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 (collectively, “Propanc” or the “Company”) as of December 31, 2024 and for the six months ended December 31, 2024 and 2023 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 for the period ended December 31, 2024 (this “Quarterly Report”). References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “us”, “we”, “our” and similar terms refer to Propanc. This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “feel”, “forecast”, “intend”, “may,”, “outlook”, “plan”, “potential”, “predict”, “project,”, “seek”, “should”, “will”, “would” 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”. Overview The Company was originally formed in Melbourne, Victoria, Australia on October 15, 2007 as Propanc PTY LTD. On November 23, 2010, Propanc Health Group Corporation was incorporated in the State of Delaware and in January 2011, to reorganize our Company, we acquired all of the outstanding shares of Propanc PTY LTD on a one-for-one basis, whereby 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 August 7, 2024, the Company received written consent in lieu of a meeting by the holders of a majority of the voting power of the Company’s outstanding capital stock as of August 7, 2024 and the Company’s Board of Directors approving such actions as are necessary for the Company to proceed to, and the Company accordingly intends to, effectuate and execute a reverse stock split of the Company’s issued and outstanding shares of common stock at a ratio of one post-split share per sixty thousand pre-split shares (1:60,000) (the “Reverse Stock Split”). On August 14, 2024, allowance for the Company’s “proenzyme composition” patent was received from the Canadian Intellectual Property Office (CIPO). The patent broadly captures both high dose and high ratio claims for future clinical doses of the company’s lead asset, PRP. This is the second Canadian patent either allowed or granted in this important North American jurisdiction. The proenzymes composition patent is an important part of the IP portfolio covering possible future clinical dosage ranges for PRP, as the Company advances to a Phase 1, First-In-Human (FIH) study in advanced cancer patients suffering from solid tumors. On August 21, 2024, we reported that two scientific, peer reviewed journal articles published by the Company and its research partners reached 10 citations and 4,500 reads, respectively. Published data from the Company’s joint research and development program were generated in conjunction with the Universities of Jaén and Granada, Biosanitary Research Institute of Granada, and University Hospital, Spain. On October 30, 2024, we filed an S-1 registration statement with the Securities and Exchange Commission for an underwritten offering that reflects the proposed reverse split of the outstanding Common Stock and treasury stock of the Company at an assumed 1- for- 60,000 ratio, which is anticipated to occur prior to the closing of the offering. Our Common Stock is currently quoted on the OTC Pink Marketplace operated by the OTC Markets Group Inc. (“OTC”) under the symbol “PPCB.” In connection with this offering, we have applied to have our Common Stock listed on the Nasdaq Capital Market under the symbol “PPCB.” The Reverse Stock Split became effective as of January 29, 2025. Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split. 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 six months ended December 31, 2024, as compared to the three and six months ended December 31, 2023. Revenue For the six months ended December 31, 2024 and 2023, we generated no revenue because we are currently undertaking research and development activities for market approval and no sales were generated in this period. Administration Expense Administration expense decreased to $374,352 for the six months ended December 31, 2024 as compared to $712,013 for the six months ended December 31, 2023. This decrease of approximately $338,000 is primarily attributable to a decrease of approximately $227,000 in general consulting, legal and investor relation fees, decrease in accounting fees of approximately $2,000, decrease of approximately $96,000 in employee remuneration expense, decrease marketing expense of approximately $26,000 and decrease in other general and administrative expenses of approximately $2,000 offset by increase in stock-based expenses of approximately $15,000. Administration expense decreased to $153,593 for the three months ended December 31, 2024 as compared to $318,185 for the three months ended December 31, 2023. This decrease of approximately $165,000 is primarily attributable to a decrease of approximately $83,000 in general consulting, legal and investor relation fees, decrease of approximately $56,000 in employee remuneration expense, decrease marketing expense of approximately $33,000 and decrease in other general and administrative expenses of approximately $3,000 offset by increase in stock-based expenses of approximately $7,000 and increase in accounting fees of approximately $3,000. Occupancy Expense Occupancy expenses increased to $13,718 for the six months ended December 31, 2024 as compared to $13,006 for the six months ended December 31, 2023. This increase of approximately $1,000 is primarily attributable to exchange rate movements over the period when compared to the same period in 2023. Occupancy expenses decreased to $5,401 for the three months ended December 31, 2024 as compared to $5,857 for the three months ended December 31, 2023. This decrease of approximately $500 is primarily attributable to exchange rate movements over the period when compared to the same period in 2023. Research and Development Expenses Research and development expenses decreased to $116,102 for the six months ended December 31, 2024 as compared to $130,264 for the six months ended December 31, 2023, a decrease in research and development expenses of approximately $14,000. Research and development expenses decreased to $54,388 for the three months ended December 31, 2024 as compared to $114,022 for the three months ended December 31, 2023, a decrease in research and development expenses of approximately $60,000. Such research and development expenses are related to the two-year collaboration agreement with University of Jaén, which was executed in October 2020 to provide certain research services to the Company ending on October 2022, relating to the investigation of a fully synthetic recombinant version of PRP. Additionally, on July 27, 2022, the Company entered into another two-year research agreement with the University of Jaén to provide certain research and experiment services to the Company relating to the investigation of the effects of pancreatic proenzymes against the tumor microenvironment. Additionally, we also allocate a portion of the management’s salary to research and development expenses. The overall decrease in research and development expenses is primarily related to our cost-cutting measures due to lack of working capital funding. Further research and development collaborations are currently under negotiation with the University of Jaén and other contract research organizations in preparation for upcoming available working capital for future research and development expenses. Interest Expense Interest expense decreased to $205,173 for the six months ended December 31, 2024, as compared to $442,696 for the six months ended December 31, 2023. Interest expense is primarily comprised of approximately $133,000 of debt discount amortization and interest expense from accrual of interest expense and other financing fees for a total of approximately $72,000 for the six months ended December 31, 2023. This decrease in interest expense of approximately $238,000 is primarily attributable to the decrease in amortization of debt discount of approximately $31,000 and decrease of approximately $235,000 in accretion of put premium offset by increase in accrual of interest expense. Interest expense decreased to $118,943 for the three months ended December 31, 2024, as compared to $264,462 for the three months ended December 31, 2023. Interest expense is primarily comprised of approximately $76,000 of debt discount amortization and interest expense from accrual of interest expense and other financing fees for a total of approximately $43,000 for the three months ended December 31, 2023. This decrease in interest expense of approximately $146,000 is primarily attributable to the decrease in amortization of debt discount of approximately $19,000 and decrease of approximately $146,000 in accretion of put premium offset by increase in accrual of interest expense. 4 Derivative Expense Derivative expense decreased to approximately $36,000 for the six months ended December 31, 2024 as compared to approximately $123,000 for the six months ended December 31, 2023. Derivative expense decreased to approximately $9,000 for the three months ended December 31, 2024 as compared to approximately $46,000 for the three months ended December 31, 2023. This decrease is primarily attributable to the decrease in the issuance of convertible notes which initial value was bifurcated from the embedded conversion option and was recorded as derivative expense. Change in Fair Value of Derivative Liabilities Change in fair value of derivative liabilities decreased to a gain of approximately $66,000 for the six months ended December 31, 2024 as compared to a gain of approximately $302,000 for the six months ended December 31, 2023. Change in fair value of derivative liabilities were decreased to a gain of approximately $14,000 for the three months ended December 31, 2024 as compared to a loss of approximately $2,000 for the three months ended December 31, 2023. This decrease in gain of approximately $15,000 and $236,000 is primarily attributable to a decrease in fair value of the principal amount of convertible notes with bifurcated embedded conversion option derivatives as a result of the decrease in stock prices during the three and six months ended December 31, 2024, respectively. Gain (Loss) on Extinguishment of Debt, net During the six months ended December 31, 2024, notes with principal amounts totaling $49,100, accrued interest of $3,769 and conversion fees of $2,833 containing bifurcated embedded conversion option derivatives which were converted into common stock. Accordingly, the fair market value of the shares issued upon conversion was $137,454, resulting in a loss on extinguishment at the time of conversion of $81,752 and $51,674 of derivative liability fair value and was recorded as a gain on extinguishment at the time of conversion, resulting in a net loss of $30,078 which is included in gain (loss) on extinguishment of debt in the accompanying condensed consolidated statements of operations. During the six months ended December 31, 2023 there were principal aggregate amount of convertible notes of $75,300, accrued interest of $5,570 and conversion fees of $1,597 containing bifurcated embedded conversion option derivatives which were converted into common stock. Accordingly, the fair market value of the shares issued upon conversion was $198,753, resulting in a loss on extinguishment at the time of conversion of $116,285 and $150,384 of derivative liability fair value and was recorded as a gain on extinguishment at the time of conversion, resulting in a net gain of $34,099. Foreign Currency Transaction Gain (Loss) Foreign currency transaction gain (loss) decreased to a loss of approximately ($76,000) for the six months ended December 31, 2024 as compared to a gain of approximately $21,000 for the six months ended December 31, 2023. This decrease of approximately $97,000 is partially attributable to the decrease in exchange rates during the six months ended December 31, 2024. Foreign currency transaction gain (loss) decreased to a loss of approximately ($84,000) for the three months ended December 31, 2024 as compared to a gain of approximately $37,000 for the three months ended December 31, 2023. This decrease of approximately $121,000 is partially attributable to the decrease in exchange rates during the three months ended December 31, 2024. Net loss Net loss decreased to $784,493 for the six months ended December 31, 2024 as compared to a net loss of $935,250 for the six months ended December 31, 2023. Net loss decreased to $430,183 for the three months ended December 31, 2024 as compared to a net loss of $584,384 for the three months ended December 31, 2023. The change relates to the factors discussed above. Deemed dividend The Company recognized the value of the effect of a down-round feature related to our Series A 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 $0 and $177,160 during the six months ended December 31, 2024 and 2023, respectively, $0 and $128,620 during the three months ended December 31, 2024 and 2023, respectively, and a corresponding reduction of income available to common stockholders upon the alternate cashless exercise of these warrants during the three and six months ended December 31, 2024 and 2023. Net loss available to common stockholders Net loss available to common stockholders decreased to $784,493 for the six months ended December 31, 2024 as compared to a net loss available to common stockholders of $1,112,410 for the six months ended December 31, 2023. Net loss available to common stockholders decreased to $430,183 for the three months ended December 31, 2024 as compared to a net loss available to common stockholders of $618,969 for the three months ended December 31, 2023. This decrease of approximately $189,000 and $328,000 during the three months ended December 31, 2024 and 2023, respectively, is primarily attributable to the change relates to the factors discussed above. 5 Liquidity and Capital Resources Current Financial Condition As of December 31, 2024, we had total assets of $78,533, comprised primarily of cash of $14,633, GST tax receivable of $1,973, prepaid expenses and other current assets of $1,378, security deposit of $1,855, and operating lease ROU asset, net of $6,577. As compared to June 30, 2024, we had total assets of $72,365, comprised primarily of cash of $21,085, GST tax receivable of $2,950, prepaid expenses and other current assets of $1,406, deferred offering cost of $27,117, security deposit of $2,008, and operating lease ROU asset, net of $17,799. We had current liabilities of $4,154,964, primarily comprised of net convertible debt of $409,799, accounts payable and accrued expenses of $2,257,867, employee benefit liability of $611,318, loans payable of $145,091, loans payable-related parties of $350,544, note payable, net of $168,217 and embedded conversion option liabilities of $131,585 as of December 31, 2024. As compared to June 30, 2024, we had current liabilities of $3,792,782, primarily comprised of net convertible debt of $399,325, accounts payable and accrued expenses of $2,100,137, employee benefit liability of $639,371, loans payable of $145,091, loans payable – related party of $71,629, note payable, net of $204,694 and embedded conversion option liabilities of $133,886 as of June 30, 2024. 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 six months ended December 31, 2024 we received proceeds from issuance of notes of $115,000 and proceeds from issuance of loan payable from related parties of $278,915. We have substantial capital resource requirements and have incurred significant losses since inception. As of December 31, 2024, we had $14,633 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 six months ended December 31, 2024 2023 Net cash used in operating activities $ (241,786 ) $ (572,342 ) Net cash provided by financing activities $ 295,515 $ 624,276 Effect of exchange rate changes on cash $ (60,181 ) $ 9,669 Net Cash Flow from Operating Activities Net cash used in operating activities was $241,786 for the six months ended December 31, 2024, due to our net loss of $784,493 offset primarily by non-cash charges of amortization of debt discount of $133,644, non-cash interest expense of $4,582, derivative expense of $35,741, foreign currency transaction loss of $75,698, and gain from extinguishment of debt of $30,078 addback change in fair value of derivatives of $66,368. Net changes in operating assets and liabilities totaled $304,466, which is primarily attributable to an increase in accrued interest of $49,350, increase in accounts payable of $102,374 and increase in accrued expenses and other payables of $166,993. Net cash used in operating activities was $572,342 for the six months ended December 31, 2023, due to our net loss of $935,250 offset primarily by non-cash charges of amortization of debt discount of $164,904, non-cash interest expense of $1,597, accretion of put premium of $234,615, derivative expense of $123,379, foreign currency transaction gain of $21,198, addback change in fair value of derivatives of $302,158 and gain from extinguishment of debt of $34,099. Net changes in operating assets and liabilities totaled $184,749, which is primarily attributable to an increase in prepaid expense of $5,877, increase in refundable advance deposit of $123,127, increase accrued interest of $35,323, increase in accounts payable of $169,359, and increase in accrued expenses and other payables of $96,924. Net Cash Flow from Financing Activities Net cash provided by financing activities for the six months ended December 31, 2024 was $295,515. During the six months ended December 31, 2024 we received net proceeds from issuance of convertible notes of $80,000, proceeds from a note of $35,000 and proceeds from issuance of loan from related parties of $278,915 offset by repayment of notes of $98,400. Net cash provided by financing activities for the six months ended December 31, 2023 were $624,276. During the six months ended December 31, 2023 we received net proceeds from issuance of convertible notes of $477,500, proceeds from issuance of note of $120,000, proceeds from issuance of loans from a related party of $169,685 offset by repayment of convertible note of $142,909. Effect of Exchange Rate The effect of the exchange rate on cash resulted in a $60,181 negative adjustment to cash flows in the six months ended December 31, 2024 as compared to a $9,669 positive adjustment to cash flows in the six months ended December 31, 2023. 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. 6 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. 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. 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 We did not generate any revenue for the six months ended December 31, 2024 and 2023 and 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 audit report for each of the fiscal years ended June 30, 2024 and 2023. In addition, we have negative working capital and convertible debt that is past maturity that we are currently negotiating with lenders in order to amend the maturity dates. The foregoing raise substantial doubt about our ability to continue as a going concern for a period of 12 months from the issue date of this report. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds and/or to consummate a public offering. Management is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity and/or convertible debt financing. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable to smaller reporting companies.