UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended OctoberJuly 31, 20192020
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number333-68008
PHARMACYTE BIOTECH, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 62-1772151 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
23046 Avenida de la Carlota, Suite 600, Laguna Hills, CA 92653
(Address of principal executive offices)
(917) 595-2850
(Registrant’s telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ xNo ☐o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ xNo ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |
| Non-accelerated filer | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ oNo ☒x
As of December 23, 2019,September 11, 2020, the registrant had 1,391,871,1722,333,810,405 outstanding shares of common stock, with a par value of $0.0001 per share.
PHARMACYTE BIOTECH, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED OCTOBERJULY 31, 20192020
| 2 |
PART I – FINANCIAL INFORMATION
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| October 31, 2019 | April 30, 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 45,061 | $ | 515,253 | ||||
| Prepaid expenses and other current assets | 164,279 | 138,151 | ||||||
| Total current assets | 209,340 | 653,404 | ||||||
| Other assets: | ||||||||
| Intangibles | 3,549,427 | 3,549,427 | ||||||
| Investment in SG Austria | 1,572,193 | 1,572,193 | ||||||
| Other assets | 7,372 | 7,372 | ||||||
| Total other assets | 5,128,992 | 5,128,992 | ||||||
| Total Assets | $ | 5,338,332 | $ | 5,782,396 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 164,582 | $ | 121,885 | ||||
| Accrued expenses | 639,273 | 620,966 | ||||||
| Total current liabilities | 803,855 | 742,851 | ||||||
| Total Liabilities | 803,855 | 742,851 | ||||||
| Commitments and Contingencies (Notes 6 and 8) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, authorized 10,000,000 shares, $0.0001 par value: | ||||||||
| Series A Preferred Stock, 1 and 0 shares issued and outstanding as of October 31, 2019 and April 30, 2019, respectively | ||||||||
| Common stock: authorized 2,490,000,000 shares, $0.0001 par value, 1,331,871,172 and 1,186,004,505 shares issued and outstanding as of October 31, 2019 and April 30, 2019, respectively | 133,187 | 118,600 | ||||||
| Additional paid-in capital | 106,654,628 | 104,966,158 | ||||||
| Accumulated deficit | (102,232,568 | ) | (100,031,371 | ) | ||||
| Accumulated other comprehensive loss | (20,770 | ) | (13,842 | ) | ||||
| Total stockholders' equity | 4,534,477 | 5,039,545 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 5,338,332 | $ | 5,782,396 | ||||
| July 31, 2020 | April 30, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,166,596 | $ | 894,861 | ||||
| Prepaid expenses and other current assets | 136,537 | 142,785 | ||||||
| Total current assets | 2,303,133 | 1,037,646 | ||||||
| Other assets: | ||||||||
| Intangibles | 3,549,427 | 3,549,427 | ||||||
| Investment in SG Austria | 1,572,193 | 1,572,193 | ||||||
| Other assets | 7,372 | 7,372 | ||||||
| Total other assets | 5,128,992 | 5,128,992 | ||||||
| Total Assets | $ | 7,432,125 | $ | 6,166,638 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 384,832 | $ | 185,842 | ||||
| Accrued expenses | 726,818 | 816,638 | ||||||
| Current portion of Small Business Administration – Paycheck Protection Program loan | 41,498 | 28,918 | ||||||
| Total current liabilities | 1,153,148 | 1,031,398 | ||||||
| Long-term liabilities, less current portion: | ||||||||
| Small Business Administration – Paycheck Protection Program loan | 33,702 | 46,282 | ||||||
| Total Liabilities | 1,186,850 | 1,077,680 | ||||||
| Commitments and Contingencies (Notes 7 and 9) | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, authorized: 2,490,000,000 shares, $0.0001 par value; 1,875,143,738 and 1,638,637,839 shares issued and outstanding as of July 31, 2020 and April 30, 2020, respectively | 187,515 | 163,864 | ||||||
| Additional paid-in capital | 110,818,995 | 108,805,062 | ||||||
| Accumulated deficit | (104,742,203 | ) | (103,858,259 | ) | ||||
| Accumulated other comprehensive loss | (19,032 | ) | (21,709 | ) | ||||
| Total stockholders' equity | 6,245,275 | 5,088,958 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 7,432,125 | $ | 6,166,638 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 3 |
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended July 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | – | $ | – | ||||
| Operating expenses: | ||||||||
| Research and development costs | 270,574 | 72,330 | ||||||
| Compensation expense | 278,970 | 453,194 | ||||||
| Director fees | 72,024 | 75,642 | ||||||
| Legal and professional | 141,756 | 110,157 | ||||||
| General and administrative | 118,352 | 422,752 | ||||||
| Total operating expenses | 881,676 | 1,134,075 | ||||||
| Loss from operations | (881,676 | ) | (1,134,075 | ) | ||||
| Other expense: | ||||||||
| Interest expense | (388 | ) | – | |||||
| Other expense | (1,880 | ) | – | |||||
| Total other expenses | (2,268 | ) | – | |||||
| Net loss | $ | (883,944 | ) | $ | (1,134,075 | ) | ||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average shares outstanding basic and diluted | 1,678,572,167 | 1,210,305,834 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenue | $ | – | $ | – | $ | – | $ | – | ||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development costs | 17,940 | 115,101 | 90,270 | 382,895 | ||||||||||||
| Compensation expense | 446,146 | 410,491 | 899,340 | 827,681 | ||||||||||||
| Director fees | 82,854 | 58,372 | 158,496 | 139,502 | ||||||||||||
| Legal and professional | 115,454 | 37,458 | 225,611 | 185,094 | ||||||||||||
| General and administrative | 404,728 | 415,152 | 827,480 | 716,765 | ||||||||||||
| Total operating expenses | 1,067,122 | 1,036,574 | 2,201,197 | 2,251,937 | ||||||||||||
| Loss from operations | (1,067,122 | ) | (1,036,574 | ) | (2,201,197 | ) | (2,251,937 | ) | ||||||||
| Net loss | $ | (1,067,122 | ) | $ | (1,036,574 | ) | $ | (2,201,197 | ) | $ | (2,251,937 | ) | ||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average shares outstanding basic and diluted | 1,325,086,933 | 1,080,708,112 | 1,267,696,383 | 1,063,602,271 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 4 |
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net Loss | $ | (1,067,122 | ) | $ | (1,036,574 | ) | $ | (2,201,197 | ) | $ | (2,251,937 | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation | (66 | ) | (6,058 | ) | (6,928 | ) | (7,331 | ) | ||||||||
| Other comprehensive loss | (66 | ) | (6,058 | ) | (6,928 | ) | (7,331 | ) | ||||||||
| Comprehensive loss | $ | (1,067,188 | ) | $ | (1,042,632 | ) | $ | (2,208,125 | ) | $ | (2,259,268 | ) | ||||
| Three Months Ended July 31, | ||||||||
| 2020 | 2019 | |||||||
| Net loss | $ | (883,944 | ) | $ | (1,134,075 | ) | ||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 2,677 | (6,862 | ) | |||||
| Other comprehensive income (loss) | 2,677 | (6,862 | ) | |||||
| Comprehensive loss | $ | (881,267 | ) | $ | (1,140,937 | ) | ||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 5 |
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIXTHREE MONTHS ENDED OCTOBERJULY 31, 2020 AND 2019 AND 2018
(UNAUDITED)
| Series A Preferred Stock | Common stock | Paid-in | Accumulated | Other Comprehensive Income | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) | Equity | ||||||||||||||||||
| Balance, April 30, 2019 | – | $ | – | 1,186,004,505 | $ | 118,600 | $ | 104,966,158 | $ | (100,031,371 | ) | $ | (13,842 | ) | $ | 5,039,545 | |||||||||
| Shares issued for compensation | – | – | – | – | 104,726 | – | – | 104,726 | |||||||||||||||||
| Shares issued for services | – | – | 5,500,000 | 550 | 311,266 | – | – | 311,816 | |||||||||||||||||
| Shares issued for cash, net of issuance costs of $70,000 | – | – | 66,666,667 | 6,667 | 551,333 | – | – | 558,000 | |||||||||||||||||
| Stock options granted | – | – | – | – | 126,325 | – | – | 126,325 | |||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (6,862 | ) | (6,862 | ) | |||||||||||||||
| Net loss | – | – | – | – | – | (1,134,075 | ) | – | (1,134,075 | ) | |||||||||||||||
| Balance, July 31, 2019 | – | – | 1,258,171,172 | 125,817 | 106,059,808 | (101,165,446 | ) | (20,704 | ) | 4,999,475 | |||||||||||||||
| Shares issued for compensation | – | – | – | – | 104,727 | – | – | 104,727 | |||||||||||||||||
| Shares issued for services | – | – | 3,700,000 | 370 | 73,183 | – | – | 73,553 | |||||||||||||||||
| Shares issued for cash, net of issuances costs of $24,500 | 1 | – | 70,000,000 | 7,000 | 318,501 | – | – | 325,501 | |||||||||||||||||
| Stock options granted | – | – | – | – | 98,409 | – | – | 98,409 | |||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (66 | ) | (66 | ) | |||||||||||||||
| Net loss | – | – | – | – | – | (1,067,122 | ) | – | (1,067,122 | ) | |||||||||||||||
| Balance, October 31, 2019 | 1 | $ | – | 1,331,871,172 | $ | 133,187 | $ | 106,654,628 | $ | (102,232,568 | ) | $ | (20,770 | ) | $ | 4,534,477 | |||||||||
| Balance, April 30, 2018 | – | $ | – | 1,013,260,644 | $ | 101,326 | $ | 101,636,215 | $ | (95,964,143 | ) | $ | (4,709 | ) | $ | 5,768,689 | |||||||||
| Shares issued for compensation | – | – | – | – | 92,070 | – | – | 92,070 | |||||||||||||||||
| Shares issued for services | – | – | – | – | 45,800 | – | – | 45,800 | |||||||||||||||||
| Shares issued for cash, net of issuance costs of $105,000 | – | – | 66,239,316 | 6,624 | 1,388,376 | – | – | 1,395,000 | |||||||||||||||||
| Stock options granted | – | – | – | – | 113,225 | – | – | 113,225 | |||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (1,273 | ) | (1,273 | ) | |||||||||||||||
| Net loss | – | – | – | – | – | (1,215,363 | ) | – | (1,215,363 | ) | |||||||||||||||
| Balance, July 31, 2018 | – | – | 1,079,499,960 | 107,950 | 103,275,686 | (97,179,506 | ) | (5,982 | ) | 6,198,148 | |||||||||||||||
| Shares issued for compensation | – | – | – | – | 92,070 | – | – | 92,070 | |||||||||||||||||
| Shares issued for services | 1,950,000 | 195 | 59,459 | – | – | 59,654 | |||||||||||||||||||
| Stock options granted | – | – | – | – | 96,964 | – | – | 96,964 | |||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (6,058 | ) | (6,058 | ) | |||||||||||||||
| Net loss | – | – | – | – | – | (1,036,574 | ) | – | (1,036,574 | ) | |||||||||||||||
| Balance, October 31, 2018 | – | $ | – | 1,081,449,960 | $ | 108,145 | $ | 103,524,179 | $ | (98,216,080 | ) | $ | (12,040 | ) | $ | 5,404,204 | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended October 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,201,197 | ) | $ | (2,251,937 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock issued for services | 385,369 | 105,454 | ||||||
| Stock issued for compensation | 209,453 | 184,140 | ||||||
| Stock-based compensation – options | 224,734 | 210,189 | ||||||
| Change in assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses and other current assets | (26,128 | ) | 193,902 | |||||
| Increase (decrease) in accounts payable | 42,697 | (3,981 | ) | |||||
| Increase in accrued expenses | 18,307 | 22,183 | ||||||
| Net cash used in operating activities | (1,346,765 | ) | (1,540,050 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net cash used in investing activities | – | – | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of Series A Preferred Stock | 1 | – | ||||||
| Proceeds from sale of common stock, net of issuance costs | 883,500 | 1,395,000 | ||||||
| Net cash provided by financing activities | 883,501 | 1,395,000 | ||||||
| Effect of currency rate exchange on cash | (6,928 | ) | (7,331 | ) | ||||
| Net decrease in cash | (470,192 | ) | (152,381 | ) | ||||
| Cash at beginning of the period | 515,253 | 1,059,798 | ||||||
| Cash at end of the period | $ | 45,061 | $ | 907,417 | ||||
Supplemental disclosure of cash flows information: | ||||||||
| Cash paid during the periods for taxes | $ | 800 | $ | – | ||||
| Common stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||
| Balance, April 30, 2020 | 1,638,637,839 | $ | 163,864 | $ | 108,805,062 | $ | (103,858,259 | ) | $ | (21,709 | ) | $ | 5,088,958 | |||||||||||
| Stock issued for compensation | – | – | 67,320 | – | – | 67,320 | ||||||||||||||||||
| Stock issued for services | 2,500,000 | 250 | 40,300 | – | – | 40,550 | ||||||||||||||||||
| Stock issued for cash, net of issuance costs of $194,150 | 234,005,899 | 23,401 | 1,833,996 | – | – | 1,857,397 | ||||||||||||||||||
| Stock-based compensation options | – | – | 72,317 | – | – | 72,317 | ||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | 2,677 | 2,677 | ||||||||||||||||||
| Net loss | – | – | – | (883,944 | ) | – | (883,944 | ) | ||||||||||||||||
| Balance, July 31, 2020 | 1,875,143,738 | $ | 187,515 | $ | 110,818,995 | $ | (104,742,203 | ) | $ | (19,032 | ) | $ | 6,245,275 | |||||||||||
| Balance, April 30, 2019 | 1,186,004,505 | $ | 118,600 | $ | 104,966,158 | $ | (100,031,371 | ) | $ | (13,842 | ) | $ | 5,039,545 | |||||||||||
| Stock issued for compensation | – | – | 104,726 | – | – | 104,726 | ||||||||||||||||||
| Stock issued for services | 5,500,000 | 550 | 311,266 | – | – | 311,816 | ||||||||||||||||||
| Stock issued for cash, net of issuance costs of $42,000 | 66,666,667 | 6,667 | 551,333 | – | – | 558,000 | ||||||||||||||||||
| Stock-based compensation options | – | – | 126,325 | – | – | 126,325 | ||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | (6,862 | ) | (6,862 | ) | ||||||||||||||||
| Net loss | – | – | – | (1,134,075 | ) | – | (1,134,075 | ) | ||||||||||||||||
| Balance, July 31, 2019 | 1,258,171,172 | $ | 125,817 | $ | 106,059,808 | $ | (101,165,446 | ) | $ | (20,704 | ) | $ | 4,999,475 | |||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 6 |
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended July 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (883,944 | ) | $ | (1,134,075 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock issued for services | 40,550 | 311,816 | ||||||
| Stock issued for compensation | 67,320 | 104,726 | ||||||
| Stock-based compensation – options | 72,317 | 126,325 | ||||||
| Change in assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses and other current assets | 6,248 | (11,137 | ) | |||||
| Increase (decrease) in accounts payable | 198,990 | (54,337 | ) | |||||
| Decrease in accrued expenses | (52,483 | ) | (106,458 | ) | ||||
| Net cash used in operating activities | (551,002 | ) | (763,140 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net cash provided by (used in) investing activities | – | – | ||||||
| Cash flows from financing activities: | ||||||||
| Use of funds for payment of insurance financing loan | (37,337 | ) | – | |||||
| Proceeds from sale of common stock, net of issuance costs | 1,857,397 | 582,500 | ||||||
| Net cash provided by financing activities | 1,820,060 | 582,500 | ||||||
| Effect of currency rate exchange on cash | 2,677 | (6,862 | ) | |||||
| Net increase (decrease) in cash | 1,271,735 | (187,502 | ) | |||||
| Cash at beginning of the period | 894,861 | 515,253 | ||||||
| Cash at end of the period | $ | 2,166,596 | $ | 327,751 | ||||
Supplemental disclosure of cash flows information: | ||||||||
| Cash paid during the periods for income taxes | $ | 800 | $ | 800 | ||||
| Cash paid during the periods for interest | $ | 388 | $ | – | ||||
| Supplemental schedule of noncash investing and financing activity: | ||||||||
| Issuance costs for shares issued | $ | – | $ | 24,500 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 7 |
PHARMACYTE BIOTECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS
Overview
PharmaCyte Biotech, Inc. (“Company”) is a biotechnology company focused on developing and preparing to commercialize cellular therapies for cancer and diabetes based upon a proprietary cellulose-based live cell encapsulation technology known as “Cell-in-a-Box®.” The Cell-in-a-Box®technology is intended to be used as a platform upon which therapies for several types of cancer, including locally advanced, inoperable, non-metastatic pancreatic cancer (“LAPC”), and Type 1 and insulin dependent Type 2 diabetes will be developed.
The Company is developing therapies for pancreatic and other solid cancerous tumors by using genetically engineered live human cells that it believes are capable of converting a cancer prodrug into its cancer-killing form, encapsulating those cells using the Cell-in-a-Box®technology and placing those capsules in the blood supplybody as close as possible to the cancerous tumor. In this way, the Company believes that when the cancer prodrug is administered to a patient with a particular type of cancer that may be affected by the prodrug, the killing of the patient’s tumor may be optimized. On September 1, 2020, the Company submitted an Investigational New Drug Application (“IND”) to the U.S. Food and Drug Administration (“FDA”) for a planned Phase 2b clinical trial in LAPC. On September 4, 2020, the Company received an Information Request from the FDA. The Company responded to the FDA’s Information Request on September 11, 2020. See Note 13 “Subsequent Events”.
The Company is also examining ways to exploit the benefits of the Cell-in-a-Box® encapsulation technology to develop therapies for cancer that involve prodrugs based upon certain constituents of theCannabis plant; these constituents are of the class of compounds known as “cannabinoids.” Until the FDA allows the Company to commence the clinical trial involving LAPC described in the Company’s recently filed IND, the Company is not spending any further resources developing this program.
In addition, the Company is involved in preclinical studies to determine if its cancer therapy can slow the production and/or accumulation of malignant ascites fluid in the abdomen that often accompanies the growth of several types of abdominal cancers.
Finally, the Company is developing a therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes based upon the encapsulation of a human liver cell line genetically engineered to produce, store and secrete insulin at levels in proportion to the levels of blood sugar in the human body. The Company is also exploring the possibility of encapsulating human insulin-producing stem cells and islet cells and transplanting them into a diabetic patient. All three types of cells will be encapsulated using the Cell-in-a-Box® encapsulation technology. Each method is designed to function as a bio-artificial pancreas for purposes of insulin production.
The Cell-in-a-Box® capsules are largely composed of cellulose (cotton) and are bio-inert. The Cell-in-a-Box encapsulation technology potentially enables genetically engineered live human cells to be used as miniature factories. The technology results in the formation of pin-head sized cellulose-based porous capsules in which genetically modified live human cells can be encapsulated and maintained. They are protected from environmental challenges, such as the sheer forces associated with bioreactors, passage through catheters and needles, etc., enabling greater growth and production of the end-product.
Cancer Therapy
Targeted Chemotherapy
The Company is seeking to utilize the Cell-in-a-Box®encapsulation technology to develop a therapy for solid cancerous tumors through targeted chemotherapy. For pancreatic cancer, the Company is encapsulating genetically engineered live human cells that produce an enzyme designed to convert the prodrug ifosfamide into its cancer-killing form. The capsules containing these cells will be implanted in a patient in the blood supply to the pancreas as near as possible to the pancreas tumor. The cancer prodrug ifosfamide will then be given intravenously at one-third the normal dose. In this way, it is believed that the ifosfamide will be converted at the site of the tumor in addition to the liver where it is normally converted. The Company believes placement of the Cell-in-a-Box® capsules in close proximity to the tumor enables the production of optimal concentrations of the “cancer-killing” form of ifosfamide at the site of the tumor. The cancer-killing metabolite of ifosfamide has a short half-life, which the Company believes will result in little to no side effects from the chemotherapy.
Pancreatic Cancer Therapy
A critical unmet medical need exists for patients with LAPC whose tumor in the pancreas no longer responds after 4-6 months of treatment with either Abraxane® plus gemcitabine or the 4-drug combination known as FOLFIRINOX (both combinations are the current standards of care for pancreatic cancer). We believe these patients have no effective treatment alternative once their tumors no longer respond to these therapies. Two of the most commonly used treatments for such patients are 5-fluorouiracil (“5-FU”) or capecitabine (a prodrug of 5-FU) plus radiation (chemoradiation therapy). Both treatments are only marginally effective in treating the tumor and result in serious side effects. More recently, radiation treatment alone is being used at some cancer centers in the United States (“U.S.”). The Company is developing a therapy comprised of Cell-in-a-Box® encapsulated live cells implanted as close as possible to the cancerous tumor in a patient’s pancreas followed by low doses of the cancer prodrug ifosfamide being administered intravenously. The Company believes that its treatment can serve as a “consolidation therapy” with the current standards of care for patients with LAPC and thus address this critical unmet medical need.
Subject to approval by the U.S. Food and Drug Administration (“FDA”), the Company plans to commence a clinical trial involving patients with LAPC whose tumors have ceased to respond to either Abraxane® plus gemcitabine or FOLFIRINOX after 4-6 months of treatment. The Company had a Pre-Investigational New Drug Application meeting (“Pre-IND meeting”) with the Center for Biologics Evaluation and Research of the FDA (“CBER”) in January 2017. At that Pre-IND meeting, the FDA communicated its agreement with certain aspects of the Company’s clinical development plan, charged the Company with completing numerous tasks and provided the Company with the guidance on the tasks the Company believes is needed to complete a successful IND, although no assurance can be given whether the FDA will approve the Company’s IND once it is submitted to the FDA. Since the pre-IND meeting, the Company has focused its efforts on completing Cell-in-a-Box®engineering runs and production runs along with studies intended to provide data necessary for the Company’s IND. The trial would initially take place in the U.S. with possible study sites in Europe at a later date.
Cannabinoid Therapy to Treat Cancer
The Company plans to use cannabinoids, constituents of theCannabis plant, to develop therapies for cancer, with the initial target of brain cancer. The Company is focusing on developing specific therapies based on carefully chosen molecules rather than using complexCannabis extracts.
To further itsCannabis therapy development plans, the Company entered a Research Agreement with the University of Northern Colorado. The initial goal of the research was to develop methods for the identification, separation and quantification of constituents ofCannabis (some of which are prodrugs) that may be used in combination with the Cell-in-a-Box®technology to treat cancer. This has been accomplished.
Further research has been conducted to identify the appropriate cell type that can convert the selected cannabinoid prodrugs into metabolites with anticancer activity. Once identified, the genetically modified cells that will produce the appropriate enzyme to convert the selected prodrugs will be encapsulated using the Company’s Cell-in-a-Box® technology. The encapsulated cells and cannabinoid prodrugs identified by these studies will then be combined and used for future studies to evaluate their anticancer effectiveness.
Malignant Ascites Fluid Therapy
The Company is also developing a therapy to delay the production and accumulation of malignant ascites fluid that results from many types of abdominal cancerous tumors. Malignant ascites fluid is secreted by abdominal cancerous tumors into the abdomen after the tumors have reached a certain stage of growth. This fluid contains cancer cells that can seed and form new tumors throughout the abdomen. This fluid accumulates in the abdominal cavity, causing swelling of the abdomen, severe breathing difficulties and extreme pain.
Once an abdominal tumor reaches a certain stage of development, it produces malignant ascites in the abdominal cavity. Malignant ascites fluid must be removed by paracentesis on a periodic basis. This procedure is painful and costly. There is no therapy that theThe Company is aware of that prevents or delays the production and accumulation of malignant ascites fluid.
The Company has been involved in a series of preclinical studies conducted by Translational Drug Development (“TD2”), an early stage CRO specializing in oncology,using its therapy for pancreatic cancer to determine if the combination of Cell-in-a-Box® encapsulated cells plus ifosfamide therapyit can prevent or delay the production and accumulation of malignant ascites fluid. The data fromAs with the TD2 studies indicated thatCompany’s Cannabis program, until the treatment might play a roleFDA allows it to commence the clinical trial involving LAPC described in the rate of malignant ascites fluid production and accumulation, but the conclusions were difficult to interpret with certainty. As a result,its recently filed IND, the Company plans to conduct another preclinical study in Germany to determine if its conclusions from the TD2 studies are valid. Ifis not spending any further resources developing this study shows positive results, the Company plans to seek approval from the FDA to conduct a Phase 1 clinical trial in the U.S.
Diabetes Therapy
Bio-Artificial Pancreas for Diabetesprogram.
The Company plans to developis also developing a therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes. ItThe Company’s diabetes therapy consists of encapsulated genetically modified human liver cells and insulin-producing stem cells. The encapsulation for each type of cell will be done using the Cell-in-a-Box® technology. Implanting these cells in the body is designed to function as a bio-artificial pancreas for purposes of insulin production. As with the two previous programs, the Company is not spending any further resources developing a therapy that involves encapsulationthis program until the FDA allows it to commence the clinical trial involving LAPC described in its recently filed IND. Additionally, work at the University of Technology, Sydney (“UTS”) on the Melligen cells continues. Melligen cells are human liver cells that have been genetically engineered to produce, store and release insulin on demand at levels in proportionresponse to the levels of blood sugar (glucose) in the body.
Finally, the Company has licensed (“Hai Kang License Agreement”) from Hai Kang Life Corporation (“Hai Kang”) the right to certain technology owned or controlled by Hai Kang related to SARS-Cov2 COVID-19 diagnostic kits (“Kits”).
| 8 |
The Company’s license is both for the sale of Kits as well as for the use of the technology underlying the Kits. Pursuant to the Hai Kang License Agreement, the Company may directly (or through a third party) conduct research, use, develop, market, sell, distribute, import and export Kits and utilize their underlying technology for human body.and veterinary uses in North America, the United Kingdom and certain other European sites. A Kit is defined as any existing Kit of Hai Kang or any future Kit derived from Hai Kang’s Kits. The Kits will be manufactured and supplied to the Company by Hai Kang. With respect to the Hai Kang License Agreement and related products, including the Kits, we may not be able to (i) develop a related product candidate with our current resources, on a timely basis, or at all; (ii) obtain the necessary regulatory authorizations or approvals for such a product candidate or for a Kit; (iii) commercialize any such product candidate or Kit; or (iv) obtain reimbursement for such a product candidate or Kit in the U.S. and elsewhere. It is uncertain that any such product candidates or Kit will comply with U.S. regulatory requirements or that any health care facility or provider will be willing or able to use such product candidates or Kits.
Impact of the COVID-19 Pandemic on the Company’s Operations
The coronavirus SARS-Cov2 (“COVID-19”) pandemic is causing significant, industry-wide delays in clinical trials. Although the Company is also exploringnot yet in a clinical trial, the possibilityCompany has filed an IND with the FDA to commence a clinical trial in LAPC and is awaiting a response from the FDA. Currently, many clinical trials are being delayed due to COVID-19. There are numerous reasons for these delays. For example, patients have shown a reluctance to enroll or continue in a clinical trial due to fear of using genetically modified stem cellsexposure to COVID-19 when they are in a hospital or doctor’s office. There are local, regional and natural, human insulin producing cells (beta islet cells)state-wide orders and regulations restricting usual normal activity by people. These discourage and interfere with patient visits to a doctor’s office if the visit is not COVID-19 related. Healthcare providers and health systems are shifting their resources away from clinical trials toward the care of COVID-19 patients. The FDA and other healthcare providers are making product candidates for the treatment of COVID-19 a priority over product candidates unrelated to COVID-19. As of the date of this Report on Form 10-Q (“Report”), the COVID-19 pandemic has had an impact upon the Company’s operations, although the Company believes that impact is not material. The impact primarily relates to delays in tasks associated with the preparation of the Company’s recently submitted IND to treat Type 1 diabetes and insulin dependent Type 2 diabetes. All three typesLAPC. There may be further delays in generating responses required by the Company to comments by or requests from the FDA related to the IND.
As a result of cells willthe COVID-19 pandemic, commencement of the Company’s planned clinical trial to treat LAPC may be encapsulated using the Cell-in-a-Box® encapsulation technology. The goaldelayed. Also, enrollment may be difficult for the three approachesreasons discussed above. In addition, after enrollment in the trial, if patients contract COVID-19 during their participation in the trial or are subject to isolation or shelter in place restrictions, this may cause them to drop out of our trial, miss scheduled therapy appointments or follow-up visits or otherwise fail to follow the trial protocol. If patients are unable to follow the trial protocol or if the trial results are otherwise affected by the consequences of the COVID-19 pandemic on patient participation or actions taken to mitigate COVID-19 spread, the integrity of data from the trial may be compromised or not be accepted by the FDA. This could impact or delay the Company’s clinical development program.
It is to develop a bio-artificial pancreas for purposeshighly speculative in projecting the effects of insulin production for diabetics who are insulin dependent. After appropriate animal testing has been completed successfully,COVID-19 on the Company’s clinical development program and the Company plansgenerally. The effects of COVID-19 quickly and dramatically change over time. Its evolution is difficult to seekpredict, and no one is able to say with certainty when the FDA’s approvalpandemic will subside and life as we knew it before the pandemic will return to transplant encapsulated insulin-producing cells into diabetic patients. The goal for these approaches is to develop a bio-artificial pancreas for purposes of insulin production for diabetics who are insulin-dependent.normal.
Company Background and Material Agreements
The Company is a Nevada corporation incorporated in 1996. In 2013, the Company restructured its operations to focus on biotechnology. The restructuring resulted in the Company focusing all its efforts upon the development of a novel, effective and safe way to treat cancer and diabetes. OnIn January 6, 2015, the Company changed its name from Nuvilex, Inc. to PharmaCyte Biotech, Inc. to reflect the nature of its business in the biotechnology sector.current business.
In
| 9 |
Commencing in May 2011, the Company entered into a series of agreements and amendments with SG Austria to acquire certain assets from SG Austria as well as an Asset Purchase Agreementexclusive, worldwide license to use, with a right to sublicense, the Cell-in-a-Box® technology and trademark for the development of therapies for cancer. (“SG Austria APA”) with SG Austria Private Limited (“SG Austria”) to purchase 100% of the assets and liabilities of SG Austria. Austrianova Singapore Pte. Ltd. (“Austrianova”) and Bio Blue Bird AG (“Bio Blue Bird”), then wholly-owned subsidiaries of SG Austria, were to become wholly-owned subsidiaries of the Company on the condition that the Company pay SG Austria $2.5 million and 100,000,000 shares of the common stock of the Company’s common stock. The Company was to receive 100,000 shares of common stock of Austrianova and nine bearer shares of Bio Blue Bird representing 100% of the ownership of Bio Blue Bird.
Through two addenda to the SG Austria APA, the closing date of the SG Austria APA was extended twice by agreement between the parties.
In June 2013, the Company and SG Austria entered a Third Addendum to the SG Austria APA (“Third Addendum”). The Third Addendum materially changed materially the transaction contemplated by the SG Austria APA. Under the Third Addendum, the Company acquired 100% of the equity interests in Bio Blue Bird and received a 14.5% equity interest in SG Austria. In addition, the Company received nine bearer shares of Bio Blue Bird to reflect its 100% ownership of Bio Blue Bird. The Company paid: (i) $500,000 to retire all outstanding debt of Bio Blue Bird; and (ii) $1.0 million to SG Austria. The Company also paid SG Austria $1,572,193 in exchange for thea 14.5% equity interest of SG Austria. The Third Addendumtransaction required SG Austria to return to the Company the 100,000,000 shares of our common stock held by SG Austria and for the Company to return to SG Austria the 100,000 shares of common stock of Austrianova which the Company held.
Effective as of the same date ofthe Company entered into the Third Addendum, the partiesCompany and SG Austria also entered into a Clarification Agreement to the Third Addendum (“Clarification Agreement”) to clarify and include certain language that was inadvertently left out of the Third Addendum. Among other things, the Clarification Agreement confirmed that the Third Addendum granted the Company an exclusive, worldwide license to use, with a right to sublicense, the Cell-in-a-Box® encapsulation technologyTrademark and its Associated Technology for the development of treatmentstherapies for cancer and use of Austrianova’s Cell-in-a-Box®trademark and its associated technology.cancer.
With respect to Bio Blue Bird, Bavarian Nordic A/S (“Bavarian Nordic”) and GSF-Forschungszentrum für Umwelt u. Gesundheit GmbH (collectively, “Bavarian Nordic/GSF”) and Bio Blue Bird entered into the a non-exclusive License Agreement (“Bavarian Nordic/GSF License AgreementAgreement”) in July 2005, whereby Bio Blue Bird was granted a non-exclusive license to further develop, make, or have made products to treat cancer,(including services under contract for Bio Blue Bird or a sub-licensee, by Contract Manufacturing Organizations, Contract Research Organizations, Consultants, Logistics Companies or others), obtain marketing approval, sell and offer for sale those products using the clinical data generated from the second pancreatic cancer clinical trial which contained proprietary information from the 1st Interim Analysis of the trialtrials that used the cells and capsules developed by Bavarian Nordic/GSF (then known as “CapCells”). The or otherwise use the licensed patent rights related to this information and technology pertained tothereto in the countries in which patents had been grantedgranted. Bio Blue Bird was required to pay Bavarian Nordic a royalty of 3% of the net sales value of each licensed product sold by Bio Blue Bird and/or its Affiliates and/or its sub-licensees to a buyer. The term of the Bavarian Nordic/GSF.GSF License Agreement continued on a country by country basis until the expiration of the last valid claim of the licensed patent rights.
Bavarian Nordic/GSF and Bio Blue Bird amended the Bavarian Nordic License Agreement in December 2006 (“First Amendment to reflect:Bavarian Nordic/GSF License Agreement”) to reflect that: (i) the license granted was exclusive; (ii) thea royalty rate increased from 3% to 4.5%; (iii) Bio Blue Bird assumed the patent prosecution expenses for the existing patents; and (iv) it was madeto make clear that the license will survive as a license granted by one of the licensors if the other licensor rejects performance under the Bavarian Nordic License Agreement due to any actions or declarations of insolvency.
In June 2013, the Company acquired from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® technologyTrademark and trademarkits Associated Technology for the development of a therapy for Type 1 and insulin-dependent Type 2 diabetes (“Diabetes Licensing Agreement”). This allows the Company to develop a therapy to treat diabetes through encapsulation of a human cell line that has been genetically modified to produce, store and release insulin in response to the levels of blood sugar in the human body.
In October 2014, the Company entered into an exclusive, worldwide license agreement with the UTS (“Melligen Cell License Agreement”) with the University of Technology Sydney (“UTS”) in Australia to use insulin-producing genetically engineered human liver cells developed by UTS to treat Type 1 diabetes and insulin-dependent Type 2 diabetes. The Company plansThese cells, named “Melligen”, were tested by UTS in mice and shown to develop a therapy for diabetes by encapsulatingproduce insulin in direct proportion to the amount of glucose in their surroundings. In those studies, when Melligen cells were transplanted into immunosuppressed diabetic mice, the blood glucose levels of the mice became normal. In other words, the Melligen cells usingreportedly reversed the Cell-in-a-Box® encapsulation technology.diabetic condition.
| 10 |
In December 2014, the Company acquired from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® technologyTrademark and its Associated Technology in combination with genetically modified non-stem cell lines which are designed to activate cannabinoid prodrug molecules for development of therapies for diseases and their related symptoms using of the Cell-in-a-Box® technology and trademark (“Cannabis Licensing Agreement”). TheThis allows the Company paid Austrianova $2.0 million to secure this license.develop a therapy to treat cancer and other diseases and symptoms through encapsulation of genetically modified cells designed to convert cannabinoids to their active form using the Cell-in-a-Box® trademark and its associated technologies.
In July 2016, the Company entered into a Binding Memorandum of Understanding with Austrianova pursuant(“Austrianova MOU”). Pursuant to whichthe Austrianova MOU, Austrianova will actively work with the Company to seek an investment partner or partners who will finance clinical trials and further develop products for the therapiesCompany’s therapy for cancer, in exchange for which the Company, Austrianova and any future investment partner or partners will each receive a shareportion of the net revenue from the sale of products in designated territories.cancer products.
EffectiveIn October 1, 2016, the Company and Bavarian Nordic/GSF and Bio Blue Bird further amended the Bavarian Nordic License Agreement (“Second Amendment to Bavarian Nordic/GSF License Agreement toAgreement”) in order to: (i) include the right to import in the scope of the license; (ii) reflect ownership and notification of improvements,improvements; (iii) clarify which provisions survive expiration or termination of the Bavarian Nordic/GSFNordic License Agreement; (ii)(iv) provide rights to Bio Blue Bird to the clinical data after the expiration of the licensed patent rights; and (iii)(v) change the notice address and recipients of Bio Blue Bird.
In August 2017, the Company entered into the Binding Term Sheet with SG Austria and Austrianova pursuant to which the parties reached an agreement to amend certain provisions in the SG Austria APA, the Diabetes Licensing Agreement the Cannabis Licensing Agreement and the Vin-de-Bona Consulting Agreement (defined below).
In May 2018, the Company entered into agreements with SG Austria and Austrianova to amend certain provisionsa series of the SG Austria APA, the Diabetes Licensing Agreement, the Cannabis Licensing Agreement and the Vin-de-Bona Consulting Agreement required by the Binding Term Sheetbinding term sheet amendments (“Binding Term Sheet Amendments”). The Binding Term Sheet Amendments provide that the Company’s obligation to make milestone payments to Austrianova areis eliminated in their entirety under thethe: (i) Cannabis License AgreementAgreement; and (ii) the Diabetes License Agreement, as amended. The Binding Term Sheet Amendments also provide that the Company’s obligation to make milestone payments to SG Austria pursuantfor therapies for cancer to the SG Austria APA, as amended and clarified, isbe eliminated in itstheir entirety. One ofIn addition, the Binding Term Sheet Amendments also provides that the scope of the Diabetes License Agreement is expanded to include all cell types and cell lines of any kind or description now or later identified, including, but not limited to, primary cells, mortal cells, immortal cells and stem cells at all stages of differentiation and from any source specifically designed to produce insulin for the treatment of diabetes.
In addition, one of the Binding Term Sheet Amendments provides that the Company haswill have a 5-year right of first refusal from August 30, 2017 in the event that Austrianova chooses to sell, transfer or assign at any time during this period the Cell-in-a-Box®Trademark and Associated Technologies , intellectual property, trade secrets and know-how, which includes the right to purchase any manufacturing facility used for the Cell-in-a-Box® tradenameencapsulation process and its Associated Technologies;a non-exclusive license to use the special cellulose sulfate utilized with the Cell-in-a-Box® encapsulation process (collectively, “Associated Technologies”); provided, however, that the Associated Technologies subject to the right of first refusal do not include Bac-in-a-Box®. Also,Additionally, for a period of one year from August 30, 2017 one of the Binding Term Sheet Amendments provides that Austrianova will not solicit, negotiate or entertain any inquiry regarding the potential acquisition of the Cell-in-a-Box®encapsulation technology and its Associated Technologies.
The Binding Term Sheet Amendments further provide thatthat: (i) the royalty payments on gross sales as specified in the SG Austria APA, the Cannabis License Agreement and the Diabetes License Agreement will beare changed to 4%. They also provide that; and (ii) the royalty payments on amounts received by the Company from sublicensees on sublicensees’ gross sales under the same agreements will beare changed to 20% of the amount received byfrom the Company’s sublicensees, provided, however,that in the event the amounts received by the Company from sublicensees is 4% or less of sublicensees’ gross sales, Austrianova or SG Austria (as the case may be) will receive 50% of what the Company receives up(up to 2%. In addition, Austrianova or SG Austria (as the case may be) will receive) and then additionally 20% of any amount the Company receives over athat 4% royalty payment from sublicensees..
One of the Binding Term Sheet Amendments requires that the Company pay $900,000 to Austrianova ratably over a nine-month period in the amount of two $50,000 payments each month during the nine-month period on the days of the month to be agreed upon between the parties, with a cure period of 20 calendar days after receipt by the Company of written notice from Austrianova that the Company has failed to pay timely a monthly payment. As of April 30, 2020, the $900,000 amount has been paid in full. The Binding Term Sheet Amendments also provide that Austrianova will receivereceives 50% of any other financial and non-financial consideration received from the Company’s sublicensees of the Cell-in-a-Box® technology.
| 11 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying Condensed Consolidated Financial Statements as of October 31, 2019 and for the three and six months ended October 31, 2019 and 2018 are unaudited. These unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the U.S. Securities and Exchange Commission (“Commission”) and with the instructions to Form 10-Q (“Report”). Accordingly, they do not include all the information and Notes required by U.S. GAAP for complete Condensed Consolidated Financial Statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended October 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2020. The Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended April 30, 2019 and the Notes thereto included in the Company’s Annual Report on Form 10-K for the period ended April 30, 2019 (“Form 10-K”) the Company filed with the Commission.
The Condensed Consolidated Balance Sheet as of October 31, 2019 contained in this Report has been derived from the audited Consolidated Financial Statements as of April 30, 2019, but does not include all disclosures required by U.S. GAAP.
Principles of Consolidation and Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries. The Company operates independently and through four wholly-ownedwholly owned subsidiaries: (i) Bio Blue Bird; (ii) PharmaCyte Biotech Europe Limited; (iii) PharmaCyte Biotech Australia Pty. Ltd.; and (iv) Viridis Biotech, Inc. and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAPGAAP”) and the rules and regulations of the Commission.United States Securities and Exchange Commission (“Commission”). Intercompany balances and transactions are eliminated. The Company’s 14.5% investment in SG Austria is presented on the cost method of accounting.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates these estimates including those related to fair values of financial instruments, intangible assets, fair value of stock-based awards, income taxes and contingent liabilities, among others. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s condensed consolidated financial statements. Therefore,Condensed Consolidated Financial Statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s condensed consolidated financial position and results of operations.
Intangible Assets
The Financial Accounting Standards Board ("FASB") standard on goodwill and other intangible assets prescribes a two-step process for impairment testing of goodwill and indefinite-lived intangibles, which is performed annually, as well as when an event triggering impairment may have occurred. The first step tests for impairment, while the second step, if necessary, measures the impairment. The Company has elected to perform its annual analysis at the end of its reporting year.
The Company’s intangible assets are licensing agreements related to the Cell-in-a-Box®technology for $1,549,427 and the diabetes license for $2,000,000 for an aggregate total of $3,549,427.
These intangible assets have an indefinite life; therefore, they are not amortizable.
The Company concluded that there was no impairment of the carrying value of the intangibles for the sixthree months ended OctoberJuly 31, 20192020 and 2018.2019.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. No impairment was identified or recorded during the sixthree months ended OctoberJuly 31, 20192020 and 2018.2019.
| 12 |
Fair Value of Financial Instruments
For certain of the Company’s non-derivative financial instruments, including cash, accounts payable and accrued expenses, the carrying amount approximates fair value due to the short-term maturities of these instruments.
Accounting Standards Codification ("ASC") Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed consolidated balance sheets for current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
Level 1. Observable inputs such as quoted prices in active markets; | ||
The Company follows ASC subtopic 820-10, Fair Value Measurements and Disclosures and ASC subtopic 825-10, Financial Instruments,
Income Taxes
Deferred taxes are calculated using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A valuation allowance is provided for deferred income tax assets when, in management’s judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. The Company believes the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is based on, among other things, an estimate of future taxable income in the U.S. and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material. In determining when to release the valuation allowance established against the Company’s net deferred income tax assets, the Company considers all available evidence, both positive and negative. Consistent with the Company’s policy, and because of the Company’s history of operating losses, the Company does not currently recognize the benefit of all its deferred tax assets, including tax loss carry forwards, which may be used to offset future taxable income. The Company continually assesses its ability to generate sufficient taxable income during future periods in which deferred tax assets may be realized. When the Company believes it is more likely than not that it will recover its deferred tax assets, the Company will reverse the valuation allowance as an income tax benefit in the statements of operations.
| 13 |
The U.S. GAAP method of accounting for uncertain tax positions utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority or the statute of limitations expires. Positions previously recognized are derecognized when the Company subsequently determines the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits and measurements using cumulative probability are highly subjective management estimates. Actual results could differ materially from these estimates.
On March 27, 2020, Congress enacted the “Coronavirus Aid, Relief and Economic Security ("CARES") Act” to provide certain relief as a result of the 2019 Coronavirus pandemic. The Company maintains a full valuation allowance on its U.S. net deferred tax assets. Deferred tax asset remeasurement (tax expense) was offset by a net decrease in valuation allowance, that resulted in no impact on the Company's income tax expense. Therefore, the Company does not expect the provisions in the CARES Act will impact the Company’s Condensed Consolidated Financial Statements.
Research and Development
Research and development (“R&D”) expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in R&Dresearch and development and that have no alternative future use are expensed when incurred. Technology developed for use in the Company’s product candidates is expensed as incurred until technological feasibility has been established.
R&D expenses for the three and six months ended OctoberJuly 31, 2020 and 2019 were $17,940$270,574 and $90,270, respectively, and for the three and six months ended October 31, 2019 were $115,101 and $382,895,$72,330, respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation expense for only those awards ultimately expected to vest on a straight-line basis over the requisite service period of the award. The Company estimates the fair value of stock options using a Black-Scholes-Merton valuation model. This model requires the input of highly subjective assumptions, including the option's expected term and stock price volatility. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management's judgment. Thus, if factors change and the Company uses different assumptions, the stock-based compensation expense could be materially different in the future.
| 14 |
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains most of its cash balance at a financial institution located in California. Accounts at this institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances aggregated approximately $0$1,887,000 and $127,000$618,000 at OctoberJuly 31, 20192020 and April 30, 2019,2020, respectively. The Company has not experienced any losses in such accounts. Management believes it is not exposed to any significant credit risk on cash.
Foreign Currency Translation
The Company translates the financial statements of its foreign subsidiaries from the local (functional) currencies to U.S. dollars in accordance with FASB ASC 830,Foreign Currency Matters. All assets and liabilities of the Company’s foreign subsidiaries are translated at quarter-endperiod-end exchange rates, while revenue and expenses are translated at average exchange rates prevailing during the period. Adjustments for foreign currency translation fluctuations are excluded from net loss and are included in other comprehensive income. Gains and losses on short-term intercompany foreign currency transactions are recognized as incurred.
Going Concern
The accompanying condensed consolidated financial statementsCondensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern; however, the following conditions raise substantial doubt about the Company's ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classificationAs of assets or the amounts and classifications of liabilities that may result shouldJuly 31, 2020, the Company be unable to continue as a going concern. As of October 31, 2019, the Company hadhas an accumulated deficit of $102,232,568$104,742,203 and incurred a net loss for sixthree months ended OctoberJuly 31, 20192020 of $2,201,197.$883,944. The Company requires substantial additional capital to finance its planned business operations and expects to incur operating losses in future periods due to the expenses related to the Company’s core businesses. The Company has not realized any revenue since it commenced doing business in the biotechnology sector, and there can be no assurance that it will be successful in generating revenues in the future in this sector. The Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
For the sixthree months ended OctoberJuly 31, 2019,2020, funding was provided by investors to maintain and expand the Company.Company’s operations. Sales of the Company’s common stock were made under the Registration Statement onan operative Form S-3 filed on September 13, 2017 (“S-3”) allowing for offerings of up to $50 million dollars in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (“Securities Act”) or transactions structured as a public offering of a distinct block or blocks of the shares (“Block Trades”) of the Company’s common stock. During the six-month periodthree months ended OctoberJuly 31, 2019,2020, the Company continued to acquire funds through the Company’s S-3 pursuant to which the placement agent sells shares of common stock from Block Trades“at-the-market” in a program which is structured to provide up to $25 million to the Company less certain commissions pursuant to the S-3. From May 1, 2020 through July 31, 2020 the Company raised capital of approximately $1.9 million in Block Trade transactions and “at-the-market” transactions.
From August 1, 2020 through August 12, 2020, the Company raised capital of approximately $2.8 million in Block Trades net of commissions.
As of
On August 13, 2019,2020, the Company does not meetno longer met the eligibility requirements to use the S-3 to raise capital, and the Company ceased to use the S-3 to raise capital after that date.
From May 1, 2019 through August 12, 2019 the Company raised capital of approximately $950,000 in Block Trade transactions. SubsequentManagement determined that its plans to October 31, 2019, the Company raisedraise additional capital inalleviate substantial doubt about the amount of $300,000 throughCompany’s ability to continue as a going concern. The Company believes the salecash on hand, the potential sales of unregistered shares of its common stock and any public offerings of common stock in private placement transactions.which the Company may engage in will provide sufficient capital to meet the Company’s capital requirements and to fund the Company’s operations through September 30, 2021.
The Company plans to continue to sell unregistered securities in private placements to raise capital to fund operations and R&D. The Company also has the ability to reduce consulting expenses and R&D expenses should funding be delayed.
| 15 |
Recent Accounting Pronouncements
On May 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company elected the available practical expedients on adoption. Adoption of the new standard resulted in an immaterial amount of total lease liabilities and ROU assets of as of May 1, 2019.
The Company does not anticipate any material impact on its condensed consolidated financial statements upon the adoption of the following accounting pronouncements issued during 2018 and 2019: (i) ASU 2018-19,ASC Topic 326: Codification Improvements to Financial Instruments, and(ii) ASU No. 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.("ASU 2016-13"), was issued in June 2016. Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale debt securities will be replaced with a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowances for losses. The Company’s adoption of ASU 2016-13 during the quarter ended July 31, 2020 did not result in an impact on the Company’s Condensed Consolidated Financial Statements.
ASU No. 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), was issued in December 2019. Under ASU 2019-12, the accounting for income taxes is simplified by eliminating certain exceptions and implementing additional requirements which result in a more consistent application of ASC 740. The Company is currently in the process of evaluating the impact of adopting ASU 2019-12 in 2021, but it does not expect it to have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 3 – ACCRUED EXPENSES
Accrued expenses at OctoberJuly 31, 20192020 and April 30, 20192020 are summarized below:
| October 31, 2019 | April 30, 2019 | July 31, 2020 | April 30, 2020 | |||||||||||||
| Payroll related costs | $ | 402,383 | $ | 358,616 | $ | 443,906 | $ | 435,577 | ||||||||
| Share issuance compensation | – | 240,015 | ||||||||||||||
| Related party payable(1) | 70,000 | – | ||||||||||||||
| Director and Officer insurance financing | 75,908 | 113,245 | ||||||||||||||
| Other | 166,890 | 22,335 | 207,004 | 267,816 | ||||||||||||
| Total | $ | 639,273 | $ | 620,966 | $ | 726,818 | $ | 816,638 | ||||||||
______________
1The related partyCompany financed the Director and Officer insurance policy. The term of the policy is from March 8, 2020 through March 8, 2021. The financing agreement has an interest rate of 4.25% per annum and requires eight monthly payments of $12,806. The unpaid balances as of July 31, 2020 and April 30, 2020 are $75,908 and $113,245, respectively, are included in accrued expenses.
NOTE 4 – SMALL BUSINESS ADMINISTRATION – PAYCHECK PROTECTION PROGRAM
On March 27, 2020, the CARES Act was enacted to provide financial aid to family and businesses impacted by the COVID-19 pandemic. The Company participated in the CARES Act, and on April 15, 2020, the Company entered into a note payable was non-interest bearingwith a bank under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP loan”) in the amount of $75,200. This loan payable matures on April 15, 2022 with a fixed interest rate of 1% per annum with interest deferred for six months. The PPP loan has an initial term of two years, is unsecured and guaranteed by the SBA. Under the terms of the PPP loan, the Company may apply for forgiveness of the amount due on demand. Subsequentthe PPP loan. The Company used the proceeds from the PPP loan for qualifying expenses as defined in the PPP. The Company intends to October 31, 2019,apply for forgiveness of the related party payable was repaidPPP loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this time that the PPP loan will be forgiven partially or in full. If the loan is not forgiven based on the PPP guidelines to be issued by the SBA, as defined, then, the monthly payment amount will be $4,229 beginning on October 15, 2020 through April 15, 2022. The PPP loan balance as of July 31, 2020 and April 30, 2020 was $75,200.
| 16 |
NOTE 45 – COMMON STOCK TRANSACTIONS
A summary of the Company’s restrictedcompensatory stock activity and related weighted average grant date fair value information for the sixthree months ended OctoberJuly 31, 20192020 and 20182019 is as follows:
During the sixthree months ended OctoberJuly 31, 2017,2019, the Company issued 4,200,0002,000,000 shares of common stock to three consultantsfour non-employee members of the Company’s Board of Directors (“Board”) pursuant to consulting agreements. The terms of two ofDirector Letter Agreements (“DLAs”) with the agreements areCompany for twelve months and one agreement is for eighteen months.services relating to the prior year. The shares vest monthly over a twelve-month to eighteen-month periodvested upon issuance and are subject to the consultants providing services under their respective agreements with the Company. The Company recorded a non-cash consulting expense in the amount of $0 and $0$13,804 for the three and six months ended OctoberJuly 31, 2019, respectively,2020 and $16,800 and $62,600 for the three and six months ended October 31, 2018, respectively. There were zero and 200,000 unvested shares as of October 31, 2019, and 2018, respectively.
During the month of JanuaryEffective July 1, 2018, the Company awarded 6,600,000issued 1,200,000 shares of common stock to officers as parta consultant. The term of their compensation agreements for 2018. These shares vest monthly over a twelve-month period and are subject to them continuing service under the agreements. During the three and six months ended October 31, 2019, the Company recorded a non-cash compensation expense in the amount of $0 and $0, respectively, and $92,070 and $184,140 for the three and six months ended October 31, 2018, respectively. There were zero and 1,100,000 unvested shares as of October 31, 2019 and 2018, respectively.
During the six months ended October 31, 2018, the Company issued 1,950,000 shares of common stock to two consultants pursuant to consulting agreements. The terms of these two consulting agreements areagreement is for twelve months. The shares vest monthly over a twelve-month period and are subject to the consultantsconsultant providing services under the agreements. An additional agreement with one of the consultants required 500,000 shares vested upon issuance.agreement. The Company recorded a non-cash consulting expense in the amount of $0 and $12,816 for the three and six months ended OctoberJuly 31, 2019, respectively2020 and $42,854 and $42,854 for the three and six months ended October 31, 2018,2019, respectively. There were zero and 925,000 unvested shares as of OctoberJuly 31, 20192020 and 2018,2019, respectively.
During the month of April 2019, two consultants were issued 2,500,000 shares of common stock pursuant to their consulting agreements. The term of the agreements is for twelve months which covered prior and current periods. The shares vest monthly over a twelve-month period and are subject to the consultant providing services under their respective consulting agreements. The Company recorded a non-cash consulting expense in the amount of $4,701$0 and $11,910$7,209 for the three and six months ended OctoberJuly 31, 2019.2020 and 2019, respectively. There were zero and 83,333 unvested shares as of OctoberJuly 31, 2019.
During the six months ended October 31, 2019, the four independent directors of the Company’s Board pursuant to Board compensation agreements were issued 2,000,000 shares of common stock relating to their services for the prior year. The terms of the agreements are for twelve months. The shares vest on the directors’ anniversary date of their agreements. The Company recorded a non-cash expense of $5,4082020 and $19,212 for the three and six months ended October 31, 2019, respectively.
During the sixthree months ended OctoberJuly 31, 2019, a consultant was issuedowed 500,000 shares of common stock pursuant to his consulting agreement with the Company. The term of the consulting agreement is for twelve months which covered prior and current periods. The shares vest monthly over a twelve-month period and are subject to the consultant providing services under his consulting agreement. The Company recorded a non-cash consulting expense in the amount of $14,044$0 and $17,350$3,306 for the three and six months ended OctoberJuly 31, 2020 and 2019, respectively. As of July 31, 2020 and 2019, zero and 500,000 shares remained unissued, respectively.
During the month of April 2019, theThe Company awarded 6,600,000 shares of common stock to officers as part of their executive compensation agreements for 2019. These shares vest monthly over a twelve-month period and are subject to them continuing service under their respective executive compensationthe agreements. During the three and six months ended OctoberJuly 31, 2020 and 2019, the Company recorded a non-cash compensation expense in the amount of $104,727$0 and $209,453,$104,726, respectively. There were 1,100,000zero and 2,750,000 unvested shares as of OctoberJuly 31, 2019.2020 and 2019, respectively.
During the sixthree months ended OctoberJuly 31, 2019, four independent directorsthree non-employee members of the Company’s Board of Directors (“Board”) were issued 2,000,0001,500,000 shares of common stock pursuant to their respective Director Letter Agreement (“DLA”)DLAs with the Company. Each share issuance under a DLA covers a twelve-month period. The shares vestwere fully vested upon the appointment of a director pursuant to a DLA and upon on the anniversary date of the DLA.issuance. The Company recorded a non-cash expense of $15,793$7,356 and $27,435$11,642 for the three and six months ended OctoberJuly 31, 2020 and 2019, respectively. There were zero unvested shares of Common Stock remaining related to these DLAs as of July 31, 2020 and 2019.
During the sixthree months ended OctoberJuly 31, 2019, a consultant was issued 2,000,000 shares of common stock pursuant toin respect of his services onas the Chairman of the Company’s Medical and Scientific Advisory Board over a four-year period. This share issuance covered prior and current periods. The shares vest monthly over the four-year period and arewith their vesting subject to the consultant providing services to the Company. The Company recorded a non-cash consulting expense in the amount of $4,701$0 and $11,851$7,150 for the three and six months ended OctoberJuly 31, 2020 and 2019, respectively. There were zero unvested shares remaining related to these compensation agreements as of July 31, 2020 and 2019.
During the three months ended July 31, 2020, three non-employee members of the Board were issued 1,500,000 shares of Common Stock pursuant to their DLAs in respect of their service during that year. The shares were fully vested upon issuance. The Company recorded a non-cash expense of $7,029 and $0 for the three months ended July 31, 2020 and 2019, respectively. There were zero unvested shares remaining related to a DLA as of July 31, 2020.
| 17 |
During the sixthree months ended OctoberJuly 31, 2019, five2020, four consultants were issued 2,200,0001,000,000 shares of common stockrestricted Common Stock pursuant to their respective consulting agreements.agreement with the Company. The terms of the agreements are for twelve months. The shares vest monthly over a twelve-month period and are subject to the consultantconsultants providing services under theirthe consultant’s respective consulting agreements.agreement. The Company recorded a non-cash consulting expense in the amount of $20,803$4,199 and $20,803$0 for the three and six months ended OctoberJuly 31, 2019.2020 and 2019, respectively. There were 1,300,000750,000 unvested shares remaining related to these consulting agreements as of OctoberJuly 31, 2019.2020.
DuringIn January 2020, the six months ended October 31, 2019, a consultant was issued 500,000Company awarded 6,600,000 shares of common stock pursuant to his servicesofficers as the Company’s Chairmanpart of its Scientific Advisory Boardtheir compensation agreements. These shares vest monthly over a twelve period. The shares vest upontwelve-month period and are subject to them continuing service under the anniversary date ofagreements. During the Board’s approval ofthree months ended July 31, 2020, the common stock grant. The Company recorded a non-cash consultingcompensation expense in the amount of $1,533 and $1,533 for the three and six months ended October$67,320. There were 2,750,000 unvested shares as of July 31, 2019, respectively.2020.
All shares describedlisted above were issued without registration under the Securities Act in reliance upon the exemption afforded by Section 4(a)(2) of the Securities Act.
During the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, the Company sold and issued approximately 136.7234 million and 66.266.7 million shares of common stock, respectively, at prices ranging from approximately $0.01 to $0.03 per share as Block Trades pursuant to the Company’s S-3. Net of underwriting discounts, legal, accounting and other offering expenses, the Company received net proceeds of approximately $884,000$1,857,000 and $1.4 million$558,000 from the sale of these shares for the sixthree months ended OctoberJuly 31, 2020 and 2019, and 2018, respectively.
On October 31, 2019, the Company’s Board of Directors passed a resolution recommending to shareholders that they approve the amendment of the Company’s articles of incorporation to increase the number of authorized shares of the Company’s common stock by 1,000,000,000 from 1,490,000,000 to 2,490,000,000 shares. Subsequently, on October 31, 2019, by a written consent executed by holders of a majority of the voting power of the Company’s outstanding stock, the Company’s stockholders approved such an amendment. October 31, 2019 such amendment was filed with the Secretary of State of the State of Nevada.
A summary of the Company’s unvested restricted stock activity and related weighted average grant date fair value information for the sixthree months ended OctoberJuly 31, 20192020 are as follows:
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||
| Unvested, April 30, 2019 | 4,600,000 | $ | 0.05 | |||||||||||||
| Unvested, at April 30, 2020 | 4,600,000 | $ | 0.06 | |||||||||||||
| Granted | 9,200,000 | 0.05 | 2,500,000 | 0.02 | ||||||||||||
| Vested | (11,400,000 | ) | 0.05 | (3,600,000 | ) | 0.03 | ||||||||||
| Unvested, October 31, 2019 | 2,400,000 | $ | 0.04 | |||||||||||||
| Forfeited | – | – | ||||||||||||||
| Unvested, at July 31, 2020 | 3,500,000 | $ | 0.04 | |||||||||||||
NOTE 56 – STOCK OPTIONS AND WARRANTS
Stock Options
As of OctoberJuly 31, 2019,2020, the Company had 85,650,00068,700,000 outstanding stock options to its directors and officers (collectively, “Employee Options”) and consultants (collectively, “Non-Employee(“Non-Employee Options”).
During the three months ended July 31, 2020 and 2019, the Company granted 1,500,000 and 1,500,000 Employee Options, respectively.
| 18 |
During the six months ended October 31, 2019 and 2018, the Company granted 2,000,000 and zero Employee Options, respectively. During the six months ended October 31, 2019, 25,000,000 options expired.
The fair value of the Employee Options at the date of grant was estimated using the Black-Scholes-Merton option-pricing model, based on the following weighted average assumptions:
| Six Months Ended October 31, | Three Months Ended July 31, | |||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||
| Risk-free interest rate | 2.0% | – | 0.3 | % | 2.1 | % | ||||||||||
| Expected volatility | 91% | – | 91 | % | 91 | % | ||||||||||
| Expected lives (years) | 2.5 | – | ||||||||||||||
| Expected term (years) | 2.5 | 2.5 | ||||||||||||||
| Expected dividend yield | 0.00% | – | 0.00 | % | 0.00 | % | ||||||||||
The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, the Company used a calculated volatility for each grant. The Company lacks adequate information about potentialthe exercise behavior now and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting term of two and one-half years for an average of three years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life.
During the six months ended October 31, 2019 and 2018, the Company granted 1,200,000 and zero Non-Employee Options, respectively. During the three months ended OctoberJuly 31, 20192020 and 2018,2019, the Company granted 1,200,000 and zerono Non-Employee Options, respectively.
Non-Employee Option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. The value of the options was determined as of the grant date using the Black-Scholes-Merton option-pricing model and compensation expense is being recognized over the service period.Options.
A summary of the Company’s stock option activity and related information for the sixthree months ended OctoberJuly 31, 2019 are2020 is shown below:
| Options | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value per Share | ||||||||||
| Outstanding, April 30, 2019 | 107,450,000 | $ | 0.11 | $ | 0.11 | |||||||
| Issued | 3,200,000 | $ | 0.04 | $ | 0.04 | |||||||
| Forfeited | (25,000,000 | ) | $ | 0.19 | $ | 0.19 | ||||||
| Exercised | – | – | – | |||||||||
| Outstanding, October 31, 2019 | 85,650,000 | $ | 0.08 | $ | 0.08 | |||||||
| Exercisable, October 31, 2019 | 83,350,000 | $ | 0.11 | – | ||||||||
| Vested and expected to vest | 85,650,000 | $ | 0.08 | – | ||||||||
| Options | Weighted Average Exercise Price | Weighted Average Grant Date Fair Value per Share | ||||||||||
| Outstanding, April 30, 2020 | 67,200,000 | $ | 0.06 | $ | 0.06 | |||||||
| Issued | 1,500,000 | 0.02 | 0.02 | |||||||||
| Forfeited | – | – | – | |||||||||
| Exercised | – | – | – | |||||||||
| Outstanding, July 31, 2020 | 68,700,000 | $ | 0.06 | $ | 0.06 | |||||||
| Exercisable, July 31, 2020 | 64,950,000 | $ | 0.06 | $ | – | |||||||
| Vested and expected to vest | 68,700,000 | $ | 0.06 | $ | – | |||||||
A summary of the activity for unvested stock options during the sixthree months ended OctoberJuly 31, 20192020 is as follows:
| Options | Weighted Average Grant Date Fair Value | Options | Weighted Average Grant Date Fair Value per Share | |||||||||||||
| Unvested, April 30, 2019 | 6,200,000 | $ | 0.05 | |||||||||||||
| Unvested, April 30, 2020 | 6,200,000 | $ | 0.05 | |||||||||||||
| Granted | 3,200,000 | $ | 0.04 | 1,500,000 | 0.02 | |||||||||||
| Vested | (7,100,000 | ) | $ | 0.05 | (3,950,000 | ) | – | |||||||||
| Forfeited | – | – | – | – | ||||||||||||
| Unvested, October 31, 2019 | 2,300,000 | $ | 0.05 | |||||||||||||
| Unvested, July 31, 2020 | 3,750,000 | $ | 0.03 | |||||||||||||
| 19 |
The Company recorded $93,995$72,317 and $76,733$116,914 of stock-based compensation related to the issuance of Employee Options to certain officers and directors in exchange for services during the three months ended OctoberJuly 31, 20192020 and 2018, respectively, and $210,909 and $153,466 during the six months ended October 31, 2019, and 2018, respectively. At OctoberJuly 31, 2019,2020, there remained $56,319$88,526 of unrecognized compensation expense related to unvested Employee Options granted to officers and directors, to be recognized as expense over a weighted-average period of the remaining twofive months in the calendar year. The unvested options vest at 750,000 shares per month and are expected to be fully vested on December 31, 2019.2020.
The Company recorded $4,414$0 and $20,231$9,411 of stock-based compensation related to the issuance of Non-Employee Options in exchange for services during the three months ended OctoberJuly 31, 2020 and 2019, and 2018, respectively, and $13,825 and $56,723 during the six months ended October 31, 2019 and 2018, respectively. At October 31, 2019, there remained approximately $28,000 of unrecognized compensation expense related toThere were no unvested Non-Employee Options granted to consultants, to be recognized as expense over a weighted-average period of the remaining eight months. The unvested Non-Employee Options vest at 100,000 shares per month and are expected to be fully vested on June 30,July 31, 2020.
The following table summarizes ranges ofthe outstanding stock options by exercise price at OctoberJuly 31, 2019:2020:
| Exercise Price | Exercise Price | Number of Options Outstanding | Weighted Average Remaining Contractual Life (years) of Outstanding Options | Weighted Average Exercisable Price | Number of Options Exercisable | Weighted Average Exercise Price of Exercisable Options | Exercise Price | Number of Options Outstanding | Weighted Average Remaining Contractual Life of Outstanding Options (years) | Weighted Average Exercisable Price | Number of Options Exercisable | Weighted Average Exercise Price of Exercisable Options | ||||||||||||||||||||||||||||||||
| $ | 0.110 | 27,200,000 | 0.22 | $ | 0.110 | 27,200,000 | $ | 0.110 | 0.063 | 15,600,000 | 0.25 | $ | 0.063 | 15,600,000 | $ | 0.063 | ||||||||||||||||||||||||||||
| $ | 0.184 | 250,000 | 0.23 | $ | 0.184 | 250,000 | $ | 0.184 | 0.104 | 10,450,000 | 1.03 | $ | 0.104 | 10,450,000 | $ | 0.104 | ||||||||||||||||||||||||||||
| $ | 0.063 | 15,600,000 | 0.70 | $ | 0.063 | 15,600,000 | $ | 0.063 | 0.0685 | 600,000 | 0.75 | $ | 0.0685 | 600,000 | $ | 0.0685 | ||||||||||||||||||||||||||||
| $ | 0.104 | 10,450,000 | 1.52 | $ | 0.104 | 10,450,000 | $ | 0.104 | 0.058 | 2,450,000 | 1.43 | $ | 0.058 | 2,450,000 | $ | 0.058 | ||||||||||||||||||||||||||||
| $ | 0.0685 | 600,000 | 1.50 | $ | 0.0685 | 600,000 | $ | 0.0685 | 0.0734 | 1,200,000 | 0.96 | $ | 0.0734 | 1,200,000 | $ | 0.0734 | ||||||||||||||||||||||||||||
| $ | 0.058 | 2,450,000 | 1.99 | $ | 0.058 | 2,450,000 | $ | 0.058 | 0.0729 | 1,800,000 | 1.94 | $ | 0.0729 | 1,800,000 | $ | 0.0729 | ||||||||||||||||||||||||||||
| $ | 0.0734 | 1,200,000 | 2.50 | $ | 0.0734 | 1,200,000 | $ | 0.0734 | 0.089 | 1,200,000 | 1.96 | $ | 0.089 | 1,200,000 | $ | 0.089 | ||||||||||||||||||||||||||||
| $ | 0.0729 | 1,800,000 | 2.69 | $ | 0.0729 | 1,800,000 | $ | 0.0729 | 0.0553 | 500,000 | 1.10 | $ | 0.0553 | 500,000 | $ | 0.0553 | ||||||||||||||||||||||||||||
| $ | 0.089 | 1,200,000 | 2.72 | $ | 0.089 | 1,200,000 | $ | 0.089 | 0.0558 | 9,000,000 | 1.45 | $ | 0.0558 | 9,000,000 | $ | 0.0558 | ||||||||||||||||||||||||||||
| $ | 0.0553 | 500,000 | 1.47 | $ | 0.0553 | 500,000 | $ | 0.0553 | 0.0534 | 1,200,000 | 3.10 | $ | 0.0534 | 1,200,000 | $ | 0.0534 | ||||||||||||||||||||||||||||
| $ | 0.0558 | 9,000,000 | 1.90 | $ | 0.0558 | 9,000,000 | $ | 0.0558 | 0.0539 | 1,000,000 | 1.38 | $ | 0.0539 | 1,000,000 | $ | 0.0539 | ||||||||||||||||||||||||||||
| $ | 0.0534 | 1,200,000 | 3.85 | $ | 0.0534 | 1,200,000 | $ | 0.0534 | 0.0683 | 500,000 | 1.46 | $ | 0.0683 | 500,000 | $ | 0.0683 | ||||||||||||||||||||||||||||
| $ | 0.0539 | 1,000,000 | 1.75 | $ | 0.0539 | 1,000,000 | $ | 0.0539 | 0.0649 | 500,000 | 1.60 | $ | 0.0649 | 500,000 | $ | 0.0649 | ||||||||||||||||||||||||||||
| $ | 0.0683 | 500,000 | 1.83 | $ | 0.0683 | 500,000 | $ | 0.0683 | 0.0495 | 9,000,000 | 1.88 | $ | 0.0495 | 9,000,000 | $ | 0.0495 | ||||||||||||||||||||||||||||
| $ | 0.0649 | 500,000 | 1.97 | $ | 0.0649 | 500,000 | $ | 0.0649 | 0.0380 | 1,200,000 | 4.15 | $ | 0.0380 | 1,200,000 | $ | 0.0380 | ||||||||||||||||||||||||||||
| $ | 0.0404 | 1,000,000 | 2.25 | $ | 0.0404 | 1,000,000 | $ | 0.0404 | 0.0404 | 1,000,000 | 1.88 | $ | 0.0404 | 1,000,000 | $ | 0.0404 | ||||||||||||||||||||||||||||
| $ | 0.0370 | 500,000 | 2.34 | $ | 0.0370 | 500,000 | $ | 0.0370 | 0.0370 | 500,000 | 1.96 | $ | 0.0370 | 500,000 | $ | 0.0370 | ||||||||||||||||||||||||||||
| $ | 0.0495 | 9,000,000 | 2.63 | $ | 0.0495 | 7,500,000 | $ | 0.0495 | 0.0340 | 500,000 | 2.10 | $ | 0.0340 | 500,000 | $ | 0.0340 | ||||||||||||||||||||||||||||
| $ | 0.0380 | 1,200,000 | 4.90 | $ | 0.0380 | 400,000 | $ | 0.0380 | 0.0408 | 9,000,000 | 2.66 | $ | 0.0408 | 5,250,000 | $ | 0.0408 | ||||||||||||||||||||||||||||
| $ | 0.0340 | 500,000 | 2.47 | $ | 0.0340 | 500,000 | $ | 0.0340 | 0.0240 | 1,000,000 | 2.38 | $ | 0.0240 | 1,000,000 | $ | 0.0240 | ||||||||||||||||||||||||||||
| $ | 0.0247 | 500,000 | 2.46 | $ | 0.0247 | 500,000 | $ | 0.0247 | ||||||||||||||||||||||||||||||||||||
| Total | 85,650,000 | 1.25 | $ | 0.08 | 83,350,000 | $ | 0.08 | Total | 68,700,000 | 1.47 | $ | 0.06 | 64,950,000 | $ | 0.06 | |||||||||||||||||||||||||||||
The aggregate intrinsic value of outstanding options as of OctoberJuly 31, 20192020 was $500.zero. This represents options whose exercise price was less than the closing fair market value of the Company’s common stock on OctoberJuly 31, 20192020 of approximately $0.035$0.014 per share.
| 20 |
Warrants
The warrants issued by the Company are equity-classified. The fair value of the warrants was recorded as additional paid-in-capital, and no further adjustments are made.
For stock warrants paid in consideration of services rendered by non-employees, the Company recognizes consulting expense in accordance with the requirements of ASC 505.
TheEffective June 13, 2019, the Company issued a Common Stock Purchase Warrant (“May 2018 Warrant”) to Aeon Capital, Inc. (“Aeon”) dated May 30, 2018 for a Block Trade transaction. The Company issued a warrant to purchase 1,338,889 shares of common stock based upon the Block Trade transaction pursuant to the Company’s engagement agreement with Aeon dated February 22, 2018 (“Aeon Engagement Agreement”). The May 2018 Warrant provides Aeon the right to purchase 1,388,889 shares of common stock based upon this Block Trade. The Company classified the May 2018 Warrantthese warrants as equity, and the May 2018 Warrant has a term of five years with an exercise price of approximately $0.02 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate value of the May 2018 Warrant to be approximately $19,000.equity. The May 2018 Warrant has a cashless exercise feature.
The Company issued a warrant to Aeon dated June 28, 2018 (“June 2018 Warrant”) for a Block Trade pursuant to the Engagement Agreement. The June 2018 Warrant provides Aeon with the right to purchase 1,923,077 shares of common stock based upon a Block Trade. The Company classified the June 2018 Warrant as equity, and the June 2018 Warrant has a term of five years with an exercise price of approximately $0.03 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate value of the June 2018 Warrant to be approximately $38,000. The June 2018 Warrant has a cashless exercise feature.
The Company issued a Warrant to Aeon dated June 13, 2019 (“June 2019 Warrant”) for a Block Trade pursuant to the Engagement Agreement. The June 2019 Warrant provides Aeon with the right to purchase 1,388,889 shares of common stock based upon a Block Trade. The Company classified the June 2019 Warrant as equity, and the June 2019 Warrant has a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate value of the June 2019 Warrant to be approximately $9,000. The June 2019 Warrant has a cashless exercise feature.
The Company issued a Warrant to Aeon dated July 15, 2019 (“July 2019 Warrant”) for a Block Trade pursuant to the Engagement Agreement. The July 2019 Warrant provides Aeon with a right to purchase 1,944,444 shares of common stock based upon a Block Trade. The Company classified the July 2019 Warrant as equity, and the July 2019 Warrant has a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate value of the July 2019 Warrant to be approximately $12,000. The July 2019 Warrant has a cashless exercise feature.
The Company issued two Warrants to Aeon dated August 7, 2019 (“August 2019 Warrants”) for two Block Trades pursuant to the Engagement Agreement. The August 2019 Warrants provide Aeon with a right to purchase 3,500,000 shares of common stock based upon two Block Trades. The Company classified the August 2019 Warrants as equity, and the August 2019 Warrantswarrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $9,000. The warrants have a cashless exercise feature.
Effective July 15, 2019, the August 2019 WarrantsCompany issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 1,944,444 shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $12,000. The August 2019 Warrantswarrants have a cashless exercise feature.
Effective July 10, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 4,100,000 shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as equity. The warrants have a term of five years with an exercise price of $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $29,000. The warrants have a cashless exercise feature.
Effective July 18, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 3,500,000 shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $18,000. The warrants have a cashless exercise feature.
Effective July 19, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 1,333,333 shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $7,000. The warrants have a cashless exercise feature.
Effective July 27, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 2,500,000 shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $13,000. The warrants have a cashless exercise feature.
| 21 |
A summary of the Company’s warrant activity and related information for the sixthree months ended OctoberJuly 31, 2019 are2020 is shown below:
| Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, April 30, 2019 | 42,077,797 | $ | 0.09 | |||||
| Issued | 6,833,333 | 0.01 | ||||||
| Expired | (854,308 | ) | 0.12 | |||||
| Outstanding, October 31, 2019 | 48,056,822 | – | ||||||
| Exercisable, October 31, 2019 | 48,056,822 | $ | 0.07 | |||||
| Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, April 30, 2020 | 47,890,155 | $ | 0.05 | |||||
| Issued | 11,433,333 | 0.01 | ||||||
| Expired | – | – | ||||||
| Outstanding, July 31, 2020 | 59,323,488 | 0.04 | ||||||
| Exercisable, July 31, 2020 | 59,323,488 | $ | 0.04 | |||||
The following table summarizes additional information concerning warrants outstanding and exercisable at OctoberJuly 31, 2019:2020:
| Exercise Prices | Number of Warrant Shares Exercisable at October 31, 2019 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number of Warrant Shares Exercisable at April 30, 2020 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | ||||||||||||||||||
| $0.12 | 17,000,000 | 1.19 | – | 17,000,000 | 0.44 | |||||||||||||||||||
| $0.11 | 10,000,000 | 0.39 | – | |||||||||||||||||||||
| $0.065 | 769,231 | 2.14 | – | 769,231 | 1.39 | |||||||||||||||||||
| $0.0575 | 869,565 | 2.43 | – | 869,565 | 1.68 | |||||||||||||||||||
| $0.03 | 2,500,000 | 3.07 | – | 2,500,000 | 2.32 | |||||||||||||||||||
| $0.026 | 1,923,077 | 3.66 | – | 1,923,077 | 2.91 | |||||||||||||||||||
| $0.025 | 2,000,000 | 2.74 | – | 2,000,000 | 1.99 | |||||||||||||||||||
| $0.018 | 1,388,889 | 3.58 | – | 1,388,889 | 2.83 | |||||||||||||||||||
| $0.011 | 2,272,727 | 4.01 | – | 2,272,727 | 3.25 | |||||||||||||||||||
| $0.01 | 2,500,000 | 4.41 | – | 9,100,000 | 4.52 | |||||||||||||||||||
| $0.015 | 833,333 | 4.72 | ||||||||||||||||||||||
| $0.009 | 3,333,333 | 4.67 | – | 3,333,333 | 3.92 | |||||||||||||||||||
| $0.0075 | 7,333,333 | 4.97 | ||||||||||||||||||||||
| $0.005 | 3,500,000 | 4.77 | – | 10,000,000 | 4.41 | |||||||||||||||||||
| 48,056,822 | 1.69 | $ | 0.07 | 59,323,488 | 2.96 | $ | 0.04 | |||||||||||||||||
NOTE 67 – LEGAL PROCEEDINGS
The Company is not currently a party to any pending legal proceedings, material or otherwise. There are no legal proceedings to which any property of the Company is subject.
NOTE 78 – RELATED PARTY TRANSACTIONS
The Company had the following related party transactions during the three and six months ended OctoberJuly 31, 20192020 and 2018, respectively.2019.
| 22 |
The Company owns 14.5% of the equity in SG Austria whichand is reported on the cost method of accounting. SG Austria has two subsidiaries: (i) Austrianova; and (ii) Austrianova Thailand Co.Pte Ltd. The Company purchased products and services from these subsidiaries in the approximate amounts of $0$64,000 and $2,400 in the three and six months ended OctoberJuly 31, 2019, respectively,2020 and $68,000 and $119,000 for the three and six months ended October 31, 2018,2019, respectively.
In April 2014, the Company entered into a consulting agreement (“the Vin-de-Bona Consulting Agreement”) with Vin-de-Bona Trading Co. Ltd (“Vin-de-Bona”)Agreement pursuant to which it agreed to provide professional consulting services to the Company. Vin-de-Bona is owned by Prof. Walter H. Günzburg (“Prof. Günzburg”)nzburg) and Dr. Brian Salmons PhD (“Dr. Salmons”), both of whom are involved in numerous aspects of the Company’s scientific endeavors relating to cancer and diabetes. Prof. Günzburgdiabetes (Prof. Gunzburg is the Chairman of Austrianova, and Dr. Salmons is the Chief Executive Officer and President of Austrianova.Austrianova). The term of the Vin-de-Bona Consulting Agreementagreement is for 12 months, and automatically renewsrenewable for successive 12-month terms. After the initial term, either party can terminate the Vin-de-Bona Consulting Agreementagreement by giving the other party 30 days’ written notice before the effective date of termination. The agreement has been automatically renewed annually. The amounts incurred for consulting services by Vin-de-Bona for the three and six months ended OctoberJuly 31, 2020 and 2019 were approximately $2,300$13,000 and $15,000, respectively, and $10,000 and $12,000 for the three and six months ended October 31, 2018,$13,000, respectively. In addition, during the sixthree months ended OctoberJuly 31, 20192020 the Company issued 250,000 shares of common sharesstock to Dr. Salmons for being a member of the Company’s Medical and Scientific Advisory Board.Salmons. The Company recorded a noncash consulting expense of approximately $4,700$8,000 relating to these sharesshare issuances for the sixthree months ended OctoberJuly 31, 2019.2020.
During the month of October 2019, the Company received $70,000 from an officer of the Company as a short-term payable that was non-interest bearing and due on demand. Subsequent to October 31, 2019, the related party was repaid in full.
During the three monthsyear ended October 31, 2019,April 30, 2020, the Company issued one share of Series A Preferred Stock to the chief executive officerChief Executive Officer of the Company for $1 pursuant to a subscription agreement.Subscription Agreement. The Series A Preferred Stock as detailed furtheris described in detail in Note 1112 – Preferred Stock, provided the officer with voting rights equal to the number of votes then held by all other stockholders of the Company. Subsequent to October 31, 2019, theStock. The Board of Directors adopted to exerciseexercised its right to have the Company redeem the one share of Series A Preferred Stock and itStock. It is no longer issued and outstanding.
NOTE 89 – COMMITMENTS AND CONTINGENCIES
The Company acquires assets still in development and enters license agreementsR&D arrangements with third parties that often require milestone and royalty payments to the third-party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cyclelifecycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the license agreements, the Company may have to make royalty payments based upon a percentage of the sales of the pharmaceutical productsproduct if regulatory approval for marketing of the product candidate is obtained.
Office Lease
TheEffective September 1, 2017, the Company determines whetherentered into an arrangement is, or contains, aoffice lease at inception. Prior to May 1, 2019, the Company generally accounted for operating lease payments by charging them to expense as incurred. Beginning on May 1, 2019, operating leases that have commenced are included in other assets and accrued expenses in the condensed consolidated balance sheet. Classification of operating lease liabilities as either current or noncurrent is based on the expected timing of payments due under the Company’s obligations.23046 Avenida de la Carlota, Suite 600, Laguna Hills, California (“Leased Premises”). The Company concluded that as of May 1, 2019, the lease liability and the ROU are immaterial to the condensed consolidated balance sheet; therefore, no amount was included in the condensed consolidated balance sheet.
The Company leases office space related to the administrative activities and at October 31, 2019, the remaining term of the lease is ten months.for 24 months and expired on August 31, 2019. In May 2019, the Company entered into an additional one-year lease for the Leased Premises, commencing upon the expiration of the term of the prior lease. The term of the lease expires on August 31, 2020.
On May 28, 2020, the Company entered into an additional six-month lease of the Leased Premises, commencing on September 1, 2020. The term of the new lease expires on February 28, 2021.
Rent expenses for these offices for the three months ended July 31, 2020 and 2019 were $7,152 and $8,661, respectively.
The following table presentssummarizes the Company’s aggregate future minimum lease payments required under the operating lease as of OctoberJuly 31, 2019.2020.
| Amount | ||||
| 2020 | $ | 14,220 | ||
| 2021 | 9,480 | |||
| Total minimum lease payments | $ | 23,700 | ||
| Amount | ||||
| 2021 | $ | 12,456 | ||
| $ | 12,456 | |||
Material Agreements
The Company’s material agreements are identified and summarized in Note 1 – Nature of Business – Company Background and Material Agreements.Background.
| 23 |
Compensation Agreements
The Company entered into executive compensation agreements with its three executive officers in March 2015, each of which was amended in December 2015. The amendments provided that each executive compensation2015 and March 2017. Each agreement has a term of two years with automatic annual extensions thereafter unless the Company or the officer provides written notification of termination at least ninety days prior to the end of the term or subsequent extensions. The Company also entered into a DLAcompensation agreement with a new Board member in April 2015 which continuescontinued in effect until the member is no longer on the Board.amended in May 2017.
In MarchMay 2017, the Company amended the executive compensation agreements with its three executive officers. The term for each agreement is two years from an effective date of January 1, 2017. At the same time, the Company amended the compensation agreement with the Board member referenced above. It continuesmembers and the terms continue in effect until thea member is no longer on the Board.
The Company has four independent directors. Each director receives the same compensation: (i) $12,500 in cash for each calendar quarter of service on the Board; (ii) 500,000 fully-paid, non-assessable shares of the Company’s restricted common stock (“Shares”) annually; and (iii) a five-year option to purchase 500,000 Shares annually at an exercise price equal to the fair market value of the Shares on the date of grant. The Shares and the optionsoption Shares fully vest on the date of the grants.
The Company’s Chief Medical Officer (“CMO”) receives: (i) $10,000 in cash for each calendar month of service as the Company’s CMO; (ii) 1,200,000 Shares annually; and (iii) a five-year option to purchase 1,200,000 Shares at an exercise price equal to the fair market value of the Shares on the date of the grant. The Shares and the options each vest in the amount of 100,000 Shares, or options, as applicable, per month. The Company will indemnify the CMO for her work as the Company’s CMO.
NOTE 9 –10 - INCOME TAXES
The Company had no income tax expense for the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, respectively. During the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, the Company had a net operating loss (“NOL”) for each period which generated deferred tax assets for NOL carryforwards. The Company provided valuation allowances against the net deferred tax assets including the deferred tax assets for NOL carryforwards. Valuation allowances provided for the net deferred tax asset increased by approximately $449,000$98,000 and $549,000$201,000 for the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, respectively.
There was no material difference between the effective tax rate and the projected blended statutory tax rate for the sixthree months ended OctoberJuly 31, 20192020 and 2018.2019.
Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. Based on the assessment of all available evidence including, but not limited to, the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulations and healthcare reform initiatives and other risks normally associated with biotechnology companies, the Company has concluded that is more likely than not that these operating loss carryforwards will not be realized. Accordingly, 100% of the deferred tax valuation allowance has been recorded against these assets at OctoberJuly 31, 2019.2020.
The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, the Company had no accrued no interest or penalties related to uncertain tax positions.
See Note 910 of Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 20192020 for additional information regarding income taxes.
| 24 |
NOTE 1011 – EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares and potentially dilutive shares of common sharesstock outstanding during the period increased to include the number of additional shares of common stock that would be outstanding if the potentially dilutive securities had been issued. Potential shares of common sharesstock outstanding principally include stock options and warrants. During the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, the Company incurred losses. Accordingly, the effect of any common stock equivalent would be anti-dilutive during those periods and are not included in the calculation of diluted weighted average number of shares outstanding.
The table below sets forth the basic loss per share calculations:
| Six Months Ended October 31, | ||||||||
| 2019 | 2018 | |||||||
| Net loss | $ | (2,201,197 | ) | $ | (2,251,937 | ) | ||
| Basic weighted average number of shares outstanding | 1,267,696,383 | 1,063,602,271 | ||||||
| Diluted weighted average number of shares outstanding | 1,267,696,383 | 1,063,602,271 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Three Months Ended July 31, | ||||||||
| 2020 | 2019 | |||||||
| Net loss | $ | (883,944 | ) | $ | (1,134,075 | ) | ||
| Basic weighted average number of shares outstanding | 1,678,572,167 | 1,210,305,834 | ||||||
| Diluted weighted average number of shares outstanding | 1,678,572,167 | 1,210,305,834 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
The table below sets forth these potentially dilutive securities:
| Six Months Ended October 31, | ||||||||
| 2019 | 2018 | |||||||
| Excluded options | 85,650,000 | 96,450,000 | ||||||
| Excluded warrants | 48,056,822 | 37,305,070 | ||||||
| Total excluded options and warrants | 133,706,822 | 133,755,070 | ||||||
| Three Months Ended October 31, | ||||||||
| 2019 | 2018 | |||||||
| Net loss | $ | (1,067,122 | ) | $ | (1,036,574 | ) | ||
| Basic weighted average number of shares outstanding | 1,325,086,933 | 1,080,708,112 | ||||||
| Diluted weighted average number of shares outstanding | 1,325,086,933 | 1,080,708,112 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
The table below sets forth these potentially dilutive securities:
| Three Months Ended October 31, | Three Months Ended July 31, | |||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||
| Excluded options | 85,650,000 | 96,450,000 | 68,700,000 | 108,950,000 | ||||||||||||
| Excluded warrants | 48,056,822 | 37,305,070 | 59,323,488 | 45,411,130 | ||||||||||||
| Total excluded options and warrants | 133,706,822 | 133,755,070 | 128,023,488 | 154,361,130 | ||||||||||||
NOTE 1112 – PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001, of which one share has been designated as "Series A Preferred Stock." There isStock". The one share of Series A Preferred Stock was issued on October 30, 2019 and repurchased by the Company on December 3, 2019. As of July 31, 2020, there are no shares of preferred stock issued and outstanding as of October 31, 2019. outstanding.
The description of the Series A Preferred Stock below is qualified in its entirety by reference to the Company’s Articles of Incorporation, as amended.
The Series A Preferred Stock has the following features:
| • | There is one share of preferred stock designated as Series A Preferred Stock; | |
| • | The Series A Preferred Stock has a number of votes at any time equal to the number of votes then held by all other shareholders of the Company having a right to vote on any matter plus one. The Certificate of Designations that designated the terms of the Series A Preferred Stock cannot be amended without the consent of the holder of the Series A Preferred Stock; | |
| 25 |
| • | The Company may redeem the Series A Preferred Stock at any time for a redemption price of $1.00 paid to the holder of the share of Series A Preferred Stock; and | |
| • | The Series A Preferred Stock has no rights of transfer, conversion, dividends, preferences upon liquidation or participation in any distributions to shareholders. |
NOTE 1213 – SUBSEQUENT EVENTS
On November 11, 2019,From August 1, 2020 through August 12, 2020, the Company entered into two share subscription agreements in a private placement for a total of 60,000,000sold approximately 459 million shares of restricted common stock for a totalusing the S-3 structured as Block Trade transactions. The issuance of $300,000. There were no fees payable bythese shares resulted in gross proceeds to the Company orof approximately $3 million. Pursuant to the Aeon Engagement Agreement, the Company paid Aeon a fee of approximately $183,000 and provided warrant coverage relatingof 5% of the number of shares of commons stock sold in the Block Trade transactions This amounted to approximately 34 million warrant shares with a five-year term. The warrants have a cashless exercise feature. In addition, the share subscription agreements and the securities were offered and sold without registration under the Securities ActCompany incurred transaction fees of 1933 as amended, in reliance on Section 4(a)(2) thereof.approximately $96,000 to an unrelated party.
In December 2019,On September 1, 2020, the Company redeemedsubmitted the IND to the FDA to allow the Company to commence a Phase 2b human clinical trial involving LAPC. Although no assurance as to the timing of the trial can be given or whether the FDA will allow the Company to commence a Phase 2b clinical trial as opposed to a Phase 1 clinical trial or further preclinical studies. The IND consisted of all available preclinical information (e.g. animal toxicity studies), Chemistry, Manufacturing and Controls information and other pre-clinical information about the Company’s product candidate to treat LAPC, as well as information regarding the proposed clinical trial program and other information and documentation required by FDA regulations. On September 4, 2020, the Company received an Information Request from the chief executive officer ofFDA. The Company responded to the Company the one share of Series A Preferred Stock for $1.FDA’s Information Request on September 11, 2020.
| 26 |
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Report”) includes “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Report, including any projections of earnings, revenue or other financial items, any statements regarding the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, any statements regarding expected benefits from any transactions and any statements of assumptions underlying any of the foregoing. In some cases, forward lookingforward-looking statements can be identified by use of terminology such as “may,” “will,” “should,” “believes,” “intends,” “expects,” “plans,” “anticipates,” “estimates,” “goal,” “aim,” “potential” or “continue,” or the negative thereof or other comparable terminology.terminology regarding beliefs, plans, expectations or intentions regarding the future, including risks relating to the recent outbreak of COVID-19. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Thus, investors should refer to and carefully review information in future documents we file with the Commission. Our future financial condition and results of operations, as well as any forward lookingforward-looking statements, are subject to inherent risk and uncertainties, including, but not limited to, the risk factors set forth in “Part I, Item 1A – Risk Factors” set forth in our Form 10-K for the yearperiod ended April 30, 20192020 and for the other reasons described elsewhere in this Report.
Among others, these include our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; whether the FDA approves our recently submitted IND after it has been reviewed by the FDA so that we can commence our planned clinical trial involving LAPC; the success and timing of our preclinical studies and clinical trials; the potential that results of preclinical studies and clinical trials may indicate that any of our technologies and product candidates are unsafe or ineffective; our dependence on third parties in the conduct of our preclinical studies and clinical trials; the difficulties and expenses associated with obtaining and maintaining regulatory approval of our product candidates; the material adverse impact that the coronavirus pandemic may have on our business, including our planned clinical trial involving LAPC, which could materially affect our operations as well as the business or operations of third parties with whom we conduct business; and whether the FDA will approve our product candidates after our clinical trials are completed, assuming the FDA allows our clinical trials to proceed after review of our IND submission for LAPC. All forward-lookingforward- looking statements and reasons why results may differ included in this Report are made as of the date of this Report,hereof, and we do not intend to update any forward-looking statements except as required by law or applicable regulation.regulations. Except where the context otherwise requires, in this Report, the “Company,” “we,” “us” and “our” refer to PharmaCyte Biotech, Inc., a Nevada corporation, and, where appropriate, its subsidiaries.
OverviewProduct Candidates
We are a biotechnology company focused on developing and preparing to commercialize cellular therapies for various types of cancer and for diabetes that are based upon a proprietary cellulose-based live cell encapsulation technology known as “Cell-in-a-Box®.” The Cell-in-a-Box®technology is intended to be used as a platform upon which therapies for several types of cancer, including LAPC and Type 1 and insulin dependent Type 2 diabetes are beingwill be developed.
A critical unmet medical need existsWe are developing therapies for patients with LAPC whose tumor inpancreatic and other solid cancerous tumors by using genetically engineered live human cells that we believe are capable of converting a patient’s pancreas no longer responds after 4-6 months of treatment with either Abraxanecancer prodrug into its cancer-killing form, encapsulating those cells using the Cell-in-a-Box® plus gemcitabine or the 4-drug combination known as FOLFIRINOX (both combinations are the current standards of care). These patients have no effective treatment alternative once their tumor no longer responds to these therapies. Two commonly used treatments for such patients are 5-FU or capecitabine plus radiation (chemoradiation therapy). Both treatments are only marginally effective in treating the tumortechnology and result in serious side effects. Recently, radiation treatment alone is being used at some cancer centersplacing those capsules in the U.S.
For LAPC, our therapy is comprised of implanting encapsulated genetically modified live cells in the blood supplybody as close as possible to the tumor in the pancreas as possible followed by the administration of low doses oftumor. In this way, we believe that when the cancer prodrug ifosfamide. We believeis administered to a patient with a particular type of cancer that may be affected by the prodrug, the killing of the patient’s tumor may be optimized.
On September 1, 2020, we submitted our therapy can serve as a “consolidation therapy” with the current standards of care for patients with LAPC and meet the critical unmet medical need. We are currently working on an IND to submit to the FDA so that wefor a Phase 2b clinical trial in LAPC. However, no assurance as to the timing of the trial can be given or whether the FDA will allow us to commence a Phase 2b clinical trial involving LAPC. No assurance can be given thatas opposed to a Phase 1 clinical trial or further preclinical studies. The IND consisted of all available preclinical information (e.g. animal toxicity studies), Chemistry, Manufacturing and Controls information and other pre-clinical information about our product candidate to treat LAPC, as well as information regarding our proposed clinical trial program and other information and documentation required by FDA regulations. On September 4, 2020, we will be ablereceived an Information Request from the FDA. We responded to makethe FDA’s Information Request on September 11, 2020.
We must wait a minimum of 30 calendar days from the date of the IND submission before initiating our clinical trial. During this time, the FDA has an opportunity to review the IND to ensure that it is complete and that the planned clinical trial research patients will not be subject to unreasonable risk. It also gives the FDA time to ask for more information and clarification about the information submitted as was done with the FDA’s September 4, 2020 Information Request. If the FDA is not satisfied with the our September 11, 2020 response to the Information Request or our responses to any future Information Requests or the FDA identifies other issues with the our IND, the FDA can place a clinical hold on the clinical trial described in the IND. If the FDA does so, we cannot initiate the clinical trial to treat LAPC until or unless the FDA lifts the clinical hold. It is possible that the FDA will accept such submission.may not permit us to initiate the clinical trial based on the available data and information.
| 27 |
We are also developingexamining ways to useexploit the benefits of the Cell-in-a-Box® technology to treat forms ofdevelop therapies for cancer that areinvolve prodrugs based upon certain constituents of the use of cannabinoids fromCannabis plant; these constituents are of the class of compounds known as prodrugs“cannabinoids”. Until the FDA allows us to commence the clinical trial involving LAPC described in much the same way that the Cell-in-a-Box® plus the cancer prodrug ifosfamideour recently submitted IND, we will be used to treat LAPC.not spend any further resources developing this program.
In addition, we are developing a therapy to delay the production and accumulation of malignant ascites fluid that results from many types of abdominal cancerous tumors. Malignant ascites fluid is secreted by abdominal cancerous tumors into the abdomen after the tumors have reached a certain stage of growth. This fluid contains cancer cells that can seed and form new tumors throughout the abdomen. This fluid accumulates in the abdominal cavity, causing swelling of the abdomen, severe breathing difficulties and extreme pain. We are using our therapy for pancreatic cancer to determine if it can prevent or delay the production and accumulation of malignant ascites fluid. As with our Cannabis program, until the FDA allows us to commence the clinical trial involving LAPC described in our recently submitted IND, we will not spend any further resources developing this program.
Finally, weWe are also developing a therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes. Our diabetes therapy consists of encapsulatingencapsulated genetically modified human liver cells beta islet cells and/orand insulin-producing stem cellscells. The encapsulation for each type of cell will be done using the Cell-in-a-Box® technology and then implanting themtechnology. Implanting these cells in the body is designed to actfunction as a bio-artificial pancreas for purposes of insulin production. As with the two previous programs, we are not spending any further resources developing this program until the FDA allows us to commence the clinical trial involving LAPC described in our recently submitted IND. However, work at UTS on the Melligen cells continues. Melligen cells are human liver cells that have been genetically engineered to produce, store and release insulin in response to the levels of blood sugar in the body.
Finally, we have licensed from Hai Kang the right to certain technology owned or controlled by Hai Kang related to COVID-19 diagnostic kits (“Kits”). Our license is both for the sale of Kits as well as for the use of the technology underlying the Kits. Pursuant to the Hai Kang License Agreement, we may directly (or through a third party) conduct research, use, develop, market, sell, distribute, import and export Kits and utilize their underlying technology for human and veterinary uses in North America, the United Kingdom and certain other European sites collectively, (“Territory”). A “Product” is defined as any existing Kit of Hai Kang or any future Kit derived from Hai Kang’s Kits and includes an in vitro diagnostic test.
We are required to use its commercially reasonable efforts to develop and commercialize at least one Product in the Territory. This obligation to develop and commercialize a Product includes, among other things, the performance of non-clinical and clinical studies of any Product, the preparation, filing and prosecution of certain regulatory requests for authorization or approval for such Product (including to allow the Company to market and sell the Product and to get the Product approved for reimbursement). Hai Kang is responsible for all aspects of the manufacture and supply of the Products to be developed and sold under the Hai Kang License Agreement.
During the term of the Hai Kang License Agreement, we are required to pay a monthly fee to Hai Kang in the amount of $6,000, which monthly fee increases to $50,000 once the first Product receives regulatory authorization or approval from the FDA. In addition, upon the first commercial sale of a Product, the Company is required to make quarterly royalty payments equal to 10% of Net Sales (as defined in the Hai Kang License Agreement) of any Product sold pursuant to the Hai Kang License Agreement.
With respect to the Hai Kang License Agreement and related products, including the Kits, we may not be able to (i) develop a related product candidate with our current resources, on a timely basis, or at all; (ii) obtain the necessary regulatory authorizations or approvals for such a product candidate or for a Kit; (iii) commercialize any such product candidate or Kit; or (iv) obtain reimbursement for such a product candidate or Kit in the U.S. and elsewhere. It is uncertain that any such product candidates or Kit will comply with U.S. regulatory requirements or that any health care facility or provider will be willing or able to use such product candidates or Kits.
| 28 |
COVID-19 Potential Impact on the Financial Condition and Results of Operations
The development of our product candidates could be disrupted and materially adversely affected in the future by a pandemic like the recent outbreak of COVID-19. For example, as a result of measures imposed by the governments in states affected by COVID-19, businesses and schools have been suspended due to quarantines or stay at home orders intended to contain the pandemic. COVID-19 continues to spread globally and, as of July 31, 2020, has spread to over 150 countries, including the U.S. While the COVID-19 pandemic is thought to be in its early stages, international stock markets continue to reflect the uncertainty associated with the slow-down in the world economies and the reduced levels of international travel experienced since the beginning of January 2020. As of the date of this Report, the COVID-19 pandemic has had an impact upon our operations, although we believe that impact is not material.
We are still assessing our business plans and the impact COVID-19 may have on our ability to advance the development of our product candidates or to raise financing to support the development of our product candidates, but no assurances can be given that this assessment will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in the business sector generally or in our sector in particular. The spread of COVID-19 may also result in the inability of our suppliers to deliver components or raw materials on a timely basis or materially and adversely affect our collaborators’ and potential strategic partners’ ability to conduct our planned clinical trial in LAPC and our other operations. The recent and ongoing COVID-19 pandemic could materially affect our operations, as well as the business or operations of third parties with whom we conduct business. Our business could be adversely affected by the effects of other future health pandemics in regions where we or third parties on which we rely have significant business operations. See the risk factors set forth in “Part I, Item 1A – Risk Factors” set forth in our Form 10-K for period ended April 30, 2020 and for the reasons described elsewhere in this Report.
Performance Indicators
Non-financial performance indicators used by management to manage and assess how the business is progressing will include, but are not limited to, the ability to: (i) acquire appropriate funding for all aspects of our operations; (ii) acquire and complete necessary contracts; (iii) complete activities for producing genetically modified livehuman cells that can convert a prodrug to its cancer killing form and having them encapsulated and grown in the capsules for use in our planned preclinical studies and the planned clinical trials;trial in LAPC; (iv) complete all tests required by the FDA for our cellular therapies; (v) ensure the manufacture of our encapsulated live cells is in compliance with current good manufacturing practice (“GMP”) required by the applicable regulatory agencies so they may be used in our clinical trials; and (vi) have regulatory work completed to enable studies and trials to be submitted to regulatory agenciesagencies; (v) complete all required tests and be GMP compliant.studies on the cells and capsules we plan to use in our clinical trial in patients with LAPC; and (vi) ensure completion of the production of encapsulated cells according to cGMP regulations to use in our planned clinical trial involving LAPC.
There are numerous factorsitems required to be completed successfully to ensure our final product candidates arecandidate is ready for use in our planned clinical trials. Therefore, thetrial involving LAPC. The effects of material transactions with related parties, and certain other parties to the extent necessary for such an undertaking, may have substantial effects on both the timeliness and success of our current and prospective financial position and operating results. Nonetheless, we are actively working to ensure strong ties and interactions to minimize the inherent risks regarding success. We do not believe there are factors which will cause materially different amounts to be reported than those presented in this Report. We aim to assess this regularly to provide accurate information to our shareholders.
Results of Operations
Three and six months ended OctoberJuly 31, 20192020 compared to three and six months ended OctoberJuly 31, 20182019
Revenue
We had no revenues for the three and six months ended OctoberJuly 31, 20192020 and 2018.2019.
| 29 |
Operating Expenses and Loss from Operations
The following table summarizes our operating expenses and loss from operations for the three and six months ended OctoberJuly 31, 20192020 and 2018,2019, respectively:
| Three Months Ended October 31, | Six Months Ended October 31, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||
| $ | 1,067,122 | $ | 1,036,574 | $ | 2,201,197 | $ | 2,251,937 | |||||||
| Three Months Ended July 31, | ||||||
| 2020 | 2019 | |||||
| $ | 881,676 | $ | 1,134,075 | |||
The total operating expenses for the three-month period ended OctoberJuly 31, 2019 increased2020 decreased by $30,548$252,399 from the three months ended OctoberJuly 31, 2018.2019. The increasedecrease is attributable to a decrease in R&D costgeneral and administrative (“G&A”) expenses of $97,161, an increase$304,400, a decrease in director fees of $24,482, an increase$3,618, a decrease in compensation expense of $35,655,$174,224 net of an increase in legal and professional expense of $77,996$31,599 and a decreasean increase in general and administrative expensesR&D expense of $10,424.$198,244. The decrease in general and administrativeG&A expenses waswere mainly attributable to a decreasereductions in consulting expenses net of an increase infees and travel expenses.
Other expense
The total operating expensesfollowing table sets forth our other expense for the six-month periodthree months ended OctoberJuly 31, 2019 decreased2020 and 2019:
| Three Months Ended July 31, | ||||||
| 2020 | 2019 | |||||
| $ | 2,268 | $ | – | |||
Total other expense for the three months ended July 31, 2020 increased by $50,740the amount of $2,268 from the sixthree months ended OctoberJuly 31, 2018.2019. The decreaseincrease is attributable to a decreasethe increase of interest expense in R&D expensesthe amount of $292,625,$388, an increase in director feesincome taxes of $18,994, an increase in legal and professional expense of $40,517$800 and an increase in general and administrative expensesforeign exchange losses of $110,715, and an increase in compensation expense of $71,659. The increase in general and administrative expenses was mainly attributable to an increase in travel expense net of a decrease in consulting expense.$1,080.
Discussion of Operating, Investing and Financing Activities
The following table presents a summary of our sources and uses of cash for the sixthree months ended OctoberJuly 31, 20192020 and 2018,2019, respectively:
| Six Months Ended | Three Months Ended | |||||||||||||||
| October 31, 2019 | October 31, 2018 | July 31, 2020 | July 31, 2019 | |||||||||||||
| Net cash used in operating activities: | $ | (1,346,765 | ) | $ | (1,540,050 | ) | $ | (551,002 | ) | $ | (763,140 | ) | ||||
| Net cash used in investing activities: | $ | – | $ | – | – | – | ||||||||||
| Net cash provided by financing activities: | $ | 883,501 | $ | 1,395,000 | 1,820,060 | 582,500 | ||||||||||
| Effect of currency rate exchange | $ | (6,928 | ) | $ | (7,331 | ) | 2,677 | (6,862 | ) | |||||||
| Net decrease in cash | $ | (470,192 | ) | $ | (152,381 | ) | ||||||||||
| Net increase (decrease) in cash | $ | 1,271,735 | $ | (187,502 | ) | |||||||||||
Operating Activities:
The net cash used in operating activities for the sixthree months ended OctoberJuly 31, 20192020 is a result of our net losses, decreasesincreases in accounts payable, and accrued expenses, offset by an increasea decrease in prepaid expenses and an increase in securities issued for services and compensation.compensation, net of a decrease in accrued expenses. The cash used in operating activities for the sixthree months ended OctoberJuly 31, 20182019 is a result of our net losses, offset by an increase in stock issued, decreasesan increase to prepaid expenses and decreases in accounts payable and an increase in accrued expenses. See Condensed Consolidated Statements of Cash Flows on page 7.
| 30 |
Investing Activities:
There were no investing activities in the sixthree months ended OctoberJuly 31, 20192020 and 2018.2019.
Financing Activities:
The cash provided from financing activities is mainly attributable to the proceeds from the sale of our common stock.stock net of the use of funds for payment of insurance financing.
Liquidity and Capital Resources
As of OctoberJuly 31, 2019,2020, our cash totaled approximately $45,000,$2,167,000, compared to approximately $907,000$328,000 at OctoberJuly 31, 2018.2019. Working capital was approximately $1,116,000 at July 31, 2020 and approximately a negative $595,000$130,000 at OctoberJuly 31, 2019 and approximately $275,000 at October 31, 2018.2019. The decreaseincrease in cash is attributable to a lowerhigher beginning cash balance, a decreasean increase in proceeds from the sale of our common stock offset by a decrease in our operating expenses which generated a net loss.expenses. As of August 31, 2020, our cash totaled approximately $4,537,000.
During the sixthree months ended OctoberJuly 31, 2019,2020, funding was provided by investors to maintain and expand our operations and R&D. Sales of our common stock were made underconsummated using the S-3. From May 1, 2019 through August 12,During the three months ended July 31, 2019, we continued to acquire funds through our S-3 pursuant to Block TradeTrades transactions in a program which is structured to provide up to $25 million dollars to us less certain commissions pursuant to the S-3. From May 1, 2019 through October 31, 2019 we raised capital of approximately $950,000.
As of August 13, 2019,2020, we do not meetno longer met the eligibility requirements to use the S-3.
We plan to sell Shares in private placements to raise needed capital. In addition, we have the ability to reduce general and administrative costs and R&D expenses significantly should further funding be delayed.
In Note 2 – Going Concern to our condensed consolidated financial statementsCondensed Consolidated Financial Statements set forth in this Report, we note that certain conditions raise substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
Except as described below, we have no off-balance sheet arrangements that could have a material current effect or that are reasonably likely to have a material adverse effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
The future royalty and other payments underOn May 14, 2018, we entered into the Third Addendum, as amended, are royalty payments of 4% royalty onAmendments to all gross sales by us and 20% percent royalty of the amount we receive form sublicensees’ gross sales,material agreements with SG. Austria and Austrianova. See “Company Background and Material Agreements” above for a description of these Amendments.
Service Agreements
We entered into several service agreements, with both independent and related parties, pursuant to which services will be provided however, that inover the event the amounts received by us from sublicensees is 4% or less of sublicensees’ gross sales SG Austria will receive 50% of what we receivenext twenty-four months related to our IND and clinical trial involving LAPC. The services include regulatory affairs strategy, advice and follow up to 2%. In addition, SG Austria will receive 20% of any amount we receive over a 4% royalty payment from our sublicensees. SG Austria will also receive 50% of any other financial and non-financial consideration received by us from sublicenseeswork of the Cell-in-a-Box® technology.
The future royaltyIND submission to the FDA and other payments under the Diabetes License Agreement are royalty payments of 4% royalty on all gross sales by us and 20% percent royalty of the amount we receive from sublicensees’ gross sales, provided, however, that in the event the amounts received by us from sublicensees is 4% or less of sublicensees’ gross sales, Austrianova will receive 50% of what we receive up to 2%. In addition, Austrianova will receive 20% of any amount we receive over a 4% royalty payment from sublicensees. Austrianova will also receive 50% of any other financial and non-financial consideration received by us from sublicensees of the Cell-in-a-Box® technology.
The future royalty and other payments under the Cannabis License Agreement are royalty payments of 4% royalty on all gross sales by us and 20% percent royalty of the amount we receive form sublicensees’ gross sales, provided, however, that in the event the amounts received by us from sublicensees is 4% or less of sublicensees’ gross sales, Austrianova will receive 50% of what we receive up to 2%. In addition, Austrianova will receive 20% of any amount we receive from sublicensees over a 4% royalty payment. Austrianova will also receive 50% of any other financial and non-financial consideration received by us from sublicensees of the Cell-in-a-Box® technology.
The future royalty, milestone and patent prosecution costs under the Melligen Cell License Agreement are: (i) 6% royalty on gross sales; (ii) 25% royalty on sublicense gross sales; (iii) milestone payments of $50,000 after the first preclinical study; (iv) $100,000 after the successful conclusion of a Phase 1 clinical trial; (v) $450,000 after the successful conclusion of a Phase 2 clinical trial; (vi) $3,000,000 after the successful conclusion of a Phase 3 clinical trial; and (vii) 15% of the costs paid by UTS to prosecute and maintain patentsservices related to the licensed intellectual property.planned LAPC trial. They also cover a 24-month stability study, which includes the container closure integrity testing, of the clinical trial product syringes. The total cost is estimated to be approximately $195,000, of which the related party portion will be approximately $80,000.
Contractual Obligations
As of October 31, 2019, we leased office space in Laguna Hills, California under a lease ending August 31, 2020.
The following table presents certain payments due by us as of October 31, 2019 with respect to our known contractual obligations:
| Payments due by period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
| Capital Leases | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| Operating Leases | 23,700 | 23,700 | – | – | – | |||||||||||||||
| Purchase Obligations | – | – | – | – | – | |||||||||||||||
| Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under U.S. GAAP | – | – | – | – | – | |||||||||||||||
| Total | $ | 23,700 | $ | 23,700 | $ | – | $ | – | $ | – | ||||||||||
Critical Accounting Estimates and Policies
Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Commission and with the instructions to Form 10-Q. However, they do not include all the information and Notes required by U.S. GAAP for complete Condensed Consolidated Financial Statements.
In connection with the preparation of our Condensed Consolidated Financial Statements in this Report, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our Condensed Consolidated Financial Statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
We discuss our critical accounting estimates and policies in Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended April 30, 2019. There has been no material change in our critical accounting estimates and policies since April 30, 2019.
New Accounting Pronouncements
For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see Note 2 “Summary of Significant Accounting Policies” of the Notes to our Condensed Consolidated Financial Statements contained in this Report.
Available Information
Our website is located at www.PharmaCyte.comwww.PharmaCyte.com.. In addition, all our filings submitted to the Commission, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all our other reports and statements filed with the Commission are available on the Commission’s web site at www.sec.govwww.sec.gov. Such filings are also available for download free of charge on our website. The contents of the website are not, and are not intended to be, incorporated by reference into this Report or any other report or document filed with the Commission or furnished by us, and any reference to the websites are intended to be inactive textual references only.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The information called for by Item 3 is not required for a smaller reporting company.
Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, President and General Counsel, as our principal executive officer (“Chief Executive Officer”), and our Chief Financial Officer, as our principal financial officer (“Chief Financial Officer”), evaluated the effectiveness of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”).Act. Disclosure controls and procedures are designed to ensure that the information required to be disclosed in the reports that we file or submit to the Commission pursuant to the Exchange Act are recorded, processed, summarized and reported within the period specified by the Commission’s rules and forms and are accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosures. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of OctoberJuly 31, 2019,2020, our disclosure controls and procedures were not effective due to the material weaknesses in internal controlscontrol over financial reporting.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our companythe Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Also, controls can be circumvented by the individual acts of some person,persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Evaluation ofReport on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
| 32 |
Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal controls over financial reporting as of OctoberJuly 31, 20192020 based on the criteria outlined in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and identified the following material weaknesses in internal controls over financial reporting:
| · | Insufficient procedures and control documentation to implement control procedures including lack of timely contract preparation and review. We have developed procedures to provide ample review time of financial information, including contract preparation and review by qualified personnel as well as management. We have implemented these procedures, determined they are still insufficient and will continue to review these procedures to determine ways to further improve them. | |
| · | Insufficient segregation of duties of the Chief Financial Officer. We have delegated some of the duties of our Chief Financial Officer to other personnel within the Company and have added review and approval processes performed by the Chief Executive Officer. However, we have determined that we still have insufficient segregation of the duties of our Chief Financial Officer and will continue to review these procedures to determine ways to further improve them given our limited staff. | |
| · | Insufficient information technology controls and documentation. We currently use accounting software which we have determined is inadequate to provide the level of controls required by COSO. We are in the process of initiating a review process to fully evaluate the deficiencies in our technology controls and documentation. Based upon the results of this review process, we intend to implement the required remediation measures when it is reasonable to do so. |
Because of these material weaknesses, our Chief Executive Officer and our Chief Financial Officer concluded that, as of OctoberJuly 31, 2019,2020, our internal controls over financial reporting were not effective based on the COSO criteria.
We are in the process of investigating new procedures and controls for the balance of fiscal year 2020.2021. We plan to make changes to our procedures and controls that we believe are reasonable and reasonably likely to strengthen and materially affect our internal controls over financial reporting.
Prior to the remediation of these material weaknesses, there remains risk that the processes and procedures on which we currently rely will fail to be sufficiently effective, which could result in material misstatement of our financial position or results of operations and require a restatement. Because of the inherent limitations in all control systems, no evaluation of controls-evencontrols - even where we conclude the controls are operating effectively-caneffectively - can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-makingdecision making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events; accordingly, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our control systems, as we develop them, may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected and could be material to our financial statements.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
The Certifications of our Principal Executive and Principal Financial Officer required in accordance with Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002 (“Certifications”) are attached to this Report. The disclosures set forth in this Item 4 contain information concerning: (i) the evaluation of our disclosure controls and procedures, and changes in internal control over financial reporting, referred to in paragraph 4 of the Certifications; and (ii) material weaknesses in the design or operation of our internal control over financial reporting, referred to in paragraph 5 of the Certifications. The Certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the Certifications.
| 33 |
We are not currently a party to any material pending legal proceedings. There are no material legal proceedings to which any property of ours is subject.
Not applicable as we areThe information called for by Item 1A is not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the sixthree months ended OctoberJuly 31, 2019,2020, we issued an aggregate of 1.5 million unregistered shares of common stock to three of our directors as disclosed in this Report. The non-cash expense for these share issuances totaled $7,029.
During the three months ended July 31, 2020, we issued an aggregate of 1.5 million stock options to three of our directors pursuant to their DLAs. The non-cash expense for stock options totaled $19,201.
During the three months ended July 31, 2020, we issued an aggregate of 1 million unregistered shares of common stock to four independent contractors pursuant to their professional services agreements. The non-cash expense for these share issuances totaled $4,199.
During the three months ended July 31, 2020, we issued four warrantsCommon Stock Purchase Warrants to Aeon for Block Trades.Trades transactions. The warrants provide Aeon the right to purchase 6,833,33311,433,333 shares of common stock based upon these Block Trades pursuant to the Aeon Engagement Agreement. We classified thethese warrants as equity, and theequity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton option pricing model, we determined the aggregate value of these warrants to be approximately $33,000.$67,000. The warrants have a cashless exercise feature.
During the six months ended October 31, 2019, we issued an aggregate of 9.2 million unregistered shares of common stock to our directors and consultants as disclosed in this Report. The non-cash expense for these share issuances total $385,369.
During the six months ended October 31, 2019, we issued an aggregate of 3.2 million unregistered common stock options to our directors and a consultant as disclosed in this Report. The non-cash expense for these common stock options totaled $45,447.
During the six months ended October 31, 2019, we issued one share of Series A Preferred Stock to our chief executive officer. The net proceeds from the sale of the one share was $1.
All such securities were issued without registration under the Securities Act of 1933, as amended, in reliance upon the exemption afforded by Section 4(a)(2) of that Act based on the limited number of investors, the sophistication of the individuals involved and the use of restrictive legends on the securities issued to prevent a public distribution of the relevant securities. No underwriters were involved in any of these issuances.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
Not applicable.
None.
| 34 |
September 11, 2019 Special Meeting
As previously disclosed, beginning August 23, 2019, the Company mailed to holders of its common stock, $0.0001 par value per share, a Notice of Special Meeting of Stockholders and Proxy Statement (“Notice and Proxy Statement”) related to its September 11, 2019 Special Meeting of Stockholders (“Special Meeting”). A copy of the Notice and Proxy Statement were attached as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2019. The votes with respect to each matter voted on by stockholders at the Special Meeting are set forth below. [Please confirm that there was a quorum at the meeting.]
Proposal No. 1, relating to an amendment to the Company’s Certificate of Incorporation to permit “blank check” preferred stock, as fully described in The Notice and Proxy Statement, was not approved at the Special Meeting While a majority of the stock that was voted at the Special Meeting approved Proposal No. 1, the Proposal did not receive affirmative votes from holders of a majority of the Company’s outstanding stock and was therefore not approved.
Proposal No. 2, the election of directors, was approved at the Special Meeting and each candidate was elected.
Proposal No. 3, the ratification of Armanino LLP as the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2020 was approved at the Special Meeting.
Proposal No. 4, approval of the adjournment of the Special Meeting, if necessary or appropriate, was approved at the Special Meeting.
| Proposals | For | Against | Withheld | Broker Non-Votes | |||||||||||||
| 1 | 339,777,787 | 73,585,237 | 14,515,626 | 701,734,347 | |||||||||||||
| 3 | 1,074,859,505 | 26,223,869 | 28,529,623 | 0 | |||||||||||||
| 4 | 386,787,230 | 29,554,396 | 16,219,346 | 697,052,025 | |||||||||||||
| Directors | For | Withheld | Broker Non-Votes | |||||||||
| Kenneth L. Waggoner, JD | 405,101,485 | 22,777,165 | 701,734,347 | |||||||||
| Gerald W. Crabtree, PhD | 409,511,411 | 18,367,239 | 701,734,347 | |||||||||
| Thomas Liquard | 404,937,121 | 22,941,529 | 701,734,347 | |||||||||
| Thomas C. K. Yuen | 409,962,199 | 17,916,451 | 701,734,347 | |||||||||
| Michael M. Abecassis, MD | 410,817,810 | 17,060,840 | 701,734,347 | |||||||||
| Raymond C.F. Tong, MD | 408,259,010 | 19,619,640 | 701,734,347 | |||||||||
September 17, 2019 Voting Agreement
On September 17, 2019, the Company entered into a voting agreement with those of its stockholders who each owned 3.17% or greater of the Company’s outstanding common stock. The voting agreement granted each such stockholder ten votes for each share of common stock owned by them.
September 17, 2019 Stockholder Consent
On September 17, 2019, stockholders holding a majority of the voting power of the Company (representing 138,037,693 shares of the Company’s common stock, or approximately 53.7% of the voting power of the Company as of such date) acted by written consent in lieu of a meeting of the stockholders in order to approve an amendment (the “Blank Check Preferred Amendment”) to the Company’s Articles of Incorporation, as amended (the “Articles”). The Blank Check Preferred Amendment had the effect of amending Article IV of the Articles to provide that the Board of Directors has the power to designate the powers, preferences, rights, qualifications, limitations and restrictions pertaining to the preferred stock of the Company. The Blank Check Preferred Amendment did not adjust the number of authorized shares of common stock or preferred stock of the Company, or the par value thereof, or any other rights or preferences of the common stock or preferred stock of the Company.
October 30, 2019 Unregistered Sale of Series A Preferred Stock
On October 30, 2019, the Company issued to Mr. Waggoner, the Company’s Chairman of the Board, Chief Executive Officer, President and General Counsel, and an accredited investor, one share of Series A Preferred Stock, which share represented 100% of the outstanding shares of Series A preferred stock, for an aggregate purchase price of $1.00. This sale was exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act. The recipient of the Series A preferred stock represented his intention to acquire the security for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were included on the security issued in this transaction. The general terms of such preferred stock are described in Note 11 to our financial statements included herein.
October 31, 2019 Series A Preferred Stockholder Consent
On October 31, 2019, Mr. Waggoner, the Company’s Chairman of the Board, Chief Executive Officer, President and General Counsel, and the then holder of 100% of the outstanding shares of Series A Preferred Stock, acted by written consent in lieu of a meeting of the Series A Preferred Stockholders in order to approve an amendment (the “Increase in Authorized Shares Amendment”) to the Company’s Articles. The Increase in Authorized Shares Amendment had the effect of increasing the number of authorized shares of capital stock of the Company from 1,500,000,000 shares to 2,500,000,000 shares, of which 2,490,000,000 shares are common stock, with a par value of $0.0001, and 10,000,000 shares are preferred stock, with a par value of $0.0001. Subsequently, on December 3, 2019, the Company exercised its right to redeem the one outstanding share of Series A preferred stock held by Mr. Waggoner.
The voting rights agreement dated September 16, 2019 and the issuance of the single share of Series A Preferred Stock each materially modified the rights of the Company’s common stockholders by diluting their voting power.
| Exhibit No. | Description | Location |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
PharmaCyte Biotech, Inc.
| By:/s/ Kenneth L. Waggoner | |
| Kenneth L. Waggoner | |
| Chief Executive Officer | |
| (Duly Authorized Officer and Principal Executive Officer) | |
| By:/s/ Carlos A. Trujillo | |
| Carlos A. Trujillo | |
| Chief Financial Officer | |
| (Duly Authorized Officer and Principal Financial and Principal Accounting Officer) |