The following unaudited interim consolidated
financial statements of Propanc Health Group Corporation are included in this quarterly report on Form 10-Q:
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
DECEMBER 31, 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. Our lead product candidate, which we refer to as PRP, is an enhanced pro-enzyme
formulation designed to enhance the anti-cancer effects of multiple enzymes acting synergistically. It is currently in the preclinical
phase of development.
On November 23, 2010,
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 and six months ended December 31, 2016 and 2015 and cash flows for the six months ended December 31, 2016 and 2015 and our
financial position as of December 31, 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.
Principles 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
DECEMBER 31, 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 December 31, 2016 and June 30, 2016, the exchange rates used
to translate amounts in Australian dollars into USD for the purposes of preparing the unaudited consolidated financial statements
were as follows:
|
|
December 31,
2016
|
|
|
June 30,
2016
|
|
Exchange rate on balance sheet dates
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7197
|
|
|
|
0.7401
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7541
|
|
|
|
0.7282
|
|
Changes in Accumulated
Other Comprehensive Income (Loss) by Component during the six months ended December 31, 2016 was as follows:
|
|
Foreign
Currency
Items:
|
|
Beginning balance, June 30, 2016
|
|
$
|
131,264
|
|
Foreign currency translation gain
|
|
|
256,898
|
|
Ending balance, December 31, 2016
|
|
$
|
388,162
|
|
Fair Value of Financial
Instruments and Fair Value Measurements
The Company measures
its 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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 six broad levels. The following is a brief description of those six 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.
Cash and Cash Equivalents
Cash and cash equivalents
include cash on hand and at banks, short-term deposits with an original maturity of six 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 December 31, 2016 or June 30, 2016.
Patents
Patents 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 product costs as long as we are in the
startup stage. Accordingly, as the Company's products were and are not currently approved for market, all patent costs incurred
from 2013 through 2016 were expensed immediately. This practice of expensing patent costs immediately ends when a product receives
market authorization from a government regulatory agency.
The Company has
filed six patent applications relating to its lead product, PRP. The first application was filed in October 2010 in each of the
countries listed in the table below. This application has been granted and remains in force in Australia, Japan, Indonesia, Israel,
New Zealand, Singapore and South Africa. In the United States, the application has been allowed by the U.S. Patent and Trademark
Office but has not yet been issued pending the payment of the issue fee. In Brazil, Canada, China, Europe, Malaysia, Mexico and
South Korea, the patent application remains under examination.
In 2016 and early
2017 we filed five other patent applications, as indicated below. Two applications were filed in Spain, where one is currently
under examination, and one was filed in the United States. Two others 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
No.
|
Title
|
Country
|
Case Status
|
Date Filed
|
1.
|
A pharmaceutical composition for treating cancer comprising trypsinogen and/or chymotrypsinogen and an active agent selected from a selenium compound, a vanilloid compound and a cytoplasmic reduction agent.
|
Australia, Japan, Indonesia, Israel, New Zealand, Singapore
and South Africa
Brazil, Canada, China, Europe, Malaysia, Mexico, Republic of
Korea, USA
|
Granted
Under Examination
|
Oct-22-2010
|
2.
|
Proenzyme composition
|
PCT
|
Application filed and pending
|
Nov-11-2016
|
3.
|
Compositions and their use for manufacturing a medicament for treating cancer
|
Spain
|
Application filed and pending
|
Dec-22-2016
|
4.
|
Compositions and their use for manufacturing a medicament for treating cancer
|
Spain
|
Under examination
|
Jan-29-2016
|
5.
|
Cancer Treatment
|
PCT
|
Application filed and pending
|
Jan-27-2017
|
6.
|
Composition of proenzymes for cancer treatment
|
USA
|
Application filed and pending
|
Apr-12-2016
|
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.
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.
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 December 31,
2016 and June 30, 2016, the Company was owed $10,368 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(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 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, “
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 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
DECEMBER 31, 2016
(unaudited)
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 six months ended December 31, 2016 and 2015 were $328,399 and $296,277, 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 intends to recognize
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 intends to recognize 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 six months ended December 31, 2016, there were 37,379,158 warrants
outstanding, 143,000,000 stock options and nine convertible notes payable that are convertible into 362,227,236 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 December 31, 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 December 31, 2016:
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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.
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
December 31, 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 December 31, 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.
In August 2014, the FASB issued ASU 2014-15,
“
Presentation of Financial Statements – Going Concern
(Topic 205-40)”, which requires management to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting
period. If substantial doubt exists, additional disclosure is required. This new standard was effective for the Company for the
interim period beginning after December 15, 2016 and has revised its disclosures accordingly. Early adoption is permitted. The
Company adopted this new standard as of December 31, 2016.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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 six months ended December 31, 2016, the Company had no revenues, had a net loss
of $4,862,882 and had net cash used in operations of $1,004,628. Additionally, as of December 31, 2016, the Company had a
working capital deficit, stockholders' deficit and accumulated deficit of $3,853,952, $3,840,652 and $35,238,905, respectively.
It is management’s opinion that 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.
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 December 31,
2016 and June 30, 2016 is $33,008 and $33,943, respectively.
NOTE 4 –
LOANS AND NOTES PAYABLE
Loans from Directors
and Officer - Related Parties
Loans from Directors
and Officer at December 31, 2016 and June 30, 2016 were $53,258 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 six months ended
December 31, 2016.
Other Loans from
Unrelated Parties
As of December 31,
2016 and June 30, 2016, other loans from unrelated parties had a balance of $2,159 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 six months ended December 31, 2016.
NOTE 5 – CONVERTIBLE NOTES
Convertible notes at December 31, 2016 were as follows:
Convertible notes and debenture
|
|
$
|
2,184,694
|
|
Unamortized discounts
|
|
|
(735,436
|
)
|
Accrued interest
|
|
|
12,446
|
|
Premium
|
|
|
362,466
|
|
Convertible notes, net
|
|
$
|
1,824,170
|
|
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
May 2015 Securities
Purchase Agreement
On May 19, 2015, the Company entered into
a Securities Purchase Agreement with a third-party lender (the “SPA”). Pursuant to the SPA, on the date of the agreement
the Company issued convertible promissory notes to the lender in return for cash. The Company also issued nine convertible promissory
notes in the principal amount of $782,500 (the “
Back-End Notes
”) in exchange for promissory notes from the lender
in the same principal amount. The lender could not convert the nine promissory notes until it had redeemed its notes for cash.
On July 14, 2015, the lender redeemed three
of its promissory notes totaling $352,500 and three of the Back-End Notes of the same principal amount it received from the Company
automatically became convertible.
On October 14 and October 15, 2015, the
lender redeemed the remaining six of its promissory notes totaling $430,000 and the corresponding Back-End Notes of the same principal
amount became convertible.
Through June 30, 2016, the lender converted
$620,000 in principal of the Back-End Notes into an equivalent amount of shares of the Company’s common stock. From June
30, 2016 through December 31, 2016, an additional $109,500 in principal of the Back-End notes was converted. Currently, $53,000
in principal on these Back-End Notes remains outstanding.
Since the Back-End Notes the Company issued
were not convertible until the notes the lender issued were redeemed in cash, the Back-End Notes and accrued interest receivable
and payable have been netted for presentation purposes on the accompanying balance sheet.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 Delafield Investments Limited (the “Purchaser” or “Delafield”).
The Purchase Agreement provided that, upon the terms and subject to the conditions set forth therein, the Purchaser would 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 a 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 was deposited into a deposit control account and such
amount was to 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 would be reduced
by $25,000 if the Company filed a registration statement with the SEC within 30 days following the Closing Date. The Principal
Amount would be reduced by an additional $25,000 if the registration statement was 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 declared effective. As both of these conditions were met, the Principal amount was reduced by a $50,000, 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
The Debenture
has a 10% original issue discount and was originally schedule to mature 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 (“VWAP”) 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 VWAP 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 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 Purchaser 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 six months ended December
31, 2016, the holder converted $350,000 of principal and accrued interest of $108,750 into shares of the Company’s common
stock (See Note 6). Accrued interest as of December 31, 2016 was $0. The above conversions relate to additional proceeds
received under the note as documented below.
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 six 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 were
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”) were 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
would have increased. In the event that the Warrant Shares were not included in an effective registration statement, the Warrants
could 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 December
31, 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 had to 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 the Registration Statement with the SEC and on December 10, 2015, the registration statement was declared effective.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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 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 the Purchase Agreement.
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, would be released to the Company in two installments as follows: (1) up to $1,200,000
would be released to the Company upon full execution of the Addendum, which occurred on March 16, 2016, and (2) up to $375,000
within 60 days of the full execution of the Addendum as long as certain conditions have been met, which occurred on May 19, 2016
.
The Company and
the Purchaser agreed that the new conversion price would 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 would be adjusted to a price per share
that was 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 and August
Letter Agreements
On July 1, 2016,
the Company entered into a Letter Agreement (the “July Letter Agreement”) with the Purchaser, and the parties then
entered in a second letter agreement dated August 3, 2016 (the “August Letter Agreement”), pursuant to the Purchase
Agreement. Pursuant to the original 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”).
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
Under the July 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 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).
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) will 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 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 were subsequently cancelled as part of the “December Letter Agreement” (see below.)
The 2016 Warrants were 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). These shares were later redeemed
by the Company as part of the “December Letter Agreement”.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
Pursuant to the Five Month Warrant, if
the Volume Weighted Average Price (as defined in the Five Month Warrant, the “VWAP”) of the Common Stock for five consecutive
days equaled or exceeded the exercise price of any tranche of the Five Month Warrant (each, as applicable, a “Callable Tranche”),
and provided that the Company was in compliance with the Call Conditions as defined in the August Letter Agreement, the Company
had 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 limited the Company to one such call within a twenty trading day period. However, if the VWAP
of the Common Stock for five consecutive trading days was at least 200% of the exercise price of any warrants under a Callable
Tranche, the Company could 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 did not exercise the 2016
Warrants under a Callable Tranche when called by the Company under the terms of the August Letter Agreement, we could, 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 were subject to adjustments for stock dividends, splits, combinations and
pro rata distributions. Any adjustment to the exercise price could similarly cause the number of shares underlying the 2016 Warrants
to be adjusted so that the total value of the 2016 Warrants could have increased.
The Purchaser was subject to a beneficial
ownership limitation under the 2016 Warrants such that the Company and the Purchaser would 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, could 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.
The Five Month Warrant required 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 was not effective on or before October 15, 2016, or was not maintained effective thereafter, the termination date of the
Five Month Warrant would have been extended until such date that the shares were registered for at least a period of 90 days, but
in no event later than April 30, 2017.
The Two Year Warrant required 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 six years from the date of effectiveness. The initial registration statement was filed
on August 19, 2016 and subsequently withdrawn as described below.
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 December 31, 2016, the Company recorded accrued interest of $4,125.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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 six 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.
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. 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
December Letter Agreement
On December 2, 2016, the Company entered into
a Letter Agreement (the “December Letter Agreement”) with the Purchaser pursuant to which the parties agreed to cancel
both the Two Year Warrant to purchase up to 40,000,000 shares of common stock, par value $0.001 per share of the Company at an
exercise price of $0.10 per share, and the Five Month Warrant to purchase in five tranches, at exercise prices between $0.012 and
$0.020 per share, up to 200,000,000 shares of common stock, originally issued to the Purchaser on August 3, 2016.
Pursuant to the December Letter Agreement,
the 12,500,000 restricted shares held by the Purchaser pursuant to its August 2016 exercise of such shares under the first tranche
of the Five Month Warrant at a purchase price of $0.012 per share or $150,000 in the aggregate, were redeemed by the Company at
a fair value of $112,500 upon the issuance and in exchange for an 8% convertible redeemable promissory note in the principal amount
of $150,000 (the “Delafield Note”). The Company recorded a $37,500 loss on settlement related to the cancellation of
shares and issuance of the note. The note matures two years from the issuance date at which time any outstanding principal and
interest is then due and payable. The Delafield Note is convertible into shares of Common Stock at a conversion price equal to
65% of the average of the three lowest closing bid prices of the Common Stock for the ten trading days prior to the conversion,
subject to adjustment in certain events. The Delafield Note may be prepaid at any time at 135% of the principal amount plus any
accrued interest. Upon an event of default, principal and accrued interest will become immediately due and payable and interest
will accrue at a default interest rate of 18% per annum or the highest rate of interest permitted by law. This convertible notes
is treated as stock settled debt under ASC 480 and accordingly the Company is recording an $80,769 put premium. As of December
31, 2016, the Company recorded accrued interest of $986.
In addition, the Company issued the Purchaser
a two-year common stock purchase warrant to purchase 26,000,000 shares of Common Stock at an exercise price of $0.05 per share
(the “New Warrant”). The exercise price and number of shares of Common Stock issuable under the New Warrant are subject
to adjustments for certain reclassifications, subdivision or combination of shares. The New Warrant is being treated as a modification
of an existing warrant under ASC 718-20-35-3 and has determined that since the valuation of the New Warrant does not exceed the
value of the 2016 Warrants, the Company will continue to amortize the remainder of the $910,178 value of the 2016 Warrant. The
total principal amount outstanding under the above October 2015 SPA, related addendum, July and August letter agreements, additional
issuance debenture and December letter agreement was $1,524,194 as of December 31, 2016.
October 31, 2016 Securities Purchase Agreement
On October 31, 2016, the Company entered
into a Securities Purchase Agreement 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. This convertible notes is treated as stock
settled debt under ASC 480 and accordingly the Company is recording a $66,667 put premium. The Company has recorded $1,359 of accrued
interest as of December 31, 2016. Total principal outstanding as of December 31, 2016 was $100,000.
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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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.
November 2016 Consulting Agreement
On November 18, 2016 (the “Effective
Date”), the Company entered into a consulting agreement with Regal Consulting. As compensation for services rendered, the
Company is to issue two $250,000 convertible junior subordinated promissory notes. Both notes have a two year maturity date and
interest of 10% per annum. The first promissory note is considered to be fully earned upon execution of the agreement and the second
note is considered fully earned 90 days after the Effective Date of the agreement unless the agreement is terminated. Both notes
are junior and subordinate in all respects to the existing debt of the Company pursuant to that certain 5% Original Issue Discount
Senior Secured Convertible Debenture with an original issue date of October 28, 2015 and the 5% Original Issue Discount Senior
Secured Convertible Debenture with an original issue date of September 13, 2016.
The Company issued the first $250,000 convertible
note on November 18, 2016. This note is convertible at a conversion price of the lesser of $0.01 or 65% of the average of the three
lowest 10 trading days prior to the conversion. An aggregate total of $255,757 of this note was bifurcated with the embedded conversion
option recorded as a derivative liability at fair value (See Note 10). As of December 31, 2016, the Company recorded accrued interest
of $3,014 and the entire balance of $250,000 is outstanding.
December 12, 2016 Securities Purchase Agreement
On December 12, 2016, the Company entered into
a Securities Purchase Agreement, with Eagle Equities, LLC, 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 December 12, 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. This convertible notes is treated as stock settled debt under
ASC 480 and accordingly the Company is recording a $66,667 put premium. The company has recorded $438 of accrued interest as of
December 31, 2016. Total principal outstanding as of December 31, 2016 was $100,000.
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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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.
December 21, 2016 Securities Purchase
Agreement
On December 21, 2016, the Company entered
into a Securities Purchase Agreement (the “Eagle SPA”), with Eagle Equities (“Eagle Equities”), pursuant
to which Eagle Equities purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount
of $157,500. 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 December
21, 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. This convertible
notes is treated as stock settled debt under ASC 480 and accordingly the Company is recording a $105,000 put premium. The company
has recorded $380 of accrued interest as of December 31, 2016. Total principal outstanding as of December 31, 2016 was $157,500.
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.
The Company recorded $400,000 of debt discounts
related to the above note issuances during the six months ended December 31, 2016. The debt discounts are being amortized over
the term of the debt. Amortization of all debt discounts for the six months ended December 31, 2016 and 2015 was $1,371,171 and
$961,735, 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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 six months ended December 31, 2016 related to this agreement as the
majority of the expense was recorded in fiscal 2016.
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.
On July 14, 2016,
the Company agreed to an addendum with a consultant to two consulting agreements entered into on May 7, 2015 and April 22, 2016,
respectively. The Company currently owed the consultant $60,000 related to the May 7, 2015 agreement for monthly consulting fees
and $100,000 related to the April 22, 2016 agreement, which was comprised of a $10,000 retainer and $90,000 for three reports issued
by the consultant. The Company has agreed to issue 6,000,000 shares of common stock in consideration of the $60,000 in outstanding
fees related to the May 7, 2015 agreement and an additional 6,000,000 shares in forgiveness of future monthly consulting fees,
valued at $95,400. In addition, the Company has agreed to issue 10,000,000 shares of common stock in consideration for the $100,000
in outstanding fees related to the April 22, 2016 agreement. The shares were issued on November 4, 2016 and an additional loss
on settlement of debt was recorded of $94,400 based on the fair market value of $349,800 for 22,000,000 shares on July 14, 2016
(a share price of $0.0159).
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. The Company has recorded $37,500
of consulting expense related to the shares of common stock for the six months ended December 31, 2016 related to this agreement.
These shares have not been issued as of the date of filing.
The Company recorded
$140,841 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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.
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 November 9, 2016,
pursuant to a conversion notice, $54,375 of interest was converted at $0.008293 into 6,556,735 shares of common stock.
On November 21, 2016,
pursuant to a conversion notice, $50,000 of principal was converted at $0.008138 into 6,144,016 shares of common stock.
On December 2, 2016,
pursuant to a conversion notice, $25,000 of principal was converted at $0.007518 into 3,325,353 shares of common stock.
On December 8, 2016,
pursuant to a conversion notice, $25,000 of principal was converted at $0.005193 into 4,814,173 shares of common stock.
On December 8, 2016,
pursuant to a conversion notice, $36,500 of principal and $3,368 of interest was converted at $0.004235 into 9,413,932 shares of
common stock.
On December 9, 2016,
pursuant to a conversion notice, $1,000 of principal and $93 of interest was converted at $0.004235 into 258,019 shares of common
stock.
On December 15, 2016,
pursuant to a conversion notice, $35,000 of principal was converted at $0.005193 into 6,739,843 shares of common stock.
On December 16, 2016,
pursuant to a conversion notice, $20,000 of principal and $1,881 of interest was converted at $0.004235 into 5,166,600 shares of
common stock.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
On December 23, 2016,
pursuant to a conversion notice, $20,000 of principal was converted at $0.005193 into 3,851,339 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
$989,285 for these stock options during the six months ended December 31, 2016.
Warrants:
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 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. These warrants were subsequently cancelled
as discussed in 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. These shares were subsequently cancelled and a loss of $37,500 was recorded (See Note 5).
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. The Company recorded an additional expense of $3,299 AUD related to the repricing.
As of December 31, 2016, there were 240,000,000
warrants cancelled and 37,379,158 warrants outstanding and exercisable with expiration dates commencing December 2018 and continuing
through November 2020.
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 December 31, 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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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).
Future minimum operating
lease commitments consisted of the following at December 31, 2016:
Year Ended December 31,
|
|
Amount (USD)
|
|
2017
|
|
$
|
28,500
|
|
2018
|
|
$
|
28,500
|
|
2019
|
|
$
|
28,500
|
|
2020
|
|
$
|
28,500
|
|
2021
|
|
$
|
9,500
|
|
Rent expense for the
six months ended December 31, 2016 and 2015 were $14,588 and $9,827, 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 $124,158. The MSA shall continue for a term of six 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. On February 9,
2017, the Company paid $62,079 of the required pre-payment.
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 December 31,
2016 and June 30, 2016, the Company owed a current and former director a total of $53,258 and $54,767, respectively, for money
loaned to the Company throughout the years. The loan balance owed at December 31, 2016 was not interest bearing (See Note 4).
As of December 31,
2016 and June 30, 2016, the Company owed its two current directors a total of $33,008 and $33,943, respectively, related to expenses
paid on behalf of the Company related to corporate startup costs and intellectual property (See Note 4).
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
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 December 31, 2016,
total payments of $171,600 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
$53,978 and is entitled to customary benefits.
According to a February
25, 2016 board resolution, James Nathanielsz shall be paid $4,480.55 AUD, on a monthly basis for the purpose of acquiring and maintaining
an automobile. For the six months ended December 31, 2016, a total of $20,273 in payments have been made with regards to the board
resolution.
As per the unanimous
written consent of the Board of Directors, on August 15, 2016, James Nathanielsz was granted a $250,000 bonus for accomplishments
obtained while operating as the chief executive officer. As of December 31, 2016, this bonus has not been paid.
During the six months
ended December 31, 2016, the Company expensed $152,289 and had accounts payable of $57,784 to vendors who are both associated with
two of the members of the Scientific Advisory Board of the Company.
During the six months ended
December 31, 2016, the Company expensed $18,304 and had accounts payable of $16,492 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 December 31, 2016.
Receivable Concentration
As of December 31,
2016 and June 30, 2016, the Company’s receivables were 100% related to reimbursements on GST taxes paid.
Patent and
Patent Concentration
Patents 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 product costs as long as we are in the
startup stage. Accordingly, as the Company's products were and are not currently approved for market, all patent costs incurred
from 2013 through 2016 were expensed immediately. This practice of expensing patent costs immediately ends when a product receives
market authorization from a government regulatory agency.
The Company has
filed six patent applications relating to its lead product, PRP. This application has been granted and remains in force in Australia,
Japan, Indonesia, Israel, New Zealand, Singapore and South Africa. In the United States, the application has been allowed by the
U.S. Patent and Trademark Office but has not yet been issued pending the payment of the issue fee. In Brazil, Canada, China, Europe,
Malaysia, Mexico and South Korea, the patent application remains under examination.
In 2016 and early
2017 we filed five other patent applications. Two applications were filed in Spain, where one is currently under examination,
and one was filed in the United States. Two others 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.
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.
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
Foreign Operations
As of December 31,
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 December 31, 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 $1,624,194 of convertible debt, which are treated as a derivative instruments outstanding at December
31, 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 December 31, 2016 was $0.0086. Volatility,
expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at December 31,
2016, are indicated in the table that follows. The volatility was based on historical volatility at December 31, 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.
Warrants
|
|
December 31,
2016
|
|
Volatility
|
|
|
174
|
%
|
Expected remaining term (in years)
|
|
|
1.75
|
|
Risk-free interest rate
|
|
|
1.2
|
%
|
Expected dividend yield
|
|
|
None
|
|
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
Convertible Debt
|
|
Initial Valuations
(on new
derivative
instruments
entered into
during
the six months
ended December 31,
2016)
|
|
|
December 31,
2016
|
Volatility
|
|
|
135% - 261
|
%
|
|
126.7% – 247.77%
|
Expected Remaining Term (in years)
|
|
|
1.00 - 2.00
|
|
|
.16 - 1.88
|
Risk Free Interest Rate
|
|
|
.63% - 1.07
|
%
|
|
0.85% - 1.2%
|
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 December 31, 2016:
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
Balance at
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
December 31,
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2016
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion option liabilities
|
|
$
|
1,100,368
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,100,368
|
|
Fair value of liability for warrant derivative instruments
|
|
$
|
19,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,543
|
|
Total
|
|
$
|
1,119,911
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,119,911
|
|
The following is a
roll forward for the six months ended December 31, 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
|
|
|
122
|
|
Initial fair value of embedded conversion option derivative liability recorded as debt discount
|
|
|
400,000
|
|
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option
|
|
|
55,342
|
|
Change in fair value included in statements of operations
|
|
|
(385,735
|
)
|
Balance at December 31, 2016
|
|
$
|
1,119,911
|
|
PROPANC HEALTH GROUP
CORPORATION AND SUBSIDIARY
CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
(unaudited)
NOTE 11 –
SUBSEQUENT EVENTS
On January 30,
2017, Propanc Health Group Corporation (the “Company”) entered into a Securities Purchase Agreement (the “Eagle
SPA”) dated as of
January 27, 2017, 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 $230,000. 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 September
27, 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, par value $0.001 (the “Common Stock”), of the Company
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.
Conversions
On January 10, 2017, pursuant to a conversion
notice, $16,500 of principal and $1,645 of interest was converted at $0.004675 into 3,881,386 shares of common stock.
On January 11, 2017, pursuant to a conversion notice, $136,400 of
principal was converted at $0.006278 into 21,726,665 shares of common stock.
On January 19, 2017, pursuant to a conversion
notice, $36,500 of principal and $3,712 of interest was converted at $0.004675 into 8,601,497 shares of common stock.
On January 20, 2017, pursuant to a conversion notice, $31,500 of
principal was converted at $0.006278 into 5,017,522 shares of common stock.
On January 25, 2017, pursuant to a conversion notice, $55,000 of
principal was converted at $0.006898 into 7,973,326 shares of common stock.