The accompanying unaudited condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying unaudited condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying unaudited condensed notes are an integral part of these unaudited consolidated financial statements.
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
NOTE 1 –
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations
Propanc PTY LTD
was incorporated in Melbourne, Victoria Australia on October 15, 2007, and is based in Camberwell, Victoria Australia. Since
inception, substantially all of the efforts of the Company have been the development of new cancer treatments targeting high risk
patients who need a follow up, nontoxic, long term therapy which prevents the cancer from returning and spreading. The Company
anticipates establishing global markets for its technologies.
On November 23,
2010, Propanc Health Group Corporation (the “Company,” “we,” “us,” “our”) was
incorporated in the state of Delaware. In January 2011, to reorganize the Company, Propanc Health Group Corporation acquired all
of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned subsidiary.
Basis of Presentation
The interim unaudited
consolidated financial statements included herein 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 Securities and Exchange
Commission (“SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring
adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the
three months ended September 30, 2016 and 2015 and cash flows for the three months ended September 30, 2016 and 2015 and our financial
position as of September 30, 2016 have been made. The results of operations for such interim periods are not necessarily
indicative of the operating results to be expected for the full year.
Certain information
and disclosures normally included in the notes to the annual audited consolidated financial statements have been condensed or omitted
from these interim unaudited consolidated financial statements. Accordingly, these interim unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year
ended June 30, 2016. The June 30, 2016 balance sheet is derived from those statements.
Principals
of Consolidation
The unaudited
consolidated financial statements include the accounts of Propanc Health Group Corporation and its wholly-owned subsidiary, Propanc
PTY LTD. All inter-company balances and transactions have been eliminated in consolidation.
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 unaudited consolidated financial statements include
the estimates of useful lives for depreciation, valuation of derivatives, valuation of beneficial conversion features on convertible
debt, allowance for uncollectable receivables, valuation of equity based instruments issued for other than cash, the valuation
allowance on deferred tax assets and foreign currency translation due to certain average exchange rates applied in lieu of spot
rates on transaction dates.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
Foreign Currency Translation and Other Comprehensive
Income (Loss)
The Company’s
functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has been translated
into United States dollars ($) and/or (USD) as the reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the
reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising
from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit)
as “accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are
included in the statement of operations and comprehensive loss as other income (expense). 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.
As of September 30, 2016 and June 30, 2016, the exchange rates
used to translate amounts in Australian dollars into USD for the purposes of preparing the unaudited financial statements were
as follows:
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
Exchange rate on balance sheet dates
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7667
|
|
|
|
0.7401
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7585
|
|
|
|
0.7282
|
|
Changes in Accumulated
Other Comprehensive Income (Loss) by Component during the three months ended September 30, 2016 was as follows:
|
|
Foreign
Currency
Items:
|
|
Beginning balance, June 30, 2016
|
|
$
|
131,264
|
|
Foreign currency translation loss
|
|
|
(224,819
|
)
|
Ending balance, September 30, 2016
|
|
$
|
(93,555
|
)
|
Fair Value
of Financial Instruments and Fair Value Measurements
The Company measures
their financial assets and liabilities in accordance with US GAAP. For certain of the Company’s financial instruments, including
cash and cash equivalents, accounts and other receivables, accounts payable and accrued expenses and other liabilities, the carrying
amounts approximate fair value due to their short maturities. Amounts recorded for loans payable, also approximate fair value
because current interest rates available to us for debt with similar terms and maturities are substantially the same.
The Company adopted
accounting guidance for fair value measurements of financial assets and liabilities. The adoption did not have a material impact
on the Company’s results of operations, financial position or liquidity. 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:
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
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.
Cash and Cash Equivalents
Cash and cash
equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less with financial
institutions, and bank overdrafts. Bank overdrafts are reflected as a current liability on the balance sheets. There were
no cash equivalents as of September 30, 2016 or June 30, 2016.
Patents
Patent costs are
stated at cost and reclassified to intangible assets 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 costs as long as the Company
is in the startup stage. Accordingly, as the Company's product was and is not currently approved for market, thus any patent costs
incurred from 2013 through 2016 were expensed immediately. Currently, the Company has five international patents pending which
were jointly applied for by the Company and another entity.
For its lead patent,
the Company received grant status, or has been accepted in South Africa, Australia, Japan, Singapore, Indonesia and New Zealand.
In addition, the United States Patent and Trademark office (the “USPTO”) and the European Patent Office (the “EPO”)
have made preliminary indications that key features of the Company’s technology are patentable. The Company is presently
working towards securing a patent in each region, covering as many aspects of its technology as possible, while also actively seeking
protection throughout Eastern Europe, Asia and South America.
Individual countries and regions where
the Company is actively seeking protection for its lead patent include the United States, Canada, Brazil, China, Mexico, Hong Kong,
Israel, Chile, Peru, Malaysia, Vietnam, Europe, Russia, India and South Korea.
Of the four patents, the Company has either
filed an application or is presently under examination in the country of origin. Two patent applications have been filed in the
United States, one patent application has been filed in Spain and another in Australia.
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.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
Australian
Goods and Services Tax (GST)
Revenues, expenses
and balance sheet items are recognized net of the amount of GST except payable and receivable balances which are shown inclusive
of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.
Cash flows are
presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities,
which are disclosed as operating cash flows.
As of September
30, 2016 and June 30, 2016, the Company was owed $9,948 and $29,355, respectively, from the Australian Taxation Office. These amounts
were fully collected subsequent to the balance sheet reporting dates.
Derivative Instruments
ASC Topic 815,
“
Derivatives and Hedging”
(“ASC Topic 815”), establishes accounting and reporting standards for
derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured
at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in
other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated
for hedge accounting treatment. The Company does not have any derivative instruments for which it has applied hedge accounting
treatment.
Convertible Notes With Variable Conversion Options
The Company has
entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued
interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at the time of
conversion. The Company treats these convertible notes as stock settled debt under ASC 480 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 accretion to interest expense to the date of first conversion.
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 Financial Accounting Standards Board (“FASB”)
ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between
the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and
liabilities.
The Company adopted
provisions of ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide
detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in
the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date
to be recognized upon the adoption of ASC 740 and in subsequent periods.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
Research and
Development Costs and Tax Credits
In accordance
with ASC 730-10, research and development costs are expensed when incurred. Total research and development costs
for the three months ended September 30, 2016 and 2015 were $161,197 and $153,474, respectively.
The Company may
apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although the amount
is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly,
the Company does not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such
time. The tax concession is a refundable credit. If the Company has net income then the Company can receive
the credit which reduces its income tax liability. If the Company has net losses, then the Company may still receive
a cash payment for the credit, however, the Company's net operating loss carryforwards are reduced by the gross equivalent loss
that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized
as an income tax benefit, in operations, upon receipt.
Stock Based
Compensation
The Company records
stock based compensation in accordance with ASC Topic 718, “Stock Compensation” (“ASC 718”) and Staff
Accounting Bulletin No. 107 (“SAB 107”)
Share Based Payment
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 Company values employee and non-employee stock based compensation
at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in
accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.”
Revenue Recognition
In accordance
with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition
, (codified in ASC 605), the Company recognizes revenue
when (i) persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor
or wholesaler receives the goods, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably
assured. Subject to these criteria, the Company recognizes revenue relating to royalties on product sales in the period in which
the sale occurs and the royalty term has begun.
Basic and Diluted
Net Loss Per Common Share
Basic
net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the
period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common
shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially
dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as stock
options, warrants and convertible debt instruments. Potentially dilutive securities are excluded from the computation
if their effect is anti-dilutive. As a result, the basic and diluted per share amounts for all periods presented are identical.
For the three months ended September 30, 2016, there were 238,879,158 warrants outstanding, 143,000,000 stock options and five
convertible notes payable that are convertible into 185,997,987 common shares respectively which are considered dilutive securities
which were excluded from the computation since the effect is anti-dilutive.
Recently Adopted
Accounting Pronouncements
FASB, Accounting
Standard Updates (“ASU”) which are not effective until after September 30, 2016 are not expected to have a significant
effect on the Company’s consolidated financial position or results of operations. The Company is evaluating or has implemented
the following at September 30, 2016:
In August 2016, the FASB issued ASU No.
2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).
ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice regarding how certain
cash receipts and cash payments are presented in the statement of cash flows. The standard provides guidance on the classification
of the following items: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments, (3)
contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5)
proceeds from the settlement of corporate-owned life insurance policies, (6) distributions received from equity method investments,
(7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows. The Company is required to
adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 on a
retrospective basis. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating
the impact of adoption of ASU 2016-15.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
In March 2016, the FASB issued ASU 2016-09,
“Improvements to Employee Share-Based Payment Accounting,” which amends several aspects of the accounting for share-based
payment transaction, including income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. These changes become effective for the Company’s fiscal year beginning July 1, 2017. The
Company has not determined the effects of this update on the Company’s consolidated financial statements at this time.
In February 2016, the FASB issued ASU 2016-02,
“Leases,” which will require lessees to recognize assets and liabilities for the rights and obligations created by
most leases on the balance sheet. The changes become effective for the Company’s fiscal year beginning July 1, 2019. Modified
retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an
option to use certain transition relief. The Company has not determined the effects of this update on the Company’s consolidated
financial statements at this time.
On May 8, 2015, the FASB issued ASU 2015-08,
“Business Combinations (Topic 805) Pushdown Accounting
” which conforms the FASB’s guidance on pushdown
accounting with the SEC’s guidance. ASU 2015-08 is effective for annual periods beginning after December 15, 2015. As of
September 30, 2016, this ASU has not had a material impact on the consolidated financial statements.
In April 2015, the FASB issued ASU No.
2015-03,
“Simplifying the Presentation of Debt Issuance Costs,”
which changes the presentation of
debt issuance costs in financial statements. Under this guidance such costs would be presented as a direct deduction from the related
debt liability rather than as an asset. This guidance is effective for interim and annual reporting periods beginning after December
15, 2015. As of September 30, 2016, this ASU has not had a material impact on the consolidated balances current presentation.
In November 2015, the FASB issued ASU No.
2015-17, Balance Sheet Classification of Deferred Taxes, which requires that an entity classify deferred tax assets and liabilities
as noncurrent on the balance sheet. Prior to the issuance of the standard, deferred tax assets and liabilities were required to
be separated into current and noncurrent amounts on the basis of the classification of the related asset or liability. This ASU
is effective for the Company on April 1, 2017, with early adoption permitted. The adoption of ASU No. 2015-17 is not expected to
have a material impact on the Company's consolidated financial statements or related disclosures.
NOTE 2 –
GOING CONCERN
The accompanying
unaudited consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the
Company as a going concern. For the three months ended September 30, 2016, the Company had no revenues, had a net loss
of $1,101,969 and had net cash used in operations of $683,598. Additionally, as of September 30, 2016, the Company had a
working capital deficit, stockholders' deficit and accumulated deficit of $1,818,677, $1,803,954 and $31,477,992 respectively.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The unaudited
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.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(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 International patent
applications and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances
that the Company will be able to secure additional equity investments or achieve an adequate sales level.
NOTE 3 –
DUE TO DIRECTORS - RELATED PARTIES
Due to directors
- related parties represents unsecured advances made primarily by a former director for operating expenses on behalf of the Company
such as intellectual property and formation expenses. The expenses were paid for on behalf of the Company and are due upon demand. The
Company is currently not being charged interest under these advances. The total amount owed the former director at September 30,
2016 and June 30, 2016 is $35,163 and $33,943, respectively.
NOTE 4 –
LOANS AND NOTES PAYABLE
Loans from
Directors and Officer - Related Parties
Loans from Directors
and Officer at September 30, 2016 and June 30, 2016 were $56,736 and $54,767, respectively. The loans bear no interest
and are all past their due date and in default. The Company did not repay any amount on these loans during the three months ended
September 30, 2016.
Other Loans
from Unrelated Parties
As of September
30, 2016 and June 30, 2016, other loans from unrelated parties had a balance of $2,300 and $2,220, respectively. The Company did
not repay any money toward these loans and a foreign currency transaction loss of $80 was recorded in connection with these loans
for the three months ended September 30, 2016.
NOTE 5 – CONVERTIBLE NOTES
Convertible notes at September 30, 2016 were as follows:
Convertible notes and debenture
|
|
$
|
1,791,694
|
|
Unamortized discounts
|
|
|
(1,399,273
|
)
|
Accrued interest
|
|
|
62,104
|
|
Premium
|
|
|
92,046
|
|
Convertible notes, net
|
|
$
|
546,571
|
|
May 2015 Securities Purchase Agreement
On May 19, 2015, the Company entered into
a Securities Purchase Agreement (“SPA”), to issue a series of nine back end convertible notes in the principal sum
of $782,500, pursuant to the SPA, the Company issued to the lender nine convertible promissory notes termed "Back-End Notes",
in the amounts of $37,500 (“Back-End Note 1”), $37,500 (“Back-End Note 2”), $157,500 (“Back-End Note 3”),
$150,000 (“Back-End Note 4”), $17,500 (“Back-End Note 5”), $37,500 (“Back-End Note 6”), $37,500 (“Back-End
Note 7”), $157,500 (“Back-End Note 6”) and $150,000 (“Back-End Note 9”). These notes have the same terms
as the initial convertible notes. Each Back-End Note shall initially be paid for by an offsetting promissory note issued to the
Company by the lender (“Note Receivable”) provided that prior to the conversion of the Back-End Notes, the holders must
have paid off the Notes Receivable in cash. Each Note Receivable is due on May 19, 2016, unless the Company does not meet the “current
public information” requirement pursuant to Rule 144, in which case both the Back-End Notes and the Notes Receivable may
both be cancelled. Each Note Receivable is initially secured by the pledge of the Back-End Notes, but may be exchanged for other
collateral with an appraised value of at least the principal amount of the note less the original issue discount (“OID”),
upon the Company’s approval following a three (3) day written notice to the Company. The term of the Notes Receivable and
the Back-End Notes are one year, upon which the outstanding principal and interest is payable. The amounts funded plus accrued
interest under Back-End Notes are convertible into common stock at any time after the requisite Rule 144 holding period (subject
to the condition above for the Back-End Notes), at a conversion price equal to 55% of the lowest trading bid price in the ten (10)
trading days prior to the conversion. During the year ended June 30, 2016, all of the Back-End Notes (an aggregate total principal
of $782,500) were issued.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
The Back-End Notes may not be prepaid,
except that if the initial convertible notes are redeemed by the Company within six months of their issuance, all obligations of
the Company and holders under the Back-End Notes and the Notes Receivable will be deemed satisfied and such notes shall automatically
be deemed cancelled and of no further force or effect.
In the event of two specific defaults,
which include the maintenance of a minimum trading price and an aggregate dollar trading volume of the Company's common shares,
the holders may cancel the Back-End Notes and the related Notes Receivable and otherwise in the event of other defaults as defined
in the securities purchase agreement, the amount of principal and accrued interest will become immediately due and payable and
may be offset by amounts due to the Company by the holders. Additionally, the Back-End Notes will bear default interest at a rate
of 24% per annum or the highest rate of interest permitted by law.
Since the Back-End Notes are not convertible
until the Notes Receivable are paid, and the Notes Receivable and Back-End Notes have a right of setoff, the Notes Receivable and
Back-End Notes and related accrued interest receivable and payable have been netted for presentation purposes on the accompanying
consolidated balance sheet.
On July 14, 2015, the Company received
payment of three Note Receivables of $352,500 that offset three of the Back-End Notes that were issued on May 19, 2015. Proceeds
from the Note Receivables of $17,690 were paid directly to legal fees resulting in net cash proceeds of $334,810 received by the
Company. These Back-End Notes are related to the initial convertible notes that were issued on May 19, 2015 and have the same terms
as previously discussed. As a result, these Back-End Notes are now eligible for conversion at a rate of 55% of the lowest trading
bid price of the Company’s common stock for the ten prior trading days including the date upon which the conversion notice
was received. These convertible notes are treated as stock settled debt under ASC 480 and accordingly the Company is accreting
a $288,409 put premium over 180 days from the execution of the convertible notes. During the year ended June 30, 2016, the Company
converted $320,000 of principal and accrued interest of $15,864 into shares of the Company’s common stock (See Note 6). During
the three months ended September 30, 2016, the Company converted $32,500 of principal and accrued interest of $2,885 into shares
of the Company’s common stock (See Note 6). Additionally, for the period ending September 30, 2016 and year ending June 30,
2016, these conversions resulted in a $26,591 and $261,818 reduction of the put premium, respectively. This note was fully converted
on September 30, 2016.
On October 14, 2015 and October 15, 2015,
the Company received payment of six Note Receivables of $430,000 that offset the remaining six of the Back-End Notes that were
issued on May 19, 2015. Proceeds from the Note Receivables of $22,265 were paid directly to legal fees resulting in net cash proceeds
of $407,735 received by the Company. These Back-End Notes are related to the initial convertible notes that were issued on May
19, 2015 and have the same terms as previously discussed. As a result, these Back-End Notes are now eligible for conversion at
a rate of 55% of the lowest trading bid price of the Company’s common stock for the ten prior trading days including the
date upon which the conversion notice was received. These convertible notes are treated as stock settled debt under ASC 480 and
accordingly the Company is accreting a $351,818 put premium over 180 days from the execution of the convertible notes. During the
year ended June 30, 2016, the Company has accreted $351,818 of the put premium resulting in the put premium being fully expensed.
During the year ended June 30, 2016, the Company converted $300,000 of principal and accrued interest of $11,356 into shares of
the Company’s common stock (See Note 6). During the three months ended September 30, 2016, the Company converted $17,500
of principal and accrued interest $1,350 into shares of the Company’s common stock (See Note 6). Additionally, for the period
ending September 30, 2016 and year ending June 30, 2016, these conversions resulted in $14,318 and $245,455 reduction of the put
premium, respectively. Accrued interest as of September 30, 2016 was $5,663. Total outstanding principal owed under this
note was $112,500 as of September 30, 2016.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
October 2015
Securities Purchase Agreement and Debenture
On October 28,
2015 (the “Closing Date”), the Company entered into a securities purchase agreement dated as of the Closing Date (the
“Purchase Agreement”) with a third party purchaser (the “Purchaser”). The Purchase Agreement provides that,
upon the terms and subject to the conditions set forth therein, the Purchaser will invest $4,000,000 (“Investment Amount”)
in exchange for a Convertible Debenture (the “Debenture”) in the principal amount of $4,400,000 (the “Principal
Amount”) and warrants to purchase an aggregate of 26,190,476 shares of the Company’s common stock, par value $0.001
per share, for an exercise price of $0.60 per share for a period of four (4) years from the Closing Date (the “Warrants”).
Pursuant to the Purchase Agreement, on the Closing Date, the Company issued the Debenture and Warrant to the Purchaser.
Under the terms
of the Purchase Agreement, the Purchaser agreed to deliver the Promissory Note entered into by the Company and Purchaser on September
24, 2015 with a principal amount of $1,200,000 (the “Prior Note”). The parties further agreed that the Prior Note was
deemed cancelled upon the delivery by the Purchaser to the Company and the amount of the Prior Note is included in the Investment
Amount under the Purchase Agreement.
Under the terms
of the Purchase Agreement and Debenture, $2,800,000 of the Investment Amount will be deposited into a deposit control account and
such amount will remain in the deposit control account pending the achievement of certain milestones by the Company and the satisfaction
of certain equity conditions set forth in the Debenture. Additionally, under the Debenture, the Principal Amount will be reduced
by $25,000 if the Company files a registration statement with the SEC within 30 days following the Closing Date. The Principal
Amount will be reduced by an additional $25,000 if the registration statement is deemed effective within 100 days after the Closing
Date. On November 23, 2015, the Company filed a registration statement with the SEC and on December 10, 2015, the registration
statement was deemed effective. Both of these conditions were met resulting in a $50,000 reduction of the Principal Amount which
was credited to interest expense such that the aggregate principal amount was $4,350,000.
The Purchase Agreement
contains customary representations, warranties and covenants by, among and for the benefit of the parties. The Company also agreed
to pay up to $50,000 of reasonable attorneys’ fees and expenses incurred by the Purchaser in connection with the transaction.
The Purchase Agreement also provides for indemnification of the Purchaser and its affiliates in the event that the Purchaser incurs
losses, liabilities, obligations, claims, contingencies, damages, costs and expenses related to a breach by the Company of any
of its representations, warranties or covenants under the Purchase Agreement.
The Debenture
has a 10% original issue discount and matures on October 28, 2016. The Principal Amount of the Debenture accrues interest at the
rate of 5% per annum based on the $4,350,000 note agreement with a one year value guarantee of $217,500, payable quarterly in cash
(or if certain conditions are met, in stock at the Company’s option) on January 1, April 1, July 1 and October 1. The Debenture
was, prior to the Addendum (as defined below), convertible at any time, in whole or in part, at the Purchaser’s option into
shares of the Company’s Common Stock at a conversion price equal to $0.042, which is the volume weighted average price of
the Company’s Common Stock five days prior to the execution of the Debenture (subject to adjustment) (the “Conversion
Price”). At any time after the effective date of the registration statement, the Purchaser has the opportunity to convert
up to an aggregate of $2,090,000 of the Debenture, at one or more conversion dates, into shares of Common Stock at a conversion
price equal to the VWAP of the Common Stock over the five (5) trading days prior to such Effective Date. The Purchaser option to
convert at such a conversion price expires when the Purchaser converts an aggregate of $2,090,000 of the Debenture using such conversion
price. If the volume weighted average price of the Company Common Stock on any trading day is less than the Conversion Price, the
Purchaser may convert at a price per share equal to a twenty percent (20%) discount to the average of the two lowest closing prices
during the five trading days prior to the date of conversion. At no time will the Purchaser be entitled to convert any portion
of the Debenture to the extent that after such conversion, the Purchaser (together with its affiliates) would beneficially own
more than 4.99% of the outstanding shares of Common Stock as of such date. During the year ended June 30, 2016, the Company withdrew
a principal amount of $2,800,000 from the deposit control account of which $269,976 was paid directly as partial payment of a note
dated June 4, 2015 and $33,437 was paid directly to legal fees resulting in net cash proceeds of $2,496,587 received by the Company.
An aggregate total of $1,955,300 of these notes was bifurcated with the embedded conversion option recorded as a derivative liability
at fair value (See Note 10). During the year ended June 30, 2016, the Company converted $2,790,806 of principal and $108,750 of
accrued interest into shares of the Company’s common stock (See Note 6). During the three months ended September 30, 2016,
the Company converted $45,000 of principal and accrued interest of $54,375 into shares of the Company’s common stock (See
Note 6). Accrued interest as of September 30, 2016 was $54,375.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
The Debenture
includes customary event of default provisions and provides for a default interest rate of 18%. Upon the occurrence of an event
of default, the Purchaser may convert the Debenture into shares of Common Stock at a price per share equal to a thirty percent
(30%) discount to the average volume weighted average price of the shares for the three trading days prior to conversion.
Subject to the
conditions set forth in the Debenture, the Company has the right at any time to redeem some or all of the total outstanding amount
then remaining under the Debenture in cash at a price equal to 125% of the total amount of the Debenture outstanding on the twentieth
(20th) trading date following the date the Company delivers notice of such redemption to the Purchaser.
The Warrants are
exercisable in whole or in part, at an initial exercise price per share of $0.60, subject to adjustment. The exercise price and
number of shares of the Company’s common stock issuable under the Warrants (the “Warrant Shares”) are subject
to adjustments for stock dividends, splits, combinations, subsequent rights offerings and pro rata distributions. Any adjustment
to the exercise price shall similarly cause the number of warrant shares to be adjusted so that the total value of the Warrants
may increase. In the event that the Warrant Shares are not included in an effective registration statement, the Warrants may be
exercised on a cashless basis. The Company calculated the 26,190,476 warrants at relative fair value, which was $712,110 and amortized
to interest expense during the year ended June 30, 2016. These warrants were exercised during the period ending September 30, 2016,
(see the “July Letter Agreement” below).
In connection
with the execution of the Purchase Agreement, on the Closing Date, the Company and the Purchaser also entered into a registration
rights agreement dated as of the Closing Date (the “Registration Rights Agreement”). Pursuant to the Registration Rights
Agreement, the Company has agreed to file an initial registration statement (“Registration Statement”) with the SEC
to register the resale of the Common Stock into which the Debenture may be converted or the Warrant may be exercised, within 30
days following the Closing Date. The Registration Statement must also be declared effective by the 100th calendar day after the
Closing Date, subject to a 20-day extension as requested by the Company and consented to by the Purchaser. On November 23, 2015,
the Company filed a registration statement with the SEC and on December 10, 2015, the registration statement was deemed effective.
If at any time
all of the shares of Common Stock underlying the Debenture or the Warrant are not covered by the initial Registration Statement,
the Company has agreed to file with the SEC one or more additional Registration Statements so as to cover all of the shares of
Common Stock underlying the Debenture or the Warrant not covered by such initial Registration Statement, in each case, as soon
as practicable, but in no event later than the applicable filing deadline for such additional Registration Statements as provided
in the Registration Rights Agreement.
In connection
with the Purchase Agreement, the Company entered into a Security Agreement dated as of even date therewith with the Purchaser whereby
the Company agreed to grant to Purchaser an unconditional and continuing, first priority security interest in all of the assets
and property of the Company to secure the prompt payment, performance and discharge in full of all of the Company’s obligations
under the Debentures, Warrants and the other transaction documents until ten days following such time as the Registration Statement
is declared effective by the SEC and the equity conditions set forth in the Debenture are met.
On March 11, 2016,
the Company entered into an Addendum (the “Addendum”) as discussed below with the Purchaser pursuant to which the Company
and the Purchaser agreed to new terms with respect to that certain securities purchase agreement entered into by and between the
Company and the Purchaser dated as October 28, 2015.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
Addendum
Under the Addendum,
the Company and the Purchaser agreed that the balance of the deposit control account, after giving effect to the amounts released
from such account as of the date of the Addendum, will be released to the Company in two installments as follows: (1) up to $1,200,000
will be released to the Company upon full execution of the Addendum, and (2) up to $375,000 within 60 days of the full execution
of the Addendum as long as certain conditions have been met.
The Company and
the Purchaser agreed that the new conversion price will be $0.03; provided that in the event that the volume weighted average
price per share on any trading day is less than such conversion price, the conversion price will be adjusted to a price per share
that is equal to a 22.5% discount to the lowest trading price of the common stock in the 10 trading days prior to the date of
conversion. The Company evaluated this note modification under ASC 470-50-40-10 and concluded that it does not apply since the
conversion option is bifurcated and the 10% cash flow test was not met under ASC 470-50.
Under the Addendum,
the Purchaser agreed to limit the number of shares of common stock it sells on any trading day to an amount of shares that is less
than 25% of the trading volume of the common stock on that same trading day. The Purchaser and the Company may agree otherwise
with respect to this trading limitation.
The Company also
agreed to reserve an additional 300,000,000 shares for issuance and to file a registration statement on Form S-1 to register shares
covering the resale of all of the additional shares of common stock that are issuable upon conversion of the Debenture, as modified
by this Addendum. On March 25, 2016, the Company filed a registration statement with the SEC and on April 19, 2016, the registration
statement was deemed effective.
The Company and
the Purchaser agreed that the October Financing Documents, as applicable, will continue in effect and remain in place, except to
the extent modified by the Addendum.
July Letter
Agreement
On July 1, 2016,
the Company entered into a Letter Agreement (the “July Letter Agreement”) with the Purchaser, and the parties entered
in a letter agreement dated August 3, 2016 (the “August Letter Agreement”), pursuant to which the Company and the Purchaser
agreed to new terms with respect to that certain securities purchase agreement entered into by and between the Company and the
Purchaser dated as of October 28, 2015, as amended by Addendum dated March 11, 2016 and the transactions contemplated thereby.
Pursuant to the Purchase Agreement, the Purchaser agreed to invest $4,000,000 in exchange for an Original Issue Senior Discount
Secured Debenture (the “Debenture”) and a common stock purchase warrant (the “2015 Warrant”) to purchase
26,190,476 shares of the Company’s common stock (the “2015 Warrant Shares”).
Under the 2015
Letter Agreement, the Purchaser agreed to exercise the 2015 Warrant with respect to all 26,190,476 shares of common stock underlying
the 2015 Warrant. In consideration for the Purchaser’s exercise of the 2015 Warrant, the Company agreed to adjust the exercise
price from $0.60 per share to $0.012 per share. In addition, the Company and the Purchaser agreed to modify the July 1, 2016 “Interest
Payment Date” and the October 1, 2016 “Interest Payment Date” as such terms are defined in the Debenture. Pursuant
to the July Letter Agreement, the Company may delay the interest payment due on the July 1, 2016 Interest Payment Date by a minimum
of 30 calendar days (the “Minimum Extension Date”) and up to 60 calendar days, provided that the Purchaser may demand
payment any time after the Minimum Extension Date. The Company also may delay the interest payment due on the October 1, 2016 Interest
Payment Date to the October 28, 2016 maturity date (the “Maturity Date”) unless the Purchaser demands earlier payment;
provided however, that if the Purchaser has not demanded payment by October 27, 2016, the Maturity Date will be extended until
December 31, 2016 (or such earlier date as the parties mutually agree) and the interest payment that would have been due on the
October 1, 2016 Interest Payment Date will become due on December 31, 2016, unless the Purchaser demands earlier payment.
On July 8, 2016, the 2015 Warrant for 26,190,476
shares was fully exercised at a price of $0.012 per share for a total of $314,286, see above. The Company revalued the warrants
on the modification date at the new exercise price and recorded an additional expense of approximately $21,000 related to the incremental
increase in value (See Note 6).
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
Pursuant to the August Letter Agreement,
the Maturity Date of the Debenture was extended until February 28, 2017 and will not accrue interest from October 28, 2016 through
the Maturity Date (provided that all accrued but unpaid interest prior to October 28, 2016 (the original maturity date) shall be
due and payable pursuant to the terms of the Debenture).
The Debenture is convertible at any time,
in whole or in part, at the Purchaser’s option into shares of Common Stock at a conversion price equal to $0.03 per share;
provided that in the event that the volume weighted average price per share on any trading day is less than such conversion price,
the conversion price will be adjusted to a price per share that is equal to a 22.5% discount to the lowest trading price of the
Common Stock in the 10 trading days prior to the date of conversion. At no time will the Purchaser be entitled to convert any portion
of the Debenture to the extent that after such conversion, the Purchaser (together with its affiliates) would beneficially own
more than 4.99% of the outstanding shares of Common Stock as of such date.
Warrants
Pursuant to the August Letter Agreement
and in consideration for extending the Maturity Date of the Debenture as noted above, the Company issued the Purchaser warrants
to purchase up to 240,000,000 shares of Common Stock (the “2016 Warrants”). The 2016 Warrants entitle the holder thereof
to purchase (i) up to 200,000,000 shares of Common Stock at exercise prices ranging from $0.012 to $0.020 per share (the “Five
Month Warrant”), and (ii) up to 40,000,000 shares of Common Stock at an exercise price of $0.10 per share (the “Two
Year Warrant”). The Company also agreed to file a registration statement with the SEC, to register for resale the 240,000,000
shares of Common Stock underlying the 2016 Warrants. The Company calculated the 240,000,000 warrants at relative fair value, which
was $910,178 and will be amortized to interest expense over the remaining term of the debenture in accordance with ASC 470-50-40-17.
The 2016 Warrants are immediately exercisable.
On August 18, 2016, the Purchaser notified us of its exercise of 12,500,000 shares of Common Stock under the first tranche of the
Five Month Warrant at a purchase price of $0.012 per share or $150,000 in the aggregate (See Note 6).
Pursuant to the Five Month Warrant, if
the Volume Weighted Average Price (as defined in the Five Month Warrant) of the Common Stock for five consecutive days equals or
exceeds the exercise price of any tranche of the Five Month Warrant (each, as applicable, a “Callable Tranche”), and
provided that the Company is in compliance with the Call Conditions as defined in the August Letter Agreement, the Company has
the right to call on the Purchaser to exercise any warrants under a Callable Tranche up to an aggregate exercise price of $350,000.
The Five Month Warrant generally limits the Company to one such call within a twenty trading day period. However, if the Volume
Weighted Average Price of the Common Stock for five consecutive trading days is at least 200% of the exercise price of any warrants
under a Callable Tranche, the Company may make an additional call for the exercise of additional warrants under such Callable Tranche
up to an aggregate exercise price of $600,000 prior to the passage of the twenty trading day period. If Delafield does not exercise
the 2016 Warrants under a Callable Tranche when called by the Company under the terms of the August Letter Agreement, we may, at
our option, cancel any or all outstanding warrants under the Five Month Warrant.
The exercise price and number of shares
of the Common Stock issuable under the 2016 Warrants are subject to adjustments for stock dividends, splits, combinations and pro
rata distributions. Any adjustment to the exercise price shall similarly cause the number of shares underlying the 2016 Warrants
to be adjusted so that the total value of the 2016 Warrants may increase.
The Purchaser is subject to a beneficial
ownership limitation under the 2016 Warrants such that the Company and the Purchaser will not affect any exercise of the 2016 Warrants
that would cause the Purchaser (together with its affiliates) to beneficially own in excess of 4.99% of the number of shares of
Common Stock outstanding immediately after giving effect to the exercise of the warrant. The Purchaser, upon notice to the Company,
may increase or decrease the beneficial ownership limitation, provided that the beneficial ownership limitation may not exceed
9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise of the warrant.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
The Five Month Warrant requires us to
file a registration statement covering the resale of the shares underlying the warrant within 15 days after August 3, 2016,
and to use our commercially reasonable efforts to have the registration statement declared effective by the SEC promptly
thereafter and to remain effective for a period of at least twelve months from the date of effectiveness. The initial
registration statement was filed on August 19, 2016. In the event that a registration statement registering the resale of the
shares underlying the Five Month Warrant is not effective on or before October 15, 2016, or is not maintained effective
thereafter, the termination date of the Five Month Warrant will be extended until such date that the shares have been
registered for at least a period of 90 days, but in no event later than April 30, 2017.
The Two Year Warrant requires us to file
a registration statement covering the resale of the shares underlying the warrant within 15 days after August 3, 2016, and to
use our commercially reasonable efforts to have the registration statement declared effective by the SEC promptly thereafter and
to remain effective for a period of at least three years from the date of effectiveness. The initial registration statement was
filed on August 19, 2016.
Additional
Issuance Debenture
As of September 13, 2016, the Company entered
into an Additional Issuance Agreement (the “Additional Issuance Agreement”) with the Purchaser pursuant to the Purchase
Agreement. Pursuant to the Additional Issuance Agreement, Delafield agreed to loan an additional $150,000 in exchange for a 5%
Original Issue Discount Senior Secured Convertible Debenture of the Company in the principal amount of $165,000 (the “Additional
Issuance Debenture”). An aggregate total of $199,585 of this note was bifurcated with the embedded conversion option recorded
as a derivative liability at fair value (See Note 10). As of September 30, 2016, the Company recorded accrued interest of $2,063.
The rights and obligations of the Purchaser
and the Company with respect to the Additional Issuance Debenture and the shares of Common Stock issuable under the Additional
Issuance Debenture (the “New Underlying Shares”) are identical in all respects to the rights and obligations of the
Purchaser and the Company with respect to the Debenture and the shares of Common Stock issued and issuable thereunder, except that
the Purchaser will not receive any registration rights with respect to the New Underlying Shares and except as otherwise noted
in the governing documents.
The Additional Issuance Agreement contains
customary representations, warranties and covenants by, among and for the benefit of the parties. We also agreed to pay all reasonable
out-of-pocket costs or expenses (including, without limitation, reasonable legal fees and disbursements) incurred or sustained
by the Purchaser, in connection with the transaction.
The Additional Issuance Debenture has a
10% original issue discount and matures on September 13, 2017. The principal amount of the Additional Issuance Debenture accrues
interest at the rate of 5% per annum, payable quarterly in cash (or if certain conditions are met, in stock at the Company’s
option) on January 1, April 1, July 1 and October 1. The Additional Issuance Debenture is convertible at any time, in whole or
in part, at Delafield’s option into shares of Common Stock at a conversion price equal to $0.03 (subject to adjustment) (the
“Conversion Price”). If the volume weighted average price of the Common Stock on any trading day is less than the then-current
Conversion Price, the Purchaser may convert at a price per share equal to a twenty two and one half percent (22.5%) discount to
the lowest trading price of the Common Stock in the ten trading days prior to the date of conversion.
The Purchaser is subject to the same ownership
limitation in connection with the Additional Issuance Debenture as for the 2016 Warrants as described above. The Additional Issuance
Debenture includes customary event of default provisions and provides for a default interest rate of 18%. Upon the occurrence of
an event of default, the Purchaser may convert the Additional Issuance Debenture into shares of Common Stock at a price per share
equal to a thirty percent (30%) discount to the average volume weighted average price of the shares for the three trading days
prior to conversion.
Subject to the conditions set forth in
the Additional Issuance Debenture, we have the right at any time after the earlier of (i) the six month anniversary of the original
issuance of the Additional Issuance Debenture or (ii) the date on which the New Underlying Shares are registered pursuant to an
effective registration statement, to redeem some or all of the total outstanding amount then remaining under the Additional Issuance
Debenture in cash at a price equal to 125% of the total amount of the Additional Issuance Debenture outstanding on the twentieth
(20th) trading date following the date the Company delivers notice of such redemption to Delafield.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
At the sole election of the Purchaser,
in lieu of receiving a cash payment for any principal amounts due on the Additional Issuance Debenture, the Purchaser may use all
or any portion of any principal amounts owed to it to exercise outstanding warrants of the Company held by the Purchaser.
The issuance of the Additional Issuance
Debenture to the Purchaser under the Additional Issuance Agreement was exempt from the registration requirements of the Securities
Act pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities
Act of 1933, as amended (the “Securities Act”). The Company made this determination based on the representations of
the Purchaser that it was acquiring the Additional Issuance Debenture for its own account with no intent to distribute the Additional
Issuance Debenture. No general solicitation or general advertising was used in connection with the sale of the Additional Issuance
Debenture and the Company had a pre-existing relationship with the Purchaser.
Our obligations under the Additional Issuance
Debenture are secured by an unconditional and continuing, first priority security interest in all of the assets and property (as
originally stated in the October 2015 agreement) of the Company until ten days following such time as the equity conditions set
forth in the Additional Issuance Debenture are met, pursuant to the terms of the existing Security Agreement.
The Company recorded $165,000 of debt
discounts related to the above note issuances during the three months ended September 30, 2016. The debt discounts are being amortized
over the term of the debt. Amortization of all debt discounts for the three months ended September 30, 2016 and 2015 was $444,835
and $186,935, respectively.
NOTE 6 – STOCKHOLDERS’ DEFICIT
Preferred
Stock:
The total number
of preferred shares authorized and that may be issued by the Company is 10,000,000 preferred shares with a par value of $0.01.
These preferred shares have no rights to dividends, profit sharing or liquidation preferences.
Of the total preferred
shares authorized, pursuant to the Certificate of Designation filed on December 9, 2014, 500,000 have been designated as Series
A preferred stock, with a par value of $0.01 (“Series A Preferred Stock”).
Of the total preferred
shares authorized, pursuant to the Certificate of Designation filed on June 16, 2015, up to five shares have been designated as
Series B preferred stock, with a par value of $0.01 (“Series B Preferred Stock”). Each holder of outstanding shares
of Series B Preferred Stock shall be 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.
Common Stock:
Shares issued
for services
On November 1,
2015, the Company entered into an agreement with a consultant to provide services over a nine month period. On August 8, 2016,
the Board of Directors authorized the issuance of 2,120,000 shares of common stock valued at $0.015 per share to the consultant.
The Company has recorded $3,495 of consulting expense for the three months ended September 30, 2016 related to this agreement.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
On January 31,
2016, the Company entered into an agreement with a consultant to provide services over a five month period in exchange for 9,000,000
shares of common stock. On August 23, 2016, the Board of Directors authorized the issuance of 9,000,000 shares of common stock
valued at $0.0104 per share to the consultant. These services were expensed during the year ended June 30, 2016.
The Company recorded
$80,581 of expense related to prior share grants for services previously recorded as prepaid expenses at June 30, 2016.
Shares issued
for conversion of convertible debt
On August 18,
2016, pursuant to a conversion notice, $32,500 of principal and $2,885 of interest was converted at $0.00825 into 4,289,082 shares
of common stock.
On August 25,
2016, pursuant to a conversion notice, $54,375 of interest was converted at $0.011625 into 4,677,420 shares of common stock.
On September 21,
2016, pursuant to a conversion notice, $25,000 of principal was converted at $0.010928 into 2,287,702 shares of common stock.
On September 28,
2016, pursuant to a conversion notice, $20,000 of principal was converted at $0.010928 into 1,830,162 shares of common stock.
On September 30,
2016, pursuant to a conversion notice, $17,500 of principal and $1,350 of interest was converted at $0.00781 into 2,413,590 shares
of common stock.
Options:
On April 14, 2016
(“Grant Date”), the Board of Directors of the Company, through unanimous written consent, granted 71,500,000 and 71,500,000
stock options at an exercise price of $0.03 (market value of the Company’s stock on Grant Date), to its CEO and to a director,
respectively. 23,833,333 of such stock options vested on April 14, 2016 and expire on April 14, 2021, 23,833,333 of such stock
options shall vest on April 14, 2017 (first anniversary of Grant Date) and expire on April 14, 2021 and 23,833,334 of such stock
options shall vest on April 14, 2018 (second anniversary of Grant Date) and expire on April 14, 2021. The fair value of each of
the 71,500,000 options at Grant Date is $1,962,440 (aggregate total of $3,924,880).
The Company expensed
$494,642 for these stock options during the fiscal quarter ended September 30, 2016.
Warrants:
On August 3, 2016, pursuant to the August
Letter Agreement, the Company issued 240,000,000 warrants to purchase common stock. 200,000,000 of these warrants have exercise
prices ranging from $0.012 to $0.020 per share and expire five months from the date of issuance. 40,000,000 of these warrants
have an exercise price of $0.10 per share and expire two years from the date of issuance.
On July 8, 2016, the 2015 Warrant for
26,190,476 shares was fully exercised at a price of $0.012 per share for a total of $314,286 in connection with the July Letter
Agreement (See Note 5).
On August 18, 2016, pursuant to the August
Letter Agreement, 12,500,000 shares were exercised at a price of $0.012 per share under the first tranche of the Five Month Warrant
or $150,000 in the aggregate (See Note 5).
As of September 30, 2016, there were 238,879,158
warrants outstanding and exercisable with expiration dates commencing January 2017 and continuing through May 2020.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
NOTE 7 –
COMMITMENTS AND CONTINGIENCIES
Legal Matters
From time to time,
the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course
of business. As of September 30, 2016, there were no pending or threatened lawsuits that could reasonably be expected
to have a material effect on the results of the Company’s operations.
Operating Agreements
In November 2009,
the Company entered into a commercialization agreement whereby the Company agreed to pay royalties of 2% of net revenues. Additionally,
the Company agreed to pay 5% of each and every license agreement subscribed for. The contract is cancellable at any
time by either party. To date, no amounts are owed under the agreement.
Operating Leases
On May 4, 2016,
the Company entered into a new five-year operating lease agreement with a related party with monthly rent of $3,300 AUD, inclusive
of GST (See Note 8). As of September 30, 2016, the Company recorded $2,300 in prepaid rent.
Future minimum
operating lease commitments consisted of the following at September 30, 2016:
Year Ended September 30,
|
|
Amount
|
|
2017
|
|
$
|
30,361
|
|
2018
|
|
$
|
30,361
|
|
2019
|
|
$
|
30,361
|
|
2020
|
|
$
|
30,361
|
|
2021
|
|
$
|
17,711
|
|
Rent expense for
the three months ended September 30, 2016 and 2015 were $8,597 and $4,938, respectively.
Q-Biologicals
Agreement
The Company entered
into a Manufacturing Services Agreement (the “MSA”) and Quality Assurance Agreement (the “QAA”), each with
an effective date of August 12, 2016, with Q-Biologicals NV (“Q-Biologicals”), a contract manufacturing organization
located in Belgium. Pursuant to the MSA, Q-Biologicals will produce certain drug substances and product containing certain enzymes
at its facility in Belgium. The Company will use these substances and products for development purposes, including but not limited
to clinical trials. The MSA contemplates payment to Q-Biologicals pursuant to a pre-determined fee schedule based on the completion
of certain milestones that depend on our manufacturing requirements and final batch yield. We anticipate that our payments to Q-Biologicals
under the MSA will range between $2.5 million and $5.0 million over five years, with the majority of the expenditures occurring
during the first two years of the MSA when the finished drug product is manufactured and released for clinical trials, including
a pre-payment to Q-Biologicals of approximately $144,000. The MSA shall continue for a term of three years unless extended by mutual
agreement in writing. We can terminate the MSA early for any reason upon the required notice period, however, in such event, the
pre-payment paid upon signing the MSA is considered non-refundable. The QAA sets forth the parties respective obligations and responsibilities
relating to the manufacturing and testing of the products under the MSA. The agreements with Q-Biologicals contain certain customary
representations, warranties and limitations of liabilities, and confidentiality and indemnity obligations. As of September 30,
2016, the pre-payment of $144,000 has not been made.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
NOTE 8 –
RELATED PARTY TRANSACTIONS
Since inception,
Propanc Health Group Corporation has conducted transactions with directors and director related entities. These transactions included
the following:
As of September
30, 2016 and June 30, 2016, the Company owed a current and former director a total of $56,736 and $54,767, respectively, for money
loaned to the Company throughout the years. The loan balance owed at September 30, 2016 was not interest bearing (See Note 4).
As of September
30, 2016 and June 30, 2016, the Company owed its two current directors a total of $35,163 and $33,943, respectively, related to
expenses paid on behalf of the Company related to corporate startup costs and intellectual property (See Note 4).
Effective May
5, 2016, we entered into an agreement for the lease of our principal executive offices with North Horizon Pty Ltd., of which Mr.
Nathanielsz and his wife are owners and directors. The lease has a five year term and provides for annual rental payments of $39,600
AUD, which includes $3,600 of goods and service tax for total payments of $198,000 AUD during the term of the lease. As of September
30, 2016, total payments of $181,500 AUD remain on the lease.
Mr. Nathanielsz’s
wife, Sylvia Nathanielsz, is and has been an employee of ours since October 2015. Mrs. Nathanielsz receives an annual salary of
$56,888 and is entitled to customary benefits.
According to a
February 25, 2016 board resolution, James Nathanielsz shall be paid an amount to be determined by the board, on a monthly basis
for the purpose of acquiring and maintaining an automobile. For the three months ended September 30, 2016, a total of $10,195 in
payments have been made with regards to the board resolution.
As per the unanimous
written consent of the Board of Directors, on April 14, 2016, James Nathanielsz was granted a $200,000 bonus for accomplishments
obtained while operating as the chief executive officer. As of September 30, 2016, this bonus has not been paid.
During the three
months ended September 30, 2016, the Company paid $124,264 and had accounts payable of $57,949 to one vendor and $4,081 to another
vendor who are both associated with two of the members of the Scientific Advisory Board of the Company.
During the three
months ended September 30, 2016, the Company paid $14,001 and had accounts payable of $5,134 to a vendor who is associated
with the Company’s chief medical officer.
NOTE 9 –
CONCENTRATIONS AND RISKS
Concentration
of Credit Risk
The Company maintains
its cash in banks and financial institutions in Australia. Bank deposits in Australian banks are uninsured. The Company
has not experienced any losses in such accounts through September 30, 2016.
Receivable
Concentration
As of September
30, 2016 and June 30, 2016, the Company’s receivables were 100% related to reimbursements on GST taxes paid.
Product and
Patent Concentration
As of September
30, 2016, the Company was undertaking preclinical activities for their lead product. The Company was also undertaking
research to uncover the mechanism of action of their lead product in order to screen new compounds for development.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
The Company previously
expanded by the filing of an international PCT patent application (No. PCT/AU2010/001403) directed to enhanced pro-enzyme formulations
and combination therapies. The international PCT application has been based on previous provisional patent applications capturing
the Company’s ongoing research and development in this area.
The Company received grant status in South
Africa and more recently in Australia, Japan, Indonesia, Singapore and New Zealand. In addition, the United States Patent
and Trademark Office or USPTO and European Patent Office or EPO have made preliminary indications that key features of our technology
are patentable. The Company is presently working towards securing a patent in each region, covering as many aspects of its
technology as possible, while also actively seeking protection throughout Eastern Europe, Asia and South America. Individual countries
and regions, include the United States, Canada, Brazil, China, Mexico, Hong Kong, Israel, Chile, Peru, Malaysia, Vietnam, Europe,
Russia, India and South Korea. The patent is granted in South Africa, Australia and New Zealand.
In addition to the Company’s lead
patent, another four applications have been filed and are presently under examination. Two patents applications have been filed
in the United States, one patent application has been filed in Spain and another in Australia.
Further provisional
patent filings are also expected to be filed to document and protect additional patentable subject matter that is identified, namely
further enhanced formulations, combination treatments, use of recombinant products, modes of action and molecular targets.
Foreign Operations
As of September
30, 2016 and June 30, 2016, the Company's operations are based in Australia.
On July 22, 2016,
the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the purpose of submitting
an orphan drug application to the European Medicines Agency as a small and medium-sized enterprise. As of September 30, 2016, there
has been no activity within this entity.
NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE
MEASUREMENTS
Derivative
Financial Instruments:
The Company applies
the provisions of ASC Topic 815-40,
Contracts in Entity’s Own Equity
(“ASC Topic 815-40”), 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
has 3,000,000 warrants and $1,679,194 of convertible debt with repricing options outstanding at September 30, 2016.
The Company calculates
the estimated fair values of the liabilities for derivative instruments using the Black Scholes (“BSM”) option pricing
model. Along with the below BSM value, the Company also computed the fair value using the Monte-Carlo model noting no material
difference between the valuations. The closing price of the Company’s common stock at September 30, 2016 was $0.0138. Volatility,
expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at September 30,
2016, are indicated in the table that follows. The volatility was based on historical volatility at September 30, 2016, the expected
term is equal to the remaining term of the warrants and the risk free rate is based upon rates for treasury securities with the
same term.
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
Warrants
|
|
September 30, 2016
|
Volatility
|
|
270%
|
Expected remaining term (in years)
|
|
2.00
|
Risk-free interest rate
|
|
1.14%
|
Expected dividend yield
|
|
None
|
Convertible Debt
|
|
Initial Valuations
(on new
derivative
instruments
entered into during
the three months
ended September 30, 2016)
|
|
September 30,
2016
|
Volatility
|
|
135%
|
|
76% – 135%
|
Expected Remaining Term (in years)
|
|
1.00
|
|
.41 - .95
|
Risk Free Interest Rate
|
|
0.63%
|
|
0.59%
|
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 BSM option pricing model. The following tables summarize
the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016:
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
Balance at
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
September 30,
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2016
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion option liabilities
|
|
$
|
795,658
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
795,658
|
|
Fair
value of liability for warrant derivative instruments
|
|
$
|
36,934
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,934
|
|
Total
|
|
$
|
832,592
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
832,592
|
|
The following
is a roll forward for the three months ended September 30, 2016 of the fair value liability of price adjustable derivative instruments:
|
|
Fair Value of
|
|
|
|
Liability for
|
|
|
|
Derivative
|
|
|
|
Instruments
|
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
1,050,182
|
|
Effects of foreign currency exchange rate changes
|
|
|
1,783
|
|
Initial fair value of embedded conversion option derivative liability recorded as debt discount
|
|
|
150,000
|
|
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option
|
|
|
49,585
|
|
Change in fair value included in statements of operations
|
|
|
(418,958
|
)
|
Balance at September 30, 2016
|
|
$
|
832,592
|
|
PROPANC HEALTH
GROUP CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2016
(unaudited)
NOTE 11 –
SUBSEQUENT EVENTS
Conversions:
On October 4,
2016, pursuant to a conversion notice, $25,000 of principal was converted at $0.010153 into 2,462,327 shares of common stock.
On October 6,
2016, pursuant to a conversion notice, $1,000 of principal and $79 of interest was converted at $0.007095 into 152,034 shares of
common stock.
On October 7,
2016, pursuant to a conversion notice, $25,000 of principal was converted at $0.009455 into 2,644,104 shares of common stock.
On October 7,
2016, pursuant to a conversion notice, $1,000 of principal and $79 of interest was converted at $0.00671 into 160,790 shares of
common stock.
On October 14,
2016, pursuant to a conversion notice, $25,000 of principal was converted at $0.009455 into 2,644,104 shares of common stock.
On October 19,
2016, pursuant to a conversion notice, $25,000 of principal was converted at $0.008138 into 3,072,008 shares of common stock.
On October 21,
2016, pursuant to a conversion notice, $50,000 of principal was converted at $0.00775 into 6,451,613 shares of common stock.
On October 27, 2016, the Company entered
into an agreement with a third party for professional services over a six month period commencing on October 10, 2016 in exchange
for a monthly fee of $22,500, of which $10,000 a month is in cash and $12,500 per month is in shares of common stock. Additionally,
the Company acknowledges an existing outstanding balance due of $20,500 for September services.
On October 31, 2016, the Company entered
into a Securities Purchase Agreement (the “Eagle SPA”), with Eagle Equities, LLC (“Eagle Equities”), pursuant
to which Eagle Equities purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount
of $100,000. The first note (the “First Note”) was funded with cash and the second note (the “Eagle Back-End
Note”) was initially paid for by an offsetting promissory note issued by Eagle Equities to the Company (the “Note
Receivable”). The terms of the Eagle Back-End Note require cash funding prior to any conversion thereunder. The Note Receivable
is due June 30, 2017, unless certain conditions are not met, in which case both the Eagle Back-End Note and the Note Receivable
may both be cancelled. Both the First Note and the Eagle Back-End Note have a maturity date one year from the date of issuance
upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both
the First Note and the Eagle Back-End Note are convertible into common stock at a conversion price equal to 60% of the lowest
closing bid price of the Common Stock for the ten trading days prior to the conversion, subject to adjustment in certain events.
The First Note may be prepaid with certain
penalties within 180 days of issuance. The Eagle Back-End Note may not be prepaid. However, in the event the First Note is redeemed
within the first six months of issuance, the Eagle Back-End Note will be deemed cancelled and of no further effect.
The Eagle Back-End Note will not be cash
funded and such note, along with the Note Receivable, will be immediately cancelled if the shares do not maintain a minimum trading
price during the five days prior to such funding and a certain aggregate dollar trading volume during such period. Upon an event
of default, principal and accrued interest will become immediately due and payable under the notes. Additionally, upon an event
of default, both notes will accrue interest at a default interest rate of 24% per annum or the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
Since the Eagle Back-End Note is not convertible
until the Note Receivable is paid, and the Note Receivable and Eagle Back-End Note have a right of setoff, the Note Receivable
and Eagle Back-End Note and related accrued interest receivable and payable will be netted for purposes of presentation on the
balance sheet.
On November 9, 2016, the Company entered
into an agreement (the “November Agreement”) to adjust the exercise price of a warrant, issued September 30, 2013,
to purchase 3,000,000 shares of common stock of the Company. Under the terms of the November Agreement, the exercise price
for the shares underlying the warrant was reduced to $0.015 AUD or $0.0115 USD per share. The November Agreement did not
affect the remaining terms of the warrant.