NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
NOTE
1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature
of Operations
Propanc
Biopharma, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated
in Melbourne, Victoria Australia on October 15, 2007 as Propanc PTY LTD, and continues to be based in Camberwell, Victoria Australia.
Since its inception, substantially all of the operations of the Company have been focused on the development of new cancer treatments
targeting high-risk patients, particularly cancer survivors, who need a follow-up, non-toxic, long-term therapy designed to prevent
the cancer from returning and spreading. The Company anticipates establishing global markets for its technologies. Our lead product
candidate, which we refer to as PRP, is an enhanced pro-enzyme formulation designed to enhance the anti-cancer effects of multiple
enzymes acting synergistically. It is currently in the preclinical phase of development.
On
November 23, 2010, the Company was incorporated in the state of Delaware as Propanc Health Group Corporation. In January 2011,
to reorganize the Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned
subsidiary of the Company.
On
July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the
purpose of submitting an orphan drug application to the European Medicines Agency as a small and medium-sized enterprise. As of
December 31, 2019, there has been no activity within this entity.
Effective
April 20, 2017, the Company changed its name to “Propanc Biopharma, Inc.” to better reflect the Company’s stage
of operations and development.
The
Company has filed multiple 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 the United States,
Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein,
Turkey, United Kingdom, Australia, China, Hong Kong, Japan, Indonesia, Israel, New Zealand, Singapore, Malaysia, South Africa,
Mexico, Republic of Korea and India. In Brazil and Canada, the patent application remains under examination.
In
2016 and 2017 we filed other patent applications, as indicated below. Three applications were filed under the Patent Cooperation
Treaty (the “PCT”). The PCT assists applicants in seeking patent protection by filing one international patent application
under the PCT, which allows the applicants to seek protection for an invention in over 150 countries. Once national or regional
applications are filed, the application is placed under the control of the national or regional patent offices, as applicable,
in what is called the national or regional phase. One PCT application, filed in November 2016, entered the national phase in July
2018 in each of the countries listed in the table below. A second application filed in January 2017 entered the national phase
commencing July 2018. A third application entered the national phase in October 2018.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(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.
|
|
USA,
Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein,
Turkey, United Kingdom, Australia, China, Hong Kong, Japan, Indonesia, Israel, New Zealand, Malaysia, Singapore, Malaysia
South Africa, Mexico, Republic of Korea and India
|
|
Granted
|
|
Oct-22-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
and Canada
|
|
Under
Examination
Divisional
applications filed and under examination in Mexico and China
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
Divisional
application granted
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
Proenzyme
composition
|
|
Australia,
Canada, China, Europe, Hong Kong, India, Indonesia, Israel, Japan, Malaysia, New Zealand, Singapore, South Africa and USA
|
|
Application
filed and pending
|
|
Nov-11-2016
|
|
|
|
|
|
|
|
|
|
3.
|
|
Cancer
Treatment
|
|
Australia,
Canada, China, Europe, Hong Kong, Israel, Japan, Malaysia, New Zealand, Singapore and USA
|
|
Application
filed and pending
|
|
Jan-27-2017
|
|
|
|
|
|
|
|
|
|
4.
|
|
Composition
of proenzymes for cancer treatment
|
|
Australia,
China, Europe, Japan and USA
|
|
Application
filed and pending
|
|
Apr-12-2017
|
The
Company hopes to capture and protect additional patentable subject matter based on the Company’s field of technology relating
to pharmaceutical compositions of proenzymes for treating cancer by filing additional patent applications as it advances its lead
product candidate, PRP, through various stages of development.
Decrease
in Authorized Common Stock and Reverse Split
On
June 24, 2019, the Company effected a one-for-five hundred (1:500) reverse stock split whereby the Company (i) decreased the number
of authorized shares of common stock, $0.001 par value per share, to 100,000,000 and (ii) decreased by a ratio of one-for-five
hundred (1:500) the number of retroactively issued and outstanding shares of common stock. Proportional adjustments for the reverse
stock split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share
data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements
to reflect the reverse stock split.
On February 4, 2020 the Directors resolved
to increase the Common Stock of the Company from 100,000,000 authorized shares to 1,000,000,000 authorized shares and believes
that such number of authorized shares of Common Stock will be in the best interests of the Corporation and its stockholders because
the Board believes that the availability of more shares of Common Stock for issuance will allow the Corporation greater flexibility
in pursuing financing from investors, meeting business needs as they arise, taking advantage of favorable opportunities and responding
to a changing corporate environment. The Company filed the necessary documents with the U.S. Securities and Exchange Commission
on February 6, 2020 and at the date of this filing the increase in authorized shares to 1,000,000,000 has not yet been effected.
Basis
of Presentation
The
Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this
“Quarterly Report”) have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications
and non-recurring adjustments) necessary to present fairly our results of operations for the three and six months ended December
31, 2019 and 2018 and cash flows for the six months ended December 31, 2019 and 2018 and our financial position at December 31,
2019 have been made. The Company’s results of operations for the three and six months ended December 31, 2019 are not necessarily
indicative of the operating results to be expected for the full fiscal year ending June 30, 2020.
Reference
is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification
(“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities.
Each ASC reference in this Quarterly Report is presented with a three-digit number, which represents its Topic. As necessary for
explanation and as applicable, an ASC topic may be followed with a two-digit subtopic, a two-digit section or a two-or-three-digit
paragraph.
Certain
information and disclosures normally included in the notes to the Company’s annual audited consolidated financial statements
have been condensed or omitted from the Company’s interim unaudited condensed consolidated financial statements included
in this Quarterly Report. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction
with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2019.
The June 30, 2019 balance sheet is derived from those statements.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of Propanc Biopharma, Inc., the parent entity, and its wholly-owned
subsidiary, Propanc PTY LTD. All inter-company balances and transactions have been eliminated in consolidation. Propanc (UK) Limited
was an inactive subsidiary at December 31, 2019.
Use
of Estimates
The
preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America
(“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates
in the accompanying unaudited condensed consolidated financial statements include the estimates of useful lives for depreciation,
valuation of the operating lease liability and related right-of-use asset, valuation of derivatives, valuation of beneficial conversion
features on convertible debt, allowance for uncollectable receivables, valuation of equity based instruments issued for other
than cash, the valuation allowance on deferred tax assets and foreign currency translation due to certain average exchange rates
applied in lieu of spot rates on transaction dates.
Foreign
Currency Translation and Other Comprehensive Income (Loss)
The
Company’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has
been translated into United States dollar ($) 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 statements of operations and comprehensive income (loss) as other comprehensive income (loss). There have
been no significant fluctuations in the exchange rate for the conversion of Australian dollars to USD after the balance sheet
date.
Other
Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
Assets
and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing
at the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency included in the consolidated results of operations as incurred. For
the six months ended December 31, 2019, the Company recognized an exchange loss of approximately $575,700 on intercompany loans
made by the parent to the subsidiary which have not been repaid as at December 31, 2019.
As
of December 31, 2019 and June 30, 2019, the exchange rates used to translate amounts in Australian dollars into USD for the purposes
of preparing the consolidated financial statements were as follows:
|
|
December 31, 2019
|
|
|
June
30, 2019
|
|
Exchange rate on balance sheet dates
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7030
|
|
|
|
0.7153
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.6847
|
|
|
|
0.7009
|
|
The
exchange rates used to translate amounts in AUD into USD for the period ended December 31, 2018 are: 0.7046 as of the balance
sheet date and 0.7248 average exchange rate for that period.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Change
in Accumulated Other Comprehensive Income (Loss) by component during the six months ended December 31, 2019 was as follows:
|
|
Foreign
Currency Items:
|
|
Beginning
balance, June 30, 2019
|
|
$
|
1,066,998
|
|
Foreign
currency translation loss
|
|
|
(65,807
|
)
|
Ending
balance, December 31, 2019
|
|
$
|
1,001,191
|
|
Fair
Value of Financial Instruments and Fair Value Measurements
The
Company measures its financial assets and liabilities in accordance with US GAAP. For certain financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair
value due to their short maturities. Amounts recorded for notes payable, net of discount, and loans payable also approximate fair
value because current interest rates available for debt with similar terms and maturities are substantially the same.
The
Company follows accounting guidance for financial assets and liabilities. This standard defines fair value, provides guidance
for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but
rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply
to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable
market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the
service capacity of an asset or replacement cost).
The
guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three
broad levels. The following is a brief description of those three levels:
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2: Inputs, other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
Level
3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed
by us, which reflect those that a market participant would use.
Also
see Note 10 - Derivative Financial Instruments and Fair Value Measurements.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less
with financial institutions, and bank overdrafts. Bank overdrafts are reflected as a current liability on the balance sheets.
There were no cash equivalents as of December 31, 2019 or June 30, 2019.
Patents
Patents
are stated at cost and classified as 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
historical patent costs incurred through December 31, 2019 were expensed immediately. This practice of expensing patent costs
immediately ends when a product receives market authorization from a government regulatory agency.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
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, 2019 and June 30, 2019, the Company was owed $2,432 and $5,439, respectively, from the Australian Taxation Office.
These amounts were fully collected subsequent to the balance sheet reporting dates.
Derivative
Instruments
ASC
Topic 815, Derivatives and Hedging (“ASC Topic 815”), establishes accounting and reporting standards for derivative
instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair
value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion
or payoff of debt, the Company records the fair value of the conversion shares, removes the fair value of the related derivative
liability, removes any discounts and records a net gain or loss on debt extinguishment. On July 1, 2019 the Company adopted ASU
2017-11 under which down-round Features in Financial Instruments will no longer cause derivative treatment. The Company applies
the modified prospective method of adoption. There were no cumulative effects on adoption.
Convertible
Notes With Variable Conversion Options
The
Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal
and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock
at 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 ASC 740 “Accounting for Income Taxes,”
when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements
and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets and liabilities.
The
Company follows ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections
provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized
in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective
date to be recognized upon the adoption of ASC 740 and in subsequent periods.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
On
December 22, 2017, the passage of legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted
and significantly revised the U.S. income tax law. The TCJA includes changes, which reduce the corporate income tax rate from
34% to 21% for fiscal years beginning after December 31, 2017. On December 22, 2017, the SEC Staff Accounting Bulletin No. 118
(“SAB 118”) was issued, which allows a company to recognize provisional tax amounts when it does not have the necessary
information available, prepared or analyzed, including computations, in reasonable detail to complete its accounting for the change
in tax law. SAB 118 provides for a measurement of up to one year from the date of enactment.
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, 2019 and 2018 were $65,409 and $150,970,
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.
During
each of the six months ended December 31, 2019 and 2018, the Company applied for, and received from the Australian Taxation Office,
a research and development tax credit in the amount of $108,751 and $116,970, respectively, which is reflected as a tax benefit
in the accompanying condensed consolidated statements of operations and comprehensive income (loss).
Stock
Based Compensation
The
Company records stock-based compensation in accordance with ASC 718, “Stock Compensation”. ASC 718 requires
the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of
the service period or the vesting period. The Company values employee and non-employee stock-based compensation at fair value
using the Black-Scholes Option Pricing Model.
The
Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement and recognition
criteria of ASC 718 and recognizes the fair value of such awards over the service period. The Company used the modified prospective
method of adoption. There was no cumulative effect of adoption on July 1, 2019.
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. As of December 31, 2019, there were
1,975,059 warrants outstanding, 59,644 stock options and 15 convertible notes payable, which notes are convertible into approximately
10,200,000 shares of the Company’s common stock (based on the closing price on the last trading day of the quarter ended
December 31, 2019). Each holder of the notes has agreed to a 4.99% beneficial ownership conversion limitation (subject to certain
noteholders’ ability to increase such limitation to 9.99% upon 60 days’ notice to the Company), and each note may
not be converted during the first six-month period from the date of issuance. Such securities are considered dilutive securities
which were excluded from the computation since the effect is anti-dilutive.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The
updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the
updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue
guidance in ASC 606. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The
Company adopted this guidance effective July 1, 2019.
On
July 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before
the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain
leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the
inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is
based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of
the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone
price to determine the lease payments.
Operating
lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized
based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide
an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining
the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the
lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.
Recent
Accounting Pronouncements
We
have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the
periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted
accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s
reported financial position or operations in the near term. The applicability of any standard is subject to the formal review
of the Company’s financial management.
NOTE
2 – GOING CONCERN
The
accompanying condensed 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, 2019, the Company had no revenues, had a net loss of
$3,359,049 and had net cash used in operations of $1,142,877. Additionally, as of December 31, 2019, the Company had a working
capital deficit, stockholders’ deficit and accumulated deficit of $5,693,527, $5,671,985 and $54,400,096, respectively.
It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as
a going concern for a period of at least twelve months from the date of this Quarterly Report.
The
condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Successful
completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon
future events, including obtaining adequate financing to fulfill its development activities, acceptance of the Company’s
patent applications, obtaining additional sources of suitable and adequate financing and ultimately achieving a level of sales
adequate to support the Company’s cost structure and business plan. The Company’s ability to continue as a going concern
is also dependent on its ability to further develop and execute on its business plan. However, there can be no assurances that
any or all of these endeavors will be successful.
NOTE
3 – DUE TO FORMER DIRECTOR - RELATED PARTY
Due
to director - related party represents unsecured advances made primarily by a former director for operating expenses on behalf
of the Company such as intellectual property and formation expenses. The expenses were paid for on behalf of the Company and are
due upon demand. The Company is currently not being charged interest under these advances. The total amount owed the former director
at December 31, 2019 and June 30, 2019 is $31,257 and $31,164, respectively. The Company plans to repay the notes as its cash
resources allow.
NOTE
4 – LOANS AND NOTES PAYABLE
Loans
from Directors and Officer - Related Parties
Loans
from the Company’s directors and officer at December 31, 2019 and June 30, 2019 were $52,022 and $51,867, respectively.
The loans bear no interest and are all payable on demand. The Company did not repay any amount on these loans during the six months
ended December 31, 2019.
NOTE
5 – CONVERTIBLE NOTES
The
Company’s convertible notes outstanding at December 31, 2019 were as follows:
Convertible notes and
debenture
|
|
$
|
2,016,365
|
|
Unamortized discounts
|
|
|
(415,712
|
)
|
Accrued interest
|
|
|
182,581
|
|
Premiums
|
|
|
1,151,106
|
|
Convertible
notes, net
|
|
$
|
2,934,340
|
|
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Eagle
Equities Financing Agreements
December
29, 2017 Securities Purchase Agreement
The
Company entered into an executory contract on December 29, 2017, whereby the Company entered into a securities purchase agreement
with Eagle Equities, pursuant to which Eagle Equities purchased a convertible promissory note (the “December 2017 Eagle
Note”) from the Company in the aggregate principal amount of $532,435, with principal and the interest thereon convertible
into shares of the Company’s common stock at the option of Eagle Equities at any time. The transactions closed on January
2, 2018.
The
December 2017 Eagle Note contains an original issue discount of $25,354 such that the purchase price was $507,081. The maturity
date of the December 2017 Eagle Note was December 29, 2018. The Company is currently in discussions with Eagle Equities to extend
the maturity date. The December 2017 Eagle Note bears interest at a rate of 8% per annum, which interest shall be paid by the
Company to Eagle Equities in shares of the Company’s common stock upon receipt of a notice of conversion by the Company
from Eagle Equities at any time. The Company has recorded $9,630 of accrued interest for the December 2017 Eagle Note and total
principal outstanding as of December 31, 2019 under the December 2017 Eagle Note was $13,865 following conversion of $158,100
of principal and $22,478 of accrued interest during the six months to December 31, 2019.
Eagle
Equities has the option to convert all or any amount of the principal face amount of the December 2017 Eagle Note, at any time,
for shares of the Company’s common stock at a price equal to 60% of the lowest closing bid price of the Company’s
common stock as reported on the OTCQB for the ten prior trading days, including the day upon which the Company receives a notice
of conversion from Eagle Equities. The note is treated as stock settled debt under ASC 480 and accordingly the Company recorded
a $354,956 put premium of which of which $240,313 was released to additional paid in capital following conversion of $360,470
of principal during the fiscal year to June 30, 2019, and a further $105,400 was released to additional paid in capital following
conversion of $158,100 of principal during the six months to December 31, 2019.
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
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
July
13, 2018 Securities Purchase Agreement
Effective
July 13, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities
purchased a convertible promissory note (the “July 2018 Note”) from the Company in the aggregate principal amount
of $75,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option
of Eagle Equities any time after the six month anniversary of the July 2018 Eagle Note. The transaction closed on July 16, 2018
and on July 19, 2018 the Company received proceeds of $71,250 as $3,750 was paid directly to legal fees.
The
maturity date of the July 2018 Eagle Note was July 13, 2019. The Company is currently in discussions with Eagle Equities to extend
the maturity date. The July 2018 Eagle Note bears interest at a rate of 8% per annum, which interest shall be paid by the Company
to Eagle Equities in shares of the Company’s common stock upon receipt of a notice of conversion by the Company from Eagle
Equities at any time after the six-month anniversary of the Note.
Additionally,
Eagle Equities has the option to convert all or any amount of the principal face amount of the July 2018 Eagle Note, at any time,
for shares of the Company’s common stock at a price equal to 60% of the lowest closing bid price of the Company’s
common stock for the ten prior trading days, including the day upon which the Company receives a notice of conversion, subject
to adjustment in certain events. Eagle Equities shall be restricted from effecting a conversion if such conversion, along with
other shares of the Company’s common stock beneficially owned by Eagle Equities and its affiliates, exceeds 4.99% of the
outstanding shares of the Company’s common stock. The July 2018 Eagle Note is treated as stock settled debt under ASC 480
and accordingly, the Company recorded a $50,000 put premium. The Company has recorded $14,860 of accrued interest and the total
principal outstanding under the July 2018 Eagle Note was $75,000 as of December 31, 2019. The Company had the right to prepay
the July 2018 Eagle Note with certain penalties until January 9, 2019. No prepayment was made as of such date. As a result, the
July 2018 Eagle Note is now convertible.
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.
August
29, 2018 Securities Purchase Agreement
Effective
August 29, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities
purchased a convertible promissory note (the “August 2018 Eagle Note”) from the Company in the aggregate principal
amount of $105,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the
option of Eagle Equities any time after the six-month anniversary of the August 2018 Eagle Note. The transactions contemplated
by the agreement closed on August 30, 2018.
The
maturity date of the August 29, 2018 Eagle Note was August 2019. The Company is currently in discussions with Eagle Equities to
extend the maturity date. The August 2018 Eagle Note bears interest at a rate of 8% per annum, which interest shall be paid by
the Company to Eagle Equities in shares of the Company’s common stock upon receipt of a notice of conversion by the Company
from Eagle Equities at any time after the six-month anniversary of the August 2018 Eagle Note.
Additionally,
Eagle Equities has the option to convert all or any amount of the principal face amount of the August 2018 Eagle Note, at any
time, into shares of the Company’s common stock at a price equal to 60% of the lowest closing bid price (the “Closing
Bid Price”) of the Company’s common stock as reported on the OTC Markets quotation system for the ten prior trading
days, including the day upon which the Company receives a notice of conversion from Eagle Equities (the “Conversion Price”).
However, in the event that the Company’s common stock is restricted by the DTC for any reason, the Conversion Price shall
be lowered to 50% of the lowest Closing Bid Price for the duration of such restriction. If the Company fails to maintain a reserve
of shares of its common stock at least four times the number of shares issuable upon conversion of the August 2018 Eagle Note
for at least 60 days after the issuance of the August 28, 2018 Eagle Note, the conversion discount shall be increased by 10%.
Notwithstanding the foregoing, Eagle Equities shall be restricted from effecting a conversion if such conversion, along with other
shares of the Company’s common stock beneficially owned by Eagle Equities and its affiliates, exceeds 4.99% of the outstanding
shares of the Company’s common stock. The August 2018 Eagle Note is treated as stock settled debt under ASC 480 and accordingly,
the Company recorded a $70,000 put premium. The Company has recorded $19,746 of accrued interest and the total principal outstanding
under the August 2018 Eagle Note was $105,000 as of December 31, 2019. The Company had the right to prepay the August 2018 Eagle
Note with certain penalties until February 25, 2019. No prepayment was made as of such date. As a result, the August 2018 Eagle
Note is now convertible.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Upon
an event of default, interest on the outstanding principal shall accrue at a default interest rate of 24% per annum or at the
highest rate permitted by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
October
2, 2018 Securities Purchase Agreement
Effective
October 2, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities
purchased a convertible promissory note (the “October 2018 Eagle Note”) from the Company in the aggregate principal
amount of $210,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the
option of Eagle Equities any time after the six-month anniversary of the October 2018 Eagle Note. The transactions contemplated
by the purchase agreement closed on October 3, 2018. Pursuant to the terms of the purchase agreement, Eagle Equities deducted
$10,000 from the principal payment due under the October 2018 Eagle Note, at the time of closing, to be applied to its legal expenses.
The
maturity date of the October 2018 Eagle Note was October 2, 2019. The October 2018 Eagle Note shall bear interest at a rate of
8% per annum, which interest shall be paid by the Company to Eagle Equities in shares of common stock upon receipt of a notice
of conversion by the Company from Eagle Equities at any time after the six-month anniversary of the October 2018 Eagle Note.
Additionally,
Eagle Equities has the option to convert all or any amount of the principal amount of the October 2018 Eagle Note, at any time,
for shares of the Company’s common stock at a price equal to 60% of the lowest closing bid price of the Company’s
common stock for the ten prior trading days, including the day upon which the Company receives a notice of conversion, subject
to adjustment in certain events. Eagle Equities shall be restricted from effecting a conversion if such conversion, along with
other shares of the Company’s common stock beneficially owned by Eagle Equities and its affiliates, exceeds 4.99% of the
outstanding shares of the Company’s common stock. The October 2, 2018 Eagle Note is treated as stock settled debt under
ASC 480 and accordingly, the Company recorded a $140,000 put premium. The Company has recorded $29,227 of accrued interest and
the total principal outstanding under the October 2018 Eagle Note was $210,000 as of December 31, 2019. The Company had the right
to prepay the October 2018 Eagle Note with certain penalties until December 31, 2019. No prepayment has been made as of such date.
As a result, the October 2018 Eagle Note is now convertible.
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.
November
30, 2018 Securities Purchase Agreement
Effective
November 30, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities
purchased a convertible promissory note (the “November 2018 Eagle Note”) from the Company in the aggregate principal
amount of $105,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the
option of Eagle Equities any time after the six-month anniversary of the November 2018 Eagle Note. The transactions contemplated
by the purchase agreement closed on December 3, 2018. Pursuant to the terms of the purchase agreement, Eagle Equities deducted
$5,000 from the principal payment due under the November 2018 Eagle Note, at the time of closing, to be applied to its legal expenses.
The
maturity date of the November 2018 Eagle Note was November 30, 2019. The November 2018 Eagle Note shall bear interest at a rate
of 8% per annum, which interest shall be paid by the Company to Eagle Equities in shares of common stock upon receipt of a notice
of conversion by the Company from Eagle Equities at any time after the six-month anniversary of the November 2018 Eagle Note.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Additionally,
Eagle Equities has the option to convert all or any amount of the principal amount of the November 2018 Eagle Note, at any time,
for shares of the Company’s common stock at a price equal to 61% of the lowest closing bid price (the “Closing Bid
Price”) of the Company’s common stock as reported on the OTC Markets Group, Inc. quotation system for the ten prior
trading days, including the day upon which the Company receives a notice of conversion from Eagle Equities (the “Conversion
Price”). However, in the event that the Company’s common stock is restricted by the Depository Trust Company for any
reason, the Conversion Price shall be lowered to 51% of the lowest Closing Bid Price for the duration of such restriction. If
the Company fails to maintain a reserve of shares of its common stock at least two and a half times the number of shares issuable
upon conversion of the November 2018 Eagle Note for at least 60 days after the issuance of the November 2018 Eagle Note, the conversion
discount shall be increased by 10%. Notwithstanding the foregoing, Eagle Equities shall be restricted from effecting a conversion
if such conversion, along with other shares of the Company’s common stock beneficially owned by Eagle Equities and its affiliates,
exceeds 4.99% of the outstanding shares of the Company’s common stock. The November 2018 Eagle Note is treated as stock
settled debt under ASC 480 and accordingly, the Company recorded a $67,131 put premium. The Company has recorded $10,540 of accrued
interest and the total principal outstanding under the November 2018 Eagle Note was $105,000 as of December 31, 2019. The November
2018 Eagle Note may be prepaid with certain penalties by the Company until May 29, 2019. No prepayment has been made as of December
31, 2019.
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.
December
24, 2018 Securities Purchase Agreement
Effective
December 24, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities
purchased a convertible promissory note (the “December 2018 Eagle Note”) from the Company in the aggregate principal
amount of $126,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the
option of Eagle Equities any time after the six-month anniversary of the December 2018 Eagle Note. The transactions contemplated
by the purchase agreement closed on December 24, 2018. Pursuant to the terms of the purchase agreement, Eagle Equities deducted
$6,000 from the principal payment due under the December 2018 Eagle Note, at the time of closing, to be applied to its legal expenses.
The Company used the net proceeds from the December 2018 Eagle Note to repay an outstanding convertible promissory note before
such note became convertible.
The
maturity date of the December 2018 Eagle Note was December 24, 2019. The December 2018 Eagle Note shall bear interest at a rate
of 8% per annum, which interest shall be paid by the Company to Eagle Equities in shares of common stock upon receipt of a notice
of conversion by the Company from Eagle Equities at any time after the six-month anniversary of the December 2018 Eagle Note.
Additionally,
Eagle Equities has the option to convert all or any amount of the principal amount of the December 2018 Eagle Note, at any time,
for shares of the Company’s common stock at a price equal to 61% of the lowest closing bid price (the “Closing Bid
Price”) of the Company’s common stock as reported on the OTC Markets Group, Inc. quotation system for the ten prior
trading days, including the day upon which the Company receives a notice of conversion from Eagle Equities (the “Conversion
Price”). However, in the event that the Company’s common stock is restricted by the Depository Trust Company for any
reason, the Conversion Price shall be lowered to 51% of the lowest Closing Bid Price for the duration of such restriction. If
the Company fails to maintain a reserve of shares of its common stock at least two and a half times the number of shares issuable
upon conversion of the December 2018 Eagle Note for at least 60 days after the issuance of the December 2018 Eagle Note, the conversion
discount shall be increased by 10%. Notwithstanding the foregoing, Eagle Equities shall be restricted from effecting a conversion
if such conversion, along with other shares of the Company’s common stock beneficially owned by Eagle Equities and its affiliates,
exceeds 4.99% of the outstanding shares of the Company’s common stock. The December 2018 Eagle Note is treated as stock
settled debt under ASC 480 and accordingly, the Company recorded an $80,557 put premium. The Company has recorded $10,688 of accrued
interest and the total principal outstanding under the November 2018 Eagle Note was $126,000 as of December 31, 2019. The December
2018 Eagle Note may be prepaid with certain penalties until June 22, 2019. No prepayment has been made as of December 31, 2019.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
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.
The
total principal amount outstanding under the above Eagle Equities financing agreements, specifically the December 29, 2017, the
July 13, 2018, the August 29, 2018, the October 2, 2018, the November 30, 2018 and the December 24, 2018 agreements was $634,865
as of December 31, 2019 and accrued interest totaled $94,691.
GS
Capital Financing Agreements
October
2, 2018 Securities Purchase Agreement
Effective
October 2, 2018, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased
two 8% unsecured convertible redeemable notes (the “October 2, 2018 GS Notes”) from the Company in the aggregate principal
amount of $212,000, such principal and the interest thereon convertible into shares of the Company’s common stock. The purchase
price of $106,000 of the first note (the “October 2018 GS Note”) was paid in cash by GS Capital on October 3, 2018.
After payment of certain legal fees and expenses, net proceeds to the Company from the October 2018 GS Note totaled $100,700.
The purchase price of $106,000 of the second note (the “October 2, 2018 GS Back End Note”) was initially paid for
by GS Capital issuing to the Company an offsetting $106,000 collateralized secured note (the “October 2, 2018 GS Secured
Note”). The terms of the October 2018 GS Back End Note require cash funding prior to any conversion thereunder, and such
cash funding shall occur on or before June 2, 2019.
Both
the October 2, 2018 GS Note and the October 2, 2018 GS Back End Note, which was funded on February 27, 2019, mature on October
2, 2019, upon which any outstanding principal and interest thereon is due and payable. The amounts cash funded plus accrued interest
under both the October 2018 GS Note and the October 2018 GS Back End Note are convertibles into shares of the Company’s
common stock, at any time after April 2, 2019, at a conversion price for each share of common stock equal to 61% of the lowest
closing bid price of the Company’s common stock for the ten prior trading days including the day upon which a notice of
conversion is received by the Company from GS Capital, subject to adjustment in certain events. GS Capital shall be restricted
from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned
by GS Capital and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock. The October 2018
GS Note and the October 2018 GS Back End Note are treated as stock settled debt under ASC 480 and accordingly, the Company recorded
a total $67,771 put premium for each note of which $44,690 was released in respect of the October 2018 GS Note in the fiscal year
ended June 30, 2019, and a further $22,901 was released in the six months ended December 31, 2019 following full conversion of
the October 2018 GS Note resulting from conversion of the remaining principal balance of $35,820 and $2,434 in accrued interest.
$31,903 of the put premium was released in respect of the October 2018 GS Back-End Note during the six months to December 31,
2019 following conversion $49,900 of the principal balance.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
total principal amount outstanding under the October 2018 GS Note, was $35,820 and accrued interest thereunder totaled $7,813
as of June 30, 2019 and was fully converted as of December 31, 2019 (see Note 6 – Stockholders’ Deficit).
The
maturity date of the October 2, 2018 GS Back-Note was October 2019. The total principal balance under the October 2018 GS Back-End
Note, was $106,000 and accrued interest thereunder totaled $5,715 as of June 30, 2019 and the principal balance was $56,100 and
accrued interest totaled $11,814 as of December 31, 2019 (see Note 6 – Stockholders’ Deficit).
The
October 2, 2018 GS Notes contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
Consulting
Agreement
On
August 10, 2017, the Company entered into a consulting agreement, retroactive to May 16, 2017, with a certain consultant, pursuant
to which the consultant agreed to provide certain consulting and business advisory services in exchange for a $310,000 junior
subordinated convertible note. The maturity date of the August 10, 2017 Convertible Note is August 2019.The note accrues interest
at a rate of 10% per annum and is convertible into common stock at the lesser of $750 or 65% of the three lowest trades in the
ten trading days prior to the conversion. The note was fully earned upon signing the agreement and matures on August 10, 2019.
The Company accrued $155,000 related to this expense at June 30, 2017 and recorded the remaining $155,000 related to this expense
in fiscal year 2018. Upon an event of default, principal and accrued interest will become immediately due and payable under the
note. Additionally, upon an event of default, at the election of the holder, the note would accrue interest at a default
interest rate of 18% per annum or the highest rate of interest permitted by law. The consulting agreement had a three-month term
and expired on August 16, 2017. An aggregate total of $578,212 of this note was bifurcated with the embedded conversion option
recorded as a derivative liability at fair value. During the year ended June 30, 2018, the consultant converted $140,000 of principal
and $10,764 of interest. During the year ended June 30, 2019, the consultant converted an additional $161,000 of principal and
$19,418 of interest, such that the remaining principal outstanding and accrued interest under this note as of December 31, 2019
was $9,000 and $26,653, respectively.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Redstart
Holdings Finance Agreements
May
23, 2019 Securities Purchase Agreement
Effective
May 23, 2019, the Company issued a convertible promissory note (the “May 23 Redstart Holdings Note”) to Redstart Holdings
Corp (“Redstart Holdings”) in the aggregate principal amount of $133,000, with principal and the interest thereon
convertible into shares of the Company’s common stock at the option of Redstart Holdings any time after 180 days of issuance.
At the time of closing on May 31, 2019, Redstart Holdings deducted $3,000 from the principal payment due under the May 2019 Redstart
Holdings Note to be applied to its legal expenses, such that the Company received aggregate net proceeds of $130,000 at closing.
The
maturity date of the May 2019 Redstart Holdings Note is May 23, 2020 and bears interest at a rate of 8% per annum.
Additionally,
Redstart Holdings has the option to convert all or any amount of the principal face amount of the May 2019 Redstart Note, starting
on November 19, 2019 at a conversion price subject to certain Market Price (as defined below) adjustment. If the Market Price
is greater than or equal to $50.00, the conversion price shall be the greater of 65% of the Market Price (“Variable Conversion
Price”) and $32.50. In the event Market Price is less than $50.00, the conversion price shall be the Variable Conversion
Price. As defined in the May 2019 Redstart Holdings Note, the “Market Price” shall be the average of the lowest three
closing bid prices during the ten day trading period prior to and including the day the Company receives a notice of conversion
from Redstart Holdings on the electronic quotation system or applicable principal securities exchange or trading market or, if
no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any
market makers for such security that are listed in the “pink sheets” during the ten prior trading days, including
the day upon which the Company receives a notice of conversion from Redstart Holdings. Notwithstanding the foregoing, Redstart
Holdings shall be restricted from effecting a conversion if such conversion, along with other shares of the Company’s common
stock beneficially owned by Redstart Holdings and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s
common stock. An aggregate total of $166,564 of this note was bifurcated with the embedded conversion option recorded as a derivative
liability at fair value (See Note 10 - Derivative Financial Instruments and Fair Value Measurements).
The
Company had the right to prepay the May 2019 Redstart Holdings Note until November 19, 2019. If the May 2019 Redstart Holdings
Note was prepaid within 90 days of the issuance date, then the prepayment premium shall be 115% of the face amount plus any accrued
interest; if the May 2019 Redstart Holdings Note was prepaid after 91 days from the issuance date, but prior to 121 days from
the issuance date, then the prepayment premium shall be 120% of the face amount plus any accrued interest; and if the May 2019
Redstart Holdings Note was prepaid after 121 days from the issuance date, but prior to 150 days from the issuance date, then the
prepayment premium shall be 125% of the face amount plus any accrued interest; and if the May 2019 Redstart Holdings Note was
prepaid after 151 days from the issuance date, but prior to 180 days from the issuance date, then the prepayment premium shall
be 129% of the face amount plus any accrued interest.
The
May 23, 2019 Redstart Holdings Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 22% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding and accrued interest under the above Redstart Holdings financing agreement, specifically the
May 23, 2019 agreement at June 30, 2019 was $133,000 and $1,137 respectively and as of December 31, 2019 total principal amount
outstanding and accrued interest totaled $86,400 and $6,322 respectively following conversion of $46,600 of the principal balance
during the six months to December 31, 2019. The Company also recorded an amount of $18,266 of debt discount amortization related
to the conversions during the six months to December 31, 2019.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Power
Up Lending Group Financing Agreements
July
3, 2019 Securities Purchase Agreement
Effective
July 3, 2019, the Company entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”),
pursuant to which Power Up purchased a convertible promissory note (the “July 3, 2019 Power Up Note”) from the Company
in the aggregate principal amount of $78,000, such principal and the interest thereon convertible into shares of the Company’s
common stock at the option of Power Up. The transaction closed on July 3, 2019 and the Company received payment on July 8, 2019
in the amount of $78,000, of which $2,500 was paid directly toward legal fees and $500 to Power Up for due diligence fees resulting
in net cash proceeds of $75,000.
The
maturity date of the July 3, 2019 Power Up Note is July 3, 2020. The July 3, 2019, Power Up Note bears interest at a rate of 8%
per annum, which interest may be paid by the Company to Power Up in shares of the Company’s common stock, but shall not
be payable until the July 3, 2019 Power Up Note becomes payable, whether at the maturity date or upon acceleration or by prepayment.
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the July 3, 2019 Power Up Note, starting
on December 30, 2019 and ending on the later of the maturity date or the date the Default Amount, which is an amount equal to
150% of an amount equal to the then outstanding principal amount of the July 3, 2019 Power Up Note plus any interest accrued,
is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable conversion price.
The
conversion price for the July 3, 2019 Power Up Note shall be $3.25, subject to certain Market Price (as defined below) adjustment.
If the Market Price is greater than or equal to $5.00, the conversion price shall be the greater of 65% of the Market Price (“Variable
Conversion Price”) and $3.25. In the event Market Price is less than $5.00, the conversion price shall be the Variable Conversion
Price. As defined in the July 3, 2019 Power Up Note, the “Market Price” shall be the average of the lowest three closing
bid prices during the ten day trading period prior to and including the day the Company receives a notice of conversion from Power
Up on the electronic quotation system or applicable principal securities exchange or trading market or, if no closing bid price
of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for
such security that are listed in the “pink sheets” during the ten prior trading days, including the day upon which
the Company receives a notice of conversion from Power Up. Notwithstanding the foregoing, Power Up shall be restricted from effecting
a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned by Power Up and
its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock. An aggregate total of $155,904 of
this note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value (See Note 10 - Derivative
Financial Instruments and Fair Value Measurements).
The
July 3, 2019 Power Up Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 22% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding under the above Power Up financing agreement, specifically the July 3, 2019 Power Up Note,
was $78,000 as of December 31, 2019 and accrued interest of $3,086.
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
(unaudited)
November
26, 2019 Securities Purchase Agreement
Effective
November 26, 2019, the Company entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”),
pursuant to which Power Up purchased a convertible promissory note (the “November 26, 2019 Power Up Note”) from the
Company in the aggregate principal amount of $43,000, such principal and the interest thereon convertible into shares of the Company’s
common stock at the option of Power Up. The transaction closed on November 22, 2019 and the Company received payment on December
3, 2019 in the amount of $40,000, net of $2,500 paid directly toward legal fees and $500 to Power Up for due diligence fees.
The
maturity date of the November 26, 2019 Power Up Note is November 26, 2020. The November 26, 2019, Power Up Note bears interest
at a rate of 8% per annum, which interest may be paid by the Company to Power Up in shares of the Company’s common stock,
but shall not be payable until the November 26, 2019 Power Up Note becomes payable, whether at the maturity date or upon acceleration
or by prepayment.
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the November 26, 2019 Power Up Note, starting
on May 24, 2020 and ending on the later of the maturity date or the date the Default Amount, which is an amount equal to 150%
of an amount equal to the then outstanding principal amount of the November 26, 2019 Power Up Note plus any interest accrued,
is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable conversion price.
The
conversion price for the November 26, 2019 Power Up Note shall be $3.05, subject to certain Market Price (as defined below) adjustment.
If the Market Price is greater than or equal to $5.00, the conversion price shall be the greater of 65% of the Market Price (“Variable
Conversion Price”) and $3.05. In the event Market Price is less than $5.00, the conversion price shall be the Variable Conversion
Price. As defined in the November 26, 2019 Power Up Note, the “Market Price” shall be the average of the lowest three
closing bid prices during the ten day trading period prior to and including the day the Company receives a notice of conversion
from Power Up on the electronic quotation system or applicable principal securities exchange or trading market or, if no closing
bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers
for such security that are listed in the “pink sheets” during the ten prior trading days, including the day upon which
the Company receives a notice of conversion from Power Up. Notwithstanding the foregoing, Power Up shall be restricted from effecting
a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned by Power Up and
its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock. An aggregate total of $52,222 of
this note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value (See Note 10 - Derivative
Financial Instruments and Fair Value Measurements).
The
November 26, 2019 Power Up Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 22% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding under the above Power Up financing agreement, specifically the November 26, 2019 Power Up Note,
was $43,000 as of December 31, 2019 and accrued interest of $329.
Odyssey
Capital Financing Agreements
July
30, 2019 Securities Purchase Agreement
Effective
July 30, 2019, the Company entered into a securities purchase agreement with Odyssey Capital Funding LLC,. (“Odyssey”),
pursuant to which Odyssey purchased a convertible promissory note (the “July 30, 2019 Odyssey Note”) from the Company
in the aggregate principal amount of $320,000, such principal and the interest thereon convertible into shares of the Company’s
common stock at the option of Odyssey. The July 30, 2019 Odyssey Note contains an original discount of $25,000. The transaction
closed on July 30, 2019 and the Company received payment on August 1, 2019 in the amount of $295,000, of which $10,000 was paid
directly toward legal fees, resulting in net cash proceeds of $285,000.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
maturity date of the July 30, 2019 Odyssey Note is July 30, 2020. The July 2019 Odyssey Note bears interest at a rate of 10% per
annum, which interest may be paid by the Company to Odyssey in shares of the Company’s common stock, but shall not be payable
until the July 30, 2019 Odyssey Note becomes payable, whether at the maturity date or upon acceleration or by prepayment. The
note is treated as stock settled debt under ASC 480 and accordingly the Company recorded a $172,308 put premium.
Additionally,
Odyssey has the option to convert all or any amount of the principal face amount of the July 30, 2019 Odyssey Note, starting on
January 31, 2020 and ending on the later of the maturity date and the date the Default Amount, which is an amount equal to 120%
of an amount equal to the then outstanding principal amount of the July 30, 2019 Odyssey Note plus any interest accrued from July
30, 2019 at the default interest rate of 24% per annum, is paid if an event of default occurs, for shares of the Company’s
common stock at the then-applicable conversion price.
The
conversion price for the July 30, 2019 Odyssey Note shall be equal to 65% of the lowest closing bid price of the Common Stock
as reported on the OTC Markets on which the Company’s shares are then traded or any exchange upon which the Common Stock
may be traded in the future, for the ten prior trading days including the day upon which a Notice of Conversion is received by
the Company.
Common
Stock beneficially owned by the Holder and its affiliates would exceed 4.99% of the outstanding shares of the Common Stock of
the Company (which may be increased up to 9.9% upon 60 days’ prior written notice by the Holder to the Company).
The
July 30, 2019 Odyssey Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding under the above Odyssey financing agreement, specifically the July 30, 2019 Odyssey Note, was
$320,000 as of December 31, 2019 and accrued interest of $13,464.
Auctus
Fund Financing Agreements
August
30, 2019 Securities Purchase Agreement
Effective
August 30, 2019, the Company entered into a securities purchase agreement with Auctus Fund, LLC (“Auctus”), pursuant
to which Auctus purchased a convertible promissory note (the “August 30, 2019 Auctus Note”) from the Company in the
aggregate principal amount of $550,000, such principal and the interest thereon convertible into shares of the Company’s
common stock at the option of Auctus. The transaction closed on August 30, 2019 and the Company received payment on September
4, 2019 in the amount of $550,000, of which $5,000 was paid directly toward legal fees and $40,000 to Auctus for due diligence
fees resulting in net cash proceeds of $505,000.
The
maturity date of the August 30, 2019 Auctus Note is August 30, 2020. The August 30, 2019 Auctus Note bears interest at a rate
of 10% per annum, but shall not be payable until the August 30, 2019 Auctus Note becomes payable, whether at the maturity date
or upon acceleration or by prepayment. The note is treated as stock settled debt under ASC 480 and accordingly the Company recorded
a $366,667 put premium. The August 30, 2019 Auctus Note may not be prepaid without the written consent of Auctus. Any amount of
principal or interest which is not paid when due shall bear interest at the rate of 24% per annum.
Additionally,
Auctus has the option to convert all or any amount of the principal face amount and accrued interest of the August 30, 2019 Auctus
Note, at any time following the issue date and ending on the later of the maturity date and the date of payment of the Default
Amount, which is an amount equal to 125% of an amount equal to the then outstanding principal amount of the August 30, 2019 Auctus
Note (but not less than $15,000) plus any interest accrued from August 30, 2019 at the default interest rate of 24% per annum,
is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable conversion price.
Upon the holder’s election to convert accrued interest, default interest or any penalty amounts as stipulated, the Company
may elect to pay those amounts in cash. The note may also be prepaid by the Company at any time between the date of issuance and
August 13, 2020 at 135% multiplied by the sum of (a) the then outstanding principal amount plus (b) accrued and unpaid interest
plus (c) default interests, if any.
The
conversion price for the August 30, 2019 Auctus Note shall be the Variable Conversion Price, being 60% of the Market Price. Notwithstanding
the foregoing, Auctus shall be restricted from effecting a conversion if such conversion, along with other shares of the Company’s
common stock beneficially owned by Auctus and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common
stock.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
In
connection with the issuance of the August 2019 Auctus Note, the Company issued common stock purchase warrants to Auctus to purchase
450,000 shares of the Company’s common stock (the “First Warrant”) as a commitment fee upon the terms and subject
to the limitations and conditions set forth in such First Warrant at an “Exercise Price” of $2.25. In connection with
the issuance of the Note, the Company shall issue a common stock purchase warrant to Buyer to purchase 300,000 shares of the Company’s
common stock (the “Second Warrant”) as a commitment fee upon the terms and subject to the limitations and conditions
set forth in such Second Warrant at an “Exercise Price” of $3.33. In connection with the issuance of the Note, the
Company shall issue a common stock purchase warrant to Buyer to purchase 225,000 shares of the Company’s common stock (the
“Third Warrant”) as a commitment fee upon the terms and subject to the limitations and conditions set forth in such
Third Warrant at an “Exercise Price” of $4.50. The First Warrant, Second Warrant, and Third Warrant shall collectively
be referred as the “Warrants”. The Warrants have an “Exercise Period” of five years from the date of issuance
being August 30, 2019. Under the terms of the Purchase Agreement and the Warrants, the Selling Security Holder may not either
convert the Notes nor exercise the Warrants to the extent (but only to the extent) that the Selling Security Holder or any of
its affiliates would beneficially own a number of shares of our Common Stock which would exceed 4.99% of our outstanding shares.
The Company accounted for the warrants by using the relative fair value method and recorded debt discount from the relative fair
value of the warrants of $375,904 using a simple binomial lattice model (see Note 6).
In
connection with the Purchase Agreement, the Company and the Purchaser entered into a Registration Rights Agreement (the “Registration
Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to register the shares of Common Stock
underlying the Securities in a Registration Statement with the SEC as well as the Commitment Shares (as defined herein). The Registration
Rights Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the
parties.
The
Note is subject to customary default provisions and also includes a cross-default provision which provides that a breach or default
by the Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined therein), after
the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under
this Note and the Other Agreements. Upon occurrence of any such event, the Holder shall be entitled (but in no event required)
to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under
said Other Agreements or the Note.
The
August 30, 2019 Auctus Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding under the above Auctus financing agreement, specifically the August 30, 2019 Auctus Note, was
$550,000 as of December 31, 2019 and accrued interest of $18,484.
October
1, 2019 GW Holdings Securities Purchase Agreements
Effective
October 1, 2019, the Company entered into a securities purchase agreement with GW Holdings, pursuant to which GW Holdings purchased
a convertible promissory note (the “October 1, 2019 GW Note”) from the Company in the aggregate principal amount of
$131,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option of
GW Holdings any time after the six month anniversary of the October 1, 2019 GW Holdings Note. The transactions contemplated by
the GW Holdings Securities Purchase Agreement closed on October 1, 2019. Pursuant to the terms of the GW Holdings Securities Purchase
Agreement, Eagle Equities deducted $6,000 from the principal payment due under the October 1, 2019 GW Note, at the time of closing,
to be applied to its legal expenses. The Company intends to use the net proceeds of $125,000 from the October 1, 2019 GW Note
for general working capital purposes.
The
maturity date of the October 1, 2019 GW Holdings is October 1, 2020. The October 1, 2019 GW Holdings Note bears interest at a
rate of 8% per annum, which interest may be paid by the Company to GW Holdings in shares of the Company’s common stock;
but shall not be payable until the October 1, 2019 GW Holdings Note becomes payable, whether at the maturity date or upon acceleration
or by prepayment.
Additionally,
GW Holdings has the option to convert all or any amount of the principal face amount of the October 1, 2019 GW Holdings Note at
any time from the date of issuance and ending on the later of the maturity date and the date the Default Amount, which is an amount
between 110% and 150% of an amount equal to the then outstanding principal amount of the October 1, 2019 GW Holdings Note plus
any interest accrued, is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable
conversion price.
The
conversion price for the October 1, 2019 GW Holdings Note shall be equal to a 40% discount of the lowest closing bid price (“Lowest
Trading Price”) of the Common Stock for the ten trading days immediately prior to the delivery of a Notice of Conversion,
including the day upon which a Notice of Conversion is received. Notwithstanding the foregoing, GW Holdings shall be restricted
from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned
by GW Holdings and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock which may be increased
up to 9.99% upon 60 days prior written notice by the GW Holdings to the Company. The note is treated as stock settled debt under
ASC 480 and accordingly the Company recorded a $87,333 put premium.
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
(unaudited)
The
October 1, 2019 GW Holdings Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding under the above GW Holdings financing agreement, specifically the October 1, 2019 GW Holdings
Note, was $131,000 as of December 31, 2019 and accrued interest of $2,606.
October
3, 2019 Crown Bridge Securities Purchase Agreements
Effective
October 3, 2019, the Company entered into a securities purchase agreement with Crown Bridge Partners, pursuant to which Crown
Bridge purchased a convertible promissory note (the “October 3, 2019 Crown Bridge Note”) from the Company in the aggregate
principal amount of $108,000, such principal and the interest thereon convertible into shares of the Company’s common stock
at the option of Crown Bridge any time from the of issuance of the of the October 3, 2019 Crown Bridge Note. The transactions
contemplated by the Crown Bridge Securities Purchase Agreement closed on October 3, 2019. Pursuant to the terms of the Crown Bridge
Securities Purchase Agreement, Crown Bridge deducted $3,000 from the principal payment due under the October 3, 2019 Crown Bridge
Note, at the time of closing, to be applied to its legal expenses, and there was a $5,000 original issuance discount resulting
in $100,000 net proceeds to the Company. The Company intends to use the net proceeds from the October 3, 2019 Crown Bridge Note
for general working capital purposes.
The
maturity date of the October 3, 2019 Crown Bridge is October 3, 2020. The October 3, 2019 Crown Bridge Note bears interest at
a rate of 10% per annum, which interest may be paid by the Company to Crown Bridge in shares of the Company’s common stock;
but shall not be payable until the October 2019 Crown Bridge Note becomes payable, whether at the maturity date or upon acceleration
or by prepayment.
Additionally,
Crown Bridge has the option to convert all or any amount of the principal face amount of the October 3, 2019 Crown Bridge Note
at any time from the date of issuance and ending on the later of the maturity date and the date the Default Amount, which is an
amount between 110% and 150% of an amount equal to the then outstanding principal amount of the October 3, 2019 Crown Bridge Note
plus any interest accrued, is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable
conversion price.
The
conversion price for the October 3, 2019 Crown Bridge Note shall be equal to a 40% discount of the lowest closing bid price (“Lowest
Trading Price”) of the Common Stock for the ten trading days immediately prior to the delivery of a Notice of Conversion,
including the day upon which a Notice of Conversion is received. Notwithstanding the foregoing, Crown Bridge shall be restricted
from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned
by Crown Bridge and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock which may be increased
up to 9.99% upon 60 days prior written notice by the Crown Bridge to the Company. The note is treated as stock settled debt under
ASC 480 and accordingly the Company recorded a $72,000 put premium.
The
October 3, 2019 Crown Bridge Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 15% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
The
total principal amount outstanding under the above Crown Bridge financing agreement, specifically the October 3, 2019 Crown Bridge
Note, was $108,000 as of December 31, 2019 and accrued interest of $2,626. The
Company recorded approximately $591,000 of debt discounts and $698,000 of put premiums related to the above note issuances during
the six months ended December 31, 2019. The debt discounts are being amortized over the term of the debt and the put premiums
are expensed on issuance of the debt with the liability released to additional paid in capital on conversion of the principal.
The
Company recorded approximately $534,000 of debt discounts and $539,000 of put premiums related to the above note issuances during
the six months ended December 31, 2019. The debt discounts are being amortized over the term of the debt and the put premiums
are expensed on issuance of the debt with the liability released to additional paid in capital on conversion of the principal.
Amortization
of all debt discounts for the six months ended December 31, 2019 and 2018 was $307,085 and $303,813, respectively.
See
Note 11 – Subsequent Events for information about financing arrangements post December 31, 2019.
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2019
(unaudited)
NOTE
6 – STOCKHOLDERS’ DEFICIT
On
June 24, 2019, the Company effected a one-for-five hundred (1:500) reverse stock split whereby the Company (i) decreased the number
of authorized shares of common stock, $0.001 par value per share, to 100,000,000 and (ii) decreased by a ratio of one-for-five
hundred (1:500) the number of retroactively issued and outstanding shares of common stock. Proportional adjustments for the reverse
stock split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share
data and amounts have been retroactively adjusted as of the earliest period, presented in the consolidated financial statements
to reflect the reverse stock split.
Preferred
Stock:
The
total number of shares of preferred stock that the Company is authorized to issue is 1,500,005, $0.01 par value per share. These
preferred shares have no rights to dividends, profit sharing or liquidation preferences.
Of
the total preferred shares authorized, 500,000 have been designated as Series A Preferred Stock (“Series A Preferred Stock”),
pursuant to the Certificate of Designation filed with the Secretary of State of the State of Delaware on December 9, 2014. James
Nathanielsz, the Company’s Chief Executive Officer beneficially owns all of the shares of Series A Preferred Stock via North
Horizon Pty Ltd., which entitles him, as a holder of Series A Preferred Stock, to vote on all matters submitted or required to
be submitted to a vote of the Company’s stockholders, except election and removal of directors, and each share of Series
A Preferred Stock entitles him to two votes per share of Series A Preferred Stock. North Horizon Pty Ltd. is a Nathanielsz Family
Trust. Mr. James Nathanielsz, the Chief Executive Officer and a director of our Company, has voting and investment power over
these shares. 500,000 shares of Series A Preferred Stock are issued and outstanding as of December 31, 2019.
Of
the total preferred shares authorized, pursuant to the Certificate of Designation filed with the Secretary of State of the State
of Delaware on June 16, 2015, up to five shares have been designated as Series B Preferred Stock (“Series B Preferred Stock”).
Each holder of outstanding shares of Series B Preferred Stock is entitled to voting power equivalent to the number of votes equal
to the total number of shares of common stock outstanding as of the record date for the determination of stockholders entitled
to vote at each meeting of stockholders of the Company and entitled to vote on all matters submitted or required to be submitted
to a vote of the stockholders of the Company. One share of Series B Preferred Stock is issued and outstanding as of December 31,
2019. Mr. Nathanielsz directly beneficially owns such one share of Series B Preferred Stock.
Common
Stock:
Shares
issued for conversion of convertible debt
During the six months ended December 31,
2019, the Company issued 1,246,859 shares of its common stock at an average contractual conversion price of $0.3575, ranging
from $0.067 to $0.906, as a result of the conversion of principal and interest in the aggregate amount of $318,768 underlying
certain outstanding convertible notes converted during such period. The total recorded to equity was $343,179. Notes
totaling $46,600 contained bifurcated embedded conversion option derivatives. Accordingly, the fair market value of the
shares issued was $71,011 resulting in a loss on extinguishment at the time of conversion of $24,411, $44,587 of derivative
fair value was recorded as a gain on extinguishment at the time of conversion. The Company reclassified $160,205 in put
premiums to additional paid in capital following conversions during the six months ended December 31, 2019.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
Company has 77,292,139 shares of its common stock reserved for future issuances based on lender reserve requirements pursuant
to underlying financing agreements at December 31, 2019.
Shares
issued for services
On
July 19, 2019, the Company entered into an agreement with a certain consultant to provide services over a two-month period beginning
July 1, 2019 and ending September 1, 2019 in exchange for 20,000 shares of the Company’s common stock. On July 19, 2019,
the Company issued the 20,000 shares of the Company’s common stock valued at $1.99 per share; being the closing price of
the stock on the date of the agreement, to such consultant, or $39,800, which will be amortized over the term of the agreement.
The Company recorded $39,800 of consulting expense with respect to such shares of its common stock during the six months ended
December 31, 2019.
Restricted
Stock Units
Pursuant
to employment agreements dated in May 2019 (see Note 8), the Company granted an aggregate of 78,000 and 39,000 restricted stock
unit to the Company’s Chief Executive Officer and Chief Scientific Officer, respectively. The total 117,000 restricted stock
units are subject to vesting terms as defined in the employment agreements. The 117,000 restricted stock units were valued at
the fair value of $4.25 per unit or $497,240 based on the quoted trading price on the date of grant. During the six months ended
December 31, 2019, the Company recognized stock-based compensation of $108,771 related to vested restricted stock units. There
were $357,392 unrecognized restricted stock units expense as of December 31, 2019.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Warrants:
In
connection with the issuance of the August 2019 Auctus Note, the Company issued common stock purchase warrants to Auctus to purchase
450,000 shares of the Company’s common stock (the “First Warrant”) as a commitment fee upon the terms and subject
to the limitations and conditions set forth in such First Warrant at an “Exercise Price” of $2.25. In connection with
the issuance of the Note, the Company shall issue a common stock purchase warrant to Buyer to purchase 300,000 shares of the Company’s
common stock (the “Second Warrant”) as a commitment fee upon the terms and subject to the limitations and conditions
set forth in such Second Warrant at an “Exercise Price” of $3.33. In connection with the issuance of the Note, the
Company shall issue a common stock purchase warrant to Buyer to purchase 225,000 shares of the Company’s common stock (the
“Third Warrant”) as a commitment fee upon the terms and subject to the limitations and conditions set forth in such
Third Warrant at an “Exercise Price” of $4.50. The First Warrant, Second Warrant, and Third Warrant shall collectively
be referred as the “Warrants”. The Warrants have an “Exercise Period” of five years form the date of issuance
being August 30, 2019 (see Note 5).
On
September 10, 2019, the Company entered into an agreement with a certain consultant to provide services over a three-month period
beginning September 10, 2019 and ending December 10, 2019 in exchange for 1,000,000 warrants to purchase the Company’s common
stock at $2.00 per share with an expiry date of September 10, 2022. The Fair Market Value of the warrants was $984,810 on the
date of grant as calculated under the Black Scholes Option Pricing model. The Company recorded $984,810 of share based compensation
expenses with respect to the grant of such warrants during the six months ended December 31, 2019.
As
of December 31, 2019, there were 1,975,059 warrants outstanding and exercisable with expiration dates commencing May 2020 and
continuing through August 2024, with a weighted average exercise price per share of $2.69.
Options:
As
of December 31, 2019, the Company had entered into agreements to grant options to purchase 59,644 shares of its common stock,
with a weighted average exercise price per share of $76.37.
Pursuant
to employment agreements dated in May 2019 (see Note 8), the Company granted options to purchase 39,000 and 19,500 shares of the
Company’s common stock to the Company’s Chief Executive Officer and Chief Scientific Officer, respectively. The total
58,500 options have a term of 10 years from the date of grant and exercise price ranging from $4.25 to $4.675 per share. 1/3rd
of these options shall vest every successive one-year anniversary, provided, that on each such vesting date, the Chief Executive
Officer and Chief Scientific Officer are employed by the Company and subject to the other provisions of the employment agreement.
The 58,500 stock options were valued using a Black-Scholes model with the following assumptions: stock price at valuation date
of $4.25 based on quoted trading price on date of grant, exercise price of $4.65, dividend yield of zero, years to maturity of
10.00, a risk free rate of 2.42%, and expected volatility 268% for a total value of $248,620.
During
the six months ended December 31, 2019, the Company recognized stock-based compensation of $41,437 related to vested stock options.
There was $196,824 of unvested stock options expense as of December 31, 2019 that will be recognized in future periods.
No
stock options were issued during the six months ended December 31, 2019.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
A
complaint against us, dated September 26, 2019, has been filed by Foley Shechter Ablovatskiy (“Foley Shechter”), our
former counsel, seeking $151,031.50 in legal fees, in addition to interest and costs of suit. The Company believes these claims
to be unfounded and is vigorously defending itself. To that end, the Company filed a motion to dismiss certain counts of the complaint,
with prejudice. That motion remains pending with the Supreme Court of the State of New York, County of New York. Upon resolution
of the motion, the Company shall file an answer, together with affirmative defenses and counterclaims. The counterclaims shall
include, without limitation, malpractice claims, arising out of Foley Shechter’s grossly negligent mishandling of certain
transactions and excessive billing related thereto. Certain amounts related to this claim are included in accounts payable and
accrued expenses in the accompanying Financial Statements.
Regal
Consulting, LLC (“Regal”) initiated litigation against the Company in Clark County District Court, Nevada. The
Court entered a default judgment against the Company on December 17, 2019. However, Regal, through counsel, has agreed
to execute a stipulation to vacate the default and proceed with litigation. Regal is demanding approximately $400,000 and
60,000 shares of the Company’s common stock as payment for services that Regal purports to have performed. The Company
intends to vigorously defend itself against Regal’s unsubstantiated claims and no loss contingency can be estimated at
this time.
In
addition to the above, from time to time, we may be involved in litigation in the ordinary course of business. Other than as set
forth above, we are not currently involved in any litigation that we believe could have a material adverse effect on our financial
condition or results of operations. Other than as set forth above, to our knowledge, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of our executive officers or any of our subsidiaries, threatened against or affecting our Company, our common stock,
any of our subsidiaries or any of our subsidiaries’ officers or directors in their capacities as such, in which an adverse
decision could have a material adverse effect.
IRS
Liability
As
part of its requirement for having a foreign operating subsidiary, the Company’s parent U.S. entity is required to file
an informational Form 5471 to the Internal Revenue Service (the “IRS”), which is a form that explains the nature of
the relationship between the foreign subsidiary and the parent company. From 2012 through the 2014, the Company did not file this
form in a timely manner. As a result of the non-timely filings, the Company incurred a penalty from the IRS in the amount of $10,000
per year, or $30,000 in total, plus accrued interest, such penalty and interest having been accrued and is included in the Accrued
expenses and other payable figure in the Balance Sheet. The Company recorded the penalties for all three years during the year
ended June 30, 2018 and is negotiating a payment plan. The Company is current on all subsequent filings.
Operating
Agreements
In
November 2009, the Company entered into a commercialization agreement with the University of Bath (UK) (the “University”)
whereby the Company and the University co-owned the intellectual property relating to the Company’s pro-enzyme formulations.
In June 2012, the Company and the University entered into an assignment and amendment whereby the Company assumed full ownership
of the intellectual property while agreeing to pay royalties of 2% of net revenues to the University. 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 5, 2016, the Company entered into a new five-year operating lease agreement with a Horizon Pty Ltd., a related party, of which
Mr. Nathanielsz, our CEO, CFO and a director, and his wife are owners and directors, with monthly rent of $3,606 AUD or $2,469
USD, inclusive of GST (See Note 8 – Related Party Transactions).
ROU
is summarized below:
|
|
December
31, 2019
|
|
Office lease ROU
|
|
$
|
48,662
|
|
Less accumulated
reduction
|
|
|
(13,271
|
)
|
Balance of ROU asset as of December
31, 2019
|
|
$
|
35,391
|
|
Operating
lease liability related to the ROU asset is summarized below:
|
|
December
31, 2019
|
|
Office
lease liability
|
|
$
|
48,662
|
|
Reduction
of lease liability
|
|
|
(11,352
|
)
|
Total
|
|
|
37,310
|
|
Less:
current portion
|
|
|
(14,216
|
)
|
Long
term portion of lease liability as of December 31, 2019
|
|
$
|
23,094
|
|
Future
Minimum lease payments under non-cancelable operating lease at December 31, 2019 are as follows:
Remainder
Fiscal Year 2020
|
|
$
|
15,120
|
|
Year
2021
|
|
|
23,119
|
|
Total
|
|
|
38,239
|
|
Imputed
interest
|
|
|
(929
|
)
|
Total
operating lease liability
|
|
$
|
37,310
|
|
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Amatsigroup
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 Amatsigroup NV (“Amatsigroup”), formerly known as Q-Biologicals,
NV, a contract manufacturing organization located in Belgium. Pursuant to the MSA, Amatsigroup produces certain drug substances
and products containing certain enzymes for the Company at its facility in Belgium. The Company uses these substances and products
for development purposes, including but not limited to future clinical trials. The MSA contemplates payment to Amatsigroup pursuant
to a pre-determined fee schedule based on the completion of certain milestones that depend on our manufacturing requirements and
final batch yield. The Company anticipates that its payments to Amatsigroup under the MSA will range between $2.5 million and
$5.0 million over three years, when the finished drug product is manufactured and released for clinical trials. The Company has
spent a total of $1,689,146 of costs to date under this contract of which $1,689,146 was expensed in prior years. The MSA shall
continue for a term of three years unless extended by mutual agreement in writing. The Company 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.
Each party to the MSA shall have the right to terminate the MSA by written notice to the other party if the other party commits
a material breach of the MSA (subject to a 30-day cure period). 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 Amatsigroup contain certain customary
representations, warranties and limitations of liabilities, and confidentiality and indemnity obligations.
Collaboration
Agreement
On
September 13, 2018, the Company entered into a two-year collaboration agreement with the University of Jaen (the “University”)
to provide certain research services to the Company. In consideration of such services, the Company agreed to pay the University
approximately 52,000 Euros ($59,508 USD) in year one and a maximum of 40,000 Euros ($45,775 USD) in year two. Additionally, in
exchange for full ownership of the intellectual property the Company agreed to pay royalties of 2% of net revenues to the University.
NOTE
8 – RELATED PARTY TRANSACTIONS
Since
its inception, the Company has conducted transactions with its directors and entities related to such directors. These transactions
have included the following:
As
of December 31, 2019 and June 30, 2019, the Company owed a current and a former director a total of $52,022 and $51,867, respectively,
for money loaned to the Company throughout the years. The total loans balance owed at December 31, 2019 and June 30, 2019 is not
interest bearing (See Note 4 – Loans and Notes Payable).
As
of December 31, 2019 and June 30, 2019, the Company owed its former director a total of $31,257 and $31,164, respectively, related
to expenses paid on behalf of the Company related to corporate startup costs and intellectual property (See Note 3 – Due
to Former Director – Related Party).
Effective
May 5, 2016, the Company entered into an agreement for the lease of its principal executive offices with North Horizon Pty Ltd.,
a related party, of which Mr. Nathanielsz, our CEO, CFO and a director, and his wife are owners and directors. The lease has a
five-year term and provides for annual rental payments of $42,048 AUD or $28,790 USD, which includes $3,823 AUD or $2,618 USD
of goods and service tax for total payments of $210,242 AUD or $143,953 USD during the term of the lease. As of December 31, 2019,
total payments of $59,943AUD or $41,044 USD remain on the lease. (See Note 7 – Commitments and Contingencies)
The
Company and Mr. Nathanielsz entered into an employment agreement as of February 25, 2015 (the “Nathanielsz Employment Agreement”)
setting forth the terms and conditions of Mr. Nathanielsz employment as the Company’s President and Chief Executive Officer.
The Nathanielsz Employment Agreement was scheduled to expire on February 25, 2019; however, the term of the Nathanielsz Employment
Agreement automatically renews for successive one-year periods unless either party provides 30 days’ prior written notice
of its intent not to renew. The Nathanielsz Employment Agreement continues in effect as of December 31, 2019. The Nathanielsz
Employment Agreement provides Mr. Nathanielsz with a base salary of $25,000 AUD per month ($300,000 AUD annually or $205,680 USD)
and a monthly contribution to Mr. Nathanielsz’s pension equal to 9.5% of his monthly salary. Mr. Nathanielsz has the ability
to convert any accrued but unpaid salary into common stock at the end of each fiscal year at a conversion price to be determined
by Mr. Nathanielsz and the Company, which will in no event be lower than par value or higher than the closing bid price on the
date of conversion. Pursuant to the Nathanielsz Employment Agreement, Mr. Nathanielsz is entitled to an annual discretionary bonus
in an amount up to 200% of his annual base salary, which bonus shall be determined by the Company’s board of directors based
upon the performance of the Company. On March 16, 2018, the Company’s board of directors approved an increase of Mr. Nathanielsz’s
annual base salary from $300,000 AUD ($205,680 USD) to $400,000 AUD ($274,240 USD), effective February 2018.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
Mr.
Nathanielsz’s wife, Sylvia Nathanielsz, is and has been a non-executive part-time employee of the Company since October
2015. Effective February 1, 2018. Mrs. Nathanielsz receives an annual salary of $82,272 and is entitled to customary benefits.
Pursuant
to a February 25, 2016 board resolution, James Nathanielsz shall be paid $4,481 AUD ($3,205 USD), on a monthly basis for the purpose
of acquiring and maintaining an automobile. For the six months ended December 31, 2019, a total of $21,378 AUD ($14,638 USD) in
payments have been made with respect to Mr. Nathanielsz’s car allowance.
Pursuant
to the approval of the Company’s board of directors, on March 16, 2018, Mr. Nathanielsz was granted a $300,000 AUD ($210,090
USD) bonus for accomplishments achieved while serving as the Company’s Chief Executive Officer during the fiscal year ended
June 30, 2018. A total of $80,046 AUD ($56,056 USD) in payments were made in the year ended June 30, 2018. During the nine months
ended March 31, 2019, an additional $219,954 AUD ($154,100 USD) was paid. Such bonus was fully paid to Mr. Nathanielsz as of June
30, 2019.
Pursuant
to the approval of the Company’s board of directors, on May 14, 2019, Mr. Nathanielsz was granted a $460,000 AUD ($315,376
USD) bonus for accomplishments achieved while serving as the Company’s Chief Executive Officer during the fiscal year ended
June 30, 2019 with $200,000 AUD ($137,120 USD) of such bonus payable by the Corporation to the CEO throughout the Corporation’s
2019 fiscal year as the Corporation’s cash resources allow, with the remaining $260,000 AUD ($178,256 USD) of such bonus
to be deferred by the CEO until a future date when the Corporation’s cash resources allow for such payment, as agreed to
by the CEO. A total of $90,000 AUD ($64,377 USD) in payments were made in the year ended June 30, 2019. A total of $137,620 AUD
($94,228 USD) in payments were made in the six months ended December 31, 2019, with $232,380 AUD ($163,363 USD) remaining due
and payable.
New
Employment and Services Agreements with Management
Amended
and Restated Employment Agreement ― On May 14, 2019 (the “Effective Date”), the Company entered into an Amended
and Restated Employment Agreement (the “Employment Agreement”) with James Nathanielsz, the Company’s Chief Executive
Officer, Chairman, acting Chief Financial Officer and a director, for a term of three years, subject to automatic one-year renewals,
at an annual salary of $400,000 AUD. Pursuant to the Employment Agreement, Mr. Nathanielsz was granted options to purchase 39,000
shares of the Company’s common stock (the “Nathanielsz Options”), with an exercise price per share of $4.675
(110% of the closing market price of the Company’s common stock on May 14, 2019 (or $4.25), the date of approval of such
grant by the Company’s board of directors), (ii) 39,000 restricted stock units of the Company (the “Initial Nathanielsz
RSUs”), and (iii) an additional 39,000 restricted stock units of the Company (the “Additional Nathanielsz RSUs”).
Such options and restricted stock units were granted pursuant to the 2019 Plan (as defined below) approved by the Company’s
board of directors on the Effective Date. The Nathanielsz Options have a term of 10 years from the date of grant. 1/3rd of the
Nathanielsz Options shall vest every successive one-year anniversary following the Effective Date, provided, that on each such
vesting date Mr. Nathanielsz is employed by the Company and subject to the other provisions of the Employment Agreement. The Initial
Nathanielsz RSUs shall vest on the one-year anniversary of the Effective Date, subject to Mr. Nathanielsz’s continued employment
with the Company through such vesting date. The Additional Nathanielsz RSUs will vest as follows, subject to Mr. Nathanielsz’s
continued employment with the Company through the applicable vesting date: (i) 7,800 of the Additional Nathanielsz RSUs shall
vest upon the Company submitting Clinical Trial Application (the “CTA”) for PRP, the Company’s lead product
candidate (“PRP”), for a First-In-Human study for PRP (the “Study”) in an applicable jurisdiction to be
selected by the Company, (ii) 7,800 of the Additional Nathanielsz RSUs shall vest upon the CTA being approved in an applicable
jurisdiction, (iii) 7,800 of the Additional RSUs shall vest upon the Company completing an equity financing in the amount of at
least $4,000,000 in gross proceeds, (iv) 7,800 of the Additional Nathanielsz RSUs shall vest upon the shares of the Company’s
Common Stock being listed on a senior stock exchange (NYSE, NYSEMKT or NASDAQ), and (v) the remaining 7,800 of the Additional
Nathanielsz RSUs shall vest upon the Company enrolling its first patient in the Study. Each vested restricted stock unit shall
be settled by delivery to Mr. Nathanielsz of one share of the Company’s common stock and/or the fair market value of one
share of common stock in cash, at the sole discretion of the Company’s board of directors and subject to the 2019 Plan,
on the first to occur of: (i) the date of a Change of Control (as defined in the Employment Agreement), (ii) the date that is
ten business days following the vesting of such restricted stock unit, (iii) the date of Mr. Nathanielsz’s death or Disability
(as defined in the Employment Agreement), and (iv) Mr. Nathanielsz’s employment being terminated either by the Company without
Cause or by Mr. Nathanielsz for Good Reason (each as defined in the Employment Agreement). In the event of a Change of Control,
any unvested portion of the Nathanielsz Options and such restricted stock units shall vest immediately prior to such event.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
78,000 restricted stock units were valued at the fair value of $4.25 per unit or $331,500 based on the quoted trading price on
the date of grant. The 39,000 stock options were valued using a Black-Scholes model with the following assumptions: stock price
at valuation date of $4.25 based on quoted trading price on date of grant, exercise price of $4.65, dividend yield of zero, years
to maturity of 10.00, a risk free rate of 2.42%, and expected volatility 268% for a total value of $165,747 (see Note 6 –
Stockholders’ Deficit).
Amended
and Restated Services Agreement ― On the Effective Date, the Company also entered into an Amended and Restated Services
Agreement (the “Services Agreement”) with Dr. Kenyon, the Company’s Chief Scientific Officer and a director,
for a term of three years, subject to automatic one-year renewals, at an annual salary of $54,000 AUD. In connection with the
execution of the Services Agreement, Dr. Kenyon was designated as an executive officer of the Company and assumed a more active
executive role with the Company. Pursuant to the Services Agreement, Dr. Kenyon was granted options to purchase 19,500 shares
of the Company’s common stock (the “Kenyon Options”), with an exercise price per share of $4.25 (100% of the
closing market price of the Company’s common stock on May 14, 2019, the date of approval of such grant by the Company’s
board of directors), (ii) 19,500 restricted stock units of the Company (the “Initial Kenyon RSUs”), and (iii) an additional
19,500 restricted stock units of the Company (the “Additional Kenyon RSUs”). Such options and restricted stock units
were granted pursuant to the 2019 Plan (as defined below) approved by the Company’s board of directors on the Effective
Date. The Kenyon Options have a term of 10 years from the date of grant. 1/3rd of the Kenyon Options shall vest every successive
one-year anniversary following the Effective Date, provided, that on each such vesting date Dr. Kenyon is employed by the Company
and subject to the other provisions of the Services Agreement. The Initial Kenyon RSUs shall vest on the one-year anniversary
of the Effective Date, subject to Dr. Kenyon’s continued employment with the Company through such vesting date. The Additional
Kenyon RSUs will vest as follows, subject to Dr. Kenyon’s continued employment with the Company through the applicable vesting
date: (i) 4,875 of the Additional Kenyon RSUs shall vest upon the Company submitting the CTA for PRP for the Study in an applicable
jurisdiction to be selected by the Company, (ii) 4,875 of the Additional Kenyon RSUs shall vest upon the Company completing an
equity financing in the amount of at least $4,000,000 in gross proceeds, (iii) 4,875 of the Additional Kenyon RSUs shall vest
upon the shares of the Company’s Common Stock being listed on a senior stock exchange (NYSE, NYSEMKT or NASDAQ), and (iv)
the remaining 4,875 of the Additional Kenyon RSUs shall vest upon the Company enrolling its first patient in the Study. Each vested
Kenyon RSU shall be settled by delivery to Mr. Kenyon of one share of the Company’s common stock and/or the fair market
value of one share of common stock in cash, at the sole discretion of the Company’s board of directors and subject to the
Plan, on the first to occur of: (i) the date of a Change of Control (as defined in the Services Agreement), (ii) the date that
is ten business days following the vesting of such Kenyon RSU, (iii) the date of Dr. Kenyon’s death or Disability (as defined
in the Services Agreement), and (iv) Dr. Kenyon’s employment being terminated either by the Company without Cause or by
Dr. Kenyon for Good Reason (as defined in the Services Agreement). In the event of a Change of Control (as defined in the Services
Agreement), 50% of any unvested portion of the Kenyon Options and the Kenyon RSUs shall vest immediately prior to such event.
The
39,000 restricted stock units were valued at the fair value of $4.25 per unit or $165,750 based on the quoted trading price on
the date of grant. The 19,500 stock options were valued using a Black-Scholes model with the following assumptions: stock price
at valuation date of $4.25 based on quoted trading price on date of grant, exercise price of $4.25, dividend yield of zero, years
to maturity of 10.00, a risk free rate of 2.42%, and expected volatility 268% for a total value of $82,873 (see Note 6 –
Stockholders’ Deficit).
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, 2019.
Receivable
Concentration
As
of December 31, 2019 and June 30, 2019, the Company’s receivables were 100% related to reimbursements on GST taxes paid.
Patent
and Patent Concentration
The
Company has filed multiple patent applications relating to its lead product, PRP. The Company’s lead patent application
has been granted and remains in force in the United States, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy,
Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein, Turkey, United Kingdom, Australia, China, Japan, Indonesia,
Israel, New Zealand, Singapore, Malaysia, South Africa, Mexico, Republic of Korea and India. In Brazil and Canada, the patent
application remains under examination.
In
2016 and early 2017, we filed other patent applications. Three applications were filed under the Patent Cooperation Treaty (the
“PCT”). The PCT assists applicants in seeking patent protection by filing one international patent application under
the PCT, applicants can simultaneously seek protection for an invention in over 150 countries. Once filed, the application is
placed under the control of the national or regional patent offices, as applicable, in what is called the national phase. One
of the PCT applications filed in November 2016, entered national phase in July 2018 and another PCT application is currently entering
national phase in August 2018. A third PCT application entered the national phase in October 2018.
Further
patent applications are expected to be filed to capture and protect additional patentable subject matter based on the Company’s
field of technology relating to pharmaceutical compositions of proenzymes for treating cancer.
Foreign
Operations
As
of December 31, 2019 and June 30, 2019, the Company’s operations are based in Camberwell, Australia, however the majority
of research and development is being conducted in the European Union.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
On
July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the
purpose of submitting an orphan drug application with the European Medicines Agency as a small and medium-sized enterprise. As
of December 31, 2019, there has been no activity within this entity.
NOTE
10 - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative
Financial Instruments:
The
Company had $216,400 of convertible debt, that contain embedded conversion options and is treated as derivative instruments outstanding
at December 31, 2019.
The
Company calculates the estimated fair values of the liabilities for derivative instruments using the Binomial Trees Method. The
closing price of the Company’s common stock at December 31, 2019, the last trading day of the quarter ended December 31,
2019, was $0.38. Volatility, expected remaining term and risk free interest rates used to estimate the fair value of derivative
liabilities at December 31, 2019 are indicated in the table that follows. The expected term is equal to the remaining term of
the warrants or convertible instruments and the risk free rate is based upon rates for treasury securities with the same term.
Convertible
Debt
|
|
Initial
Valuations
(on new derivative
instruments entered
into
during the six
months ended
December 31, 2019)
|
|
|
December
31, 2019
|
|
Volatility
|
|
|
227.82
|
%
|
|
|
227.82
|
%
|
Expected Remaining Term (in years)
|
|
|
1
|
|
|
|
00.39
– 0.91
|
|
Risk Free Interest Rate
|
|
|
1.59
|
%
|
|
|
1.48%
– 1.59
|
%
|
Expected dividend yield
|
|
|
None
|
|
|
|
None
|
|
Fair
Value Measurements:
The
Company measures and reports at fair value the liability for derivative instruments. The fair value liabilities for price adjustable
warrants and embedded conversion options have been recorded as determined utilizing the Binomial Trees model. The following tables
summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31,
2019:
|
|
Balance
at
December 31, 2019
|
|
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Embedded conversion option
liabilities
|
|
$
|
924,744
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
924,744
|
|
Total
|
|
$
|
924,744
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
924,744
|
|
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
following is a roll forward for the six months ended December 31, 2019 of the fair value liability of price adjustable derivative
instruments:
|
|
Fair
Value of
|
|
|
Liability
for
|
|
|
Derivative
|
|
|
Instruments
|
Balance at June 30, 2019
|
|
$
|
698,264
|
|
Initial fair value of embedded conversion
option derivative liability recorded as debt discount
|
|
|
115,000
|
|
Initial fair value of embedded conversion
option derivative liability recorded as expense
|
|
|
93,125
|
|
Reductions due to conversions
|
|
|
(44,588
|
)
|
Change in fair
value included in statements of operations
|
|
|
62,943
|
|
Balance at December
31, 2019
|
|
$
|
924,744
|
|
NOTE
11 – SUBSEQUENT EVENTS
Note
Conversions
From January 1, 2020 through the date of this
filing , the Company issued 2,804,424 shares of its common stock at an average contractual conversion price of $0.1654, ranging
from $0.0672 to $0.75, as a result of the conversion of principal and interest in the aggregate amount of $267,187 underlying
certain outstanding convertible notes converted during such period. Notes totaling $82,500 contained bifurcated embedded conversion
option derivatives. Accordingly the fair market value of shares issued was $228,863 resulting in a loss on extinguishment of $146,367.
The Company reclassified $410,750 in put premiums to additional paid in capital following conversions from January 1, 2020
through the date of this filing.
Increase
in Authorized Common Stock
On February 4, 2020 the Directors resolved
to increase the Common Stock of the Company from 100,000,000 authorized shares to 1,000,000,000 authorized shares and believes
that such number of authorized shares of Common Stock will be in the best interests of the Corporation and its stockholders because
the Board believes that the availability of more shares of Common Stock for issuance will allow the Corporation greater flexibility
in pursuing financing from investors, meeting business needs as they arise, taking advantage of favorable opportunities and responding
to a changing corporate environment. The Company filed the necessary documents with the U.S. Securities and Exchange Commission
on February 6, 2020 and at the date of this filing the increase in authorized shares to 1,000,000,000 has not yet been effected.
January
7, 2020 Power Up Lending Group Securities Purchase Agreement
Effective January 7, 2020, the Company entered
into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”), pursuant to which Power Up purchased
a convertible promissory note (the “January 7, 2020 Power Up Note”) from the Company in the aggregate principal amount
of $75,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option
of Power Up. The transaction closed on January 7, 2020 and the Company received payment on January 13, 2020 in the amount of $72,000,
net of $2,500 paid directly toward legal fees and $500 to Power Up for due diligence fees.
The
maturity date of the January 7, 2020 Power Up Note is January 7, 2021. The January 7, 2020, Power Up Note bears interest at a
rate of 8% per annum, which interest may be paid by the Company to Power Up in shares of the Company’s common stock, but
shall not be payable until the January 7, 2020 Power Up Note becomes payable, whether at the maturity date or upon acceleration
or by prepayment.
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the January 7, 2020 Power Up Note, starting
on July 4, 2020 and ending on the later of the maturity date or the date the Default Amount, which is an amount equal to 150%
of an amount equal to the then outstanding principal amount of the January 7, 2020 Power Up Note plus any interest accrued, is
paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable conversion price.
The
conversion price for the January 7, 2020 Power Up Note shall be $3.05, subject to certain Market Price (as defined below) adjustment.
If the Market Price is greater than or equal to $5.00, the conversion price shall be the greater of 65% of the Market Price (“Variable
Conversion Price”) and $3.05. In the event Market Price is less than $5.00, the conversion price shall be the Variable Conversion
Price. As defined in the January 7, 2020 Power Up Note, the “Market Price” shall be the average of the lowest three
closing bid prices during the ten day trading period prior to and including the day the Company receives a notice of conversion
from Power Up on the electronic quotation system or applicable principal securities exchange or trading market or, if no closing
bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers
for such security that are listed in the “pink sheets” during the ten prior trading days, including the day upon which
the Company receives a notice of conversion from Power Up. Notwithstanding the foregoing, Power Up shall be restricted from effecting
a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned by Power Up and
its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock. An aggregate total of $307,400 of
this note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
January 7, 2020 Power Up Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 22% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
January
7, 2020 Consulting Services Agreement
On February 4, 2020, the Company entered into
an agreement with a certain consultant in relation to services provided during the period ended December 31, 2019 whereby the
Company agreed to issue 150,000 vested shares of the Company’s common stock to the consultant in satisfaction of
those services. On February 4, 2020, the Company issued the 150,000 shares of the Company’s common stock valued at $0.14
per share; being the closing price of the stock on the date of the agreement, to such consultant, or $21,000, which amount was
recorded as a share based expense in the financial statements for the six months ended December 31, 2019.
January
13, 2020 Ader Alef Securities Purchase Agreements
Effective
January 13, 2020, the Company entered into a securities purchase agreement with Ader Alef, pursuant to which Ader Alef purchased
a convertible promissory note (the “January 13, 2020 Ader Alef Note”) from the Company in the aggregate principal
amount of $110,250, such principal and the interest thereon convertible into shares of the Company’s common stock at the
option of Ader Alef any time after the six month anniversary of the January 13, 2020 Ader Alef Note. The January 13, 2020 Ader
Alef Note contains an original discount of $5,250. The transactions contemplated by the Ader Alef Securities Purchase Agreement
closed on January 13, 2020. Pursuant to the terms of the Ader Alef Securities Purchase Agreement, Ader Alef deducted $5,000 from
the principal payment due under the January 13, 2020 Ader Alef Note at the time of closing, to be applied to its legal expenses
and the Company received net cash proceeds of $100,000 on January 15, 2020. The Company intends to use the net proceeds from the
January 13, 2020 Ader Alef Note for general working capital purposes.
The
maturity date of the January 13, 2020 Ader Alef is January 13, 2021. The January 13, 2020 Ader Alef Note bears interest at a rate
of 8% per annum, which interest may be paid by the Company to Ader Alef in shares of the Company’s common stock; but shall
not be payable until the January 13, 2020 Ader Alef Note becomes payable, whether at the maturity date or upon acceleration or
by prepayment.
Additionally,
Ader Alef has the option to convert all or any amount of the principal face amount of the January 13, 2020 Ader Alef Note at any
time from the date of issuance and ending on the later of the maturity date and the date the Default Amount, which is an amount
between 112% and 135% of an amount equal to the then outstanding principal amount of the January 13, 2020 Ader Alef Note plus
any interest accrued, is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable
conversion price.
The
conversion price for the January 13, 2020 Ader Alef Note during the first 6 months the January 13, 2020 Ader Alef Note is in effect
shall be fixed at $2.50 and thereafter shall be equal to a 35% discount of the lowest closing bid price (“Lowest Trading
Price”) of the Common Stock for the ten trading days immediately prior to the delivery of a Notice of Conversion, including
the day upon which a Notice of Conversion is received. Notwithstanding the foregoing, Ader Alef shall be restricted from effecting
a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned by Ader Alef and
its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock which may be increased up to 9.99%
upon 60 days prior written notice by the Ader Alef to the Company. The note is treated as stock settled debt under ASC 480 and
accordingly the Company recorded a $59,365 put premium.
The
January 13, 2020 Ader Alef Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.
January
22, 2020 GS Capital Securities Purchase Agreements
Effective
January 22, 2020, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased
a convertible promissory note (the “January 22, 2020 GS Note”) from the Company in the aggregate principal amount
of $58,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option
of GS Capital any time after the six month anniversary of the January 22, 2020 GS Capital Note. The January 22, 2020 GS Note contains
an original discount of $3,500. The transactions contemplated by the GS Capital Securities Purchase Agreement closed on January
22, 2020. Pursuant to the terms of the GS Capital Securities Purchase Agreement, GS Capital deducted $2,500 from the principal
payment due under the January 22, 2020 GW Note, at the time of closing, to be applied to its legal expenses and received net cash
proceeds of $52,000 on January 28, 2020. The Company intends to use the net proceeds from the January 22, 2020 GW Note for general
working capital purposes.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(unaudited)
The
maturity date of the January 22, 2020 GS Capital is January 22, 2021. The January 22, 2020 GS Capital Note bears interest at a
rate of 10% per annum, which interest may be paid by the Company to GS Capital in shares of the Company’s common stock;
but shall not be payable until the January 22, 2020 GS Capital Note becomes payable, whether at the maturity date or upon acceleration
or by prepayment.
Additionally,
GS Capital has the option to convert all or any amount of the principal face amount of the January 22, 2020 GS Capital Note at
any time from the date of issuance and ending on the later of the maturity date and the date the Default Amount, which is an amount
between 112% and 130% of an amount equal to the then outstanding principal amount of the January 22, 2020 GS Capital Note plus
any interest accrued, is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable
conversion price.
The
conversion price for the January 22, 2020 GS Capital Note shall be equal to a 40% discount of the lowest closing bid price (“Lowest
Trading Price”) of the Common Stock for the ten trading days immediately prior to the delivery of a Notice of Conversion,
including the day upon which a Notice of Conversion is received. Notwithstanding the foregoing, GS Capital shall be restricted
from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned
by GS Capital and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock which may be increased
up to 9.99% upon 60 days prior written notice by the GS Capital to the Company. The note is treated as stock settled debt under
ASC 480 and accordingly the Company recorded a $38,667 put premium.
The
January 22, 2020 GS Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest
rate of 24% per annum, or if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law. Further, certain events of default may trigger penalty and liquidated damage provisions.