NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2018
(unaudited)
NOTE
1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature
of Operations
Propanc
Biopharma, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated
in Melbourne, Victoria Australia on October 15, 2007 as Propanc PTY LTD, and continues to be based in Camberwell, Victoria Australia.
Since its inception, substantially all of the operations of the Company have been focused on the development of new cancer treatments
targeting high-risk patients, particularly cancer survivors, who need a follow-up, non-toxic, long-term therapy designed to prevent
the cancer from returning and spreading. The Company anticipates establishing global markets for its technologies. Our lead product
candidate, which we refer to as PRP, is an enhanced pro-enzyme formulation designed to enhance the anti-cancer effects of multiple
enzymes acting synergistically. It is currently in the preclinical phase of development.
On
November 23, 2010, the Company was incorporated in the state of Delaware as Propanc Health Group Corporation. In January 2011,
to reorganize the Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned
subsidiary of the Company.
On
July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the
purpose of submitting an orphan drug application to the European Medicines Agency as a small and medium-sized enterprise. As of
September 30, 2018, 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 six patent applications relating to its lead product, PRP. The first application was filed in October 2010 in
each of the countries listed in the table below. This application has been granted and remains in force in the United States,
Europe, Australia, China, Japan, Indonesia, Israel, New Zealand, Singapore, Malaysia, South Africa, and Mexico. In Brazil, Canada,
Hong Kong, and Republic of Korea, 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 and a third application also entered the national phase in October, 2018.
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, Europe, Australia, China, Japan, Indonesia, Israel, New Zealand, Malaysia, Singapore, South Africa and Mexico
Republic
of Korea and Malaysia
|
|
Granted
Accepted
|
|
Oct-22-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil, Canada, Hong Kong and India
|
|
Under Examination
Divisional applications filed and under examination in USA, Mexico, China and Europe
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
Proenzyme
composition
|
|
Australia,
Canada, China, Europe, 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, Hong Kong and USA
|
|
Application
filed and pending
|
|
Apr-12-2017
|
PROPANC BIOPHARMA,
INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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.
Increase in Authorized Common Stock
On
September 21, 2018, the Company filed a Certificate of Incorporation to increase the number of authorized shares of the Company’s
common stock from 400,000,000 to 4,000,000,000, which was approved by the Company’s board of directors and holders of a
majority of the Company’s voting stock on August 28, 2018.
Basis
of Presentation
The
Company’s interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this
“Quarterly Report”) have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications
and non-recurring adjustments) necessary to present fairly our results of operations for the three months ended September 30,
2018 and 2017 and cash flows for the three months ended September 30, 2018 and 2017 and our financial position at September 30,
2018 have been made. The Company’s results of operations for the three months ended September 30, 2018 are not necessarily
indicative of the operating results to be expected for the full year.
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, 2018.
The June 30, 2018 balance sheet is derived from those statements.
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 September 30, 2018.
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 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 dollars ($) and/or (USD) as the reporting currency. Assets and liabilities are translated at
the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing
during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments
arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity
(deficit) as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions
are included in the 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.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Other
Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
Assets
and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing
at the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency included in the consolidated results of operations as incurred.
As
of September 30, 2018 and June 30, 2018, the exchange rates used to translate amounts in Australian dollars into USD for the purposes
of preparing the consolidated financial statements were as follows:
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
Exchange rate on balance sheet dates
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7238
|
|
|
|
0.7399
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period
|
|
|
|
|
|
|
|
|
USD : AUD exchange rate
|
|
|
0.7315
|
|
|
|
0.7753
|
|
The
exchange rates used to translate amounts in AUD into USD for the period ended September 30, 2017 are: 0.0785 as of the
balance sheet date and 0.7899 average exchange rate for that period.
Change
in Accumulated Other Comprehensive Income (Loss) by component during the three months ended September 30, 2018 was as follows:
|
|
Foreign
Currency Items:
|
|
Beginning balance, June 30, 2018
|
|
$
|
357,929
|
|
Foreign currency translation gain
|
|
|
276,216
|
|
Ending balance, September 30, 2018
|
|
$
|
634,145
|
|
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.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less
with financial institutions, and bank overdrafts. Bank overdrafts are reflected as a current liability on the balance sheets.
There were no cash equivalents as of September 30, 2018 or June 30, 2018.
Patents
Patents
are stated at cost and reclassified to intangible assets and amortized on a straight-line basis over the estimated future periods
if and once the patent has been granted by a regulatory agency. However, the Company will expense any product costs as long as
we are in the startup stage. Accordingly, as the Company’s products were and are not currently approved for market, all
patent costs incurred from 2013 through 2018 were expensed immediately. This practice of expensing patent costs immediately ends
when a product receives market authorization from a government regulatory agency.
Impairment
of Long-Lived Assets
In
accordance with ASC 360-10, “
Long-lived assets,”
which include property and equipment and intangible assets,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future
discounted cash flows or market value, if readily determinable.
Australian
Goods and Services Tax (“GST”)
Revenues,
expenses and balance sheet items are recognized net of the amount of GST, except payable and receivable balances which are shown
inclusive of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.
Cash
flows are presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities,
which are disclosed as operating cash flows.
As
of September 30, 2018 and June 30, 2018, the Company was owed $1,699 and $6,257, 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.
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.
PROPANC BIOPHARMA,
INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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.
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 three months ended September 30, 2018 and 2017 were $56,193 and $563,739,
respectively.
The
Company may apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although
the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount.
Accordingly, the Company does not recognize the benefit of the claim amount until cash receipt since collectability is not certain
until such time. The tax concession is a refundable credit. If the Company has net income, then the Company can receive the credit
which reduces its income tax liability. If the Company has net losses, then the Company may still receive a cash payment for the
credit, however, the Company’s net operating loss carryforwards are reduced by the gross equivalent loss that would produce
the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as an income tax benefit,
in operations, upon receipt.
Stock
Based Compensation
The
Company records stock-based compensation in accordance with ASC 718, “
Stock Compensation
” and the SEC Staff
Accounting Bulletin No. 107
Share Based Payment
was issued in March 2005 regarding its interpretation of ASC 718. ASC 718
requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related
requisite service period. The Company values employee and non-employee stock-based compensation at fair value using the Black-Scholes
Option Pricing Model.
The
Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC
505-50 “
Equity-Based Payments to Non-Employees
.”
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 September 30, 2018, there
were 133,517 warrants outstanding, 572,000 stock options and 18 convertible notes payable, which notes are convertible into 63,170,664
shares of the Company’s common stock. Each holder of the notes has agreed to a 4.99% beneficial ownership conversion limitation,
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.
Recently
Adopted Accounting Pronouncements
Certain
FASB Accounting Standard Updates (“ASU”) that are not effective until after September 30, 2018 are not expected to
have a significant effect on the Company’s consolidated financial position or results of operations. The Company is evaluating
or has implemented the following at September 30, 2018:
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
ASU
2018-07
- In June 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
(“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718). This update is intended to reduce cost and complexity
and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external
legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently
only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods
and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned.
This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning
after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach
for each period presented. Management currently does not plan to early adopt this guidance and is evaluating the potential impact
of this guidance on the Company’s consolidated financial statements as well as transition methods.
ASU
No 2016-18
– In November 2016, the FASB issue ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (ASU
2016-18), requiring restricted cash and cash equivalents to be included with cash and cash equivalents of the statement of cash
flows. The new standard is effective for fiscal years, and interim periods with those year, beginning December 15, 2017, with
early adoption permitted. The Company adopted this new ASU at July 1, 2018 with no material impact on its consolidated financial
statements.
ASU
2016-02
- In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” whereby lessees will need to
recognize almost all leases on their balance sheet as a right of use asset and a lease liability. This guidance is effective for
interim and annual reporting periods beginning after December 15, 2018. The Company does not anticipate this ASU to have a material
impact on its consolidated financial statements.
ASU
2014-09
- In May 2014, the FASB issued ASU No. 2014-09: “Revenue from Contracts with Customers (Topic 606)” which
requires that an entity recognize revenue to depict the transfer of promised goods and services to customers in an amount that
reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Since the issuance
of the original standard, the FASB has issued several updates to the standard which (i) clarify the application of the principal
versus agent guidance; (ii) clarify the guidance relating to performance obligations and licensing; (iii) clarify assessment of
the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts
at transaction; and (iv) clarify narrow aspects of ASC 606 or corrects unintended application of the guidance. The new revenue
recognition standard, amended by the updates, becomes effective in the first quarter of fiscal 2019 and is to be applied retrospectively
using one of two prescribed methods. The Company adopted this new standard effective July 1, 2018.
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 three months ended September 30, 2018, the Company had no revenues, had a net loss
of $2,124,936 and had net cash used in operations of $419,196. Additionally, as of September 30, 2018, the Company had a working
capital deficit, stockholders’ deficit and accumulated deficit of $5,567,788, $5,558,044 and $47,407,614, 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 twelve months from the date of this filing.
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.
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 September 30, 2018 and June 30, 2018 is $32,182 and $32,898, respectively. The Company plans to repay the notes as its cash
resources allow.
PROPANC BIOPHARMA,
INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
NOTE
4 – LOANS AND NOTES PAYABLE
Loans
from Directors and Officer - Related Parties
Loans from the Company’s
directors and officer at September 30, 2018 and June 30, 2018 were $53,561 and $54,753, respectively. The loans
bear no interest and are all payable on demand. The Company did not repay any amount on these loans during the three months ended
September 30, 2018.
NOTE
5 – CONVERTIBLE NOTES
The
Company’s convertible notes outstanding at September 30, 2018 were as follows:
Convertible notes and debenture
|
|
$
|
2,301,685
|
|
Unamortized discounts
|
|
|
(139,055
|
)
|
Accrued interest
|
|
|
121,533
|
|
Premiums
|
|
|
1,474,728
|
|
Convertible notes, net
|
|
$
|
3,758,891
|
|
Eagle
Equities Financing Agreements
December
12, 2016 Securities Purchase Agreement
On
December 12, 2016, the Company entered into a Securities Purchase Agreement, with Eagle Equities, pursuant to which Eagle Equities
purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount of $100,000. The first
note (the “December 12 Note”) was funded with cash and the second note (the “December 12 Eagle Back-End Note”)
was initially paid for by an offsetting promissory note issued by Eagle Equities to the Company (the “December 12 Note Receivable”).
The terms of the December 12 Eagle Back-End Note require cash funding prior to any conversion thereunder. The December 12 Note
Receivable is due December 12, 2017, unless certain conditions are not met, in which case both the December 12 Eagle Back-End
Note and the December 12 Note Receivable may both be cancelled. Both the December 12 Note and the December 12 Eagle Back-End Note
have a maturity date one year from the date of issuance upon which any outstanding principal and interest is due and payable.
The outstanding principal amounts plus accrued interest under both the December 12 Note and the December 12 Eagle Back-End Note
are convertible into the Company’s common stock at a conversion price equal to 60% of the lowest closing bid price of the
common stock for the ten trading days prior to the conversion, subject to adjustment in certain events. On April 11, 2017, the
Company received payment of the December 12 Note Receivable in the amount of $100,000 that offset the December Eagle Back-End
Note. Proceeds from the Note Receivable of $5,000 were paid directly to legal fees resulting in net cash proceeds of $95,000 received
by the Company. As a result, the December 12 Eagle Back-End Note is now convertible. The December 12 Note and the December 12
Eagle Back-End Note are treated as stock settled debt under ASC 480 and accordingly the Company recorded a put premium of $66,667
as each of the notes were funded. As of June 30, 2018, the outstanding principal under the December 12 Note along with $8,296
of accrued interest was fully converted into shares of the Company’s common stock. The Company has recorded $11,792 of accrued
interest on the December 12 Eagle Back-End Note as of September 30, 2018 and total principal outstanding on the December 12 Eagle
Back-End Note as of September 30, 2018 was $100,000. The December 12 Eagle Back-End Note matured on December 12, 2017. The Company
is currently in discussions with Eagle Equities to extend the maturity date.
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.
January
27, 2017 Securities Purchase Agreement
On
January 27, 2017, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC, pursuant to which Eagle Equities
purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount of $230,000. The first
note (the “January 2017 Eagle Note”) was funded with cash and the second note (the “January 2017 Eagle Back-End
Note”) was initially paid for by an offsetting promissory note issued by Eagle Equities to the Company (the “January
2017 Eagle Note Receivable”). The terms of the January 2017 Eagle Back-End Note require cash funding prior to any conversion
thereunder. The January 2017 Eagle Note Receivable is due September 27, 2017, unless certain conditions are not met, in which
case both the January 2017 Eagle Back-End Note and the January 2017 Eagle Note Receivable may both be cancelled. Both the January
2017 Eagle Note and the January 2017 Eagle Back-End Note have a maturity date one year from the date of issuance upon which any
outstanding principal and interest is due and payable. The outstanding principal amounts plus accrued interest under both the
January 2017 Eagle Note and the January 2017 Eagle Back-End Note are convertible into common stock of the Company at a conversion
price equal to 60% of the lowest closing bid price of the common stock for the ten trading days prior to the conversion, subject
to adjustment in certain events. On May 4, 2017, the Company received a partial payment of the January 2017 Note Receivable in
the amount of $40,000 and on June 3, 2017 the balance of $190,000 was funded, of which $11,250 was paid directly to legal fees.
As a result, the January 2017 Eagle Back-End Note is now convertible. The January 2017 Eagle Note and the January 2017 Eagle Back-End
Note are treated as stock settled debt under ASC 480 and accordingly the Company is recording a put premium of $153,333 as each
of the notes were funded. As of June 30, 2018, the outstanding principal under the January 2017 Eagle Note along with $14,988
of accrued interest was fully converted. The Company has recorded $20,197 of accrued interest as of September 30, 2018 for the
January 2017 Eagle Back-End and total principal outstanding under the January 2017 Eagle Back-End Note as of September 30, 2018
was $230,000. The January 2017 Eagle Back-End Note matured on January 27, 2018. The Company is currently in discussions with Eagle
Equities to extend the maturity date.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(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.
March
1, 2017 Securities Purchase Agreement
On
March 1, 2017, the Company entered into a Securities Purchase Agreement with Eagle Equities, pursuant to which Eagle Equities
purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount of $220,500. The first
note (the “March 2017 Eagle Note”) was funded with cash and the second note (the “March 2017 Eagle Back-End
Note”) was initially paid for by an offsetting promissory note issued by Eagle Equities to the Company (the “March
2017 Eagle Note Receivable”). The terms of the March 2017 Eagle Back-End Note require cash funding prior to any conversion
thereunder. Both the March 2017 Eagle Note and the March 2017 Eagle Back-End Note had a maturity date of March 1, 2018, upon which
any outstanding principal and interest was due and payable. The outstanding principal amounts plus accrued interest under both
the March 2017 Eagle Note and the March 2017 Eagle Back-End Note are convertible into shares of common stock, of the Company at
a conversion price equal to 60% of the lowest closing bid price of the common stock for the ten trading days prior to the conversion,
subject to adjustment in certain events. On July 5, 2017, the Company received payment of the March 2017 Eagle Note Receivable
in the amount of $220,500 that offset the March 2017 Eagle Back-End Note. Proceeds from the March 2017 Eagle Note Receivable of
$10,500 were paid directly to legal fees resulting in net cash proceeds of $210,000 received by the Company. As a result, the
March 2017 Eagle Back-End Note then became now convertible. The March 2017 Eagle Note and the March 2017 Eagle Back-End Note are
treated as stock settled debt under ASC 480 and accordingly the Company recorded a put premium of $147,000 as each of the notes
were funded. As of June 30, 2018, the outstanding principal balance under the March 2017 Eagle Note along with $20,061 of accrued
interest was fully converted. As of September 30, 2018, the outstanding balance of $220,500 under the March 2017 Back-End Note
along with $18,625 of accrued interest was fully converted (see Note 6 – Stockholders’ Deficit) and the repayment
resulting in a full reduction of the put premium.
August
9, 2017 Securities Purchase Agreement
On
August 9, 2017, the Company entered into a Securities Purchase Agreement dated as of August 8, 2017, with Eagle Equities, pursuant
to which Eagle Equities purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount
of $200,000. The first note (the “August 2017 Eagle Note”) was funded with cash and the second note (the “August
2017 Eagle Back-End Note”) was initially paid for by an offsetting promissory note issued by Eagle Equities to the Company
(the “August 2017 Eagle Note Receivable”). The terms of the August 2017 Eagle Back-End Note require cash funding prior
to any conversion thereunder. The August 2017 Eagle Note Receivable is due August 8, 2018, unless certain conditions are not met,
in which case both the August 2017 Eagle Back-End Note and the August 2017 Eagle Note Receivable may both be cancelled. Both the
August 2017 Eagle Note and the August 2017 Eagle Back-End Note have a maturity date one year from the date of issuance upon which
any outstanding principal and interest is due and payable. The outstanding principal amounts plus accrued interest under both
the August 2017 Eagle Note and the August 2017 Eagle Back-End Note are convertible into common stock of the Company at a conversion
price equal to 60% of the lowest closing bid price of the common stock for the ten trading days prior to the conversion, subject
to adjustment in certain events. On September 14, 2017, the Company received payment of the August 2017 Eagle Note Receivable
in the amount of $200,000 that offset the August 2017 Eagle Back-End Note. Proceeds from the August 2017 Eagle Note Receivable
of $10,000 were paid directly to legal fees resulting in net cash proceeds of $190,000 received by the Company. As a result, the
August 2017 Eagle Back-End Note is now convertible. The August 2017 Eagle Note and the August 2017 Eagle Back-End Note are treated
as stock settled debt under ASC 480 and accordingly the Company recorded a put premium of $133,333 as each of the notes were funded.
As of June 30, 2018 $120,000 of principal under the August 2017 Eagle Note along with $5,273 in interest was converted. The Company
has recorded $3,523 of accrued interest as of September 30, 2018 for the August 2017 Eagle Note and total principal outstanding
as of September 30, 2018 was $24,000 as an additional $56,000 was converted during the three months ended September 30, 2018 (see
Note 6 – Stockholders’ Deficit). As of September 30, 2018, The Company has recorded $16,745 of accrued interest as
of September 30, 2018 for the August 2017 Eagle Back-End Note and total principal outstanding as of September 30, 2018 under the
August 2017 Eagle Back-End Note was $200,000. The Company is currently in discussions with Eagle Equities to extend the maturity
dates.
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
September 30, 2018
(unaudited)
October
25, 2017 Securities Purchase Agreement
On
November 3, 2017, the Company entered into a Securities Purchase Agreement dated as of October 25, 2017, with Eagle Equities,
pursuant to which Eagle Equities purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal
amount of $200,000. The first note (the “October 2017 Eagle Note”) was funded with cash and the second note (the “October
2017 Eagle Back-End Note”) was initially paid for by an offsetting promissory note issued by Eagle Equities to the Company
(the “October 2017 Eagle Note Receivable”). The terms of the October 2017 Eagle Back-End Note require cash funding
prior to any conversion thereunder. The October 2017 Eagle Note Receivable is due June 25, 2018, unless certain conditions are
not met, in which case both the October 2017 Eagle Back-End Note and the October 2017 Eagle Note Receivable may both be cancelled.
Both the October 2017 Eagle Note and the October 2017 Eagle Back-End Note have a maturity date one year from the date of issuance
upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both
the October 2017 Eagle Note and the October 2017 Eagle Back-End Note are convertible into common stock, par value $0.001 of the
Company at a conversion price equal to 60% of the lowest closing bid price of the common stock for the ten trading days prior
to the conversion, subject to adjustment in certain events. On December 6, 2017, the Company received payment of the October 2017
Eagle Note Receivable in the amount of $200,000 that offset the October 2017 Eagle Back-End Note. Proceeds from the October 2017
Eagle Note Receivable of $10,000 were paid directly to legal fees resulting in net cash proceeds of $190,000 received by the Company.
As a result, the October 2017 Eagle Back-End Note is now convertible. The October 2017 Eagle Note and the October 2017 Eagle Back-End
Note are treated as stock settled debt under ASC 480 and accordingly the Company recorded a put premium of $133,333 as each of
the notes were funded. As of September 30, 2018, the outstanding principal balance under the October 2017 Eagle Note along with
$14,261 of accrued interest was fully converted (see Note 6 – Stockholders’ Deficit) and the repayment resulting in
a full reduction of the put premium. The Company has recorded $8,141 of accrued interest as of September 30, 2018 for the October
2017 Eagle Back-End Note and total principal outstanding as of September 30, 2018 under the October 2017 Eagle Back-End Note was
$125,000 as $75,000 was converted during the three months ended September 30, 2018 (see Note 6 – Stockholders’ Deficit).
As of the date of filing, the remaining $200,000 balance of the October 2017 Eagle Back-End Note and accrued interest of $8,500
have been fully converted (see Note 6 – Stockholders’ Deficit).
The
October 2017 Eagle Back-End Note may not be prepaid by the Company.
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
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 is December 29, 2018. 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 $31,742 of accrued interest as of
September 30, 2018 for the December 2017 Eagle Note and total principal outstanding as of September 30, 2018 under the December
2017 Eagle Note was $532,435.
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 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 note is treated as stock settled debt under ASC 480 and accordingly
the Company recorded a $354,956 put premium.
June
14, 2018 Securities Purchase Agreement
Effective
June 14, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities
purchased a convertible promissory note (the “June 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 June 2018 Eagle Note. The transactions contemplated by the Purchase
Agreement closed on June 19, 2018. Pursuant to the terms of the Purchase Agreement, Eagle Equities deducted $5,000 from the principal
payment due under the June 2018 Eagle Note, at the time of closing, to be applied to its legal expenses.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The
maturity date of the June 2018 Eagle Note is June 14, 2019. The June 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 June 2018 Eagle Note.
Additionally,
Eagle Equities has the option to convert all or any amount of the principal face amount of the June 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 as reported on the OTC quotation system for the ten prior trading days, including the day upon which the Company
receives a notice of conversion from Eagle Equities. However, in the event that the Company’s common stock is restricted
by the Depository Trust Company (“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 Note for at least 60 days after the issuance of the 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 June 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 $2,485
of accrued interest and the total principal outstanding under the June 2018 Eagle Note was $105,000 as of September 30, 2018.
The
June 2018 Eagle Note may be prepaid by the Company with certain penalties until December 11, 2018.
Upon
an event of default, principal and accrued interest will become immediately payable under the note. 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.
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 is July 13, 2019. 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 $1,299 of accrued interest and the total
principal outstanding under the July 2018 Eagle Note was $75,000 as of September 30, 2018. The July 2018 Eagle Note may be prepaid
by the Company with certain penalties until January 9, 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.
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 is August 2019. 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.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 $759 of accrued interest and the total principal outstanding
under the August 2018 Eagle Note was $105,000 as of September 30, 2018. The August 2018 Eagle Note may be prepaid by the Company
until February 25, 2019.
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.
The
total principal amount outstanding under the above Eagle Equities financing agreements, specifically the December 12, 2016, the
January 27, 2017, the March 1, 2017, the August 9, 2017, the October 25, 2017, the December 29, 2017, the June 14, 2018, the July
13, 2018 and the August 29, 2018 agreements was $1,496,435 as of September 30, 2018 and accrued interest totaled $101,199.
GS
Capital Financing Agreements
July
24, 2017 Securities Purchase Agreement
On
July 24, 2017, the Company entered into a Securities Purchase Agreement with GS Capital, pursuant to which GS Capital purchased
two 8% convertible redeemable junior subordinated promissory notes, each in the principal amount of $160,000. The first note (the
“July 2017 GS Note”) was funded with cash and the second note (the “July 2017 GS Back-End Note”) was initially
paid for by an offsetting promissory note issued by GS Capital to the Company (the “July 2017 GS Note Receivable”).
The terms of the July 2017 GS Back-End Note required cash funding prior to any conversion thereunder. The July 2017 GS Note Receivable
was due March 24, 2018, unless certain conditions were not met, in which case both the July 2017 GS Back-End Note and the July
2017 GS Note Receivable may both be cancelled. Both the July 2017 GS Note and the July 2017 GS Back-End Note matured on July 24,
2018 upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under
both the July 2017 GS Note and the July 2017 GS Back-End Note are convertible into common stock of the Company at a conversion
price equal to 62% of the lowest closing bid price of the common stock for the ten trading days prior to the conversion, subject
to adjustment in certain events. On January 25, 2018, the Company received payment of the July 2017 GS Note Receivable in the
amount of $160,000 that offset the July 2017 GS Back-End Note. Proceeds from the July 2017 GS Note Receivable of $8,000 were paid
directly to legal fees resulting in net cash proceeds of $152,000 received by the Company. As a result, the July 2017 GS Back-End
Note is now convertible. The July 2017 GS Note and the July 2017 GS Back-End Note are treated as stock settled debt under ASC
480 and accordingly the Company recorded a $98,065 put premium as each of the notes was funded.
As
of June 30, 2018, the outstanding principal under the July 2017 GS Note and $8,169 of accrued interest was fully converted into
shares of the Company’s common stock. As of June 30, 2018, $125,000 of principal under the July 2017 GS Back-End Note along
with $3,420 in interest was converted. As of September 30, 2018, the remaining outstanding principal balance of $35,000 under
the July 2017 GS Back-End Note along with $1,281 of accrued interest was fully converted (see Note 6 – Stockholders’
Deficit) and the repayment resulting in a full reduction of the put premium.
September
21, 2017 Securities Purchase Agreement
On
September 21, 2017, the Company entered into Securities Purchase Agreements, with GS Capital, dated as of September 12, 2017,
pursuant to which GS Capital purchased two 8% convertible redeemable junior subordinated promissory notes, each in the principal
amount of $160,000. The first note (the “September 2017 GS Note”) was funded with cash and the second note (the “September
2017 GS Back-End Note”) was initially paid for by an offsetting promissory note issued by GS Capital to the Company (the
“September 2017 GS Note Receivable”). The terms of the September 2017 GS Back-End Note require cash funding prior
to any conversion thereunder. The September 2017 GS Note Receivable was due March 24, 2018, unless certain conditions are not
met, in which case both the September 2017 GS Back-End Note and the September 2017 GS Note Receivable may both be cancelled. Both
the September 2017 GS Note and the September 2017 GS Back-End Note matured on September 12, 2018, upon which any outstanding principal
and interest is due and payable. The amounts cash funded plus accrued interest under both the September 2017 GS Note and the September
2017 GS Back-End Note are convertible into common stock of the Company at a conversion price equal to 62% of the lowest closing
bid price of the common stock for the ten trading days prior to the conversion, subject to adjustment in certain events. On February
27, 2018, the Company received payment of the September 2017 GS Note Receivable in the amount of $160,000 that offset the September
2017 GS Back-End Note. Proceeds from the September 2017 GS Note Receivable of $8,000 were paid directly to legal fees resulting
in net cash proceeds of $152,000 received by the Company. As a result, the September 2017 GS Back-End Note is now convertible.
The September 2017 GS Note and the September 2017 GS Back-End Note are treated as stock settled debt under ASC 480 and accordingly
the Company recorded a $98,065 put premium as each of the notes was funded.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
As
of June 30, 2018, $30,000 of principal under the September 2017 GS Note along with $1,289 in interest was converted. As of September
30, 2018, the remaining outstanding principal balance of $130,000 under the September 2017 GS Note along with $9,177 of accrued
interest was fully converted (see Note 6 – Stockholders’ Deficit) and the repayment resulting in a full reduction
of the put premium. As of September 30, 2018, the outstanding principal balance of $160,000 under the September 2017 GS Back-End
note along with $6,975 of accrued interest was fully converted (see Note 6 – Stockholders’ Deficit) and the repayment
resulting in a full reduction of the put premium.
March
23, 2018 Securities Purchase Agreement
On
March 23, 2018, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased
two 8% convertible redeemable junior subordinated promissory notes of the Company, each in the principal amount of $106,000. The
first note (the “March 2018 GS Note”) was funded with cash and the second note (the “March 2018 GS Back-End
Note”) was initially paid for by an offsetting promissory note issued by GS Capital to the Company (the “March 2018
GS Note Receivable”). The terms of the March 2018 GS Back-End Note require cash funding prior to any conversion thereunder.
The March 2018 GS Note Receivable is due November 23, 2018, unless certain conditions are not met, in which case both the March
2018 GS Back-End Note and the March 2018 GS Note Receivable may both be cancelled. Both the March 2018 GS Note and the March 2018
GS Back-End Note mature on March 23, 2019, upon which any outstanding principal and interest is due and payable. The amounts cash
funded plus accrued interest under both the March 2018 GS Note and the March 2018 GS Back-End Note are convertible into shares
of common stock of the Company at a conversion price equal to 62% of the lowest closing bid price of the common stock for the
ten trading days prior to the conversion, subject to adjustment in certain events. On May 31, 2018, the Company received payment
of the March 2018 GS Note Receivable in the amount of $106,000 that offset the March 2018 GS Back-End Note. Proceeds from the
March 2018 GS Note Receivable of $5,300 were paid directly to legal fees resulting in net cash proceeds of $100,700 received by
the Company. As a result, the March 2018 GS Back-End Note is now convertible. The March 2018 GS Note and the March 2018 GS Back-End
Note are treated as stock settled debt under ASC 480 and accordingly the Company recorded a $64,968 put premium as each of the
notes was funded.
As
of September 30, 2018, the outstanding principal balance of $106,000 under the March 2018 GS Back-End note along with $2,765 of
accrued interest was fully converted (see Note 6 – Stockholders’ Deficit) and the repayment resulting in a full reduction
of the put premium. The Company has recorded $4,391 of accrued interest as of September 30, 2018 for the March 2018 GS Back-End
Note. Total principal outstanding under the March 2018 GS Back-End Note as of September 30, 2018 was $106,000. The March 2018
GS Back-End Note may not be prepaid by the Company.
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.
April
13, 2018 Securities Purchase Agreement
On
April 13, 2018, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased
two 8% unsecured convertible promissory notes (the “April 2018 GS Notes”) from the Company each in the principal amount
of $150,000. The first note (the “April 2018 GS Note”) was funded with cash and the second note (the “April
2018 GS Back-End Note”) was initially paid for by an offsetting promissory note issued by GS Capital to the Company (the
“April 2018 GS Note Receivable”). The terms of the April 2018 Back-End Note require cash funding prior to any conversion
thereunder.
Both
the April 2018 GS Note and the April 2018 GS Back-End Note mature on April 13, 2019, upon which any outstanding principal and
interest thereon is due and payable. The amounts cash funded plus accrued interest under both the April 2018 GS Note and the April
2018 GS Back-End Note are convertibles into shares of the Company’s common stock, at any time after October 13, 2018, 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. On September 12, 2018, the Company received payment of the April 2018 GS Note Receivable
in the amount of $150,000 that offset the March 2018 GS Back-End Note. Proceeds from the March 2018 GS Note Receivable of $7,500
were paid directly to legal fees resulting in net cash proceeds of $142,500 received by the Company. Both the April 2018 GS Note
and the April 2018 GS Back-End Note are treated as stock settled debt under ASC 480 and accordingly the Company recorded a $95,902
put premium as each of the notes were funded.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The
Company has recorded $5,589 of accrued interest as of September 30, 2018 for the April 2018 GS Note. Total principal outstanding
under the April 2018 GS Note as of September 30, 2018 was $150,000. The Company has recorded $629 of accrued interest as of September
30, 2018 for the April 2018 GS Back-End Note. Total principal outstanding under the April 2018 GS Back-End Note as of September
30, 2018 was $150,000. The April 2018 GS Note may be prepaid until 180 days from the issuance date with certain penalties. The
April 2018 GS Back-End Note may not be prepaid. The Company has reserved 7,684,000 shares of its common stock for conversions
under the April 2018 GS Note.
The
April 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.
The
total principal amount outstanding under the above GS Capital financing agreements, specifically the July 24, 2017, the September
21, 2017, the March 23, 2018 and the April 13, 2018 agreements, was $406,000 as of September 30, 2018 and accrued interest thereunder
totaled $10,605.
Regal
Consulting Agreements
August
10, 2017 Consulting Agreement
On
August 10, 2017, the Company entered into an agreement, retroactive to May 16, 2017, with the 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 note accrues interest at a rate of 10% per annum and is convertible into common stock at the lesser of $1.50
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. This note may not be prepaid without the written consent of the Consultant. 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
2018. Upon an event of default, principal and accrued interest will become immediately due and payable under the Consulting Note.
Additionally, upon an event of default the note would accrue interest at a default interest rate of 18% per annum or the highest
rate of interest permitted by law. The 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 three months
ended September 30, 2018, the Company converted an additional $161,000 of principal and $19,418 of interest (see Note 6 –
Stockholders’ Deficit), such that the remaining principal outstanding and accrued interest under this note as of September
30, 2018 was $9,000 and $2,731, respectively.
Power
Up Lending Group Financing Agreements
January
22, 2018 Securities Purchase Agreement
Effective
January 22, 2018, 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 2018 Power Up Note”) from the Company
in the aggregate principal amount of $153,000, 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 25, 2018 and the Company received payment on January
29, 2018 in the amount of $153,000, 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 $150,000.
The
maturity date of the January 2018 Power Up Note is January 22, 2019. The January 2018 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 2018 Power Up Note becomes payable, whether at the maturity date or upon acceleration or by prepayment.
An aggregate total of $180,251 of this note was bifurcated with the embedded conversion option recorded as a derivative liability
at fair value.
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the January 2018 Power Up Note, starting
on July 21, 2018 and ending on the later of the maturity date and 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 2018 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.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The
conversion price for the January 2018 Power Up Note shall be $0.065, subject to certain Market Price (as defined below) adjustment.
If the Market Price is greater than or equal to $0.10, the conversion price shall be the greater of 65% of the Market Price (“Variable
Conversion Price”) and $0.065. In the event Market Price is less than $0.10, the conversion price shall be the Variable
Conversion Price. As defined in the January 2018 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. The January 2018 Power Up Note may
be prepaid within 180 days of issuance with certain penalties.
During
the three months ended September 30, 2018, the outstanding principal balance of $153,000 along with $6,120 of accrued interest
was converted into shares of the Company’s common stock (See Note 6 – Stockholders’ Deficit).
March
5, 2018 Securities Purchase Agreement
On
March 5, 2018, the Company entered into a securities purchase agreement with Power Up, pursuant to which Power Up purchased a
convertible promissory note (the “March 2018 Power Up Note”) from the Company in the aggregate principal amount of
$53,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option of
Power Up. The Company received payment on March 12, 2018 in the amount of $53,000, 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 $50,000.
The
maturity date of the March 2018 Power Up Note is March 5, 2019. The March 2018 Power Up Note shall bear 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 March 2018 Power Up Note becomes payable, whether at the maturity date or upon acceleration or by prepayment.
An aggregate total of $65,231 of this note was bifurcated with the embedded conversion option recorded as a derivative liability
at fair value.
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the March 2018 Power Up Note, starting on
September 1, 2018 and ending on the later of the maturity date and the date the Default Amount, which is an amount equal to 150%
of an amount equal to the then outstanding principal amount of the March 2018 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 March 2018 Power Up Note shall be $0.065, subject to certain Market Price (as defined below) adjustment.
If the Market Price is greater than or equal to $0.10, the conversion price shall be the greater of 65% of the Market Price (the
“Variable Conversion Price”) and $0.065. In the event Market Price is less than $0.10, the conversion price shall
be the Variable Conversion Price. As defined in the March 2018 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. The March 2018
Power Up Note may be prepaid within 180 days of issuance with certain penalties.
On
August 28, 2018, the Company prepaid the outstanding principal balance of $53,000 and related accrued interest of $2,033 that
was due under the March 5, 2018 Power Up Note. The Company incurred a penalty in the amount of $20,362 as a result of the pre-payment.
May
15, 2018 Securities Purchase Agreement
On
May 15, 2018, the Company entered into a securities purchase agreement with Power Up, pursuant to which Power Up purchased a convertible
promissory note (the “May 2018 Power Up Note”) from the Company in the aggregate principal amount of $53,000, such
principal and the interest thereon convertible into shares of the Company’s common stock at the option of Power Up. The
Company received payment on May 18, 2018 in the amount of $53,000, 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 $50,000.
The
maturity date of the May 2018 Power Up Note is May 5, 2019. The May 2018 Power Up Note shall bear interest at a rate of 8% per
annum, which interest may be paid by the Company to Power Up in shares of common stock, but shall not be payable until the May
2018 Power Up Note becomes payable, whether at the maturity date or upon acceleration or by prepayment. An aggregate total of
$33,744 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
September 30, 2018
(unaudited)
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the May 2018 Power Up Note, starting on November
11, 2018 and ending on the later of the maturity date and the date the Default Amount, which is an amount equal to 150% of an
amount equal to the then outstanding principal amount of the May 2018 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 May 2018 Power Up Note shall be $0.065, subject to certain Market Price (as defined below) adjustment.
If the Market Price is greater than or equal to $0.10, the conversion price shall be the greater of 65% of the Market Price (“Variable
Conversion Price”) and $0.065. In the event Market Price is less than $0.10, the conversion price shall be the Variable
Conversion Price. As defined in the May 2018 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. The May 2018 Power Up Note may be
prepaid by the Company within 180 days of issuance with certain penalties.
The
Company has recorded $1,243 of accrued interest as of September 30, 2018 for the May 2018 Power Up Note. Total principal outstanding
under the May 2018 Power Up Note as of September 30, 2018 was $53,000.
August
28, 2018 Securities Purchase Agreement
On
August 28, 2018, the Company entered into a securities purchase agreement with Power Up, pursuant to which Power Up purchased
a convertible promissory note (the “August 2018 Power Up Note”) from the Company in the aggregate principal amount
of $53,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option
of Power Up. The Company received payment on August 29, 2018 in the amount of $53,000, 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 $50,000.
The
maturity date of the August 2018 Power Up Note is August 28, 2019 (the “Maturity Date”). The August 2018 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 August 2018 Power Up Note becomes payable, whether at the Maturity Date or upon
acceleration or by prepayment, as described below.
Additionally,
Power Up has the option to convert all or any amount of the principal face amount of the August 2018 Power Up Note, starting on
February 24, 2019 at a conversion price of shall be $0.065, subject to certain Market Price (as defined below) adjustment. If
the Market Price is greater than or equal to $0.10, the conversion price shall be the greater of 65% of the Market Price (“Variable
Conversion Price”) and $0.065. In the event Market Price is less than $0.10, the conversion price shall be the Variable
Conversion Price. As defined in the May 2018 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 $396,380 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 August 2018 Power Up Note may be prepaid by the Company until 180 days
from the issuance date.
Upon
an event of default, interest on the outstanding principal shall accrue at a default interest rate of 22% per annum. In the event
that the Company fails to deliver to Power Up shares of common stock issuable upon conversion of principal or interest under the
August 2018 Power Up Note within three business days of a notice of conversion by Power Up, the Company shall incur a penalty
of $500, provided, however, that such fee shall not be due if the failure to deliver the shares is a result of a third party such
as the transfer agent.
The
Company has recorded $395 of accrued interest as of September 30, 2018 for the August 2018 Power Up Note. Total principal outstanding
under the August 2018 Power Up Note as of September 30, 2018 was $53,000.
The total principal amount outstanding
under the above Power Up financing agreements, specifically the July 24, 2017, the January 22, 2018, the March 5, 2018, the May
15, 2018 and the August 28, 2018 agreements, was $106,000 as of September 30, 2018 and accrued interest thereunder totaled $1,638.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
JSJ
Investments, Inc. Financing Agreement
Effective
June 26, 2018, the Company issued a convertible promissory note (the “June 2018 JSJ Note”) to JSJ Investments, Inc.
(“JSJ”) in the aggregate principal amount of $113,000, with principal and the interest thereon convertible into shares
of the Company’s common stock at the option of JSJ any time after 180 days of issuance. At the time of closing on June 27,
2018, JSJ deducted $3,000 from the principal payment due under the June 2018 JSJ Note to be applied to its legal expenses, such
that the Company received aggregate net proceeds of $110,000 at closing.
The
maturity date of the June 2018 JSJ Note is June 26, 2019, unless extended for up to one year at JSJ’s discretion (the “Maturity
Date”). The June 2018 JSJ Note bears interest at a rate of 8% per annum, and after the maturity date shall compound quarterly.
Additionally,
JSJ has the option to convert all or any amount of the principal face amount of the June 2018 JSJ Note, at any time beginning
December 23, 2018, for shares of the Company’s common stock at a price equal to 65% 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 JSJ (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. Notwithstanding the foregoing, JSJ shall
be restricted from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially
owned by JSJ and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock. The June 2018 JSJ
Note is treated as stock settled debt under ASC 480 and accordingly the Company recorded a $60,846 put premium.
The
June 2018 JSJ Note may be prepaid until December 23, 2018. If the June 2018 JSJ Note is prepaid within 90 days of the issuance
date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; if the JSJ Note is prepaid after
90 days from the issuance date, but prior to 121 days from the issuance date, then the prepayment premium shall be 140% of the
face amount plus any accrued interest; and if the June 2018 JSJ Note is prepaid after 120 days from the issuance date, but prior
to 180 days from the issuance date, then the prepayment premium shall be 145% of the face amount plus any accrued interest.
The
Company shall at all times reserve a minimum of four times the number of shares required if all outstanding principal, and interest
under the June 2018 JSJ Note would be fully converted, and JSJ may reasonably request increases from time to time to reserve share
amounts.
The
June 2018 JSJ Note contains certain events of default, including failure to timely issue shares upon receipt of a notice of conversion,
failure to give at least 20 days notice of a reverse split, and failure to file all reports required to be filed by it with the
SEC or the OTC Markets to remain a “Current Information” designated company, as well as certain customary events of
default, including, among others, a breach of the covenants, insolvency, bankruptcy and failure by the Company to pay the principal
and interest due under the June 2018 JSJ Note.
Upon
an event of default, interest on the outstanding principal shall accrue at a default interest rate of 18% per annum or at the
highest rate permitted by law. Amounts due under the June 2018 JSJ Note in the event of a default shall be based on the value
of the underlying conversion shares and calculated off of the highest price of the Company’s common stock at any time between
June 26, 2018 and the date of the event of default. In addition, for the first three occurrences of an event of default, the conversion
discount shall be increased by 5% for each occurrence of a default.
The
Company has recorded $2,402 of accrued interest as of September 30, 2018 for the June 2018 JSJ Note. Total principal outstanding
under the June 2018 JSJ Note as of September 30, 2018 was $113,000.
Coventry
Enterprises, LLC Financing Agreement
Effective
June 29, 2018, the Company entered into a securities purchase agreement with Coventry Enterprises, LLC (“Coventry Enterprises”),
pursuant to which Coventry Enterprises purchased two 8% unsecured convertible promissory notes from the Company in the aggregate
principal amount of $200,000, such principal and the interest thereon convertible into shares of the Company’s common stock
at the option of Coventry Enterprises.
The
purchase price of $100,000 of the first note (the “July 2018 Coventry Note”) was paid in cash by Coventry Enterprises
on July 2, 2018. After payment of certain legal fees and expenses, net proceeds to the Company from the First Note totaled $95,000.
The purchase price of $100,000 of the second note (the “July 2018 Coventry Back-End Note”) was initially paid for
by the issuance of an offsetting $100,000 collateralized secured note issued to Company by Coventry Enterprises (the “July
2018 Coventry Enterprises Note”). The terms of the July 2018 Coventry Back-End Note require cash funding prior to any conversion
thereunder. The July 2018 Coventry Back-End Note is due February 29, 2019, unless certain conditions are not met, in which case
both the July 2018 Coventry Back-End Note and the July 2018 Coventry Enterprise Note may both be cancelled. On September 6, 2018,
the Company received payment of the July 2018 Coventry Enterprise Note in the amount of $100,000 that offset the July 2018 Coventry
Back-End Note. Proceeds from the July 2018 Coventry Enterprise Note of $5,000 were paid directly to legal fees resulting in net
cash proceeds of $95,000 received by the Company. As a result, the July 2018 Coventry Back-End Note is now convertible.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The
maturity date of the July 2018 Coventry Note and the July 2018 Coventry Back-End Note is June 29, 2019. The outstanding principal
amounts plus accrued interest under both the July 2018 Coventry Note and the July 2018 Coventry Back-End Note are convertible
into shares of common stock of the Company at a conversion price equal to 61% of the lowest closing bid price of the Company’s
common stock as reported on the exchange or quotation system on which the Company’s shares are then traded for the ten prior
trading days including the day upon which a notice of conversion is received by the Company from Coventry Enterprises. Coventry
Enterprises shall be restricted from effecting a conversion if such conversion, along with other shares of the Company’s
common stock beneficially owned by Coventry Enterprises and its affiliates, exceeds 9.9% of the outstanding shares of the Company’s
common stock. Both the July 2018 Coventry Note and the July 2018 Coventry Back-End Notes are treated as stock settled debt under
ASC 480 and accordingly the Company recorded a $63,934 put premium as each of the notes was funded. The Company has recorded $2,296
of accrued interest as of September 30, 2018 for the July 2018 Coventry Note and total principal outstanding as of September 30,
2018 was $71,250 as $28,750 was converted during the three months ended September 30, 2018 (see Note 6 – Stockholders’
Deficit). The Company has recorded $658 of accrued interest as of September 30, 2018 for the July 2018 Coventry Back-End Note.
Total principal outstanding under the July 2018 Coventry Back-End Note as of September 30, 2018 was $100,000. The July 2018 Coventry
Note may be prepaid by the Company with certain penalties until 180 days from the issuance date. The July 2018 Coventry Back-End
Note may not be prepaid by the Company.
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
Company recorded $50,000 of debt discounts related to the above note issuances during the three months ended September 30, 2018.
The debt discounts are being amortized over the term of the debt.
Amortization
of all debt discounts for the three months ended September 30, 2018 and 2017 was $217,928 and $214,472, respectively.
See
Note 11 – Subsequent Events for information about financing arrangements post September 30, 2018.
NOTE
6 – STOCKHOLDERS’ DEFICIT
On
September 21, 2018, the Company filed a Certificate of Incorporation to increase the number of authorized shares of the Company’s
common stock from 400,000,000 to 4,000,000,000, which was approved by the Company’s board of directors and holders of a
majority of the Company’s voting stock on August 28, 2018.
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, $0.01 par value per share
(“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 and Chief Financial
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, Chief Financial 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 September 30,
2018.
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, $0.01 par value per share (“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 September 30, 2018. Mr. Nathanielsz directly beneficially owns such one share of Series B Preferred Stock.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Common
Stock:
Shares
issued for conversion of convertible debt
During the three months ended September 30,
2018, the Company issued 129,142,548 shares of its common stock at an average conversion price of $0.01, ranging from $0.002 to
$0.04, as a result of the conversion of principal and interest in the aggregate amount of $1,413,317 underlying certain outstanding
convertible notes converted during such period.
The
Company has 232,471,581 shares of its common stock reserved for future issuances based on lender requirements at September 30,
2018.
Warrants:
On August 29, 2018, the Company received payment
of $39.24 AUD for the exercise of a warrant for 12,000 shares of the Company’s common stock and issued such shares as
a result of the exercise.
No
warrants were issued during the three months ended September 30, 2018.
As
of September 30, 2018, there were 133,517 warrants outstanding and exercisable with expiration dates commencing December 2018
and continuing through November 2020, with a weighted average exercise price per share of $11.84.
Options:
As
of September 30, 2018, the Company had entered into agreements to grant options to purchase 572,000 shares of its common stock,
with a weighted average exercise price per share of $7.50.
No
stock options were issued during the three months ended September 30, 2018.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
From
time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the
normal course of business. As of September 30, 2018, there were no pending or threatened lawsuits that could reasonably be expected
to have a material effect on the results of the Company’s operations or business.
IRS
Liability
As
part of its requirement for having a foreign operating subsidiary, the Company 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. 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.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 4, 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 $3,300 AUD or $2,414
USD, inclusive of GST (See Note 8 – Related Party Transactions).
Future
minimum operating lease commitments consisted of the following at September 30, 2018:
Fiscal Year Ended June 30,
|
|
|
Amount
(USD)
|
|
|
Remainder 2019
|
|
|
$
|
21,497
|
|
|
2020
|
|
|
$
|
28,662
|
|
|
2021
|
|
|
$
|
28,662
|
|
Rent
expense for the three months ended September 30, 2018 and 2017 were $8,078 and $8,830, respectively.
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 $1,639,192 of costs to date under this contract which 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.
Investment
Banking Agreement
On February 23, 2018,
the Company entered into an agreement with an effective date of February 14, 2018 with a certain investment bank (the “Investment
Bank”), pursuant to which the Company retained the Investment Bank as its placement agent. The agreement terminates at the
close of business on September 30, 2018. As consideration for such services, the Company shall pay the Investment Bank 8% of the
total gross proceeds immediately upon closing a successful capital raise placement. Additionally, the Company shall also pay the
Investment Bank non-callable warrants for shares of the Company’s common stock equal to 4% of the proceeds raised. The warrants
will have a purchase price equal to 110% of the implied price per share of the placement or 110% of the public market closing
price of the Company’s common stock on the date of placement, whichever is lower, and will have an exercise period of five
years after the closing of the placement. As of September 30, 2018, no funds have been raised pursuant to this agreement
and the agreement expired on its terms.
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 ($60,330 USD) in year one and a maximum of 40,000 Euros ($46,408 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.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 September 30, 2018 and June 30, 2018, the Company owed a current and a former director a total of $53,561 and $54,753,
respectively, for money loaned to the Company throughout the years. The total loans balance owed at September 30, 2018 and June
30, 2018 is not interest bearing (See Note 4 – Loans and Note Payable).
As
of September 30, 2018 and June 30, 2018, the Company owed its former director a total of $32,182 and $32,898, 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 Parties).
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 $39,600 AUD or $28,662 USD, which includes $3,600 AUD or $2,606
USD of goods and service tax for total payments of $198,000 AUD or $143,312 USD during the term of the lease. As of September
30, 2018, total payments of $108,900 AUD or $78,821 USD remain on the lease.
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 expired on February 25, 2018; 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 September 30, 2018. The Nathanielsz Employment Agreement provides
Mr. Nathanielsz with a base salary of $25,000 AUD per month ($300,000 AUD annually or US$231,984.99) 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 .The
Company also agreed to pay Mr. Nathanielsz an annual discretionary bonus in an amount up to 200% of his annual base salary, which
bonus shall be determined by the board of directors and based upon the performance of the Company. On March 16, 2018, the Company’s
board of directors approved an increase of AU$100,000 (US$77,328.33) in Mr. Nathanielsz’ annual base salary, from AU$300,000
(US$231,984.99) to AU$400,000 (US$309,313.32), effective immediately.
Mr.
Nathanielsz’s wife, Sylvia Nathanielsz, is and has been a non-executive part-time employee of our Company since October
2015. Effective February 1, 2018. Mrs. Nathanielsz receives an annual salary of $86,856 and is entitled to customary benefits.
Pursuant
to a February 25, 2016 board resolution, James Nathanielsz shall be paid $4,481 AUD ($3,243 USD), on a monthly basis for the purpose
of acquiring and maintaining an automobile. For the three months ended September 30, 2018, a total of $9,730 in payments have
been made with regards to the board resolution.
Pursuant
to the approval of the board of directors, on March 16, 2018, Mr. Nathanielsz was granted a $300,000 AUD bonus for accomplishments
achieved while serving as the Company’s chief executive officer during the fiscal years ended June 30, 2018. A total of
$80,046 AUD in payments were made in the year ended June 30, 2018. During the three months ended September 30, 2018, an additional
$40,000 AUD ($28,952 USD) was paid. The balance of the accrued bonus as of September 30, 2018 was $179,954 AUD ($130,251 USD).
NOTE
9 – CONCENTRATIONS AND RISKS
Concentration
of Credit Risk
The
Company maintains its cash in banks and financial institutions in Australia. Bank deposits in Australian banks are uninsured.
The Company has not experienced any losses in such accounts through September 30, 2018.
Receivable
Concentration
As
of September 30, 2018 and June 30, 2018, the Company’s receivables were 100% related to reimbursements on GST taxes paid.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
Patent
and Patent Concentration
The
Company has filed six 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, Europe, Australia, China, Japan, Indonesia, Israel, New Zealand, Singapore,
Malaysia, South Africa and Mexico. In Brazil, Canada, Hong Kong, and Republic of Korea, 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.
1
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 is scheduled to enter 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 September 30, 2018 and June 30, 2018, the Company’s operations are based in Camberwell, Australia, however the majority
of research and development is being conducted in the European Union.
On
July 22, 2016, the Company formed a wholly owned subsidiary, Propanc (UK) Limited under the laws of England and Wales for the
purpose of submitting an orphan drug application with the European Medicines Agency as a small and medium-sized enterprise. As
of September 30, 2018, there has been no activity within this entity.
NOTE
10 - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative
Financial Instruments:
The
Company applies the provisions of ASC 815-40,
Contracts in Entity’s Own Equity
, under which convertible instruments
and warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt
from derivative accounting treatment. As a result, warrants and embedded conversion options in convertible debt are recorded as
a liability and are revalued at fair value at each reporting date. If the fair value of the warrants exceeds the face value of
the related debt, the excess is recorded as change in fair value in operations on the issuance date. The Company had $115,000
of convertible debt, which is treated as derivative instruments outstanding at September 30, 2018.
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 September 28, 2018, the last trading day of the quarter, was $0.085. Volatility,
expected remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at September 30,
2018 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
three months ended
September
30, 2018)
|
|
|
September
30, 2018
|
|
Volatility
|
|
|
294.92
|
%
|
|
|
376.75%
– 351.70
|
%
|
Expected
Remaining Term (in years)
|
|
|
1
|
|
|
|
.62
- .91
|
|
Risk
Free Interest Rate
|
|
|
2.47
|
%
|
|
|
2.36%
- 2.59
|
%
|
Expected
dividend yield
|
|
|
None
|
|
|
|
None
|
|
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
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 September 30,
2018:
|
|
Balance at
September 30, 2018
|
|
|
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
|
|
$
|
157,377
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
157,377
|
|
Total
|
|
$
|
157,377
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
157,377
|
|
The
following is a roll forward for the three months ended September 30, 2018 of the fair value liability of price adjustable
derivative instruments:
|
|
Fair Value of
|
|
|
|
Liability for
|
|
|
|
Derivative
|
|
|
|
Instruments
|
|
Balance at June 30, 2018
|
|
$
|
371,532
|
|
Reductions due to conversions
|
|
|
(1,388,764
|
)
|
Reductions due to repayment of debt
|
|
|
(846,507
|
)
|
Initial fair value of embedded conversion option derivative liability recorded as debt discount
|
|
|
50,000
|
|
Initial fair value of embedded conversion option derivative liability recorded as change in fair value of embedded conversion option
|
|
|
346,380
|
|
Change in fair value included in statements of operations
|
|
|
1,624,736
|
|
Balance at September 30, 2018
|
|
$
|
157,377
|
|
NOTE
11 – SUBSEQUENT EVENTS
Notes
Conversions
From
October 1, 2018 through the date of this Quarterly Report, the Company issued 20,773,474 shares of its common stock at an average
conversion price of $0.04, ranging from $0.03 to $0.04, as a result of the conversion of principal and interest in the aggregate
amount of $785,831 underlying certain outstanding convertible notes converted during such period.
October
2, 2018 Eagle Equities 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 Eagle Purchase Agreement closed on October 3, 2018. Pursuant to the terms of the Eagle 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 Company intends to use the net proceeds from the October 2018 Eagle Note for general working capital purposes.
The
maturity date of the October 2018 Eagle Note is 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 2018 Eagle Note may be prepaid with certain penalties until
March 31, 2019.
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(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.
October
2, 2018 GS Capital 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 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 Company intends to use the proceeds from the October 2018 GS Note for general working capital purposes. The purchase price
of $106,000 of the second note (the “October 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 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 2018 GS Note and the October 2018 Back End Note 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 may be prepaid until 180 days from the issuance date with certain penalties. The October 2018 GS Back End
Note may not be prepaid. However, in the event that the October 2018 GS Back End Note has not been cash paid and the October 2018
GS Note is redeemed within the first six months of issuance, the October 2018 GS Back-End Note will be deemed cancelled and of
no further effect. The October 2018 GS Back End Note is not convertible until it is funded in cash on or before June 2, 2019,
subject to certain restrictions. The Company has reserved 3,949,000 shares of its common stock for conversions under the October
2018 GS Note.
The
October 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.
October
5, 2018 Equity Purchase Agreement
On
October 5, 2018 (the “Closing Date”), the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”)
with an institutional accredited investor (the “Investor”) pursuant to which the Investor committed to purchase up
to $10,000,000 (the “Maximum Amount”) of the Company’s common stock (the “Financing”). On the Closing
Date, the Company issued 3,850,597 shares of the Company’s common stock to the Investor as a commitment fee (the “Commitment
Shares”), which are subject to a lock-up/leak-out limitation as described below. In connection with the Financing, on the
Closing Date, the Company and the Investor also entered into a Registration Rights Agreement (the “Registration Rights Agreement”,
and together with the Purchase Agreement, the “Transaction Documents”). The Company will receive net proceeds from
the sale of the Put Shares directly to the Investor pursuant to the Purchase Agreement, however, the Company will not receive
any proceeds from the resale of the Put Shares by the Investor thereafter.
Upon
filing and effectiveness of the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on
October 30, 2018, and provided other closing conditions are met, from time to time over the term of the Purchase Agreement, the
Company shall have the right, but not the obligation, to direct the Investor to purchase shares of the Company’s common
stock (the “Put Shares”) in a maximum amount of $1,000,000, provided that the number of Put Shares shall not exceed
250% of the Average Daily Trading Volume (as defined in the Purchase Agreement). At any time and from time to time during the
3-year term of the Purchase Agreement (the “Commitment Period”), the Company may deliver a notice to Investor (the
“Put Notice”) and shall deliver the Put Shares to Investor via DWAC (as defined in the Purchase Agreement) within
two trading days. The purchase price (the “Purchase Price”) for the Put Shares shall equal 87.5% of the one lowest
daily volume weighted average price on the Principal Market (as defined in the Purchase Agreement) (as reported by Bloomberg Finance
L.P.) during the five trading days immediately following the date the Investor receives the Put Shares via DWAC associated with
the applicable Put Notice (the “Valuation Period”). The closing of a Put Notice shall occur within one trading day
following the end of the respective Valuation Period, whereby (i) the Investor Shall deliver the Investment Amount (as defined
below) to the Company by wire transfer of immediately available funds and (ii) Investor shall return surplus Put Shares if the
value of the Put Shares delivered to the Investor causes the Company to exceed the maximum commitment amount. The Company shall
not deliver another Put Notice to Investor within ten trading days of a prior Put Notice. The “Investment Amount”
means the aggregate Purchase Price for the Put Shares purchased by the Investor, minus clearing costs payable to the Investor’s
broker or to the Company’s transfer agent for the issuance of the Put Shares (the “Clearing Costs”).
PROPANC
BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(unaudited)
The
right of the Company to issue and sell the Put Shares to the Investor is subject to the satisfaction of certain closing conditions,
including, but not limited to, (i) the Company’s Registration Statement on Form S-1 registering for resale by the Investor
of the Put Shares and Commitment Shares (the “Registration Statement”) being declared effective by the U.S. Securities
and Exchange Commission, (ii) accuracy of the Company’s representations and warranties, (iii) the Company’s performance
under the Purchase Agreement in all material respects, (iv) no suspension of trading or delisting of common stock, (v) limitation
of the Investor’s beneficial ownership to no more than 9.99%, (vi) the Company maintaining its DWAC-eligible status, (vii)
the Company maintaining a sufficient share reserve, and (viii) the minimum pricing for the Put Shares must exceed $0.0001.
Pursuant
to the terms of the Registration Rights Agreement, the Company agreed to file the Registration Statement by January 5, 2019.
The
Investor agreed, for a period of 180 days from the Closing Date, not to sell, on any given day, a number of Commitment Shares
that exceeds the greater of (i) 5% of the average daily trading volume of the Company’s shares of common stock for the period
ended one trading day prior to the date of such sale, as reported on the Principal Market; and (ii) such number of Commitment
Shares that equals (x) $5,000, divided by, (y) the closing price of the Company’s shares of common stock one trading day
prior to the date of such sale, as reported on the Principal Market.
Effective
as of the Closing Date, the Company reserved 462,071,621 shares of its common stock from its authorized and unissued shares of
common stock to provide for all issuances of shares of common stock under the Transaction Documents (in the event that the Company
issues and sells the Put Shares up to the Maximum Amount) and is required to reserve and keep available out of its authorized
and unissued shares of common stock a number of shares of common stock at least three times the number of shares of common stock
obtained by dividing the remaining balance on the maximum commitment amount by the Purchase Price.
While
the Company has the obligation to maintain such reserve while the Purchase Agreement is effective, the Company does not have the
obligation to sell any Put Shares to the Investor. Neither the Investor, nor any affiliate of the Investor acting on its behalf
or pursuant to any understanding with it, will execute any short sales during the period from the date hereof to the end of the
Commitment Period.
On October 30, 2018, pursuant to the Purchase
Agreement, the Company executed a put notice for the Investor to purchase 2,000,000 shares of the Company’s common stock.
The Company received gross proceeds of $79,398 from such put notice on or about November 7, 2018. On November 6, 2018,
pursuant to the Purchase Agreement, the Company executed a put notice for the Investor to purchase 2,000,000 shares of the Company’s
common stock. The Company expects to receive gross proceeds of approximately $72,000 from such put notice on or
about November 12, 2018. Pursuant to the Purchase Agreement, the purchase price per share to be paid by the Investor to
the Company equals to 87.5% of the one lowest daily volume weighted average price during the five trading days following the date
of the applicable put notice (see above).
Pre-Payment of May 2018 Power Up
Note
On November 7, 2018, the Company prepaid
the outstanding principal balance of $53,000 and related accrued interest of $1,696 that was due under the May 2018 Power Up Note.
The Company incurred a penalty in the amount of $20,715 as a result of the pre-payment.