Propanc Biopharma, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Special Note Regarding Forward-Looking Information The following discussion and analysis of the results of operations and financial condition of Propanc Biopharma, Inc., and its wholly-owned Australian subsidiary, Propanc PTY LTD (“Propanc” or the “Company”) as of March 31, 2022 for the nine months ended March 31, 2022 and 2021 should be read in conjunction with our unaudited financial statements and the notes to those unaudited financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to Propanc. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise. U.S. Dollars are denoted herein by “USD,” “$” and “dollars”. Note on COVID- 19 The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer. We are complying health guidelines regarding safety procedures, including, but are not limited to, social distancing, remote working, and teleconferencing. The extent of the future impact of the COVID-19 pandemic on our business is uncertain and difficult to predict. Adverse global economic and market conditions as a result of COVID-19 could also adversely affect our business. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be adversely impacted. Overview We were incorporated in the state of Delaware as Propanc Health Group Corporation on November 23, 2010. In January 2011, to reorganize our Company, we acquired all of the outstanding shares of Propanc PTY LTD, an Australian corporation, on a one-for-one basis and Propanc PTY LTD became our wholly-owned subsidiary. Effective April 20, 2017, we changed our name to “Propanc Biopharma, Inc.” to better reflect our current stage of operations and development. We are a development-stage healthcare company that is currently focused on developing new cancer treatments for patients suffering from pancreatic, ovarian and colorectal cancer. Utilizing our scientific and oncology consultants, we have developed a rational, composite formulation of anti-cancer compounds, which together exert a number of effects designed to control or prevent tumors from recurring and spreading through the body. Our lead product candidate, PRP, is a variation upon our novel formulation and involves pro-enzymes, the inactive precursors of enzymes. Recent Developments On March 22, 2022, a Notice of Allowance has been received from the US Patent and Trademark Office (USPTO) for claims involving a novel method to treat cancer stem cells (CSC’s). The allowed US patent protects proprietary claims capturing methods and uses for pancreatic proenzymes to treat cancer by specifically targeting and eradicating CSCs. It is the first allowed by the USPTO covering a method of minimizing the progression of cancer in a patient by administering a therapeutically effective amount of two proenzymes, trypsinogen and chymotrypsinogen, thereby preventing metastatic cancer in the patient by targeting and eradicating CSCs from solid tumors. On May 2, 2022, pharma grade raw materials were purchased for the manufacture of PRP in preparation for the Phase I First-In-Human (FIH) study in advanced cancer patients suffering from solid tumors. Approximately 0.5kg of trypsinogen and 2.4kg of chymtrypsinogen was procured initially, with a second half of the same batch quantities to be purchased towards the middle of this year. The total amount of raw materials purchased is expected to be sufficient for the early-stage clinical development plan for PRP, which is administered by intravenous (I.V.) injection, once weekly. The first FIH study is planned for treatment of up to 30 to 40 patients with advanced solid tumors. This will be followed by up to two 60 patient Phase II studies in patients suffering from pancreatic and ovarian tumors. 3 Results of Operations The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included elsewhere in this Report. The results discussed below are of the Company and its wholly-owned Australian subsidiary, Propanc PTY LTD. For the Three and Nine months ended March 31, 2022, as compared to the Three and Nine months ended March 31, 2021 Revenue For the three and nine months ended March 31, 2022 and 2021, we generated no revenue because we are currently undertaking research and development activities for market approval and no sales were generated in this period. Administration Expense Administration expense increased to $443,629 for the three months ended March 31, 2022 as compared to $373,834 for the three months ended March 31, 2021. This increase of approximately $70,000 is primarily attributable to an increase of approximately $110,000 in general consulting, legal and investor relation fees, increase in accounting fees of approximately $19,000, increase in stock-based expenses of approximately $2,000, increase in other general and administrative expenses of approximately $8,000, offset by decrease in marketing expenses of approximately $24,000 and a decrease of approximately $45,000 in employee remuneration expense. Administration expense increased to $1,221,533 for the nine months ended March 31, 2022 as compared to $913,124 for the nine months ended March 31, 2021. This increase of approximately $308,000 is primarily attributable to an increase of approximately $135,000 in stock-based expenses for services, increase of approximately $256,000 in general consulting, legal and investor relation fees, increase in accounting fees of approximately $10,000, and increase in other general and administrative expenses of approximately $2,000, offset by a decrease in approximately $71,000 in employee remuneration expense and decrease in marketing expenses of approximately $24,000. Occupancy Expense Occupancy expenses decreased to $8,157 for the three months ended March 31, 2022 as compared to $9,231 for the three months ended March 31, 2021. This decrease of approximately $1,000 is primarily attributable to exchange rate movements over the period when compared to the same period in 2021. Occupancy expense decreased to $22,443 for the nine months ended March 31, 2022 as compared to $26,185 for the nine months ended March 31, 2021. This decrease of approximately $3,700 is primarily attributable to exchange rate movements over the period when compared to the same period in 2021. Research and Development Expenses Research and development expenses were increased to $50,395 for the three months ended March 31, 2022 as compared to $44,887 for the three months ended March 31, 2021. Research and development expenses increased to $147,702 for the nine months ended March 31, 2022 as compared to $145,898 for the nine months ended March 31, 2021. Interest Expense Interest expense increased to $167,375 for the three months ended March 31, 2022 as compared to $102,901 for the three months ended March 31, 2021. This increase of approximately $64,000 is primarily attributable to an increase in amortization of debt discount of approximately $9,000 for three months ended March 31, 2022, increase in default penalty fees of approximately $4,000, increases in accretion of put premium interest expense of approximately $65,000, offset by a decrease in accrual of interest expense for a total of $10,000 and decrease in conversion fees of $4,000 for the nine months ended March 31, 2022. 4 Interest expense increased to $455,133 for the nine months ended March 31, 2022 as compared to $420,017 for the nine months ended March 31, 2021. This increase of approximately $35,000 is primarily attributable to a decrease in amortization of debt discount of approximately $105,000 for nine months ended March 31, 2022, decrease in prepayment and default penalty fees of approximately $9,000, decrease in conversion fees of $11,000 and decrease in accrual of interest expense for a total of $21,000, offset by an increase in accretion of put premium interest expense of approximately $181,000 for the nine months ended March 31, 2022. Change in Fair Value of Derivative Liabilities Change in fair value of derivative liabilities were increased to a gain of $165,365 for the three months ended March 31, 2022 as compared to a loss of $55,158 for the three months ended March 31, 2021. This increase in gain of approximately $220,000 is primarily attributable to a decrease in fair value of the principal amount of a convertible note with bifurcated embedded conversion option derivatives during the three months ended March 31, 2022. Change in fair value of derivative liabilities were decreased to a loss of $2,392 for the nine months ended March 31, 2022 as compared to a loss of $7,156 for the nine months ended March 31, 2021. This decrease in loss of approximately $4,800 is primarily attributable to an increase in fair value of the principal amount of a convertible note with bifurcated embedded conversion option derivatives during the nine months ended March 31, 2022. Gain from Settlement of Debt, net During the three and nine months ended March 31, 2021, the Company recorded gain from settlement of debt, net of $48,390 relating to two transactions. On March 22, 2021, the Company entered into a settlement agreement with our former counsel, Foley Shechter, whereby both parties agreed to settle all claims for professional fees owed for a total of $51,032. The Company paid the settlement amount of $51,032 on March 22, 2021. Prior to the settlement agreement, the Company recorded total accounts payable and accrued expenses $142,660. Accordingly, the Company recognized gain from settlement of debt of $91,628 during the nine months ended March 31, 2021. Additionally, on March 15, 2021, the Company entered into a Settlement and Mutual Release Agreement with Regal Consulting, LLC whereby both parties agreed to settle all claims and liabilities under the August 10, 2017 convertible note for a total of $100,000. All other terms of the August 10, 2017 convertible note shall remain in full force and effect. Both parties agree that all future penalties under this note are waived unless the Company fails to authorize to distribute the requested shares upon conversion. The Company has the right to pay off the balance of any remaining amounts due under this convertible note in cash at any time more than 60 days after March 15, 2021. Prior to the Settlement and Mutual Release Agreement, the Company recorded total liabilities $56,762 consisting of remaining principal amount of $8,500, accrued interest of $23,262 and accrued expenses of $25,000. Accordingly, the Company recognized loss from settlement of debt of $43,238 during the nine months ended March 31, 2021. There was no comparable transaction during the three and nine months ended March 31, 2022. Gain (loss) on Extinguishment of Debt, net There were no notes converted that contained bifurcated embedded conversion option derivatives for the nine months ended March 31, 2022. During the nine months ended March 31, 2021, notes were converted with principal amounts totaling $95,000 contained bifurcated embedded conversion option derivatives. Accordingly, the fair market value of the shares issued was $178,368 resulting in a loss on extinguishment at the time of conversion of $80,368 and the derivative fair value was recorded as a gain on extinguishment at the time of conversion of $130,975, resulting in a gain on extinguishment of debt, net of $50,607. Foreign Currency Transaction Gain (Loss) Foreign currency transaction increased to a gain of $41,717 for the three months ended March 31, 2022 as compared to a gain of $6,984 for the three months ended March 31, 2021. This increase of approximately $35,000 is primarily attributable to the increase in exchange rates during the three months ended March 31, 2022. Foreign currency transaction decreased to a gain of $40,631 for the nine months ended March 31, 2022 as compared to a gain of $54,179 for the nine months ended March 31, 2021. This decrease of approximately $13,500 is primarily attributable to a decrease in exchange rates during the nine months ended March 31, 2022. Net loss Net loss increased to $462,687 for the three months ended March 31, 2022 as compared to a net loss of $417,738 for the three months ended March 31, 2021. The change relates to the factors discussed above. Net loss increased to $1,753,322 for the nine months ended March 31, 2022 as compared to a net loss of $1,246,926 for the nine months ended March 31, 2021. The change relates to the factors discussed above. 5 Deemed dividend The Company recognized the value of the effect of a down round feature related to our Series A warrants when triggered. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized deemed dividend of $237,389 and $445,631 and a corresponding reduction of income available to common stockholders upon the alternate cashless exercise of these warrants during the three and nine months ended March 31, 2022. Net loss available to common stockholders Net loss available to common stockholders increased to $700,076 for the three months ended March 31, 2022 as compared to a net loss available to common stockholders of $417,738 for the three months ended March 31, 2021. This increase of approximately $282,000 is primarily attributable to the change relates to the factors discussed above. Net loss available to common stockholders increased to $2,198,953 for the nine months ended March 31, 2022 as compared to a net loss available to common stockholders of $1,246,926 for the nine months ended March 31, 2021. This increase of approximately $952,000 is primarily attributable to the change relates to the factors discussed above. Liquidity and Capital Resources Current Financial Condition As of March 31, 2022, we had total assets of $169,460, comprised primarily of cash of $133,885, GST tax receivable of $2,216, prepaid expenses and other current assets of $8,405, deferred offering costs of $20,000, security deposit of $2,248 and property and equipment, net of $2,706. As compared to June 30, 2021, we had total assets of $13,101, comprised primarily of cash of $2,255, GST tax receivable of $4,341, security deposit of $2,250 and property and equipment, net of $4,255. We had current liabilities of $3,116,880, primarily comprised of net convertible debt of $1,075,702, accounts payable and accrued expenses of $1,453,771, employee benefit liability of $442,018, and embedded conversion option liabilities of $56,612 as of March 31, 2022. As compared to June 30, 2021, 3,080,674, primarily comprised of net convertible debt of $624,583, accounts payable and accrued expenses of $1,894,486, employee benefit liability of $418,538, and embedded conversion option liabilities of $54,220 as of June 30, 2021. We have funded our operations primarily through the issuance of equity and/or convertible securities for cash. The cash was used primarily for payments for research and development, administration expenses, occupancy expenses, professional fees, consultants and travel. During the nine months ended March 31, 2022 we received proceeds from exercise of warrants of $475,000 and net proceeds from issuance of convertible notes of $641,500. We have substantial capital resource requirements and have incurred significant losses since inception. As of March 31, 2022, we had $133,885 in cash. We depend upon debt and/or equity financing to fund our ongoing operations and to execute our current business plan. Such capital requirements are in excess of what we have in available cash and for which we currently have commitments. Therefore, we presently do not have enough available cash to meet our obligations over the next 12 months. If continued funding and capital resources are unavailable at reasonable terms, we may curtail our plan of operations. We will be required to obtain alternative or additional financing from financial institutions, investors or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations, and adversely affecting our ability to complete ongoing activities in connection with our research and development programs. Sources and Uses of Cash For the Nine months ended March 31, 2022 2021 Net cash used in operating activities $ (1,025,306 ) $ (908,977 ) Net cash provided by financing activities $ 1,116,500 $ 808,044 Effect of exchange rate changes on cash $ 40,436 $ 48,365 6 Net Cash Flow from Operating Activities Net cash used in operating activities was $1,025,306 for the nine months ended March 31, 2022, due to our net loss of $1,753,322 offset primarily by non-cash charges of amortization of debt discount of $24,942, stock-based compensation of $62,154, accretion of put premium of $380,962, change in fair value of derivatives of $2,392 and issuance and amortization of common stock for services of $222,452. Net changes in operating assets and liabilities totaled $71,992, which is primarily attributable to increase in employee benefit liability of $23,816, increase accrued interest of $45,495, increase in accrued expenses and other payables of $43,285, offset by a decrease in accounts payable of $34,319. Net cash used in operating activities was $908,977 for the nine months ended March 31, 2021, due to our net loss of $1,246,926, offset primarily by non-cash charges of amortization of debt discount of $130,418, stock-based compensation of $129,665 non-cash interest expense of $12,750, accretion of put premium of $200,410, change in fair value of derivatives of $7,156 addback foreign currency transaction gain of $54,179, gain from settlement of debt of $48,390 and $50,607 gain on extinguishment of debt. Net changes in operating assets and liabilities totaled $9,259, which is primarily attributable to increase in accounts payable of $110,877, employee benefit liability of $32,685, accrued interest of $61,022, offset by decrease in accrued expenses of $195,158. Net Cash Flow from Financing Activities Net cash provided by financing activities for the nine months ended March 31, 2022 were $1,116,500 as compared to $808,044 for the nine months ended March 31, 2021. During the nine months ended March 31, 2022 we received proceeds from the exercise of warrants of $475,000 and net proceeds from issuance of convertible notes of $641,500. During the nine months ended March 31, 2021 we received proceeds from the exercise of warrants of $526,044 and net proceeds from issuance of convertible notes of $325,000, offset by repayments of convertible notes of $43,000. Effect of Exchange Rate The effect of the exchange rate on cash resulted in a $40,436 positive adjustment to cash flows in the nine months ended March 31, 2022 as compared to an adjustment of $48,365 positive adjustment to cash flows in the nine months ended March 31, 2021. The reason for the fluctuation is due to the application of currency translation rates throughout the cash flow statement, the volume of transactions within each period and the daily fluctuation in exchange rates Critical Accounting Estimates Below is a discussion of our more subjective accounting estimation processes for purposes of explaining (i) the methodology used in calculating the estimates, (ii) the inherent uncertainties pertaining to such estimates, and (iii) the possible effects of a significant variance in actual experience, from that of the estimate, on our financial condition. Estimates involve numerous assumptions that, if incorrect, could create a material adverse impact on the Company’s results of operations and financial condition. Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities. Each ASC reference in this filing is presented with a three-digit number, which represents its Topic. As necessary for explanation and as applicable, an ASC topic may be followed with a two-digit subtopic, a two-digit section or a two-or-three-digit paragraph. Foreign Currency Translation and Comprehensive Income (Loss) : The Company’s wholly owned subsidiary’s functional currency is the AUD. For financial reporting purposes, the Australian Dollar (“AUD”) has been translated into USD as the Company’s reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the statement of operations and comprehensive loss as other income (expense). Effective fiscal year 2021, the parent company determined that intercompany loans will not be repaid in the foreseeable future and thus, per ASC 830-20-35-3, gains and losses from measuring the intercompany balances are recorded within cumulative translation adjustment, a component of other comprehensive income. Accounting for Income Taxes: We are governed by Australian and United States income tax laws, which are administered by the Australian Taxation Office and the United States Internal Revenue Service, respectively. We follow ASC 740, “ Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. 7 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 : We record stock-based compensation in accordance with ASC 718, “ Stock Compensation ” and Staff Accounting Bulletin No. 107 issued by the SEC in March 2005 regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. We value any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model. We account for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718. Derivative Instruments: ASC 815, “ Derivatives and Hedging, ” establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings. On the date of conversion, or payoff, of debt, we record the fair value of the conversion shares, remove the fair value of the related derivative liability, remove any discounts and record a net gain or loss on debt extinguishment. Convertible Notes with Variable Conversion Options : We have entered into convertible notes, some of which contain variable conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at or around a fixed discount to the price of the common stock at the time of conversion. We treat these convertible notes as stock settled debt under ASC 480 and measure the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion, and record the put premium as accretion to interest expense. Research and Development Tax Credits : We may apply for Research and Development tax concessions with the Australian Taxation Office on an annual basis. Although the amount is possible to estimate at year end, the Australian Taxation Office may reject or materially alter the claim amount. Accordingly, we do not recognize the benefit of the claim amount until cash receipt since collectability is not certain until such time. The tax concession is a refundable credit. If we have net income then we can receive the credit which reduces its income tax liability. If we have net losses, then we may still receive a cash payment for the credit, however, our net operating loss carry forwards are reduced by the gross equivalent loss that would produce the credit amount when the income tax rate is applied to that gross amount. The concession is recognized as an income tax benefit, in operations, upon receipt. Recent Accounting Pronouncements Please see section captioned “Recent Accounting Pronouncements” in Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of recently issued and adopted accounting pronouncements. Going Concern Qualification The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the Company as a going concern. For the nine months ended March 31, 2022, the Company had no revenues, had a net loss of $1,753,322, and had net cash used in operations of $1,025,306. Additionally, as of March 31, 2022, the Company had a working capital deficit, stockholders’ deficit and accumulated deficit of $2,972,374, $2,947,420, and $60,398,419, respectively. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the issue date of this Quarterly Report. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty. Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities, acceptance of the Company’s patent applications, obtaining additional sources of suitable and adequate financing and ultimately achieving a level of sales adequate to support the Company’s cost structure and business plan. The Company’s ability to continue as a going concern is also dependent on its ability to further develop and execute on its business plan. However, there can be no assurances that any or all of these endeavors will be successful. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable to smaller reporting companies. 8