Propanc Biopharma, Inc 10-K for FY2021
Propanc Biopharma, Inc. (PPCB)
About this 10-K
Propanc Biopharma, Inc filed this 10-K on September 28, 2021, covering the fiscal year ended June 30, 2021 (FY2021).
Headline figures
Fiscal year ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $2.42M
- compared with a net loss of $4.74M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Common Stock, par value $0.001 per share
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by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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The
aggregate market value of the voting and non-voting common equity held by non-affiliates was $
As of September 24, 2021, there were shares of common stock, par value $0.001 issued and outstanding.
Documents Incorporated by Reference: None
PROPANC BIOPHARMA, INC.
TABLE OF CONTENTS
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Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “might,” “will,” “will likely result,” “would,” “should,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan,” “project,” “forecast,” “anticipate,” “seek,” “continue,” “target” or the negative of such terms or other similar expressions. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements.
The following important factors, among others, could affect our future results and events, causing those results and events to differ materially from those views expressed or implied in our forward-looking statements: our ability to continue as a going concern absent new debt or equity financings; our ability to successfully remediate material weaknesses in our internal controls; our ability to reach research and development milestones as planned and within proposed budgets; our ability to control costs; our ability to successfully implement our expansion strategies; our current reliance on substantial debt financing that we currently are unable to repay in cash; our ability to obtain adequate new financing; our ability to successfully develop PRP, our lead product candidate; our ability to successfully develop and market our technologies; our ability to obtain and maintain patent protection; our ability to recruit employees and directors with accounting and finance expertise; our dependence on third parties for services; our dependence on key executives; the impact of government regulations, including U.S. Food and Drug Administration regulations; the impact of any future litigation; the availability of capital; changes in economic, business and competitive conditions; and other risks. Any one or more of such risks and uncertainties could have a material adverse effect on us or the value of our common stock.
All forward-looking statements included in this Form-10-K are made only as of the date of this Annual Report or as of the date indicated. We do not undertake any obligation to, and may not, publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or which we hereafter become aware of, except as required by law. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this Annual Report and any documents incorporated herein by reference. You should read this Annual Report and the documents that we incorporate by reference into this Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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PART I
Item 1. Business
GENERAL
As used in this Annual Report, references to the “Company,” “Propanc,” “we,” “our,” and “us” refer to Propanc Biopharma, Inc. and its consolidated subsidiary, unless otherwise indicated. In addition, references to our “financial statements” are to our consolidated financial statements included elsewhere in this Annual Report except as the context otherwise requires.
We prepare our consolidated financial statements in United States dollars and in accordance with generally accepted accounting principles as applied in the United States, (“U.S. GAAP”). In this Annual Report, references to “$” and “dollars” are to United States dollars.
OVERVIEW
Propanc Biopharma is a biopharmaceutical company developing a novel approach to prevent recurrence and metastasis from solid tumors by using pancreatic proenzymes that target and eradicate cancer stem cells in patients suffering from pancreatic, ovarian and colorectal cancers. Our novel proenzyme therapy is based on the science that enzymes stimulate biological reactions in the body, especially enzymes secreted by the pancreas. These pancreatic enzymes could represent the body’s primary defense against cancer.
Our lead product candidate, PRP, is a variation upon our novel formulation and involves proenzymes, the inactive precursors of enzymes. As a result of positive early indications of the anti-cancer effects of our technology, we have conducted successful pre-clinical studies on PRP and also commenced preparation for a clinical study in advanced cancer patients. Subject to us receiving sufficient financing, we plan to begin our Investigational Medicinal Product Dossier, study proposal and Investigator’s Brochure in the 2021 calendar year. Our plan is to then commence our study preparation process with the contract research organization, analytical lab and trial site(s) selection and to begin our clinical trial application for PRP (“CTA”) compilation in the first calendar quarter of 2022 and complete the CTA compilation and submit the CTA in the first half of 2022. In the second quarter of 2022, we plan to begin the preparation of logistics and trial site initiation visits. Subject to raising additional sufficient capital, we subsequently plan to commence a First-In-Human (FIH), Phase Ib study in patients with advanced solid tumors, evaluating the safety, pharmacokinetics and anti-tumor efficacy of PRP in the second half of 2022 calendar year, which study we hope to complete within twelve months thereafter. We intend to develop our PRP to treat early-stage cancer and pre-cancerous diseases and as a preventative measure for patients at risk of developing cancer based on genetic screening.
PRP is an intravenous injection proenzyme treatment designed as a therapeutic option in cancer treatment and prevention. PRP is a combination of the pancreatic proenzymes, trypsinogen and chymotrypsinogen. PRP produces multiple effects on cancerous cells intended to inhibit tumor growth and potentially stop a tumor from spreading through the body.
We received notification from the U.S. Food and Drug Administration (FDA) that PRP had been conferred Orphan Drug Designation for the treatment of pancreatic cancer. This special status is granted when a rare disease or condition is implicated and a potential treatment qualifies under the Orphan Drug Act and applicable FDA regulations.
A Certificate for Advance Overseas Finding was received from the Board of Innovation and Science Australia to receive up to a 43.5% “cash back” benefit from overseas R&D expenses. The finding relates to the planned Phase 1 clinical trial – Multiple Ascending Dose Studies of proteolytic proenzymes for the treatment of advanced cancer patients suffering from solid tumors planned to be conducted at the Peter MacCallum Center, Melbourne, Australia. Overseas activities to be undertaken include the development of an analytical assay for the quantification of active pharmaceutical ingredients in the Company’s lead product candidate, PRP, and its manufacture of the finished product for the Phase 1 clinical trial.
Our POP1 joint research and drug discovery program is designed to produce a backup clinical compound to the lead product candidate, PRP. With the aim of producing large quantities of trypsinogen and chymotrypsinogen for commercial use, exhibiting minimal variation between lots and without sourcing the proenzymes from animals, Propanc Biopharma is undertaking a challenging research project in collaboration with the Universities of Jaén and Granada. We entered into a second two-year joint research and collaboration agreement with the University of Jaén who are undertaking the research activities for the POP1 program.
OUR FOCUS
Cancer occurs when cells in the body start to divide quickly and uncontrollably with an ability to migrate from one location and spread to distant sites. A cell becomes cancerous when it becomes undifferentiated. The cell forgets to do its job and invests all its energy to proliferating. Unlike normal cells, cancer cells multiply, but do not differentiate.
Common cancer therapies take advantage of the uncontrolled proliferation of the cancer cells and kill these cells by targeting the cell division machinery. These therapies are effective but affect healthy cells as well, particularly those with a high rate of cell turnover, inducing undesirable side effects.
Our goal is to stop cancer not by targeting tumor cell death, but inducing cell differentiation. This is known as differentiation therapy. The key focus is to convince the malignant cells to stop proliferating and return to do their work as a specific cell type. Differentiation therapy does not target cell death, so healthy cells within the patient will not be compromised, unlike chemotherapeutic drugs or gamma irradiation.
Differentiation therapy induces the cancer cells into the pathway of terminal differentiation and eventual senescence (i.e., a non-proliferative state). Differentiation therapy acts not only against cancer cells, but interestingly can turn cancer stem cells (undifferentiated cells) towards completely differentiated (i.e., normal) cells.
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There are natural elements within our body that could help us fight against cancer. Enzymes are natural proteins that stimulate and accelerate biological reactions in the body. Particularly enzymes secreted by the exocrine pancreas that are essential for the digestion of proteins and fats. More than one hundred years ago, Professor John Beard first proposed that pancreatic enzymes represent the body’s primary defense against cancer and would be useful as a cancer treatment. Since then, several scientists have endorsed Beard´s hypothesis with encouraging data from patient treatment.
We are developing a long-term therapy based on a pancreatic proenzyme formulation to prevent tumor recurrence and metastasis, the main cause of patient death from cancer. PRP is a novel, patented, formulation consisting of two proenzymes mixed in a synergetic ratio.
After extensive laboratory research and a limited amount of human data, we have evidence that PRP:
| ● | Reduces cancer cell growth via promotion of cell differentiation; | |
| ● | Enhances cell adhesion and may suppress metastasis progression; | |
| ● | Exhibited no observable serious side effects and improves patient survival. |
PRP
PRP is a mixture of two proenzymes, trypsinogen and chymotrypsinogen from bovine pancreas administered by intravenous injection. A synergistic ratio of 1:6 inhibits growth of most tumor cells. Examples include kidney, ovarian, breast, brain, prostate, colorectal, lung liver, uterine and skin cancers.
Mechanism Of Action
Metastasis occurs because a program inside the cell, called the Epithelial-Mesenchymal Transition (EMT) is activated, which causes epithelial cancer cells to become invasive and stem cell-like, features which then allow these cancer cells to spread and metastasize. PRP reverses the conversion from an epithelial to a mesenchymal phenotype and, as such, may reduce the metastatic potential of the tumor cells. PRP also promotes the acquisition of a less malignant phenotype, in addition to a decrease in proliferation due to lineage (i.e., direct descent) specific cellular differentiation.
Selectivity
PRP treatment affects the TGFβ pathway, a significant tumor promoter in late-stage cancer. The likely molecular targets are proteinase-activated-receptors (PARs) type 1 and 2, which are over frequently overexpressed in many types of cancers. Trypsinogen and chymotrypsinogen are activated by proteases in the extracellular matrix of tumor cells. In turn, trypsin (activated trypsinogen) has a preference to activate PAR-2, whilst Chymotrypsin (activated chymotrypsinogen) mainly activates PAR-1.
Effects Against Cancer Stem Cells
Cancer Stem Cells are resistant to standard treatments because they remain dormant for long periods, then migrate to other organs, and trigger explosive tumor growth, causing the patient to relapse. Approximately eighty percent of cancers are from solid tumors and metastasis is the main cause of patient death. Our unique patented approach is designed to target and eradicate cancer stem cells not killed by radiation or chemotherapy.
PRP is designed to target and eradicate cancer stem cells not killed by radiation or chemotherapy. Traditional cancer therapies act on tumor replicating cells, but not cancer stem cells, so they can rebuild the tumor mass and can migrate to start a new tumor in another organ. PRP stops cancer stem cells so that a tumor loses the ability to generate new cells and therefore the tumor disappears with no option to form a metastatic tumor elsewhere.
PRP treatment regulates up to four relevant pathways related to cancer spread and metastasis of cancer stem cells. PRP acts on TGFβ, Hippo, Wnt and Notch pathways. It promotes the up-regulation of RAC1b which avoids the hyper-activation of the p38 pathway induced by the TGFβ pathway, leading to the phosphorylation of YAP, which sequesters B-catenin in the cytoplasm, blocking the canonical Wnt pathway and inhibiting the Notch pathway. That cascade of reactions implies the disruption of the cancer stem cell phenotype and the reversal of the malignant epithelial to mesenchymal transition process that leads to tumor invasion.
PRP Impairs Niche Formation and Tumor Initiation
The proenzyme treatment inhibits the expression of genes related to the cancer stem cell phenotype, changing these malignant cells toward a more differentiated and less dangerous cellular condition. PRP interferes with the signals that the primary tumor sends to other tissues to prepare the pre-metastatic niche.
In Vivo Efficacy of PRP In Pancreatic and Ovarian Tumors
The effect of the pro-enzyme formulation PRP at different doses on tumor weight in orthotopically implanted pancreatic and ovary tumors was evaluated. In the pancreatic tumor model, there was significant (*P < 0.05) reduction in mean tumor weight in animals treated for 26 days with trypsinogen/chymotrypsinogen at 83.3/500 mg/kg (30.2 mg; 85.9% inhibition) compared with control (PBS; 214.8 mg). Furthermore, ovary tumor-bearing mice showed a significant (*P < 0.05) reduction in mean tumor weight in animals treated for 21 days with two different doses of trypsinogen/chymotrypsinogen, 9.1/54 mg/kg and 27.5/165 mg/kg, compared with control (PBS). The mean weight of control group tumors was 2062.2 mg while the treated groups presented a mean tumor weight of 1074.2 mg and 957.3 respectively, ranging in a 50% tumor inhibition (52–46%).
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Overview Of Clinical Studies
The clinical efficacy of a suppository formulation containing bovine pancreatic pro-enzymes trypsinogen and chymotrypsinogen was evaluated in the context of a UK Pharmaceuticals Special Scheme and the results were published in a peer reviewed journal, Scientific Reports. Clinical effects were studied in 46 patients with advanced metastatic cancers of different origin (prostate, breast, ovarian, pancreatic, colorectal, stomach, non-small cell lung, bowel cancer and melanoma) after treatment with a rectal formulation of both pancreatic pro-enzymes.
No severe or serious adverse events related to the rectal administration were observed. Patients did not experience any hematological side effects as typically seen with classical chemotherapy regimens. No allergic reactions after rectal administration of suppositories were observed.
In order to assess the therapeutic activity of rectal administration, overall survival of patients under treatment was compared to the life expectancy assigned to a patient prior to treatment start. Nineteen from 46 patients (41.3%) with advanced malignant diseases, most of them suffering from metastases, had a survival time significantly longer than their expected, in fact, for the whole set of cancer types, mean survival (9.0 months) was significantly higher than mean life expectation (5.6 months). Although the number of patients per cancer indication is naturally quite low, 3 out of 8 patients with prostate cancer and 5 out of 11 patients with gastrointestinal cancers appear to particularly benefit from the treatment with the proenzyme suppositories.
PRP proves to be an in vivo effective and non-toxic anti-tumor treatment, able to inhibit angiogenesis and tumor growth, cancer cell migration and invasiveness. Furthermore, a suppository formulation containing both pancreatic proenzymes increased the life expectancy of advanced cancer patients. Consequently, PRP could have relevant oncological clinical applications for the treatment of solid tumors like advanced pancreatic adenocarcinoma and advanced epithelial ovarian cancer.
| Cancer Type | Life Expectation (months) |
Survival ** (months) | ||
| Pancreatic carcinoma (n = 4) | 2 | 8 | ||
| 4 | * | |||
| <3 | 7 | |||
| <3 | 4 | |||
| Ovarian Cancer (n = 7) | 4 | 11 | ||
| 6 | 12 | |||
| 6 | 11 | |||
| <12 | 38 | |||
| <1 | 1 | |||
| 4 | * | |||
| 3 | * | |||
| Breast Cancer (n = 6) | 6 | 9 | ||
| 6 | * | |||
| 2 | * | |||
| 12 | * | |||
| <12 | * | |||
| 12 | * | |||
| Colon Rectal Cancer (n = 5) | 6 | * | ||
| 6 | * | |||
| 12 | * | |||
| 6 | 40 | |||
| 12 | * | |||
| Gastric Cancer (n = 2) | 2 | 8 | ||
| <3 | 7 | |||
| Prostate Cancer (n = 8) | 4 | * | ||
| 1 | 5 | |||
| 4 | * | |||
| <12 | * | |||
| 12 | 14 | |||
| 12 | * | |||
| 12 | * | |||
| 12 | * | |||
| Non-Hodgkin Lymphoma (n = 1) | 2 | 9 | ||
| Mesothelioma (n = 1) | 3 | 9 | ||
| Melanoma (n = 2) | 6 | * | ||
| <3 | 4 | |||
| Neuro-endocrine Tumor (n = 1) | 10 | 24 | ||
| Bladder (n = 2) | <3 | * | ||
| 12 | * | |||
| NSCLS (n = 2) | 3 | 5 | ||
| 6 | * | |||
| Bowel (n = 2) | <12 | * | ||
| <3 | 3 | |||
| Small Cell Carcinoma (n = 1) | <12 | * | ||
| Renal Cancer (n = 1) | <3 | * | ||
| Abdomen unknown primary (n = 1) | <12 | * |
Overview of clinical studies. Patients who met prognosis of life expectation (*). For the whole set of cancer types, mean survival (9.0 months) was statistically significantly higher than mean life expectation (5.6 months). One way ANOVA (α = 0.05, P < 0.05).
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POP1 JOINT RESEARCH AND DRUG DISCOVERY PROGRAM
To date, both proenzymes were synthesized and purified in the laboratory. Once purified, the proenzymes were lyophilized (freeze dried) and each formed a stable, dry white powder. The sequence of proteins of each proenzyme were then determined by mass spectrometry. Larger quantities of the proenzymes were produced with the objective of establishing their combined anti-cancer effects against pancreatic and colorectal cancers. In addition, research activities were transferred to the MEDINA Foundation Research Center to investigate the potential to scale up production of the recombinant proenzymes from the expression of the novel expression system, which is currently ongoing. MEDINA is a Non-Profit Research Organization established in 2008 through a public-private alliance between the Regional Government of Andalusia, Spain, the pharmaceutical company Merck Sharp & Dohme de España S.A. (MSD), and the University of Granada. Medina’s scientific platforms support the development of multidisciplinary research programs in Microbiology, Natural Product Chemistry and Screening & Target Validation.
We are elucidating the molecular pathways involved in the proenzymes anti-tumor efficacy and study how proenzymes interact with the pre-metastatic tumor niche, focusing on the interaction and suppression of tumor associated cells, like cancer-associated fibroblasts and macrophages. A pre-metastatic tumor niche is an environment in a secondary organ conducive to the metastasis of a primary tumor. Such a niche provides favorable conditions for growth, and eventually metastasis, in an otherwise foreign and hostile environment for the primary tumor cells. Metastasis remains the main cause of patient death from solid tumors for cancer sufferers.
To achieve this, we are using integrated tumor models in a microfluidics chip by obtaining 3-dimensional bio-impression samples from patients with advanced solid tumors, developed at the Centre for Biomedical Research, University of Granada, Granada, Spain. As well as explaining the mechanism of action by which proenzymes exert their anti-cancer effects, it also confirms whether proenzymes penetrate into the tumor microenvironment and exert their effects. At the same time, it confirms the selectivity of the drug on solid tumors, by targeting cancer cells and leaving healthy cells alone.
To date, our investigation has confirmed that proenzyme therapy is effective against cancer stem cells, which are the cells responsible for the formation of secondary tumors through metastasis. They were also observed to be effective against cancer cells within the primary tumor, whilst also leaving non-tumor cells alone. The final part of the investigation is to determine the effects of the proenzymes against both these cancerous cell types within the tumor microenvironment.
Our Joint Research Team successfully published data confirming the anti-tumor potential of a mixture of trypsinogen and chymotrypsinogen. Treatment with proenzymes sensitizes cancer stem cells, which may allow standard treatment approaches like chemotherapy and radiotherapy to be more effective.
Our vision is to produce a backup product candidate to PRP which can further stabilize and enhance the effects of the proenzymes when administered to patients. Our scientific researchers are in the process of optimizing conditions to achieve high titers of recombinant trypsinogen and chymotrypsinogen with this expression system.
PRP TARGET INDICATIONS
The management of cancer differs widely, with a multitude of factors impacting the choice of treatment strategy. Some of those factors include:
| ● | the type of tumor, usually defined by the tissue in the body from which it originated; | |
| ● | the extent to which it has spread beyond its original location; | |
| ● | the availability of treatments, driven by multiple factors including cost, drugs approved, local availability of suitable facilities, etc.; | |
| ● | regional and geographic differences; | |
| ● | whether the primary tumor is amenable to surgery, either as a potentially curative procedure, or as a palliative one; and | |
| ● | the balance between potential risks and potential benefits from the various treatments and, probably most importantly, the patient’s wishes. |
For many patients with solid cancers, such as breast, ovarian, colorectal, lung and pancreatic cancer, surgery is frequently the first treatment option, often followed by first line chemotherapy with or without radiotherapy. While hopefully such procedures are curative, in many instances the tumor returns, and second line treatment strategies are chosen in an effort to achieve a degree of control over the tumor. In most instances, the benefit is temporary, and eventually the point is reached where the patient’s tumor either fails to adequately respond to treatment, or the treatment has unacceptable toxicity which severely limits its usefulness.
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Should the planned Phase I, II and III clinical trials confirm the efficacy of PRP, along with the favorable safety and tolerability profile suggested by pre-clinical studies conducted to date, we believe our product will have utility in a number of clinical situations including:
| 1. | In the early-stage management of solid tumors, most likely as part of a multi-pronged treatment strategy in combination with existing therapeutic interventions; | |
| 2. | As a product that can be administered long term for patients following standard treatment approaches, such as surgery, or chemotherapy, in order to prevent or delay recurrence; and | |
| 3. | As a preventative measure for patients at risk of developing cancer based on genetic screening. |
In the near term as part of our planned Phase I, II and III clinical trials, we plan to target patients with solid tumors, most likely ovarian and pancreatic, for whom other treatment options have been exhausted. This is a common approach by which most new drugs for cancer are initially tested. Once efficacy and safety has been demonstrated in this patient population, exploration of the potential utility of the drug in earlier stage disease can be undertaken, together with investigation of the drug’s utility in other types of cancers, such as gastro-esophageal tumors, colon or rectal carcinoma might be conducted. A Phase II study in a back-up indication, such as advanced therapy refractant prostate cancer will also be considered. This indication is based on positive preclinical pharmacology studies.
Pancreatic Cancer
Pancreatic cancer is one of the most lethal malignancies with a median survival of less than 6 months and a 5-year survival rate of less than 5%. The lethal nature of this disease stems from its propensity to rapidly disseminate to the lymphatic system and distant organs. This aggressive biology and resistance to conventional and targeted therapeutic agents leads to a typical clinical presentation of incurable disease at the time of diagnosis.
Pancreatic cancer has claimed notoriety over the last decades by proving to be one of the most recalcitrant solid tumors. As an indicator of its lethality, pancreatic cancer accounts for less than 3% of new cancers diagnosed annually in developed countries, yet it is the third leading cause of cancer related mortality.
Since pancreatic cancer is an essentially fatal condition, disease duration is roughly equivalent with survival time. The median time of survival of patients with pancreatic cancer depends on the extend of disease at the time of diagnosis and ranges from 11-20 months for patients who qualified for surgical resection (Stage I/II), to 6-11 months for patients with locally advanced disease (Stage III), and only 2-6 months for patients with metastatic disease (Stage IV) (Amikura 1995, Richter 2003). Taking these low survival times into consideration, the yearly incidence rates for pancreatic cancer are considered the more relevant measure for this disease.
Each year the American Cancer Society estimates the numbers of new cancer cases and deaths that will occur in the United States in the current year and compiles the most recent data on cancer incidence, mortality, and survival. Incidence data are collected by the National Cancer Institute (NCI), the Centers for Disease Control and Prevention (CDC), and the North American Association of Central Cancer Registries (NAACCR). In 2015, a total of more than 1,500,000 new cancer cases and more than 500,000 cancer deaths will occur in the United States. Amongst these, a total of almost 50.000 new cases of pancreatic cancer (3.33% of new cancer cases) have been estimated, which will result in more than 40,000 deaths (8% of cancer deaths). This means only 20% survival rate of patients diagnosed with pancreatic cancer.
Ovarian Cancer
Ovarian cancer is a generic term that can be used for any cancer involving the ovaries, arising from one of the several different cell types of ovaries, including germ cells, specialized gonadal stromal cells and epithelial cells. Epithelial ovarian cancer accounts for 90 percent of ovarian cancers and is responsible for most ovarian cancer related deaths. Furthermore, several subtypes of ovarian cancer have been described according to different risk factors, different genetic mutations, different biological behaviors and different prognoses. This heterogeneity of the disease has impeded progress in the prevention, early detection, treatment and management of ovarian cancer.
Ovarian cancer is the seventh most commonly diagnosed cancer among women in the world and accounts for an estimated 239,000 new cases and 152,000 deaths worldwide annually, of which 21,290 new cases and 14,180 related deaths are estimated to occur in the USA alone. The disease typically presents at late stage when the 5-year relative survival rate is only 29%. Few cases (15%) are diagnosed with localized tumor (stage 1), when the 5-year survival rate is 92%. Strikingly, the overall 5-year relative survival rate generally ranges between 30%–40% across the globe and has seen only very modest increases since 1995.
PRP DEVELOPMENT STRATEGY
Our goal is to undertake early-stage clinical development of PRP through to a significant value inflection point, where the commercial attractiveness of a drug in development, together with a greater likelihood of achieving market authorization, may attract potential interest from licensees seeking to acquire new products. Such value inflection points in the context of cancer drugs are typically at the point where formal, controlled clinical trials have demonstrated either ‘efficacy’ or ‘proof of concept’ – typically meaning that there is controlled clinical trial evidence that the drug is effective in the proposed target patient population, has an acceptable safety profile, and is suitable for further development. From a ‘big picture’ perspective, it is our intention to progress the development of our technology through the completion of our planned Phase IIa clinical trials and then to seek a licensee for further development beyond that point.
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As part of that commercial strategy, we will:
| ● | continue research and development to build our existing intellectual property portfolio, and to seek new, patentable discoveries; | |
| ● | seek to ensure all product development is undertaken in a manner that makes its products approvable in the major pharmaceutical markets, including the U.S., Europe, the UK, Australia and Japan; | |
| ● | aggressively pursue the protection of our technology through all means possible, including patents in all major jurisdictions, and potentially trade secrets; and | |
| ● | make strategic acquisitions to acquire new companies that have intellectual property or products that complement our future goals. |
PRP DEVELOPMENT PLAN AND MILESTONES
We plan to progress PRP down a conventional early-stage clinical development pathway for:
| ● | regulatory and/or ethics approval to conduct a Phase Ib study; and | |
| ● | Phase IIa multiple escalating dose studies to investigate the safety, tolerability, and pharmacokinetics of PRP administered intravenously to patients. |
Preclinical development has been completed, including pharmacology and safety toxicology studies, process development activities and bioanalytical method development. The full-scale GMP (Good Manufacturing Practice) finished product manufacture of PRP will be completed in preparation for the FIH Phase Ib study. Validation of the bioanalytical method will also be completed prior to lodging our first clinical trial application (CTA) which we plan to undertake at the Peter Mac Cancer Center in Melbourne, Victoria, Australia’s biggest cancer hospital. Propanc Biopharma is collaborating with contract research organizations, manufacturing partners and consultants to complete activities prior to preparing the CTA for the Phase Ib study.
The Company has received expressions of interest to evaluate proenzyme therapy as a method to prevent recurrence and metastasis of solid tumors in pancreatic and ovarian cancers. The letters of interest were confirmed by medical oncologists specializing in pancreatic and ovarian cancers, from the University Hospital of Jaén, in Granada, Spain. The evaluation will most likely be conducted as separate Phase IIa proof of concept (POC), multi-trial center studies for each target indication. The expressions of interest were confirmed after their evaluation of Propanc’s scientific literature supporting the use of proenzymes in pancreatic and ovarian cancers. The Phase IIa POC studies will be conducted after the Phase Ib dose escalation study investigating the tolerability and activity of proenzyme therapy in patients with advanced solid tumors is completed at the Peter Mac Cancer Center.
In Australia, we receive up to 43.5% “cash-back” benefit in the form of a refund of their qualified research and development costs and expenses. The Company received a refund of $151,767 AUD ($113,415 USD) and $199,834 AUD ($134,728 USD) for the years ended June 30, 2021 and 2020 respectively. We are continuing to evaluate all options to conduct our planned clinical trials in the most cost-efficient manner, while striving to minimize dilution to our stockholders.
We anticipate reaching the Phase IIa proof of concept milestone in approximately three to four years, subject to regulatory approval in Europe, and the results from our research and development and licensing activities.
Our overhead and expenses are likely to increase from its current level as PRP progresses down the development pathway. This increase will be driven by the need to increase our internal resources in order to effectively manage our research and development activities.
Anticipated timelines
In second quarter of 2022 calendar year, we anticipate the submission of the Clinical Trial Application for PRP. We anticipate receiving approval of such application in the first half of 2022. Following the clinical trial application, we plan to commence our Study Preparation, including CRO Selection and Contracts, Analytical Lab Selection Contracts and Trial Sites Selection and Contracts. In connection with the Clinical Trial Application, this product will be part of our Investigation Medicinal Product Dossier, Study Protocol and Investigator’s Brochure. In the second half of 2022 calendar year, we hope to complete the Study Preparation together with the Preparation of Logistics and Trial Sites Initiation Visits and complete our clinical trial application review. Commencing in the second half of 2022 calendar year, we intend to initiate a Phase Ib study in advanced cancer patients with solid tumors and the anticipated costs will be approximately $6.5 million. We will need to raise additional financing to fund our planned Phase I, II and III clinical trials and for working capital.
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| Research Activity | Timeline | |
| Clinical Trial Application (CTA) | Nov ‘21 - Apr ‘22 | |
| Investigational Medicinal Product Dossier | ||
| Phase Ib Clinical Study Protocol | ||
| Investigator’s Brochure | ||
| CTA Compilation | Mar - May ‘22 | |
| CTA submission | May ‘22 | |
| CTA Approval | Jun ‘22 | |
| CTA Review | June ‘22 – Jul ‘22 | |
| Contract Research Organization & Contracts | Jan – May ‘22 | |
| Analytical Laboratory Selection & Contracts | ||
| Trial Site Selection & Contracts | ||
| Preparation of Logistics | May – Sep ‘22 | |
| Trial Site Initiation Visits | ||
| First Patient/First Visit | Sep ‘22 |
POP1 JOINT RESEARCH AND DRUG DISCOVERY PROGRAM
As outlined previously, a joint research and drug discovery program has been established with our collaborators at the Universities of Jaén and Granada to investigate the changes in genetic and protein expression that occur in cancer cells as a consequence of being exposed to our proenzyme formulation. The objective of this work is to understand at the molecular level the targets of our proenzyme formulation, thereby providing the opportunity for new, patentable drugs which can be developed further. We plan to commence a targeted drug discovery program utilizing the identified molecular target to search for novel anticancer agents.
One specific objective of the project is to synthesize both proenzymes by an in vivo system to produce crystalized proteins that could be maintained for long periods without suffering degradation, even in absence of refrigeration. This will be particularly useful for a longer shelf life as well as global distribution of the drug product, particularly in warmer climates and developing regions where refrigeration may not be available.
The POP1 joint research and drug discovery program has produced synthetic recombinant versions of the two proenzymes, trypsinogen and chymotrypsinogen. Propanc Biopharma’s joint scientific researchers are developing a novel expression system and are also in the process of optimizing conditions to achieve high titers of recombinant trypsinogen and chymotrypsinogen. Further, the anticancer effects of the synthetic versions will be tested against the naturally derived proenzymes from bovine origin.
FINANCIAL OBJECTIVES
Multiple factors, many of which are outside of our control, can impact our ability to achieve our target objectives within the planned time and budgetary constraints. Subject to these caveats, our objective is to complete our planned Phase IIa study for PRP within the proposed budget.
We primarily outsource services, skills and expertise to third parties as required to achieve our scientific and corporate objectives. As the business grows and gains more personnel, outsourcing will continue to be the preferred model, where fixed and variable costs are carefully managed on a project-by-project basis. This means our research and development activities are carried out by third parties. Additional third parties with specific expertise in research, compound screening and manufacturing (including raw material suppliers) have been contracted as required.
CORPORATE STRATEGY
Our initial focus is to organize, coordinate and finance the various parts of our drug development pipeline. New personnel will be carefully introduced into our Company over a period of time as our research and development activities expand. They will have specific expertise in product development, manufacture and formulation, regulatory affairs, toxicology, clinical operations and business development (including intellectual property management, licensing and other corporate activities). In the first instance, additional clinical management and development expertise is likely to be required for our lead product. Therefore, we anticipate an increase in employees in order to effectively manage our contractors as the projects progress down the development pathway.
This outsourcing strategy is common in the biotechnology sector, and is an efficient way to obtain access to the necessary skills required to progress a project, in particular as the required skills change as the project progresses from discovery, through manufacturing and non-clinical development and into clinical trials. We anticipate that we will continue to use this model, thereby retaining the flexibility to contract in the appropriate resource as and when required.
We intend to seek and identify potential licensing partners for our product candidates as they progress through the various development stages, reaching certain milestones and value inflection points. If a suitable licensee is identified, a potential licensing deal could consist of payments for certain milestones, plus royalties from future sales if the product is able to receive approval from the relevant regulatory authorities where future product sales are targeted. We intend to seek and identify potential licensees based on the initial efficacy data from Phase II clinical trials. To accomplish this objective, we have commenced discussions with potential partners in our current preclinical phase of development.
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As part of our overall expansion strategy, from time to time, we investigate potential intellectual property acquisition opportunities to expand our product portfolio. While our initial focus is on the development of PRP as the lead product candidate, potential product candidates may also be considered for future preclinical and clinical development. These potential opportunities have arisen from other research and development organizations, which either own existing intellectual property or are currently developing new intellectual property, which may be of interest to us. These opportunities are possible new cancer treatments that are potentially less toxic than existing treatment approaches and are able to fill an existing gap in the treatment process, such as a systemic de-bulking method which could reduce the size and threat of metastases to a more manageable level for late-stage cancer patients.
We believe these potential treatment approaches will be complementary to existing treatment regimens and our existing product candidate, PRP. No formal approaches have been made at this stage and it is unknown whether we will engage in this discussion in the near future. However, as PRP progresses further down the development pathway, we intend to assess future opportunities that may arise to use the expertise of our management and scientific personnel for future prospective research and development projects.
CURRENT OPERATIONS
We are at a pre-revenue stage. We do not know when, if ever, we will be able to commercialize our products and begin generating revenue. We are focusing our efforts on organizing, coordinating and financing the various aspects of the drug research and development program outlined earlier in this document. In order to commercialize our products, we must complete preclinical development, Phase Ib, IIa and IIb clinical trials in Europe, the U.S., United Kingdom, Australia or elsewhere, and satisfy the applicable regulatory authority that PRP is safe and effective. If the results from the Phase II trials are convincing, we will seek conditional approval from the regulatory authorities sooner. Therefore, from the time we commence clinical trials, we estimate that this will take approximately three to four years if we seek conditional approval upon completion of Phase II trials. As described previously, when we advance our development projects sufficiently down the development pathway and achieve a major increase in value, such as obtaining interim efficacy data from Phase II clinical trials, we will seek a suitable licensing partner to complete the remaining development activities, obtain regulatory approval and market the product.
CURRENT THERAPIES
We are developing a therapeutic solution for the treatment of patients with advanced stages of cancer targeting solid tumors, which is cancer that originates in organs or tissues other than bone marrow or the lymph system. Common cancer types classified as solid tumors include lung, colorectal, ovarian cancer, pancreatic cancer and liver cancers. In each of these indications, there is a large market opportunity to capitalize on the limitations of current therapies.
Current therapeutic options for the treatment of cancer offer, at most, a few months of extra life or tumor stabilization. Some experts believe that drugs that kill most tumor cells do not affect cancer stem cells, which can regenerate the tumor (e.g., chemotherapy). Studies are revealing the genetic changes in cells that cause cancer and spur its growth. This research is providing scientific researchers with many potential targets for drugs. Tumor cells, however, can develop resistance to drugs.
Limitations of Current Therapies
PRP was developed because of the limitation of current cancer therapies. While surgery is often safe and effective for early-stage cancer, many standard therapies for late-stage cancer urgently need improvement; current treatments generally provide modest benefits, and frequently cause significant adverse effects. Our focus is to provide oncologists and their patients with therapies for metastatic cancer which are more effective than current therapies, and which have a substantially reduced side effect profile.
While progress has been made within the oncology sector in developing new treatments, the overall cancer death rate has only improved by 7% over the last 30 years.
Most of these new treatments have some limitations, such as:
| 1. | significant toxic effects; | |
| 2. | expense; and | |
| 3. | limited survival benefits. |
We believe that our treatment will provide a competitive advantage over the following treatments:
| ● | Chemotherapeutics: Side effects from chemotherapy can include pain, diarrhea, constipation, mouth sores, hair loss, nausea and vomiting, as well as blood-related side effects, which may include a low cell count of infection fighting white blood cells (neutropenia), low red blood cell count (anemia), and low platelet count (thrombocytopenia). Our goal is to demonstrate that our treatment will be more effective than chemotherapeutic and hormonal therapies with fewer side effects. | |
| ● | Targeted therapies: The most common type is multi-targeted kinase inhibitors (molecules which inhibit a specific class of enzymes called kinases). Common side effects include fatigue, rash, hand–foot reaction, diarrhea, hypertension and dyspnoea (shortness of breath). Further, tyrosine kinases inhibited by these drugs appear to develop resistance to inhibitors. While the clinical findings with PRP are early and subject to confirmation in future clinical trials, no evidence has yet been observed of the development of resistance by the cancer to PRP. |
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| ● | Monoclonal antibodies: Development of monoclonal antibodies is often difficult due to safety concerns. Side effects that are most common include skin and gastro-intestinal toxicities. For example, several serious side effects from Avastin, an anti-angiogenic cancer drug, include gastrointestinal perforation and dehiscence (e.g., rupture of the bowel), severe hypertension (often requiring emergency treatment) and nephrotic syndrome (protein leakage into the urine). Antibody therapy can be applied to various cancer types, but can also be limited to certain genetic sub populations in many instances. | |
| ● | Immunotherapy: There is a long history of attempts to develop therapeutic cancer vaccines to stimulate the body’s own immune system to attack cancer cells. While these products generally do not have the poor safety profile of standard therapeutic approaches, only a small number of them are FDA-approved and available compared to the number of patients diagnosed with cancer. Furthermore, only a relatively small number of the patient population is eligible to receive and subsequently respond to treatment, as defined by preventing tumor growth. |
MARKET OPPORTUNITY
The global metastatic cancer treatment market is predicted to reach $111 Billion by 2027 by Emergen Research. Demand for new cancer products can largely be attributed to a combination of a rapidly aging population in western countries and changing environmental factors, which together are resulting in rising cancer incidence rates. Worldwide, the World Health Organization estimated 19.3 million new cancer cases and almost 10.0 million cancer deaths occurred in 2020. As such, global demand for new cancer treatments which are effective, safe and easy to administer is rapidly increasing. Our treatment will potentially target many aggressive tumor types for which little or few treatment options exist.
We plan to target patients with solid tumors, most likely pancreatic and ovarian tumors, for whom other treatment options have been exhausted. Globally these cancers resulted in over 673,255 deaths in 2020, according to the World Health Organization. With such a high mortality rate, a substantial unmet medical need exists for new treatments. Once the efficacy and safety of PRP has been demonstrated in late-stage patient populations, we plan to undertake exploration of the utility of the drug in earlier stage disease, together with investigation of the drug’s utility in other types of cancer.
Anticipated Market Potential
It is difficult to estimate the size of the market opportunity for this specific type of product as a clinically proven, pro-enzyme formulated suppository marketed to oncologists across global territories for specific cancer indications, to the best of management’s knowledge, has not been previously available. However, the markets for potential market for pancreatic and ovarian cancers may be characterized as follows:
| ● | The world market for pancreatic cancer drugs is projected to grow to $4.2 billion by the year 2025, according to Grandview Research. Major players operating in the pancreatic cancer therapy market include Eli Lilly and Company, F. Hoffmann-La Roche AG, Celgene Corporation, Amgen Inc., Novartis AG, Pharmacyte Biotech Inc., Clovis Oncology, Teva Pharmaceutical Industries Ltd., Pfizer Inc., Merck & Co., Inc. among others. For instance, in May 2018, Eli Lilly and Company acquired AMRO BioSciences. AMRO BioSciences is engaged into number of drugs for cancer. The clinical trial explores a drug (pegilodecakin) which is ongoing for the pancreatic cancer. The developments performed by the companies are helping the market to grow in the coming years. | |
| ● | The global market for ovarian cancer drugs expected to reach $10.1 billion by 2027, according to iHealthcareAnalyst. This will be driven by continued uptake and expected launches of the approved PARP (poly adenosine diphosphate-ribose polymerase) inhibitors. Major competitors operating in the global ovarian cancer treatment market include AbbVie, Inc., AstraZeneca plc (Acerta Pharma), Boehringer Ingelheim GmbH, Chugai Pharmaceutical Co., Ltd., Clovis Oncology, Five Prime Therapeutics, Inc., GlaxoSmithKline plc (Tesaro), Gradalis, Inc., Incyte Corporation, MacroGenics, Inc., Mateon Therapeutics, Inc., Merck & Co., Inc., Novartis AG, Novogen Limited, Oasmia Pharmaceuticals, Inc., Pfizer, Inc., PharmaMar S.A, and Roche Holding AG. |
New products can be defined as addition-in-class, advance-in-class, or first-in-class, depending on their degree of innovation. Addition-in-class products, defined as new Active Pharmaceutical Ingredients (API) with established mechanisms of action, are often clinically important and highly commercially successful. Advance-in-class product innovation, defined as significantly differentiated and innovative new APIs, albeit with established mechanisms of action, remains a highly attractive strategy. However, first-in-class innovation, defined as products with a molecular target and/or mechanism of action not found in any approved products globally, remains the key product development strategy in terms of providing the greatest degree of differentiation, extending to a first-mover advantage and potentially the capture of significant market share.
Based on the current situation for these two markets, we believe there is an attractive opportunity in both the pancreatic and ovarian cancer market sectors for the introduction of a first-in-class, clinically proven product which can achieve new benefits for patients in terms of survival and quality of life. The current concentration of products suggests oncologists may be willing to try newly approved products, particularly if they can exhibit a favorable safety profile, although substantive R&D activities will be necessary to both obtain regulatory approval, and to generate the clinical safety and efficacy data needed to convince clinicians to use a new product.
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LICENSE AGREEMENTS
University of Bath
We previously sponsored a collaborative research project at University of Bath to investigate the cellular and molecular mechanisms underlying the potential clinical approach of our proprietary proenzyme formulation. As a result of this undertaking, we entered into a Commercialization Agreement with University of Bath (UK), dated November 12, 2009 (the “Commercialization Agreement”), where, initially, we held an exclusive license with Bath University, and where we and University of Bath co-owned the intellectual property relating to our proenzyme formulations. The Commercialization Agreement originally provided for University of Bath to assign the Patents (as defined therein) to Propanc in certain specified circumstances, such as successful completion of a clinical trial and commencement of a Phase II (Proof of Concept) clinical trial.
On June 14, 2012, Propanc and University of Bath agreed to an earlier assignment to us of the patents pursuant to an Assignment and Amendment Deed, on the provision that Bath University retains certain rights arising from the Commercialization Agreement, as follows:
| ● | University of Bath reserves for itself (and its employees and students and permitted academic sub-licensees with respect to research use) the non-exclusive, irrevocable, worldwide, royalty free right to use the patents for research use; | |
| ● | The publication rights of University of Bath specified in the contract relating to the original research made between the parties with an effective date of July 18, 2008 shall continue in force; | |
| ● | Propanc shall pay to University of Bath a royalty of two percent of any and all net revenues; | |
| ● | Propanc shall use all reasonable endeavors to develop and commercially exploit the patents for the mutual benefit of University of Bath and Propanc to the maximum extent throughout the covered territory and in any additional territory and to obtain, maintain and/or renew any licenses or authorizations that are necessary to enable such development and commercial exploitation. Without prejudice to the generality of the foregoing, Propanc shall comply with all relevant regulatory requirements in respect of its sponsoring and/or performing clinical trials in humans involving the administration of a product or materials within a claim of the patents; and | |
| ● | Propanc shall take out with a reputable insurance company and maintain liability insurance coverage prior to the first human trials. |
In consideration of such assignment, we agreed to pay royalties of 2% of net revenues to University of Bath. Additionally, we 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.
University of Jaén
We have established a collaboration with the University of Jaén to carry out a Research Project aimed at the synthetic development of PRP and its subsequent validation. The University of Jaén is providing scientific research activities the Department of Health Sciences, which provides the necessary technical and human resources in order to carry out the programmed works. A Collaboration Agreement (the “Collaboration Agreement”) according was established, dated October 1, 2020, with the main objective for the synthetic development of PRP and its subsequent validation. To that end, there shall be established a pre-clinical protocol of safety evaluation and antitumor efficacy on cancer stem cells and in orthotopic xenotransplantations derived from cancer stem cells isolated from tumor cell lines, of a newly developed synthetic formulation based on the two pancreatic zymogens.
The ownership of potential intellectual property rights that may arise as a result of the knowledge obtained through the project will belong to Propanc. In consideration for payment of the compensation, the University of Jaén hereby assigns and agrees to do all things reasonably required to assign to the contracting entity all industrial property rights arising from the Project.
In return for ownership of the entire right and title in all industrial property rights arising from the Project, Propanc agrees to pay the University of Jaén two percent (2%) of the net sales of any products sold by the contracting entity which fall within the scope of the protection of such industrial property rights.
Future Agreements
We continue to learn the properties of proenzymes with the long-term aim of screening new compounds for development. We anticipate engaging in future discussions with several technology companies who are progressing new developments in the oncology field as potential additions to our product line. Initially targeting the oncology sector, our focus is to identify and develop novel treatments that are highly effective targeted therapies, with few side effects as a result of toxicity to healthy cells.
INTELLECTUAL PROPERTY
The Company has filed multiple patent applications relating to its lead product, PRP. The Company’s lead patent application has been granted and remains in force in the United States, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein, Turkey, United Kingdom, Australia, China, Japan, Indonesia, Israel, New Zealand, Singapore, Malaysia, South Africa, Mexico, Republic of Korea, India and Brazil. In Canada, the patent application remains under examination.
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In 2016 and early 2017, we filed other patent applications. Three applications were filed under the Patent Cooperation Treaty (the “PCT”). The PCT assists applicants in seeking patent protection by filing one international patent application under the PCT, applicants can simultaneously seek protection for an invention in over 150 countries. Once filed, the application is placed under the control of the national or regional patent offices, as applicable, in what is called the national phase. One of the PCT applications filed in November 2016, entered national phase in July 2018 and another PCT application entered national phase in August 2018. A third PCT application entered national phase in October 2018.
Presently, there are 31 granted patents and 34 patents under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
Further patent applications are expected to be filed to capture and protect additional patentable subject matter based on the Company’s field of technology relating to pharmaceutical compositions of proenzymes for treating cancer.
REGULATORY MATTERS
United States
Government oversight of the pharmaceutical industry is usually classified into pre-approval and post-approval categories. Most of the therapeutically significant innovative products marketed today are the subject of New Drug Applications (“NDA”). Preapproval activities, based on these detailed applications, are used to assure the product is safe and effective before marketing. In the United States, The Center for Drug Evaluation and Research (“CDER”), is the FDA organization responsible for over-the- counter and prescription drugs, including most biological therapeutics, and generic drugs.
Before approval, the FDA may inspect and audit the development facilities, planned production facilities, clinical trials, institutional review boards and laboratory facilities in which the product was tested in animals. After the product is approved and marketed, the FDA uses different mechanisms for assuring that firms adhere to the terms and conditions of approval described in the application and that the product is manufactured in a consistent and controlled manner. This is done by periodic unannounced inspections of production and quality control facilities by FDA’s field investigators and analysts.
Federal Food, Drug and Cosmetic Act and Public Health Service Act
Prescription drug and biologic products are subject to extensive pre- and post-market regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labelling, storage, record keeping, advertising and promotion of such products under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, and their implementing regulations. The process of obtaining FDA approval and achieving and maintaining compliance with applicable laws and regulations requires the expenditure of substantial time and financial resources. Failure to comply with applicable FDA or other requirements may result in refusal to approve pending applications, a clinical hold, warning letters, civil or criminal penalties, recall or seizure of products, partial or total suspension of production or withdrawal of the product from the market. FDA approval is required before any new drug or biologic, including a new use of a previously approved drug, can be marketed in the United States. All applications for FDA approval must contain, among other things, information relating to safety and efficacy, stability, manufacturing, processing, packaging, labelling and quality control.
New Drug Applications (“NDAs”)
The FDA’s NDA approval process generally involves:
| ● | Completion of preclinical laboratory and animal testing in compliance with the FDA’s good laboratory practice, or GLP, regulations; | |
| ● | Submission to the FDA of an investigational new drug (“IND”) application for human clinical testing, which must become effective before human clinical trials may begin in the United States; | |
| ● | Performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed product for each intended use; | |
| ● | Satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is manufactured to assess compliance with the FDA’s “current good manufacturing practice” (“CGMP”) regulations; and | |
| ● | Submission to and approval by the FDA of an NDA. |
The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot guarantee that any approvals for our product candidates will be granted on a timely basis, if at all. Preclinical tests include laboratory evaluation of toxicity and immunogenicity in animals. The results of preclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND application to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. Our submission of an IND may not result in FDA authorization to commence clinical trials. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Further, an independent institutional review board (“IRB”) covering each medical center proposing to conduct clinical trials must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive “good clinical practice” (“GCP”) regulations, which include requirements that all research subjects provide informed consent and that all clinical studies be conducted under the supervision of one or more qualified investigators.
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For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following sequential phases, which may overlap:
| ● | Phase I: Initially conducted in a limited population to test the product candidate for safety and dose tolerance; | |
| ● | Phase II: Generally conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the initial efficacy of the product for specific targeted indications and to determine optimal dosage. A Phase IIa trial is a non-pivotal, exploratory study that assesses biological activity as its primary endpoint. A Phase IIb trial is designed as a definite dose finding study with efficacy as the primary endpoint. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensive Phase III clinical trials; | |
| ● | Phase III: Commonly referred to as pivotal studies. When Phase II evaluations demonstrate that a dose range of the product is effective and has an acceptable safety profile, Phase III clinical trials are undertaken in large patient populations to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient population at multiple, geographically-dispersed clinical trial sites. Generally, replicate evidence of safety and effectiveness needs to be demonstrated in two adequate and well-controlled Phase III clinical trials of a product candidate for a specific indication. These studies are intended to establish the overall risk/benefit ratio of the product and provide adequate basis for product labelling; and | |
| ● | Phase IV: In some cases, the FDA may condition approval of a NDA on the sponsor’s agreement to conduct additional clinical trials to further assess the product’s safety, purity and potency after NDA approval. Such post-approval trials are typically referred to as Phase IV clinical trials. |
Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. Concurrent with clinical studies, sponsors usually complete additional animal studies and must also develop additional information about the product and finalize a process for manufacturing the product in commercial quantities in accordance with CGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Moreover, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
The results of product development, preclinical studies and clinical trials, along with the aforementioned manufacturing information, are submitted to the FDA as part of a NDA. NDA’s must also contain extensive manufacturing information. Under the Prescription Drug User Fee Act (“PDUFA”), the FDA agrees to specific goals for NDA review time through a two-tiered classification system, Standard Review and Priority Review. Standard Review is applied to products that offer at most, only minor improvement over existing marketed therapies. Standard Review NDAs have a goal of being completed within a ten-month timeframe, although a review can take significantly longer. A Priority Review designation is given to products that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A Priority Review takes the FDA six months to review a NDA. It is likely that our product candidates will be granted Standard Reviews. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
The FDA may deny approval of a NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or additional pivotal Phase III clinical trials. Even if such data is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials is not always conclusive and the FDA may interpret data differently than Propanc. Once issued, product approval may be withdrawn by the FDA if ongoing regulatory requirements are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing, including Phase IV clinical trials, Risk Evaluation and Mitigation Strategies (“REMS”), and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. Products may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to the drug, including changes in indications, labelling or manufacturing processes or facilities, approval of a new or supplemental NDA may be required, which may involve conducting additional preclinical studies and clinical trials.
Other U.S. Regulatory Requirements
After approval, products are subject to extensive continuing regulation by the FDA, which include company obligations to manufacture products in accordance with GMP, maintain and provide to the FDA updated safety and efficacy information, report adverse experiences with the product, keep certain records, submit periodic reports, obtain FDA approval of certain manufacturing or labeling changes and comply with FDA promotion and advertising requirements and restrictions. Failure to meet these obligations can result in various adverse consequences, both voluntary and FDA-imposed, including product recalls, withdrawal of approval, restrictions on marketing and the imposition of civil fines and criminal penalties. In addition, later discovery of previously unknown safety or efficacy issues may result in restrictions on the product, manufacturer or NDA holder.
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Propanc, and any manufacturers of our products, are required to comply with applicable FDA manufacturing requirements contained in the FDA’s GMP regulations. GMP regulations require, among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. The manufacturing facilities for our products must meet GMP requirements to the satisfaction of the FDA pursuant to a pre-approval inspection before Propanc can use them to manufacture products. Propanc and any third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations.
With respect to post-market product advertising and promotion, the FDA imposes complex regulations on entities that advertise and promote pharmaceuticals, which include, among others, standards for direct-to-consumer advertising, promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities and promotional activities involving the Internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors and civil or criminal penalties. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. A NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing a NDA.
Adverse event reporting and submission of periodic reports is required following FDA approval of a NDA. The FDA also may require post-marketing testing, known as Phase IV testing, risk mitigation strategies and surveillance to monitor the effects of an approved product or to place conditions on an approval that could restrict the distribution or use of the product.
In June 2017, we were notified by the FDA that PRP had been granted orphan drug designation for the treatment of pancreatic cancer. Orphan drug designation may be granted by the FDA when a rare disease or condition is implicated and a potential treatment qualifies under the Orphan Drug Act and applicable FDA regulations. This qualifies us for various developmental incentives, including protocol assistance, the potential for research grants, the waiver of future application fees, and tax credits for clinical testing if we choose to host future clinical trials in the United States.
In October 2017, we submitted a request for a second orphan drug designation for PRP, this time for ovarian cancer.
On November 2, 2017, we were notified by the FDA that our request was not granted. The Office of Orphan Products Development (“OOPD”) stated that complete prevalence is used as a measure of disease in ovarian cancer, as this reflects the number of women who have been diagnosed with disease and may be eligible for treatment with the proposed therapy. Therefore, on the date of the submission of our application, the OOPD estimated that the prevalence of ovarian cancer was 228,110 cases. Since the prevalence exceeds the threshold of 200,000 to qualify for orphan drug designation, they could not grant our request. We may consider resubmitting our application if we can identify a suitable sub population in ovarian cancer, which may meet the target threshold.
European Union
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or market our product in those countries. The approval process varies from country to country and the time may differ than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Despite these differences, the clinical trials will be conducted according to international standards such as Good Clinical Practice (GCP), Good Manufacturing Practice (GMP) and Good Laboratory Practice (GLP), which is recognized by each foreign country under the International Conference of Harmonization (ICH) Guidelines. We will conduct our trials in each foreign jurisdiction according to these standards, undertaking a First-In-Human (FIH) Phase I study in patients with advanced solid tumors, evaluating the safety, pharmacokinetics, and anti-tumor efficacy of PRP. This will be followed by two Phase II studies evaluating the efficacy and safety of PRP. To ensure harmonization between the jurisdictions, we intend to conduct regulatory meetings in the country where trials are conducted, as well as the FDA and European Medicines Agency. A pre-IND (Investigational New Drug) meeting will be held with the FDA once initial patient data has been collected from the FIH study to ensure acceptability of future planned Phase II trials.
Under European Union regulatory systems, we must submit and obtain authorization for a clinical trial application in each member state in which we intend to conduct a clinical trial. After we have completed clinical trials, we must obtain marketing authorization before it can market its product. We must submit applications for marketing authorizations for oncology products under a centralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The European Medicines Agency (the “EMA”) is the agency responsible for the scientific evaluation of medicines that are to be assessed via the centralized procedure.
On June 23, 2016, the UK government held a referendum to gauge voters’ support to remain or leave the European Union. The referendum resulted in 51.9% of UK voters in favor of leaving the European Union, commonly referred to as “Brexit.” On March 29, 2017, the UK invoked Article 50 of Lisbon Treaty to initiate complete withdrawal from the European Union, which was effectuated on January 31, 2020. The center for the EMA was based in London but the European Union has relocated the center to The Netherlands.
The impact of Brexit on the drug approval process in the UK is uncertain. Companies based in the UK and operating in the drug industry are urging the European Union and the UK to reach an agreement to harmonize the regulatory process once the UK officially exits the European Union.
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Australia
In Australia, the relevant regulatory body responsible for the pharmaceutical industry is the Therapeutics Goods Administration (the “TGA”). Prescription medicines are regulated under the Therapeutic Goods Act 1989. Under the Therapeutic Goods Act, the Therapeutic Goods Administration evaluates new products for quality, safety and efficacy before being approved for market authorization, according to similar standards employed by the FDA and EMA in the United States and European Union, respectively. However, receiving market authorization in one or two regions does not guarantee approval in another.
Third-Party Payor Coverage and Reimbursement
Although none of our product candidates have been commercialized for any indication, if they are approved for marketing, commercial success of our product candidates will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. In addition, in many countries outside the United States, a drug must be approved for reimbursement before it can be approved for sale in that country.
Eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.
In many countries outside the United States, a drug must be approved for reimbursement before it can be approved for sale in that country. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any foreign market.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the United States, recently passed legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products.
Other Regulations
We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by continuing technological advancement and significant competition. While we believe that our technology platforms, product candidates, know-how, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products. The level of generic competition and the availability of reimbursement from government and other third-party payers will also significantly impact the pricing and competitiveness of our products. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
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EMPLOYEES
As of September 28, 2021, we have one full-time and one part-time employee. In addition to our employees, we engage key consultants and utilize the services of independent contractors to perform various services on our behalf. Some of our executive officers and directors are engaged in outside business activities that we do not believe conflict with our business. Over time, we may be required to hire additional employees or engage independent contractors to execute various projects that are necessary to grow and develop our business. These decisions will be made by our officers and directors, if and when appropriate.
CORPORATE INFORMATION
Our principal executive office is located at 302, 6 Butler Street, Camberwell, VIC, 3124 Australia. Our telephone number is 61 03 9882 0780. Our website is www.propanc.com. We can be contacted by email at www.propanc.com/contact. Our website’s information is not, and will not be deemed, a part of this Annual Report or incorporated into any other filings we make with the SEC.
AVAILABLE INFORMATION
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents that we will file with or furnish to the SEC will be available free of charge by sending a written request to our Corporate Secretary at our corporate headquarters. Additionally, the documents we file with the SEC are or will be available free of charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Other information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SEC’s website is www.sec.gov.
We maintain a corporate website at www.propanc.com. You will be able to access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, proxy statements and other information to be filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material will be electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this Annual Report.
ITEM 1A. RISK FACTORS
We are not required to provide this information as we are a smaller reporting company.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive office is located at 302, 6 Butler Street, Camberwell, VIC, 3124 Australia, which we lease from Horizon Pty Ltd., a related party, of which Mr. Nathanielsz, our Chief Executive Officer, Chief Financial Officer and a director, and his wife are owners and directors. The lease has a one-year term commencing May 6, 2021, and we are currently obligated to pay $3,606 AUD or $2,431 USD (depending on exchange rate), inclusive of tax, in rent per month.
Item 3. Legal Proceedings.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
IRS Liability
As part of its requirement for having a foreign operating subsidiary, the Company’s parent U.S. entity is required to file an informational Form 5471 to the Internal Revenue Service (the “IRS”), which is a form that explains the nature of the relationship between the foreign subsidiary and the parent company. From 2012 through the 2014, the Company did not file this form in a timely manner. As a result of the non-timely filings, the Company incurred a penalty from the IRS in the amount of $10,000 per year, or $30,000 in total, plus accrued interest, such penalty and interest having been accrued and is included in the accrued expenses and other payable figure in the balance sheet. The Company recorded the penalties for all three years during the year ended June 30, 2018 and is negotiating a payment plan. The Company is current on all subsequent filings.
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Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is quoted under the ticker symbol “PPCB” on the OTCQB. Only a limited market exists for our common stock. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a stockholder may be unable to resell his securities in our Company.
On September 24, 2021, the last reported sales price per share of our common stock on the OTCQB was $0.0249.
Security Holders
As of September 21, 2021, we had 76 record holders of our common stock.
Dividends
We have not paid any cash dividends to our stockholders. The declaration of any future cash dividends is at the discretion of our Board and depends upon our earnings, if any, our capital requirements and financial position, and general economic conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Recent Sales of Unregistered Securities
Shares issued for conversion of convertible debt
During the year ended June 30, 2021, the Company issued an aggregate of 8,786,113 shares of its common stock at an average contractual conversion price of $0.13, ranging from $0.03 to $2.00, as a result of the conversion of principal of $1,018,867, interest of $103,321 and conversion fees $16,500 underlying certain outstanding convertible notes converted during such period.
There were 24,427 unissued shares which were considered issuable for accounting purposes during the first quarter of fiscal 2021 related to conversion notices dated and received in September 2020. In November 2020, the Company was notified by the note holder of the cancellation of these conversion notices and as such the Company reversed the effects of these transactions.
The Company has 197,308,116 shares of its common stock reserved for future issuances based on lender reserve requirements pursuant to underlying financing agreements at June 30, 2021.
Shares issued for services
On March 22, 2021, the Company issued an aggregate of 225,037 shares of the Company’s common stock to a consultant for services rendered from January 1, 2021 to March 22, 2021. The Company issued 225,037 shares of the Company’s common stock valued at $0.30 per share, being the closing price of the stock on the date of grant to such consultant, or $67,511.
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Between March 2021 and June 2021, the Company issued an aggregate of 580,609 shares of the Company’s common stock to a consultant for services rendered from April 1, 2021 to June 30, 2021. The Company issued 580,609 shares of the Company’s common stock valued at $0.10 per share, being the closing price of the stock on the date of grant to such consultant, or $58,061.
Shares issued for exercise of warrants
During the year ended June 30, 2021, the Company received aggregate gross proceeds of $776,044 from the exercise of 10,445 prefunded warrants and 19,375 Series B Warrants resulting in the issuance of 29,820 shares of common stock. Additionally, the Company issued 4,199,979 shares of common stock from the alternate cashless exercise of 20 Series A and 1 Series C warrants.
Item 6. Selected Financial Data.
Not applicable to smaller reporting companies.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our business and results of operations in conjunction with the information set forth in our consolidated financial statements and notes thereto appearing under Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Forward-Looking Statements” on page 3 of this Annual Report. As used herein, references to the “Company,” “Propanc,” “we,” “our,” and “us” refer to Propanc Biopharma, Inc. and its consolidated subsidiary, unless otherwise indicated.
U.S. Dollars are denoted herein by “USD,” “$” and “dollars”.
COVID-19
At Propanc, our highest priority remains the safety, health and well-being of our employees, their families and our communities. The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer. We are complying health guidelines regarding safety procedures, including, but are not limited to, social distancing, remote working, and teleconferencing. The extent of the future impact of the COVID-19 pandemic on our business is uncertain and difficult to predict. Adverse global economic and market conditions as a result of COVID-19 could also adversely affect our business. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be adversely impacted.
Overview
We were incorporated in the state of Delaware as Propanc Health Group Corporation on November 23, 2010. In January 2011, to reorganize our Company, we acquired all of the outstanding shares of Propanc PTY LTD, an Australian corporation, on a one-for-one basis and Propanc PTY LTD became our wholly-owned subsidiary. Effective April 20, 2017, we changed our name to “Propanc Biopharma, Inc.” to better reflect our current stage of operations and development.
We are a development-stage healthcare company that is currently focused on developing new cancer treatments for patients suffering from pancreatic, ovarian and colorectal cancer. Utilizing our scientific and oncology consultants, we have developed a rational, composite formulation of anti-cancer compounds, which together exert a number of effects designed to control or prevent tumors from recurring and spreading through the body. Our lead product candidate, PRP, is a variation upon our novel formulation and involves pro-enzymes, the inactive precursors of enzymes.
Recent Developments
On October 1, 2020, the Company entered into a two-year collaboration agreement with the University of Jaén (the “University”) to provide certain research services to the Company. In consideration of such services, the Company agreed to pay the University approximately 30,000 Euros ($35,145 USD) which shall be paid in four installment payments of 5,000 Euros in November 2020, 5,000 Euros ($5,858) in March 2021, 10,000 Euros ($11,715) in December 2021 and 10,000 Euros ($11,715) in September 2022. Additionally, the University shall hire and train a doctoral student for this project and as such the Company shall pay the University 25,837 Euros ($30,268 USD). In exchange for full ownership of the intellectual property, the Company agreed to pay royalties of 2% of net revenues to the University.
On November 17, 2020, the Company effected a one-for-one thousand (1:1,000) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements and in this annual report to reflect the Reverse Stock Split.
On May 11, 2021, the Company’s scientific researchers with the Universities of Jaén and Granada, published data in a peer reviewed journal, Expert Opinion on Biological Therapy, confirming the anti-tumor potential of a mixture of two pancreatic proenzymes trypsinogen and chymotrypsinogen. Treatment with proenzymes sensitizes cancer stem cells which may allow standard treatment approaches like chemotherapy and radiotherapy to be more effective.
Between August 6, 2020 to June 29, 2021, advancements were made with the Company’s patent portfolio including allowed claims describing a pharmaceutical composition for treating cancer in Brazil (covering the Company’s lead patent application), a first granted patent describing a method to treat cancer stem cells in Australia, and granted patents in Australia and Indonesia, with allowed claims in Singapore, citing higher doses of a pharmaceutical composition. The advancements represent three of four patent families covering the Company’s lead product, PRP.
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Results of Operations
The following discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto included elsewhere in this Report. The results discussed below are of the Company and its wholly-owned Australian subsidiary, Propanc PTY LTD.
Fiscal Year Ended June 30, 2021, as compared to the Fiscal Year Ended June 30, 2020
Revenue
For the fiscal years 2021 and 2020 we generated no revenue because we are currently undertaking research and development activities for market approval and no sales were generated in this period.
Administration Expense
Administration expense decreased to $1,553,075 for the year ended June 30, 2021 as compared to $3,281,464 for the year ended June 30, 2020. This decrease of approximately $1,728,000 is primarily attributable to a decrease of approximately $1,190,000 in stock-based expenses for services, decrease of approximately $128,000 of indirect capital raising costs, decrease in general consulting, legal, and investor relation fees of approximately $265,000, decrease in accounting fees of approximately $17,000, decrease in insurance expense of approximately $75,000, decrease of approximately $124,000 in marketing and market research expense, decrease in travel expenses of approximately $28,000, decrease of approximately $19,000 of other general and administrative expenses and offset by increase of approximately $118,000 in employee remuneration expense.
Occupancy Expense
Occupancy expense decreased by approximately $4,700 to $28,112 for the year ended June 30, 2021. The decrease primarily relates to exchange rate movements over the period when compared to the same period in 2020.
Research and Development Expenses
Research and development expenses were $230,956 for the year ended June 30, 2021, as compared to $179,987 for the year ended June 30, 2020. The increase in research and development expenses is primarily attributable to the two-year collaboration agreement with University Jaén which was executed in October 2020 to provide certain research services to the Company.
Interest Expense/Income
Interest expense decreased to $449,457 for the year ended June 30, 2021, as compared to $1,748,381 for the year ended June 30, 2020. Interest expense is primarily comprised of approximately $337,000 of debt discount amortization and accretion of put premium for the year ended June 30, 2021, and interest expense from conversion fees, prepayment penalty fees and accrual of interest expense for a total of approximately $113,000 for the year ended June 30, 2021.
This decrease of $1,298,924 is primarily attributable to a decrease in the issuance of convertible notes and was further reduced due to the conversion and repayment of convertible notes during the year ended June 30, 2021 which resulted to a decrease in accretion of put premium of approximately $636,000 during the year ended June 30, 2021, and the decrease in amortization of debt discount of approximately $598,000 during the year ended June 30, 2021. Additionally, interest expense from prepayment penalty fees decreased by approximately $99,000 offset by increase in conversion fees and accrual of interest expense for a total of $34,000 during the year ended June 30, 2021.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities changed by $393,479, to a loss of $8,186 for the year ended June 30, 2021, as compared to a gain of $385,293 for the year ended June 30, 2020. This change is primarily attributable to a decrease in the principal amount of convertible notes with bifurcated embedded conversion option derivatives during the year ended June 30, 2021.
Gain from Settlement of Debt, net
During the year ended June 30, 2021, the Company recorded gain from settlement of debt, net of $49,319 relating to two transactions. On March 22, 2021, the Company entered into a settlement agreement with our former counsel, Foley Shechter, whereby both parties agreed to settle all claims for professional fees owed for a total of $51,057. The Company paid the settlement amount of $51,057 on March 22, 2021. Prior to the settlement agreement, the Company recorded total accounts payable and accrued expenses $143,614. Accordingly, the Company recognized gain from settlement of debt of $92,557 during the year ended June 30, 2021.
Additionally, on March 15, 2021, the Company entered into a Settlement and Mutual Release Agreement with Regal whereby both parties agreed to settle all claims and liabilities under the August 10, 2017 Convertible note for a total of $100,000. All other terms of the August 10, 2017 Convertible Note shall remain in full force and effect. Both parties agree that all future penalties under this note are waived unless the Company fails to authorize to distribute the requested shares upon conversion. The Company has the right to pay off the balance of any remaining amounts dues under this note in cash at any time more than 60 days after March 15, 2021. Prior to the Settlement Agreement, the Company recorded total liabilities $56,762 consisting of remaining principal amount of $8,500, accrued interest of $23,262 and accrued expenses of $25,000. Accordingly, the Company recognized loss from settlement of debt of $43,238 during the year ended June 30, 2021.
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Gain (loss) on Extinguishment of Debt, net
During the year ended June 30, 2020, notes with principal amounts totaling $254,500 and accrued interest of $15,408 contained bifurcated embedded conversion option derivatives. Accordingly, the fair market value of the shares issued was $565,746 resulting in a loss on extinguishment at the time of conversion of $295,838 and $362,961 of derivative fair value was recorded as a gain on extinguishment at the time of conversion.
During the year ended June 30, 2021, notes with principal amounts totaling $95,000 and accrued interest of $3,000 contained bifurcated embedded conversion option derivatives. Accordingly, the fair market value of the shares issued was $178,368 resulting in a loss on extinguishment at the time of conversion of $80,368 and $130,975 of derivative fair value was recorded as a gain on extinguishment at the time of conversion, resulting in a net gain of $50,607.
Foreign Currency Transaction Gain (Loss)
Foreign currency transaction changed to a gain of $30,497 for the year ended June 30, 2021 as compared with a loss of $143,808 for the year ended June 30, 2020.
The foreign currency transaction decreased to a gain is partially attributable to the increase in exchange rates during the year ended June 30 2021, as compared to the year ended June 30, 2020.
Benefit (provision) for taxes
During the year ended June 30, 2021 and 2020, the Company applied for and received from the Australian Taxation Office a research and development tax credit in the amount of $113,415 and $134,728, respectively.
Net loss
Net loss decreased to $2,025,947 for the year ended June 30, 2021 as compared to a net loss of $4,740,723 for the year ended June 30, 2020. The change relates to the factors discussed above.
Deemed dividend
The Company recognized the value of the effect of a down round feature related to our Series A and C warrants when triggered. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized deemed dividend of $391,749 and a corresponding reduction of income available to common stockholders upon the alternate cashless exercise of these warrants.
Net loss available to common stockholders
Net loss available to common stockholders decreased to $2,417,696 for the year ended June 30, 2021 as compared to a net loss of $4,740,723 for the year ended June 30, 2020. The change relates to the factors discussed above.
Liquidity and Capital Resources
Current Financial Condition
As of June 30, 2021, we had total assets of $13,101, comprised primarily of cash of $2,255, GST tax receivable of $4,341, property and equipment, net, of $4,255 and security deposit of $2,250. As compared to June 30, 2020, we had total assets of $98,518, comprised primarily of cash of $67,007, GST tax receivable of $2,015, property and equipment, net, of $5,747 and operating lease right of use asset, net, $21,682.
We had current liabilities of $3,080,674, primarily comprised of net convertible debt of $624,583, accounts payable and accrued expenses of $1,894,486, employee benefit liability of $418,538, and embedded conversion option liabilities of $54,220 as of June 30, 2021. As compared to June 30, 2020, we had current liabilities of $3,739,943, primarily comprised of net convertible debt of $1,557,734, accounts payable and accrued expenses of $1,544,387, employee benefit liability of $354,109, and embedded conversion option liabilities of $354,109.
We have funded our operations primarily through the issuance of equity and/or convertible securities for cash. The cash was used primarily for payments for research and development, administration expenses, occupancy expenses, professional fees, consultants and travel.
During the year ended June 30, 2021 we received proceeds from exercise of warrants of $776,044 and proceeds from issuance of convertible notes of $325,000.
We have substantial capital resource requirements and have incurred significant losses since inception. As of June 30, 2021, we had $2,255 in cash. We depend upon debt and/or equity financing to fund our ongoing operations and to execute our current business plan. Such capital requirements are in excess of what we have in available cash and for which we currently have commitments. Therefore, we presently do not have enough available cash to meet our obligations over the next 12 months. If continued funding and capital resources are unavailable at reasonable terms, we may curtail our plan of operations. We will be required to obtain alternative or additional financing from financial institutions, investors or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations, and adversely affecting our ability to complete ongoing activities in connection with our research and development programs.
Sources and Uses of Cash
| For the years ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (1,145,264 | ) | $ | (1,849,589 | ) | ||
| Net cash provided by financing activities | $ | 1,058,044 | $ | 1,890,240 | ||||
| Effect of exchange rate changes on cash | $ | 22,468 | $ | 23,962 | ||||
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Net Cash Flow from Operating Activities
Net cash used in operating activities was $1,145,264 for the year ended June 30, 2021, due to our net loss of $2,025,947, offset primarily by non-cash charges of amortization of debt discount of $136,527, stock-based compensation of $208,444, non-cash interest expense of $16,500, accretion of put premium of $200,410, change in fair value of derivatives of $8,186 addback foreign currency transaction gain of $30,497, gain from settlement of debt of $48,390 and $50,607 gain on extinguishment of debt. Net changes in operating assets and liabilities totaled $92,277, which is primarily attributable to increase in accounts payable of $177,382, increase in accrued expenses and other payables of $152,861, employee benefit liability of $33,134, and accrued interest of $80,582.
Net cash used in operating activities was $1,849,589 for the year ended June 30, 2020, due to our net loss of $4,740,723 offset primarily by non-cash charges of amortization of debt discount of $734,130, stock-based compensation of $1,398,868, accretion of put premium of $836,724, non-cash interest expense of $15,000, foreign currency transaction loss of $143,808 addback gain on extinguishment of debt of $67,123 and $385,293 of change in fair value of derivatives. Net changes in operating assets and liabilities totaled $212,547, which is primarily attributable to decrease in prepaid expenses and other assets of $83,157, increase in employee benefit liability of $35,724, and accrued interest of $156,417 and offset by decrease in accounts payable of $29,737 and accrued expenses and other payables of $9,740.
Net Cash Flow from Financing Activities
Cash flows provided by financing activities for the year ended June 30, 2021 were $1,058,044 as compared to $1,890,240 for the year ended June 30, 2020. During the year ended June 30, 2021 we received proceeds from the exercise of warrants of $776,044 and proceeds from issuance of convertible notes of $325,000 offset by repayments of convertible notes of $43,000. During the year ended June 30, 2020, we received proceeds from the sale of convertible promissory notes of $1,465,250 and sale of common stock of $450,000, net of $25,010 in issue costs.
Effect of Exchange Rate
The effect of the exchange rate on cash resulted in a $22,468 positive adjustment to cash flows in the year ended June 30, 2021 as compared to an adjustment of $23,962 to cash flows in the year ended June 30, 2020. The reason for the fluctuation is due to the application of currency translation rates throughout the cash flow statement, the volume of transactions within each period and the daily fluctuation in exchange rates.
Critical Accounting Estimates
Below is a discussion of our more subjective accounting estimation processes for purposes of explaining (i) the methodology used in calculating the estimates, (ii) the inherent uncertainties pertaining to such estimates, and (iii) the possible effects of a significant variance in actual experience, from that of the estimate, on our financial condition. Estimates involve numerous assumptions that, if incorrect, could create a material adverse impact on the Company’s results of operations and financial condition.
Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities. Each ASC reference in this filing is presented with a three-digit number, which represents its Topic. As necessary for explanation and as applicable, an ASC topic may be followed with a two-digit subtopic, a two-digit section or a two-or-three-digit paragraph.
Foreign Currency Translation and Comprehensive Income (Loss): The Company’s wholly owned subsidiary’s functional currency is the AUD. For financial reporting purposes, the Australian Dollar (“AUD”) has been translated into USD as the Company’s reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive loss as other income (expense). Effective fiscal year 2021, the parent company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of other comprehensive income.
Accounting for Income Taxes: We are governed by Australian and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. We follow ASC 740, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The Company adopted provisions of ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.
| 23 |
Accounting for Stock Based Compensation: We record stock-based compensation in accordance with ASC 718, “Stock Compensation” and Staff Accounting Bulletin No. 107 issued by the SEC in March 2005 regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. We value any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
We account for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718.
Derivative Instruments: ASC 815, “Derivatives and Hedging,” establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion, or payoff, of debt, we record the fair value of the conversion shares, remove the fair value of the related derivative liability, remove any discounts and record a net gain or loss on debt extinguishment.
Convertible Notes with Variable Conversion Options: We have entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at or around a fixed discount to the price of the common stock at the time of conversion. We treat these convertible notes as stock settled debt under ASC 480 and measure the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion and record the put premium as accretion to interest expense.
Research and Development Tax Credits: We may apply for Research and Development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, we do not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If we have net income then we can receive the credit which reduces its income tax liability. If we have net losses, then we may still receive a cash payment for the credit, however, our net operating loss carry forwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as an income tax benefit, in operations, upon receipt.
Leases: In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance effective July 1, 2019.
On July 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
Recent Accounting Pronouncements
Please see section captioned “Recent Accounting Pronouncements” in Note 1 to our consolidated financial statements included in this Annual Report for a discussion of recently issued and adopted accounting pronouncements.
Going Concern Qualification
The accompanying consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the Company as a going concern. For the fiscal year ended June 30, 2021, the Company had no revenues, had a net loss of $2,025,947 and had net cash used in operations of $1,145,264. Additionally, as of June 30, 2021, the Company had a working capital deficit, stockholders’ deficit and accumulated deficit of $3,074,078, $3,067,573, and $58,199,466, respectively.
| 24 |
Our independent registered public accounting firm has included a “Going Concern Qualification” in their audit report for each of the fiscal years ended June 30, 2021 and 2020. In addition, we have negative working capital and convertible debt that is past maturity that we are currently negotiating with lenders in order to amend the maturity dates. The foregoing raises substantial doubt about our ability to continue as a going concern for a period of 12 months from the issue date of this report. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds and/or to consummate a public offering. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity and/or convertible debt financing. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable to smaller reporting companies.
Item 8. Financial Statements and Supplementary Data.
The following audited consolidated financial statements of Propanc Biopharma, Inc. are included in this Annual Report:
| 25 |
PROPANC BIOPHARMA, INC.
INDEX TO FINANCIAL STATEMENTS
| Page | ||
| Audited Consolidated Financial Statements for the Fiscal Years Ended June 30, 2021 and 2020 | ||
| Report of Independent Registered Public Accounting Firm | F-2 | |
| Consolidated Balance Sheets as of June 30, 2021 and 2020 | F-4 | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended June 30, 2021 and 2020 | F-5 | |
| Consolidated Statements of Changes in Stockholders’ Deficit for the years ended June 30, 2021 and 2020 | F-6 | |
| Consolidated Statements of Cash Flows for the years ended June 30, 2021 and 2020 | F-7 | |
| Notes to Consolidated Financial Statements | F-8 |
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Stockholders’ and the Board of Directors of:
Propanc Biopharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets Propanc Biopharma, Inc. and Subsidiary (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ deficit, and cash flows, for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss of $2,025,947 and net cash used in operating activities of $1,145,264 for the fiscal year ended June 30, 2021. The Company has a working capital deficit, stockholder’s deficit, and accumulated deficit of $3,074,078, $3,067,573, and $58,199,466 respectively, at June 30, 2021. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan regarding these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431-7328
Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com • info@salbergco.com
Member National Association of Certified Valuation Analysts • Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide • Member AICPA Center for Audit Quality
| F-2 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Derivative Liabilities
As described in Footnote 12 “Derivative Financial Instruments and Fair Value Measurements” to the consolidated financial statements, the Company recorded derivative transactions that resulted primarily in a net derivative expense from change in fair value of conversion option liability of $8,186, and derivative liabilities of $54,220 at June 30, 2021.
We identified the evaluation of instruments and contracts to determine whether there are derivatives to be recorded, the analysis of the accounting treatment and presentation for derivative transactions and the valuation of derivatives as critical audit matters. Auditing management’s analysis of the above critical audit matters was complex and involved a high degree of subjectivity.
The primary procedures we performed to address these critical audit matters included (a) Reviewed and tested management’s conclusions as to whether certain instruments or contracts qualified for derivative treatment by comparing management’s analysis and conclusions to authoritative and interpretive literature, (b) Compared the accounting treatment and presentation to that described by the authoritative and interpretive literature, (c) Tested management’s process for valuing derivatives by comparing it to generally accepted methodologies for valuing derivatives, (d) Tested management’s valuation of the derivatives by testing assumptions and data used in the valuation model including the term, volatility and interest rate, and (e) Recomputed the derivative valuations.
/s/Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2011
Boca Raton, Florida
September 28, 2021
| F-3 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| June 30, 2021 | June 30, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| GST tax receivable | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Security deposit - related party | ||||||||
| Operating lease right-of-use assets, net - related party | - | |||||||
| Property and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Convertible notes and related accrued interest, net of discounts and premiums | ||||||||
| Operating lease liability - related party | - | |||||||
| Embedded conversion option liabilities | ||||||||
| Due to former director - related party | ||||||||
| Loan from former director - related party | ||||||||
| Employee benefit liability | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and Contingencies (See Note 9) | - | |||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock, shares authorized, $ par value: | ||||||||
| Series A preferred stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2021 and 2020 | $ | $ | ||||||
| Series B preferred stock, $ par value; shares authorized; share issued and outstanding as of June 30, 2021 and 2020 | - | - | ||||||
| Preferred stock value | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of June 30, 2021 and 2020, respectively | ||||||||
| Common stock issuable ( and shares as of June 30, 2021 and 2020, respectively) | - | - | ||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Treasury stock (1 share) | ( |
) | ( |
) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| 2021 | 2020 | |||||||
| Years Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| REVENUE | ||||||||
| Revenue | $ | $ | ||||||
| OPERATING EXPENSES | ||||||||
| Administration expenses | ||||||||
| Occupancy expenses | ||||||||
| Research and development | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| LOSS FROM OPERATIONS | ( |
) | ( |
) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Interest income | ||||||||
| Other income | - | |||||||
| Change in fair value of derivative liabilities | ( |
) | ||||||
| Gain from settlement of debt, net | - | |||||||
| Gain on extinguishment of debt, net | ||||||||
| Foreign currency transaction gain (loss) | ( |
) | ||||||
| TOTAL OTHER EXPENSE, NET | ( |
) | ( |
) | ||||
| LOSS BEFORE TAXES | ( |
) | ( |
) | ||||
| Tax benefit | ||||||||
| NET LOSS | ( |
) | ( |
) | ||||
| Deemed dividend | ( |
) | - | |||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ |
( |
) | $ |
( |
) | ||
| BASIC AND DILUTED NET LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS | $ | ( |
) | $ | ( |
) | ||
| BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( |
) | $ | ( |
) | ||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Unrealized foreign currency translation gain (loss) | ( |
) | ||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | ( |
) | ||||||
| TOTAL COMPREHENSIVE LOSS | $ | ( |
) | $ | ( |
) | ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED JUNE 30, 2021 and 2020
| Common | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Issuable | Paid-in | Accumulated | Comprehensive | Treasury | Stockholders' | ||||||||||||||||||||||||||||||||||||||||||||
| No. of Shares | Value | No. of Shares | Value | No. of Shares | Value | No. of Shares | Value | Capital | Deficit | Income | Stock | Deficit | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt and accrued interest | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Reversal of common stock issuable due to cancellation of conversions of convertible debt and accrued interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reversal of common stock issuable due to cancellation of conversions of convertible debt and accrued interest, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reversal of put premium upon cancellation of conversions of convertible debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fractional difference due to the reverse stock-split | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fractional difference due to the reverse stock-split, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon cashless exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Relative fair value of warrants issued with convertible debt | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation in connection with stock option grants and restricted stock unit grants | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation in connection with fair value of warrants issued for services | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net loss for the fiscal year ended June 30, 2020 | - | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt and accrued interest | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Reversal of common stock issuable due to cancellation of conversions of convertible debt and accrued interest | - | - | - | - | ( |
) | ( |
) | - | - | ( |
) | - | - | - | ( |
) | |||||||||||||||||||||||||||||||||||
| Reversal of put premium upon cancellation of conversions of convertible debt | - | - | - | - | - | - | - | - | ( |
) | - | - | - | ( |
) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of warrants | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | - | - | - | - | ( |
) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend upon alternate cashless exercise of warrants | - | - | - | - | - | - | - | - | ( |
) | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Reclassification of put premium upon debt conversion | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation in connection with stock option grants | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fractional difference due to the reverse stock-split | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | - | - | - | - | - | - | ( |
) | - | ( |
) | |||||||||||||||||||||||||||||||||||||
| Net loss for the fiscal year ended June 30, 2021 | - | - | - | - | - | - | - | - | - | ( |
) | - | - | ( |
) | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2021 | 2020 | |||||||
| Years Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Issuance and amortization of common stock for services | ||||||||
| Foreign currency transaction loss (gain) | ( |
) | ||||||
| Depreciation expense | ||||||||
| Amortization of debt discounts | ||||||||
| Change in fair value of derivative liabilities | ( |
) | ||||||
| Gain on extinguishment of debt, net | ( |
) | ( |
) | ||||
| Gain from settlement of debt, net | ( |
) | - | |||||
| Stock option and restricted stock expense | ||||||||
| Non-cash interest expense | ||||||||
| Accretion of put premium | ||||||||
| Changes in Assets and Liabilities: | ||||||||
| GST receivable | ( |
) | ||||||
| Prepaid expenses and other assets | - | |||||||
| Accounts payable | ( |
) | ||||||
| Deferred rent | ( |
) | ||||||
| Employee benefit liability | ||||||||
| Accrued expenses and other payables | ( |
) | ||||||
| Accrued interest | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible promissory notes, net of original issue discounts and issue costs | ||||||||
| Repayments of convertible promissory notes | ( |
) | - | |||||
| Proceeds from the sale of common stock | - | |||||||
| Fees associated with offering costs | - | ( |
) | |||||
| Proceeds from the exercise of warrants | - | |||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect of exchange rate changes on cash | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( |
) | ||||||
| CASH AT BEGINNING OF YEAR | ||||||||
| CASH AT END OF YEAR | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during the year: | ||||||||
| Interest | $ | $ | ||||||
| Income Tax | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Reduction of put premium related to conversions of convertible notes | $ | $ | ||||||
| Conversion of convertible notes and accrued interest to common stock | $ | $ | ||||||
| Discounts related to warrants issued with convertible notes | $ | $ | ||||||
| Discounts related to derivative liability | $ | $ | ||||||
| Operating lease right-of-use asset and operating lease liability recorded on adoption of ASC 842 | $ | $ | ||||||
| Reversal of common stock issuable and put premium due to cancellation of conversions of convertible debt and accrued interest | $ | $ | ||||||
| Deemed dividend upon alternate cashless exercise of warrants | $ | $ | ||||||
| Accounts payable reclass to convertible notes | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
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
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 June 30, 2021, 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.
In July 2020, a world first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 29 granted patents and 33 patents under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
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.
On
November 17, 2020, the Company effected a
Principles of Consolidation
The consolidated financial statements include the accounts of Propanc Biopharma, Inc., the parent entity, and its wholly-owned subsidiary, Propanc PTY LTD. All inter-company balances and transactions have been eliminated in consolidation. Propanc (UK) Limited was an inactive wholly-owned subsidiary through June 30, 2021.
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 consolidated financial statements include the estimates of useful lives for depreciation, valuation of the operating lease liability and related right-of-use asset, valuation of derivatives, valuation of beneficial conversion features on convertible debt, allowance for uncollectable receivables, valuation of equity based instruments issued for other than cash, the valuation allowance on deferred tax assets and foreign currency translation due to certain average exchange rates applied in lieu of spot rates on transaction dates.
| F-8 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Foreign Currency Translation and Other Comprehensive Income (Loss)
The Company’s wholly owned subsidiary’s functional currency is the Australian dollar (AUD). For financial reporting purposes, the Australian dollar has been translated into the Company’s reporting currency which is the United States dollar ($) and/or (USD). Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income (loss) as a component of other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of Australian dollars to USD after the balance sheet date.
Other Comprehensive Income (Loss) for all periods presented includes only foreign currency translation gains (losses).
Assets
and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at
the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency included in the consolidated results of operations as incurred.
Effective fiscal year 2021, the parent company determined that these intercompany loans will not be repaid in the foreseeable future
and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation
adjustment, a component of accumulated other comprehensive income (loss). Prior to July 1, 2020, the Company recorded the foreign
currency transaction gains and losses from measuring the intercompany balances as a component of other income (expenses) titled
foreign currency transaction gain (loss). For the year ended June 30, 2021 and 2020, the Company recognized an exchange gain
(loss) of approximately $
As of June 30, 2021 and 2020, the exchange rates used to translate amounts in Australian dollars into USD for the purposes of preparing the consolidated financial statements were as follows:
SCHEDULE OF TRANSLATION EXCHANGE RATES
| June 30, 2021 | June 30, 2020 | |||||||
| Exchange rate on balance sheet dates | ||||||||
| USD : AUD exchange rate | ||||||||
| Average exchange rate for the period | ||||||||
| USD : AUD exchange rate | ||||||||
Change in Accumulated Other Comprehensive Income (Loss) by component during the years ended June 30, 2021 and 2020 were as follows:
SCHEDULE OF CHANGE IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
| Foreign Currency Items: |
||||
| Beginning balance, June 30, 2019 | $ | |||
| Foreign currency translation gain | ||||
| Balance, June 30, 2020 | ||||
| Foreign currency translation gain | ||||
| Ending balance, June 30, 2021 | $ | |||
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 12 - Derivative Financial Instruments and Fair Value Measurements.
| F-9 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
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, as applicable, are reflected as a current liability on the balance sheets.
There were
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the declining balance method. The depreciable amount is the cost less its residual value.
The estimated useful lives are as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES
| Machinery and equipment | -
|
| Furniture | -
|
Patents
Patents are stated at cost and amortized on a straight-line basis over the estimated future periods if and once the patent has been granted by a regulatory agency. However, the Company will expense any patent costs as long as we are in the startup stage. Accordingly, as the Company’s products are not currently approved for market, all patent costs incurred from 2013 through June 30, 2021 were expensed immediately. This practice of expensing patent costs immediately ends when a product receives market authorization from a government regulatory agency.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, “Long-lived assets,” which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Employee Benefit/Liability
Liabilities arising in respect of wages and salaries, accumulated annual leave, accumulated long service leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured based on the employee’s remuneration rates applicable at the reporting date. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. All employee liabilities are owed within the next twelve months.
Australian Goods and Services Tax (“GST”)
Revenues, expenses and balance sheet items are recognized net of the amount of GST, except payable and receivable balances which are shown inclusive of GST. The GST incurred is payable on revenues to, and recoverable on purchases from, the Australian Taxation Office.
Cash flows are presented in the statements of cash flow on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.
As
of June 30, 2021 and 2020, the Company was owed $
| F-10 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Derivative Instruments
ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”), establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion or payoff of debt, the Company records the fair value of the conversion shares, removes the fair value of the related derivative liability, removes any discounts and records a net gain or loss on debt extinguishment. On July 1, 2019 the Company adopted ASU 2017-11 under which down-round Features in Financial Instruments will no longer cause derivative treatment. The Company applies the modified prospective method of adoption. There were no cumulative effects on adoption.
Convertible Notes With Variable Conversion Options
The Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at or around the time of conversion. The Company treats these convertible notes as stock settled debt under ASC 480, “Distinguishing Liabilities from Equity” and measures the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion and records the put premium as interest expense.
Income Taxes
The Company is governed by Australia and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. The Company follows ASC 740 “Accounting for Income Taxes,” when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
The Company follows ASC 740, Sections 25 through 60, “Accounting for Uncertainty in Income Taxes.” These sections provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.
Research and Development Costs and Tax Credits
In
accordance with ASC 730-10, “Research and Development-Overall,” research and development costs are expensed when incurred.
Total research and development costs for the fiscal years ended June 30, 2021 and 2020 were $
The Company may apply for research and development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, the Company does not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If the Company has net income, then the Company can receive the credit which reduces its income tax liability. If the Company has net losses, then the Company may still receive a cash payment for the credit, however, the Company’s net operating loss carryforwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as tax benefit, in operations, upon receipt.
During
each of the fiscal years ended June 30, 2021 and 2020, the Company applied for, and received from the Australian Taxation Office, a research
and development tax credit in the amount of $
The Company records stock-based compensation in accordance with ASC 718, “Stock Compensation”. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
| F-11 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
The Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718 and recognizes the fair value of such awards over the service period. The Company used the modified prospective method of adoption. There was no cumulative effect of adoption on July 1, 2019.
Revenue Recognition
The Company adopted and implemented on July 1, 2018, ASC 606 – Revenue from Contracts with Customers (“ASC 606”). ASC 606 did not have a material impact on the consolidated financial statements.
Upon implementation of ASC 606, the Company recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
Subject to these criteria, the Company intends to recognize revenue relating to royalties on product sales in the period in which the sale occurs and the royalty term has begun.
Legal Expenses
All legal costs for litigation are charged to expense as incurred.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance effective July 1, 2019.
On July 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
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.
| F-12 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
| June 30, 2021 | June 30, 2020 | |||||||
| Stock Options | ||||||||
| Stock Warrants | ||||||||
| Unvested restricted stock | ||||||||
| Convertible Debt | ||||||||
| Total | ||||||||
Recent Accounting Pronouncements
We have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term with the exception of those disclosed below. The applicability of any standard is subject to the formal review of the Company’s financial management.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. This standard is effective for us on July 1, 2022, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company is currently assessing the impact the new guidance will have on our consolidated financial statements.
NOTE 2 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the Company
as a going concern. For the fiscal year ended June 30, 2021, the Company had revenues, had a net loss of $
The 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.
In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, Europe and Australia, including in each of the areas in which the Company operates. The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses, reduced investing activity and M&A transactions, among many other effects attributable to the COVID-19 (coronavirus), and there continue to be many unknowns. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19 (coronavirus) outbreak will impact our operations, ability to obtain financing or future financial results is uncertain.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of June 30,
SCHEDULE OF PROPERTY AND EQUIPMENT
| 2021 | 2020 | |||||||
| Office equipment at cost | $ | $ | ||||||
| Less: Accumulated depreciation | ( |
) | ( |
) | ||||
| Total property, plant, and equipment | $ | $ | ||||||
Depreciation
expense for the years ended June 30, 2021 and 2020 were $
| F-13 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
NOTE 4 – DUE TO FORMER DIRECTOR - RELATED PARTY
Due
to former director - related party represents unsecured advances made primarily by a former director for operating expenses on behalf
of the Company such as intellectual property and formation expenses. The expenses were paid for on behalf of the Company and are due
upon demand. The Company is currently not being charged interest under these advances. The total amount owed the former director at June
30, 2021 and 2020 is $
NOTE 5 – LOANS AND NOTES PAYABLE
Loan from Former Director - Related Party
Loan
from the Company’s former director at June 30, 2021 and 2020 were $
NOTE 6 – CONVERTIBLE NOTES
The Company’s convertible notes outstanding at June 30, 2021 and 2020 were as follows:
| June 30, 2021 | June 30, 2020 | |||||||
| Convertible notes and debenture | $ | $ | ||||||
| Unamortized discounts | ( |
) | ( |
) | ||||
| Accrued interest | ||||||||
| Premium, net | ||||||||
| Convertible notes, net | $ | $ | ||||||
Eagle Equities Financing Agreements
December 29, 2017 Securities Purchase Agreement
The
Company entered into an executory contract on December 29, 2017, whereby the Company entered into a securities purchase agreement with
Eagle Equities, pursuant to which Eagle Equities purchased a convertible promissory note (the “December 2017 Eagle Note”)
from the Company in the aggregate principal amount of $
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 $
| F-14 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
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 $
October 2, 2018 Securities Purchase Agreement
Effective
October 2, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities purchased
a convertible promissory note (the “October 2018 Eagle Note”) from the Company in the aggregate principal amount of $
November 30, 2018 Securities Purchase Agreement
Effective
November 30, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities purchased
a convertible promissory note (the “November 2018 Eagle Note”) from the Company in the aggregate principal amount of $
December 24, 2018 Securities Purchase Agreement
Effective
December 24, 2018, the Company entered into a securities purchase agreement with Eagle Equities, pursuant to which Eagle Equities purchased
a convertible promissory note (the “December 2018 Eagle Note”) from the Company in the aggregate principal amount of $
Eagle
Equities had the option to convert all or any amount of the principal amount of the notes issued to Eagle Equities above, at any time,
for shares of the Company’s common stock at a price ranging from
| F-15 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
The
above notes issued to Eagle Equities were treated as stock settled debt under ASC 480 and accordingly, the Company recorded a total of
$
The
total principal amount outstanding under the above Eagle Equities financing agreements, specifically the August 29, 2018 and the December
24, 2018 agreements was $
GS Capital Financing Agreements
October 2, 2018 Securities Purchase Agreement
Effective
October 2, 2018, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased two
Both
the October 2, 2018 GS Note and the October 2, 2018 GS Back End Note, which was funded on February 27, 2019, matured 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
January 22, 2020 GS Capital Securities Purchase Agreements
Effective
January 22, 2020, the Company entered into a securities purchase agreement with GS Capital, pursuant to which GS Capital purchased a
convertible promissory note (the “January 22, 2020 GS Note”) from the Company in the aggregate principal amount of $
Additionally,
GS Capital had the option to convert all or any amount of the principal face amount of the January 22, 2020 GS Capital Note at any time
from the date of issuance and ending on the later of the maturity date or the date the Default Amount was paid if an event of default
occurs, which is an amount between
| F-16 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
The
notes issued to GS capital above were treated as stock settled debt under ASC 480 and accordingly the Company recorded a total of $
The
Company recorded $
Convertible Note Issued with Consulting Agreement
August 10, 2017 Consulting Agreement
On
August 10, 2017, the Company entered into a consulting agreement, retroactive to May 16, 2017, with a certain consultant, pursuant to
which the consultant agreed to provide certain consulting and business advisory services in exchange for a $
On
March 15, 2021, the Company entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with the
consultant whereby both parties agreed to settle all claims and liabilities under the August 10, 2017 Convertible note for a total of
$
The
total principal outstanding after adjustment due to the above-mentioned March 15, 2021 settlement agreement and accrued
interest under the August 10, 2017 Convertible Note was $
Power Up Lending Group Financing Agreements
November 26, 2019 Securities Purchase Agreement
Effective
November 26, 2019, the Company entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”),
pursuant to which Power Up purchased a convertible promissory note (the “November 26, 2019 Power Up Note”) from the Company
in the aggregate principal amount of $
January 7, 2020 Power Up Lending Group Securities Purchase Agreement
Effective
January 7, 2020, the Company entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”),
pursuant to which Power Up purchased a convertible promissory note (the “January 7, 2020 Power Up Note”) from the Company
in the aggregate principal amount of $
| F-17 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
March 12, 2020 Power Up Lending Group Securities Purchase Agreement
Effective
March 12, 2020, the Company entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”), pursuant
to which Power Up purchased a convertible promissory note (the “March 12, 2020 Power Up Note”) from the Company in the aggregate
principal amount of $
All
the notes issued above to Power Up contained certain events of default, upon which principal and accrued interest would become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal would accrue at a default interest rate
of
Additionally,
Power Up had the option to convert all or any amount of the principal face amount of the notes issued to Power Up, starting on certain
dates as defined in the note agreements and ending on the later of the maturity date or the date the Default Amount is paid if an event
of default occurs, which was an amount equal to
The
total principal amount outstanding under the above Power Up financing agreements, specifically the January 7, 2020 and March 12, 2020
Power Up Notes, was $
Redstart Holdings Corp Financing Agreement
May 23, 2019 Securities Purchase Agreement
Effective
May 23, 2019, the Company issued a convertible promissory note (the “May 23 Redstart Holdings Note”) to Redstart Holdings
Corp (“Redstart Holdings”) in the aggregate principal amount of $
| F-18 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Odyssey Capital Financing Agreements
July 30, 2019 Securities Purchase Agreement
Effective
July 30, 2019, the Company entered into a securities purchase agreement with Odyssey Capital Funding LLC, (“Odyssey”), pursuant
to which Odyssey purchased a convertible promissory note (the “July 30, 2019 Odyssey Note”) from the Company in the aggregate
principal amount of $
Additionally,
Odyssey had the option to convert all or any amount of the principal face amount of the July 30, 2019 Odyssey Note, starting on January
31, 2020 and ending on the later of the maturity date or the date the Default Amount was paid if an event of default occurred, which
was an amount equal to of an amount equal to the then outstanding principal amount of the July 30, 2019 Odyssey Note plus any interest
accrued from July 30, 2019 at the default interest rate of
The
conversion price for the July 30, 2019 Odyssey Note was equal to
The
total principal amount outstanding under the above Odyssey financing agreement, specifically the July 30, 2019 Odyssey Note, was $
Auctus Fund Financing Agreements
August 30, 2019 Securities Purchase Agreement
Effective
August 30, 2019, the Company entered into a securities purchase agreement with Auctus Fund, LLC (“Auctus”), pursuant to which
Auctus purchased a convertible promissory note (the “August 30, 2019 Auctus Note”) from the Company in the aggregate principal
amount of $
Additionally,
Auctus has the option to convert all or any amount of the principal face amount and accrued interest of the August 30, 2019 Auctus Note,
at any time following the issue date and ending on the later of the maturity date or the date of payment of the Default Amount if an
event of default occurs, which is an amount equal to of an amount equal to the then outstanding principal amount of the August 30,
2019 Auctus Note (but not less than $15,000) plus any interest accrued from August 30, 2019 at the default interest rate of
The
conversion price for the August 30, 2019 Auctus Note shall be the Variable Conversion Price, being
| F-19 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
In
connection with the issuance of the August 2019 Auctus Note, the Company issued common stock purchase warrants to Auctus to purchase
In connection with the Purchase Agreement, the Company and the Purchaser entered into a Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to register the shares of Common Stock underlying the Securities in a Registration Statement with the SEC as well as the Commitment Shares (as defined herein). The Registration Rights Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the parties.
The Note is subject to customary default provisions and also includes a cross-default provision which provides that a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined therein), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements. Upon occurrence of any such event, the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreements or the Note.
The August 30, 2019 Auctus Note contain certain events of default, upon which principal and accrued interest will become immediately due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of 24% per annum.
The
total principal amount outstanding under the above Auctus financing agreement, specifically the August 30, 2019 Auctus Note, was $358,965
and accrued interest of $
The
total principal amount outstanding under the above Auctus financing agreement, specifically the August 30, 2019 Auctus Note, was $
GW Holdings Securities Purchase Agreements
October 1, 2019 Securities Purchase Agreement
Effective
October 1, 2019, the Company entered into a securities purchase agreement with GW Holdings, pursuant to which GW Holdings purchased a
convertible promissory note (the “October 1, 2019 GW Note”) from the Company in the aggregate principal amount of $
December 10, 2020 Securities Purchase Agreement
Effective
December 10, 2020, the Company entered into a securities purchase agreement with GW Holdings, pursuant to which GW Holdings purchased
a convertible promissory note (the “December 10, 2020 GW Note”) from the Company in the aggregate principal amount of $
| F-20 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
The
above notes issued to GW Holdings 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
Additionally,
GW Holdings has the option to convert all or any amount of the principal face amount of the notes issued to GW Holdings at any time from
the date of issuance and ending on the later of the maturity date or the date the Default Amount is paid if an event of default occurs,
which is an amount between
These
notes are treated as stock settled debt under ASC 480 and accordingly the Company recorded a total of $
The
total principal amount outstanding under the above October 1, 2019 GW Holdings financing agreement was $
The
total principal amount outstanding under the above December 10, 2020 GW Holdings financing agreement, was $
Crown Bridge Securities Purchase Agreements
Effective
October 3, 2019, the Company entered into a securities purchase agreement with Crown Bridge Partners, pursuant to which Crown Bridge
purchased a convertible promissory note (the “October 3, 2019 Crown Bridge Note”) from the Company in the aggregate principal
amount of $
Additionally,
Crown Bridge has the option to convert all or any amount of the principal face amount of the October 3, 2019 Crown Bridge Note at any
time from the date of issuance and ending on the later of the maturity date or the date the Default Amount is paid if an event of default
occurs, which is an amount between
| F-21 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
The
October 3, 2019 Crown Bridge Note contain certain events of default, upon which principal and accrued interest will become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate
of
The
total principal amount outstanding under the above Crown Bridge financing agreement was $
The
total principal amount outstanding under the above Crown Bridge financing agreement was $
There
were unissued shares which were considered issuable for accounting purposes during the 1st quarter of fiscal 2021 related
to a conversion notice dated and received on September 16, 2020. In November 2020, the Company was notified by the note holder of the
cancellation of this conversion notice as a result of the reverse stock split and as such the Company reversed the effects of this transaction
thereby increasing the principal balance by $
Ader Alef Securities Purchase Agreements
Effective
January 13, 2020, the Company entered into a securities purchase agreement with Ader Alef, pursuant to which Ader Alef purchased a convertible
promissory note (the “January 13, 2020 Ader Alef Note”) from the Company in the aggregate principal amount of $
Additionally,
Ader Alef had the option to convert all or any amount of the principal face amount of the January 13, 2020 Ader Alef Note at any time
from the date of issuance and ending on the later of the maturity date or the date the Default Amount was paid if an event of default
occurs, which was an amount between
The January 13, 2020 Ader Alef Note contained certain events of default, upon which principal and accrued interest would become immediately due and payable. In addition, upon an event of default, interest on the outstanding principal would accrue at a default interest rate of 24% per annum, or if such rate was 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 Ader Alef financing agreement was $
| F-22 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
LG Capital Securities Purchase Agreements
Effective
February 19, 2020, the Company entered into a securities purchase agreement with LG Capital Funding, LLC (“LG Capital”),
pursuant to which LG Capital purchased a convertible promissory note (the “February 19, 2020 LG Capital Note”) from the Company
in the aggregate principal amount of $
During
the first 60 to 180 days following the date of the note, the Company had the right to prepay the principal and accrued but unpaid interest
due under the February 19, 2020 LG Capital Note, together with any other amounts that the Company may owe the holder under the terms
of the note, at a premium ranging from
The
February 19, 2020 LG Capital Note contained certain events of default, upon which principal and accrued interest would become immediately
due and payable. In addition, upon an event of default, interest on the outstanding principal would accrue at a default interest rate
of
The
total principal amount outstanding under the above LG Capital financing agreement was $
There
were unissued shares which were considered issuable for accounting purposes during the first quarter of fiscal 2021 related to
a conversion notice dated and received on September 9, 2020. In November 2020, the Company was notified by the note holder of the cancellation
of this conversion notice as a result of the reverse stock split and as such the Company reversed the effects of this transaction thereby
increasing the principal balance by $
Geneva Roth Remark Securities Purchase Agreements
December 2, 2020 Securities Purchase Agreement
Effective
December 2, 2020, the Company entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc.(“Geneva Roth”),
pursuant to which Geneva Roth purchased a convertible promissory note (the “December 2, 2020 Geneva Roth”) from the Company
in the aggregate principal amount of $
| F-23 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
January 5, 2021 Securities Purchase Agreement
Effective
January 5, 2021, the Company entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc., pursuant to which Geneva
Roth purchased a convertible promissory note (the “January 5, 2021 Geneva Roth”) from the Company in the aggregate principal
amount of $
March 16, 2021 Securities Purchase Agreement
Effective
March 16, 2021, the Company entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc., pursuant to which Geneva
Roth purchased a convertible promissory note (the “March 16, 2021 Geneva Roth”) from the Company in the aggregate principal
amount of $
The
maturity date of the March 16, 2021 Geneva Roth Note is March 16, 2022. The March 16, 2021 Geneva Roth Note bears interest at a rate
of
During
the first 60 to 180 days following the date of these notes, the Company has the right to prepay the principal and accrued but unpaid
interest due under the above notes issued to Geneva Roth, together with any other amounts that the Company may owe the holder under the
terms of the note, at a premium ranging from
The
above Geneva Roth notes contain certain events of default, upon which principal and accrued interest will become immediately due and
payable. In addition, upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of
The
total principal amounts outstanding under the above Geneva Roth financing agreements were $
Amortization of debt discounts
The
Company recorded $
Amortization
of all debt discounts for the years ended June 30, 2021 and 2020 was $
The
Company reclassified $
| F-24 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
NOTE 7 – INCOME TAXES
The Company follows ASC 740-10-10, under which an entity recognizes deferred tax assets and liabilities for future tax consequences or for events that were previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on enacted tax law provisions. The effects of future changes in tax laws or rates are not anticipated. Through June 30, 2010, the Company operated exclusively in Australia. The Company was wholly subject to Australian income tax laws and regulations, which are administered by the Australian Taxation Office for the years ended June 30, 2010 and all prior years.
On November 23, 2010, the Company was incorporated in the state of Delaware. In January 2011, the Company acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis with Propanc PTY LTD becoming a wholly owned subsidiary of the Company. As a result of these transactions, the Company is subject to the income tax laws of both the United States and Australia for the years ended June 30, 2013 through June 30, 2021.
The reconciliation of income tax expense computed at the U.S. federal statutory rate of 21% to the income tax provision for the years ended June 30, 2021 and 2020 is as follows:
SCHEDULE OF INCOME TAX PROVISION
| US | June 30, 2021 | June 30, 2020 | ||||||
| Year Ended | ||||||||
| US | June 30, 2021 | June 30, 2020 | ||||||
| Loss before Income taxes | $ | ( |
) | $ | ( |
) | ||
| Taxes under statutory US tax rates | $ | ( |
) | $ | ( |
) | ||
| Increase (decrease) in valuation allowance | ||||||||
| Prior period adjustment | ( |
) | ( |
|||||
| Foreign tax rate differential | ( |
) | ( |
) | ||||
| Income tax rate change | - | |||||||
| Other | ||||||||
| Income tax (expense) benefit | $ | $ | ||||||
The Company reflects a tax benefit on its consolidated
statement of operations and comprehensive income (loss) in 2021 and 2020 of $
On March 27, 2020, the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| June 30, 2021 | June 30, 2020 | |||||||
| Year Ended | ||||||||
| June 30, 2021 | June 30, 2020 | |||||||
| Deferred tax assets | ||||||||
| Warrant Derivative Liability | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Prepaid Investor Services | ||||||||
| Non-cash interest | ||||||||
| Intangibles (Intellectual Property and Patent Cost) | ||||||||
| Deferred Rent | ||||||||
| Formation Expense | ||||||||
| Net Operating Loss CF | ||||||||
| Foreign Exchange Loss (OCI) | ( |
) | ( |
) | ||||
| Revalue of derivative liability | ||||||||
| Stock Based Compensation | ||||||||
| Total Deferred tax assets | $ | $ | ||||||
| Deferred tax liabilities | ||||||||
| R&D | $ | ( |
) | $ | ( |
) | ||
| Gain on extinguishment of debt | ( |
) | ||||||
| Capital Raising Costs | ( |
) | ( |
) | ||||
| Total deferred tax liabilities | $ | ( |
) | $ | ( |
) | ||
| Net deferred tax assets (liabilities) | $ | $ | ||||||
| Valuation allowance | ( |
) | ( |
) | ||||
| Net deferred tax assets (liabilities) | $ | $ | ||||||
| F-25 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
At
June 30, 2021, the Company had U.S. net operating loss carry forwards of approximately $
The
Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a
tax return, which resulted in
Management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.
The Company follows ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.
The Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of June 30, 2021 and 2020, respectively.
The
Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the
consolidated statement of operations. As of June 30, 2021, the Company had
The income tax returns filed for the tax years from inception will be subject to examination by the relevant taxing authorities.
NOTE 8 – STOCKHOLDERS’ DEFICIT
Increase in Authorized Shares of Common Stock and Reverse Stock Split
On February 4, 2020 the Directors resolved to increase the Common Stock of the Company from authorized shares to authorized shares and believes that such number of authorized shares of Common Stock will be in the best interests of the Corporation and its stockholders because the Board believes that the availability of more shares of Common Stock for issuance will allow the Corporation greater flexibility in pursuing financing from investors, meeting business needs as they arise, taking advantage of favorable opportunities and responding to a changing corporate environment. The Company filed the necessary documents with the U.S. Securities and Exchange Commission on February 6, 2020 and with the amendment to the authorized shares being approved by the State of Delaware on March 13, 2020.
On
November 17, 2020, the Company effected a
Preferred Stock
The total number of shares of preferred stock that the Company is authorized to issue is , $ par value per share. These preferred shares have no rights to dividends, profit sharing or liquidation preferences.
Of the total preferred shares authorized, have been designated as Series A Preferred Stock (“Series A Preferred Stock”), pursuant to the Certificate of Designation filed with the Secretary of State of the State of Delaware on December 9, 2014. James Nathanielsz, the Company’s Chief Executive Officer and Chief Financial Officer, beneficially owns all of the outstanding 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. shares of Series A Preferred Stock are issued and outstanding as of June 30, 2021 and 2020.
| F-26 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Of the total preferred shares authorized, pursuant to the Certificate of Designation filed with the Secretary of State of the State of Delaware on June 16, 2015, up to five shares have been designated as Series B Preferred Stock (“Series B Preferred Stock”). Each holder of outstanding shares of Series B Preferred Stock is entitled to voting power equivalent to the number of votes equal to the total number of shares of common stock outstanding as of the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company and entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the Company. One share of Series B Preferred Stock is issued and outstanding as of June 30, 2021 and 2020. Mr. Nathanielsz directly beneficially owns such one share of Series B Preferred Stock.
additional shares of Series A Preferred Stock or Series B Preferred Stock were issued during fiscal year 2021 and 2020.
Common Stock
Shares Issued for Cash
April 3, 2020 Security Purchase Agreement
On
April 3, 2020,
The
aggregate purchase price for the Units, the Series A Warrants with exercise price of $
The
Securities Purchase Agreement contains a blocker provision whereby the Investor or any of its affiliates would not beneficially own in
excess of
Due
to the Beneficial Ownership Limitation, the shares of Common Stock underlying the Units issuable at closing of the Securities
Purchase Agreement are comprised of shares of restricted Common Stock and
The Securities Purchase Agreement contains such representations, warranties and covenants as are typical for a transaction of this nature.
Shares issued for conversion of convertible debt
During
the year ended June 30, 2020, the Company issued shares of its common stock at an average contractual conversion price of $
During
the year ended June 30, 2021, the Company issued an aggregate of shares of its common stock at an average contractual conversion
price of $
| F-27 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
There
were unissued shares which were considered issuable for accounting purposes during the first quarter of fiscal 2021 related to
conversion notices dated and received in September 2020. In November 2020, the Company was notified by the note holder of the cancellation
of these conversion notices and as such the Company reversed the effects of these transactions thereby increasing the principal balance
by $
Converted
notes totaling principal amount of $
The Company reclassified $
The Company has shares of its common stock reserved for future issuances based on lender reserve requirements pursuant to underlying financing agreements at June 30, 2021.
Shares issued for services
On
July 19, 2019, the Company entered into an agreement with a certain consultant to provide services over a two-month period beginning
July 1, 2019 and ending September 1, 2019 in exchange for 20 shares of the Company’s common stock. On July 19, 2019, the Company
issued the shares of the Company’s common stock valued at $ per share; being the closing price of the stock on the date
of the agreement, to such consultant, or $
Between
February 3, 2020 and June 26, 2020, the Company issued an aggregate of shares of the Company’s common stock to a consultant
for services rendered pursuant to an engagement agreement dated on September 10, 2019 which agreement was later amended in February 2020.
Between February 3, 2020 and June 26, 2020, the Company issued an aggregate of shares of the Company’s common stock valued
at an average price of $ per share; being the closing price of the stock on the date of the agreement, to such consultant, or $
On
March 22, 2021, the Company issued an aggregate of shares of the Company’s common stock to a consultant for services rendered
from January 1, 2021 to March 22, 2021. The Company issued shares of the Company’s common stock valued at $ per share,
being the closing price of the stock on the date of grant to such consultant, or $
Between
March 2021 and June 2021, the Company issued an aggregate of shares of the Company’s common stock to a consultant for services
rendered from April 1, 2021 to June 30, 2021. The Company issued shares of the Company’s common stock valued at $ per
share, being the closing price of the stock on the date of grant to such consultant, or $
Shares issued for exercise of warrants
During
the year ended June 30, 2021, the Company received aggregate gross proceeds of $
Additionally,
during 2021 the Company issued shares of common stock from the
alternate cashless exercise of 20 Series A and 1 Series C warrants. The Company recognized the value of the effect of a down round
feature in such warrants when triggered. Upon the occurrence of the triggering event that resulted in a reduction of the strike price,
the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down
round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced
strike price upon the down round feature being triggered. Accordingly, the Company recognized deemed dividend of $
Restricted Stock Units
Pursuant
to employment agreements dated in May 2019, the Company granted an aggregate of and restricted stock unit to the Company’s
Chief Executive Officer and Chief Scientific Officer, respectively. The total restricted stock units are subject
to vesting terms as defined in the employment agreements. The 117 restricted stock units were valued at the fair value of $per unit or $based on the quoted trading price
on the date of grant. During the year ended June 30, 2021 and 2020, the Company recognized stock-based compensation of $and $,
respectively, related to vested restricted stock units. There were $
| F-28 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Options
SCHEDULE OF STOCK OPTION ACTIVITY
| Number of | Weighted Average | |||||||
| Options | Price Per Share | |||||||
| Outstanding at June 30, 2019 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| Outstanding at June 30, 2020 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired | ( | ) | ||||||
| Outstanding at June 30, 2021 | $ | |||||||
| Exercisable at June 30, 2021 | $ | |||||||
| Outstanding and Exercisable: | ||||||||
| Weighted average remaining contractual term | ||||||||
| Weighted average fair value of options granted during the period | $ | |||||||
| Aggregate intrinsic value | $ | |||||||
On the Effective Date, the Company’s board of directors approved and adopted the Company’s 2019 Equity Incentive Plan (the “2019 Plan”), which reserves a total of shares of the Company’s common stock for issuance under the 2019 Plan. Incentive awards authorized under the 2019 Plan include, but are not limited to, incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units.
During
the year ended June 30, 2021 and 2020, the Company recognized stock-based compensation of $
stock options were granted during the years ended June 30, 2021 and 2020.
Warrants
The following table summarizes warrant activity for the years ended June 30, 2021 and 2020:
SCHEDULE OF WARRANT ACTIVITY
| Number of | Weighted Average | |||||||
| Warrants | Price Per Share | |||||||
| Outstanding at June 30, 2019 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding at June 30, 2020 | $ | |||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ||||||||
| Expired | ||||||||
| Outstanding at June 30, 2021 | $ | |||||||
| Exercisable at June 30, 2021 | $ | |||||||
| Outstanding and Exercisable: | ||||||||
| Weighted average remaining contractual term | ||||||||
| Aggregate intrinsic value | $ | |||||||
| F-29 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
In
connection with the issuance of the August 2019 Auctus Note, the Company issued common stock purchase warrants to Auctus to purchase
On
September 10, 2019, the Company entered into an agreement with a certain consultant to provide services over a three-month period beginning
September 10, 2019 and ending December 10, 2019 in exchange for
In
connection with the issuance of shares on April 3, 2020 as discussed above,
Due
to the Beneficial Ownership Limitation, the Company granted
Series A Warrants
Pursuant
to the Securities Purchase Agreement entered into March 20, 2020 as discussed above, the Investor purchased Series A Warrants to purchase
up to
Series B Warrants
Pursuant
to the Securities Purchase Agreement entered into March 20, 2020 as discussed above, the Investor purchased Series B Warrants to purchase
up to
Series C Warrants
Pursuant
to the Securities Purchase Agreement entered into March 20, 2020 as discussed above, the Investor purchased Series C Warrants to purchase
up to
| F-30 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Exercise of Warrants
During
the year ended June 30, 2021, the Company received aggregate gross proceeds of $
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Matters
On
September 26, 2019, a complaint was filed against the Company with Supreme Court of the State of New York, County of New York, by Foley
Shechter Ablovatskiy LLP (“Foley Shechter”), our former counsel, seeking $
Regal
Consulting, LLC (“Regal”) initiated litigation against the Company in Clark County District Court, Nevada. Regal was demanding
approximately $
IRS Liability
As
part of its requirement for having a foreign operating subsidiary, the Company’s parent U.S. entity is required to file an informational
Form 5471 to the Internal Revenue Service (the “IRS”), which is a form that explains the nature of the relationship between
the foreign subsidiary and the parent company. From 2012 through the 2014, the Company did not file this form in a timely manner. As
a result of the non-timely filings, the Company incurred a penalty from the IRS in the amount of $
Operating Agreements
In
November 2009, the Company entered into a commercialization agreement with the University of Bath (UK) (the “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
Operating Leases
On
May 5, 2016, the Company entered into a new -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 currently at $
| F-31 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
ROU is summarized below:
SCHEDULE OF RIGHT USE OF ASSET
| June 30, 2021 | June 30, 2020 | |||||||
| Office lease (24 months) | $ | $ | ||||||
| Less accumulated amortization | ( |
) | ( |
) | ||||
| Right-of-use asset, net | $ | $ | ||||||
Operating Lease liabilities are summarized below:
SCHEDULE OF OPERATING LEASE LIABILITY
| June 30, 2021 | June 30, 2020 | |||||||
| Office lease | $ | $ | ||||||
| Reduction of lease liability | ( |
) | ( |
) | ||||
| Long term portion of lease liability | $ | $ | ||||||
Collaboration Agreement
On
September 13, 2018, the Company entered into a two-year collaboration agreement with the University of Jaén (the “University”)
to provide certain research services to the Company. In consideration of such services, the Company agreed to pay the University approximately
NOTE 10 – 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 June 30, 2021 and 2020, the Company owed its former director a total of $
As
of June 30, 2021 and 2020, the Company owed its former director a total of $
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 -year
term and provides for annual rental payments of $
| F-32 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Employment and Services Agreements with Management
The
Company and Mr. Nathanielsz entered into an employment agreement as of February 25, 2015 (the “Nathanielsz Employment Agreement”)
setting forth the terms and conditions of Mr. Nathanielsz employment as the Company’s President and Chief Executive Officer. The
Nathanielsz Employment Agreement was scheduled to expire on
Mr.
Nathanielsz’s wife, Sylvia Nathanielsz, is and has been a non-executive part-time employee of the Company since October 2015. Effective
February 1, 2018, Mrs. Nathanielsz receives an annual salary of $
Pursuant
to a February 25, 2016 board resolution, James Nathanielsz shall be paid $
Pursuant
to the approval of the Company’s board of directors, on May 14, 2019, Mr. Nathanielsz was granted a $
Amended
and Restated Employment Agreement - On May 14, 2019 (the “Effective Date”), the Company entered into an Amended and Restated
Employment Agreement (the “Employment Agreement”) with James Nathanielsz, the Company’s Chief Executive Officer, Chairman,
acting Chief Financial Officer and a director, for a term of
| F-33 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Amended
and Restated Services Agreement - On May 14, 2019, the Company also entered into an Amended and Restated Services Agreement (the “Services
Agreement”) with Dr. Kenyon, the Company’s Chief Scientific Officer and a director, for a term of years, subject to
automatic -year renewals, at an annual salary of $
Intercompany Loans
All Intercompany loans were made by the parent to the subsidiary, Propanc PTY LTD, which have not been repaid as of June 30, 2021. Effective fiscal year 2021, the parent company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of other comprehensive income. Prior to July 1, 2020, the Company recorded the foreign currency transaction gains and losses from measuring the intercompany balances as a component of other income (expenses) as reflected in the consolidated statements of operations.
NOTE 11 – 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 June 30, 2021.
In fiscal year 2020,
the
Company currently primarily relied on funding from three convertible debt lenders. Proceeds received
during the year ended June 30, 2020 from each of the three lenders were $
In fiscal year 2021,
the Company primarily relied on funding from two convertible debt lenders and received net proceeds after
deductions of $
Receivable Concentration
As
of June 30, 2021 and 2020, the Company’s receivables were
| F-34 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Patent and Patent Concentration
The Company has filed multiple patent applications relating to its lead product, PRP. The Company’s lead patent application has been granted and remains in force in the United States, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, Liechtenstein, Turkey, United Kingdom, Australia, China, Japan, Indonesia, Israel, New Zealand, Singapore, Malaysia, South Africa, Mexico, Republic of Korea, India and Brazil. In Canada, the patent application remains under examination.
In 2016 and early 2017, we filed other patent applications. Three applications were filed under the Patent Cooperation Treaty (the “PCT”). The PCT assists applicants in seeking patent protection by filing one international patent application under the PCT, applicants can simultaneously seek protection for an invention in over 150 countries. Once filed, the application is placed under the control of the national or regional patent offices, as applicable, in what is called the national phase. One of the PCT applications filed in November 2016, entered national phase in July 2018 and another PCT application is currently entering national phase in August 2018. A third PCT application entered the national phase in October 2018.
In July 2020, a world first patent was granted in Australia for the cancer treatment method patent family. Presently, there are 31 granted patents and 34 patents under examination in key global jurisdictions relating to the use of proenzymes against solid tumors, covering the lead product candidate PRP.
Further patent applications are expected to be filed to capture and protect additional patentable subject matter based on the Company’s field of technology relating to pharmaceutical compositions of proenzymes for treating cancer.
Foreign Operations
As of June 30, 2021 and 2020, 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 June 30, 2021 and 2020, there has been no activity within this entity.
NOTE 12 - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative Financial Instruments:
The
Company applies the provisions of ASC 815-40, Contracts in Entity’s Own Equity, under which convertible instruments and
warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative
accounting treatment. As a result, warrants and embedded conversion options in convertible debt are recorded as a liability and are revalued
at fair value at each reporting date. If the fair value of the warrants exceeds the face value of the related debt, the excess is recorded
as change in fair value in operations on the issuance date. The Company had $
The Company calculates the estimated fair values of the liabilities for derivative instruments using the Binomial Trees Method. The closing price of the Company’s common stock at June 30, 2021, the last trading day of the fiscal year ended June 30, 2021, was $. Volatility, expected remaining term and risk-free interest rates used to estimate the fair value of derivative liabilities at June 30, 2021 and 2020 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.
SCHEDULE OF FAIR VALUE MEASUREMENTS, RECURRING AND NONRECURRING, VALUATION TECHNIQUES
Convertible Debt
| Initial Valuations during the year ended June 30, 2021 | Initial during the year ended June 30, 2020 |
June 30, 2021 | June 30, 2020 | ||||||||||
| Volatility | N/A | % | % | % | |||||||||
| Expected remaining term | N/A | ||||||||||||
| Risk-free interest rate | N/A | % | % | % | |||||||||
| Expected dividend yield | N/A | ||||||||||||
| F-35 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
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 June 30, 2021:
SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING BASIS
| Balance
at June 30, 2021 |
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 | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:
| Balance
at June 30, 2020 |
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 | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following is a roll forward for the years ended June 30, 2021 and 2020 of the fair value liability of price adjustable derivative instruments:
SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE
| Fair Value of | ||||
| Liability for | ||||
| Derivative | ||||
| Instruments | ||||
| Balance at June 30, 2019 | $ | |||
| Reductions due to conversions | ( |
) | ||
| Initial fair value of embedded conversion option derivative liability recorded as debt discount | ||||
| Initial fair value of embedded conversion option derivative liability recorded as expense | ||||
| Change in fair value included in statements of operations | ( |
) | ||
| Balance at June 30, 2020 | ||||
| Gain on debt extinguishment | ( |
) | ||
| Change in fair value included in statements of operations | ||||
| Balance at June 30, 2021 | $ | |||
NOTE 13 – SUBSEQUENT EVENTS
Exercise of Warrants
From
July 9, 2021 through September 7, 2021, the Company received aggregate gross proceeds of $
Note Conversions
From
July 1, 2021 through September 20, 2021, the Company issued an aggregate of shares of its common stock
at an average contractual conversion price of $
| F-36 |
PROPANC BIOPHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
Nathanielsz Cancellation Agreement
On
August 12, 2021, the Company entered into a Cancellation Agreement with James Nathanielsz (“Nathanielsz”), Chief Executive
Officer and Director of the Company, whereby Nathanielsz agreed to cancel his cash compensation bonus award for fiscal year 2021, ended
June 30, 2021, in exchange for common stock of the Company. The Company and Nathanielsz entered into an Amended and Restated Employment
Agreement dated May 14, 2019 (the “Agreement”). Pursuant to the terms of the Agreement, Nathanielsz was eligible to earn
an annual fiscal year cash performance bonus for each fiscal year of his employment period with the Company with a target performance
bonus of
Kenyon Cancellation Agreement
On
August 12, 2021, the Company entered into a Cancellation Agreement with Dr. Julian Kenyon (“Kenyon”), Chief Scientific Officer
and Director of the Company, whereby Kenyon agreed to cancel of $
Zelinger Amended and Restated Director Agreement
On
August 12, 2021, the Company entered into an Amended and Restated Director Agreement (the “Director Agreement”) with Josef
Zelinger (“Zelinger”).
Common Stock Issued for Services
On
August 12, 2021, the Board approved the issuance of shares of the Company’s common stock for bonus payable of $
On
August 12, 2021, the Board approved the issuance of shares of the Company’s common stock for legal services rendered in
August 2021 worth $
In
September 2021, the Company issued shares of the Company’s common stock to a consultant for services rendered from July
2021 to September 2021. The Company issued shares of the Company’s common stock valued at approximately $ per share,
being the closing price of the stock on the date of grant to such consultant, or approximately $
August 19, 2021 and September 22, 2021 Securities Purchase Agreement
Effective
August 19, 2021, the Company entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc., pursuant to which
Geneva Roth purchased a convertible promissory note (the “August 19, 2021 Geneva Roth”) from the Company in the
aggregate principal amount of $
Additionally, effective September 22, 2021, the
Company entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc., pursuant to which Geneva Roth purchased
a convertible promissory note (the “September 22, 2021 Geneva Roth”) from the Company in the aggregate principal amount of
$
The
conversion price for the above Geneva Roth notes shall be equal to a
The
above Geneva Roth 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,
| F-37 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Definition and Limitations of Disclosure Controls and Procedures
Our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) are designed to reasonably ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.
As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. Based upon that evaluation, as discussed below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were not effective because of the material weaknesses in internal control over financial reporting described below.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, the disclosure controls and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
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We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our internal controls over financial reporting as of June 30, 2021. Based on this assessment, management believes that, as of June 30, 2021, we did not maintain effective internal control over financial reporting based on the criteria established in the “Internal Integrated Framework” issued by COSO in 2013 due to certain material weaknesses in its internal controls. Specifically, the Board does not currently have a director who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Further, because of the lack of administrative support staff, and due to the financial constraints on the Company, management has not been able to develop or implement controls related to the segregation of duties for purposes of financial reporting. Management has undertaken efforts to mitigate this by intending to hire a new employee on at least a part-time basis to undertake general accounting functions, subject to receiving sufficient financing. There is no guarantee, however, that we will be able to implement this new hire during the course of the current fiscal year or that this by itself will markedly improve our internal control over financial reporting.
Material Weaknesses and Corrective Actions
In connection with the audits of our financial statements for the fiscal years ended June 30, 2021 and 2020, we identified certain deficiencies relating to our internal control over financial reporting that constitute a material weakness under standards established by the Public Company Accounting Oversight Board (the “PCAOB”). The PCAOB defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
The following material weaknesses in our internal control over financial reporting continued to exist at June 30, 2021:
| ● | we do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); | |
| ● | we do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our limited size and early-stage nature of operations, segregation of all conflicting duties may not always be possible and may not be economically feasible; however, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals; | |
| ● | lack of audit committee of our board of directors; and | |
| ● | insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of U.S. GAAP. |
We outsource certain of the functions that would normally be performed by a principal financial officer to assist us in implementing the necessary financial controls over the financial reporting and the utilization of internal management and staff to effectuate these controls.
We believe that these material weaknesses primarily relate, in part, to our lack of sufficient staff with appropriate training in U.S. GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.
We plan to take a number of actions in the future to correct these material weaknesses including, but not limited to, establishing an audit committee of our board of directors comprised of at least two independent directors, adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements, subject to receiving sufficient additional capital. If we receive sufficient capital, we hope to increase the chief financial officer’s role from part-time to full-time as the next step in building out our accounting department. We will need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issues identified, (2) ensure that our internal controls are effective or (3) ensure that the identified material weakness or other material weaknesses will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
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Attestation Report of the Independent Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the Dodd-Frank Act that permanently exempted smaller reporting companies from the auditor attestation requirement.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of the year ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth certain information regarding our current executive officers and directors as of September 28, 2021:
| Name | Age | Position | ||
| James Nathanielsz | 47 | Chief Executive Officer, Chief Financial Officer, and Director | ||
| Dr. Julian Kenyon | 74 | Director | ||
| Josef Zelinger | 70 | Independent Director |
James Nathanielsz has served as Chief Executive Officer and director of our Company since inception, and has served as our Chief Financial Officer since December, 2020. He also has served as a director and Chief Executive Officer of our Australian subsidiary since October 2007. From July 2006 until October 2007, Mr. Nathanielsz served as the New Products Manager of Biota Holdings Limited, an anti- infective drug development company in Australia.
Mr. Nathanielsz graduated with a Bachelor of Applied Science, majoring in Biochemistry/Applied Chemistry and with a Master of Entrepreneurship & Innovation from Swinburne University of Technology in Melbourne, Australia.
Our board of directors has concluded that Mr. Nathanielsz is well-qualified to serve on our board of directors and has the requisite qualifications, skills and perspectives based on, among other factors, him being a Co-Founder of our Australian company and for his experience in research and development and manufacturing and distribution, as well as him being our controlling stockholder, and his significant business, investment, finance and public company experience, particularly with biotech companies.
Dr. Julian Kenyon has served as a director of our Company since inception. Dr. Kenyon co-founded our Australian subsidiary and was appointed as a director of our Australian subsidiary on February 12, 2008. Since 2000, Dr. Kenyon has served as an integrated medical physician and Medical Director of the Dove Clinic for Integrated Medicine in Winchester and London.
Dr. Kenyon graduated from the University of Liverpool with a Bachelor of Medicine and Surgery and with a research degree, Doctor of Medicine. Since 1972, he was appointed a Primary Fellow of the Royal College of Surgeons, Edinburgh.
Our board of directors has concluded that Dr. Kenyon is well-qualified to serve on our board of directors and has the requisite qualifications, skills and perspectives based on, among other factors, him being a Co-Founder of our Australian subsidiary and because our business is based on his initial work at the Dove Clinic.
Josef Zelinger has served as a director of the Company since December, 2020. He is a Certified Practicing Accountant with 45 years of experience in tax, auditing, finance, investment and management consulting. Mr. Zelinger also has significant expertise in property management and import/export businesses. Mr. Zelinger commenced his career as an accountant at L.M. Stanton & Partners - Chartered Accountants, subsequently joining Caston Pty Ltd in 1980, a steel manufacturer as Chief Financial Officer, and company director, until 1983.
Since the mid-1980’s until current date, Mr. Zelinger serves as director in several private investment companies in a range of businesses including property portfolio manager of commercial real estate, import/export businesses and a range of commercial and financial investment companies. Since 1980, Mr. Zelinger also operates as a sole practitioner in accountancy and tax consulting.
| 28 |
In 1973, Mr. Zelinger graduated in Accounting and was admitted as a Fellow of RMIT University in Business.
Our board of directors has concluded that Mr. Zelinger is well-qualified to serve on our board of directors and has the requisite qualifications, skills and perspectives based upon his professional experience.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our Bylaws and the provisions of the Delaware General Corporation Law. Our directors hold office after the expiration of his or her term until his or her successor is elected and qualified, or until his or her resignation, death or removal in accordance with our Bylaws or the Delaware General Corporation Law.
Our officers are appointed by our board of directors and hold office until removed by our board of directors at any time for any reason.
Family Relationships
There are no family relationships between or among any of our directors or executive officers or persons nominated or chosen by us to become directors or executive officers.
Director Independence
Our board of directors has reviewed the independence of our directors and has determined that Josef Zelinger qualifies as an independent director pursuant to Rule 5605(a)(2) of Nasdaq and applicable SEC rules and regulations. In making this determination, our board of directors considered the relationships that each of our directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence.
Board Committees
Our board of directors has no separately designated committees and our board members carry out the functions of both an audit committee and a compensation committee. We do not have an audit committee financial expert serving on our board of directors. Due to our limited financial resources, we are not in a position to retain an independent director with the qualifications to serve as an audit committee financial expert at this time.
Scientific Advisory Board
We have a Scientific Advisory Board that provides advice to our management relating to the following:
| ● | The identification, assessment, evaluation, selection, conduct and management of research projects, both those which are under review and are in progress; | |
| ● | Intellectual property; and | |
| ● | Commercialization. |
The Scientific Advisory Board may also address issues related to improving project selection, formal review processes and management procedures within our Company. The Scientific Advisory Board will generally be composed of an advisory panel of clinicians with expertise in translational research.
As of September 28, 2021, the members of our Scientific Advisory Board were:
| ● | Professor Klaus Kutz (also serving as our acting Chief Medical Officer); | |
| ● | Professor Macarena Perán; | |
| ● | Professor Juan Antonio Marchal Corrales; | |
| ● | Dr. Maria Garcia; and | |
| ● | Dr. Ralf Brandt. |
Each of the members of our Scientific Advisory Board acts as an independent consultant and is compensated on an hourly basis for his or her services. There is presently no stock based compensation for their services. In addition, we may have relationships with entities with which the members may be associated.
Professor Kutz is also acting as Chief Medical Officer for Propanc in a non-executive capacity. His compensation continues to be based on an hourly rate as per his Advisory Board Agreement. Propanc intends to appoint Professor Kutz as Chief Medical Officer of Propanc in a full-time executive officer capacity at a time that is mutually agreed upon between both parties.
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Professor Klaus Kutz has over 20 years of experience as an independent consultant in Clinical Pharmacology and Safety for pharmaceutical companies and clinical research organizations. His specialty over the last six years is Oncology, including preparation of multiple NDAs and INDs for small and medium sized pharmaceutical companies. He has prepared, organized and reported clinical Phase I studies in oncology and Phase II studies in different cancer indications (prostate, gastric, ovarian, small cell lung cancer) and Non-Hodgkin Lymphomas. Professor Kutz has more than 13 years of experience as Head of Clinical Pharmacology with world-wide responsibilities for Phase I and Clinical Pharmacokinetics in two internationally operating pharmaceutical companies, setting up and restructuring international Clinical Pharmacology departments. His achievements include the successful world-wide registration of multiple important Sandoz’ compounds by preparation of multiple NDAs (New Drug Applications) and Expert reports (including Written Summary), as well as the preparation of multiple INDs (Investigational New Drug Applications) for Sandoz Pharma Ltd and Sanofi Research. He is a specialist for Internal Medicine, Gastroenterology, and Clinical Pharmacology and he is also Professor of Medicine at the University of Bonn, Germany.
Professor Macarena Perán holds a B.S. in Biology and an M.S. in Biochemistry and Molecular Biology from the University of Málaga, Spain. Dr. Perán moved to the Neuroscience Department at Durham University, UK, where she studied the Cellular Distribution and Immobilization of GABAA Receptors on the cell membrane and graduated in 2000 with a Ph.D. She moved back to Spain and completed another Ph.D. program in the Faculty of Medicine focused on Changes in the Behavior of Central Nervous Proteins; she completed a second Ph.D. from Granada University. In 2005/2006, she attended Bath University, UK, Prof. David Tosh lab, and changed her research interest to the development of new anti-cancer drugs and cell therapy for regenerative medicine. In 2011, she spent a year as a visiting scientist in the Salk Institute for Biological Studies, California, Prof. Juan Carlos Izpisua-Belmonte lab. Currently, Dr. Perán is Reader in Anatomy at University of Jaén in Spain and is working with the Institute for Regenerative Medicine and Pathobiology (IBIMER).
Professor Juan Antonio Marchal Corrales is Professor of Anatomy and Embryology at the Faculty of Medicine of University of Granada. He graduated in Medicine and Surgery in 1992, obtaining the degree “summa cum laude”. He defended his doctoral thesis in 1996. Prof. Marchal has worked at three universities in different educational categories and is responsible for the research group “Differentiation, Regeneration and Cancer”. He has participated in 39 research projects of national and international character, being principal investigator in 13 of them. He has a total of 145 publications in journals, of which 125 are listed in the Journal Citation Reports. He has spent time at the University of Sassari (Italy) and as visiting professor. He is inventor of 14 patents, 4 of them licensed. He is a member of the Advisory Board of the International Graduate School of the University of Granada, member of the standing committee of the Scientific Council and coordinator of Area Research in the Biosanitary Institute of Granada (ibs.GRANADA) and member of the Governing Board at the Institute of Pathobiology and Regenerative Medicine (IBIMER). He has recently been named director of the Chair Drs. Galera and Requena of Cancer Stem Cell Research at the University of Granada.
Dr. Maria Garcia graduated in Biology from University of Granada (Spain) in 1997, became a Molecular Biologist working in the National Centre of Biotechnology characterizing the mechanism of action of “Protein kinase induced by interferon: PKR”. These studies gave rise to a PhD title awarded with an Extraordinary Thesis Award by the Autonomous University of Madrid in 2004. In 2002, Dr. García completed a 3-months stay at the University of Wyoming with Dr. Roth. During the postdoctoral period, she got major public and private funding to characterize new activity of the main tumor suppressor genes that are mutated in more than 50% of human cancers such as p53, ARF and Rb. Dr. García currently has a competitive research contract from the National Health System to lead translational cancer research, aiming at the integration of basic, clinical and epidemiological cancer research in the University Hospital Complex of Granada. She leads a line of research involving new antitumor drugs, biological therapies, biomarkers and cancer stem cell studies. Finally, Dr. García has more than 30 peer-reviewed publications in international journals with an average impact factor of 5 and a H-Index of 14.
Dr. Ralf Brandt is the co-founder of vivoPharm, a global oncology and immuno-oncology discovery services company providing a range of preclinical services, which merged and became a part of Cancer Genetics, Inc., a Nasdaq listed company enabling precision medicine in oncology from bench to bedside. Dr. Brandt currently serves as President of Discovery and Early Development of Cancer Genetics. Dr. Brandt is a biochemist and cell biologist with over 15 years of experience in research programs of experimental oncology. He has immense experience in in vivo pharmacology and anti-cancer drug profiling. Dr. Brandt received his Licence (BSc in Biochemistry and Animal Physiology) in 1986, and his PhD (in Biochemistry) in 1991 from the Martin-Luther University of Halle-Wittenberg, Germany. Dr. Brandt was employed at research positions at the National Cancer Institute in Bethesda, MD, USA and at Schering AG, Germany. Since 1990, Dr. Brandt has been active in the field of preclinical oncology. He led the Tumor Biology program at Novartis Pharma AG, Switzerland and established several transgenic mouse lines developing tumors under the control of oncogenes. During Dr. Brandt’s long career in the pharmaceutical industry he has acquired significant knowledge and expertise in leading business units and representation of services to the pre-clinical research market. Dr. Brandt is also a member of the Scientific Advisory Board at Receptor Inc. in Toronto Canada.
| 30 |
Risk Oversight
Our board of directors will oversee a company-wide approach to risk management. Our board of directors will determine the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our board of directors will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.
Until we have established our compensation committee of our board of directors, our board of directors will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Until we have established our audit committee, our board of directors will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. Our board of directors will be responsible for overseeing the management of risks associated with the independence of our board of directors.
Code of Ethics
The Board has adopted a Code of Ethics (the “Code”) to apply to all of our directors, officers and employees. The Code is intended to promote ethical conduct and compliance with laws and regulations, to provide guidance with respect to the handling of ethical issues, to implement mechanisms to report unethical conduct, to foster a culture of honesty and accountability, to deter wrongdoing and to ensure fair and accurate financial reporting. A copy of the Code is available at our website www.propanc.com.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or in the past three years has served, as a member of the board of directors or compensation committee of another entity that has one or more executive officers serving on our board of directors or the compensation committee. No member of our compensation committee has any other business relationship or affiliation with us other than his or her service as a director.
Nominations to the Board of Directors
General — Our directors take a critical role in guiding our strategic direction and oversee the management of the Company. Our board of directors’ candidates are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of the shareholders, diversity, and personal integrity and judgment. In addition, directors must have time available to devote to our board of directors’ activities and to enhance their knowledge of our business. Accordingly, we seek to attract and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to our Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the United States Securities and Exchange Commission.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5 furnished to us, we believe that that during the year ended June 30, 2021, our executive officers, directors and greater than 10 percent beneficial owners complied on a timely basis with all Section 16(a) filing requirements.
Item 11. Executive Compensation.
The following table sets forth the compensation paid or accrued by us to our Executive Officers for the fiscal years ended June 30, 2021 and 2020.
Summary Compensation Table
| Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
| James Nathanielsz(1) (5) | 2020 | $ | 357,988 | (2) | $ | 165,384 | (3) | $ | - | $ | 66,821 | (4) | $ | 590,193 | ||||||||||
| Chief Executive Officer | 2021 | $ | 298,920 | (2) | $ | 177,840 | (5) | $ | - | $ | 64,532 | (4) | $ | 541,292 | ||||||||||
| Carlo Campiciano(6) | 2020 | $ | 51,222 | $ | - | $ | - | $ | - | $ | 51,222 | |||||||||||||
| Chief Financial Officer | 2021 | $ | 19,530 | $ | - | $ | - | $ | - | $ | 19,530 | |||||||||||||
| Julian Kenyon(7) | 2020 | $ | 37,211 | $ | - | $ | - | $ | - | $ | 37,211 | |||||||||||||
| Chief Scientific Officer | 2021 | $ | 40,534 | $ | - | $ | - | $ | - | $ | 40,534 | |||||||||||||
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| (1) | For purposes of the information included in the table, the conversion rates as of June 30, 2021 and 2020, $0,7473 and $0.6891, respectively, were used to convert amounts from AUD to USD. | |
| (2) | Under the Nathanielsz Employment Agreement (as defined below), Mr. Nathanielsz received a gross annual salary of $400,000 AUD per year effective February 1, 2018 as approved by the board of directors. Mr. Nathanielsz has also accrued unused annual and long service leave in the amounts of $41,110 (AUD) ($30,722 USD) and $46,187 (AUD) ($31,827 USD) for fiscal years 2021 and 2020, respectively, which are included in the total above. | |
| (3) | On July 13, 2020 the Board approved a bonus of $240,000 AUD ($165,384 USD) being equal to 60% of Mr. Nathanielsz base salary. | |
| (4) | Under the Nathanielsz Employment Agreement, Mr. Nathanielsz receives a 9.5% contribution to a pension of which he is the beneficiary. In addition, pursuant to the Nathanielsz Employment Agreement, we may make a monthly payment to cover the costs relating to Mr. Nathanielsz use of a vehicle. For the fiscal years ended June 30, 2021 and 2020, $34,476 and $32,757, respectively, was paid to Mr. Nathanielsz for use of a vehicle. | |
| (5) | On August 12, 2021, the Company entered into a Cancellation Agreement with James Nathanielsz (“Nathanielsz”), Chief Executive Officer and Director of the Company, whereby Nathanielsz agreed to cancel his cash compensation bonus award for fiscal year 2021, ended June 30, 2021, in exchange for common stock of the Company. The Company and Nathanielsz entered into an Amended and Restated Employment Agreement dated May 14, 2019 (the “Agreement”). Pursuant to the terms of the Agreement, Nathanielsz was eligible to earn an annual fiscal year cash performance bonus for each fiscal year of his employment period with the Company with a target performance bonus of 200% of his average annualized base salary during the fiscal year for which the performance bonus is earned. On July 20, 2021, Nathanielsz was awarded a “target” bonus of 78%, or $177,840 USD (the “Debt”) for the fiscal year ended June 30, 2021, by the Company’s Board of Directors (the “Board”). Pursuant to the Cancellation Agreement, Nathanielsz agreed to cancel this Debt in exchange for 5,928,000 shares of the common stock of the Company, valued at approximately $0.03 per share, being the closing price of the stock on the date of grant. The shares were issued on August 17, 2021. | |
| (6) | On December 23, 2020, Carlo Campiciano resigned as the Chief Financial Officer and Secretary of Propanc Biopharma, Inc. (the “Company”), and effective on that date. James Nathanielsz, the Company’s Chief Executive Officer, assumed the duties and additional position of Chief Financial Officer. | |
| (7) | On August 12, 2021, the Company entered into a Cancellation Agreement with Dr. Julian Kenyon (“Kenyon”), Chief Scientific Officer and Director of the Company, whereby Kenyon agreed to cancel $102,600 USD of accrued salary due him as of June 30, 2021, pursuant to that certain Amended and Restated Services Agreement by and between Kenyon and the Company, dated May 14, 2019, in exchange for 3,420,000 shares of common stock of the Company, valued at approximately $0.03 per share, being the closing price of the stock on the date of grant. The shares were issued on August 17, 2021. |
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Narrative to Summary Compensation Table
Employment Agreement with James Nathanielsz
The Company and James Nathanielsz entered into a new employment agreement as of May 14, 2019 (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 also contemplates that Mr. Nathanielsz serves as a member of the Board.
The Nathanielsz Employment Agreement provides Mr. Nathanielsz with a base salary of $33,333 AUD per month ($400,000 AUD annually) 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 has 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 and based upon the performance of the Company.
Mr. Nathanielsz is entitled to 20 days of annual leave and 10 days of paid sick leave. Mr. Nathanielsz is also entitled to participate in employee benefits plans, fringe benefits and perquisites maintained by the Company to the extent the Company provides similar benefits or perquisites (or both) to similarly situated executives of the Company.
In the event that the Company provides notice of non-renewal of the Nathanielsz Employment Agreement, the Company terminates Mr. Nathanielsz without cause (as defined in the Nathanielsz Employment Agreement) or Mr. Nathanielsz terminates his employment for good reason (as defined in the Nathanielsz Employment Agreement), the Company has agreed to pay Mr. Nathanielsz a severance payment in an amount equal to Mr. Nathanielsz’s base salary for the year of termination in addition to accrued but unpaid salary, reimbursement of expenses and certain other employee benefits as determined under the terms of the applicable plans (“Accrued Amounts”). In the event that Mr. Nathanielsz provides notice of non-renewal of the Nathanielsz Employment Agreement, the Company terminates Mr. Nathanielsz for cause or Mr. Nathanielsz terminates his employment without good reason, Mr. Nathanielsz is only entitled to the Accrued Amounts.
The Company has agreed to indemnify Mr. Nathanielsz for any liabilities, costs and expenses incurred in the event that he is made a party to a proceeding due to his roles with the Company, other than any proceeding initiated by Mr. Nathanielsz or the Company relating to any dispute with respect to the Nathanielsz Employment Agreement or Mr. Nathanielsz’s employment.
Under the terms of the Nathanielsz Employment Agreement, Mr. Nathanielsz is also subject to certain restrictive covenants, including a one-year non-compete.
Employment Agreement with Carlo Campiciano
In connection with Mr. Campiciano’s appointment as the Company’s Chief Financial Officer and Secretary, effective as of June 24, 2019, Propanc PTY entered into an Employment Agreement with Mr. Campiciano. Pursuant to the Employment Agreement, Mr. Campiciano will be compensated at an hourly rate based on a pro-rated annual salary for the number of hours of services to be provided to the Company. If Mr. Campiciano’s employment is terminated by either party, he will be entitled to certain termination benefits, including payment of accrued but untaken annual leave, salary payments pro-rated based on applicable notice period required under the Employment Agreement, reimbursement of incurred business related expenses and such other payments as may be required by the Australian National Employment Standards. The Employment Agreement contains covenants for the benefit of Propanc PTY relating to non-interference with Propanc PTY’s business after termination of employment and protection of Propanc PTY’s confidential information, certain customary representations and warranties and standard Propanc PTY indemnification obligations.
On December 23, 2020, Carlo Campiciano resigned as the Chief Financial Officer and Secretary of Propanc Biopharma, Inc. (the “Company”), effective on that date.
Amended and Restated Services Agreement – Julian Kenyon
On May 14, 2019, the Company entered into an Amended and Restated Services Agreement (the “Services Agreement”) with Dr. Kenyon, the Company’s Chief Scientific Officer and a director, for a term of three years, subject to automatic one-year renewals, at an annual salary of $54,000 AUD. In connection with the execution of the Services Agreement, Dr. Kenyon was designated as an executive officer of the Company and assumed a more active executive role with the Company. Pursuant to the Services Agreement, Dr. Kenyon was granted options to purchase 20 shares of the Company’s common stock (the “Kenyon Options”), with an exercise price per share of $4,250 (100% of the closing market price of the Company’s common stock on May 14, 2019, the date of approval of such grant by the Company’s board of directors), (ii) 20 restricted stock units of the Company (the “Initial Kenyon RSUs”), and (iii) an additional 20 restricted stock units of the Company (the “Additional Kenyon RSUs”). Such options and restricted stock units were granted pursuant to the 2019 Plan approved by the Company’s board of directors on the Effective Date. The Kenyon Options have a term of 10 years from the date of grant. 1/3rd of the Kenyon Options shall vest every successive one-year anniversary following the Effective Date, provided, that on each such vesting date Dr. Kenyon is employed by the Company and subject to the other provisions of the Services Agreement. The Initial Kenyon RSUs shall vest on the one-year anniversary of the Effective Date, subject to Dr. Kenyon’s continued employment with the Company through such vesting date. The Additional Kenyon RSUs will vest as follows, subject to Dr. Kenyon’s continued employment with the Company through the applicable vesting date: (i) 5 of the Additional Kenyon RSUs shall vest upon the Company submitting the CTA for PRP for the Study in an applicable jurisdiction to be selected by the Company, (ii) 5 of the Additional Kenyon RSUs shall vest upon the Company completing an equity financing in the amount of at least $4,000,000 in gross proceeds, (iii) 5 of the Additional Kenyon RSUs shall vest upon the shares of the Company’s Common Stock being listed on a senior stock exchange (NYSE, NYSEMKT or NASDAQ), and (iv) the remaining 5 of the Additional Kenyon RSUs shall vest upon the Company enrolling its first patient in the Study. Each vested Kenyon RSU shall be settled by delivery to Mr. Kenyon of one share of the Company’s common stock and/or the fair market value of one share of common stock in cash, at the sole discretion of the Company’s board of directors and subject to the Plan, on the first to occur of: (i) the date of a Change of Control (as defined in the Services Agreement), (ii) the date that is ten business days following the vesting of such Kenyon RSU, (iii) the date of Dr. Kenyon’s death or Disability (as defined in the Services Agreement), and (iv) Dr. Kenyon’s employment being terminated either by the Company without Cause or by Dr. Kenyon for Good Reason (as defined in the Services Agreement). In the event of a Change of Control (as defined in the Services Agreement), 50% of any unvested portion of the Kenyon Options and the Kenyon RSUs shall vest immediately prior to such event.
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2019 Equity Incentive Plan
On May 14, 2019, our board of directors adopted our 2019 Equity Incentive Plan (the “2019 Plan”), which reserves a total of 234,000 shares of our common stock for issuance under the 2019 Plan (adjusted for the planned Reverse Stock Split). As described below, incentive awards authorized under the 2019 Plan include, but are not limited to, incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). If an incentive award granted under the 2019 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with the exercise of an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2019 Plan.
Administration - Our board of directors will administer the 2019 Plan. Subject to the terms of the 2019 Plan, our board of directors has complete authority and discretion to determine the terms upon which awards may be granted under the 2019 Plan.
Grants - The 2019 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Code and stock appreciation rights, as described below:
| ● | Options granted under the 2019 Plan entitle the grantee, upon exercise, to purchase up to a specified number of shares from us at a specified exercise price per share. The exercise price for shares of Common Stock covered by an option generally cannot be less than the fair market value of Common Stock on the date of grant unless agreed to otherwise at the time of the grant. In addition, in the case of an incentive stock option granted to an employee who, at the time the incentive stock option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary, the per share exercise price will be no less than 110% of the fair market value of Common Stock on the date of grant. | |
| ● | Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units. | |
| ● | The board of directors may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable, and other terms and conditions. | |
| ● | The 2019 Plan authorizes the granting of stock awards. The board of directors will establish the number of shares of our common stock to be awarded (subject to the aggregate limit established under the 2019 Plan upon the number of shares of our common stock that may be awarded or sold under the 2019 Plan) and the terms applicable to each award, including performance restrictions. | |
| ● | Stock appreciation rights (“SARs”) entitle the participant to receive a distribution in an amount not to exceed the number of shares of Common Stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of Common Stock on the date of exercise of the SAR and the market price of a share of our common Stock on the date of grant of the SAR. |
Duration, Amendment, and Termination - Our board of directors has the power to amend, suspend or terminate the 2019 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year of such change. Unless sooner terminated, the 2019 Plan would terminate ten years after it is adopted.
No awards or any shares of our common stock were issued during the fiscal year 2021 under the 2019 Plan.
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to grants of plan-based awards for the fiscal year ended June 30, 2021 to the Named Executive Officer. Except as set forth below, all of the outstanding equity awards granted to our Named Executive Officer were fully vested as of June 30, 2021.
| Option awards | Stock awards | |||||||||||||||||||||
|
Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) | Option Expiration Date | Number of Shares, Units or Other Rights That Have Not Vested (#) | Market Value or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||
| James Nathanielsz (1) | 26 | 13 | $ | 4,675 | May 13, 2029 | 39 | 165,747 | |||||||||||||||
| Julian Kenyon (2) | 13 |
6 |
$ | 4,250 |
May 13, 2029 |
20 |
82,873 |
|||||||||||||||
| (1) | On May 14, 2019, the Board granted Mr. Nathanielsz 39 tenure based stock options at an exercise price of $4,675 per share and 78 performance based restricted stock units. The fair value of the 39 options and 78 restricted stock units at the grant date was $165,747 and $331,493, respectively. With 39 of such restricted stock vested on May 14, 2020 and the balance subject to performance conditions. | |
| (2) | On May 14, 2019, the Board granted Mr. Kenyon 20 tenure based stock options at an exercise price of $4,250 per share and 40 performance based restricted stock units. The fair value of the 20 options and 40 restricted stock units at the grant date was $82,873 and $165,747, respectively. With 20 of such restricted stock vested on May 14, 2020 and the balance subject to performance conditions. |
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Director Compensation for the Fiscal Year Ended June 30, 2021
| Name | Fees earned or paid in cash ($) |
Option Awards ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||
| Josef Zelinger (1) | $ | - | $ | - | 84,000 | $ | 84,000 | |||||||||
| (1) | The Company issued 2,800,000 shares of common stock of the Company for accrued director services of $84,000 as of June 30, 2021. The 2,800,000 shares of common stock was valued at approximately $0.03 per share, being the closing price of the stock on the date of grant. The shares were issued on August 17, 2021. |
Amended and Restated Director Agreement – Josef Zelinger
On August 12, 2021, the Company entered into an Amended and Restated Director Agreement (the “Director Agreement”) with Josef Zelinger (“Zelinger”). Pursuant to the terms of the Director Agreement, the Company shall pay Zelinger a base salary of $250.00 AUD per month, payable on the first day of each month. In addition, the Company may compensate Zelinger additional consideration for advisory services performed by the Director, either in the form of cash or common stock, at the discretion of the Board. The Company issued 2,800,000 shares of common stock of the Company for accrued director services of $84,000 as of June 30, 2021. The 2,800,000 shares of common stock was valued at approximately $0.03 per share, being the closing price of the stock on the date of grant. The shares were issued on August 17, 2021.
Other Director Compensation
Directors are reimbursed for reasonable expenses incurred in attending meetings and carrying out duties as board members.
Scientific Advisory Board Members Compensation
The Company has entered into Scientific Advisory Board Member Agreements with certain members of its Scientific Advisory Board (the “SAB Agreements”). The SAB Agreements contain substantially similar terms and primarily relate to the protection of the Company’s intellectual property. The SAB Agreements also include provisions for the members’ compensation for the services performed as a member of the Scientific Advisory Board. Messrs. Kutz, Brandt and Smyth each are paid a monetary fee for each year of service provided.
Narrative Disclosure of Compensation Policies and Practices as They Relate to Our Risk Management
We believe that our compensation policies and practices for all employees and other individual service providers, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on us.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following sets forth information as of September 21, 2021 regarding the number of shares of our Common Stock beneficially owned by (i) each person that we know beneficially owns more than 5% of our outstanding Common Stock, (ii) each of our directors and named executive officer and (iii) all of our directors and named executive officers as a group.
The amounts and percentages of our Common Stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right, and the conversion of preferred stock. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise indicated, each of the shareholders named in the table below, or his or her family members, has sole voting and investment power with respect to such shares of our Common Stock. Except as otherwise indicated, the address of each of the shareholders listed below is: c/o Propanc Biopharma, Inc., 302, 6 Butler Street, Camberwell, VIC, 3124 Australia.
| Common Stock Beneficially Owned | Series A Preferred Stock Beneficially Owned | Series B Preferred Stock Beneficially Owned | ||||||||||||||||||||||
| Name and Address of Beneficial Owner | Number of Shares Beneficially Owned |
Percentage of Class(1) |
Number of Shares Beneficially Owned |
Percentage of Class(2) |
Number of Shares Beneficially Owned |
Percentage of Class (2) |
||||||||||||||||||
| North Horizon Pty Ltd.(3) | 5,928,004 | 14.42 | % | 500,00 | 100 | % | - | - | ||||||||||||||||
| James Nathanielsz(4) | - | - | - | - | 1 | 100 | % | |||||||||||||||||
| Dr. Julian Kenyon(5) | 3,420,005 | 8.32 | % | - | - | - | - | |||||||||||||||||
| Josef Zelinger | 2,800,005 | 6.81 | % | - | - | - | - | |||||||||||||||||
| All directors and executive officers, as a group (3 persons) | 12,148,014 | 29.56 | % | 500,000 | 100 | % | 1 | 100 | % | |||||||||||||||
| 5% Shareholders | ||||||||||||||||||||||||
| Sylva International LLC (6) | 3,634,067 | 8.84 | % | - | - | - | - | |||||||||||||||||
| Sylvia Nathanielsz (7) | 2,800,000 | 6.81 | % | - | - | - | - | |||||||||||||||||
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(1) Applicable percentages are based on 41,098,787 shares of our common stock outstanding as of September 21, 2021.
(2) Applicable percentages are based on 500,000 shares of our Series A Preferred Stock and 1 share of our Series B Preferred Stock outstanding as of September 21, 2021.
(3) North Horizon Pty Ltd. is a Nathanielsz Family Trust. Mr. James Nathanielsz, the Chief Executive Officer and a director of our Company, has investing and dispositive power of shares beneficially owned by North Horizon Pty Ltd.
(4) Excludes 26 vested stock options, 13 unvested stock options, 39 restricted stock units that vested in May 2020 and 39 restricted stock units that are subject to certain vesting conditions, as discussed above in the section captioned “Executive Compensation - New Employment Agreement with James Nathanielsz,”.
(5) Excludes 13 vested stock options, 6 unvested stock options, and 20 restricted stock units that vested in May 2020, and 20 restricted stock units that are subject to certain vesting conditions, as discussed above in the section captioned “Executive Compensation - New Services Agreement with Julian Kenyon”.
(6) Ross Silver has investing and dispositive power of shares beneficially owned by Sylva International LLC.
(7) Sylvia Nathanielsz is the wife of James Nathanielsz.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The following includes a summary of transactions since July 1, 2019 to which we have been a party, in which the amount involved in the transaction exceeded $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described above under “Item 11. Executive Compensation.”
Our principal executive office is located at 302, 6 Butler Street, Camberwell, VIC, 3124 Australia, which we lease from Horizon Pty Ltd., a related party, of which Mr. Nathanielsz, our Chief Executive Officer, Chief Financial Officer and a director, and his wife are owners and directors. The lease has a one-year term commencing May 6, 2021, and we are currently obligated to pay $3,606 AUD or $2,431 USD (depending on exchange rate), inclusive of tax, in rent per month
Mr. Nathanielsz’s wife, Sylvia Nathanielsz, is and has been an employee of our Company since October 2015. Mrs. Nathanielsz receives an annual salary of $120,000 AUD, or $80,904 USD, and is entitled to benefits customarily expected to be provided to employees of the Company.
Employment and Director Compensation Arrangements
The relationships and related party transactions described herein are in addition to any employment and director compensation arrangements with our executive officers and directors, which are described above under “Executive Compensation — Narrative to Summary Compensation Table and Director Compensation.”
Indemnification Agreements
Our Certificate of Incorporation provides that none of our officers or directors shall be personally liable for any obligations of our Company or for any duties or obligations arising out of any acts or conduct of said officer or director performed for or on behalf of our Company, including without limitation, acts of negligence or contributory negligence. In addition, our Bylaws provide that we shall indemnify and hold harmless each person and their heirs and administrators who shall serve at any time hereafter as a director or officer of our Company from and against any and all claims, judgments and liabilities to which such persons shall become subject by reason of their having heretofore or hereafter been a director or officer of our Company, or by reason of any action alleged to have heretofore or hereafter taken or omitted to have been taken by him or her as such director or officer, and that we shall reimburse each such person for all legal and other expenses reasonably incurred by him or her in connection with any such claim, judgment or liability, including our power to defend such persons from all suits or claims as provided for under the provisions of the Delaware General Corporation Law; provided, however, that no such persons shall be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of his (or her) own willful misconduct. In addition, we intend to enter into indemnification agreements with our directors and officers and some of our executives may have certain indemnification rights arising under their employment agreements with us. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
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The limitation of liability and indemnification provisions in our Certificate of Incorporation may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
On May 14, 2019, our board of directors approved a form of Indemnification Agreement (“Indemnification Agreement”) for each of our officers and directors. The Indemnification Agreement requires us to indemnify our directors and officers and to advance expenses on behalf of such directors or officers to the fullest extent permitted by applicable law and establish the procedures by which a director or executive officer may request and receive indemnification. The Indemnification Agreement is in addition to other rights to which a director or officer may be entitled under our Certificate of Incorporation, Bylaws and applicable law.
Director Independence
Our board of directors has reviewed the independence of our directors and has determined that Josef Zelinger qualifies as an independent director pursuant to Rule 5605(a)(2) of Nasdaq and applicable SEC rules and regulations. In making this determination, our board of directors considered the relationships that each of our directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence.
Item 14. Principal Accounting Fees and Services.
The Company’s Board of Directors reviews and approves audit and permissible non-audit services performed by its independent registered public accounting firm, as well as the fees charged for such services. In its review of non-audit service and its appointment of Salberg & Company, P.A. as our independent registered public accounting firm, the Board considered whether the provision of such services is compatible with maintaining independence. All of the services provided, and fees charged by Salberg & Company, P.A. in fiscal years ended June 30, 2021 and 2020 were approved by the Board of Directors. The following table shows the fees for the fiscal years ended June 30, 2021 and 2020:
| 2021 | 2020 | |||||||
| Audit Fees (1) | $ | 59,900 |
$ | 58,900 | ||||
| Audit Related Fees (2) | $ | 6,100 |
$ | 17,600 | ||||
| Tax Fees (3) | $ | - | $ | - | ||||
| All Other Fees | $ | - | $ | - | ||||
| Total | $ | 66,000 |
$ | 76,500 | ||||
| (1) | Audit fees – these fees relate to the audit of our annual consolidated financial statements and the review of our interim quarterly consolidated financial statements. | |
| (2) | Audit related fees – these fees relate primarily to the auditors’ review of our registration statements and audit related consulting. | |
| (3) | Tax fees – no fees of this sort were billed by Salberg & Company P.A., our principal accountant during 2021 and 2020 fiscal years. |
PART IV
All Other Fees
We did not incur any other fees related to services rendered by our independent registered public accounting firm for the fiscal years ended June 30, 2021 and 2020.
The SEC requires that before our independent registered public accounting firm is engaged by us to render any auditing or permitted non-audit related service, the engagement be either: (i) approved by our audit committee or (ii) entered into pursuant to pre-approval policies and procedures established by the audit committee, provided that the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.
Pre-Approval Policies and Procedures
We do not have an audit committee. Our Board pre-approves all services provided by our independent registered public accounting firm. All of the above services and fees during the fiscal years ended June 30, 2021 and 2020 were reviewed and approved by our Board before the respective services were rendered.
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Item 15. Exhibits, Financial Statement Schedules
(a) Exhibits
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| 40 |
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| 21.1* | List of subsidiaries of the Company. | |
| 31.1/31.2* | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1/31.2* | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101. INS* | XBRL Instance Document. | |
| 101. SCH* | XBRL Taxonomy Extension Schema Document. | |
| 101. CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101. DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |
| 101. PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
* Filed herewith.
† Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PROPANC BIOPHARMA, INC. | ||
| Dated: September 28, 2021 | By: | /s/ James Nathanielsz |
| James Nathanielsz | ||
| Chief Executive Officer, | ||
| Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title |
Date | ||
| /s/ James Nathanielsz |
Chief Executive Officer, Chief Financial Officer, Director |
September 28, 2021 | ||
| James Nathanielsz | (Principal Executive Officer and Principal Financial Officer) | |||
| /s/ Julian Kenyon | Chief Technology Officer, Director |
September 28, 2021 | ||
| Julian Kenyon | ||||
| /s/ Josef Zelinger | Director |
September 28, 2021 | ||
| Josef Zelinger |
| 43 |
Exhibit 21.1
Propanc Biopharma, Inc.
List of Subsidiaries
As of September 28, 2021
| Entity Name | ||
| Propanc Pty Ltd | ||
| Propanc (UK) Ltd | ||
EXHIBIT 31.1/31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Nathanielsz, certify that:
1. I have reviewed this report on Form 10-K of Propanc Biopharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: September 28, 2021 | /s/ James Nathanielsz |
| James Nathanielsz | |
| Chief Executive Officer, | |
| Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
EXHIBIT 32.1/32.2
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
In connection with the Annual Report on Form 10-K of Propanc Biopharma, Inc., a Delaware corporation (the “Company”) for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James Nathanielsz, Principal Executive Officer and Principal Financial Officer of Propanc Biopharma, Inc., do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) that:
| (1) | The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: September 28, 2021 |
/s/ James Nathanielsz |
| James Nathanielsz | |
| Chief Executive Officer, | |
| Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
A signed original of this written statement required by Section 906 has been provided to Propanc Biopharma, Inc., and will be retained by Propanc Biopharma, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.