UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2012
 
Or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________

Commission file number 001-32521

Propanc Health Group Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
33-0662986
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

576 Swan Street
Richmond, VIC, 3121 Australia
(Address of principal executive offices) (Zip Code)
 
61 03 92084182
 (Registrant’s telephone number, including area code)
 
Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act:
 
Title of each class registered:
 
Name of each exchange on which registered:
Common Stock, $0.001 par value
 
Over-the-Counter Bulletin Board
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o    No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.   Yes  þ    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  o    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer 
o
Smaller reporting company
þ
(Do not check if smaller reporting company)    
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o    No  þ

As of October 11, 2012, 73,005,597 shares of common stock were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant, as of October 11, 2012, was approximately $12,480,500 based on $0.65 for the registrant’s common stock as as determined by the Board of Directors based on its recent best efforts offering. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.

As of October 11, 2012, there were  73,005,597 shares of our common stock issued and outstanding.
 


 
 

 
TABLE OF CONTENTS
 
Part I
       
         
Item 1.
Business
    3  
Item 1A.
Risk Factors
    16  
Item 1B.
Unresolved Staff Comments
    16  
Item 2.
Properties
    17  
Item 3.
Legal Proceedings
    17  
Item 4.
Mine Safety Disclosure
    17  
           
Part II
         
           
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    18  
Item 6.
Selected Financial Data
    18  
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    19  
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
    23  
Item 8.
Financial Statements and Supplementary Data
    23  
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    24  
Item 9A.
Controls and Procedures
    24  
Item 9B.
Other Information
    25  
           
Part III
         
           
Item 10.
Directors, Executive Officers, and Corporate Governance
    26  
Item 11.
Executive Compensation
    29  
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    31  
Item 13.
Certain Relationships and Related Transactions, and Director Independence
    32  
Item 14.
Principal Accounting Fees and Services
    32  
           
Part IV
         
           
Item 15.
Exhibits, Financial Statement Schedules
    33  
           
Signatures
      34  

 
2

 
 
 PART I

ITEM 1.    BUSINESS

General

As used in this Annual Report, references to “the Company”, “we”, “our”, “ours” and “us” refer to Propanc Health Group Corporation and consolidated subsidiaries, unless otherwise indicated. References to “Propanc” refer to Propanc Health Group Corporation. In addition, references to our “financial statements” are to our consolidated financial statements except as the context otherwise requires.

We prepare our financial statements in United States dollars and in accordance with generally accepted accounting principles as applied in the United States, referred to as U.S. GAAP. In this Annual Report, references to “$” and “dollars” are to United States dollars.

Overview

Propanc Health Group Corporation is a development stage healthcare company whose current focus is the development of new cancer treatments for patients with solid tumors such as pancreatic and colorectal cancer.

Propanc, together with its scientific and oncology consultants, has developed a rational, composite formulation of anti-cancer compounds which together exert a number of anti-cancer actions.  Propanc’s leading products, PRP and PRP-DCM, are novel, patented suppository formulations based on proenzymes, which are inactive precursors of enzymes.  There is a substantial body of literature on the potential utility of both proenzymes and enzymes in the treatment of cancer, and Propanc is of the view that its proprietary products PRP and PRP-DCM will provide a potent, multi-pronged attack on cancerous cells.  As a result of positive early indications of the anti-cancer effects, Propanc intends to progress PRP and/or PRP-DCP along the rigorous, formal non-clinical and clinical development pathway required to obtain regulatory approval to market its proenzyme formulation.  Propanc intends to undertake development of manufacturing, formal non-clinical studies and then Phase I, II and III clinical trials in order to generate the quality, safety and efficacy data required for regulatory approval.  Propanc hopes that encouraging early results will be replicated in large, controlled clinical trials, but recognizes the possibility that large clinical trials will not replicate early results.

In the near term, Propanc’s clinical development target is patients with limited remaining therapeutic options for the treatment of solid tumors such as colorectal or pancreatic tumors.  The data generated to date suggests that Propanc’s lead product, PRP, is well tolerated, and hence in the longer term, Propanc will be targeting the development of its lead product as a treatment for earlier stage cancer, and also as a preventative for patients at high risk of developing cancer – e.g. those diagnosed with precancerous diseases, or patients identified as being at high risk of developing cancer based on genetic analysis.  Before targeting these longer term development targets, as a first step Propanc hopes to demonstrate clinically the potential of its lead product in late stage cancer patients whose treatment options are limited.

Company History

Propanc’s scientific roots date back almost 100 years to the work of Professor John Beard at the University of Edinburgh in the UK whose pioneering work on tumor cell biology and potential new approaches to treating cancer by targeting specific pathways which kill off cancer cells, but leave healthy cells alone.  In more recent times interest in the work of Professor Beard has re-emerged, driven by the insights into his work offered with modern day knowledge of tumor cell and molecular biology.

Scientific work undertaken over last fifteen years

Work over the last fifteen years by other scientists and clinicians, including Dr. Josef Novak in the US and a since-retired oncologist, Dr. Frantisek Trnka, from the Czech Republic, has shined new light on the therapeutic potential of Professor Beard’s insights. Extensive laboratory work undertaken over a number of years by Novak and Trnka was reported in the journal Anticancer Research in 2005 in the paper entitled ‘Proenzyme Therapy of Cancer’.  The conclusion of Novak and Trnka from this work was that “we have discovered that proenzyme therapy, mandated first by John Beard nearly one hundred years ago, shows remarkable selective effects that result in growth inhibition of tumor cells with metastatic potential”.

Novak and Trnka also treated a number of cancer patients with trypsinogen, chymotrypsinogen and amylase, the same enzymes and proenzymes now being developed by Propanc in the product PRP.  Insufficient detailed data on the patient treatment was published to enable Propanc to speculate as to the significance of the outcome, however the conclusion of Novak and Trnka, presented in 2004 at the Seventh International Conference of Anticancer Research and published in the journal Anticancer Research, was that  “the mixture of these enzymatic activities produces potent anti-metastatic and antitumor effects in cellular, animal and human systems”.

While these initial scientific observations continued to support the work initiated by Professor Beard many years ago, the opportunity remains for a more formal, evidence based approach to development of this proenzyme formulation. This work has not yet been undertaken and Propanc plans to conduct this work, involving expanding research efforts to elucidate the proenzyme mechanism of action, and undertaking the accepted formal drug development approach of preclinical studies, followed by Phase I, II and III clinical trials.
 
 
 
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Propanc Pty Ltd established in 2007

In early 2007, Dr. Julian Kenyon, the Medical Director of the Dove Clinic in the United Kingdom and now a director of our company, and Dr. Douglas Mitchell, also a director and our President through his August 2012 resignation, further developed the therapeutic concepts of Beard and identified strategies which could improve upon the therapeutic potential of Beard’s original ground-breaking work, while continuing to explore the work initiated by Drs. Novak and Trnka.

In 2007, Drs. Kenyon and Mitchell, through The Dove Clinic and Opal Clinic respectively, treated cancer patients in the UK and Australia with a novel, suppository formulation of proenzymes. The treatment was undertaken under special UK and Australian regulatory provisions.  In the UK it was undertaken under the MHRA ‘Specials’ regulations designed for patients who have special clinical needs that cannot be met by licensed medicinal products, and in Australia under the TGA’s Special Access Scheme, a mechanism which provides for the import and/or supply of an unapproved therapeutic good for a single patient, on a case by case basis. In both jurisdictions, patients are permitted to receive treatment on an individual basis for compassionate use as long it is supplied by a recognized, licensed manufacturer who is able to meet certain guidelines for unapproved products, and individual case files are maintained for patients should the regulatory authorities require this information.  No prior approval was required by either the MHRA or TGA prior to the commencement of treatment.  No suppository formulation of the proenzymes was available and it was necessary for a novel suppository formulation to be manufactured specifically for these patients by a suitably licensed manufacturer.

In early 2007, the suppository formulation was developed by Mandeville Medicines, Buckinghamshire, UK, at the request of, and in consultation with, Drs Kenyon and Mitchell, in an effort to improve on results reported in the literature pertaining to the potential therapeutic use of enzymes in cancer treatment. To date, proenzyme suppositories have not been available for commercial use for the treatment of cancer.  Patients were first treated with the suppository formulation in April 2007 at The Dove Clinic, UK and in July 2007 at the Opal Clinic, Australia.

Overall, forty-six late stage cancer patients suffering from a range of malignancies in the UK and Australia received treatment with the proenzyme suppositories over periods of time ranging from 1 month to in excess of 17 months. A retrospective patient history review was undertaken by Dr Kenyon, and this report was subject to review by Professor Klaus Kutz who, at the time of the review, was an independent consultant in clinical pharmacology and safety, specializing in oncology. It should be noted that this was not a formally constituted clinical trial but a retrospective review of the patient notes and that the data is incomplete with some details not recorded in the patient notes, with some patients discontinuing treatment for a variety of reasons, and some patients being lost to follow up. In addition, there were no predefined treatment or control groups, no formal end-points, and no statistical analysis was or could reasonably be conducted.

It was observed that no patients were reported as living for a period less than that predicted by the treating clinician at the time treatment was commenced, and that a number of patients lived longer than predicted (Please see Table 1 below).
 
 
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Table 1 – Tabulated listing from independent review by Professor Klaus Kutz of patients surviving longer than predicted by treating clinician.
 
Patient No.
Disease
Life expectation*
Survival*
1
Pancreas carcinoma
2
8
2
Bladder, Ovarian
4
11
5
Stomach cancer
2
8
6
Non-Hodgkin Lymphoma
2
9
7
Ovarian cancer
6
12**
9
Mesothelioma
3
9
10
Ovarian cancer
6
11
11
Prostate cancer
1
5
13
Breast cancer
6
9***
15
Neuro-endocrine tumor
10
17****
16
Colon rectal cancer
6
17****
19
NSCLC
3
5
28
Gastric cancer
3
7
29
Prostate cancer
12
14****
30
Prostate cancer
12
12****
43
Pancreas carcinoma
3
7****
 
* in months
**treatment was stopped after 12 months
*** treatment was stopped after 9 months
**** treatment continues, patient still alive (as at the time of reporting - 8 January, 2009)

Propanc’s scientific and oncology consultants recognize that the review of these patients (in terms of future development plans of its lead product), has limited scientific value because it was not a controlled, prospective clinical trial.  Management believes that since some of the participants lived marginally longer than anticipated by attending clinicians, it provides sufficient basis to justify further research to determine whether the perceived increase in life expectancy or survival can be attributed to the proposed therapeutic product.

Whilst significant investment must be made to demonstrate safety and efficacy, internally management believes this product has potential as an effective cancer treatment for a range of solid tumors.  This belief is based on the clinical experience of the medical personnel affiliated with the company. Neither Propanc nor its founders have conducted any other clinical treatments or investigations with the proenzyme suppository formulation.

Following the unpublished retrospective review of the patient histories of the 46 cancer patients, Dr. Kenyon, Dr. Mitchell and Mr. James Nathanielsz, Propanc’s Chief Executive Officer, developed a strategy to commercialize the newly developed proenzyme suppository formulation, now designated PRP.  Propanc Pty Ltd, our subsidiary, was established in Australia in late 2007 to refine, develop and commercialize novel, patented proenzyme therapeutics for the treatment of cancer.
 
 
 
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Important milestones over the years following the establishment of Propanc Pty Ltd include:

●           The establishment of a research collaborative partnership with Dr. David Tosh from Bath University in early 2008 to investigate the molecular mechanisms by which the Propanc proenzyme formulation is acting.

●           The establishment in 2008 of a Scientific Advisory Board comprising Professor John Smyth (Edinburgh University), Professor Klaus Kutz (Bonn University) and Professor Karrar Khan (De Montfort University).

●           A meeting with the MHRA (UK regulatory authority) in 2008.  Data presented to the MHRA included the human data generated from 46 patients,  in vitro  studies on the effects of proenzymes and enzymes on cancer cells, a non-clinical pharmacodynamic study in mice demonstrating no signs of drug toxicity and favorable tumor growth inhibition, and a detailed review of published data.  The MHRA advised that the existing pharmacology data supported the clinical development of PRP, and that the conduct of a 28 day multiple ascending dose study in patients with advanced carcinoma (cancer) could be initiated.  However, the study was not initiated because management decided to focus on its research activities to increase its intellectual property portfolio and scientific knowledge about the proenzyme formulation prior to commencing the next stage of clinical development.  It was also agreed further non clinical testing may be required to satisfy both potential clinical trial investigators and other regulatory authorities as the trial will be initiated outside the UK, such as in the EU or the USA, the relevant regulatory authorities being the EMA (European Medicines Agency) and FDA (Food and Drug Administration) respectively.

●           In 2009, two provisional patents were filed covering novel formulations of proenzymes and their use in the treatment of cancer.

●           In 2009, additional scientific research was undertaken with Bath University and Granada University identifying anti-cancer effects of the proenzymes including triggering cell necrosis (cell death) and apoptosis (programmed cell death) and the induction of cell differentiation (i.e. inducing cancer cells to exhibit more normal cell behavior). This provided an avenue for Propanc to increase its intellectual property base and patent new pharmaceutical compositions designed to enhance the effects of the proenzymes whilst maintaining their safety profile.

●           In 2010, the above work was supplemented with additional data showing further mechanisms of anticancer effects of proenzymes, including anti-angiogenic activity (preventing new blood vessel formation) in tumors, and anti-metastases (prevention of tumor spreading) by increasing adhesion between tumor cells.

●           In mid-2010, the identification of an enhanced formulation of PRP, designated PRP-DCM with greater ability to inhibit blood vessel formation in tumors compared to PRP.  Patents covering this additional formulation were filed in late 2010.

●           In late 2010, the establishment of Propanc Health Group Corporation.

 ●          In mid-2012, the Company recently completed the 30-month national phase filing deadline for its lead international PCT application and commenced filing patent applications in countries around the world.

Propanc’s Technology

PRP

Our lead product, PRP, is a novel, patented once daily suppository formulation of proenzymes. In limited human testing as outlined earlier, supplemented by laboratory research at the Universities of Bath and Granada on the mechanism of action of the proenzyme mixture, evidence has been obtained which suggests PRP may be effective against a range of solid tumors.

At the Universities of Bath and Granada, it was demonstrated for the first time that E-cadherin and β-Catenin expression is increased in all the cancer cell lines tested and induction of differentiation was observed in colon carcinoma cells.  In human cancers, partial or complete loss of E-Cadherin expression and loss of differentiation correlates with increased malignancy. The scientists conducting the studies at the Universities of Bath and Granada concluded that potential beneficial effects in patients treated with pancreatic proenzymes “could be due to the increased expression of E-Cadherin/ β-Catenin complexes induced by serine proteases treatment and some degree of cell differentiation and loss of cell proliferation”.  Propanc is working with Universities of Bath and Granada in order to publish the manuscript in a peer reviewed journal to be determined.

In addition to possibly extending survival, the limited human testing showed no observable severe, or even serious adverse reactions and can be easily self-administered.

Most cancer treatments currently on the market suffer from limitations of excessive toxicity or the development of resistance, limiting the extent to which they can be used chronically to control cancer over the long term.  Whilst the clinical findings with PRP are early and subject to confirmation in future clinical trials, these data gathered to date, together with the observation that no evidence has been observed of the development of resistance by the cancer to PRP, suggest that PRP may be suitable for long term, chronic therapy.
 
 
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PRP-DCM

Recent work undertaken by Propanc has focused on maximizing the potential of PRP as a drug suitable for long term maintenance by:

●           Enhancing the effects of the proenzyme formulation by selecting additional ingredients at non-toxic dose levels which can augment the anti-cancer activity; and

●           Building on Propanc’s knowledge of the mechanism of action of proenzymes in treating cancer to create additional patent opportunities to further protect Propanc’s competitive position in the field.

Scientific research has focused on developing a novel combination of anti-cancer agents working in combination with proenzymes which enhance PRP’s anti-cancer effects.  The enhanced proenzymes-based formulations combine PRP with at least one of two types of identified compounds considered on the basis PRP’s mechanism of action to synergistically enhance the anti-cancer effects of PRP.

In November 2010, in collaboration with Dr. Paul Clayton, an expert in cancer prevention and nutrition and former advisor to the Committee on Safety of Medicines (UK), we identified a novel formula comprising of specific anti-cancer agents in combination with PRP which enhance the ability of PRP to target cancerous cells with minimal side effects to healthy cells.  Experimental results conducted by Propanc researchers show the novel formulation, designated PRP-DCM, was superior to PRP in vitro.  As a result of the work undertaken in collaboration with Dr. Paul Clayton, an international patent application was filed late 2010 which is directed to enhanced proenzyme patent formulations and combination therapies comprising trypsinogen and chymotrypsin.  Dr. Clayton was awarded a success fee in the form of shares of our common stock representing 1% of the shares then currently issued and outstanding in recognition of his contribution to this research. The patent application is jointly owned by Propanc and the University of Bath, with an exclusive right and license to commercialize any joint intellectual property being held by Propanc (see under License Agreements and Intellectual Property for further details).

As is frequently seen in cancer research, animal cancer models using PRP-DCM have in some instances shown very encouraging results, with less clear cut results in other animal models.  Propanc is working to understand which models are most appropriate, and how to further optimize the PRP-DCM formulation.

The research work being undertaken on PRP-DCM is being conducted by the University of Granada and the Australian company vivoPharm who are undertaking the work under contract with Propanc and have no continuing financial interest in the development and commercialization of PRP-DCM.  Alternative suppliers of these research services have been identified, should such alternatives be required.  For completeness, it should be noted that the Managing Director of vivoPharm, Dr. Ralf Brandt, is presently engaged as a member of the Propanc Scientific Advisory Board.

POP1

In order to maximize its proprietary knowledge on the use of proenzymes in the treatment of cancer, Propanc is presently undertaking research to identify the mechanism at the molecular level by which Propanc’s proenzyme formulation is acting to cause cancer cell death.  A research program has been established with Propanc’s collaborators at the University of Granada to investigate the changes in genetic and protein expression which occur in cancer cells as a consequence to being exposed to Propanc’s proenzyme formulation.  The objective of this work is to understand at the molecular level the targets of Propanc’s proenzyme formulation, thereby providing the opportunity for the identification of new, patentable drugs which can be further developed by Propanc, such as synthetic recombinant proteins designed to improve the quality, safety and performance of proenzymes used in the proposed formulations.

The POP1 research work is being conducted by the University of Granada which is undertaking the work under contract with Propanc and has no continuing financial interest in the development and commercialization of any outcomes from this project.

PRP Injection

The present focus of the development of PRP is to create an anti-cancer product that is effective in treating cancer, and which is sufficiently well tolerated to be suitable for chronic, long term use in patients with diagnosed cancer, and potentially in the longer term in patients at high risk of developing cancer.
 
An additional opportunity for PRP is in the treatment of solid tumor masses by the direct injection of PRP into those tumor masses.  In order to achieve this, Propanc is developing an injectable form of PRP which would be suitable for direct injection into tumor masses, the intention being to cause shrinkage of individual problematic tumor masses.

The development of the PRP Injection is still at the early stage, with the focus for Propanc being on the development of the PRP suppository.  Subject to the availability of sufficient capital, Propanc’s intention is to undertake the early development of the PRP Injection in parallel with the non-clinical and clinical development of PRP.  Should the data from this development work support the further development of the PRP Injection, Propanc may undertake the development of the PRP Injection as a follow on product to PRP, leveraging the data package which has been generated on PRP to progress the PRP Injection relatively rapidly through non-clinical development and into clinical studies.

No research organizations are currently under contract in respect of the research and development of PRP Injection.
 
 
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The PRP Mechanism of Action

The mechanism by which proenzymes exert an anticancer effect is not fully known.

There is evidence showing that proenzymes are activated at the tumor site and tumor cell surface and that these in turn activate Protease Activated Receptors Type 2 (PAR2).  Activation of PAR2 results in a cascade of intracellular activities, including activation of a major component of the cell which controls its structure and architecture, the actin cytoskeleton.  In a cancer cell, proenzymes have the effect of converting globular actin into tight filamentous actin, which causes the cancer cell structure to collapse and induce cell death.  This reduces tumor volume and is often noticed in clinical practice.

Other mechanisms are thought to also contribute to the anticancer effects of proenzymes, including inactivation of growth factors which can often contribute to cancer cell growth.  Inactivation of growth factors is one of the mechanisms of action by which other anti cancer drugs work, eg. Avastin™ which blocks a growth factor called vascular endothelial growth factor, or VEGF, and inhibits the growth of blood vessels at the site of the tumor.  Data has been generated showing PRP also inhibits the growth of blood vessels, although the mechanism by which this is achieved is not fully known.

Additional effects which have been observed, although their mechanism is not fully understood, include triggering cell necrosis (cell death), induction of apoptosis (programmed cell death), the induction of cell differentiation (i.e. inducing cancer cells to exhibit more normal cell behavior), the inhibition of angiogenesis (preventing new blood vessel formation) in tumors, and anti-metastases (prevention of tumor spreading) by increasing adhesion between tumor cells.

The PRP Formulation

Oral pancreatic enzymes have been administered previously in a variety of circumstances, and are in current clinical use in conditions where the pancreas is unable to produce sufficient enzymes for the digestion of food.  A number of oral pancreatic enzyme products are presently approved in the US for use in patients who do not produce enough pancreatic enzymes.  Approved pancreatic enzyme products include Pancreaze™ from Johnson & Johnson, CREON® from Abbott Laboratories, and ULTRASE® from Axcan Pharma US.

Oral enzymes have also been investigated previously for the treatment of cancer and, whilst generating encouraging results, their widespread use has been hampered by the very large quantities that have been considered necessary for effective treatment – 130 or more tablets per day!  The high dose used with oral delivery is considered necessary due to the oral enzymes being broken down in the stomach and duodenum, the first part of the small intestine, and very little actually being absorbed into the general circulation.

The PRP drug product is an enhanced proenzyme formulation comprising amylase and the proenzymes of trypsinogen and chymotrypsinogen specifically formulated as a suppository suitable for rectal administration.  Patent protection is currently being sought for this PRP drug product, which forms part of the subject matter of International (PCT) Patent Application No. PCT/AU2010/001403 filed on 22 October 2010 in the name of Propanc Pty Ltd, the Australian operating subsidiary.

By administering a proenzyme rectally, and by using a specific formulation, the normal breakdown of the enzymes when taken orally is avoided and the drug can potentially be absorbed into the general circulation intact. It is also suggested that these protease proenzymes are resistant to inactivation by protease inhibitors.  Propanc’s management and scientific consultants believe that the development of a rectally administered proenzyme formulation will lead to improved efficacy in the treatment of cancer compared with current oral enzyme preparations, and will substantially reduce the dose in comparison to that used previously for oral enzyme therapy for the treatment of cancer.
 
 
8

 

Target Indications

The management of cancer differs widely, with a multitude of factors impacting on the choice of treatment strategy.  Some of those factors include:

●           The type of tumor, usually defined by the tissue in the body from which it originated.

●           The extent to which it has spread beyond its original location.

●           The availability of treatments, driven by multiple factors including cost, drugs approved, local availability of suitable facilities etc.

●           Regional and geographic differences.

●           Whether the primary tumor is amenable to surgery, either as a potentially curative procedure, or as a palliative one.

●           The balance between potential risks and potential benefits from the various treatments, and probably most importantly, the patient’s wishes.

For many patients with solid cancers, such as breast, colorectal, lung and pancreatic cancer, surgery is frequently the first treatment option, frequently followed by first line chemotherapy +/- radiotherapy.  Whilst hopefully such procedures are curative, in many instances the tumor returns, and second line treatment strategies are chosen in an effort to achieve a degree of control of the tumor.  Sadly, in many such instances, the benefit is temporary, and eventually the point is reached where the patient’s tumor either fails to adequately respond to treatment, or the treatment has unacceptable toxicity which severely limits its usefulness.

Should the proposed Phase I, II and III clinical trials confirm the efficacy of Propanc’s PRP products, along with the excellent safety and tolerability profile suggested by experience to date, Propanc envisages PRP, and/or PRP-DCM, will potentially have utility in a number of clinical situations, including:

●           In the early stage management of solid tumors, most likely as part of a multi-pronged treatment strategy in combination with existing therapeutic interventions.

●           As a product that can be administered long term for patients following the completion of their initial treatment, in order to prevent or delay recurrence.

●           As an agent which can reduce the risk of the development of cancer in patients at high risk of developing cancer, e.g. Patients who have been diagnosed with pre-cancerous conditions, or those in whom genetic analysis identifies them as being at high risk of developing cancer.

Whilst the above constitute long term opportunities for PRP and/or PRP-DCM, they are not the initial targets for which Propanc plans to develop PRP and/or PRP-DCM.  In the first instance, Propanc plans to target patients with solid tumors, most likely colorectal and pancreatic tumors, for whom other treatment options have been exhausted.  This is a common approach by which most new drugs for cancer are initially tested.  Once efficacy and safety has been demonstrated in this patient population, exploration of the potential utility of the drug in earlier stage disease can be undertaken, together with investigation of the drug’s utility in other types of cancer.

Corporate Strategy

Propanc operates as a ‘virtual’ company contracting services, skills and expertise as required to achieve its scientific and corporate objectives.

As the business grows and gains more personnel, outsourcing will continue to be the preferred model, where fixed and variable costs are carefully managed on a project by project basis. This means our research and development activities will be carried out by third parties. So far we have engaged our research partners from the Universities of Bath and Granada.  Additional third parties with specific expertise in research, compound screening and manufacturing (including raw material suppliers) will be contracted as required.  Initial discussions have been held with several third parties and will be contracted as Propanc progresses into the next stages of the development process.

Propanc’s initial focus will be to organize, coordinate and finance the various parts of the drug development pipeline.  New personnel will be carefully introduced into the company over a period of time as the company’s research and development activities expand. They will have specific expertise in product development, manufacture & formulation, regulatory affairs, toxicology, clinical operations and business development (including intellectual property management, licensing and other corporate activities).

In the first instance, additional clinical management and development expertise is likely to be required for our lead product, therefore Propanc anticipates an increase in employees in order to effectively manage its contractors as the project progress down the development pathway.
 
 
9

 
 
This out-sourcing strategy is common in the biotechnology sector, and is an efficient way to obtain access to the necessary skills required to progress a project, in particular as the required skills change as the project progresses from discovery, through manufacturing and non-clinical development, and into clinical trials.  Propanc anticipates continuing to utilize this model, thereby retaining the flexibility to contract in the appropriate resource as and when required.

Current Operations

Propanc is at a pre-revenue stage.  We do not know when, if ever, we will be able to commercialize our PRP products.  Presently, we are focusing our efforts on organizing, coordinating and financing the various aspects of the drug research and development program outlined earlier in this document.  In order to commercialize our PRP products, we must complete preclinical development, and Phase 1, 2 and 3 clinical trials in Germany, the UK, Australia, or elsewhere, and satisfy the applicable regulatory authority that PRP is safe and effective.  We estimate that this will take approximately seven years.  Once we have progressed our development projects sufficiently down the development pathway to achieve a major increase in value, we will consider seeking a suitable licensing partner to complete the remaining development activities, seek regulatory approval, and market the product.

Key Highlights

In summary, the key highlights of this opportunity are:

●           Progressing development of a once-daily proenzyme cancer treatment through non-clinical and clinical development, and ultimately, obtaining regulatory approval as an effective, clinically proven therapeutic option:  Cancer is the leading cause of death worldwide. Global demand for effective, safe and easy to administer cancer treatments is increasing rapidly. Our goal is to receive worldwide regulatory approval in several therapeutic indications for our lead product, targeting tumor types where there is an established medical need and where little or few treatment options exist. We are ready to capitalize on the significant market opportunity which exists for an effective, well tolerated anti-cancer therapeutic.

●           Multiple mechanisms of action: Unlike many products approved for the treatment of cancer, our treatment exerts multiple effects on cancerous cells which inhibits tumor growth and potentially stops it from spreading throughout the body.  As we progress our research, we intend to elucidate further the multiple mechanisms of action to identify opportunities to expand our intellectual property portfolio.  Furthermore, we hope to uncover the molecular target/s of the proenzymes to identify potential opportunities for developing new compounds.

●           Encouraging data from patient treatment: Scientific research undertaken over the last 15 years and the clinical experience from treating patients in the UK and Australia has provided evidence that PRP may be an effective treatment against cancer, and warrants further development.

●           Unique intellectual property: We are focusing on building a significant portfolio of intellectual property around our scientific understanding of the effects of proenzymes in cancer, identifying new formulations, new routes of administration and potential new therapeutic targets. The PRP drug product is an enhanced proenzyme formulation comprising amylase and proenzymes of trypsinogen and chymotrypsinogen, particularly formulated as a suppository suitable for rectal administration.  Patent protection is currently being sought for this PRP drug product, which forms part of the subject matter of International (PCT) Patent Application No. PCT/AU2010/001403 filed on 22 October 2010 in the name of Propanc Pty Ltd.  This international PCT application is also supported by the priority filings of Australian provisional patent application nos. 2009905147 and 2010902655, which were filed on 22 October 2009 and 17 June 2010 respectively (refer to heading “Intellectual Property” for further information).  The PRP-DCM drug product also forms part of the subject matter of International (PCT) Patent Application No. PCT/AU2010/001403.  The Authorised Officer indicated in the Written Opinion issued for this international PCT application, that the patent claims covering the PRP and PRP-DCM products were novel over the prior art cited in the International Search Report.

Current Therapies/Drugs Available

Current drugs in the market offer, at most, a few months of extra life or tumor stabilization.  Studies are revealing the genetic changes in cells that cause cancer and spur its growth and are providing scientific researchers with dozens of molecules, or “targets” that drugs could block.  Tumor cells, however, can develop resistance to drugs.  Some experts believe that drugs that kill most tumor cells do not affect cancer stem cells which can regenerate the tumor (e.g. chemotherapy).

We are developing a therapeutic solution for the treatment of patients with advanced stages of cancer targeting solid tumors, which is cancer that originates in organs or tissues other than bone marrow or the lymph system.  Common cancer types classified as solid tumors include lung, colorectal, ovarian cancer, pancreatic cancer and liver cancers.  In each of these indications, there is a large market opportunity to capitalize on the limitations of current therapies.

Limitations of Current Therapies

PRP was developed because of the limitation of current cancer therapies.  While surgery is often safe and effective for early stage cancer, many standard therapies for late stage cancer urgently need improvement; with current treatments generally providing modest benefits, and frequently causing significant adverse effects.  Our focus is to provide oncologists and their patients with therapies for metastatic cancer which are more effective than current therapies, and which have a substantially better side effect profile.
 
 
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According to an article by Catherine Arnst in Business Week magazine issued on May 21, 2008, while progress has been made within the oncology sector in developing new treatments, the overall cancer death rate has only improved 7% over the last 30 years.  Most of these new treatments have some limitations, such as:

           Have significant toxic effects,

           Are highly expensive,

           Often have limited survival benefits.

We believe that our treatment will provide a competitive advantage over the following treatments:

●           Chemotherapeutics:  Side effects from chemotherapy can include pain, diarrhea, constipation, mouth sores, hair loss, nausea and vomiting, as well as blood-related side effects, which may include a low number of infection fighting white blood cell count (neutropenia), low red blood cell count (anemia), and low platelet count (thrombocytopenia). Our goal is to demonstrate that our treatment will be more effective than chemotherapeutic and hormonal therapies with fewer side effects.

●           Targeted therapies:  Most common type is multi-targeted kinase inhibitors.  Common side effects include fatigue, rash, hand–foot reaction, diarrhea, hypertension and dyspnoea (shortness of breath).  Furthermore, the tyrosine kinases inhibited by these drugs appear to develop resistance to these inhibitors.  Whilst the clinical findings with PRP are early and subject to confirmation in future clinical trials, no evidence has yet been observed of the development of resistance by the cancer to PRP.

●           Monoclonal antibodies:  Development of monoclonal antibodies is often difficult due to safety concerns.  Side effects which are most common include skin and gastro-intestinal toxicities.  For example, several serious side effects from Avastin, a leading cancer drug, include gastrointestinal perforation and dehiscence (e.g. rupture of the bowel), severe hypertension (often requiring emergency treatment) and nephrotic syndrome (protein leakage into the urine).  Antibody therapy can be applied to various cancer types in some cases, but can also be limited to certain genetic sub populations in many instances.

●           Immunotherapy:  There is a long history of attempts to develop therapeutic cancer vaccines to stimulate the body’s own immune system to attack cancer cells.  These products, whilst they generally do not have the poor safety profile of standard therapeutic approaches, have rarely been particularly effective.  Whilst there are a number of therapeutic cancer vaccines currently in development, most are in the early stages of clinical development.  To date, only one therapeutic cancer vaccine has been approved by the US Food and Drug Administration.

In order to achieve our goal to provide therapies for oncologists and their patients which are more effective than current therapies, Propanc’s scientific and oncology consultants recognize significant hurdles must be met to achieve approval for our therapy, given our early stage of development and the absence of any clinical trial history for our product at this present stage.  This includes the need to undertake and successfully completing non-clinical studies and Phase I, II and III clinical trials to assess the safety and efficacy of our product in specific patient populations. To address this, Propanc has consulted with experienced medical and technical professionals to determine the regulatory requirements which must be met to achieve our goals and we intend to speak with various regulatory authorities in different territories to clarify their specific requirements before undertaking these further development activities.

Market Opportunity

As a proportion of the total global oncology drug sales, the market for new cancer treatments (defined as any new chemical or biological entity approved in the last ten years to treat cancer) has steadily risen, with the segment growing in absolute terms from US$7B in 2003 to just under US$22B in 2006. This definition ensures that only drugs recently launched, showing some superiority over established therapies, are included.  Our cancer treatment is intended to be positioned among the five types of cancer drug classes currently contributing to the significant growth in the oncology market.  The five main drug classes are chemotherapeutics, hormonals, immunotherapy and vaccines, targeted therapies and monoclonal antibodies.
 
 
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Demand for new cancer products can largely be attributed to a combination of a rapidly aging population in western countries and changing environmental factors, which together are resulting in rising cancer incidence rates. According to the World Health Organization, cancer is expected to increase from 7.6 million annual deaths in 2005 to 9 million annual deaths by 2015, exceeding 11 million annual deaths by 2030.  As such, global demand for new cancer treatments which are effective, safe and easy to administer is rapidly increasing.  Our treatment will potentially target many aggressive tumor types for which little or few treatment options exist.

In the first instance, Propanc plans to target patients with solid tumors, most likely colorectal and pancreatic tumors, for whom other treatment options have been exhausted.  It is reported by the World Health Organization that in 2008, globally these cancers resulted in over 600,000 and 260,000 deaths per year, respectively.  With such a high mortality rate, a substantial unmet medical need exists for new treatments which can extend survival.
 
For example, current standard treatment for colorectal cancer consists of cytotoxics, which are associated with high levels of toxicity.  Despite the relatively recent approval of Erbitux™ and Avastin™, both of which are monoclonal antibodies, for the treatment of colorectal cancer, significant treatment-related adverse effects continue to be problematic for patients with colorectal cancer.  The need exists for tolerable agents that will improve quality of life for patients as well as offering a potential cure (Datamonitor, 2004).

For pancreatic cancer, due to a lack of effective therapies on the market for pancreatic cancer, any newly approved agents with some efficacy are likely to see significant uptake once commercialized (Datamonitor, 2004). Targeted therapies may fulfill this need, although further intensive R&D is necessary.

Once the efficacy and safety of PRP has been demonstrated in late stage patient populations, Propanc plans to undertake exploration of the utility of the drug in earlier stage disease, together with investigation of the drug’s utility in other types of cancer.

Anticipated Market Potential

It is difficult to estimate the size of the market opportunity for this specific type of product as a clinically proven, proenzyme formulated suppository marketed to oncologists across global territories for specific cancer indications, to the best of management’s knowledge, has not been previously available.

However, the markets for potential market for colorectal and pancreatic cancer may be characterized as follows:

●           Colorectal cancer:

o           In 2009, the global colorectal cancer therapeutics market was worth $7.0 billion. (GlobalData, Colorectal Cancer – Pipeline Assessment and Market Forecasts to 2020, September 2010),

o           Between 2001 and 2009, the market grew at a rate of 27.6%. (GlobalData, Colorectal Cancer – Pipeline Assessment and Market Forecasts to 2020, September 2010),

o           By 2020, the market is expected to be worth $8.8 billion. (GlobalData, Colorectal Cancer – Pipeline Assessment and Market Forecasts to 2020, September 2010),

o           In 2009, bevacizumab was the leading drug with approximate sales worth $2.5 billion and a market share of 35.1%.  Oxaliplatin was the second leading drug with approximate sales of $1.3 billion and a market share 18.6%. Cetuximab, the EGFR inhibitor, was the third leading drug with an approximate sales value of $887 million and a market share of 12.7%. (GlobalData, Colorectal Cancer – Pipeline Assessment and Market Forecasts to 2020, September 2010).
 
 
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●           Pancreatic cancer:

o           The world market for pancreatic cancer drugs is projected to exceed $1.2 billion by the year 2015. (Global Industry Analysts, Pancreatic Cancer Drugs: A Global Market Report, March 2010),

o           The market is driven by sales of Gemzar, the standard treatment for pancreatic cancer, as well as the only other approved therapy, Tarceva. The only potential option for cure is surgery, for which about a fifth of patients diagnosed with pancreatic cancer are generally suitable. (Global Industry Analysts, Pancreatic Cancer Drugs: A Global Market Report, March 2010),

o           Overall, the market is expected to witness a decline in revenues between 2009 and 2014.  While the genericization of Gemzar will influence the market revenues, no substantial improvement in the unmet medical need is expected. (GlobalData, Pancreatic Cancer – Drug Pipeline Analysis and Market Forecasts to 2016, May 2010).

Based on the current situation for these two markets, Propanc management believes there is an attractive opportunity in both the colorectal and pancreatic cancer market sectors for the introduction of a clinically proven product which can achieve new benefits for patients in terms of survival and quality of life.  The current concentration of products suggests oncologists may be willing to try newly approved products, particularly if they can exhibit a favorable safety profile, although substantive R&D activities will be necessary to both obtain regulatory approval, and to generate the clinical safety and efficacy data needed to convince clinicians to use a new product.

License Agreements

We currently have an exclusive license with the University of Bath (UK), where we and the University co-own the intellectual property relating our proenzyme formulations.  This exclusive license will convert into an assignment of the intellectual property to us once certain development milestones are met.  An opportunity to purchase the commercial rights is available to us at any stage of development.

We have a joint commercialization agreement with the University of Bath and will continue to work together to patent and commercialize these discoveries, while continuing to elucidate the properties of proenzymes with the long term aim of screening new compounds for development.  At present, we are engaged in discussions with several technology companies who are progressing new developments in the oncology field as potential additions to our product line.  Initially targeting the oncology sector, our focus is to identify and develop novel treatments which are highly effective targeted therapies, with few side effects as a result of toxicity to healthy cells.

Propanc previously sponsored a collaborative research project at the University of Bath to investigate the cellular and molecular mechanisms underlying the potential clinical application of Propanc’s proprietary pancreatic proenzyme formulation.  Under the terms of the contract in respect of that project (effective 18 th  July 2008) the University of Bath owns the intellectual property in the project results (with Propanc having certain rights to the same).  Ownership of intellectual property in Propanc’s proprietary application existing prior to the commencement of the research project remained unaffected.

At the completion of the research, Propanc and The University of Bath established an agreement regarding the proenzyme technology where Propanc retained the exclusive rights and license to commercialize the joint patents and any other original research IP.  The agreement enabled the two parties to agree to terms for the commercialization of the technology, specifying future income sharing, royalty rates and license payments.  Terms of the Agreement include:

●           Propanc shall pay to the University of Bath a royalty being two (2) per cent of any and all net revenues.

●           In addition to payment of the royalty, Propanc shall pay to the University of Bath an additional sum of five (5) per cent of each and every licensee payment.

●           Propanc can make an upfront payment to the University of Bath which would serve as a buyout option, which takes into account future royalty rates and additional sums in the future to the University of Bath.

●           Unless terminated earlier, the agreement between the University of Bath and Propanc will continue until the date on which all of the patents worldwide have been held invalid or abandoned, or the date of expiration of the last patent.

●           Propanc has the exclusive right to prepare, file, prosecute, maintain, re-examine and reissue the patents, at Propanc’s sole cost and expense.

●           Following both successful completion of a Phase I clinical trial in man and commencement of a Phase IIa (Proof of Concept) clinical trial in man, in both cases involving the administration of a product or materials within a claim of any of the patents, the University of Bath shall assign its entire right, title and interest in and to the patents to Propanc.
 
 
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Intellectual Property

We have recently filed an international patent application directed to enhanced proenzyme formulations and combination therapies comprising trypsinogen and chymotrypsin.  The international patent application has been based on previous provisional patent applications capturing our ongoing research and development in this area.

The international patent application was filed on October 22, 2010, which claims priority from Australian provisional patent application nos. 2009905147 (filed October 22, 2010) and 2010902655 (filed June 17, 2010).  The details of such patent are as follows:

●           Title:  A Pharmaceutical Composition For Treating Cancer Comprising Trypsinogen And/Or Chymotrypsinogen And An Active Agent Selected From A Selenium Compound, A Vanilloid Compound, And A Cytoplasmic Glycolysis Reduction Agent.

●           Date filed: 22nd October 2010.

●           Jurisdiction:  The Patent Cooperation Treaty or PCT is an international agreement for filing patent applications having effect in up to 117 countries.  Under the PCT, an inventor can file a single international patent application in one language with one patent office in order to simultaneously seek protection for an invention in up to 117 countries.

●           Application Status:  Pending.

●           Patent costs:  To be paid by Propanc.

●           Expiration date:  Not applicable.

The Company recently completed the 30-month national phase filing deadline for this international PCT application on 22nd April 2012 and has now commenced filing patent applications in countries around the world based on the above priority applications.

Further, provisional patents (patent filing applications which do not include any formal patent claim, oath, declaration or informational disclosures.  These applications provide the means to establish an early effective filing date in a non-provisional patent application filed later in time and allow the term “patent pending” to be applied in connection with the description of the invention or work subject to the patent application.) are also expected to be filed to capture and protect additional patentable subject matter that is identified, namely further enhanced formulations, combination treatments, use of recombinant products, modes of action and molecular targets.

Our intellectual property portfolio also includes an extensive amount of confidential information, know-how and expertise in relation to the development and formulation of proenzyme based combination therapies.

The basis of Propanc’s intellectual property protection will be built around the following elements:

●           Method of use:  Understanding the mechanism of action of the PRP proenzyme formulations, enabling the identification of new molecular targets, potential new therapeutic compounds and identification of new formulations that are adapted to enhance activity.

●           Formulation:  We have developed an enhanced formulation containing the proenzyme trypsinogen in combination with at least one of two types of identified compounds considered effective for providing synergistic enhancement of the proenzyme based formulations.  A patentability assessment, based on an international prior art search, has indicated that strong potential exists for successfully obtaining patent claims covering a broad class of compounds based on the compounds identified.

●           Composition of Matter:  Synthetic recombinant proteins designed to improve the quality, safety and performance of proenzymes used in the proposed formulations form part of the research and development program.
 
 
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Government Approvals

Dr. Julian Kenyon, as Medical Director of Dove Clinic, received approval via a UK ‘Specials’ License to have manufactured and use a novel three component suppository formulation.  The suppository formulation was developed by Dr. Julian Kenyon and was manufactured by an approved UK ‘Specials’ licensed manufacturer.  This custom manufactured product was used in the treatment of patients, at their expense, at the Dove Clinic and was also made available for the treatment of patients at the Opal Clinic in Australia, with an approval granted via Australia’s Special Access Scheme.  The UK ‘Specials’ regulations are designed to enable access to unlicensed products by individual patients who have special clinical needs that cannot be met by licensed medicinal products, and in Australia the TGA’s Special Access Scheme is a mechanism which provides for the import and/or supply of an unapproved therapeutic good for a single patient, on a case by case basis.

Based on the favorable results reported for the patients treated by the Dove Clinic and the Opal Clinic, as well as some initial experimental animal studies, a meeting was held with the Medicinal Products and Healthcare Regulatory Agency, or the MHRA, in the UK, to determine whether sufficient data was available to initiate patient trials.

In 2008 the MHRA advised that, based on the data presented, the pharmacology supported the clinical development of PRP, and that the conduct of a 28 day multiple ascending dose study in patients with advanced carcinoma could be initiated. This meeting helped Propanc to formalize the development program, with the objective of seeking worldwide regulatory approval for PRP to establish broader commercial acceptance for this type of treatment and thus enable us to generate global sales.

Since that meeting, we have identified a potentially superior formulation of PRP, designated PRP-DCM.  A decision as to the final development candidate will be made once additional data is available on PRP-DCM, and this may impact on the product development pathway.  Unlike the proenzyme formulation of PRP, for which there is considerable clinical experience, albeit by a different route of administration, some of the components in PRP-DCM have limited previous clinical usage, and thus a more substantial non-clinical and early clinical development program will be required should PRP-DCM be the selected development candidate.

The current goals for our lead development program are:

●           The development of a PRP treatment for late stage colorectal or pancreatic cancer, with development for earlier stage disease to follow.

●           Conduct clinical trials in Central Europe, possibly through the German Health Authorities who have experience with enzyme therapy and its use in oncology.  This approach should help facilitate a path to approval in Europe through the European Medicines Agency and eventually US Food and Drug Administration approval.

We intend to meet the German regulatory authority to discuss the proposed development program.

Clinical Trials

We intend to run the Phase I clinical trials in Central Europe.  The trials will be managed and supervised by Professor Klaus Kutz, our Acting Chief Medical Officer, and assisted by Dr. Julian Kenyon and Professor John Smyth, a Scientific Advisory Board Member.
 
 
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Employees

As of September 30, 2012, we had one full time employee. In addition to the one employee, our management team consists of contributing Board members who provide regular input into the Company’s operational activities. We also seek regular technical input from third party consultants affiliated with the Company. The members of our research and development team include our Founder and Scientific Director, Dr. Julian Kenyon, Acting Chief Medical Officer, Professor Klaus Kutz and additional third parties from our Scientific Advisory Board and partner research organizations.

Our Corporate Information

Our principal executive offices are located at 576 Swan Street, Richmond, VIC, 3121, Australia and our phone number is +61 (0)3 9208 4182.  We were founded in 2010.  Our Australian subsidiary, Propanc Pty Ltd shares offices with us.  It was organized on October 15, 2007.

Corporate History

We were incorporated in the state of Delaware on November 23, 2010.  We were formed for the specific purpose of having shareholders of Propanc Pty Ltd, our Australian subsidiary, directly owning an interest in a U.S. company.  On January 29, 2011, we issued 64,700,525 shares of our common stock in exchange for 64,700,525 shares of Propanc Pty Ltd common stock.

Available Information

Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents that we will file with or furnish to the SEC will be available free of charge by sending a written request to our Corporate Secretary at our corporate headquarters.  Additionally, the documents we file with the SEC is or will be available free of charge at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549. Other information on the operation of the Public Reference Room is or will be available by calling the SEC at (800) SEC-0330.

Research and Development

During the last two completed fiscal years, we have spent $5,279 and $385,777 on research and development expenses.

 ITEM 1A.   RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.
  
 
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ITEM 2.   PROPERTIES  

Our corporate offices are located in Australia.   The lease costs $849 per month and expires on one months notice by either Propanc or the leasing company.

ITEM 3.   LEGAL PROCEEDINGS

From time to time, we may be involved in litigation in the ordinary course of business.  We are not currently a party to any litigation.

ITEM 4.    MINE SAFTEY DISCLOSURES

Not applicable.

 
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PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock was approved for quotation on the Over-the-Counter Bulletin Board on June 15, 2012 under the symbol “PPCH.”

Currently, there is no established public market for our shares of common stock. Although we have received approval from FINRA in connection with our 15c2-11 application, we are seeking approval from the Depositary Trust Corporation to have our shares traded electronically. We hope to have this approval by December 31, 2012.

Holders
 
On September 30, 2012, there were 46 holders of record of our Common Stock.
 
Dividend Policy
 
We have not paid cash dividends on our common stock and do not plan to pay such dividends in the foreseeable future.  Our Board of Directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions. Dividends, under Delaware General Corporation Law, may only be paid from our net profits or surplus. To date, we have not had a fiscal year with net profits and do not have surplus.

Recent Sales of Unregistered Securities

In addition to those sales of unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission, or the SEC, during the fiscal year ended June 30, 2012, we issued securities without registration under the Securities Act of 1933, as described below.

Name of Class
 
Date of Sale
 
No. of Securities
 
Reason for Issuance
  -     -     -     -
             
(1) The securities were issued in reliance upon the exemption provided by Section 4(2) of the Securities Act.
(2) The securities were issued in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act.

Outstanding Equity Awards

There are no outstanding equity awards.

Equity Compensation Plan Information

We currently do not have an equity compensation plan.

Director Compensation

We do not pay cash compensation to our directors for service on our Board and our employees do not receive compensation for serving as members of our Board.  Directors are reimbursed for reasonable expenses incurred in attending meetings and carrying out duties as board members.
  
ITEM 6.   SELECTED FINANCIAL DATA

Not applicable to smaller reporting companies.
 
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ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
FORWARD-LOOKING STATEMENTS

The information set forth in this Management's Discussion and Analysis of Financial Condition and Results of  Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in Propanc Health Group Corporation's (referred to herein as the "Company", or "Propanc", "we", "our", "ours" and "us") revenues and profitability, (ii) prospective business opportunities and (iii) our strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
 
We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.

You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Annual Report.

Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of the Company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.

US Dollars are denoted herein by “USD”, "$" and "dollars".
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview
 
Propanc Health Group Corporation, formerly Propanc PTY LTD, ("the Company", "we", "us", "our") is a development stage enterprise.  Propanc PTY LTD was incorporated in Melbourne, Victoria Australia on October 15, 2007, and is based in Richmond, Victoria Australia.
 
On November 23, 2010, Propanc Health Group Corporation was incorporated in the state of Delaware. In January 2011, Propanc Health Group Corporation acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned subsidiary.  

We are a research and development company whose primary activity is to develop new treatments for chronic diseases, in particular cancer.  We have generated very limited revenue, have no cancer treatment products available to market and have no products which have reached the clinical trial stage.  We require substantial additional financing to develop our products.
 
Critical Accounting Estimates
 
Below the Company will provide a discussion of its more subjective accounting estimation processes for purposes of (i) explaining 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 the Company’s financial condition.  Estimates involve the employ of numerous assumptions that, if incorrect, could create a material adverse impact on the Company’s results of operations and financial condition.
 
Foreign Currency Translation and Comprehensive Income (Loss): The Company’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has been translated into United States dollars ($) and/or USD as the 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).
 
 
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Accounting for 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 FASB ASC 740 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 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: The Company records stock based compensation in accordance with ASC section 718, “Stock Compensation” and Staff Accounting Bulletin (SAB) No. 107 (SAB 107) issued by the Securities and Exchange Commission (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.  The Company values any employee or non-employee stock based compensation at fair value using the Black-Scholes Option Pricing Model.

The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 "Equity-Based Payments to Non-Employees.

Research and Development Tax Credits: 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 an income tax benefit, in operations, upon receipt. 

Recent Accounting Pronouncements
 
In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220), Presentation of Comprehensive Income. This update provides amendments to ASC 220 to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).  Most notably, the update eliminates the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity (deficit). The amendment is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company currently displays comprehensive income (loss) in its statement of operations and accordingly, the adoption of this did not have a material effect on the financial position, results of operations or cash flows of the Company.

In September 2011, the FASB issued ASU 2011-08, which amends (ASC Topic 350), Intangibles-Goodwill and Other, to allow entities to use a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If after performing the qualitative assessment an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company adopted ASU 2011-08 effective December 31, 2011, and such adoption did not have a material effect on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-12, which amends (ASC Topic 220), Comprehensive Income, to defer certain aspects of ASU 2011-05. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this guidance, along with relevant sections of ASU 2011-05, on December 31, 2011, and such adoptions did not have a material impact on the Company’s financial statements.

Results of Operations
 
The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this form 10-K.  The results discussed below are of the Company and its wholly-owned Australian subsidiary, Propanc Pty Ltd.
 
 
20

 
 
For the Year Ended June 30, 2012 compared to the Year ended June 30, 2011
 
Revenue
 
For the fiscal years 2012 and 2011, we generated no revenue because the company is currently undertaking research and development activities for market approval and there were no sales generated in this period.
 
 Administration Expense
 
Administration expense increased to $11,571,613 for the years ended June 30, 2012 as compared with $1,837,668 for the year ended June 30, 2011.  This increase is primarily attributable to Accountancy expenses $117,389, Legal expenses $229,269 and investor relations expenses $10,889,153.  The majority of the investor relations expenses are non-cash with the largest potion related to the Company issuing 7,215,365 shares of common stock to a third party consultant for services.  The shares were valued at $1.50 (based on a contemporaneous cash sales price and anticipated offering price) or $10,823,048.  The Company recognized $645,107 of amortization related to this agreement through June 30, 2011 with the remaining $10,177,941 recognized as expense during fiscal 2012.  
 
Occupancy Expense
 
Occupancy expense increased by $957 to $12,878 for the year ended June 30, 2012 due to a 3.5% increase in rent based on a "rent review date" clause in the Company's month-to-month rental agreement.
 
Research and Development Expenses
 
Research and Development was only $5,279 for the year ended June 30, 2012 as compared with $385,777 for the year ended June 30, 2011.  This decrease was primarily attributable to less activity due to the company's limited cash resources.
 
Interest Expense/Income
 
Interest expense increased to $2,967 for the year ended June 30, 2012 as compared with $0 for the year ended June 30, 2011.  This is primarily attributable to interest bearing loans made to the company during the fiscal year.

 Income Tax Benefit
 
During the years-ended ended June 30, 2012 and 2011, the Company applied for and received from the Australian Taxation Office a research and development tax credit in the amount of $173,928 and $84,581.  The $89,347 increase was related to an increase in expenditures in fiscal 2011 (recorded as a benefit in fiscal 2012) as compared to fiscal 2010 (recorded as a benefit in fiscal 2011).

Net loss
 
Net loss increased to $11,434,375 for the year ended June 30, 2012 as compared with $2,151,977 for the year ended June 30, 2011.  The increase is primarily attributable to and increase in share based payment arrangements in fiscal 2012 which increased the fiscal 2012 net loss by $10,883,888.

Liquidity and Capital Resources
 
   
For the Fiscal Year Ended
June 30,
 
   
2012
   
2011
 
Net cash used in operating activities
 
$
(170,278)
   
$
(1,395,376)
 
Net cash used in investing activities
 
$
(0)
   
$
(29,232)
 
Net cash provided by financing activities
 
$
170,331
   
$
1,424,118
 
 
Net cash used in operations was $1,395,376 for the fiscal year ended June 30, 2011 compared to $170,278 for the same period in 2012.   This decrease was primarily attributable to less activity due to the company's limited cash resources. 
 
There were no cash transactions from investing activities in fiscal year 2012 compared to $29,232 for 2011 which was mainly comprised of patent expenditures.
 
Cash flows provided by financing activities for the fiscal year ended June 30, 2012 were $170,331 compared to $1,424,118 for the fiscal year ended June 30, 2011. This decrease is primarily attributable to the limited stock issuances for cash for the 2012 fiscal year when compared to 2011.
 
 
21

 
 
We have substantial capital resource requirements and have incurred significant losses since inception.  As of  June 30, 2012, we had  $179 in cash.  Based upon our current business plans, we will need considerable cash investments to be successful.  Such capital requirements are in excess of what we have in available cash and what we currently have commitment for.  Therefore, we do not have enough available cash to meet our obligations over the next 12 months.
   
Related Party Transactions
 
Since inception, Propanc Health Group Corporation has conducted transactions with directors and director related entities. These transactions included the following:
 
As of June 30, 2012 and 2011, the Company owed certain directors a total of $75,177 and $78,403 respectively, for money loaned to the Company throughout the years. The loan balance owed at June 30, 2012 was not interest bearing.
 
From Inception through June 30, 2009, the Company issued 51,300,000 shares of common stock to its directors for cash.  

In March 2008, the company entered into a distribution agreement with a related party company controlled by a Director. As a result, the Company sold product to this related party and recorded $28,317 and $2,657 in revenue for the years ended June 30, 2008 and 2009 respectively.
 
As of June 30, 2012 and 2011, the Company owed two directors a total of $63,668 and $66,400, respectively, related to expenses incurred on behalf of the Company related to corporate startup costs and intellectual property.
 
From inception, common shares were sold to and offering cost paid to certain related parties.
 
On May 13, 2010, $534,856 of accrued interest and loans from directors were converted into 3,305,615 shares of the Company’s common stock.
 
On May 13, 2010, an officer and director of the Company transferred 1,855,487 of his own personal shares to a related party trust in exchange for services rendered. The wife of the Company's Chief Executive Officer is a beneficiary of the trust and the wife's parents control the trust ("related party trust").
 
Contractual Obligations

In November 2009, the Company entered into a commercialization agreement whereby the Company agreed to pay royalties of 2% of net revenues.  Additionally, the Company agreed to pay 5% of each and every license agreement subscribed for.  The contact is cancellable at anytime by either party.  To date, no amounts are owed under the agreement.
  
In May 2011, the Company entered into an agreement with a consultant whereby the consultant would provide acquisition services and be paid success fees in cash and equity based upon a stipulated percentage of the transaction price. No such acquisitions have occurred as of the date of this filing.
 
In September 2009, the Company entered into a month to month lease agreement with monthly rent at $1,016 per month which in fiscal 2012, became subject to a 3.5% escalation clause or $1,052 per month.
 
Going Concern Qualification

The Company has incurred significant losses from operations, and such losses are expected to continue. The Company’s Independent Registered Public Accounting Firm has included a "Going Concern Qualification" in their report for the years ended June 30, 2012 and 2011.  In addition, the Company has negative working capital. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. Management's plans include seeking additional capital or debt financing. There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to the Company. 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.

 Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements regarding our liquidity, our ability to complete financing, our ability to purchase capital expenditures, expected proceeds, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product.
 
 
22

 

All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the risk factors that follow. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the risk factors which follow.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.
 
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
23

 
 
INDEX TO FINANCIAL STATEMENTS
 
   
Page
 
Years Ended June 30, 2012 and 2011
     
       
Report of Independent Registered Public Accounting Firm
        F-2  
         
Consolidated Balance Sheets
    F-3  
         
Consolidated Statements of Operations and Comprehensive Loss
    F-4  
         
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
    F-5  
         
Consolidated Statements of Cash Flows
    F-6  
         
Notes to Consolidated Financial Statements
    F-7  
 
 
F-1

 
 
 
Report of Independent Registered Public Accounting Firm
 
 
To the Board of Directors and Stockholders of:
Propanc Health Group Corporation
 
We have audited the accompanying consolidated balance sheets of Propanc Health Group Corporation and Subsidiary (a development stage company) at June 30, 2012 and 2011 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended June 30, 2012 and for the period from October 15, 2007 (Inception) through June 30, 2012. These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Propanc Health Group Corporation and Subsidiary (a development stage company) at June 30, 2012 and 2011 and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2012 and for the period from October 15, 2007 (Inception) through June 30, 2012, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial consolidated statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is in the development stage, has no revenues in 2012 and 2011 and has a net loss and net cash used in operating activities in 2012 of $11,434,375 and $170,278 respectively, and has a working capital deficit, stockholders' deficit and deficit accumulated during development stage of $542,536, $537,919 and $15,280,715, respectively, at June 30, 2012. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/S/ Salberg & Company, P.A.                
 
SALBERG & COMPANY, P.A.
Boca Raton, Florida
October 15, 2012
 
 
 
F-2

 
 
PROPANC HEALTH GROUP CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
 
   
June 30, 2012
   
June 30, 2011
 
             
ASSETS
           
             
CURRENT ASSETS:
           
     Cash
  $ 179     $ 132  
     Deposit held in escrow
    328       -  
     GST tax receivable
    2,624       1,857  
     Prepaid expenses and other current assets
    38,520       10,777,951  
                 
TOTAL CURRENT ASSETS
    41,651       10,779,940  
                 
Property and Equipment, net
    4,617       6,655  
Patent Costs
    -       27,563  
                 
TOTAL ASSETS
  $ 46,268     $ 10,814,158  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
 
               
CURRENT LIABILITIES:
               
     Accounts payable
  $ 192,473     $ 27,717  
     Accrued expenses and other payables
    135,770       13,461  
     Advances from Investor - related party
    -       84,760  
     Convertible debentures
    75,000       -  
     Due to directors - related parties
    63,668       66,400  
     Loans from director - related parties
    75,177       78,403  
     Employee benefit liability
    42,099       36,108  
                 
TOTAL CURRENT LIABILITIES
    584,187       306,849  
                 
Commitments and Contingencies (See Note 10)
               
                 
STOCKHOLDERS' EQUITY (DEFICIT):
               
     Preferred stock, $0.01 par value; 10,000,000 shares
               
        authorized; zero shares issued and outstanding as of
               
        June 30, 2012 and June 30, 2011, respectively
    -       -  
     Common stock, $0.001 par value; 100,000,000 shares
               
        authorized; 72,705,569 and 71,915,890 shares issued and
               
        outstanding as of June 30, 2012 and June 30, 2011, respectively
    72,706       71,915  
     Common stock issuable, $0.001 par value; 5,877 and 0 shares issued and                
        outstanding as of June 30, 2012 and June 30, 2011, respectively
    6       -  
     Subscription receivable
    (325 )     -  
     Additional Paid-in Capital
    15,029,326       14,401,919  
     Accumulated other comprehensive loss
    (358,917 )     (120,185 )
     Deficit accumulated during development stage
    (15,280,715 )     (3,846,340 )
                 
TOTAL STOCKHOLDERS' EQUITY  (DEFICIT)
    (537,919 )     10,507,309  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 46,268     $ 10,814,158  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
 
PROPANC HEALTH GROUP CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011, AND
FOR THE PERIOD FROM OCTOBER 15, 2007 (INCEPTION) TO JUNE 30, 2012

               
For the period from
 
               
October 15,
 
         
2007 (Inception)
 
   
Year Ended June 30,
   
to June 30,
 
   
2012
   
2011
   
2012
 
                   
REVENUE
                 
     Royalty revenue - related party
  $ -     $ -     $ 30,974  
                         
OPERATING EXPENSES
                       
     Administration expenses
    11,571,613       1,837,668       14,686,051  
     Occupancy expenses
    12,878       11,921       56,580  
     Research and development
    5,279       385,777       643,323  
TOTAL OPERATING EXPENSES
    11,589,770       2,235,366       15,385,954  
                         
LOSS FROM OPERATIONS
    (11,589,770 )     (2,235,366 )     (15,354,980 )
 
                       
OTHER INCOME (EXPENSE)
                       
     Interest expense
    (2,967 )     -       (174,163 )
     Interest income
    141       439       9,005  
     Foreign currency transaction loss
    (15,707 )     (1,631 )     (19,086 )
TOTAL OTHER INCOME (EXPENSE)
    (18,533 )     (1,192 )     (184,244 )
                         
LOSS BEFORE INCOME TAXES
    (11,608,303 )     (2,236,558 )     (15,539,224 )
                         
INCOME TAX BENEFIT
    173,928       84,581       258,509  
                         
NET LOSS
    (11,434,375 )     (2,151,977 )     (15,280,715 )
                         
OTHER COMPREHENSIVE LOSS
                       
         Foreign currency translation loss
    (238,732 )     (19,598 )     (358,917 )
                         
COMPREHENSIVE LOSS
  $ (11,673,107 )   $ (2,171,575 )   $ (15,639,632 )
                         
                         
BASIC AND DILUTED NET LOSS PER SHARE
  $ (0.16 )   $ (0.03 )   $ (0.31 )
                         
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    72,153,072       62,973,002       48,782,562  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-4

 
 
PROPANC HEALTH GROUP CORPORATION AND SUBSIDIARY
 (A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011, AND
FOR THE PERIOD FROM OCTOBER 15, 2007 (INCEPTION) TO JUNE 30, 2012

                                                   
Deficit Accumulated
During
Development
Stage
    Accumulated Other Comprehensive
loss
   
Total Stockholders' Equity
(Deficit)
 
                                             
Additional Paid-in
Capital
             
   
Preferred Stock
   
Common Stock Issuable
   
Common Stock
    Subscription
Receivable
                 
   
No. of Shares
   
Value
   
No. of Shares
   
Value
   
No. of Shares
   
Value
                     
                                                                   
Balance at October 15, 2007 (Inception of Development Stage)
    -     $ -       -     $ -       -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                                         
Issuance of common stock for cash @ $0.01 - related parties
    -       -       -       -       41,040,000       41,040       -       (41,022 )     -       -       18  
                                                                                         
Contributed capital - related party
    -       -       -       -       -       -       -       495,665       -       -       495,665  
                                                                                         
Foreign currency translation loss
    -       -       -       -       -       -       -       -       -       (2,522 )     (2,522 )
                                                                                         
Net loss, October 15, 2007 (Inception) through June 30, 2008
                                                                    (408,027 )             (408,027 )
                                                                                         
Balance at June 30, 2008
    0     $ -       0     $ -       41,040,000     $ 41,040     $ -     $ 454,643     $ (408,027 )   $ (2,522 )   $ 85,134  
                                                                                         
Issuance of common stock for cash @ $0.01 - related parties
    -       -       -       -       10,260,000       10,260       -       (10,256 )     -       -       4  
                                                                                         
Foreign currency translation loss
    -       -       -       -       -       -       -       -       -       (50,680 )     (50,680 )
                                                                                         
Net loss, June 30, 2009
                                                                    (443,849 )             (443,849 )
                                                                                         
Balance at June 30, 2009
    0     $ -       0     $ -       51,300,000     $ 51,300     $ -     $ 444,387     $ (851,876 )   $ (53,202 )   $ (409,391 )
                                                                                         
Issuance of common stock for cash @ $0.18
    -       -       -       -       583,334       583       -       91,227       -       -       91,810  
                                                                                         
Issuance of stock for services
    -       -       -       -       1,092,112       1,092       -       175,613       -       -       176,705  
                                                                                         
Officer shares contributed to third party for services rendered
    -       -       -       -       -       -       -       299,737       -       -       299,737  
                                                                                         
Conversion of notes payable and accrued interest to common stock - related parties
    -       -       -       -       3,305,615       3,306       -       531,550       -       -       534,856  
                                                                                         
Gain on related party debt converted to common stock
    -       -       -       -       -       -       -       9,252       -       -       9,252  
                                                                                         
Foreign currency translation loss
    -       -       -       -       -       -       -       -       -       (47,385 )     (47,385 )
                                                                                         
Net loss, June 30, 2010
                                                                    (842,487 )             (842,487 )
                                                                                         
Balance at June 30, 2010
    0     $ -       0     $ -       56,281,061     $ 56,281     $ -     $ 1,551,766     $ (1,694,363 )   $ (100,587 )   $ (186,903 )
                                                                                         
Issuance of common stock for cash @ $0.16 - $0.18
    -       -       -       -       7,639,465       7,639       -       1,275,491       -       -       1,283,130  
                                                                                         
Shares issued for offering costs
    -       -       -       -       139,400       139       -       (139 )     -       -       0  
                                                                                         
Issuance of stock for services
    -       -       -       -       7,855,964       7,856       -       11,574,801       -       -       11,582,657  
                                                                                         
Foreign currency translation loss
    -       -       -       -       -       -       -       -       -       (19,598 )     (19,598 )
                                                                                         
Net loss, June 30, 2011
                                                                    (2,151,977 )             (2,151,977 )
                                                                                         
Balance at June 30, 2011
    0     $ -       0     $ -       71,915,890     $ 71,915     $ -     $ 14,401,919     $ (3,846,340 )   $ (120,185 )   $ 10,507,309  
                                                                                         
Issuance of common stock for conversion of convertible debt
    -       -       877       1       48,341       48       -       73,778       -       -       73,827  
                                                                                         
Issuance of common stock for cash @ $0.65
    -       -       5,000       5       85,534       86       (325 )     107,459       -       -       107,225  
                                                                                         
Shares issued under voluntary ratchet
    -       -       -       -       31,622       32       -       20,522       -       -       20,554  
                                                                                         
Issuance of common stock for conversion of accrued expenses
    -       -       -       -       24,182       24       -       36,248       -       -       36,272  
                                                                                         
Issuance of stock for services
    -       -       -       -       600,000       600       -       389,400       -       -       390,000  
                                                                                         
Foreign currency translation loss
    -       -       -       -       -       -       -       -       -       (238,732 )     (238,732 )
                                                                                         
Net loss, June 30, 2012
                                                                    (11,434,375 )             (11,434,375 )
                                                                                         
Balance at June 30, 2012
    0     $ -       5,877     $ 6       72,705,569     $ 72,706     $ (325 )   $ 15,029,326     $ (15,280,715 )   $ (358,917 )   $ (537,919 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-5

 
 
PROPANC HEALTH GROUP CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011,
AND FOR THE PERIOD FROM OCTOBER 15, 2007 (INCEPTION) TO JUNE 30, 2012
 
         
For the Period from
 
   
Year Ended June 30,
   
October 15, 2007 (Inception)
 
   
2012
   
2011
   
to June 30, 2012
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net Loss
  $ (11,434,375 )   $ (2,151,977 )   $ (15,280,715 )
Adjustments to Reconcile Net loss to Net Cash Used in Operating Activities:
                       
Issuance of common stock for services
    363,455       114,028       654,188  
Amortization of prepaid shares issued for services
    10,499,215       645,107       11,144,322  
Shares issued for voluntary ratchet
    21,218       -       21,218  
Officer shares contributed to third party consultant
    -       -       299,737  
Write off of previously capitalized patent costs
    26,855       -       26,855  
Foreign currency transaction (loss) gain
    15,707       -       15,707  
Depreciation expense
    1,792       1,857       10,149  
Changes in Assets and Liabilities:
                       
Escrow account
    (333 )     -       (333 )
Accounts receivable
    -       -       (664 )
GST receivable
    (857 )     19,758       (495 )
Other assets
    2,040       22,454       2,575  
Accounts payable
    161,623       (23,289 )     181,423  
Employee benefit liability
    7,598       9,158       37,684  
Accrued expenses
    162,817       (32,472 )     178,776  
Accrued interest
    2,967       -       186,784  
                         
NET CASH USED IN OPERATING ACTIVITIES
    (170,278 )     (1,395,376 )     (2,522,789 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchase of equipment
    -       (3,506 )     (14,786 )
Patent costs
    -       (25,726 )     (25,726 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    -       (29,232 )     (40,512 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Sale of common stock
    28,025       1,359,840       1,479,675  
Contributed capital
    -       -       495,665  
Subscription receivable - related party
    -       -       22  
Related party expenses paid on behalf of company
    -       -       57,262  
Loan repayments to principal stockholder
    -       (14,834 )     (14,834 )
Investor Advances - related party
    -       79,112       79,112  
Proceeds from convertible promissory note
    142,306       -       142,306  
Loan proceeds from principal stockholder
    -       -       369,174  
                         
NET CASH PROVIDED BY FINANCING ACTIVITIES
    170,331       1,424,118       2,608,382  
                         
Effect of exchange rate changes on cash
    (6 )     94       (44,902 )
                         
NET INCREASE (DECREASE) IN CASH
    47       (396 )     179  
                         
CASH AT BEGINNING OF YEAR
    132       528       -  
                         
CASH AT END OF YEAR
  $ 179     $ 132     $ 179  
                         
Supplemental Disclosure of Cash Flow Information
                       
                         
Cash paid during the period:
                       
     Interest
  $ -     $ -     $ -  
     Income Tax
  $