable to an increase of approximately $159,000 in general consulting, legal and investor relation fees, increase in accounting fees of approximately $3,000, increase of approximately $19,000 in employee remuneration expense and increase in other general and administrative expenses of approximately $3,000, offset by decrease in stock-based expenses of approximately $151,000.
Occupancy Expense
Occupancy expenses decreased to $6,373 for the three months ended September 30, 2022 as compared to $7,736 for the three months ended September 30, 2021. This decrease of approximately $1,400 is primarily attributable to exchange rate movements over the period when compared to the same period in 2021.
Research and Development Expenses
Research and development expenses were increased to $101,325 for the three months ended September 30, 2022 as compared to $46,554 for the three months ended September 30, 2021. The increase in research and development expenses is primarily attributable to the two-year collaboration agreement with University Jaén which was executed in October 2020 to provide certain research services to the Company. Additionally, on July 27, 2022, the Company entered into another two-year research agreement with the University of Jaén to provide certain research and experiment services to the Company.
Interest Expense
Interest expense increased to $162,752 for the three months ended September 30, 2022, as compared to $109,853 for the three months ended September 30, 2021. Interest expense is primarily comprised of approximately $147,000 of debt discount amortization and accretion of put premium and interest expense from accrual of interest expense and other financing fees for a total of approximately $15,000 for the for the three months ended September 30, 2022.
This increase in interest expense of $52,899 is primarily attributable to the increase of approximately $26,000 in accretion of put premium and increase in amortization of debt discount of approximately $25,000.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities were increased to a gain of $65,173 for the three months ended September 30, 2022 as compared to a loss of $3,904 for the three months ended September 30, 2021. This increase in gain of approximately $69,000 is primarily attributable to a decrease in fair value of the principal amount of convertible notes with bifurcated embedded conversion option derivatives as a result of the decrease in stock prices during the three months ended September 30, 2022.
Gain from Settlement of accounts payable
Gain from settlement of accounts payable was $17,499 for the three months ended September 30, 2022 as compared to $0 for the three months ended September 30, 2021. On August 16, 2022, the Company and a third-party investor relations consultant agreed to settle an outstanding payable of $23,050 in exchange for 2,305,000 warrants to purchase the Company’s common stock at $0.01 per share with an expiry date of August 16, 2025 and fair market value of $5,551. Accordingly, the Company recognized gain from settlement of accounts payable of $17,499 during the three months ended September 30, 2022.
Loss on Extinguishment of Debt, net
During the three months ended September 30, 2022, notes with principal amounts totaling $79,000 and accrued interest of $9,543 contained bifurcated embedded conversion option derivatives. Accordingly, the fair market value of the shares issued was $195,952, resulting in a loss on extinguishment at the time of conversion of $107,409 and $106,799 of derivative fair value liability was recorded as a gain on extinguishment at the time of conversion, resulting in a net loss of $610.
Foreign Currency Transaction Gain
Foreign currency transaction gain decreased to a gain of $36,223 for the three months ended September 30, 2022 as compared to a gain of $109,129 for the three months ended September 30, 2021. This decrease of approximately $73,000 is partially attributable to the decrease in exchange rates during the three months ended September 30, 2022.
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Net loss
Net loss increased to $617,295 for the three months ended September 30, 2022 as compared to a net loss of $490,658 for the three months ended September 30, 2021. The change relates to the factors discussed above.
Deemed dividend
The Company recognized the value of the effect of a down round feature related to our Series A warrants when triggered. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized deemed dividend of $389,235 and $114,844 during the three months ended September 30, 2022 and 2021, respectively, and a corresponding reduction of income available to common stockholders upon the alternate cashless exercise of these warrants during the three months ended September 30, 2022 and 2021, respectively.
Net loss available to common stockholders
Net loss available to common stockholders increased to $1,006,530 for the three months ended September 30, 2022 as compared to a net loss available to common stockholders of $605,502 for the three months ended September 30, 2021. This increase of approximately $401,000 is primarily attributable to the change relates to the factors discussed above.
Liquidity and Capital Resources
Current Financial Condition
As of September 30, 2022, we had total assets of $94,254, comprised primarily of cash of $19,396, GST tax receivable of $2,701, prepaid expenses and other current assets of $15,765, security deposit of $1,930, operating lease ROU asset, net of $53,025, and property and equipment, net of $1,437. As compared to June 30, 2022, we had total assets of $81,651, comprised primarily of cash of $4,067, GST tax receivable of $2,342, prepaid expenses and other current assets of $8,621, property and equipment, net, of $2,023, operating lease ROU asset, net of $62,523, and security deposit of $2,075.
We had current liabilities of $2,822,426, primarily comprised of net convertible debt of $913,641, accounts payable and accrued expenses of $1,347,944, employee benefit liability of $397,171, and embedded conversion option liabilities of $72,958 as of September 30, 2022. As compared to June 30, 2022, we had current liabilities of $3,062,981, primarily comprised of net convertible debt of $984,260, accounts payable and accrued expenses of $1,409,138, employee benefit liability of $415,799, and embedded conversion option liabilities of $151,262.
We have funded our operations primarily through the issuance of equity and/or convertible securities for cash. The cash was used primarily for payments for research and development, administration expenses, occupancy expenses, professional fees, consultants and travel.
During the three months ended September 30, 2022 we received proceeds from exercise of warrants of $100,000, proceeds from issuance of convertible notes of $345,750, proceeds from sale of our stocks of $24,711 and proceeds from collection of subscription receivable of $23,758.
We have substantial capital resource requirements and have incurred significant losses since inception. As of September 30, 2022, we had $19,396 in cash. We depend upon debt and/or equity financing to fund our ongoing operations and to execute our current business plan. Such capital requirements are in excess of what we have in available cash and for which we currently have commitments. Therefore, we presently do not have enough available cash to meet our obligations over the next 12 months. If continued funding and capital resources are unavailable at reasonable terms, we may curtail our plan of operations. We will be required to obtain alternative or additional financing from financial institutions, investors or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations, and adversely affecting our ability to complete ongoing activities in connection with our research and development programs.
Sources and Uses of Cash
For the Three months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (509,315 | ) | $ | (486,758 | ) | ||
| Net cash provided by financing activities | $ | 494,219 | $ | 435,000 | ||||
| Effect of exchange rate changes on cash | $ | 30,425 | $ | 95,320 | ||||
Net Cash Flow from Operating Activities
Net cash used in operating activities was $509,315 for the three months ended September 30, 2022, due to our net loss of $617,295 offset primarily by non-cash charges of amortization of debt discount of $31,275, stock-based compensation of $2,408, accretion of put premium of $115,769, change in fair value of derivatives of $65,173 and issuance and gain from settlement of debt of $17,499. Net changes in operating assets and liabilities totaled $71,209, which is primarily attributable to increase in employee benefit liability of $10,415, increase accrued interest of $13,430, increase in accrued expenses and other payables of $15,162, and increase in accounts payable of $45,121.
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Net cash used in operating activities was $486,758 for the three months ended September 30, 2021, due to our net loss of $490,658 offset primarily by non-cash charges of amortization of debt discount of $6,074, stock-based compensation of $154,140 non-cash interest expense of $2,250, accretion of put premium of $90,192, change in fair value of derivatives of $3,904 addback foreign currency transaction gain of $109,129. Net changes in operating assets and liabilities totaled $144,040, which is primarily attributable to increase in prepaid expense of $8,353, increase accrued interest of $11,338 offset by decrease in accounts payable of $137,927 and decrease in accrued expenses of $15,102.
Net Cash Flow from Financing Activities
Net cash provided by financing activities for the three months ended September 30, 2022 were $494,219 as compared to $435,000 for the three months ended September 30, 2021. During the three months ended September 30, 2022 we received proceeds from the exercise of warrants of $100,000, proceeds from sale of common stock of $24,711, collections of subscription receivable of $23,758, and net proceeds from issuance of convertible notes of $345,750. During the three months ended September 30, 2021 we received proceeds from the exercise of warrants of $275,000 and net proceeds from issuance of convertible notes of $160,000.
Effect of Exchange Rate
The effect of the exchange rate on cash resulted in a $30,425 positive adjustment to cash flows in the three months ended September 30, 2022 as compared to an adjustment of $95,320 positive adjustment to cash flows in the three months ended September 30, 2021. The reason for the fluctuation is due to the application of currency translation rates throughout the cash flow statement, the volume of transactions within each period and the daily fluctuation in exchange rates.
Critical Accounting Estimates
Below is a discussion of our more subjective accounting estimation processes for purposes of explaining (i) the methodology used in calculating the estimates, (ii) the inherent uncertainties pertaining to such estimates, and (iii) the possible effects of a significant variance in actual experience, from that of the estimate, on our financial condition. Estimates involve numerous assumptions that, if incorrect, could create a material adverse impact on the Company’s results of operations and financial condition.
Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities. Each ASC reference in this filing is presented with a three-digit number, which represents its Topic. As necessary for explanation and as applicable, an ASC topic may be followed with a two-digit subtopic, a two-digit section or a two-or-three-digit paragraph.
Foreign Currency Translation and Comprehensive Income (Loss): The Company’s wholly owned subsidiary’s functional currency is the AUD. For financial reporting purposes, the Australian Dollar (“AUD”) has been translated into USD as the Company’s reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive loss as other income (expense). Effective fiscal year 2021, the parent company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of other comprehensive income.
Accounting for Income Taxes: We are governed by Australian and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. We follow ASC 740, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The Company adopted provisions of ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.
Accounting for Stock Based Compensation: We record stock-based compensation in accordance with ASC 718, “Stock Compensation” and Staff Accounting Bulletin No. 107 issued by the SEC in March 2005 regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. We value any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
We account for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718.
Derivative Instruments: ASC 815, “Derivatives and Hedging,” establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion, or payoff, of debt, we record the fair value of the conversion shares, remove the fair value of the related derivative liability, remove any discounts and record a net gain or loss on debt extinguishment.
Convertible Notes with Variable Conversion Options: We have entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at or around a fixed discount to the price of the common stock at the time of conversion. We treat these convertible notes as stock settled debt under ASC 480 and measure the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion, and record the put premium as accretion to interest expense.
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Research and Development Tax Credits: We may apply for Research and Development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, we do not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If we have net income then we can receive the credit which reduces its income tax liability. If we have net losses, then we may still receive a cash payment for the credit, however, our net operating loss carry forwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as an income tax benefit, in operations, upon receipt.
Recent Accounting Pronouncements
Please see section captioned “Recent Accounting Pronouncements” in Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of recently issued and adopted accounting pronouncements.
Going Concern Qualification
We did not generate any revenue for the three months ended September 30, 2022 and 2021 and have incurred significant losses and cash used in operations, and such losses and use of cash are expected to continue. Our independent registered public accounting firm has included a “Going Concern Qualification” in their audit report for each of the fiscal years ended June 30, 2022 and 2021. In addition, we have negative working capital and convertible debt that is past maturity that we are currently negotiating with lenders in order to amend the maturity dates. The foregoing raises substantial doubt about our ability to continue as a going concern for a period of 12 months from the issue date of this report. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds and/or to consummate a public offering. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity and/or convertible debt financing. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to reasonably ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this Quarterly Report, we conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, the disclosure controls and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis due to the material weaknesses in financial reporting as discussed below.
Material Weaknesses and Corrective Actions
The framework used by management in making that assessment was the criteria set forth in the document entitled “2013 Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, (“COSO”). In connection with the audits of our consolidated financial statements for the fiscal years ended June 30, 2022 and 2021, we identified certain deficiencies relating to our internal control over financial reporting that constitute a material weakness under the framework. A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
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The following material weaknesses in our internal control over financial reporting continued to exist at September 30, 2022:
| ● | we do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); | |
| ● | we do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our limited size and early-stage nature of operations, segregation of all conflicting duties may not always be possible and may not be economically feasible; however, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals; | |
| ● | lack of audit committee of our board of directors; and | |
| ● | insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of U.S. GAAP. |
We outsource certain of the functions that would normally be performed by a principal financial officer to assist us in implementing the necessary financial controls over the financial reporting and the utilization of internal management and staff to effectuate these controls.
We believe that these material weaknesses primarily relate, in part, to our lack of sufficient staff with appropriate training in U.S. GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.
Subject to raising sufficient additional capital, we plan to take a number of actions in the future to correct these material weaknesses including, but not limited to, establishing an audit committee of our board of directors comprised of at least two independent directors, adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements. We will need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issues identified, (2) ensure that our internal controls are effective or (3) ensure that the identified material weakness or other material weaknesses will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
We are not required to provide this information as we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On July 13, 2022, the Company issued 14,336,712 shares of its common stock at an average price per share of approximately $0.002, as a result of delivering one draw down notice to the Investor. Consequently, the Company received gross aggregate proceeds of $24,711 from such draw down notice.
As of June 30, 2022, there was common stock issuable of 7,326,007 from the conversion of debt during fiscal 2022. The common stock issuable of 7,326,007 were issued on July 12, 2022.
From July 1, 2022 through September 14, 2022, the Company issued an aggregate of 264,492,661 shares of its common stock at an average contractual conversion price of $0.001 as a result of the conversion of principal of $327,200, and accrued interest of $22,330 underlying certain outstanding convertible notes converted during such period. The total recorded to equity was $456,939.
As of June 30, 2022, there was common stock issuable of 12,270,958 for services rendered during fiscal 2022. The common stock issuable of 12,270,958 were issued on July 1, 2022.
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Except as otherwise noted, the securities in the transactions describe above were sold in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act for transactions not involving any public offering. All certificates evidencing the shares sold bore a restrictive legend. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith. The proceeds from these sales were used for general corporate purposes.
Item 3. Defaults Upon Senior Securities.
As of September 30, 2022, we were in default under certain convertible promissory note issued to certain noteholder on October 3, 2019 for failure to pay an aggregate of $65,280 and $28,398 of principal and accrued interest, respectively, as of September 30, 2022, subsequent to their maturity date. We are currently in discussions with such noteholder to extend such maturity date. See “Note 6 – Convertible Notes” to our unaudited condensed consolidated financial statements in Part I of this Quarterly Report for additional information.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which has not been previously disclosed.
Item 6. Exhibits.
Exhibit Number |
Description | |
| 31.1* | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14a or 15d-14(a) under the Securities Exchange Act of 1934, as amended, and adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, is formatted in Inline XBRL. |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROPANC BIOPHARMA, INC. | ||
| Dated: November 14, 2022 | By: | /s/ James Nathanielsz |
| Name: | James Nathanielsz | |
| Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
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