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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File Number: 000-54878

 

PROPANC BIOPHARMA, INC.

(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.)

 

302, 6 Butler Street

Camberwell, VIC, 3124 Australia

(Address of principal executive offices) (Zip Code)

 

61 03 9882 6723

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 11, 2021, there were 49,862,220 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

 

 

 

 
 

 

PROPANC BIOPHARMA INC.

 

Table of Contents

 

    Page
PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Item 4. Controls and Procedures 8
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 10
Item 1A. Risk Factors 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Mine Safety Disclosures 11
Item 5. Other Information 12
Item 6. Exhibits 12
  Signatures 13

 

2
 

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions 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 trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “Propanc,” “company,” “we,” “us,” and “our” in this document refer to Propanc Biopharma, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiary.

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The following unaudited interim condensed consolidated financial statements of Propanc Biopharma, Inc. are included in this Quarterly Report on Form 10-Q:

 

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
Condensed Consolidated Balance Sheets at September 30, 2021(unaudited) and June 30, 2021 F-2
   
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, 2021 and 2020 (unaudited) F-3
   
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for each of the three months in the period ended September 30, 2021 and 2020 (unaudited) F-4
   
Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2021 and 2020 (unaudited) F-5
   
Notes to the condensed consolidated financial statements (unaudited) F-6

 

F-1
 

 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2021   June 30, 2021 
    (Unaudited)      
ASSETS          
           
CURRENT ASSETS:          
Cash  $45,817   $2,255 
GST tax receivable   2,238    4,341 
Prepaid expenses and other current assets   8,353    - 
           
TOTAL CURRENT ASSETS   56,408    6,596 
           
Security deposit - related party   2,164    2,250 
Property and equipment, net   3,593    4,255 
           
TOTAL ASSETS  $62,165   $13,101 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable  $826,184   $1,002,335 
Accrued expenses and other payables   407,775    892,151 
Convertible notes and related accrued interest, net of discounts and premiums   584,608    624,583 
Embedded conversion option liabilities   58,124    54,220 
Due to former director - related party   32,076    33,347 
Loan from former director - related party   53,384    55,500 
Employee benefit liability   406,644    418,538 
           
TOTAL CURRENT LIABILITIES   2,368,795    3,080,674 
           
TOTAL LIABILITIES  $2,368,795   $3,080,674 
           
Commitments and Contingencies (See Note 8)   -       
           
STOCKHOLDERS’ DEFICIT:          
Preferred stock, 1,500,005 shares authorized, $0.01 par value:          
Series A preferred stock, $0.01 par value; 500,000 shares authorized; 500,000 shares issued and outstanding as of September 30, 2021 and June 30, 2021  $5,000   $5,000 
Series B preferred stock, $0.01 par value; 5 shares authorized; 1 share issued and outstanding as of September 30, 2021 and June 30, 2021   -    - 
Common stock, $0.001 par value; 1,000,000,000 shares authorized;43,841,644 and 14,055,393 shares issued and outstanding as of September 30, 2021 and June 30, 2021, respectively   43,842    14,056 
Common stock issuable (2,002,549 and 59 shares as of September 30, 2021 and June 30, 2021, respectively)   2,002    - 
Additional paid-in capital   55,444,574    54,074,110 
Subscription receivable   (100,000)   - 
Accumulated other comprehensive income   1,149,397    1,085,204 
Accumulated deficit   (58,804,968)   (58,199,466)
Treasury stock (1 share)   (46,477)   (46,477)
           
TOTAL STOCKHOLDERS’ DEFICIT   (2,306,630)   (3,067,573)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $62,165   $13,101 

 

The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-2
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY  

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  

(Unaudited)  

 

           
   Three Months Ended September 30, 
   2021   2020 
         
REVENUE          
Revenue  $-   $- 
           
OPERATING EXPENSES          
Administration expenses   431,740    323,111 
Occupancy expenses   7,736    9,204 
Research and development   46,554    50,846 
TOTAL OPERATING EXPENSES   486,030    383,161 
           
LOSS FROM OPERATIONS   (486,030)   (383,161)
           
OTHER INCOME (EXPENSE)          
Interest expense   (109,853)   (159,281)
Change in fair value of derivative liabilities   (3,904)   64,952 
Gain on extinguishment of debt, net   -    49,985 
Foreign currency transaction gain    109,129    1,960 
TOTAL OTHER EXPENSE, NET   (4,628)   (42,384)
           
LOSS BEFORE TAXES   (490,658)   (425,545)
           
Tax benefit   -    - 
           
NET LOSS   (490,658)   (425,545)
           
Deemed Dividend   (114,844)   - 
           
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS  $(605,502)  $(425,545)
           
BASIC AND DILUTED NET LOSS PER SHARE  $(0.02)  $(0.71)
           
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   27,142,519    597,314 
           
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS  $(605,502)  $(425,545)
           
OTHER COMPREHENSIVE INCOME (LOSS)          
Unrealized foreign currency translation gain (loss)   64,193    (75,755)
           
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)   64,193    (75,755)
           
TOTAL COMPREHENSIVE LOSS  $(541,309)  $(501,300)

 

The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-3
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY  

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020  

(Unaudited)  

 

                                                                                                                 
    Preferred Stock                 Common Stock                       Accumulated            
    Series A     Series B     Common Stock     Issuable     Additional               Other           Total  
    No. of Shares     Value     No. of Shares     Value     No. of Shares     Value     No. of Shares     Value     Paid-in Capital     Subscription Receivable     Accumulated Deficit     Comprehensive Income     Treasury Stock     Stockholders’ Deficit  
                                                                                     
Balance at June 30, 2020     500,000     $ 5,000       1     $ -       258,120     $ 258       -     $ -     $ 50,913,893     $ -     $ (55,781,770 )   $ 1,267,671     $ (46,477 )   $ (3,641,425 )
                                                                                                                 
Issuance of common stock for conversion of convertible debt and accrued interest     -       -       -       -       442,031       442       -       -       480,133       -       -       -       -       480,575  
Issuance of common stock for services and accrued expenses                                                                                                                
                                                                                                                 
Reclassification of put premium upon debt conversion     -       -       -       -       -       -       -       -       204,919       -       -       -       -       204,919  
Stock based compensation in connection with stock option grants                                                                                                                
Deemed dividend upon alternate cashless exercise of warrants                                                                                                                
                                                                                                                 
Issuance of common stock for exercise of warrants     -       -       -       -       15,445       15       -       -       201,029       -       -       -       -       201,044  
                                                                                                                 
Stock based compensation in connection with fair value of warrants issued for services     -       -       -       -       -       -       -       -       20,718       -       -       -       -       20,718  
                                                                                                                 
Foreign currency translation gain     -       -       -       -       -       -       -       -       -       -       -       (75,755 )             (75,755 )
                                                                                                                 
Net loss for the three months ended September 30, 2020     -       -       -       -       -       -       -       -       -       -       (425,545 )             -       (425,545 )
                                                                                                                 
Balance at September 30, 2020     500,000     $ 5,000       1     $ -       715,596     $ 715       -     $ -     $ 51,820,692     $ -     $ (56,207,315 )   $ 1,191,916     $ (46,477 )   $ (3,235,469 )
                                                                                                                 
Balance at June 30, 2021     500,000     $ 5,000       1     $ -       14,055,393     $ 14,056       59     $ -     $ 54,074,110     $ -     $ (58,199,466 )   $ 1,085,204     $ (46,477 )   $ (3,067,573 )
                                                                                                                 
Issuance of common stock for conversion of convertible debt, conversion fee, and accrued interest     -       -       -       -       9,445,009       9,445       -       -       190,741       -       -       -       -       200,186  
                                                                                                                 
Issuance of common stock for services and accrued expenses     -       -       -       -       17,934,379       17,934       -       -       563,927       -       -       -       -       581,861  
                                                                                                                 
Issuance of common stock for exercise of warrants     -       -       -       -       6,875       7       2,500       2       374,991       (100,000 )     -       -       -       275,000  
                                                                                                                 
Issuance of common stock for alternate cashless exercise of warrants     -       -       -       -       2,399,988       2,400       1,999,990       2,000       (4,400 )     -       -       -       -       -  
                                                                                                                 
Reclassification of put premium upon debt conversion     -       -       -       -       -       -       -       -       109,643       -       -       -       -       109,643  
                                                                                                                 
Stock based compensation in connection with stock option grants     -       -       -       -       -       -       -       -       20,718       -       -       -       -       20,718  
                                                                                                                 
Foreign currency translation gain     -       -       -       -       -       -       -       -       -       -       -       64,193       -       64,193  
                                                                                                                 
Deemed dividend upon alternate cashless exercise of warrants     -       -       -       -       -       -       -       -       114,844       -       (114,844 )     -       -       -  
                                                                                                                 
Net loss for the three months ended September 30, 2021     -       -       -       -       -       -       -       -       -       -       (490,658 )     -       -       (490,658 )
                                                                                                                 
Balance at September 30, 2021     500,000     $ 5,000       1     $ -       43,841,644     $ 43,842       2,002,549     $ 2,002     $ 55,444,574     $ (100,000 )   $ (58,804,968 )   $ 1,149,397     $ (46,477 )   $ (2,306,630 )

 

The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-4
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

           
   Three Months Ended September 30, 
    2021    2020 
           
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(490,658)  $(425,545)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:          
Issuance and amortization of common stock for services   133,422    - 
Foreign currency transaction gain   (109,129)   (1,960)
Depreciation expense   509    438 
Amortization of debt discounts   6,074    121,281 
Change in fair value of derivative liabilities   3,904    (64,952)
Gain on extinguishment of debt, net   -    (49,985)
Stock option and restricted stock expense   20,718    20,718 
Non-cash interest expense   2,250    6,750 
Accretion of put premium   90,192    - 
Changes in Assets and Liabilities:          
GST receivable   1,937    (755)
Prepaid expenses and other assets   (8,353)   - 
Accounts payable   (137,927)   53,576 
Deferred rent   -    633 
Employee benefit liability   4,067    10,544 
Accrued expenses and other payables   (15,102)   133,046 
Accrued interest   11,338    16,262 
NET CASH USED IN OPERATING ACTIVITIES   (486,758)   (179,949)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from convertible promissory notes, net of original issue discounts and issue costs   160,000    - 
Repayments of convertible promissory notes   -    (43,000)
Proceeds from the exercise of warrants   275,000    201,044 
NET CASH PROVIDED BY FINANCING ACTIVITIES   435,000    158,044 
           
Effect of exchange rate changes on cash   95,320    6,116 
           
NET INCREASE (DECREASE) IN CASH   43,562    (15,789)
           
CASH AT BEGINNING OF PERIOD   2,255    67,007 
CASH AT END OF PERIOD  $45,817   $51,218 
           
Supplemental Disclosure of Cash Flow Information          
           
Cash paid during the period:          
Interest  $-   $13,172 
Income Tax  $-   $- 
           
Supplemental Disclosure of Non-Cash Investing and Financing Activities          
           
Reduction of put premium related to conversions of convertible notes  $109,643   $204,919 
Conversion of convertible notes and accrued interest to common stock  $197,936   $417,670 
Common stock issued for accrued services  $448,440   $- 
Deemed dividend upon alternate cashless exercise of warrants  $114,844   $- 
Subscription receivable  $100,000   $- 

 

The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-5
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

 

Nature of Operations

 

Propanc Biopharma, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated in Melbourne, Victoria Australia on October 15, 2007 as Propanc PTY LTD, and continues to be based in Camberwell, Victoria Australia. Since its inception, substantially all of the operations of the Company have been focused on the development of new cancer treatments targeting high-risk patients, particularly cancer survivors, who need a follow-up, non-toxic, long-term therapy designed to prevent the cancer from returning and spreading. The Company anticipates establishing global markets for its technologies. Our lead product candidate, which we refer to as PRP, is an enhanced pro-enzyme formulation designed to enhance the anti-cancer effects of multiple enzymes acting synergistically. It is currently in the preclinical phase of development.

 

On November 23, 2010, the Company was incorporated in the state of Delaware as Propanc Health Group Corporation. In January 2011, to reorganize the Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned subsidiary of the Company.

 

On July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the purpose of submitting an orphan drug application to the European Medicines Agency as a small and medium-sized enterprise. As of September 30, 2021, there has been no activity within this entity.

 

Effective April 20, 2017, the Company changed its name to “Propanc Biopharma, Inc.” to better reflect the Company’s stage of operations and development.

 

In July 2020, a world first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 29 granted patents and 33 patents under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.

 

The Company hopes to capture and protect additional patentable subject matter based on the Company’s field of technology relating to pharmaceutical compositions of proenzymes for treating cancer by filing additional patent applications as it advances its lead product candidate, PRP, through various stages of development.

 

On November 17, 2020, the Company effected a one-for-one thousand (1:1,000) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split.

 

Basis of Presentation

 

The Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three months ended September 30, 2021 and 2020 and cash flows for the three months ended September 30, 2021 and 2020 and our financial position at September 30, 2021 have been made. The Company’s results of operations for the three months ended September 30, 2021 are not necessarily indicative of the operating results to be expected for the full fiscal year ending June 30, 2022.

 

Certain information and disclosures normally included in the notes to the Company’s annual audited consolidated financial statements have been condensed or omitted from the Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2021. The June 30, 2021 balance sheet is derived from those statements.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of Propanc Biopharma, Inc., the parent entity, and its wholly-owned subsidiary, Propanc PTY LTD. All inter-company balances and transactions have been eliminated in consolidation. Propanc (UK) Limited was an inactive subsidiary at September 30, 2021.

 

F-6
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

Use of Estimates

 

The preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation, valuation of the operating lease liability and related right-of-use asset, valuation of derivatives, valuation of beneficial conversion features on convertible debt, allowance for uncollectable receivables, valuation of equity based instruments issued for other than cash, the valuation allowance on deferred tax assets and foreign currency translation due to certain average exchange rates applied in lieu of spot rates on transaction dates.

 

Foreign Currency Translation and Other Comprehensive Income (Loss)

 

The Company’s wholly owned subsidiary’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has been translated into the Company’s reporting currency which is the United States dollar ($) and/or (USD). Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as a component of other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of Australian dollars to USD after the balance sheet date.

 

Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).

 

Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the consolidated results of operations as incurred. Effective fiscal year 2021, the parent company determined that these intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of accumulated other comprehensive income (loss). Prior to July 1, 2020, the Company recorded the foreign currency transaction gains and losses from measuring the intercompany balances as a component of other income (expenses) titled foreign currency transaction gain (loss). For the three months ended September 30, 2021 and 2020, the Company recognized an exchange gain (loss) of approximately $619,000 and ($583,000), on intercompany loans made by the parent to the subsidiary which have not been repaid as of September 30, 2021.

 

As of September 30, 2021 and June 30, 2021, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the consolidated financial statements were as follows:

 

   September 30, 2021   June 30, 2021 
Exchange rate on balance sheet dates          
USD : AUD exchange rate   0.7214    0.7500 
           
Average exchange rate for the period          
USD : AUD exchange rate   0.7350    0.7473 

 

The change in Accumulated Other Comprehensive Income (Loss) by component during the three months ended September 30, 2021 was as follows:

 

   Foreign
Currency Items:
 
Balance, June 30, 2021  $1,085,204 
Unrealized foreign currency translation gain   64,193 
Ending balance, September 30, 2021  $1,149,397 

 

F-7
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

Fair Value of Financial Instruments and Fair Value Measurements

 

The Company measures its financial assets and liabilities in accordance with US GAAP. For certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Amounts recorded for notes payable, net of discount, and loans payable also approximate fair value because current interest rates available for debt with similar terms and maturities are substantially the same.

 

The Company follows accounting guidance for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).

 

The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs, other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

Also see Note 11 - Derivative Financial Instruments and Fair Value Measurements.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less with financial institutions, and bank overdrafts. Bank overdrafts are reflected as a current liability on the balance sheets. There were no cash equivalents as of September 30, 2021 or June 30, 2021.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method. The depreciable amount is the cost less its residual value.

 

The estimated useful lives are as follows:

 

Machinery and equipment - 5 years
Furniture - 7 years

 

Patents

 

Patents are stated at cost and amortized on a straight-line basis over the estimated future periods if and once the patent has been granted by a regulatory agency. However, the Company will expense any patent costs as long as we are in the startup stage. Accordingly, as the Company’s products are not currently approved for market, all patent costs incurred from 2013 through September 30, 2021 were expensed immediately. This practice of expensing patent costs immediately ends when a product receives market authorization from a government regulatory agency.

 

Impairment of Long-Lived Assets

 

In accordance with ASC 360-10, “Long-lived assets,” which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.

 

F-8
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

Employee Benefit/Liability

 

Liabilities arising in respect of wages and salaries, accumulated annual leave, accumulated long service leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured based on the employee’s remuneration rates applicable at the reporting date. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. All employee liabilities are owed within the next twelve months.

 

Australian Goods and Services Tax (“GST”)

 

Revenues, expenses and balance sheet items are recognized net of the amount of GST, except payable and receivable balances which are shown inclusive of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.

 

Cash flows are presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

 

As of September 30, 2021, and June 30, 2021, the Company was owed $2,238 and $4,341, respectively, from the Australian Taxation Office. These amounts were fully collected subsequent to the balance sheet reporting dates.

 

Derivative Instruments

 

ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”), establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion or payoff of debt, the Company records the fair value of the conversion shares, removes the fair value of the related derivative liability, removes any discounts and records a net gain or loss on debt extinguishment. On July 1, 2019 the Company adopted ASU 2017-11 under which down-round Features in Financial Instruments will no longer cause derivative treatment. The Company applies the modified prospective method of adoption. There were no cumulative effects on adoption.

 

Convertible Notes With Variable Conversion Options

 

The Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at or around the time of conversion. The Company treats these convertible notes as stock settled debt under ASC 480, “Distinguishing Liabilities from Equity” and measures the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion and records the put premium as interest expense.

 

Income Taxes

 

The Company is governed by Australia and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. The Company follows ASC 740 “Accounting for Income Taxes,” when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

 

The Company follows ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.

 

Research and Development Costs and Tax Credits

 

In accordance with ASC 730-10, “Research and Development-Overall,” research and development costs are expensed when incurred. Total research and development costs for the three months ended September 30, 2021 and 2020 were $46,554 and $50,846, respectively.

 

F-9
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

The Company may apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, the Company does not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If the Company has net income, then the Company can receive the credit which reduces its income tax liability. If the Company has net losses, then the Company may still receive a cash payment for the credit, however, the Company’s net operating loss carryforwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as tax benefit, in operations, upon receipt.

 

During each of the three months ended September 30, 2021 and 2020, the Company applied for, and received from the Australian Taxation Office, a research and development tax credit in the amount of $0, which is reflected as a tax benefit in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

 

Stock Based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, “Stock Compensation”. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.

 

The Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718 and recognizes the fair value of such awards over the service period. The Company used the modified prospective method of adoption. There was no cumulative effect of adoption on July 1, 2019.

 

Revenue Recognition

 

The Company adopted and implemented on July 1, 2018, ASC 606 – Revenue from Contracts with Customers (“ASC 606”). ASC 606 did not have a material impact on the consolidated financial statements.

 

Upon implementation of ASC 606, the Company recognizes revenue in accordance with that core principle by applying the following steps:

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

Subject to these criteria, the Company intends to recognize revenue relating to royalties on product sales in the period in which the sale occurs and the royalty term has begun.

 

Legal Expenses

 

All legal costs for litigation are charged to expense as incurred.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance effective July 1, 2019.

 

On July 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less.

 

Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and will be included in general and administrative expenses.

 

F-10
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

Basic and Diluted Net Loss Per Common Share

 

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as stock options, warrants and convertible debt instruments. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, the basic and diluted per share amounts for all periods presented are identical. Each holder of the notes has agreed to a 4.99% beneficial ownership conversion limitation (subject to certain noteholders’ ability to increase such limitation to 9.99% upon 60 days’ notice to the Company), and each note may not be converted during the first six-month period from the date of issuance. The securities for the period ended September 30, 2021 and 2020 were considered dilutive securities which were excluded from the computation since the effect is anti-dilutive.

 

   September 30, 2021   September 30, 2020 
    (Unaudited)    (Unaudited) 
Stock Options   59    60 
Stock Warrants   111,932    135,725 
Unvested restricted stock   59    117 
Convertible Debt   23,293,971    510,674 
Total   23,406,021    646,576 

 

Recent Accounting Pronouncements

 

We have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.

 

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. This standard is effective for us on July 1, 2022, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company is currently assessing the impact the new guidance will have on our consolidated financial statements.

 

NOTE 2 – GOING CONCERN

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the Company as a going concern. For the three months ended September 30, 2021, the Company had no revenues, had a net loss of $490,658, and had net cash used in operations of $486,758. Additionally, as of September 30, 2021, the Company had a working capital deficit, stockholders’ deficit and accumulated deficit of $2,312,387, $2,306,630 and $58,804,968, respectively. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the issue date of this Quarterly Report.

 

The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

 

Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities, acceptance of the Company’s patent applications, obtaining additional sources of suitable and adequate financing and ultimately achieving a level of sales adequate to support the Company’s cost structure and business plan. The Company’s ability to continue as a going concern is also dependent on its ability to further develop and execute on its business plan. However, there can be no assurances that any or all of these endeavors will be successful.

 

F-11
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, Europe and Australia, including in each of the areas in which the Company operates. The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses, reduced investing activity and M&A transactions, among many other effects attributable to the COVID-19 (coronavirus), and there continue to be many unknowns. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19 (coronavirus) outbreak will impact our operations, ability to obtain financing or future financial results is uncertain.

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following as of September 30, 2021 and June 30, 2021.

 

   September 30, 2021   June 30, 2021 
    (Unaudited)      
Office equipment at cost  $27,532   $28,623 
Less: Accumulated depreciation   (23,939)   (24,368)
           
Total property, plant, and equipment  $3,593   $4,255 

 

Depreciation expense for the three months ended September 30, 2021 and 2020 were $509 and $438, respectively.

 

NOTE 4 – DUE TO FORMER DIRECTOR - RELATED PARTY

 

Due to former director - related party represents unsecured advances made primarily by a former director for operating expenses on behalf of the Company such as intellectual property and formation expenses. The expenses were paid for on behalf of the Company and are due upon demand. The Company is currently not being charged interest under these advances. The total amount owed the former director at September 30, 2021 and June 30, 2021 were $32,076 and $33,347, respectively. The Company plans to repay the advances as its cash resources allow (see Note 9).

 

NOTE 5 – LOANS AND NOTES PAYABLE

 

Loan from Former Director - Related Party

 

Loan from the Company’s former director at September 30, 2021 and June 30, 2021 were $53,384 and $55,500, respectively. The loan bears no interest and is payable on demand. The Company did not repay any amount on this loan during the three months ended September 30, 2021 and 2020, respectively (see Note 9).

 

NOTE 6 – CONVERTIBLE NOTES

 

The Company’s convertible notes outstanding at September 30, 2021 and June 30, 2021 were as follows:

 

   September 30, 2021   June 30, 2021 
    (Unaudited)      
Convertible notes and debenture  $377,780   $400,128 
Unamortized discounts   (7,565)   (6,139)
Accrued interest   37,348    34,098 
Premium, net   177,045    196,496 
Convertible notes, net  $584,608   $624,583 

 

F-12
 

 

PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(Unaudited)

 

Convertible Note Issued with Consulting Agreement

 

August 10, 2017 Consulting Agreement

 

On August 10, 2017, the Company entered into a consulting agreement, retroactive to May 16, 2017, with a certain consultant, pursuant to which the consultant agreed to provide certain consulting and business advisory services in exchange for a $310,000 junior subordinated convertible note. The maturity date of the August 10, 2017 Convertible Note was August 2019 and is currently past due (see Note 8). The note accrues interest at a rate of 10% per annum and is convertible into common stock at the lesser of $750 or 65% of the three lowest trades in the ten trading days prior to the conversion. The note was fully earned upon signing the agreement and matures on August 10, 2019. The Company accrued $155,000 related to this expense at June 30, 2017 and recorded the remaining $155,000 related to this expense in fiscal year 2018. Upon an event of default, principal and accrued interest will become immediately due and payable under the note. Additionally, upon an event of default, at the election of the holder, the note would accrue interest at a default interest rate of 18% per annum or the highest rate of interest permitted by law. The consulting agreement had a three-month term and expired on August 16, 2017. An aggregate total of $578,212 of this note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value. During the year ended June 30, 2018, the consultant converted $140,000 of principal and $10,764 of interest. During the year ended June 30, 2019, the consultant converted an additional $161,000 of principal and $19,418 of interest leaving a principal balance owed of $9,000 at June 30, 2019. During the year ended June 30, 2020, the consultant converted an additional $500 of principal and $5,248 of interest such that the remaining principal outstanding and accrued interest under this note as of June 30, 2020 was $8,500 and $22,168, respectively.

 

On March 15, 2021, the Company entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with the consultant whereby both parties agreed to settle all claims and liabilities under the August 10, 2017 Convertible note for a total of $