UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 13, 2024, there were shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.
PROPANC BIOPHARMA INC.
Table of Contents
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 8 |
| Item 4. | Controls and Procedures | 8 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 9 |
| Item 1A. | Risk Factors | 9 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 9 |
| Item 3. | Defaults Upon Senior Securities | 9 |
| Item 4. | Mine Safety Disclosures | 10 |
| Item 5. | Other Information | 10 |
| Item 6. | Exhibits | 10 |
| Signatures | 11 | |
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited interim condensed consolidated financial statements of Propanc Biopharma, Inc. are included in this Quarterly Report on Form 10-Q:
INDEX TO FINANCIAL STATEMENTS
| F-1 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| GST tax receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Security deposit - related party | ||||||||
| Operating lease right-of-use assets, net - related party | ||||||||
| Property and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Accrued interest | ||||||||
| Loan payable | ||||||||
| Loans payable - related party | ||||||||
| Note payable, net of discount | ||||||||
| Convertible notes, net of discounts and including put premiums | ||||||||
| Operating lease liability - related party, current portion | ||||||||
| Embedded conversion option liabilities | ||||||||
| Due to former director - related party | ||||||||
| Loan from former director - related party | ||||||||
| Employee benefit liability | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Loan payable - long-term - related party, net of discount | ||||||||
| Operating lease liability - long-term portion - related party | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and Contingencies (See Note 8) | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, shares authorized, $ par value: | ||||||||
| Series A preferred stock, $ par value; shares previously authorized; shares issued and outstanding as of March 31, 2024 and June 30, 2023 | $ | $ | ||||||
| Series B preferred stock, $ par value; shares authorized; share issued and outstanding as of March 31, 2024 and June 30, 2023 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively | ||||||||
| Common stock issuable ( and shares as of March 31, 2024 and June 30, 2023, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock ($ share) | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| For
the three months ended March 31, | For
the nine months ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUE | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Administration expenses | ||||||||||||||||
| Occupancy expenses - related party | ||||||||||||||||
| Research and development | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Derivative expense | ( | ) | ||||||||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||||||||||
| Gain from settlement of accounts payable | ||||||||||||||||
| Gain (loss) on extinguishment of debt, net | ( | ) | ( | ) | ||||||||||||
| Foreign currency transaction gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| TOTAL OTHER INCOME (EXPENSE), NET | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Tax benefit | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed Dividend | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| BASIC AND DILUTED NET LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Unrealized foreign currency translation gain (loss) | ||||||||||||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024 AND 2023
(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, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for issuable shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation in connection with stock warrant grant | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant grant for settlement of accounts payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for issuable shares | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with a note payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of Series A Preferred Stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| 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, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for issuable shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrant granted in connection with a loan payable - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2023 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for issuable shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2023 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt, conversion fee and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for alternate cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2024 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For
the nine months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Issuance and amortization of common stock for services | ||||||||
| Stock option, stock warrants and restricted stock expense | ||||||||
| Foreign currency transaction (gain) loss | ( | ) | ||||||
| Depreciation expense | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of right-of-use assets | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Derivative expense | ||||||||
| Gain on extinguishment of debt, net | ( | ) | ( | ) | ||||
| Gain from settlement of accounts payable | ( | ) | ||||||
| Non-cash interest expense | ||||||||
| Accretion of put premium | ||||||||
| Changes in Assets and Liabilities: | ||||||||
| GST receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ||||||||
| Employee benefit liability | ||||||||
| Accrued expenses and other payables | ||||||||
| Accrued interest | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible promissory notes, net of original issue discounts and issue costs | ||||||||
| Repayment of convertible note | ( | ) | ||||||
| Proceeds from the sale of common stock | ||||||||
| Proceeds from note payable | ||||||||
| Proceeds from loan payable - related party | ||||||||
| Collection of subscription receivable | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during the period: | ||||||||
| Interest | $ | $ | ||||||
| Income Tax | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Reduction of put premium related to conversions of convertible notes | $ | $ | ||||||
| Conversion of convertible notes and accrued interest to common stock | $ | $ | ||||||
| Debt discounts related to derivative liability | $ | $ | ||||||
| Relative fair value of warrant granted in connection with a loan payable - related party | $ | $ | ||||||
| Warrant grant for settlement of accounts payable | $ | $ | ||||||
| Warrants issued for accrued services | $ | $ | ||||||
| Deemed dividend upon alternate cashless exercise of warrants | $ | $ | ||||||
The accompanying unaudited condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(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”) is 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.
The Company was originally formed in Melbourne, Victoria, Australia on October 15, 2007 as Propanc PTY LTD. On November 23, 2010, Propanc Health Group Corporation was incorporated in the State of Delaware, and in January 2011, to reorganize the Company, all of the outstanding shares of Propanc PTY LTD were acquired on a one-for-one basis by Propanc Health Group Corporation, with Propanc PTY LTD becoming a wholly-owned subsidiary of the Company.
On July 22, 2016, the Company formed another 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 March 31, 2024, there has been no activity within this entity.
Effective April 20, 2017, the Company changed its name to “Propanc Biopharma, Inc.” to reflect the Company’s stage of operations and development better.
In July 2020, a world-first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 83 granted, allowed, or accepted patents and 10 patents filed, or under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
On
May 1, 2023, the Company filed a certificate of amendment to its certificate of incorporation, as amended, to effect a
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.
Basis of Presentation
The Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our consolidated results of operations for the three and nine months ended March 31, 2024 and 2023 and cash flows for the nine months ended March 31, 2024 and 2023 and our consolidated financial position at March 31, 2024 have been made. The Company’s results of operations for the nine months ended March 31, 2024 are not necessarily indicative of the operating results to be expected for the full fiscal year ending June 30, 2024.
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, 2023. The June 30, 2023 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 wholly-owned subsidiary through March 31, 2024.
Use of Estimates
The preparation of financial statements in conformity with 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 collectability of a refundable advance deposit, valuation of the operating lease liability and related right-of-use asset, valuation of derivatives, allowance for uncollectable receivables, valuation of equity based instruments issued for other than cash, the valuation allowance on deferred tax assets and foreign currency translation due to certain average exchange rates applied in lieu of spot rates on transaction dates.
| F-6 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Foreign Currency Translation and Other Comprehensive Income (Loss)
The Company’s wholly-owned subsidiary’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has been translated into the Company’s reporting currency, which is the United States dollar ($) and/or (USD). Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as a component of other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of Australian dollars to USD after the balance sheet date.
Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
Assets
and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the
consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated
in a currency other than the functional currency included in the consolidated results of operations as incurred. Effective fiscal year
2021, the parent company determined that the intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3,
gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of accumulated
other comprehensive income (loss). Prior to July 1, 2020, the Company recorded the foreign currency transaction gains and losses from
measuring the intercompany balances as a component of other income (expenses) titled foreign currency transaction gain (loss). As of
March 31, 2024 and 2023, the Company recognized a cumulative exchange gain (loss) of approximately $
As of March 31, 2024 and June 30, 2023, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the consolidated financial statements were as follows:
| March 31, 2024 | June 30, 2023 | |||||||
| Exchange rate on balance sheet dates | ||||||||
| USD : AUD exchange rate | ||||||||
| Average exchange rate for the period | ||||||||
| USD : AUD exchange rate | ||||||||
The change in Accumulated Other Comprehensive Income by component during the nine months ended March 31, 2024 was as follows:
| Foreign Currency Items: | ||||
| Balance, June 30, 2023 | $ | |||
| Unrealized foreign currency translation loss | ||||
| Ending balance, March 31, 2024 | $ | |||
Fair Value of Financial Instruments and Fair Value Measurements
The Company measures its financial assets and liabilities in accordance with US GAAP. For certain financial instruments, including cash and cash equivalents, receivables, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Amounts recorded for notes payable, net of discount, and loans payable also approximate fair value because current interest rates available for debt with similar terms and maturities are substantially the same.
The Company follows accounting guidance for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).
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.
| F-7 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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
Refundable Advance Deposit
In August 2023, the Company
paid a refundable advance deposit of $
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method. The depreciable amount is the cost less its residual value.
The estimated useful lives are as follows:
| Machinery and equipment | -
|
| Furniture | -
|
Patents
Patents are stated at cost and amortized on a straight-line basis over the estimated future periods if and once the patent has been granted by a regulatory agency. However, the Company will expense any patent costs as long as we are in the startup stage. Accordingly, as the Company’s products are not currently approved for market, all patent costs incurred from 2013 through March 31, 2024 were expensed immediately. This practice of expensing patent costs immediately ends when a product receives market authorization from a government regulatory agency.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, “Long-lived assets,” which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Employee Benefit/Liability
Liabilities arising in respect of wages and salaries, accumulated annual leave, accumulated long service leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured based on the employee’s remuneration rates applicable at the reporting date. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. All employee liabilities are owed within the next twelve months.
Australian Goods and Services Tax (“GST”)
Revenues, expenses and balance sheet items are recognized net of the amount of GST, except payable and receivable balances which are shown inclusive of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.
Cash flows are presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.
As
of March 31, 2024, and June 30, 2023, the Company was owed $
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.
| F-8 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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 shares of the Company’s common stock, par value $ per share (“common stock”) 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 nine months ended March 31, 2024 and 2023 were $
The Company may apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, the Company does not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If the Company has net income, then the Company can receive the credit which reduces its income tax liability. If the Company has net losses, then the Company may still receive a cash payment for the credit, however, the Company’s net operating loss carryforwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as a tax benefit, in operations, upon receipt.
During
the nine months ended March 31, 2024 and 2023, the Company applied for, and received from the Australian Taxation Office, a research
and development tax credit in the amount of $
The Company records stock-based compensation in accordance with ASC 718, “Stock Compensation”. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718 and recognizes the fair value of such awards over the service period. The Company used the modified prospective method of adoption.
Revenue Recognition
The Company applies ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. Subject to these criteria, the Company intends to recognize revenue relating to royalties on product sales in the period in which the sale occurs and the royalty term has begun.
Legal Expenses
All legal costs for litigation are charged to expense as incurred.
Leases
The Company follows ASC Topic 842, Leases (Topic 842) and applies the package of practical expedients, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less. Operating lease right of use assets (“ROU”) represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses.
| F-9 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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.
| March 31, 2024 | March 31, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Stock Options | ||||||||
| Stock Warrants with no designations | ||||||||
| Series A Warrants as if converted at alternate cashless exercise price | ||||||||
| Series B Warrants | ||||||||
| Series C Warrants as if converted at alternate cashless exercise price * | ||||||||
| Unvested restricted stock | ||||||||
| Convertible Debt | ||||||||
| Total | ||||||||
| * |
Recent Accounting Pronouncements
We have reviewed the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40), which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments, amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions, and modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS calculation. The standard is effective for annual periods beginning after December 15, 2023 for smaller reporting companies, and interim periods within those reporting periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those reporting periods. The Company is currently assessing the impact the new guidance will have on our consolidated financial statements.
NOTE 2 – GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation
of the Company as a going concern. For the nine months ended March 31, 2024, the Company had no revenues, had a net loss of $
The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
| F-10 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
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.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of March 31, 2024 and June 30, 2023.
| March 31, 2024 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Office equipment at cost | $ | $ | ||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property, plant, and equipment | $ | $ | ||||||
Depreciation
expense for the three months ended March 31, 2024 and 2023 were $
NOTE 4 – DUE TO FORMER DIRECTOR - RELATED PARTY
Due
to former director – related party represents unsecured advances made primarily by a former director for operating expenses on
behalf of the Company, such as intellectual property and formation expenses. The expenses were paid for on behalf of the Company and
are due upon demand. The Company is currently not being charged interest under these advances. The total amount owed the former director
at March 31, 2024 and June 30, 2023 were $
NOTE 5 – LOANS
Loan from Former Director - Related Party
Loan
from the Company’s former director at March 31, 2024 and June 30, 2023 were $
Loans payable - Related Party
Between
November 2023 and February 2024, an institutional investor affiliated with one of our directors, Josef Zelinger, loaned the Company an
aggregate of $
Loan payable -long-term- Related Party
On
July 5, 2023, the Company and an institutional investor affiliated with one of our directors, Josef Zelinger, entered into a letter agreement,
pursuant to which such investor loaned the Company an aggregate of $
A
portion of the proceeds of such loan were used to repay an outstanding balance of approximately $
Accrued
interest from this loan amounted to $
| F-11 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Loan Payable
Crown Bridge Securities Purchase Agreement
Effective
October 3, 2019, the Company entered into a securities purchase agreement with Crown Bridge Partners, LLC (“Crown
Bridge”), pursuant to which Crown Bridge purchased a convertible promissory note from the Company (the “Crown Bridge
Note”), which had a remaining principal balance of $
Loan in default
The
Crown Bridge Note is currently past due and in default, consisting of $
NOTE 6 – NOTE PAYABLE AND CONVERTIBLE NOTES
Promissory Note
On
August 15, 2023, the Company issued to an institutional investor (the “August 2023 Lender”) a
Accrued
interest from this note amounted to $
Convertible Notes
The Company’s convertible notes outstanding at March 31, 2024 and June 30, 2023 were as follows:
| March 31, 2024 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Convertible notes and debenture | $ | $ | ||||||
| Unamortized discounts | ( | ) | ( | ) | ||||
| Premium, net | ||||||||
| Convertible notes, net | $ | $ | ||||||
Convertible Note Issued with Consulting Agreement
Crown Bridge Securities Purchase Agreements
Effective
October 3, 2019, the Company entered into a securities purchase agreement with Crown Bridge, pursuant to which Crown Bridge purchased
the Crown Bridge Note from the Company in the aggregate principal amount of $
Additionally,
Crown Bridge had the option to convert all or any amount of the Crown Bridge Note at any time after issuance until the later of such
note’s maturity date or the date on which the default amount was paid if an event of default occurs, which would be between
| F-12 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The
Crown Bridge Note contained certain events of default, upon which principal and accrued interest would become immediately due and payable.
In addition, upon an event of default, interest on the outstanding principal accrued at a default interest rate of
The
total principal amount outstanding under the Crown Bridge Note was $
There
were unissued shares of Common Stock that were considered issuable for accounting purposes during the 1st quarter of fiscal
2021 related to a conversion notice dated and received on September 16, 2020. In November 2020, the Company was notified by Crown Bridge
of the cancellation of this conversion notice as a result of the reverse stock split and, as such, the Company reversed the effects of
this transaction, thereby increasing the principal balance by $
The
total principal amount outstanding under the Crown Bridge Note was $
In
August 2022, the SEC filed a complaint against Crown Bridge due to its violation of Section 15(a)(1) of the Exchange Act. Crown Bridge
agreed to surrender all conversion rights in its currently held convertible notes, including the Crown Bridge Note. Consequently, during
fiscal year 2023, the Company reclassified the remaining principal balance of $
1800 Diagonal Lending (formerly known as Sixth Street Lending) Securities Purchase Agreements
June 29, 2023 Securities Purchase Agreement
On
June 29, 2023, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC (“1800 Diagonal”),
which closed on July 6, 2023, pursuant to which 1800 Diagonal purchased a convertible promissory note (the “July 6, 2023 1800 Diagonal
Note”) from the Company in the aggregate principal amount of $
July 19, 2023 Securities Purchase Agreement
On
July 19, 2023, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC pursuant to which 1800 Diagonal
purchased a convertible promissory note (the “July 19, 2023 1800 Diagonal Note”) from the Company in the aggregate principal
amount of $
August 16, 2023 Securities Purchase Agreement
On
August 16, 2023, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC pursuant to which 1800 Diagonal
purchased a convertible promissory note (the “August 16, 2023 1800 Diagonal Note”) from the Company in the aggregate principal
amount of $
October 20, 2023 Securities Purchase Agreement
On
October 20, 2023, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC pursuant to which 1800 Diagonal
purchased a convertible promissory note (the “October 20, 2023 1800 Diagonal Note”) from the Company in the aggregate principal
amount of $
November 29, 2023 Securities Purchase Agreement
On
November 29, 2023, the Company entered into a securities purchase agreement with 1800 Diagonal Lending LLC pursuant to which 1800 Diagonal
purchased a convertible promissory note (the “November 29, 2023 1800 Diagonal Note”) from the Company in the aggregate principal
amount of $
| F-13 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The following terms shall apply to all the above 1800 Diagonal notes:
The
1800 Diagonal Notes bear interest at a rate of
During
the first 60 to 180 days following the date of these notes, the Company has the right to prepay the principal and accrued but unpaid
interest due under the above note, together with any other amounts that the Company may owe the holder under the terms of the note, at
a premium ranging from
The
conversion price for the above notes shall be equal to a
The
above notes contain certain events of default, upon which principal and accrued interest will become immediately due and payable. In
addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of
Failure
to deliver shares of common stock upon conversion of the above 1800 Diagonal notes within three business days of notice of conversion
will result in the Company paying a penalty of $
Upon certain events of default, the above 1800 Diagonal notes will become immediately due and payable and the Company must pay 1800 Diagonal % of the then-outstanding principal amount of the above 1800 Diagonal notes, plus any interest accrued upon such event of default or prior events of default (the “Default Amount”). Further, upon any event of default relating to the failure to issue shares of common stock upon the conversion of such notes, such notes become immediately due and payable in an amount equal to twice the Default Amount.
The
total principal amount outstanding under the above 1800 Diagonal financing agreements were $
ONE44 Capital Securities Purchase Agreements
August 15, 2022 Securities Purchase Agreement
On
August 15, 2022, the Company entered into a securities purchase agreement with ONE44 Capital LLC, pursuant to which ONE44 Capital purchased
a convertible redeemable note (the “August 15, 2022 ONE44 Note”) from the Company in the aggregate principal amount of $
February 14, 2023 Securities Purchase Agreement
On
February 14, 2023, the Company entered into a securities purchase agreement with ONE44, pursuant to which ONE44 purchased a convertible
redeemable note (the “February 14, 2023 ONE44 Note”) from the Company in the aggregate principal amount of $
December 8, 2023 Securities Purchase Agreement
On
December 8, 2023, the Company entered into a securities purchase agreement with ONE44, pursuant to which ONE44 purchased a convertible
redeemable note (the “December 8, 2023 ONE44 Note”) from the Company in the aggregate principal amount of $
| F-14 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The following terms shall apply to all of the above ONE44 note:
During
the first 60 to 180 days following the date of these notes, the Company has the right to prepay the principal and accrued but unpaid
interest due under the above notes issued to ONE44, together with any other amounts that the Company may owe ONE44 under the terms of
the note, at a premium ranging from
The
conversion price for the above ONE44 notes ranges from
The
above ONE44 notes contain certain events of default, upon which principal and accrued interest will become immediately due and payable.
In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of
The
total principal amount outstanding under the above ONE44 notes was $
The
total principal amount outstanding under the above ONE44 financing agreements were $
GS Capital Partners Securities Purchase Agreements
August 12, 2022 Securities Purchase Agreement
On
August 12, 2022, the Company entered into a securities purchase agreement (the “GS Capital Purchase Agreement”) with GS Capital
Partners, LLC (“GS Capital”), pursuant to which GS Capital purchased a convertible redeemable note (the “GS Capital
Note”) from the Company in the aggregate principal amount of $
The
maturity date of the GS Capital Note was
Additionally,
such conversion price were adjusted when the Company issued securities with more favorable conversion terms. The effective conversion
price of this note was
September 21, 2022 Securities Purchase Agreement
On
September 21, 2022, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased
a convertible redeemable note from the Company in the aggregate principal amount of $
| F-15 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The
maturity date of such note was
August 23, 2023 Securities Purchase Agreement
On
August 23, 2023, the Company entered into a securities purchase agreement with GS Capital Partners, LLC, pursuant to which GS Capital
purchased a convertible redeemable note from the Company in the aggregate principal amount of $
The
maturity date of the GS Capital Note was
Between April 2024 and May 2024, the Company issued an aggregate of
shares of its common stock at a contractual conversion price of $
October 12, 2023 Securities Purchase Agreement
On
October 12, 2023, the Company entered into a securities purchase agreement with GS Capital Partners, LLC, pursuant to which GS Capital
purchased a convertible redeemable note from the Company in the aggregate principal amount of $
The
maturity date of the GS Capital Note was
Additionally, the conversion prices of the above GS Capital notes will be adjusted in favor of the note holder if the Company issues securities with more favorable conversion terms. The effective conversion price of the outstanding GS Capital notes are 60% (representing a 40% discount) of the market price, which means the lowest closing bid prices of the Common Stock for the ten trading days immediately prior to the delivery of a Notice of Conversion.
The above GS Capital notes were bifurcated from the embedded conversion option which was recorded as derivative liabilities at fair value.
During
the first 60 to 180 days following the date of the above GS Capital notes, the Company has the right to prepay the principal and accrued
but unpaid interest due under the above notes issued to GS Capital, together with any other amounts that the Company may owe GS Capital
under the terms of the notes, at a premium ranging from
| F-16 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Upon
the occurrence and during the continuation of certain events of default, interest accrues at a default interest rate of
The
total principal outstanding and accrued interest under the above GS Capital notes were $
The
total principal outstanding and accrued interest under the above GS Capital notes were $
Coventry Enterprises, LLC Securities Purchase Agreement
On
November 3, 2022, the Company entered into a Securities Purchase Agreement with Coventry Enterprises, LLC (“Coventry”), pursuant
to which the Company issued Coventry a promissory note from the Company in the aggregate principal amount of $
The
Coventry Note bore interest at a rate of
Additionally, in the event that the Company files with the SEC a qualified offering statement on Form 1-A and such note was still outstanding for four months since its issuance, Coventry had the right to convert all or portion of such note, including guaranteed interest, into shares of common stock at the offering price used in connection with such offering.
At
any time following an event of default under the Coventry Note, it became convertible, in whole or in part, into shares of Common Stock
at the option of Coventry, at any time and from time to time thereafter (subject to the beneficial ownership limitations set forth therein).
The conversion price of the Coventry Note was ninety percent (90%) per share of the lowest per-share VWAP during the twenty (20) trading-day
period before the conversion (each, a “Calculated Conversion Price”). In the event that, within 30 calendar days either before
or after any conversion, the conversion price of which was based upon a Calculated Conversion Price, the Company consummates (in whole
or in part) any financing (whether such financing was equity, equity-equivalent, or debt or any combination thereof) or for any other
reason issues any shares of common stock or any common stock equivalents at a price less than the most recent Calculated Conversion Price
(the “Alternative Conversion Price”), regardless of when that note or instrument was originated, then, at the option of Coventry,
(i) if the conversion had not yet occurred, then the Alternative Conversion Price will be substituted for the Calculated Conversion Price
and (ii) if the conversion had occurred, then, within two trading days following Coventry’s written request, the Company was required
to issue to Coventry that number of shares of Common Stock equivalent to the difference between the number of shares of Common Stock
that had been issued using the Calculated Conversion Price and the number of shares of Common Stock that would have been issued using
the Alternative Conversion Price. Accordingly, the Coventry note is treated as stock settled debt under ASC 480 and the Company recorded
a total of $
Upon the occurrence and during the continuation of certain events of default, interest on the Coventry Note accrues at a default interest rate equal to the lesser of (i) 18% per annum or (ii) the maximum rate permitted by law. Subject to the beneficial ownership limitation in the Coventry Note, if any event of default occurs, then the outstanding principal amount guaranteed interest plus accrued but unpaid default rate interest, liquidated damages and other amounts owing on the Coventry Note through the date of acceleration became immediately due and payable at Coventry’s option, in cash or in shares of common stock at the mandatory default amount, which was equal to 120% of all such amounts due on the Coventry Note. If the Company failed to deliver to Coventry such shares, the Company was required to pay in cash an amount equal to the amount that the value of such shares exceeds the principal amount and interest of the attempted conversion.
As
an additional inducement to Coventry entering into such agreement, the Company issued to Coventry shares of common stock on the
issuance date of the Coventry Note, which was valued using the relative fair value method at $
The
Company failed to make the first installment payment due in March 2023 which was considered an event of default. The Company recorded
a default penalty of $
The
total principal amount outstanding and accrued interest under the above Coventry note was $
| F-17 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
In
July 2023, the Company fully paid the remaining principal including accrued interest of $
104 LLC Securities Purchase Agreement
Effective
March 5, 2024, the Company entered into and closed a securities purchase agreement (the “Purchase Agreement”) with 104
LLC (“104”), pursuant to which 104 agreed to purchase a convertible promissory note from the Company in the aggregate
principal amount of $
The
principal and interest on the Note is convertible into shares of common stock of the Company at the option of 104 at any time following
the issuance date of the 104 Note (the “Conversion Shares”) at a price per share equal to 65% of the lowest closing trade
price of the Common Stock during the ten (10) trading days prior to conversion (representing a discount of 35%). Notwithstanding the
foregoing, such conversions are subject to a 4.99% beneficial ownership limitation and adjustments for mergers, consolidations, reorganizations
and similar events set forth in the Note, other than a transfer or sale of all or substantially all Company assets. Pursuant to the Note,
the Company is required to maintain an initial reserve of at least 500% of the number of Conversion Shares, subject to any increase of
such reserved amount to reflect the Company’s obligations under the Note. The above 104 Note is treated as stock settled debt under
ASC 480 and accordingly the Company recorded a total of $
The maturity date of the Note is March 1, 2025 and the 104 Note bears interest at a rate of eight percent (8%) per annum, which may be increased to sixteen percent (16%) in the event of a default. During the first 60 days following the date of the Note, the Company has the right to prepay the principal and accrued but unpaid interest due under the Note, at a one hundred ten percent (110%) premium of the face amount plus accrued and unpaid interest, which increases to (i) one hundred fifteen percent (115%) if prepaid after 60 days, but less than 91 days from the issuance date, (ii) one hundred twenty percent (120%) if prepaid after 90 days, but less than 121 days from the issuance date, (iii) one hundred twenty five percent (125%) if prepaid after 120 days, but less than 181 days from the issuance date. After this initial 180-day period, the Company does not have a right to prepay the Note.
The 104 Note contains certain events of default, including failure to pay principal and interest when due, failure to timely issue the Conversion Shares, failure to maintain the listing of the Common Stock on at least one of the OTC markets (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, failure to comply with its reporting requirements with the U.S. Securities and Exchange Commission, a breach of certain covenants in the Purchase Agreement, default by the Company under any other note issued to the Investor, as well as certain customary events of default set forth in the Note, including, among others, breach of covenants, representations or warranties, insolvency, bankruptcy, and liquidation. Upon an event of default, the Note will become immediately due and payable by the Company.
The
total principal amount outstanding under the above 104 financing agreement were $
Note payable and convertible note in default
Outstanding
convertible notes for total principal amount of $
Amortization of debt discounts
The
Company recorded $
Amortization
of debt discounts associated with convertible notes for the nine months ended March 31, 2024 and 2023 was $
The
Company reclassified $
NOTE 7 – STOCKHOLDERS’ DEFICIT
Increase in Authorized Shares of Common Stock and Reverse Stock Split
| F-18 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
On September 21, 2022, the board of directors of the Company approved and authorized, and the holders of a majority-in-interest of the Company’s voting capital stock approved by written consent for the Company to file a certificate of amendment to its Certificate of Incorporation, which increased the Company’s authorized capital stock. The Certificate increased the number of authorized shares of common stock from to shares. The number of authorized shares of preferred stock remained at , such that the total number of shares of authorized capital stock increased to shares. Such certificate of amendment was filed and became effective on November 4, 2022.
On
May 1, 2023, the Company filed a certificate of amendment to its certificate of incorporation, as amended, to effect a
Preferred Stock
The total number of shares of preferred stock that the Company is authorized to issue is , $ par value per share. These preferred shares have no rights to dividends, profit sharing or liquidation preferences, subject to any such rights provided for such shares in any certificate of designation filed by the Company with the State of Delaware.
Of the total preferred shares authorized, had been designated as Series A Preferred Stock (“Series A Preferred Stock”), pursuant to the Certificate of Designation for the Series A Preferred Stock filed with the Secretary of State of the State of Delaware on December 9, 2014. James Nathanielsz, the Company’s Chief Executive Officer and Chief Financial Officer and a director, beneficially owned all of the outstanding shares of Series A Preferred Stock indirectly through North Horizon Pty Ltd., which entitled him, as a holder of Series A Preferred Stock, to vote on all matters submitted or required to be submitted to a vote of the Company’s stockholders, except election and removal of directors, and each share of Series A Preferred Stock entitled him to a total of 1 vote. North Horizon Pty Ltd. is a Nathanielsz Family Trust. Mr. Nathanielsz had voting and investment power over these shares.
On March 15, 2023, the Company filed a certificate with the Secretary of State of Delaware (the “Certificate of Retirement”), effecting the retirement and cancellation of the Series A Preferred Stock to eliminate such Series A Preferred Stock. shares of Series A Preferred Stock are currently outstanding as they were redeemed by the Company in March 2023.
Pursuant to a certificate of designation filed with the Secretary of State of the State of Delaware on June 16, 2015, five shares of preferred stock have been designated as Series B Preferred Stock, par value $ per share, of the Company (“Series B Preferred Stock”). Each holder of shares of Series B Preferred Stock is entitled to voting power equivalent to the number of votes equal to the total number of shares of common stock outstanding as of the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company and entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the Company. share of Series B Preferred Stock is issued and outstanding as of March 31, 2024 and June 30, 2023. Mr. Nathanielsz, the Company’s Chief Executive Officer, directly beneficially owns such one share of Series B Preferred Stock.
additional shares of Series A Preferred Stock or Series B Preferred Stock were issued during the nine months ended March 31, 2024 and fiscal year 2023.
Common Stock:
Equity Line Agreement
On
July 20, 2023, the Company entered into a common stock purchase agreement (the “Equity Line Agreement”) with an institutional
investor (the “Investor”) providing for an equity financing facility, pursuant to which Company has the option to request
that the Investor commit to purchase up to $
Pursuant
to the Equity Line Agreement, purchases of Shares cannot occur unless and until certain conditions are met, including but not limited
to, the SEC declaring the Registration Statement effective, and the maximum number of Shares that may be purchased
On
December 13, 2023, the Company issued shares of its common stock at an average price per share of approximately $, as
a result of delivering one draw down notice to the Investor for a subscription receivable of $
On
February 20, 2024, the Company issued shares of its common stock at an average price per share of approximately $, as
a result of delivering one draw down notice to the Investor for $
| F-19 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Shares issued for conversion of convertible debt
From
July 1, 2023 through September 30, 2023, the Company issued an aggregate of shares of its common stock and common stock issuable
of at an average contractual conversion price of $
From
October 1, 2023 through December 31, 2023, the Company issued an aggregate of shares of its common stock at an average contractual
conversion price of $
From
January 1, 2024 through March 31, 2024, the Company issued an aggregate of shares of its common stock at an average contractual
conversion price of $
The
total recorded to equity related to the issuance of common stock for conversion of convertible debt for the three and nine months ended
March 31, 2024 was $
Included
in the above conversions during the nine months ended March 31, 2024, convertible notes with principal aggregate amount of $
The
Company reclassified $
The Company has shares of its common stock reserved for future issuances based on lender reserve requirements pursuant to underlying financing agreements at March 31, 2024.
Shares issued for issuable shares
As of June 30, 2023, there was common stock issuable of for services rendered during fiscal 2023. The common stock issuable of were issued on July 10, 2023.
Shares issued for exercise of warrants
During
the three months ended September 30, 2023, the Company issued an aggregate of shares of common stock from the alternate cashless
exercise of
During
the three months ended December 31, 2023, the Company issued an aggregate of shares of common stock from the alternate cashless
exercise of
During
the three months ended March 31, 2024, the Company issued an aggregate of shares of common stock from the alternate cashless
exercise of
The
Alternate Cashless Exercise provision, for a cashless conversion at the holder’s option, is available should the trading price
of the Company’s common stock fall below $
Restricted Stock Units
Pursuant
to employment agreements dated in May 2019, the Company granted an aggregate of and restricted stock unit to the Company’s
Chief Executive Officer and Chief Scientific Officer, respectively. The total restricted stock units are subject to vesting terms
as defined in the employment agreements. The restricted stock units were valued at the fair value of approximately $ per
unit or $ based on the quoted trading price on the date of grant. There were $
| F-20 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Stock Warrants:
The following table summarizes warrant activity for the nine months ended March 31, 2024:
| Weighted | ||||||||
| Number of | Average | |||||||
| Shares | Price Per Share | |||||||
| Outstanding at June 30, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised (de minimis) | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding at March 31, 2024 | * | $ | ||||||
| Exercisable at March 31, 2024 | $ | |||||||
| Outstanding and Exercisable: | ||||||||
| Weighted average remaining contractual term | ||||||||
| Aggregate intrinsic
value | $ | |||||||
| * |
| Number of Warrants | Exercisable | |||||||
| Series A warrants | ||||||||
| Series B warrants | ||||||||
| Series C warrants | ||||||||
| Warrants with no class designation | ||||||||
| Total | ||||||||
Exercise of Warrants
During
the three months ended September 30, 2023, the Company issued an aggregate of shares of common stock from the alternate cashless
exercise of
During
the three months ended December 31, 2023, the Company issued an aggregate of shares of common stock from the alternate cashless
exercise of
During
the three months ended March 31, 2024, the Company issued an aggregate of shares of common stock from the alternate cashless
exercise of
Warrants Granted to Lender – Related Party
July
5, 2023, the Company and an institutional investor affiliated with one of our directors, Josef Zelinger, entered into a letter agreement,
pursuant to which such investor loaned the Company an aggregate of $
| F-21 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Stock Options:
| Weighted | ||||||||
| Number of | Average Exercise | |||||||
| Shares | Price Per Share | |||||||
| Outstanding at June 30, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding at March 31, 2024 | $ | |||||||
| Exercisable at March 31, 2024 | $ | |||||||
| Outstanding and Exercisable: | ||||||||
| Weighted average remaining contractual term | ||||||||
| Weighted average fair value of options granted during the period | $ | |||||||
| Aggregate intrinsic value | $ | |||||||
On the Effective Date, the Company’s board of directors approved and adopted the Company’s 2019 Equity Incentive Plan (the “2019 Plan”), which reserves a total of shares of the Company’s common stock for issuance under the 2019 Plan. Incentive awards authorized under the 2019 Plan include, but are not limited to, incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units.
During the nine months ended March 31, 2024 and 2023, the Company recognized stock-based compensation of $ for both periods from vested stock options. There was $ of unvested stock options expense as of March 31, 2024. stock options were granted during the nine months ended March 31, 2024.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be subject to litigation and claims arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings and the Company is not aware of any pending or threatened legal proceeding against the Company that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
IRS Liability
As
part of its requirement for having a foreign operating subsidiary, the Company’s parent U.S. entity is required to file an informational
Form 5471 to the Internal Revenue Service (the “IRS”), which is a form that explains the nature of the relationship between
the foreign subsidiary and the parent company. From 2012 through the 2014, the Company did not file this form in a timely manner. As
a result of the non-timely filings, the Company incurred a penalty from the IRS in the amount of $
Operating Agreements
In
November 2009, the Company entered into a commercialization agreement with the University of Bath (UK) (the “UK University”),
whereby the Company and the UK University co-owned the intellectual property relating to the Company’s pro-enzyme formulations.
In June 2012, the Company and the UK University entered into an assignment and amendment whereby the Company assumed full ownership of
the intellectual property, while agreeing to pay royalties of
Collaboration Agreement
On
September 13, 2018, the Company entered into a two-year collaboration agreement with the University of Jaén (the “University”)
to provide certain research services to the Company. In consideration of such services, the Company agreed to pay the University approximately
On
October 1, 2020, the Company entered into another two-year collaboration agreement with the University to provide certain research services
to the Company. In consideration of such services, the Company agreed to pay the University approximately
On
July 27, 2022, the Company entered into a two-year research agreement with the University to provide certain research and experiment
services to the Company. One of the Company’s Scientific Advisory Board is the lead joint researcher of the University. In exchange
for full ownership of the intellectual property, the Company agreed to pay royalties of
-
-
-
-
-
| F-22 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
The commencement date for the experiments was on September 1, 2022, and the estimated length of time for completion is 24 months.
As
of March 31, 2024 and June 30, 2023, and in addition to the above amounts, the Company has $
Consulting Agreement
On
July 1, 2022, the Company and a consultant agreed to extend the term of a consulting agreement from July 1, 2022 to June 30, 2023 to
provide media-related services for a monthly fee of $
Operating Leases – Related Party
On
May 4, 2022, the Company entered in a -year lease agreement with North Horizon Pty Ltd., a related party, (see Note 9) for a monthly
rent of $
ROU is summarized below:
| March 31, 2024 | June 30, 2023 | |||||||
| Office lease | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Right-of-use asset, net | $ | $ | ||||||
Operating Lease liabilities are summarized below:
| March 31, 2024 | June 30, 2023 | |||||||
| Office lease | $ | $ | ||||||
| Reduction of lease liability | ( | ) | ( | ) | ||||
| Less: office lease, current portion | ( | ) | ( | ) | ||||
| Long term portion of lease liability | $ | $ | ||||||
Remaining future minimum lease payments under non-cancelable operating lease at March 31, 2024 are as follows:
| Fiscal Year 2024 | $ | |||
| Fiscal Year 2025 | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ |
The
weighted average remaining lease term for the operating lease is
NOTE 9 – RELATED PARTY TRANSACTIONS
Since its inception, the Company has conducted transactions with its directors and entities related to such directors.
These transactions have included the following:
As
of March 31, 2024 and June 30, 2023, the Company owed its former director a total of $
As
of March 31, 2024 and June 30, 2023, the Company owed its former director a total of $
| F-23 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Effective
May 5, 2016, the Company entered into an agreement for the lease of its principal executive offices with North Horizon Pty Ltd., a related
party, of which Mr. Nathanielsz, our CEO, CFO and a director, and his wife are owners and directors. The lease had a -year term and
provided for annual rental payments of $
Loans payable - Related Party
In
November 2023, an institutional investor affiliated with one of our directors, Josef Zelinger, loaned the Company an aggregate of $
Loan payable -long-term- Related Party
July
5, 2023, the Company and an institutional investor affiliated with one of our directors, Josef Zelinger, entered into a letter agreement,
pursuant to which such investor loaned the Company an aggregate of $
Employment and Services Agreements with Management
The
Company and Mr. Nathanielsz entered into an employment agreement as of February 25, 2015 (the “Nathanielsz Employment Agreement”)
setting forth the terms and conditions of Mr. Nathanielsz’s employment as the Company’s President and Chief Executive Officer.
The Nathanielsz Employment Agreement was scheduled to expire on
Mr.
Nathanielsz’s wife, Sylvia Nathanielsz, is and has been a non-executive, part-time employee of the Company since October 2015.
Effective February 1, 2018, Mrs. Nathanielsz receives an annual salary of $
Pursuant
to a February 25, 2016 board resolution, James Nathanielsz was paid $
On
August 12, 2021, the Board approved a bonus of $
A
total of $
| F-24 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
Amended and Restated Employment Agreement
On
May 14, 2019 (the “Effective Date”), the Company entered into an Amended and Restated Employment Agreement (the “Employment
Agreement”) with Mr. Nathanielsz for a term of
On
October 26, 2022, the Company entered into an Amended and Restated Employment Agreement (the “Amended Agreement”) with Mr.
Nathanielsz, effective as of July 1, 2022, (the “2022 Effective Date”). The Amended Agreement provides Mr. Nathanielsz with
a base salary of $
Amended and Restated Employment Agreement
On
May 14, 2019, the Company entered into an Amended and Restated Services Agreement (the “Services Agreement”) with Dr. Kenyon,
the Company’s Chief Scientific Officer and a director, for a term of
On
August 12, 2021, pursuant to a Cancellation Agreement, Mr. Kenyon agreed to cancel accrued salaries of $
Intercompany Loans
All intercompany loans were made by the parent to the Company’s subsidiary, Propanc PTY LTD, none of which has been repaid as of March 31, 2024. Effective fiscal year 2021, the parent company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment on the condensed consolidated balance sheet as accumulated other comprehensive income.
NOTE 10 – CONCENTRATIONS AND RISKS
Concentration of Credit Risk
The Company maintains its cash in banks and financial institutions in Australia. Bank deposits in Australian banks are uninsured. The Company has not experienced any losses in such accounts through March 31, 2024.
The
Company primarily relied on funding from six convertible and non-convertible debt lenders and received net proceeds after deductions
of $
The
Company primarily relied on funding from five convertible debt lenders and received net proceeds after deductions of $
Receivable Concentration
As
of March 31, 2024 and June 30, 2023, the Company’s receivables were
Patent and Patent Concentration
The Company has filed multiple patent applications relating to its lead product, PRP. The Company’s lead patent application has been granted and remains in force in the United States, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein, Turkey, United Kingdom, Australia, China, Japan, Indonesia, Israel, New Zealand, Singapore, Malaysia, South Africa, Republic of Korea, India and Brazil. In Canada and Mexico, the patent applications have been accepted as of fiscal year 2023.
| F-25 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
In 2016 and early 2017, the Company filed other patent applications. Three applications were filed under the Patent Cooperation Treaty (the “PCT”). The PCT assists applicants in seeking patent protection by filing one international patent application under the PCT, applicants can simultaneously seek protection for an invention in over 150 countries. Once filed, the application is placed under the control of the national or regional patent offices, as applicable, in what is called the national phase. One of the PCT applications filed in November 2016, entered national phase in July 2018 and another PCT application entered national phase in August 2018. A third PCT application entered the national phase in October 2018.
In July 2020, a world-first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 83 granted, allowed, or accepted patents and 10 patents filed, or under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
Further patent applications are expected to be filed to capture and protect additional patentable subject matter based on the Company’s field of technology relating to pharmaceutical compositions of proenzymes for treating cancer.
Foreign Operations
As of March 31, 2024 and June 30, 2023, the Company’s operations are based in Camberwell, Australia; however, the majority of research and development is being conducted in the European Union.
On July 22, 2016, the Company formed a wholly-owned subsidiary, Propanc (UK) Limited under the laws of England and Wales, for the purpose of submitting an orphan drug application with the European Medicines Agency as a small and medium-sized enterprise. As of March 31, 2024 and June 30, 2023, there has been no activity within this entity.
NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative Financial Instruments:
The
Company applies the provisions of ASC 815-40, Contracts in Entity’s Own Equity, under which convertible instruments and
warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative
accounting treatment. As a result, warrants and embedded conversion options in convertible debt are recorded as a liability and are revalued
at fair value at each reporting date. If the fair value of the warrants exceeds the face value of the related debt, the excess is recorded
as change in fair value in operations on the issuance date. The Company had $
The Company calculates the estimated fair values of the liabilities for derivative instruments using the Binomial Trees Method. The closing price of the Company’s common stock at March 31, 2024, the last trading day of the period ended March 31, 2024, was $. The volatility, expected remaining term and risk-free interest rates used to estimate the fair value of derivative liabilities at March 31, 2024 are indicated in the table that follows. The expected term is equal to the remaining term of the warrants or convertible instruments and the risk-free rate is based upon rates for treasury securities with the same term.
Convertible Debt
| Initial
Valuations (on new derivative instruments entered into during the nine months ended March 31, 2024) | March 31, 2024 | |||||||
| Volatility | % | % | ||||||
| Expected Remaining Term (in years) | ||||||||
| Risk Free Interest Rate | % | % | ||||||
| Expected dividend yield | None | None | ||||||
Fair Value Measurements:
The Company measures and reports at fair value the liability for derivative instruments. The fair value liabilities for price adjustable warrants and embedded conversion options have been recorded as determined utilizing the Binomial Trees model. The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and June 30, 2023:
| Balance
at March 31, 2024 | Quoted Prices in Active Markets for Identical | Significant Other Observable | Significant Unobservable Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Embedded conversion option liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| F-26 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
| Balance
at June 30, 2023 | Quoted Prices in Active Markets for Identical | Significant Other Observable | Significant Unobservable Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Embedded conversion option liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following is a roll forward for the nine months ended March 31, 2024 of the fair value liability of price adjustable derivative instruments:
| Fair
Value of Liability for Derivative Instruments | ||||
| Balance at June 30, 2023 | $ | |||
| Initial fair value of embedded conversion option derivative liability recorded as debt discount | ||||
| Initial fair value of embedded conversion option derivative liability recorded as derivative expense | ||||
| Reduction of derivative liability upon debt conversion | ( | ) | ||
| Change in fair value included in statements of operations | ( | ) | ||
| Balance at March 31, 2024 | $ | |||
NOTE 12 – SUBSEQUENT EVENTS
Shares issued for conversion of convertible debt
Between
April 2024 and May 2024, the Company issued an aggregate of shares of its common stock at a contractual conversion price of
$
April 12, 2024 Securities Purchase Agreement
On
April 12, 2024, the Company entered into a securities purchase agreement with GS Capital Partners, LLC, pursuant to which GS Capital
purchased a convertible redeemable note from the Company in the aggregate principal amount of $
The
maturity date of the GS Capital Note is
During
the first 60 to 180 days following the date of the above GS Capital notes, the Company has the right to prepay the principal and accrued
but unpaid interest due under the above notes issued to GS Capital, together with any other amounts that the Company may owe GS Capital
under the terms of the notes, at a premium ranging from
Upon
the occurrence and during the continuation of certain events of default, interest accrues at a default interest rate of
| F-27 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note Regarding Forward-Looking Information
The following discussion and analysis of the results of operations and financial condition of Propanc Biopharma, Inc., and its wholly-owned Australian subsidiary, Propanc PTY LTD (collectively, “Propanc” or the “Company”) as of March 31, 2024 and for the nine months ended March 31, 2024 and 2023 should be read in conjunction with our unaudited financial statements and the notes to those unaudited financial statements that are included elsewhere in this Quarterly Report on Form 10-Q for the period ended March 31, 2024 (this “Quarterly Report”). References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “us”, “we”, “our” and similar terms refer to Propanc. This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “feel”, “forecast”, “intend”, “may,”, “outlook”, “plan”, “potential”, “predict”, “project,”, “seek”, “should”, “will”, “would” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.
Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
U.S. Dollars are denoted herein by “USD,” “$” and “dollars”.
Overview
The Company was originally formed in Melbourne, Victoria, Australia on October 15, 2007 as Propanc PTY LTD. On November 23, 2010, Propanc Health Group Corporation was incorporated in the State of Delaware and in January 2011, to reorganize our Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis, whereby Propanc PTY LTD became our wholly-owned subsidiary. Effective April 20, 2017, we changed our name to “Propanc Biopharma, Inc.” to better reflect our current stage of operations and development.
We are a development-stage healthcare company that is currently focused on developing new cancer treatments for patients suffering from pancreatic, ovarian and colorectal cancer. Utilizing our scientific and oncology consultants, we have developed a rational, composite formulation of anti-cancer compounds, which together exert a number of effects designed to control or prevent tumors from recurring and spreading through the body. Our lead product candidate, PRP, is a variation upon our novel formulation and involves pro-enzymes, the inactive precursors of enzymes.
Recent Developments
November 7, 2023, POP1 Joint Research and Drug Discovery Program
On November 7, 2023, results reported by the Company’s joint researcher, Mrs. Belén Toledo Cutillas, MSc, at the laboratory of Professor Macarena Perán, PhD, University of Jaén, Granada, Spain, showed that PRP enhances the sensitivity of resistant pancreatic tumor cells to standard chemotherapy treatment and alters the tumor microenvironment by decreasing the fibrotic tissue and its malignancy (ability to spread into surrounding tissues). Results from the experiments demonstrates the effects of PRP on reducing chemoresistance in pancreatic tumor cells, which is a significant issue among pancreatic adenocarcinoma (PDAC) patients who have a poor 5-year survival rate of less than eight percent. As a result, the Company plans to investigate the clinical effects of PRP where an opportunity for a combinatorial therapeutic strategy may be uncovered to treat these resistant tumors.
January 16, 2024, PRP, Lead Product Candidate
A certificate of grant for the Company’s foundation patent was received from the Canadian Intellectual Property Office. The foundation patent covers composition claims for the Company’s lead product candidate, PRP. In further news, the PRP dosing and method to treat cancer stem cells (CSCs) patents were validated in countries across Europe, resulting in the Company’s IP portfolio growing to a total of 87 patents filed in major global jurisdictions.
April 16, 2024, PRP Lead Product Candidate
A certificate of grant for the Company’s “composition of proenzymes for cancer treatment,” patent was received from the European Patent Office. The patent covers lower dosage ratios of the two proenzymes (trypsinogen and chymotrypsinogen) contained in the PRP formulation.
May 2024, PRP Lead Product Candidate
An application for the Company’s “proenzymes composition,” patent was allowed by the Japanese Patent Office. The patent covers claims for the dosing regimen of the PRP formulation.
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Results of Operations
The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included elsewhere in this Report. The results discussed below are of the Company and its wholly-owned Australian subsidiary, Propanc PTY LTD.
For the Three and Nine months ended March 31, 2024, as compared to the Three and Nine months ended March 31, 2023.
Revenue
For the three and nine months ended March 31, 2024 and 2023, we generated no revenue because we are currently undertaking research and development activities for market approval and no sales were generated in this period.
Administration Expense
Administration expense increased to $348,841 for the three months ended March 31, 2024 as compared to $311,824 for the three months ended March 31, 2023. This increase of approximately $37,000 is primarily attributable to an increase in marketing expenses of approximately $34,000, increase in accounting fees of approximately $9,000, increase of approximately $6,000 in employee remuneration expense offset by decrease of approximately $9,000 in general consulting, legal and investor relation fees and decrease in other general and administrative expenses of approximately $3,000.
Administration expense decreased to $1,060,854 for the nine months ended March 31, 2024 as compared to $1,302,576 for the nine months ended March 31, 2023. This decrease of approximately $242,000 is primarily attributable to a decrease of approximately $197,000 in general consulting, legal and investor relation fees and decrease in stock-based expenses of approximately $54,000, decrease of approximately $61,000 in employee remuneration expense offset by increase in marketing expenses of approximately $61,000, increase in accounting fees of approximately $5,000, and increase in other general and administrative expenses of approximately $4,000.
Occupancy Expense
Occupancy expenses decreased to $6,578 for the three months ended March 31, 2024 as compared to $8,365 for the three months ended March 31, 2023. This decrease of approximately $1,800 is primarily attributable to exchange rate movements over the period when compared to the same period in 2023.
Occupancy expenses decreased to $19,584 for the nine months ended March 31, 2024 as compared to $22,244 for the nine months ended March 31, 2023. This decrease of approximately $2,700 is primarily attributable to exchange rate movements over the period when compared to the same period in 2023.
Research and Development Expenses
Research and development expenses were decreased to $65,448 for the three months ended March 31, 2024 as compared to $66,020 for the three months ended March 31, 2023. Research and development expenses were decreased to $195,712 for the nine months ended March 31, 2024 as compared to $242,223 for the nine months ended March 31, 2023. The decrease in research and development expenses of approximately $47,000 is primarily due to budgetary constraints as the Company prepares to advance PRP to a First-In-Human study in advanced cancer patients in 2024.
Such research and development expenses are related to the two-year collaboration agreement with University of Jaén, which was executed in October 2020 to provide certain research services to the Company ending on October 2022, relating to the investigation of a fully synthetic recombinant version of PRP. Additionally, on July 27, 2022, the Company entered into another two-year research agreement with the University of Jaén to provide certain research and experiment services to the Company relating to the investigation of the effects of pancreatic proenzymes against the tumor microenvironment.
Interest Expense
Interest expense decreased to $133,141 for the three months ended March 31, 2024, as compared to $157,208 for the three months ended March 31, 2023. Interest expense is primarily comprised of approximately $108,000 of debt discount amortization and accretion of put premium and $21,000 of interest expense from accrual of interest expense and other financing fees for the three months ended March 31, 2024. This decrease in interest expense of $24,067 is primarily attributable to the decrease of approximately $88,000 in accretion of put premium offset by increase in amortization of debt discount of approximately $66,000.
Interest expense increased to $575,837 for the nine months ended March 31, 2024, as compared to $418,579 for the nine months ended March 31, 2023. Interest expense is primarily comprised of approximately $508,000 of debt discount amortization and accretion of put premium and $58,000 of interest expense from accrual of interest expense and other financing fees for the nine months ended March 31, 2024. This increase in interest expense of $157,258 is primarily attributable to the increase in amortization of debt discount of approximately $109,000, increase of approximately $29,000 in accretion of put premium and increase in accrual on interest expense of approximately $11,000.
Derivative Expense
Derivative expense were increased to $123,379 for the nine months ended March 31, 2024 as compared to a loss of $0 for the nine months ended March 31, 2023. This increase is primarily attributable to the issuance of convertible notes in August 2023 and October 2023 to GS Capital which initial value was bifurcated from the embedded conversion option and was recorded as derivative expense.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities were increased to a gain (loss) of $70,213 for the three months ended March 31, 2024 as compared to a loss of $(238,367) for the three months ended March 31, 2023. This increase in gain of approximately $309,000 is primarily attributable to the decrease in fair value of the principal amount of convertible notes with bifurcated embedded conversion option derivatives as a result of the decrease in stock prices during the three months ended March 31, 2024.
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Change in fair value of derivative liabilities were decreased to a gain of $372,371 for the nine months ended March 31, 2024 as compared to a (loss) of $(110,859) for the nine months ended March 31, 2023. This increase in gain of approximately $483,000 is primarily attributable to the decrease in fair value of the principal amount of convertible notes with bifurcated embedded conversion option derivatives as a result of the decrease in stock prices during the nine months ended March 31, 2024.
Gain from Settlement of accounts payable
Gain from settlement of accounts payable was $0 for the nine months ended March 31, 2024 as compared to $17,499 for the nine months ended March 31, 2023. On August 16, 2022, the Company and a third-party investor relations consultant agreed to settle an outstanding payable of $23,050 in exchange for 2,305,000 warrants to purchase the Company’s common stock at $0.01 per share with an expiry date of August 16, 2025 and fair market value of $5,551. Accordingly, the Company recognized gain from settlement of accounts payable of $17,499 during the nine months ended March 31, 2023.
Gain (Loss) on Extinguishment of Debt, net
During the nine months ended March 31, 2024, convertible notes with principal aggregate amount of $91,300, accrued interest of $11,080 and conversion fees of $2,236 containing bifurcated embedded conversion option derivatives were converted into common stock. Accordingly, the fair market value of the shares issued upon conversion was $243,286, resulting in a loss on extinguishment at the time of conversion of $143,467 and $170,785 of derivative liability fair value was recorded as a gain on extinguishment at the time of conversion, resulting in a net gain of $27,318 which is included in gain (loss) on extinguishment of debt in the accompanying condensed consolidated statements of operations during the nine months ended March 31, 2024.
During the nine months ended March 31, 2023, the principal aggregate amount of convertible notes of $122,000 and accrued interest of $12,488 which contained bifurcated embedded conversion option derivatives were converted into common stock. Accordingly, the fair market value of the shares issued upon conversion was $369,110, resulting in a loss on extinguishment at the time of conversion of $234,622 and $223,288 of derivative fair value was recorded as a gain on extinguishment at the time of conversion, resulting in a net loss of $11,334. Additionally, during the nine months ended March 31, 2023, the Company recognized the remaining put premium of $43,520 related to a convertible note into gain on extinguishment of debt. The holder of such convertible note agreed to surrender all conversion rights in its currently held convertible notes due to violation of Section 15(a)(1) of the Exchange Act, which resulted in a net gain on extinguishment of debt of $32,186 for the nine months ended March 31, 2023.
Foreign Currency Transaction Gain (Loss)
Foreign currency transaction gain (loss) increased to a loss of $(36,426) for the three months ended March 31, 2024 as compared to a loss of ($19,025) for the three months ended March 31, 2023. This increase of approximately $17,000 is partially attributable to the decrease in exchange rates during the three months ended March 31, 2024.
Foreign currency transaction gain (loss) decreased to a loss of $(15,228) for the nine months ended March 31, 2024 as compared to a gain of $3,210 for the nine months ended March 31, 2023. This decrease of approximately $18,000 is partially attributable to the decrease in exchange rates during the nine months ended March 31, 2024.
Net loss
Net loss decreased to $526,700 for the three months ended March 31, 2024 as compared to a net loss of $809,809 for the three months ended March 31, 2023. The change relates to the factors discussed above. Net loss decreased to $1,461,950 for the nine months ended March 31, 2024 as compared to a net loss of $1,912,522 for the nine months ended March 31, 2023. The change relates to the factors discussed above.
Deemed dividend
The Company recognized the value of the effect of a down round feature related to our Series A warrants when triggered. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized deemed dividend of $15,800 and $0 during the three months ended March 31, 2024 and 2023, respectively, and deemed dividend of $192,960 and $408,557 during the nine months ended March 31, 2024 and 2023, respectively, with a corresponding reduction of income available to common stockholders upon the alternate cashless exercise of these warrants during the three and nine months ended March 31, 2024 and 2023, respectively.
Net loss available to common stockholders
Net loss available to common stockholders decreased to $542,500 for the three months ended March 31, 2024 as compared to a net loss available to common stockholders of $809,809 for the three months ended March 31, 2023. This decrease of approximately $267,000 is primarily attributable to the change relates to the factors discussed above. Net loss available to common stockholder decreased to $1,654,910 for the nine months ended March 31, 2024 as compared to a net loss available to common stockholders of $2,321,079 for the nine months ended March 31, 2023. This decrease of approximately $666,000 is primarily attributable to the change relates to the factors discussed above.
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Liquidity and Capital Resources
Current Financial Condition
As of March 31, 2024, we had total assets of $37,337, comprised primarily of cash of $6,222, GST tax receivable of $5,265, prepaid expenses and other current assets of $1,368, security deposit of $1,955, and operating lease ROU asset, net of $22,527. As compared to June 30, 2023, we had total assets of $60,328, comprised primarily of cash of $10,047, GST tax receivable of $2,867, prepaid expenses and other current assets of $6,125, property and equipment, net, of $302, operating lease ROU asset, net of $38,988, and security deposit of $1,999.
We had current liabilities of $3,687,984, primarily comprised of net convertible debt of $582,951, accounts payable and accrued expenses of $1,953,541, employee benefit liability of $610,340, loan payable of $65,280, loan payable – related party of $32,616, note payable, net of $132,000 and embedded conversion option liabilities of $128,432 as of March 31, 2024. As compared to June 30, 2022, we had current liabilities of $3,158,229, primarily comprised of net convertible debt of $390,539, loan payable of $65,280, accounts payable and accrued expenses of $1,546,425, employee benefit liability of $587,618, and embedded conversion option liabilities of $423,209.
We have funded our operations primarily through the issuance of equity and/or convertible securities for cash. The cash was used primarily for payments for research and development, administration expenses, occupancy expenses, professional fees, consultants and travel.
During the nine months ended March 31, 2024 we received proceeds from issuance of note of $120,000, proceeds from issuance of convertible notes of $516,875, and total proceeds from issuance of loans payable from a related party of $185,872.
We have substantial capital resource requirements and have incurred significant losses since inception. As of March 31, 2024, we had $6,222 in cash. We depend upon debt and/or equity financing to fund our ongoing operations and to execute our current business plan. Such capital requirements are in excess of what we have in available cash and for which we currently have commitments. Therefore, we presently do not have enough available cash to meet our obligations over the next 12 months. If continued funding and capital resources are unavailable at reasonable terms, we may curtail our plan of operations. We will be required to obtain alternative or additional financing from financial institutions, investors or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations, and adversely affecting our ability to complete ongoing activities in connection with our research and development programs.
Sources and Uses of Cash
| For
the nine months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (675,152 | ) | $ | (927,278 | ) | ||
| Net cash provided by financing activities | $ | 690,920 | $ | 1,013,719 | ||||
| Effect of exchange rate changes on cash | $ | (19,593 | ) | $ | 2,733 | |||
Net Cash Flow from Operating Activities
Net cash used in operating activities was $675,152 for the nine months ended March 31, 2024, due to our net loss of $1,461,950 offset primarily by non-cash charges of amortization of debt discount of $246,612, non-cash interest expense of $2,236, accretion of put premium of $261,538, derivative expense of $123,379, foreign currency transaction loss of $15,228, addback change in fair value of derivatives of $372,371 and gain from extinguishment of debt of $27,318. Net changes in operating assets and liabilities totaled $521,602, which is primarily attributable to increase accrued interest of $57,823, increase in accounts payable of $242,466, and increase in accrued expenses and other payables of $198,995.
Net cash used in operating activities was $927,278 for the nine months ended March 31, 2023, due to our net loss of $1,912,522, offset primarily by non-cash charges of amortization of debt discount of $138,014, stock-based compensation of $59,219, accretion of put premium of $232,674, change in fair value of derivatives of $110,859, gain on extinguishment of debt of $32,186 and gain from settlement of accounts payable of $17,499. Net changes in operating assets and liabilities totaled $479,999, which are primarily attributable to a decrease in prepaid expenses and other assets $8,348, an increase in employee benefit liabilities of $177,198, an increase in accrued interest of $46,347, an increase in accrued expenses and other payables of $236,034, and an increase in accounts payable of $27,953.
Net Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended March 31, 2024 were $690,920 as compared to $1,013,719 for the nine months ended March 31, 2023. During the nine months ended March 31, 2024 we received net proceeds from issuance of convertible notes of $516,875, proceeds from issuance of note of $120,000, proceeds from issuance of loans from a related party of $185,872, proceeds from the sale of shares of our common stock of $11,082 offset by repayment of convertible note of $142,909.
Net cash provided by financing activities for the nine months ended March 31, 2023 was $1,013,719. During the nine months ended March 31, 2023, we received proceeds from the exercise of warrants of $375,000, proceeds from the sale of shares of our common stock of $24,711, collections of subscription receivables of $23,758, and net proceeds from the issuance of convertible notes and a note payable of $590,250.
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Effect of Exchange Rate
The effect of the exchange rate on cash resulted in a $19,593 negative adjustment to cash flows in the nine months ended March 31, 2024 as compared to a $2,733 positive adjustment to cash flows in the nine months ended March 31, 2023. The reason for the fluctuation is due to the application of currency translation rates throughout the cash flow statement, the volume of transactions within each period and the daily fluctuation in exchange rates.
Critical Accounting Estimates
Below is a discussion of our more subjective accounting estimation processes for purposes of explaining (i) the methodology used in calculating the estimates, (ii) the inherent uncertainties pertaining to such estimates, and (iii) the possible effects of a significant variance in actual experience, from that of the estimate, on our financial condition. Estimates involve numerous assumptions that, if incorrect, could create a material adverse impact on the Company’s results of operations and financial condition.
Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities. Each ASC reference in this filing is presented with a three-digit number, which represents its Topic. As necessary for explanation and as applicable, an ASC topic may be followed with a two-digit subtopic, a two-digit section or a two-or-three-digit paragraph.
Foreign Currency Translation and Comprehensive Income (Loss): The Company’s wholly-owned subsidiary’s functional currency is the AUD. For financial reporting purposes, the Australian Dollar (“AUD”) has been translated into USD as the Company’s reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive loss as other income (expense). Effective fiscal year 2021, the Company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of other comprehensive income.
Accounting for Income Taxes: We are governed by Australian income tax laws and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. We follow ASC 740, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The Company adopted provisions of ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.
Accounting for Stock Based Compensation: We record stock-based compensation in accordance with ASC 718, “Stock Compensation” and Staff Accounting Bulletin No. 107 issued by the SEC in March 2005 regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. We value any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
We account for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718.
Derivative Instruments: ASC 815, “Derivatives and Hedging,” establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion, or payoff, of debt, we record the fair value of the conversion shares, remove the fair value of the related derivative liability, remove any discounts and record a net gain or loss on debt extinguishment.
Convertible Notes with Variable Conversion Options: We have entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into shares of Common Stock at or around a fixed discount to the price of the Common Stock at the time of conversion. We treat these convertible notes as stock settled debt under ASC 480 and measure the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion and record the put premium as accretion to interest expense.
Research and Development Tax Credits: We may apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, we do not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If we have net income then we can receive the credit which reduces its income tax liability. If we have net losses, then we may still receive a cash payment for the credit, however, our net operating loss carry forwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as an income tax benefit, in operations, upon receipt.
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Recent Accounting Pronouncements
Please see section captioned “Recent Accounting Pronouncements” in Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of recently issued and adopted accounting pronouncements.
Going Concern Qualification
We did not generate any revenue for the nine months ended March 31, 2024 and 2023 and have incurred significant losses and cash used in operations, and such losses and use of cash are expected to continue. Our independent registered public accounting firm has included a “Going Concern Qualification” in their audit report for each of the fiscal years ended June 30, 2023 and 2022. In addition, we have negative working capital and convertible debt that is past maturity that we are currently negotiating with lenders in order to amend the maturity dates. The foregoing raises substantial doubt about our ability to continue as a going concern for a period of 12 months from the issue date of this report. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds and/or to consummate a public offering. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity and/or convertible debt financing. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to reasonably ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this Quarterly Report, we conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, the disclosure controls and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis due to the material weaknesses in financial reporting as discussed below.
Material Weaknesses and Corrective Actions
The framework used by management in making that assessment was the criteria set forth in the document entitled “2013 Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, (“COSO”). In connection with the audits of our financial statements for the fiscal years ended June 30, 2023 and 2022, we identified certain deficiencies relating to our internal control over financial reporting that constitute a material weakness under standards established by the Public Company Accounting Oversight Board (the “PCAOB”). A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The following material weaknesses in our internal control over financial reporting continued to exist at March 31, 2024:
| ● | we do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); | |
| ● | we do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our limited size and early-stage nature of operations, segregation of all conflicting duties may not always be possible and may not be economically feasible; however, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals; | |
| ● | lack of audit committee of our board of directors; and |
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| ● | insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of U.S. GAAP. |
We outsource certain of the functions that would normally be performed by a principal financial officer to assist us in implementing the necessary financial controls over the financial reporting and the utilization of internal management and staff to effectuate these controls.
We believe that these material weaknesses primarily relate, in part, to our lack of sufficient staff with appropriate training in U.S. GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.
We plan to take a number of actions in the future to correct these material weaknesses including, but not limited to, establishing an audit committee of our board of directors comprised of at least two independent directors, adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements, subject to receiving sufficient additional capital. If we receive sufficient capital, we hope to increase the chief financial officer’s role from part-time to full-time as the next step in building out our accounting department. We will need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issues identified, (2) ensure that our internal controls are effective or (3) ensure that the identified material weakness or other material weaknesses will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our Common Stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
We are not required to provide this information as we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
From January 1, 2024 through March 31, 2024, the Company issued an aggregate of 70,432,148 shares of its common stock at an average contractual conversion price of $0.002 as a result of the conversion of principal of $161,760, interest of $5,510 and conversion fees $639 underlying certain outstanding convertible notes converted during such period.
Except as otherwise noted, the securities in the transactions described above were sold in reliance on the exemption from registration provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) promulgated thereunder, as there was no general solicitation to the investors and the transactions did not involve any public offering. All certificates evidencing the shares sold bore a restrictive legend. No underwriter participated in the offer and sale of these securities, and no commission or other remuneration was paid or given directly or indirectly in connection therewith. The proceeds from these sales were used for general corporate purposes.
Item 3. Defaults Upon Senior Securities.
As of March 31, 2024, we were in default under certain loan issued to certain noteholder on October 3, 2019 for failure to pay an aggregate of $65,280 and $40,658 of principal and accrued interest, respectively, as of March 31, 2024, subsequent to their maturity date. Additionally, outstanding convertible note of $61,500 with a maturity date of February 23, 2023 and an outstanding promissory note of $132,000 dated on August 15, 2023 with maturity date of November 15, 2023 are in default as of March 31, 2024. We are currently in discussions with such loan and noteholders to extend such maturity date. See “Note 5 and 6” to our unaudited condensed consolidated financial statements in Part I of this Quarterly Report for additional information.
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Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
There is no other information required to be disclosed under this item which has not been previously disclosed.
Item 6. Exhibits.
Exhibit Number |
Description | |
| 31.1* | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14a or 15d-14(a) under the Securities Exchange Act of 1934, as amended, and adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| s101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, is formatted in Inline XBRL. |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROPANC BIOPHARMA, INC. | ||
| Dated: May 15, 2024 | By: | /s/ James Nathanielsz |
| Name: | James Nathanielsz | |
| Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
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