# Propanc Biopharma, Inc.: Form 10-Q for the period ended Sep 30, 2017

- Company: [Propanc Biopharma, Inc.](/companies/ppcb.md) (CIK 1517681)
- Form: 10-Q
- Filed: 2017-11-09
- Accepted by EDGAR: Nov 9, 2017, 17:03 ET
- Period: 2017-09-30
- Accession: 0001493152-17-012713
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1517681/000149315217012713/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1517681/000149315217012713/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2017-07-01 to 2017-09-30 | $563.7k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2017-07-01 to 2017-09-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-07-01 to 2017-09-30 | $892.4k | us-gaap:InterestExpense |
| Net income | 3 months, 2017-07-01 to 2017-09-30 | −$1.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-07-01 to 2017-09-30 | −$0.36 | us-gaap:EarningsPerShareBasicAndDiluted |
| Cash and equivalents | at 2017-09-30 | $142.6k | us-gaap:Cash |
| Current assets | at 2017-09-30 | $149.7k | us-gaap:AssetsCurrent |
| Total assets | at 2017-09-30 | $162.5k | us-gaap:Assets |
| Current liabilities | at 2017-09-30 | $6.9m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2017-09-30 | $4.7m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2017-09-30 | −$6.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,602 characters.

*The information set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such statements may include, among others (i) expected changes in Propanc Health Group Corporation’s (referred to herein as the “Company,” “Propanc,” “we,” “our,” “ours” and “us”) revenues and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by the use of terms such as “may,” “will,” “estimate,” “continue,” “plan,” “believe,” “anticipate,” “intend,” or “expect” and other similar words. 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 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 current reliance on substantial debt financing that we are unable to repay in cash; 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 obtain adequate new financing on reasonable terms; our ability to successfully develop PRP; 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 FDA regulations; the impact of any future litigation; the availability of capital and other economic, business and competitive factors.*

*All forward-looking statements included in this report are made only as of the date of this report or as indicated. We undertake no obligation to update or correct these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as required by law.*

*You should read the following MD&A in conjunction with the unaudited Consolidated Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report as well as the information under the heading “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.*

*Notwithstanding the above, Section 21E of the Securities Exchange Act of 1934, as amended, expressly states that the safe harbor for forward looking statements does not apply to companies that issue penny stocks. Accordingly, the safe harbor for forward looking statements under the PSLRA is not currently available to the Company because we are an issuer of penny stock.*

#### US Dollars are denoted herein by “USD,” “$” and “dollars.”

### Overview

Propanc Biopharma, Inc. (the “Company,” “we,” “us,” “our”) was originally incorporated in Melbourne, Victoria Australia on October 15, 2007 as Propanc PTY LTD, and continues to be based in Camberwell, Victoria Australia. Since its inception, substantially all of the operations of the Company have been focused on the development of new cancer treatments targeting high-risk patients, particularly cancer survivors, who need a follow-up, non-toxic, long-term therapy designed to prevent the cancer from returning and spreading. The Company anticipates establishing global markets for its technologies. Our lead product candidate, which we refer to as PRP, is an enhanced pro-enzyme formulation designed to enhance the anti-cancer effects of multiple enzymes acting synergistically. It is currently in the preclinical phase of development.

On November 23, 2010, the Company was incorporated in the state of Delaware as Propanc Health Group Corporation. In January 2011, to reorganize the Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis making it a wholly-owned subsidiary.

Effective April 20, 2017, the Company changed its name to “Propanc Biopharma, Inc.” to better reflect the Company’s stage of growth and development.

To date, we have generated no revenue, have no cancer treatment products available to market and have no products which have reached the clinical trial stage. We require substantial additional financing to develop our products.

### Recent Developments

### Delafield Financing

On October 28, 2015, we entered into a securities purchase agreement (the “Purchase Agreement”), with Delafield Investments Limited (“Delafield”), that provided for the investment of $4,000,000 (the “Investment Amount”) in exchange for a Convertible Debenture (the “Debenture”) in the principal amount of $4,400,000 and warrant (the “2015 Warrant”) to purchase an aggregate of 104,762 shares of common stock, $0.001 par value per share (the “Common Stock”), for an exercise price of $150 per share for a period of four years from such date. We and Delafield have since modified the terms of the transactions contemplated by the Purchase Agreement pursuant to an addendum dated March 11, 2016 (the “Addendum”), and letter agreements dated July 1, 2016 (the “July Letter Agreement”), August 3, 2016 (the “August Letter Agreement, December 2, 2016 (the “December Letter Agreement”), March 17, 2017 (the “March Letter Agreement”) and September 30, 2017 (the “September Letter Agreement”) . The descriptions of the Debenture and the 2015 Warrant, the 2016 Warrants and the Delafield Note below reflect the terms of such agreements under the Purchase Agreement as modified by the Addendum, the July Letter Agreement the August Letter Agreement, the December Letter Agreement, the March Letter Agreement and the September Letter Agreement.

In connection with the Purchase Agreement, we filed a registration statement on Form S-1 on November 23, 2015, deemed effective on December 10, 2015, pursuant to which we registered for resale an aggregate of 393,620 shares of Common Stock consisting of: (i) 288,858 shares underlying the Debenture; and (ii) 104,762 shares of Common Stock issuable upon exercise of the 2015 Warrant.

Under the terms of the Debenture, we received a reduction in the principal amount of the financing of (i) $25,000 upon the Company’s filing of the registration statement within the time period specified and (ii) $25,000 upon the effectiveness of the registration statement within the time period specified. The current aggregate principal amount was adjusted to $4,350,000 upon the date of the registration statement and as of September 30, 2017, $577,771 (the “Principal Amount”) was outstanding.

Pursuant to the Addendum, on March 24, 2016, we filed a second registration statement on Form S-1, deemed effective on April 18, 2016, to register for resale up to 684,000 additional shares of Common Stock underlying the Debenture.

### Debenture

The Debenture has a 10% original issue discount. The Principal Amount accrues interest at the rate of 5% per annum, payable quarterly in cash (or if certain conditions are met, in stock at the Company’s option) on January 1, April 1, July 1 and October 1. Pursuant to the July Letter Agreement, the Company delayed a portion of the interest due and payable by 60 days and another portion until the Maturity Date, as defined below.

Pursuant to the March Letter Agreement, the maturity date of the Debenture was extended until September 30, 2017. Further, from the period of February 28, 2017 through the Maturity Date, the Company will pay interest to Delafield on the aggregate unconverted and then outstanding Principal Amount pursuant to the terms of the Debenture. Pursuant to the September Letter Agreement, the maturity date of the Debenture was again extended until December 15, 2017 (the “Maturity Date”).

Subject to the conditions set forth in the Debenture, the Company has the right at any time to redeem some or all of the total outstanding amount then remaining under the Debenture in cash at a price equal to 125% of the total amount of the Debenture outstanding on the twentieth (20th) trading date following the date the Company delivers notice of such redemption to Delafield.

The Debenture is convertible at any time, in whole or in part, at Delafield’s option into shares of Common Stock at a conversion price equal to $7.50 per share; provided that in the event that the volume weighted average price per share (the “VWAP”) on any trading day is less than such conversion price, the conversion price will be adjusted to a price per share that is equal to a 22.5% discount to the lowest trading price of the Common Stock in the ten trading days prior to the date of conversion. At no time will Delafield be entitled to convert any portion of the Debenture to the extent that after such conversion, Delafield (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of Common Stock as of such date.

### 2016 Warrants

Pursuant to the August Letter Agreement and in consideration for extending the Maturity Date of the Debenture, we issued to Delafield warrants to purchase up to 960,000 shares of Common Stock (the “2016 Warrants”). The 2016 Warrants entitled the holder thereof to purchase (i) up to 800,000 shares of Common Stock at exercise prices ranging from $3.00 to $5.00 per share (the “Five Month Warrant”), and (ii) up to 160,000 shares of Common Stock at an exercise price of $25.00 per share (the “Two Year Warrant”). We also agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”), to register for resale the 960,000 shares of Common Stock underlying the 2016 Warrants.

The 2016 Warrants were immediately exercisable. On August 18, 2016, Delafield notified us of its exercise of 50,000 shares of Common Stock under the first tranche of the Five Month Warrant at a purchase price of $3.00 per share or $150,000 in the aggregate.

Pursuant to the Five Month Warrant, if the VWAP of the Common Stock for five consecutive days equals or exceeds the exercise price of any tranche of the Five Month Warrant (each, as applicable, a “Callable Tranche”), and provided that the Company is in compliance with the Call Conditions as defined in the August Letter Agreement, the Company has the right to call on Delafield to exercise any warrants under a Callable Tranche up to an aggregate exercise price of $350,000. The Five Month Warrant generally limited the Company to one such call within a twenty trading day period. However, if the VWAP of the Common Stock for five consecutive trading days is at least 200% of the exercise price of any warrants under a Callable Tranche, the Company may make an additional call for the exercise of additional warrants under such Callable Tranche up to an aggregate exercise price of $600,000 prior to the passage of the twenty trading day period. If Delafield did not exercise the 2016 Warrants under a Callable Tranche when called by the Company under the terms of the August Letter Agreement, we could, at our option, cancel any or all outstanding warrants under the Five Month Warrant.

The exercise price and number of shares of the Common Stock issuable under the 2016 Warrants were subject to adjustments for stock dividends, splits, combinations and pro rata distributions. Any adjustment to the exercise price shall similarly cause the number of shares underlying the 2016 Warrants to be adjusted so that the total value of the 2016 Warrants may increase.

Delafield was subject to a beneficial ownership limitation under the Debenture and the 2016 Warrants such that the Company and Delafield could not, and cannot, affect any exercise of the 2016 Warrants that would cause Delafield (together with its affiliates) to beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise of the warrant. Delafield, upon notice to the Company, may increase or decrease the beneficial ownership limitation, provided that the beneficial ownership limitation may not exceed 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise of the warrant.

The Five Month Warrant and the Two Year Warrant required us to file a registration statement covering the resale of the shares underlying the warrant within 15 days after August 3, 2016, and to use our commercially reasonable efforts to have the registration statement declared effective by the SEC promptly thereafter and to remain effective for a period of at least six years from the date of effectiveness.

We filed a registration statement on Form S-1 with the Securities and Exchange Commission on August 19, 2016 but this registration statement was never declared effective and was withdrawn on December 12, 2016. On December 2, 2016, the Company entered into the December Letter Agreement with Delafield pursuant to which the parties agreed to cancel the Two Year Warrant and the Five Month Warrant.

### Delafield Note

The 50,000 restricted shares held by Delafield pursuant to its exercise of the first tranche of the Five Month Warrant were redeemed by us upon the issuance and in exchange for an 8% convertible redeemable promissory note in the principal amount of $150,000 (the “Delafield Note”). The Delafield Note matures two years from the issuance date at which time any outstanding principal and interest is then due and payable. The Delafield Note is convertible into shares of Common Stock at a conversion price equal to 65% of the average of the three lowest closing bid prices of the Common Stock for the ten trading days prior to the conversion, subject to adjustment in certain events. The Delafield Note may be prepaid at any time at 135% of the principal amount plus any accrued interest. Upon an event of default, principal and accrued interest will become immediately due and payable and interest will accrue at a default interest rate of 18% per annum or the highest rate of interest permitted by law. As of September 30, 2017, the entire principal amount of the Delafield Note was outstanding.

### Additional Warrant

In addition, the Company issued Delafield a two-year common stock purchase warrant to purchase 104,000 shares of Common Stock at an exercise price of $12.50 per share (the “New Warrant”). The exercise price and number of shares of Common Stock issuable under the New Warrant are subject to adjustments for certain reclassifications, subdivision or combination of shares.

### Additional Issuance Debenture

As of September 13, 2016, we entered into an Additional Issuance Agreement (the “Additional Issuance Agreement”) with Delafield pursuant to the Purchase Agreement. Pursuant to the Additional Issuance Agreement, Delafield agreed to loan an additional $150,000 in exchange for a 5% Original Issue Discount Senior Secured Convertible Debenture of the Company in the principal amount of $165,000 (the “Additional Issuance Debenture”). The rights and obligations of Delafield and us with respect to the Additional Issuance Debenture and the shares of Common Stock issuable under the Additional Issuance Debenture (the “New Underlying Shares”) are identical in all respects to the rights and obligations of Delafield and of the Company with respect to the Debenture and the shares of Common Stock issued and issuable thereunder, except that Delafield will not receive any registration rights with respect to the New Underlying Shares and except as otherwise noted in the governing documents.

The Additional Issuance Agreement contains customary representations, warranties and covenants by, among and for the benefit of the parties. We also agreed to pay all reasonable out-of-pocket costs or expenses (including, without limitation, reasonable legal fees and disbursements) incurred or sustained by Delafield, in connection with the transaction.

The Additional Issuance Debenture has an original issue discount. The principal amount of the Additional Issuance Debenture accrues interest at the rate of 5% per annum, payable quarterly in cash (or if certain conditions are met, in stock at the Company’s option) on January 1, April 1, July 1 and October 1. The Additional Issuance Debenture is convertible at any time, in whole or in part, at Delafield’s option into shares of Common Stock at a conversion price equal to $7.50 (subject to adjustment) (the “Conversion Price”). If the volume weighted average price of the Common Stock on any trading day is less than the then-current Conversion Price, Delafield may convert at a price per share equal to a twenty two and one half percent (22.5%) discount to the lowest trading price of the Common Stock in the ten trading days prior to the date of conversion.

Delafield is subject to the same ownership limitation in connection with the Additional Issuance Debenture as for the Debenture and the 2016 Warrants as described above. The Additional Issuance Debenture includes customary event of default provisions and provides for a default interest rate of 18%. Upon the occurrence of an event of default, Delafield may convert the Additional Issuance Debenture into shares of Common Stock at a price per share equal to a thirty percent (30%) discount to the average volume weighted average price of the shares for the six trading days prior to conversion. Subject to the conditions set forth in the Additional Issuance Debenture, we have the right at any time after the earlier of (i) the six month anniversary of the original issuance of the Additional Issuance Debenture or (ii) the date on which the New Underlying Shares are registered pursuant to an effective registration statement, to redeem some or all of the total outstanding amount then remaining under the Additional Issuance Debenture in cash at a price equal to 125% of the total amount of the Additional Issuance Debenture outstanding on the twentieth (20th) trading date following the date the Company delivers notice of such redemption to Delafield.

At the sole election of Delafield, in lieu of receiving a cash payment for any principal amounts due on the Additional Issuance Debenture, Delafield may use all or any portion of any principal amounts owed to it to exercise outstanding warrants of the Company held by Delafield.

The issuance of the Additional Issuance Debenture to the Purchaser under the Additional Issuance Agreement was exempt from the registration requirements of the Securities Act pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act. The Company made this determination based on the representations of Delafield that it was acquiring the Additional Issuance Debenture for its own account with no intent to distribute the Additional Issuance Debenture. No general solicitation or general advertising was used in connection with the sale of the Additional Issuance Debenture and the Company had a pre-existing relationship with Delafield.

Our obligations under the Additional Issuance Debenture are secured by an unconditional and continuing, first priority security interest in all of the assets and property of the Company until ten days following such time as the equity conditions set forth in the Additional Issuance Debenture are met, pursuant to the terms of the existing Security Agreement.

Pursuant to the September Letter Agreement, the maturity date of the Additional Issuance Debenture was extended to December 15, 2017. The amount of principal outstanding under the Additional Issuance Debenture was $135,000 on September 30, 2017. As of November 6, 2017, all of the principal of the Additional Issuance Debenture had been converted into shares of Common Stock.

### Manufacturing Services Agreement

We entered into a Manufacturing Services Agreement (the “MSA”) and Quality Assurance Agreement (the “QAA”), each with an effective date of August 12, 2016, with Amatsigroup NV (“Amatsigroup”), formally known as Q-Biologicals NV, a contract manufacturing organization located in Belgium. Pursuant to the MSA, Amatsigroup will produce certain drug substances and product containing certain enzymes at its facility in Belgium. We will use these substances and products for development purposes, including but not limited to clinical trials. The MSA contemplates payment to Amatsigroup pursuant to a pre-determined fee schedule based on the completion of certain milestones that depend on our manufacturing requirements and final batch yield. We anticipate that our payments to Amatsigroup under the MSA will range between $2.5 million and $5.0 million over five years, with the majority of the expenditures occurring during the first two years of the MSA when the finished drug product is manufactured and released for clinical trials.

The MSA shall continue for a term of six years unless extended by mutual agreement in writing. We can terminate the MSA early for any reason upon the required notice period, however, in such event, the pre-payment paid upon signing the MSA is considered non-refundable. The QAA sets forth the parties respective obligations and responsibilities relating to the manufacturing and testing of the products under the MSA.

The agreements with Amatsigroup contain certain customary representations, warranties and limitations of liabilities, and confidentiality and indemnity obligations.

The agreements with Q-Biologicals contain certain customary representations, warranties and limitations of liabilities, and confidentiality and indemnity obligations.

### Pre-Clinical Efficacy and Toxicology Studies

In November 2015, we completed animal efficacy studies in mice through our contract research partner, vivoPharm, demonstrating proof of concept *in vivo*. During the course of these studies, we discovered a new target therapeutic dose range using pro-enzymes for treating cancer. That month, we filed a patent application in support of this discovery, as described further herein.

On October 25, 2016 we completed a toxicokinetic study for PRP. The purpose of the study was to evaluate the toxicokinetic parameters of PRP after repeated, daily intravenous tail vein administration in rats and to evaluate distribution and bioavailability of the test articles, both before and after repeat exposure, over a 28-day period.

On December 22, 2016, we commenced a second GLP-compliant toxicity study for PRP. An animal group was administered low dosages intravenously, also over a 28-day period, after which the focus of the study expanded to medium and high dosages. On April 27, 2017, we announced the successful completion of this study. On August 2, 2017, we completed a GLP-compliant 28-day repeat-dose toxicity study and again observed no treatment related findings. This concluded the preclinical development phase of PRP and provides a safety margin for a dosage of PRP to be administered in future clinical trials. We currently intend to submit a clinical trial application in the United Kingdom in 2018.

### Intellectual Property Updates

In June 2017, we received a written opinion from the Australian Patent Office relating to our Patent Cooperation Treaty (“PCT”) application. Specifically, we were notified that a majority of the claims we made concerning our combination of trypsinogen and chymotripinogen that comprises PRP were considered novel and several of them were considered inventive. The Australian Patent Office also found that the experimental data included in the application and the way it is presented adequately supported the pending claims.

In July 2017, we received notification of the acceptance of our lead patent application from the Chinese Patent Office.

### Orphan Drug Designation

In June 2017, we were notified by the U.S. Food and Drug Administration (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. This request is pending before the FDA.

### Eagle Equities Financings

On each of October 31, December 12 and December 21, 2016, as well as January 30, March 1, and August 9, 2017 we entered into Securities Purchase Agreements with Eagle Equities, LLC (“Eagle Equities”), pursuant to which Eagle Equities purchased a total of twelve 8% convertible redeemable junior subordinated promissory notes in varying principal amounts totaling $2,016,000.

The structure of these financings have been virtually identical in each instance: in each financing, we issue two promissory notes, each in the same principal amount. The first note is funded by Eagle Equities in cash and the second note is initially paid for by an offsetting promissory note issued by Eagle Equities to us. However, the second note must also be cash funded prior to any conversion. The second note, which we refer to as the back-end note and its offsetting promissory note are subject to cancellation if certain conditions are not met.

All outstanding principal and interest under the various promissory notes we have issued is due and payable upon their respective maturity dates, which is typically one year from the date of issuance. The amounts cash funded under these notes are convertible into shares of our common stock at a 60% discount to its closing bid price over the prior 10 trading days, pursuant to the terms of the notes. While the first notes may be prepaid within 180 days of their issuance dates, with certain penalties, the back-end notes may not be prepaid.

Upon an event of default, principal and accrued interest will become immediately due and payable under the notes and the notes will begin to accrue interest at a highly inflated rate. Further, certain events for default may trigger penalty and liquidated damages provisions.

On April 11, 2017, the Company received full payment of the October 31, 2016 and the December 12, 2016 back-end notes it issued to Eagle Equities, in the principal amounts of $100,000 each. On May 4, 2017, the Company received full payment of the December 21, 2016 back-end note, in the amount of $157,500, and partial payment of the January 30, 2017 back-end note in the amount of $40,000. On June 3, 2017, the Company received the balance of the payment of the January 30, 2017 note, or $190,000. On July 5 2017, the Company received the balance of the payment of the March 1, 2017 back-end note, or $220,500. On September 14, 2017 the Company received full payment of the August 8 back-end note or $200,000. As a result, all of the back-end notes the Company issued to Eagle Equities are no longer subject to cancellation.

The total principal amount due and outstanding to Eagle Equities as of September 30, 2017 is $1,623,500.

### GS Capital Financings

On May 26, 2017, we entered into a Securities Purchase Agreement with GS Capital Partners, LLC (“GS Capital”), pursuant to which GS Capital purchased for cash an 8% convertible redeemable junior subordinated promissory note in the principal amount of $160,000. The note matures on May 17, 2018, upon which any outstanding principal and interest becomes due and payable. The note may be prepaid with certain penalties within 180 days of issuance. Commencing on November 17, 2017, the amount of principal and accrued interest under the note are convertible into our common stock at a conversion price equal to 62% of the lowest closing bid price of the common stock for the ten trading days prior to the conversion, subject to adjustment in certain events.

On July 24, 2017 and September 21, 2017, we entered into additional Securities Purchase Agreements with GS Capital pursuant to which GS Capital purchased four 8% convertible redeemable junior subordinated promissory notes. The structure of these two rounds of financing and the terms of the promissory notes issued are substantially similar to that of the Eagle Equities financings described above, except that the conversion discount is 62% of the closing bid price of our common stock over the prior 10 trading days. The first notes issued by us to GS Capital in each round of financing may be prepaid without penalty. The second note may not be prepaid, although if either of the first notes is redeemed within six months of its issuance date, the second note will be cancelled.

The total principal amount due and outstanding to GS Capital as of September 30, 2017 is $480,000.

### Consulting Agreements

On August 10, 2017, the Company entered into an agreement, retroactive to May 16, 2017, with Regal Consulting LLC, a Delaware limited liability company (the “Consultant”), pursuant to which the Consultant agreed to provide certain consulting and business advisory services in exchange for a $310,000 10% junior subordinated convertible note (the “Consulting Note”). The sum cash funded under this note is convertible into shares of our common stock at the lesser of $1.50 or a 65% discount to the three lowest trades in the 10 trading days prior to the conversion. This note may not be prepaid without the written consent of the Consultant. The agreement had a three-month term and expired on August 16, 2017. The total principal amount due as of September 30, 2017 was $310,000.

Previously, on November 18, 2016, the Company had entered into a substantially similar agreement with the Consultant whereby the Company issued two 10% convertible junior subordinated promissory notes in the principal amounts of $250,000 each, both of which will mature in two years. The amounts cash funded under these notes are convertible into shares of our common stock at the lesser of $2.50, adjusted for the reverse stock split we effected in April 2017, or a 65% discount to the three lowest trades in the 10 trading days prior to the conversion. These notes may not be prepaid without the written consent of the Consultant. This agreement had a six-month term. The total principal amount due as of September 30, 2017 for these notes was $370,000.

The total principal amount due and outstanding to the Consultant as of September 30, 2017 is $680,000.

### 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 the Company’s 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 functional currency is the AUD. For financial reporting purposes, the AUD has been translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive loss as other income (expense).

*Accounting for 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,”* 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.

*Accounting for Stock Based Compensation*: The Company records 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. The Company values any employee or non-employee stock based compensation at fair value using the Black-Scholes Option Pricing Model.

The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “*Equity-Based Payments to Non-Employees.”*

*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 or recorded in other comprehensive income (loss) depending on the purpose of the derivatives and whether they qualify and have been designated for hedge accounting treatment. The Company does not have any derivative instruments for which it has applied hedge accounting treatment.

*Convertible Notes With Variable Conversion Options*: The Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at the time of conversion. The Company treats these convertible notes as stock settled debt under ASC 480 and measures the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion, and records the put premium as accretion to interest expense to the date of first conversion.

*Research and Development Tax Credits*: 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 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.

### Recent Accounting Pronouncements

Reference is made to “Recently Adopted Accounting Pronouncements” under Note 1 of the Unaudited Condensed Notes to the Unaudited Consolidated Financial Statements included in this report for a discussion of recently issued and adopted accounting pronouncements.

### Results of Operations

The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. The results discussed below are of the Company and its wholly-owned Australian subsidiary, Propanc Pty Ltd.

### For the Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016

#### Revenue

For the three months ended September 30, 2017 and 2016, we generated no revenue because we are currently undertaking research and development activities for market approval and there were no sales generated in this period.

#### Administration Expenses

Administration expenses decreased to $631,406 for the three months ended September 30, 2017 as compared with $1,004,503 for the three months ended September 30, 2016. This decrease is attributable to a decrease in stock based expense of approximately $400,000, which is related to a grant of stock options to our directors in April 2016.

#### Occupancy Expense

Occupancy expense increased by $233 to $8,830 for the three months ended September 30, 2017. The increase relates to the fluctuation in foreign currency exchange rates.

#### Research and Development Expenses

Research and development expenses were $563,739 for the three months ended September 30, 2017 as compared with $161,197 for the three months ended September 30, 2016. The increase in research and development expenses is primarily related to an increase in clinical development expenses for PRP, as the raw material purification, process development and commencement of GMP manufacturing of the finished drug product intended for use in future First-In-Human studies began in earnest in October 2017.

#### Interest Expense/Income

Interest expense increased to $892,432 for the three months ended September 30, 2017 as compared with $471,387 for the three months ended September 30, 2016, related to the increase in outstanding indebtedness of $4,106,866 between September 30, 2016 and September 30, 2017. Interest expense is primarily comprised of $214,000 debt discount amortization and $610,000 in accretion of put premium. This increase is primarily attributable to lower amortization of debt discount offset by higher accretion amounts of convertible notes with discounted debt features during the three months ended September 30, 2017.

#### Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities decreased by $339,099 from $30,274 for the three months ended September 30, 2017 to $369,373 for the three months ended September 30, 2016. This decrease is primarily attributable to an increase in the issuance of convertible notes with repricing options and variable conversion pricing.

#### Foreign Currency Transaction Gain (Loss)

Foreign currency transaction gain decreased to $133,792 for the three months ended September 30, 2017 as compared to $173,989 for the three months ended September 30, 2016. The decrease in foreign currency transaction gain is primarily attributable to a weaker Australian Dollar compared to the US Dollar during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.

#### Net loss

Net loss increased to $1,923,743 for the three months ended September 30, 2017 as compared with $1,101,969 for the three months ended September 30, 2016. The increase is primarily attributable to an approximately $421,000 increase in interest expense and an approximately $403,000 increase in research and development costs as well as the net effect of fluctuations within changes in fair value of derivative liabilities and foreign currency transactions gains.

### Liquidity and Capital Resources

|  | For the Three Months Ended September 30, 2017 | 2016 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(785,668) | $(683,598) |
| Net cash used in investing activities | $- | $- |
| Net cash provided by financing activities | $894,000 | $614,286 |
| Effect of exchange rate changes on cash | $(34,810) | $(26,845) |

Net cash used in operations was $785,668 for the three months ended September 30, 2017 compared to $683,598 for the three months ended September 30, 2016. This fluctuation relates to an increase in the issuance of convertible debt for services rendered of $310,000, offset by a decrease in the amortization of stock option expense paid to an officer and director and fluctuations in changes in foreign currency transaction gains and losses, changes related to the valuation of new derivative liabilities and the revaluation of existing derivative liabilities in the three months ending September 30, 2017.

Cash flows provided by financing activities for the three months ended September 30, 2017 were $894,000 compared to $614,286 for the three months ended September 30, 2016. During the three months ended September 30, 2017, we had proceeds from convertible promissory notes of $894,000. During the three months ended September 30, 2016, we had proceeds from convertible promissory notes of approximately $150,000 and proceeds from the exercise of warrants of approximately $464,000.

The effect of the exchange rate on cash resulted in a $34,810 negative adjustment to cash flows in the three months ending September 30, 2017 compared to a negative adjustment of $26,845 to cash flows in the three months ending September 30, 2016. The reason for the fluctuation is due to the application of translation rates throughout the cash flow statement, the volume of transactions within each period and the daily fluctuation in exchange rates.

We have substantial capital resource requirements and have incurred significant losses since inception. As of September 30, 2017, we had $142,565 in cash. Based upon our current business plans, we will need considerable cash investments to be successful. 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 twelve (12) months. If we are unable to raise sufficient capital, this may affect our operations and ability to complete ongoing activities in connection with our research and development programs.

### Related Party Transactions

Since inception, Propanc Health Group Corporation has conducted transactions with directors and director related entities. During the three months ended September 30, 2017 these transactions included the following:

As of September 30, 2017 and June 30, 2017, the Company owes former directors and a current director a total of $58,016 and $56,802, respectively, for money loaned to the Company throughout the years.

As of September 30, 2017 and June 30, 2017, the Company owes two directors a total of $35,957 and $35,204, respectively, related to expenses paid on behalf of the Company related to corporate startup costs and intellectual property.

On May 4, 2016 the Company entered into a five-year operating lease agreement with a related party with monthly rent of $3,300 AUD, inclusive of GST.

Mr. Nathanielsz’s wife, Sylvia Nathanielsz, is and has been an employee of ours since October 2015. Mrs. Nathanielsz receives an annual salary of $58,800 and is entitled to customary benefits.

### Going Concern Qualification

We have incurred significant losses and cash used in operations, and such losses and use of cash are expected to continue. Our Independent Registered Public Accounting Firm has included a “Going Concern Qualification” in their report for the years ended June 30, 2017 and 2016. In addition, we have negative working capital. The foregoing raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include seeking additional capital or debt financing. There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to us. 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.

## Controls and procedures

As filed, 2,306 characters.

### Disclosure Controls and Procedures

With the participation of James Nathanielsz, our Chief Executive Officer and Chief Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, our disclosure controls and procedures were not effective to ensure that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure.

The Company is undertaking to improve its internal control over financial reporting and improve its disclosure controls and procedures. As of September 30, 2017, we identified the following material weaknesses that still exist through the date of this report:

As of September 30, 2017 and as of the date of filing this report, we did not maintain effective controls over the disclosure control environment. Specifically, the Company lacks accounting personnel with technical knowledge in certain debt and equity transactions. Additionally, because of the size of the Company’s administrative staff, controls related to the segregation of certain duties have not been developed and the Company has not been able to adhere to them. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

### Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 563 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report of Form 10-K for the year ended June 30, 2017, as filed with the SEC. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

Filed Nov 9, 2017.
Source: SEC EDGAR, the filing index for accession 0001493152-17-012713. Last ingested by Listed: Oct 29, 2026, 17:01 ET. No prices; not investment advice.