Propanc Biopharma, Inc.: Form 10-Q for the period ended Dec 31, 2017

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 Biopharma, Inc. (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

Power Up Lending Group Ltd. Financing

Effective January 22, 2018, the Company entered into a securities purchase agreement with Power Up Lending Group Ltd. (“Power Up”), pursuant to which Power Up purchased a convertible promissory note (the “Note”) from the Company in the aggregate principal amount of $153,000, such principal and the interest thereon convertible into shares of the Company’s common stock at the option of Power Up. The transactions closed on January 25, 2018.

The maturity date of the Note is January 22, 2019 (the “Maturity Date”). The Note shall bear interest at a rate of 8% per annum, which interest may be paid by the Company to Power Up in shares of common stock, but shall not be payable until the Note becomes payable, whether at the Maturity Date or upon acceleration or by prepayment.

Additionally, Power Up has the option to convert all or any amount of the principal face amount of the Note, starting on July 21, 2018 and ending on the later of the Maturity Date and the date the Default Amount, hereinafter defined, is paid if an event of default occurs, for shares of the Company’s common stock at the then-applicable conversion price.

The conversion price for the Note shall be $0.065, subject to certain Market Price (as defined below) adjustment. If the Market Price is greater than or equal to $0.10, the conversion price shall be the greater of 65% of the Market Price (“Variable Conversion Price”) and $0.065. In the event Market Price is less than $0.10, the conversion price shall be the Variable Conversion Price. As defined in the Note, the “Market Price” shall be the average of the lowest three closing bid prices during the ten day trading period prior to and including the day the Company receives a notice of conversion from Power Up on the electronic quotation system or applicable principal securities exchange or trading market or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” during the ten prior trading days, including the day upon which the Company receives a notice of conversion from Power Up. Notwithstanding the foregoing, Power Up shall be restricted from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned by Power Up and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock.

The Note may be prepaid until 180 days from the issuance date with certain penalties.

Eagle Equities Financing

Effective December 29, 2017, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Eagle Equities, LLC (“Eagle Equities”), pursuant to which Eagle Equities purchased a convertible promissory note (the “Note”) from the Company in the aggregate principal amount of $532,435, such principal and the interest thereon convertible into shares of the Company’s common stock at the option of Eagle Equities at any time. The transactions closed on January 2, 2018.

On January 2, 2018, the Company repaid the remainder of the outstanding debt owed to Delafield Investments Limited using the net proceeds of the Eagle Equities note.

The Note contains an original issue discount of $25,354 such that the purchase price is $507,081. The maturity date of the Note is December 29, 2018. The Note shall bear interest at a rate of 8% per annum, which interest shall be paid by the Company to Eagle Equities in shares of common stock upon receipt of a notice of conversion by the Company from Eagle Equities at any time.

Additionally, Eagle Equities has the option to convert all or any amount of the principal face amount of the Note, at any time, for shares of the Company’s common stock at a price equal to 60% of the lowest closing bid price (the “Closing Bid Price”) of the Company’s common stock as reported on the OTC Markets Group, Inc. quotation system for the ten prior trading days, including the day upon which the Company receives a notice of conversion from Eagle Equities (the “Conversion Price’). However, in the event that the Company’s common stock is restricted by the Depository Trust Company for any reason, the Conversion Price shall be lowered to 50% of the lowest Closing Bid Price for the duration of such restriction. If the Company fails to maintain a reserve of shares of its common stock at least three times the number of shares issuable upon conversion of the Note for at least 60 days after the issuance of the Note, the conversion discount shall be increased by 10%. Notwithstanding the foregoing, Eagle Equities shall be restricted from effecting a conversion if such conversion, along with other shares of the Company’s common stock beneficially owned by Eagle Equities and its affiliates, exceeds 4.99% of the outstanding shares of the Company’s common stock.

The Note may be prepaid until June 27, 2018. If the Note is prepaid within 60 days of the issuance date, then the prepayment premium shall be 130% of the face amount plus any accrued interest; if the Note is prepaid after 60 days from the issuance date, but less than 120 days from the issuance date, then the prepayment premium shall be 140% of the face amount plus any accrued interest; and if the Note is prepaid after 121 days from the issuance date, but prior to 180 days from the issuance date, then the prepayment premium shall be 150% of the face amount plus any accrued interest.

Upon a transfer of all or substantially all of the assets of the Company, or certain reorganization, merger or consolidation events, Eagle Equities may either request that the Company redeem the Note in cash for 150% of the principal amount, plus any accrued but unpaid interest through the date of redemption, or convert the unpaid principal amount plus any accrued but unpaid interest into shares of the Company’s common stock at the Conversion Price.

Pursuant to the terms of the Purchase Agreement, the Company covenants to pay or reimburse Eagle Equities for any fees and expenses associated with the transactions contemplated by the Purchase Agreement along with other customary covenants, such as maintaining the quotation of the Company’s common stock on its existing quotation system. The Note contains certain events of default, including a change in the majority of the board, failure to timely issue shares upon receipt of a notice of conversion, as well as certain customary events of default, including, among others, a breach of the covenants, insolvency, bankruptcy and failure by the Company to pay the principal and interest due under the Note.

Upon an event of default, interest on the outstanding principal shall accrue at a default interest rate of 24% per annum or at the highest rate permitted by law. In the event that the Company fails to deliver to Eagle Equities shares of common stock issuable upon conversion of principal or interest under the Note within three business days of a notice of conversion by Eagle Equities, including an opinion of counsel, the Company shall incur a penalty of $250 per day the shares are not issued from the fourth to ninth business day after the notice is delivered to the Company and on the tenth day and thereafter, the penalty shall increase to $500 per day.

Additional default penalties include:

• In the event that the Company loses a bid price for its stock on its marketplace, the outstanding principal under the note shall increase by 20%.
• In the event that the Company’s common stock is delisted from any exchange or quotation system, or if its trading is suspending for more than ten consecutive days, or if the Company fails to meet its required reporting obligations under the Securities Exchange Act of 1934 (the “Exchange Act”), the outstanding principal under the note shall increase by 50%.
• In the event that the Company fails to pay the outstanding principal and interest on the maturity date, then the outstanding principal due under the Note shall increase by 10%.
• In the event that the Company is delinquent in filing its periodic reports under the Exchange Act and such delinquency continues after the six month anniversary of the Note, then Eagle Equities shall be entitled to use the lowest close bid price during the delinquency period as a base price for the conversion.

The total principal amount due and outstanding under all debt issued to Eagle Equities as of December 31, 2017 is $1,774,200.

Amendment to Certificate of Incorporation

On January 23, 2018, the Company filed a certificate of amendment (the “Amendment”) to its certificate of incorporation with the Secretary of State of the State of Delaware following notice of such Amendment given to the stockholders of the Company on January 3, 2018, who previously approved the Amendment. Pursuant to the Amendment, the number of authorized shares of the Company was increased from 101,500,005 to 401,500,005, consisting of (i) 400,000,000 shares of common stock, par value $0.001 per share, and (ii) 1,500,005 shares of preferred stock, par value $0.01 per share.

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 pathology assessment of the 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 November 2017, we successfully developed a manufacturing process capable of purifying and stabilizing the two active drug substances of the PRP formulation, trypsinogen and chymotrypsinogen. The Company intends to commence engineering runs of manufacturing the finished drug product, prior to full scale GMP manufacture of PRP for human trials.

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 chymotrypsinogen 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.

In January 2018, we received notification of allowance of our lead patent application from the European 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.

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.

Consulting Agreements

On December 29, 2017, the Company entered into a one-year consulting agreement with Alan Morell for certain consulting, advisory and media services. As compensation for such services, the Company agreed to pay (i) an hourly fee, for up to $71,250 of time-based services; (ii) $9,772 for the preparation of certain marketing materials; (iii) an upfront fee of 500,000 restricted shares of the Company’s common stock, with up to 750,000 additional shares to be issued in six months at the Company’s sole discretion, and (iv) a marketing bonus equal to 6% of the value of any: (x) business collaboration with the Company which is identified or introduced by Mr. Morrell; or (y) joint venture, licensing, collaboration or similar monetization or strategic transaction (other than any capital-raising transaction) which is identified or introduced by Mr. Morrell. The Company may, in its sole discretion, pay any of the aforementioned fees in cash or shares of the Company’s common stock. If such fees are paid in stock, the number of shares to be paid shall be calculated by dividing the dollar amount of time (or value of the transaction, as the case may be) invoiced in such pay period by, as of the applicable calculation date, the most recent price at which the Company has sold shares of its common stock (or securities convertible into common stock) in a bona fide public or private financing including third party investors.

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. On the date of conversion of debt, the Company records the fair value of the conversion shares, removes the fair value of the related derivative liability, removes any discounts and records a net gain or loss on debt extinguishment.

Convertible Notes With Variable Conversion Options: The Company has entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at the time of conversion. The Company treats these convertible notes as stock settled debt under ASC 480 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 December 31, 2017 compared to the Three Months Ended December 31, 2016

Revenue

For the three months ended December 31, 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. We do not expect to make significant revenues for several years.

Administration Expenses

Administration expenses decreased to $395,442 for the three months ended December 31, 2017 as compared with $1,735,893 for the three months ended December 31, 2016. This decrease is attributable to a decrease in stock based expense of approximately $330,000, which is related to a grant of stock options to our directors in April 2016 along with a decrease of approximately $320,000 related to stock based consulting fees. Additionally, consulting fees decreased by approximately $256,000 and wages decreased by approximately $205,000 in the three months ended December 31, 2017.

Occupancy Expense

Occupancy expense increased by $908 to $6,899 for the three months ended December 31, 2017. The increase relates to the fluctuation in foreign currency exchange rates along with an approximately $700 decrease in occupancy in the months ended December 31, 2016 related to a reclassification of expenses.

Research and Development Expenses

Research and development expenses were $1,034,729 for the three months ended December 31, 2017 as compared with $167,202 for the three months ended December 31, 2016. The increase in research and development expenses is primarily due to an increase in clinical development expenses for PRP, as the purchase of the two proenzymes, trypsinogen and chymotrypsinogen, for the PRP formulation, raw material purification of the proenzymes, manufacturing, process development, and commencement of GMP manufacturing of the finished drug product intended for use in future First-In-Human studies increased in October 2017 as the Company advances towards full scale manufacturing. Additionally, the use of development & regulatory consultants also increased to support process development and manufacturing.

Interest Expense/Income

Interest expense decreased to $486,754 for the three months ended December 31, 2017 as compared with $1,255,627 for the three months ended December 31, 2016. Interest expense is primarily comprised of $186,000 debt discount amortization and $267,000 in accretion of put premium. This decrease is primarily attributable to the conversion of derivative debt resulting in lower amortization of debt discount offset by higher accretion amounts of convertible notes with discounted debt features during the three months ended December 31, 2017.

Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities increased by $221,065 to a loss of $260,045 for the three months ended December 31, 2017 from a loss of $38,980 for the three months ended December 31, 2016. This increase 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 loss decreased to $142,944 for the three months ended December 31, 2017 as compared to a loss of $425,323 for the three months ended December 31, 2016. The decrease in foreign currency transaction loss is primarily attributable to greater fluctuation in exchange rates in the three months ended December 31, 2016 than in the three months ended December 31, 2017.

Net loss

Net loss decreased to $2,201,979 for the three months ended December 31, 2017 as compared with $3,760,913 for the three months ended December 31, 2016. The decrease is primarily attributable to an approximately $1,340,000 decrease in administrative expenses and an approximately $769,000 decrease in interest expense as well as the net effect of fluctuations within changes in fair value of derivative liabilities and foreign currency transactions gains.

For the Six Months Ended December 31, 2017 compared to the Six Months Ended December 31, 2016

Revenue

For the six months ended December 31, 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 $1,026,848 for the six months ended December 31, 2017 as compared with $2,740,396 for the six months ended December 31, 2016. This decrease is attributable to a decrease in stock based expense of approximately $660,000, which is related to a grant of stock options to our directors in April 2016 along with a decrease of approximately $420,000 related to stock based consulting fees. Additionally wages decreased by approximately $230,000, investor relations decreased by $170,000 and consulting fees decreased by approximately $100,000 in the year ended December 31, 2017.

Occupancy Expense

Occupancy expense increased by $1,141 to $15,729 for the six months ended December 31, 2017. The increase relates to the fluctuation in foreign currency exchange rates along with an approximately $700 decrease in occupancy in the months ended December 31, 2016 related to a reclassification of expenses.

Research and Development Expenses

Research and development expenses were $1,598,468 for the six months ended December 31, 2017 as compared with $328,399 for the six months ended December 31, 2016. The increase in research and development expenses is primarily due to an increase in clinical development expenses for PRP, as the purchase of the two proenzymes, trypsinogen and chymotrypsinogen, for the PRP formulation, raw material purification of the proenzymes, manufacturing process development and commencement of GMP manufacturing of the finished drug product intended for use in future First-In-Human studies increased in October 2017, as the Company advances towards full scale manufacturing. Additionally, the use of development & regulatory consultants also increased to support process development and manufacturing. Additionally, the use of development & regulatory consultants also increased to support process development and manufacturing, submission to the US Food & Drug Administration (FDA) for a request for Orphan Drug Designation status for the treatment of pancreatic cancer and preparation for a scientific advice meeting with the Medicines and Healthcare Products Regulatory Agency (MHRA), UK, planned for the first quarter of 2018.

Interest Expense/Income

Interest expense decreased to $1,379,186 for the six months ended December 31, 2017 as compared with $1,727,014 for the six months ended December 31, 2016. Interest expense is primarily comprised of $534,000 debt discount amortization and $743,000 in accretion of put premium. This decrease is primarily attributable to the conversion of derivative debt resulting in lower amortization of debt discount offset by higher accretion amounts of convertible notes with discounted debt features during the six months ended December 31, 2017.

Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities decreased by $560,164 from a gain of $330,393 for the six months ended December 31, 2016 to a loss of $229,771 for the six months ended December 31, 2017. 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 loss decreased to $9,152 for the six months ended December 31, 2017 as compared to a loss of $251,334 for the six months ended December 31, 2016. The decrease in foreign currency transaction gain is primarily attributable to greater fluctuation in exchange rates in the six months ended December 31, 2016 than in the six months ended December 31, 2017.

Net loss

Net loss decreased to $4,125,722 for the six months ended December 31, 2017 as compared with $4,862,882 for the six months ended December 31, 2016. The decrease is primarily attributable to an approximately $1,714,000 decrease in administrative expenses and an approximately $348,000 decrease in interest expense 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

Net cash used in operations was $1,071,326 for the six months ended December 31, 2017 compared to $1,004,628 for the six months ended December 31, 2016. This fluctuation is due to a decrease in accrued expenses in the six months ended December 31, 2017 related to the payment of an accrued bonus to an officer of approximately $120,000, along with 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 six months ending December 31, 2017.

Cash flows provided by financing activities for the six months ended December 31, 2017 were $1,274,000 compared to $959,285 for the six months ended December 31, 2016. During the six months ended December 31, 2017, we had proceeds from convertible promissory notes of $1,274,000. During the six months ended December 31, 2016, we had proceeds from convertible promissory notes of $495,000 and proceeds from the exercise of warrants of approximately $464,000.

The effect of the exchange rate on cash resulted in a $159,221 negative adjustment to cash flows in the six months ending December 31, 2017 compared to a negative adjustment of $32,809 to cash flows in the six months ending December 31, 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 December 31, 2017, we had $112,496 in cash. Total debt outstanding at December 31, 2017 was $3,194,381. 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. If we do not raise sufficient capital we will reduce our R&D activities to minimize overheads. Further, we may consider possible licensing of our drug product, JV’s or mergers.

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.

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 December 31, 2017, we identified the following material weaknesses that still exist through the date of this report:

As of December 31, 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 December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.