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 January 31, 20202021
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 March 13, 202012, 2021, the registrant had 1,481,471,1722,385,125,674 outstanding shares of common stock, with a par value of $0.0001 per share.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 20202021
| 2 |
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| January 31, 2020 | April 30, 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 142,242 | $ | 515,253 | ||||
| Prepaid expenses and other current assets | 66,952 | 138,151 | ||||||
| Total current assets | 209,194 | 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 | $ | 5,338,186 | $ | 5,782,396 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 340,494 | $ | 121,885 | ||||
| Accrued expenses | 678,360 | 620,966 | ||||||
| Total current liabilities | 1,018,854 | 742,851 | ||||||
| Total Liabilities | 1,018,854 | 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, 0 and 0 shares issued and outstanding as of January 31, 2020 and April 30, 2019, respectively | – | – | ||||||
| Common stock: authorized 2,490,000,000 shares, $0.0001 par value, 1,428,471,172 and 1,186,004,505 shares issued and outstanding as of January 31, 2020 and April 30, 2019, respectively | 142,847 | 118,600 | ||||||
| Additional paid-in capital | 107,305,733 | 104,966,158 | ||||||
| Accumulated deficit | (103,107,876 | ) | (100,031,371 | ) | ||||
| Accumulated other comprehensive loss | (21,372 | ) | (13,842 | ) | ||||
| Total stockholders' equity | 4,319,332 | 5,039,545 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 5,338,186 | $ | 5,782,396 | ||||
| January 31, 2021 | April 30, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 3,090,971 | $ | 894,861 | ||||
| Prepaid expenses and other current assets | 41,710 | 142,785 | ||||||
| Total current assets | 3,132,681 | 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 | $ | 8,261,673 | $ | 6,166,638 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 79,159 | $ | 185,842 | ||||
| Accrued expenses | 494,341 | 816,638 | ||||||
| Current portion of Small Business Administration – Paycheck Protection Program loan | 66,753 | 28,918 | ||||||
| Total current liabilities | 640,253 | 1,031,398 | ||||||
| Long-term liabilities, less current portion: | ||||||||
| Small Business Administration – Paycheck Protection Program loan | 8,447 | 46,282 | ||||||
| Total Liabilities | 648,700 | 1,077,680 | ||||||
| Commitments and Contingencies (Notes 7 and 9) | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, authorized: 2,490,000,000 shares, $0.0001 par value; 2,341,410,405 and 1,638,637,839 shares issued and outstanding as of January 31, 2021 and April 30, 2020, respectively | 234,142 | 163,864 | ||||||
| Additional paid-in capital | 113,849,337 | 108,805,062 | ||||||
| Accumulated deficit | (106,449,491 | ) | (103,858,259 | ) | ||||
| Accumulated other comprehensive loss | (21,015 | ) | (21,709 | ) | ||||
| Total stockholders' equity | 7,612,973 | 5,088,958 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 8,261,673 | $ | 6,166,638 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue | $ | – | $ | – | $ | – | $ | – | ||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development costs | 113,296 | 59,144 | 203,566 | 442,039 | ||||||||||||
| Compensation expense | 406,006 | 371,571 | 1,305,346 | 1,199,252 | ||||||||||||
| Director fees | 79,269 | 50,000 | 237,765 | 189,502 | ||||||||||||
| Legal and professional | 116,531 | 57,224 | 342,142 | 242,318 | ||||||||||||
| General and administrative | 160,206 | 138,408 | 987,686 | 855,173 | ||||||||||||
| Total operating expenses | 875,308 | 676,347 | 3,076,505 | 2,928,284 | ||||||||||||
| Loss from operations | (875,308 | ) | (676,347 | ) | (3,076,505 | ) | (2,928,284 | ) | ||||||||
| Net loss | $ | (875,308 | ) | $ | (676,347 | ) | $ | (3,076,505 | ) | $ | (2,928,284 | ) | ||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average shares outstanding basic and diluted | 1,375,499,976 | 1,126,904,505 | 1,284,500,731 | 1,084,053,016 | ||||||||||||
| Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | – | $ | – | $ | – | $ | – | ||||||||
| Operating expenses: | ||||||||||||||||
| Research and development costs | 174,088 | 113,296 | 595,976 | 203,566 | ||||||||||||
| Compensation expense | 336,095 | 406,006 | 1,167,527 | 1,305,346 | ||||||||||||
| Director fees | 65,953 | 79,269 | 207,294 | 237,765 | ||||||||||||
| Legal and professional | 95,720 | 116,531 | 325,888 | 342,142 | ||||||||||||
| General and administrative | 84,991 | 160,206 | 291,353 | 987,686 | ||||||||||||
| Total operating expenses | 756,847 | 875,308 | 2,588,038 | 3,076,505 | ||||||||||||
| Loss from operations | (756,847 | ) | (875,308 | ) | (2,588,038 | ) | (3,076,505 | ) | ||||||||
| Other expenses: | ||||||||||||||||
| Interest expense | (249 | ) | – | (2,006 | ) | – | ||||||||||
| Other expense | – | – | (1,188 | ) | – | |||||||||||
| Total other expenses | (249 | ) | – | (3,194 | ) | – | ||||||||||
| Net loss | $ | (757,096 | ) | $ | (875,308 | ) | $ | (2,591,232 | ) | $ | (3,076,505 | ) | ||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average shares outstanding basic and diluted | 2,337,034,318 | 1,375,499,976 | 2,108,274,833 | 1,284,500,731 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 4 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net Loss | $ | (875,308 | ) | $ | (676,347 | ) | $ | (3,076,505 | ) | $ | (2,928,284 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation | (602 | ) | 3,544 | (7,530 | ) | (3,787 | ) | |||||||||
| Other comprehensive income (loss) | (602 | ) | 3,544 | (7,530 | ) | (3,787 | ) | |||||||||
| Comprehensive loss | $ | (875,910 | ) | $ | (672,803 | ) | $ | (3,084,035 | ) | $ | (2,932,071 | ) | ||||
Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Loss | $ | (757,096 | ) | $ | (875,308 | ) | $ | (2,591,232 | ) | $ | (3,076,505 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation | 869 | (602 | ) | 694 | (7,530 | ) | ||||||||||
| Other comprehensive income (loss) | 869 | (602 | ) | 694 | (7,530 | ) | ||||||||||
| Comprehensive loss | $ | (756,227 | ) | $ | (875,910 | ) | $ | (2,590,538 | ) | $ | (3,084,035 | ) | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 5 |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JANUARY 31, 20202021 AND 20192020
(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 | – | 70,000,000 | 7,000 | 318,500 | – | – | 325,500 | |||||||||||||||||||||||||
| Share issued for cash | 1 | 1 | ||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| Shares issued for compensation | – | – | 6,600,000 | 660 | 99,578 | – | – | 100,238 | ||||||||||||||||||||||||
| Shares issued for services | – | – | – | – | 26,092 | – | – | 26,092 | ||||||||||||||||||||||||
| Shares issued for cash | – | 90,000,000 | 9,000 | 441,000 | – | – | 450,000 | |||||||||||||||||||||||||
| Share repurchased for cash | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||
| Stock options granted | – | – | – | – | 84,436 | – | – | 84,436 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (602 | ) | (602 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | – | – | (875,308 | ) | – | (875,308 | ) | ||||||||||||||||||||||
| Balance, January 31, 2020 | – | $ | – | 1,428,471,172 | $ | 142,847 | $ | 107,305,733 | $ | (103,107,876 | ) | $ | (21,372 | ) | $ | 4,319,332 | ||||||||||||||||
| 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 | ) | |||||||||||||||||||||
| Shares issued for compensation | – | – | – | – | 61,380 | – | – | 61,380 | ||||||||||||||||||||||||
| Shares issued for services | – | – | – | – | 35,430 | – | – | 35,430 | ||||||||||||||||||||||||
| Shares issued for cash, net of issuance costs of $35,000 | 45,454,545 | 4,545 | 460,455 | – | – | 465,000 | ||||||||||||||||||||||||||
| Stock options granted | – | – | – | – | 72,484 | – | – | 72,484 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | 3,544 | (6,058 | ) | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | (676,647 | ) | – | (676,347 | ) | ||||||||||||||||||||||
| Balance, January 31, 2019 | – | $ | – | 1,126,904,505 | $ | 112,690 | $ | 104,153,928 | $ | (98,892,427 | ) | $ | (8,496 | ) | $ | 5,365,695 | ||||||||||||||||
| Series A Preferred Stock | Common stock | Additional Paid-in | Accumulated | Other Comprehensive Income | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | 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 | ||||||||||||||||
| Shares issued for compensation | – | – | – | – | 67,320 | – | – | 67,320 | ||||||||||||||||||||||||
| Shares issued for services | – | – | 2,500,000 | 250 | 40,300 | – | – | 40,550 | ||||||||||||||||||||||||
| Shares issued for cash, net of issuance costs of $198,150 | – | – | 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 | ||||||||||||||||||||||
| Shares issued for compensation | – | – | – | – | 67,320 | – | – | 67,320 | ||||||||||||||||||||||||
| Shares issued for services | – | – | 1,000,000 | 100 | 19,059 | – | – | 19,159 | ||||||||||||||||||||||||
| Shares issued for cash, net of issuances costs of $278,150 | – | – | 458,666,667 | 45,867 | 2,795,983 | – | – | 2,841,850 | ||||||||||||||||||||||||
| Stock-based compensation - options | – | – | – | – | 56,059 | – | – | 56,059 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (2,852 | ) | (2,852 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | – | – | (950,192 | ) | – | (950,192 | ) | ||||||||||||||||||||||
| Balance, October 31, 2020 | – | – | 2,334,810,405 | 233,482 | 113,757,416 | (105,692,395 | ) | (21,884 | ) | 8,276,619 | ||||||||||||||||||||||
| Shares issued for compensation | – | – | 6,600,000 | 660 | 47,906 | – | – | 48,566 | ||||||||||||||||||||||||
| Shares issued for services | – | – | – | – | 5,409 | – | – | 5,409 | ||||||||||||||||||||||||
| Shares issued for cash | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
| Stock-based compensation - options | – | – | – | – | 38,606 | – | – | 38,606 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | 869 | 869 | ||||||||||||||||||||||||
| Net loss | – | – | – | – | – | (757,096 | ) | – | (757,096 | ) | ||||||||||||||||||||||
| Balance, January 31, 2021 | – | $ | – | 2,341,410,405 | $ | 234,142 | $ | 113,849,337 | $ | (106,449,491 | ) | $ | (21,015 | ) | $ | 7,612,973 | ||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 6 |
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSTOCKHOLDERS' EQUITY (continued)
NINE MONTHS ENDED JANUARY 31, 2021 AND 2020
(UNAUDITED)
| Nine Months Ended January 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,076,505 | ) | $ | (2,928,284 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock issued for services | 411,461 | 140,884 | ||||||
| Stock issued for compensation | 309,691 | 245,520 | ||||||
| Stock-based compensation – options | 309,170 | 282,673 | ||||||
| Change in assets and liabilities: | ||||||||
| Increase in prepaid expenses and other current assets | 71,199 | 215,583 | ||||||
| Increase (decrease) in accounts payable | 218,608 | (218,945 | ) | |||||
| Increase in accrued expenses | 57,395 | 46,020 | ||||||
| Net cash used in operating activities | (1,698,981 | ) | (2,216,549 | ) | ||||
| 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 | – | ||||||
| Repurchase of Series A Preferred Stock | (1 | ) | – | |||||
| Proceeds from sale of common stock, net of issuance costs | 1,333,500 | 1,860,000 | ||||||
| Net cash provided by financing activities | 1,333,500 | 1,860,000 | ||||||
| Effect of currency rate exchange on cash | (7,530 | ) | (3,787 | ) | ||||
| Net decrease in cash | (373,011 | ) | (360,336 | ) | ||||
| Cash at beginning of the period | 515,253 | 1,059,798 | ||||||
| Cash at end of the period | $ | 142,242 | $ | 699,462 | ||||
| Supplemental disclosure of cash flows information: | ||||||||
| Cash paid during the periods for taxes | $ | 800 | $ | – | ||||
| Series A Preferred Stock | Common stock | Additional 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-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 | ||||||||||||||||||||||
| 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-based compensation - options | – | – | – | – | 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 | ||||||||||||||||||||||
| Shares issued for compensation | – | – | 6,600,000 | 660 | 99,578 | – | – | 100,238 | ||||||||||||||||||||||||
| Shares issued for services | – | – | – | – | 26,092 | – | – | 26,092 | ||||||||||||||||||||||||
| Shares repurchased for cash | (1 | ) | – | 90,000,000 | 9,000 | 440,999 | – | – | 449,999 | |||||||||||||||||||||||
| Stock-based compensation - options | – | – | – | – | 84,436 | – | – | 84,436 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | – | (602 | ) | (602 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | – | – | (875,308 | ) | – | (875,308 | ) | ||||||||||||||||||||||
| Balance, January 31, 2020 | – | $ | – | 1,428,471,172 | $ | 142,847 | $ | 107,305,733 | $ | (103,107,876 | ) | $ | (21,372 | ) | $ | 4,319,332 | ||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 7 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended January 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,591,232 | ) | $ | (3,076,505 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Shares issued for services | 65,117 | 411,461 | ||||||
| Shares issued for compensation | 183,206 | 309,691 | ||||||
| Stock-based compensation – options | 166,982 | 309,170 | ||||||
| Change in assets and liabilities: | ||||||||
| Decrease in prepaid expenses and other current assets | 101,075 | 71,199 | ||||||
| Increase (decrease) in accounts payable | (106,682 | ) | 218,608 | |||||
| Increase (decrease) in accrued expenses | (209,052 | ) | 57,395 | |||||
| Net cash used in operating activities | (2,390,586 | ) | (1,698,981 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net cash provided by (used in) investing activities | – | – | ||||||
| Cash flows from financing activities: | ||||||||
| Payment of insurance financing loan | (113,245 | ) | – | |||||
| Proceeds from sale of Series A Preferred Stock | – | 1 | ||||||
| Use of funds from purchase of Series A preferred stock | – | (1 | ) | |||||
| Proceeds from sale of common stock, net of issuance costs | 4,699,247 | 1,333,500 | ||||||
| Net cash provided by financing activities | 4,586,002 | 1,333,500 | ||||||
| Effect of currency rate exchange on cash | 694 | (7,530 | ) | |||||
| Net increase (decrease) in cash | 2,196,110 | (373,011 | ) | |||||
| Cash at beginning of the period | 894,861 | 515,253 | ||||||
| Cash at end of the period | $ | 3,090,971 | $ | 142,242 | ||||
Supplemental disclosure of cash flows information: | ||||||||
| Cash paid during the periods for income taxes | $ | 800 | $ | 800 | ||||
| Cash paid during the periods for interest | $ | 2,006 | $ | – | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| 8 |
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 certain solid tumor cancerscancer 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-dependentinsulin dependent Type 2 diabetes are beingwill 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, by 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 active form of the prodrug, the killing of the patient’s tumor may be optimized.
The Company has beenis 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 INDU.S. Food and Drug Administration (“FDA”) allows the Company to commence the clinical trial involving LAPC has been submitted todescribed in the Company’s Investigational New Drug Application (“IND”) for which the FDA has placed a clinical hold, the Company willis not be spending any further resources developing this program.
In addition, the Company has been 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. Until the IND involving LAPC has been submitted to the FDA, the Company will not be spending any further resources developing this program.
Finally, the Company has been 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. Until the IND involving LAPC has been submitted to the FDA, the Company will not be spending any further resources developing this program.
The Cell-in-a-Box® capsules are largely composed of cellulose (cotton) and are bio-inert in the human body. 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 certain 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 tumor in the pancreas. The cancer prodrug ifosfamide will then be given intravenously at a very low dose (1 g/m2). 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 for LAPC
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 stop responding 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 in the pancreas 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 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 for LAPC once it is submitted to the FDA. Since the pre-IND meeting, the Company has completed the Cell-in-a-Box®engineering runs and manufacturing production runs along with most of the studies intended to provide data necessary for the completion of the Company’s IND for LAPC.
The Company is continuing to work on projects related to its planned IND submission for LAPC. Among other things, this work includes completion of each Module within the IND, the Investigator’s Brochure, the Pharmacy Manual, the Protocol for the LAPC clinical trial, a container closure integrity test of the Company’s clinical trial product that will be conducted over the course of two years, a pyrogenicity test, preparation of the angiography guidelines for implantation of the encapsulated cells for use in the LAPC clinical trial and a two-year stability study of the Company’s clinical trial product. The work also includes preparation of a Drug Master File, drafting change history related to the manufacturing process that existed when the preclinical studies were conducted compared to the current manufacturing process for the Company’s clinical trial product and publication of the IND in concert with the Company’s U.S. Agent for the FDA. The Company will need to raise additional funds to complete preparation of its IND submission to the FDA for the treatment of LAPC.
The plan is to initially conduct the LAPC trial 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 has also been 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 (a clinical procedure in which a needle is inserted into the peritoneal cavity and ascites fluid is removed) 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 playFDA allows it to commence the clinical trial involving LAPC described in its IND for which the FDA has placed a role in the rate of malignant ascites fluid production and accumulation, but the conclusions were difficult to interpret with certainty. As a result,clinical hold, 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 European 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. The Company has been developing aCompany’s diabetes therapy that involves encapsulationconsists of human liver cells that have been genetically engineered to produce, store and release insulin on demand at levels in proportion to the levels of blood sugar (glucose) in the human body. The Company is also exploring the possibility of usingencapsulated genetically modified stem cells and natural, human insulin-producing cells (beta islet cells) to treat Type 1 diabetes and insulin-dependent Type 2 diabetes. All three types of cellscells. The encapsulation will be encapsulateddone using the Cell-in-a-Box® encapsulation technology. The goal forImplanting these cells in the three approachesbody is designed to developfunction as a bio-artificial pancreas for purposes of insulin productionproduction. As with the two previous programs, the Company is not spending any further resources developing this program until the FDA allows the Company to commence the clinical trial involving LAPC described in its IND for diabetics who are insulin dependent. After appropriate animal testingwhich the FDA has placed a clinical hold.
Finally, the Company had 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”). On November 19, 2020, the Company terminated the Hai Kang License Agreement.
Clinical Hold
On September 1, 2020, the Company submitted an IND to the FDA for a planned Phase 2b clinical trial in LAPC. Shortly thereafter, the Company received Information Requests from the FDA related to the IND. The Company timely responded to all information requests.
| 9 |
On October 1, 2020, the Company received notice that the FDA had placed the IND on clinical hold.
On October 30, 2020, the FDA sent a letter to the Company setting forth the reasons for the clinical hold and specific guidance on what the Company must do to have the clinical hold lifted.
In order to lift the clinical hold, the FDA has informed the Company that it needs to conduct several additional preclinical studies. The FDA also requested additional information regarding several topics, including sequencing data, manufacturing information and product release specifications.
In addition, the FDA requested that several items not related to the clinical hold be addressed through the submission of an IND amendment. Specifically, the FDA requested that the Company perform qualification studies for the drug substance filling step to ensure that the product remains sterile and stable during the filling process. The FDA also requested additional information, discussion and clarification on several other topics.
Since October 30, 2020, there has been completed successfully,no further communication with the FDA regarding the clinical hold.
The Company has assembled a scientific team to address the FDA requests related to the clinical hold. That team is working through an extensive list of items that the FDA requested. Among other things, the Company planshas successfully completed a 9-month product stability study, commenced physical parameter testing for CypCaps™ and commenced additional studies for the sequence of DNA encoding of its encapsulated cells. The Company has also designed the biocompatibility tests for cytotoxicity, sensitization, irritation, acute systemic toxicity, material-mediated pyrogenicity, subacute/subchronic toxicity, genotoxicity and implantation. In addition, the Company has begun a compression and swelling study of CypCaps™, designed a study to seekdetermine if CypCaps™ are adversely affected by contrast medium and designed a study to show the FDA’s approvalcatheters used to transplantimplant CypCaps™ do not adversely impact the encapsulated insulin-producing cells into diabeticcells.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations-Clinical Hold for a further discussion of the clinical hold.
Impact of the COVID-19 Pandemic on the Company’s Operations
The coronavirus SARS-Cov2 pandemic (“COVID-19”) is causing significant, industry-wide delays in clinical trials. Although the Company is not yet in a clinical trial, the Company has filed an IND with the FDA to commence a clinical trial in LAPC. While the IND has been placed on clinical hold by the FDA, the Company has assessed the impact of COVID-19 on its operations. 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 exposure to COVID-19 when they are in a hospital or doctor’s office. There are local, regional and 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 goalFDA and other healthcare providers are making product candidates for these approachesthe 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 developdelays in tasks associated with the preparation of the Company’s responses to the clinical hold, including all requested preclinical studies. There may be further delays in generating responses to the requests from the FDA related to the clinical hold.
As a bio-artificial pancreasresult of the COVID-19 pandemic, commencement of the Company’s planned clinical trial to treat LAPC may be delayed beyond the lifting of the clinical hold should that occur. Also, enrollment may be difficult for purposesthe reasons 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 insulin production for diabetics whoour clinical trial, miss scheduled therapy appointments or follow-up visits or otherwise fail to follow the clinical trial protocol. If patients are insulin-dependent.unable to follow the clinical 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 clinical trial may be compromised or not be accepted by the FDA. This could further adversely impact or delay the Company’s clinical development program.
| 10 |
It is highly speculative in projecting the effects of COVID-19 on the Company’s clinical development program and the Company generally. The effects of COVID-19 quickly and dramatically change over time. Its evolution is difficult to predict, and no one is able to say with certainty when the pandemic will subside.
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 2011, the Company entered into an Asset Purchase Agreement (“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 Company’s common stock (“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 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 the 14.5% equity interest of SG Austria. The Third Addendum required SG Austria to return the 100,000,000 shares of Common Stock held by SG Austria and for the Company to return the 100,000 shares of common stock of Austrianova the Company held.
Effective as of the same date of the Third Addendum, the parties entered into a Clarification Agreement to the Third Addendum (“Clarification Agreement”) to clarify and include certain language that was inadvertently omitted from 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 technology for the development of treatments for cancer and use of Austrianova’s Cell-in-a-Box®trademark and its associated technology.
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 Bavarian Nordic/GSF License Agreement in July 2005 whereby Bio Blue Bird was granted a non-exclusive license to develop, make or have made products to treat cancer, 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 trial that used the cells and capsules developed by Bavarian Nordic/GSF (then known as “CapCells”). The licensed patent rights related to this information and technology pertain to the countries in which patents had been granted to Bavarian Nordic/GSF.
Bavarian Nordic/GSF and Bio Blue Bird amended the Bavarian Nordic License Agreement in December 2006 to reflect: (i) the license granted was exclusive; (ii) the 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 made 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® technology and trademark for the development of a therapy for Type 1 and insulin-dependent Type 2 diabetes (“Diabetes Licensing Agreement”).
In October 2014, the Company entered into an exclusive, worldwide license agreement (“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 plans to develop a therapy for diabetes by encapsulating the Melligen cells using the Cell-in-a-Box® encapsulation technology.
In December 2014, the Company acquired from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® 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 the Cell-in-a-Box® technology and trademark (“Cannabis Licensing Agreement”). The Company paid Austrianova $2.0 million to secure this license.
In July 2016, the Company entered into a Binding Memorandum of Understanding with Austrianova pursuant to which Austrianova will actively work to seek an investment partner or partners who will finance clinical trials and further develop products for the therapies for cancer, in exchange for which the Company, Austrianova and any future investment partner or partners will each receive a share of the net revenue from the sale of products in designated territories.
Effective October 1, 2016, the Company and Bavarian Nordic/GSF amended the Bavarian Nordic/GSF License Agreement to: (i) include the right to import; (ii) reflect ownership and notification of improvements; (iii) clarify which provisions survive expiration or termination of the Bavarian Nordic/GSF License Agreement; (iv) provide rights to Bio Blue Bird to the clinical data after expiration of the licensed patent rights; and (v) change the notice address and recipients of Bio Blue Bird.
In August 2017, the Company entered into a Binding Term Sheet with SG Austria and Austrianova (“Binding Term Sheet”) 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 and pursuant to the Binding Term Sheet, the Company entered into agreements with SG Austria and Austrianova to amend certain provisions 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 Sheet (“Binding Term Sheet Amendments”). The Binding Term Sheet Amendments provide that the Company’s obligation to make milestone payments to Austrianova are eliminated in their entirety under the Cannabis License Agreement and 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 pursuant to the SG Austria APA, as amended and clarified, is eliminated in its entirety. One of 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 has 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® tradename and its Associated Technologies; provided, however, that the Associated Technologies subject to the right of first refusal do not include Bac-in-a-Box®, which relates to encapsulation of probiotic bacteria and yeast for stomach acid protection and ambient storage. Also, 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 that the royalty payments on gross sales as specified in the SG Austria APA, the Cannabis License Agreement and the Diabetes License Agreement will be changed to 4%. They also provide that the royalty payments on amounts received by the Company from sublicensees’ gross sales under the same agreements will be changed to 20% of the amount received by 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 to 2%. In addition, Austrianova or SG Austria (as the case may be) will receive 20% of any amount the Company receives over a 4% royalty payment from sublicensees.
The Binding Term Sheet Amendments also provide that Austrianova will receive 50% of any other financial and non-financial consideration received from the Company’s sublicensees of the Cell-in-a-Box® technology.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying Condensed Consolidated Financial Statements as of January 31, 2020 and for the three and nine months ended January 31, 2020 and 2019 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 this Quarterly Report on 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 nine months ended January 31, 2020 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 January 31, 2020 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 owned subsidiaries. The Company operates independently and through four wholly owned subsidiaries: (i) Bio Blue Bird;Bird AG; (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 fiscalreporting year.
The Company’s intangible assets are licensing agreements related to the use the Cell-in-a-Box®Trademark and Associated Technologiestechnology for the treatment of cancer of $1,549,427 and the Diabetes Licensing Agreement related to the use of the Cell-in-a-Box®Trademark and Associated Technologiesdiabetes license for the treatment of diabetes of $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 nine months ended January 31, 20202021 and 2019.2020.
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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 nine months ended January 31, 20202021 and 2019.2020.
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; |
| Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The Company follows ASC subtopic 820-10, Fair Value Measurements and Disclosures and ASC subtopic 825-10, Financial Instruments, which permit entities to choose to measure many financial instruments and certain other items at fair value. The carrying value of cash, accounts payable and accrued expenses, as reflected in the condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these 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 notmore-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 notmore-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 statementsCondensed Consolidated Statements of operations.Operations.
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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 notmore-likely-than-not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than notmore-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 notmore-likely-than-not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than notmore-likely-than-not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than notmore-likely-than-not standard is met. When this occurs,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 notmore-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 COVID-19. 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&D 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 nine months ended January 31, 20202021 were $113,296$174,088 and $203,566,$595,976, respectively, and for the three and nine months ended January 31, 20192020 were $59,144$113,296 and $442,039,$203,566, 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.
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. The Company’s accountAccounts at this institution isare insured by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances aggregated approximately $0$2,810,000 and $127,000$618,000 at January 31, 20202021 and April 30, 2019,2020, respectively. The Company has not experienced any losses from this account.in such accounts. Management believes it is not exposed to any significant credit risk on cash.
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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.income (loss). 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 classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. As of January 31, 2020,2021, the Company hadhas an accumulated deficit of $103,107,876$106,449,491 and incurred a net loss for the nine months ended January 31, 20202021 of $3,076,505.$2,591,232. 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 nine months ended January 31, 2020,2021, funding was provided by investors to maintain and expand the Company’s operations. Sales of the Common StockCompany’s common stock were made under the Registration Statement ona Form S-3 filed on September 13, 2017 (“S-3”) allowing for offerings of up to $50 million in transactions that are deemeddollars. During the nine months ended January 31, 2021, the Company raised funds through the Company’s S-3 pursuant to be “atwhich the market offerings”placement agent sells shares of common stock “at-the-market” as defined in Rule 415 under the Securities Act of 1933, as amended (“Securities Act”), or in transactions structured as a public offering of a distinct block or blocks of shares (“Block Trades”) of Common Stock. During the nine-month period ended January 31, 2020, the Company continued to acquire funds through the Company’s S-3 pursuant to which the placement agent sells shares of Common Stock in common stock (“Block TradesTrade Transactions”) in a program which is structured to provide up to $25 million to the Company less certain commissions pursuant to the S-3.
On August 13, 2019,2020, the Company no 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. In late January 2020, the Company became eligible to use the S-3.
From May 1, 20192020 through August 12, 201913, 2020 the Company raised capital of approximately $884,000$4.7 million in Block Trade transactions net of commissions. DuringTransactions and “at-the-market” transactions.
Management determined that its plans to raise additional capital alleviate substantial doubt about the quarter ended January 31, 2020,Company’s ability to continue as a going concern. The Company believes the Company raised $450,000 throughcash on hand, the salepotential sales of unregistered shares of its Common Stockcommon stock and any public offerings of common stock in private placement transactions. Subsequent to January 31, 2020,which the Company raised additional capitalmay engage in the amount of $65,000 through the sale of unregistered shares of its Common Stock in private placement transactions and $186,000 net of commissions, in Block Trades pursuant to the S-3.
The Company plans to continue to sell registered securities using the S-3 to raisewill provide sufficient capital to meet the Company’s capital requirements and to fund the Company’s operations and R&D expenses until it files its Annual Report on Form 10-K for the fiscal year ended April 30, 2020 with the Commission, at which time it believes the S-3 will no longer be available to use to raise capital.through March 31, 2022.
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. As part of the Company’s continuing assessment of the adequacy of AU 2016-13, there are no factors to be considered at this time since the Company does not have an allowance for credit losses.
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 our condensed consolidated financial statements.the Company’s Condensed Consolidated Financial Statements.
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NOTE 3 – ACCRUED EXPENSES
Accrued expenses at January 31, 20202021 and April 30, 20192020 are summarized below:
| January 31, 2020 | April 30, 2019 | January 31, 2021 | April 30, 2020 | |||||||||||||
| Payroll related costs | $ | 421,941 | $ | 358,616 | $ | 484,462 | $ | 435,577 | ||||||||
| Share issuance compensation | – | 240,015 | ||||||||||||||
| Director and Officer insurance financing | – | 113,245 | ||||||||||||||
| Other | 256,419 | 22,335 | 9,879 | 267,816 | ||||||||||||
| Total | $ | 678,360 | $ | 620,966 | $ | 494,341 | $ | 816,638 | ||||||||
The Company 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 ten monthly payments of $12,806. The unpaid balances as of January 31, 2021 and April 30, 2020 are $0 and $113,245, respectively, which 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 COVID-19. The Company participated in the CARES Act, and on April 15, 2020, the Company entered into a note payable with 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 the PPP loan. The Company used the proceeds from the PPP loan for qualifying expenses as defined in the PPP. The Company intends to apply for forgiveness of the PPP 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. The outstanding PPP loan balance as of January 31, 2021 and April 30, 2020 was $75,200.
NOTE 45 – COMMON STOCK TRANSACTIONS
A summary of the Common Stock transactionsCompany’s stock activity and related weighted average grant date fair value information for the nine months ended January 31, 2021 and 2020 and 2019 is set forth below:as follows:
In July 2017,During the nine months ended January 31, 2020, the Company issued 4,200,0002,000,000 shares of restricted Common Stockcommon stock to three consultantsfour non-employee members of the Company’s Board of Directors (“Board”) pursuant to consulting agreements.Director Letter Agreements (“DLAs”) with the Company for services relating to the prior year. The termsshares vested upon issuance and the Company recorded a non-cash expense of two$0 and $0 and for the three and nine months ended January 31, 2021, respectively, and $0 and $19,212 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares as of January 31, 2021.
Effective July 1, 2018, the Company issued 1,200,000 shares of common stock to a consultant. The term of the agreements wereagreement is for twelve months and one agreement was for eighteen months. The shares vest monthly over a twelve-month to eighteen-month period and wereare subject to the consultantsconsultant providing services under their respective agreements with the Company.agreement. The Company recorded a non-cash consulting expense in the amount of $0 and $0 for the three and nine months ended January 31, 2020,2021, respectively, and $11,200 and $73,800 for the three and nine months ended January 31, 2019, respectively. There were no unvested shares remaining related to such consulting agreements as of January 31, 2020 and 2019, respectively.
During the nine months ended January 31, 2019, the Company issued 1,950,000 shares of restricted Common Stock to two consultants pursuant to consulting agreements. The terms of these two consulting agreements were for twelve months. The shares vest monthly over a twelve-month period and are subject to the consultants providing services under their respective consulting agreement. An additional agreement with one of the consultants required 500,000 shares vest upon issuance. The Company recorded a non-cash consulting expense in the amount of $0 and $12,816 for the three and nine months ended January 31, 2020, respectively, and $24,230 and $67,084 for the three and nine months ended January 31, 2019, respectively. There were zero and 562,500 unvested shares of Common Stock remaining related to these consulting agreements as of January 31, 20202021 and 2019, respectively.2020.
InDuring the month of April 2019, two consultants were issued 2,500,000 shares of restricted Common Stockcommon stock pursuant to their respective consulting agreement.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 consultantconsultants providing services under their respective consulting agreement.agreements. The Company recorded a non-cash consulting expense in the amount of $0 and $11,910$0 for the three and nine months ended January 31, 2020. There were zero unvested shares as of January 31, 2020.
During the nine months ended January 31, 2020, the four independent directors of the Company’s Board of Directors (“Board”) were issued 2,000,000 shares of restricted Common Stock pursuant to their respective Director Letter Agreement (“DLA”) with the Company. relating to their services for the prior year. The terms of each DLA is for twelve months. The shares vest on the directors’ anniversary date of their respective DLA. The Company recorded a non-cash expense of2021, respectively, and $0 and $19,212$11,910 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares of Common Stock remaining related to these DLAs as of January 31, 2021 and 2020.
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During the nine months ended January 31, 2020, a consultant was issued 500,000 shares of restricted Common Stockcommon 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 $0 and $0 for the three and nine months ended January 31, 2021, respectively, and $0 and $17,350 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares as of January 31, 2021 and 2020.
In AprilJanuary 2019, the Company awarded 6,600,000 shares of restricted Common Stockcommon stock to executive officers of the Company as part of their respective executive compensation agreementagreements for 2019. These shares vest monthly over a twelve-month period and are subject to themthe executive officers continuing to provide service under their respective executive compensation agreement.agreements. During the three and nine months ended January 31, 2020,2021, the Company recorded a non-cash compensation expense in the amount of $0 and $0, respectively, and $69,438 and $278,891 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares as of January 31, 2021 and 2020.
During the nine months ended January 31, 2020, four independent directorsnon-employee members of the Board were issued 2,000,000 shares of restricted Common Stockcommon stock pursuant to their respective DLADLAs 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. The DLA is automatically renewed and a new grant of shares of Common Stock occurs upon on the anniversary date of each DLA.issuance. The Company recorded a non-cash expense of $18,998$0 and $10,561 for the three and nine months ended January 31, 2021, respectively, and $18,988 and $46,433 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares remaining related to a DLAthese DLAs as of January 31, 2021 and 2020.
During the nine months ended January 31, 2020, a consultant was issued 2,000,000 shares of restricted Common Stock pursuant tocommon stock in respect of his services as 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 upon issuance areperiod with their vesting subject to the consultant providingcontinuing to provide services to the Company. The Company recorded a non-cash consulting expense in the amount of $0 and $0 for the three and nine months ended January 31, 2021, respectively, and $0 and $11,851 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares remaining related to his compensation agreementsarrangement as of January 31, 2021 and 2020.
During the nine months ended January 31, 2020, five2021, four non-employee members of the Board were issued 2,000,000 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 $10,411 and $26,859 for the three and nine months ended January 31, 2021, respectively. There were zero unvested shares remaining related to such DLAs as of January 31, 2021.
During the nine months ended January 31, 2021 four consultants were issued 2,200,0001,000,000 shares of restricted Common Stockcommon stock pursuant to their respective consulting agreementagreements 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 consultant providingconsultants continuing to provide services under the consultant’s respectivetheir consulting agreement.agreements. The Company recorded a non-cash consulting expense in the amount of $26,092$5,409 and $46,895$15,017 for the three and nine months ended January 31, 2020,2021, respectively. There were 750,000250,000 unvested shares remaining related to these consulting agreements as of January 31, 2020.
During the nine months ended January 31, 2020, a consultant was issued 500,000 shares of restricted Common Stock pursuant to his services as the Company’s Chairman of its Medical and Scientific Advisory Board over a twelve-month period. The shares vest upon issuance. The Company recorded a non-cash consulting expense in the amount of $4,600 and $6,133 for the three and nine months ended January 31, 2020, respectively.2021.
In January 2020, the Company awarded 6,600,000 shares of restricted Common Stockcommon stock to the executive officers of the Company as part of their executive compensation agreements for 2020. These shares vest monthly over a twelve-month period and are subject to themthe executive officers continuing to provide service under their respective executive compensation agreement.agreements. During the three and nine months ended January 31, 2020,2021, the Company recorded a non-cash compensation expense in the amountamounts of $44,881 and $179,521, respectively, and $30,800 and $30,800 for the three and nine months ended January 31, 2020, respectively. There were zero and 6,050,000 unvested shares remaining related to the executive compensation agreements as of January 31, 2020.2021 and 2020, respectively.
During the nine months ended January 31, 2021, a consultant was issued 500,000 shares of common stock in respect of his services as the Chairman of the Company’s Medical and Scientific Advisory Board with vesting subject to the consultant continuing to provide services to the Company. The Company recorded a non-cash consulting expense in the amount of $2,125 and $2,833 for the three and nine months ended January 31, 2021, respectively, and $0 and $0 for the three and nine months ended January 31, 2020, respectively. There were zero unvested shares remaining related to his compensation arrangement as of January 31, 2021 and 2020, respectively.
In January 2021, the Company entered intoawarded 6,600,000 shares of common stock to the executive officers of the Company as part of their compensation agreements for 2021. These shares vest monthly over a twelve-month period and are subject to the executive officers continuing to provide service under their compensation agreements. During the three stock subscription agreements resultingand nine months ended January 31, 2021, the Company recorded a non-cash compensation expense in the saleamounts of $3,685 and issuance$3,685, respectively. There were 6,050,000 unvested shares as of ninety million (90 million) shares of restricted Common Stock. The Company received $450,000 from the sale of these shares.January 31, 2021.
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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 nine months ended January 31, 20202021 and 2019,2020, the Company sold and issued approximately 136.7693 million and 111.7137 million shares of registered Common Stock,common stock, respectively, at prices ranging fromof 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$4.7 million and $1.9 million$884,000 from the sale of these shares for the nine months ended January 31, 2021 and 2020, and 2019, respectively.
On October 30, 2019, the Company issued one share of its Series A Preferred Stock to its Chief Executive Officer as described in detail in Note 11 – Preferred Stock. On October 31, 2019, the Board 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. On 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 nine months ended January 31, 2020 are2021 is as follows:
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Unvested, April 30, 2019 | 4,600,000 | $ | 0.05 | |||||
| Granted | 15,800,000 | 0.05 | ||||||
| Vested | (13,600,000 | ) | 0.05 | |||||
| Unvested, January 31, 2020 | 6,800,000 | $ | 0.05 | |||||
| Shares | Weighted Average Grant Date Fair Value | ||||||||
| Unvested, at April 30, 2020 | 4,600,000 | $ | 0.06 | ||||||
| Granted | 10,100,000 | 0.01 | |||||||
| Vested | (8,400,000 | ) | 0.01 | ||||||
| Forfeited | – | – | |||||||
| Unvested, at January 31, 2021 | 6,300,000 | $ | 0.01 | ||||||
NOTE 56 – STOCK OPTIONS AND WARRANTS
Stock Options
As of January 31, 2020,2021, the Company had 94,650,00062,600,000 outstanding stock options to its directors and executive officers (collectively, “Employee Options”) and consultants (collectively, “Non-Employee(“Non-Employee Options”).
During the nine months ended January 31, 20202021 and 2019,2020, the Company granted 11,000,000 and zero11,000,000 Employee Options, respectively. During the nine months ended January 31, 2020, 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:
| Nine Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Risk-free interest rate | 1.8% | – | 0.35% | 1.8% | ||||||||||||
| Expected volatility | 91% | – | 97% | 91% | ||||||||||||
| Expected lives (years) | 2.7 | – | ||||||||||||||
| Expected term (years) | 2.7 | 2.7 | ||||||||||||||
| Expected dividend yield | 0.00% | – | 0.00% | 0.00% | ||||||||||||
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The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded Common Stock.stock. For stock option grants issued during the nine months ended January 31, 20202021 and 2019,2020, the Company used a calculated volatility for each grant. The Company lacks adequate information about potentialthe exercise behavior and therefore 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-halfseven-tenths years for an average of three2.7 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 nine months ended January 31, 20202021 and 2019,2020, the Company granted 1,200,000zero and 1,200,000 Non-Employee Options, respectively. During the three months ended January 31, 20202021 and 2019,2020, the Company granted zero and zero 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.
A summary of the Company’s stock option activity and related information for the nine months ended January 31, 2020 are2021 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 | 12,200,000 | $ | 0.04 | $ | 0.04 | |||||||
| Forfeited | (25,000,000 | ) | $ | 0.19 | $ | 0.19 | ||||||
| Exercised | – | – | – | |||||||||
| Outstanding, January 31, 2020 | 94,650,000 | $ | 0.08 | $ | 0.07 | |||||||
| Exercisable, January 31, 2020 | 85,900,000 | $ | 0.08 | – | ||||||||
| Vested and expected to vest | 94,650,000 | $ | 0.08 | – | ||||||||
| Options | Weighted Average Exercise Price per Share | Weighted Average Grant Date Fair Value per Share | ||||||||||
| Outstanding, April 30, 2020 | 67,200,000 | $ | 0.06 | $ | 0.06 | |||||||
| Granted | 11,000,000 | 0.01 | 0.01 | |||||||||
| Forfeited | (15,600,000 | ) | – | – | ||||||||
| Exercised | – | – | – | |||||||||
| Outstanding, January 31, 2021 | 62,600,000 | $ | 0.05 | $ | 0.05 | |||||||
| Exercisable, January 31, 2021 | 54,350,000 | $ | 0.06 | $ | – | |||||||
| Vested and expected to vest | 62,600,000 | $ | 0.05 | $ | – | |||||||
A summary of the activity for unvested stock options during the nine months ended January 31, 20202021 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 | 12,200,000 | $ | 0.04 | 11,000,000 | 0.01 | |||||||||||
| Vested | (9,650,000 | ) | $ | 0.05 | (8,950,000 | ) | – | |||||||||
| Forfeited | – | – | – | – | ||||||||||||
| Unvested, January 31, 2020 | 8,750,000 | $ | 0.04 | |||||||||||||
| Unvested, January 31, 2021 | 8,250,000 | $ | 0.01 | |||||||||||||
| 18 |
The Company recorded $74,025$38,606 and $51,153$74,025 of stock-based compensation expense related to the issuance of Employee Options to certain executive officers and directors in exchange for services during the three months ended January 31, 20202021 and 2019,2020, respectively, and $284,934$166,982 and $204,619$284,934 during the nine months ended January 31, 20202021 and 2019,2020, respectively. At January 31, 2020,2021, there remained $194,758$35,148 of unrecognized compensation expense related to unvested Employee Options granted to executive officers and directors, to be recognized as expense over a weighted-average period of the remaining eleven 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, 2020.2021.
The Company recorded $10,411$0 and $21,331$10,411 of stock-based compensation related to the issuance of Non-Employee Options in exchange for services during the three months ended January 31, 20202021 and 2019,2020, respectively, and $24,237$0 and $78,054$24,237 during the nine months ended January 31, 2021 and 2020, and 2019, respectively. At January 31, 2020, there remained $17,089 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 five months. The unvested Non-Employee Options vest at 100,000 shares per month and are expected to be fully vested on June 30, 2020.January 31, 2021.
The following table summarizes ranges ofthe outstanding stock options by exercise price at January 31, 2020:2021:
| 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 | 0.06 | $ | 0.110 | 27,200,000 | $ | 0.110 | 0.104 | 10,450,000 | 0.71 | $ | 0.104 | 10,450,000 | $ | 0.104 | ||||||||||||||||||||||||||||
| $ | 0.184 | 250,000 | 0.11 | $ | 0.184 | 250,000 | $ | 0.184 | 0.0685 | 600,000 | 0.24 | $ | 0.0685 | 600,000 | $ | 0.0685 | ||||||||||||||||||||||||||||
| $ | 0.063 | 15,600,000 | 0.55 | $ | 0.063 | 15,600,000 | $ | 0.063 | 0.058 | 2,450,000 | 1.06 | $ | 0.058 | 2,450,000 | $ | 0.058 | ||||||||||||||||||||||||||||
| $ | 0.104 | 10,450,000 | 1.35 | $ | 0.104 | 10,450,000 | $ | 0.104 | 0.0734 | 1,200,000 | 1.25 | $ | 0.0734 | 1,200,000 | $ | 0.0734 | ||||||||||||||||||||||||||||
| $ | 0.0685 | 600,000 | 1.25 | $ | 0.0685 | 600,000 | $ | 0.0685 | 0.0729 | 1,800,000 | 1.44 | $ | 0.0729 | 1,800,000 | $ | 0.0729 | ||||||||||||||||||||||||||||
| $ | 0.058 | 2,450,000 | 1.80 | $ | 0.058 | 2,450,000 | $ | 0.058 | 0.089 | 1,200,000 | 1.46 | $ | 0.089 | 1,200,000 | $ | 0.089 | ||||||||||||||||||||||||||||
| $ | 0.0734 | 1,200,000 | 2.25 | $ | 0.0734 | 1,200,000 | $ | 0.0734 | 0.0553 | 500,000 | 0.84 | $ | 0.0553 | 500,000 | $ | 0.0553 | ||||||||||||||||||||||||||||
| $ | 0.0729 | 1,800,000 | 2.44 | $ | 0.0729 | 1,800,000 | $ | 0.0729 | 0.0558 | 9,000,000 | 1.15 | $ | 0.0558 | 9,000,000 | $ | 0.0558 | ||||||||||||||||||||||||||||
| $ | 0.089 | 1,200,000 | 2.46 | $ | 0.089 | 1,200,000 | $ | 0.089 | 0.0534 | 1,200,000 | 2.59 | $ | 0.0534 | 1,200,000 | $ | 0.0534 | ||||||||||||||||||||||||||||
| $ | 0.0553 | 500,000 | 1.35 | $ | 0.0553 | 500,000 | $ | 0.0553 | 0.0539 | 1,000,000 | 1.12 | $ | 0.0539 | 1,000,000 | $ | 0.0539 | ||||||||||||||||||||||||||||
| $ | 0.0558 | 9,000,000 | 1.75 | $ | 0.0558 | 9,000,000 | $ | 0.0558 | 0.0683 | 500,000 | 1.21 | $ | 0.0683 | 500,000 | $ | 0.0683 | ||||||||||||||||||||||||||||
| $ | 0.0534 | 1,200,000 | 3.60 | $ | 0.0534 | 1,200,000 | $ | 0.0534 | 0.0649 | 500,000 | 1.34 | $ | 0.0649 | 500,000 | $ | 0.0649 | ||||||||||||||||||||||||||||
| $ | 0.0539 | 1,000,000 | 1.62 | $ | 0.0539 | 1,000,000 | $ | 0.0539 | 0.0495 | 9,000,000 | 1.88 | $ | 0.0495 | 9,000,000 | $ | 0.0495 | ||||||||||||||||||||||||||||
| $ | 0.0683 | 500,000 | 1.71 | $ | 0.0683 | 500,000 | $ | 0.0683 | 0.0380 | 1,200,000 | 3.65 | $ | 0.0380 | 1,200,000 | $ | 0.0380 | ||||||||||||||||||||||||||||
| $ | 0.0649 | 500,000 | 1.85 | $ | 0.0649 | 500,000 | $ | 0.0649 | 0.0404 | 1,000,000 | 1.62 | $ | 0.0404 | 1,000,000 | $ | 0.0404 | ||||||||||||||||||||||||||||
| $ | 0.0404 | 1,000,000 | 2.13 | $ | 0.0404 | 1,000,000 | $ | 0.0404 | 0.0370 | 500,000 | 1.71 | $ | 0.0370 | 500,000 | $ | 0.0370 | ||||||||||||||||||||||||||||
| $ | 0.0370 | 500,000 | 2.21 | $ | 0.0370 | 500,000 | $ | 0.0370 | 0.0340 | 500,000 | 1.85 | $ | 0.0340 | 500,000 | $ | 0.0340 | ||||||||||||||||||||||||||||
| $ | 0.0495 | 9,000,000 | 2.48 | $ | 0.0495 | 9,000,000 | $ | 0.0495 | 0.0408 | 9,000,000 | 2.35 | $ | 0.0408 | 9,000,000 | $ | 0.0408 | ||||||||||||||||||||||||||||
| $ | 0.0380 | 1,200,000 | 4.65 | $ | 0.0380 | 700,000 | $ | 0.0380 | 0.0240 | 1,000,000 | 2.12 | $ | 0.0240 | 1,000,000 | $ | 0.0240 | ||||||||||||||||||||||||||||
| $ | 0.0340 | 500,000 | 2.35 | $ | 0.0340 | 500,000 | $ | 0.0340 | 0.0247 | 500,000 | 2.21 | $ | 0.0247 | 500,000 | $ | 0.0247 | ||||||||||||||||||||||||||||
| $ | 0.0408 | 9,000,000 | 2.96 | $ | 0.0408 | 750,000 | $ | 0.0408 | 0.0105 | 500,000 | 2.35 | $ | 0.0105 | 500,000 | $ | 0.0105 | ||||||||||||||||||||||||||||
| $ | 0.0067 | 9,000,000 | 2.95 | $ | 0.0067 | 750,000 | $ | 0.0067 | ||||||||||||||||||||||||||||||||||||
| Total | 94,650,000 | 1.27 | $ | 0.08 | 85,900,000 | $ | 0.08 | Total | 62,600,000 | 1.72 | $ | 0.05 | 54,350,000 | $ | 0.06 | |||||||||||||||||||||||||||||
The aggregate intrinsic value of outstanding options as of January 31, 20202021 was $125,970.$12,225. This represents options whose exercise price was less than the closing fair market value of Common Stockthe Company’s common stock on January 31, 20202021 of approximately $0.056$0.018 per share.
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. Common Stock Purchase Warrants issued in conjunction with Block Trade transactions to Aeon Capital, Inc. (“Aeon”), the Company’s placement agent under its S-3 “at-the-market” prospectus, are accounted for in accordance with ASC 815-40, with the fair value recorded to additional paid-in capital and offsetting amounts recorded as equity issuance costs on the Condensed Consolidated Statement of Stockholders’ Equity.
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 restricted Common Stock based upon this Block Trade. The Company classified the May 2018 Warrantthese warrants as equity. 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. 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 restricted Common Stock based upon a Block Trade. The Company classified the June 2018 Warrant as equity. 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 November 1, 2018 (“November 2018 Warrant”) for a Block Trade pursuant to the Engagement Agreement. The November 2018 Warrant provides Aeon with the right to purchase 2,272,727 shares of restricted Common Stock based upon a Block Trade. The Company classified the November 2018 Warrant as equity. The November 2018 Warrant haswarrants 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 the November 2018 Warrantthese warrants to be approximately $19,000.$9,000. The November 2018 Warrant haswarrants have a cashless exercise feature.
Effective July 15, 2019, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a Warrantwarrant to Aeon dated June 13, 2019 (“June 2019 Warrant”) for apurchase 1,944,444 shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The June 2019 Warrant provides Aeon with the right to purchase 1,388,889 shares of restricted Common Stock based upon a Block Trade. The Company classified the June 2019 Warrantthese warrants as equity. The June 2019 Warrant haswarrants 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 the June 2019 Warrantthese warrants to be approximately $9,000.$12,000. The June 2019 Warrant haswarrants have a cashless exercise feature.
TheEffective August 7, 2019, the Company issued a Warranttwo Common Stock Purchase Warrants to Aeon dated July 15, 2019 (“July 2019 Warrant”) for atwo Block Trade pursuant to the Engagement Agreement. The July 2019 Warrant provides Aeon with a right to purchase 1,944,444 shares of restricted Common Stock based upon a Block Trade. The Company classified the July 2019 Warrant as equity. 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.
transactions. The Company issued two Warrantswarrants to Aeon dated August 7, 2019 (“August 2019 Warrants”) forpurchase a total of 3,500,000 shares of common stock based on two Block Trades pursuant to the Aeon Engagement Agreement. The August 2019 Warrants provide Aeon with a right to purchase 3,500,000 shares of restricted Common Stock based upon two Block Trades. The Company classified the August 2019 Warrantsthese warrants as equity. 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 value of the August 2019 Warrantsthese 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.
Effective August 3, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 4,500,000 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 $24,000. The warrants have a cashless exercise feature.
Effective August 6, 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 August 6, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 5,000,000 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 August 7, 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.
Effective August 7, 2020, the Company issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 5,500,000 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 $19,000. The warrants have a cashless exercise feature.
Effective August 10, 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.
A summary of the Company’s warrant activity and related information for the nine months ended January 31, 2020 are2021 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, January 31, 2020 | 48,056,822 | – | ||||||
| Exercisable, January 31, 2020 | 48,056,822 | $ | 0.07 | |||||
| Warrants | Weighted Average Exercise Price | ||||||||
| Outstanding, April 30, 2020 | 47,890,155 | $ | 0.05 | ||||||
| Issued | 34,366,666 | 0.01 | |||||||
| Expired | (17,000,000 | ) | – | ||||||
| Outstanding, January 31, 2021 | 65,256,821 | 0.01 | |||||||
| Exercisable, January 31, 2021 | 65,256,821 | $ | 0.01 | ||||||
| 21 |
The following table summarizes additional information concerning warrants outstanding and exercisable at January 31, 2020:2021:
| Exercise Prices | Number of Warrant Shares Exercisable at October 31, 2019 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | |||||||||
| $0.12 | 17,000,000 | 0.94 | – | |||||||||
| $0.11 | 10,000,000 | 0.14 | – | |||||||||
| $0.065 | 769,231 | 1.88 | – | |||||||||
| $0.0575 | 869,565 | 2.18 | – | |||||||||
| $0.03 | 2,500,000 | 2.82 | – | |||||||||
| $0.026 | 1,923,077 | 3.41 | – | |||||||||
| $0.025 | 2,000,000 | 2.48 | – | |||||||||
| $0.018 | 1,388,889 | 3.33 | – | |||||||||
| $0.011 | 2,272,727 | 3.75 | – | |||||||||
| $0.01 | 2,500,000 | 4.15 | – | |||||||||
| $0.009 | 3,333,333 | 4.42 | – | |||||||||
| $0.005 | 3,500,000 | 4.52 | – | |||||||||
| 48,056,822 | 1.94 | $ | 0.07 | |||||||||
| Exercise Prices | Number of Warrant Shares Exercisable at April 30, 2020 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | |||||||||||
| $ | 0.065 | 769,231 | 0.88 | |||||||||||
| $ | 0.0575 | 869,565 | 1.17 | |||||||||||
| $ | 0.03 | 2,500,000 | 1.82 | |||||||||||
| $ | 0.026 | 1,923,077 | 2.41 | |||||||||||
| $ | 0.025 | 2,000,000 | 1.48 | |||||||||||
| $ | 0.018 | 1,388,889 | 2.33 | |||||||||||
| $ | 0.011 | 2,272,727 | 2.75 | |||||||||||
| $ | 0.01 | 13,200,000 | 4.17 | |||||||||||
| $ | 0.015 | 833,333 | 4.22 | |||||||||||
| $ | 0.009 | 3,333,333 | 3.42 | |||||||||||
| $ | 0.0075 | 15.666.666 | 4.49 | |||||||||||
| $ | 0.005 | 20,500,000 | 3.88 | |||||||||||
| 65,256,821 | 3.83 | $ | 0.01 | |||||||||||
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 nine months ended January 31, 20202021 and 2019, respectively.2020.
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;Austrianova Singapore Pte. Ltd. (“Austrianova”); and (ii) Austrianova Thailand Co.Company Ltd. The Company purchased products and services from these subsidiaries in the approximate amounts of $85,000$109,500 and $87,000$183,500 in the three and nine months ended January 31, 2020,2021, respectively, and $48,000$85,000 and $168,000$87,400 for the three and nine months ended January 31, 2019,2020, 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 itVin-de-Bona agreed to provide professional consulting services to the Company. Vin-de-Bona is owned by Prof. Walter H. Günzburg (“Prof. Günzburg”) 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 and Chief Technical Officer of Austrianova, and Dr. Salmons is the Chief Executive Officer and President of Austrianova.Austrianova). The term of the Vin-de-Bona Consulting Agreement isagreement was for 12 months, and automatically renewsrenewable for successive 12-month terms. After the initial term, either party has the right tocan 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-Bonathe three and nine months ended January 31, 2021 were approximately $21,000 and $65,000, respectively, and $3,000 and $18,000 for the three and nine months ended January 31, 2020, were approximately $3,000 and $18,000, respectively, and $2,000 and $14,000 for the three and nine months ended January 31, 2019, respectively. In addition, during the nine months ended January 31, 20202021 the Company issued 250,000 shares of common sharesstock to Dr. Salmons for beingto be a member of the Company’s Medical and Scientific Advisory Board. The Company recorded a noncash consulting expense of approximately $7,300$3,700 relating to these sharesthis share issuance for the nine months ended January 31, 2020.2021.
| 22 |
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. During the three monthsyear ended January 31, 2020, the related party was repaid in full.
During the nine months ended January 31,April 30, 2020, the Company issued one share of Series A Preferred Stock to the Chief Executive Officer of the Company for $1 pursuant to a subscription agreement.Subscription Agreement. The Series A Preferred Stock is described in detail in Note 1112 – Preferred Stock. During the three months ended January 31, 2020, theThe Board exercised its right to have the Company redeem the one share of Series A Preferred Stock. It is no longer issued and outstanding.
See Note 9 under Service Agreements for related party disclosures.
NOTE 89 – COMMITMENTS AND CONTINGENCIES
The Company acquires assets still in development and enters into 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 lifecycle 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 of the agreement. 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 pursuant to the Company’s obligations under the lease.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 January 31, 2020, the remaining term of the lease is seven months.was 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 expired 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. On December 2, 2020, the Company entered into an additional six-month lease of the Leased Premises, commencing on March 1, 2021. This lease expires on August 31, 2021.
Rent expenses for these offices for the three months ended January 31, 2021 and 2020 were $5,288 and $7,152, respectively, and for the nine months ended January 31, 2021 and 2020 were $17,824 and $23,812, respectively.
The following table presentssummarizes the Company’s aggregate future minimum lease payments required under the operating leases as of January 31, 2020.2021.
| Amount | ||||
| 2020 | $ | 7,110 | ||
| 2021 | 9,480 | |||
| Total minimum lease payments | $ | 16,590 | ||
Material Agreements
The Company’s material agreements are identified and summarized in Note 1 – Nature of Business – Company Background and Material Agreements.
Service Agreements
The Company has entered into several service agreements, with both independent and related parties, pursuant to which services will be provided over the next four to twenty-four months related to the Company’s planned IND filing. The services include regulatory affairs strategy, advice and completion of the IND submission to the FDA, container closure integrity testing of the clinical trial product syringes over the course of two years, a two year stability study and the preparation of angiography guidelines for implantation of the encapsulated cells for use in the Company’s planned clinical trial in LAPC. The total cost of such service agreements is estimated to be approximately $220,000, of which the related party portion will be $40,000.
| Amount | |||||
| 2021 | $ | 3,764 | |||
| 2022 | 4,956 | ||||
| Total | $ | 8,720 | |||
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 compensationMarch 2017. Each agreement hashad a term of two years with automatic annual extensions thereafter unless the Company or the executive officer provides written notification of termination at least ninety days prior to the end of the term or subsequent extensions. Each agreement has been renewed. The Company also entered into a DLAcompensation agreement with a new Board member in April 2015 which continuescontinued in effect until amended in May 2017.
In May 2017, the Company amended the compensation agreement with the Board members and the term continue in effect until a member is no longer on the Board.
In March 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 continues in effect until the member is no longer on the Board.
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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 Stockcommon 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.
Service Agreements
The Company entered into several service agreements with independent and related parties pursuant to which services will be provided over a specified period-of-time related to our IND which was placed on clinical hold by the FDA and proposed clinical trial involving LAPC. The services include regulatory affairs strategy, advice and follow up work on the IND and services related to having the clinical hold lifted. They also cover a 24-month stability study, which is approximately fifty percent complete, including the container closure integrity testing of the clinical trial product syringes. The total cost is estimated to be approximately $437,000, of which the related party portion will be approximately $310,000. These amounts take into account some of the cost associated with the work and preclinical studies required to lift the FDA’s clinical hold.
NOTE 9 –10 - INCOME TAXES
The Company had no income tax expense for the nine months ended January 31, 20202021 and 2019,2020, respectively. During the nine months ended January 31, 20202021 and 2019,2020, 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 $270,000$565,000 and $710,000$270,000 for the nine months ended January 31, 20202021 and 2019,2020, respectively.
There was no material difference between the effective tax rate and the projected blended statutory tax rate for the nine months ended January 31, 20202021 and 2019.2020.
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 notmore-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 January 31, 2020.2021.
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 nine months ended January 31, 20202021 and 2019,2020, 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.
NOTE 1011 – EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders who own Common Stock 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 Stockcommon stock outstanding during the period increased to include the number of additional shares of Common Stockcommon stock that would be outstanding if the potentially dilutive securities had been issued. Potential shares of Common Stockcommon stock outstanding principally include stock options and warrants. During the nine months ended January 31, 20202021 and 2019,2020, the Company incurred losses. Accordingly, the effect of any Common Stockcommon 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:
| Nine Months Ended January 31, | ||||||||
| 2020 | 2019 | |||||||
| Net loss | $ | (3,076,505 | ) | $ | (2,928,284 | ) | ||
| Basic weighted average number of shares outstanding | 1,284,500,731 | 1,084,053,016 | ||||||
| Diluted weighted average number of shares outstanding | 1,284,500,731 | 1,084,053,016 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
The table below sets forth the basic loss per share calculations:
| Three Months Ended January 31, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | (757,096 | ) | $ | (875,308 | ) | ||
| Basic weighted average number of shares outstanding | 2,337,034,318 | 1,375,499,976 | ||||||
| Diluted weighted average number of shares outstanding | 2,337,034,318 | 1,375,499,976 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Nine Months Ended January 31, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | (2,591,232 | ) | $ | (3,076,505 | ) | ||
| Basic weighted average number of shares outstanding | 2,108,274,833 | 1,284,500,731 | ||||||
| Diluted weighted average number of shares outstanding | 2,108,274,833 | 1,284,500,731 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
The table below sets forth these potentially dilutive securities:
| Nine Months Ended January 31, | ||||||||
| 2020 | 2019 | |||||||
| Excluded options | 94,650,000 | 96,450,000 | ||||||
| Excluded warrants | 48,056,822 | 39,577,797 | ||||||
| Total excluded options and warrants | 142,706,822 | 136,027,797 | ||||||
| Three Months Ended January 31, | ||||||||
| 2020 | 2019 | |||||||
| Net loss | $ | (875,308 | ) | $ | (676,347 | ) | ||
| Basic weighted average number of shares outstanding | 1,375,499,976 | 1,126,904,505 | ||||||
| Diluted weighted average number of shares outstanding | 1,375,499,976 | 1,126,904,505 | ||||||
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Nine Months Ended January 31, | ||||||||
| 2021 | 2020 | |||||||
| Excluded options | 62,600,000 | 94,650,000 | ||||||
| Excluded warrants | 65,256,821 | 48,056,822 | ||||||
| Total excluded options and warrants | 127,856,821 | 142,706,822 | ||||||
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". The one share of Series A Preferred Stock was issued on October 30, 2019 and repurchasedredeemed by the Company on December 3, 2019. As of January 31, 2020,2021, there are no shares of preferred stock issued and 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.
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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; |
| 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 February 2, 2020,March 1, 2021, the Company entered intoreceived notices of exercise for 26 Common Stock Purchase Warrants (“Warrants”). The holder of the Warrants elected to exercise the Warrants through a share subscription agreementcashless exercise in a private placement for a totalaccordance with the terms of 13,000,000the Warrants. This resulted in the Company issuing 43,715,269 shares of restricted Common Stock for a total of $65,000. There were no fees payable by the Company or warrant coverage relating to the share subscription agreement and the securities were offered and sold without registration under the Securities Act of 1933 as amended, in reliance on Section 4(a)(2) thereof.unregistered common stock.
From February 1, 2020 through March 13, 2020, the Company sold 40,000,000 shares of Common Stock using the S-3 structured as a Block Trade. The issuance of these shares resulted in gross proceeds to the Company of approximately $200,000. Pursuant to the Engagement Agreement with Aeon , the Company is required to pay Aeon a fee of 7%, which equals $14,000 and provide warrant coverage equal to 5% of the number of shares of Common Stock sold in the Block Trade with a five-year term which is 2 million warrant shares with an exercise price of $0.005 per share.
Item 2. Management’s Discussion and Analysis of Financial ConditionsCondition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This 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 continuing 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 our Quarterly Reports on Form 10-Q 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 lifts its clinical hold after we have submitted our responses to the FDA concerns related to our IND submission 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 COVID-19 may have on our business, including our efforts to have the clinical hold lifted and 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 trial to proceed after review of our clinical hold submission. 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 exists for patients with LAPC whose tumor in a patient’s 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). 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 tumor and result in serious side effects. Recently, radiation treatment alone is being used at some cancer centers in the U.S.
For LAPC, our therapy is comprised of implanting encapsulated genetically modified live cells in the blood supply as close to the tumor in the pancreas as possible followed by the administration of low doses of the cancer prodrug ifosfamide. We believe that 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 we can commence a Phase 2b clinical trial involving LAPC.
We are continuing to work on projects relateddeveloping therapies for pancreatic and other solid cancerous tumors by using genetically engineered live human cells that we believe 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 body as close as possible to the planned IND submission involving LAPC. Among other things,tumor. In this work includes completionway, we believe that when the cancer prodrug is administered to a patient with a particular type of each Module withincancer that may be affected by the IND,prodrug, the Investigator’s Brochure, the Pharmacy Manual, the Protocol for the LAPC clinical trial, a container closure integrity test of our clinical trial product that will be conducted over the course of two years, a pyrogenicity test, preparationkilling of the angiography guidelines for implantation of the encapsulated cells for use in the LAPC clinical trial and a two-year stability study of our clinical trial product. The work also includes preparation of a Drug Master File, drafting change history related to the manufacturing process that existed when the preclinical studies involving our product were conducted compared to the current manufacturing process for our clinical trial product and publication of the IND in concert with our U.S. Agent for the FDA.
The plan is to initially conduct the LAPC trial in the U.S. with possible study sites in Europe at a later date. However, no assurance canpatient’s tumor may be given that we will be able to make the IND submission to the FDA or that the FDA will approve our submission.optimized.
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 in much the same way that the Cell-in-a-Box® plus the cancer prodrug ifosfamide will be used to treat LAPC.“cannabinoids”. Until the INDFDA allows us to commence the clinical trial involving LAPC has been submitted todescribed in our IND, which the FDA has placed a clinical hold, we arewill not spendingspend 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 ourCannabis program, until the INDFDA allows us to commence the clinical trial involving LAPC has been submitted todescribed in our IND, which the FDA has placed a clinical hold, we arewill not spendingspend any further resources developing this program.
Finally, we
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We are also developing a therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes. Our diabetes therapy consists of encapsulatingencapsulated genetically modified insulin-producing human liver cells, beta islet cells and/or insulin-producing stem cellscells. The encapsulation of the 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 INDFDA allows us to commence the clinical trial involving LAPC described in our IND, which the FDA has placed a clinical hold.
Finally, we had licensed from Hai Kang the right to certain technology owned or controlled by Hai Kang related to COVID-19 diagnostic Kits. Our license is both for the sale of Kits as well as for the use of the technology underlying the Kits.
On November 19, 2020, we terminated the Hai Kang License Agreement.
Clinical Hold
On September 1, 2020, we submitted an IND to the FDA for a planned Phase 2b clinical trial in LAPC. Shortly thereafter, we received Information Requests from the FDA related to the IND. We timely responded to all information requests.
On October 1, 2020, we received notice that the FDA had placed our IND on clinical hold.
On October 30, 2020, the FDA sent a letter to us setting forth the reasons for the clinical hold and specific guidance on what we must do to have the clinical hold lifted.
In order to address the clinical hold, the FDA has requested that we:
| · | Provide additional sequencing data and genetic stability studies; |
| · | Conduct a stability study on the final formulated drug product as well as the cells from the Master Cell Bank; |
| · | Evaluate the compatibility of the delivery devices (i.e., the prefilled syringe and microcatheter) with our drug product; |
| · | Provide additional detailed description of the manufacturing process; |
| · | Provide additional product release specifications for the encapsulated cells; |
| · | Demonstrate comparability between the 1st and 2nd generation products and ensure adequate and consistent product performance and safety between the two generations of product; |
| · | Conduct a biocompatibility assessment using the final finished capsules after the entire drug product manufacturing process (but without cells); |
| · | Address insufficiencies in Chemistry, Manufacturing and Controls information in the cross-referenced Drug Master File; |
| · | Conduct an additional nonclinical study to assess the safety, activity and distribution of the drug product; |
| · | Revise the Investigators Brochure to include any additional preclinical studies conducted in response to the clinical hold and remove any statements not supported by the data; and |
| · | Provide data from a new and extensive pig study. |
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The FDA also requested that we address several issues not related to the clinical hold in an amendment to the IND, including:
| · | Providing a Certificate of Analysis for pc3/2B1 plasmid that includes tests for assessing purity, safety, and potency; |
| · | Performing qualification studies for the drug substance filling step to ensure that the product remains sterile and stable during the filling process; |
| · | Submitting an updated batch analysis for the drug product for the specific lot that will be used for manufacturing all future drug product; |
| · | Providing additional details for the methodology for the Resorufin (CYP2B1) potency and the PrestoBlue cell metabolic assays; |
| · | Providing a few examples of common microcatheters that fit the specifications in the Angiography Procedure Manual; |
| · | Clarifying the language in the Pharmacy Manual regarding proper use of the syringe fill with the drug product; and |
| · | Providing a discussion with data for the potential for cellular and humoral immune reactivity against the heterologous rat CYP2B1 protein and potential for induction of autoimmune-mediated toxicities in the Company’s study population. |
Since October 31, 2020, there has been submittedno further communication with the FDA regarding the clinical hold.
We have assembled a scientific team to address the FDA requests related to the clinical hold. That team is working to complete the items requested by the FDA. However, work at UTSWe have not yet determined the estimated cost or the time necessary to complete these items. The cost and time associated with completing these items will be significant.
Thus far, we have successfully completed a 9-month product stability study, commenced physical parameter testing for CypCaps™ and commenced additional studies for the sequence of DNA encoding of its encapsulated cells. We have also designed the biocompatibility tests for cytotoxicity, sensitization, irritation, acute systemic toxicity, material-mediated pyrogenicity, subacute/subchronic toxicity, genotoxicity and implantation. In addition, we have begun a compression and swelling study of CypCaps™, designed a study to determine if CypCaps™ are adversely affected by contrast medium and designed a study to show the catheters used to implant CypCaps™ do not adversely impact the encapsulated cells.
COVID-19 Potential Impact on the Melligen cells continues.Financial Condition and Results of Operations
COVID-19 is causing significant, industry-wide delays in clinical trials. Although we are not yet in a clinical trial, we have filed an IND with the FDA to commence a clinical trial in LAPC. While the IND has been placed on clinical hold by the FDA, we have assessed the impact of COVID-19 on our operations. 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 exposure to COVID-19 when they are in a hospital or doctor’s office. There are local, regional and 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 work is being funded by usFDA and UTS. Our portionother healthcare providers are making product candidates for the treatment of COVID-19 a priority over product candidates unrelated to COVID-19. As of the funding was previously paiddate of this Report, the COVID-19 pandemic has had an impact upon our operations, although we believe that impact is not material. The impact primarily relates to UTS.delays in tasks associated with the preparation of our responses to the clinical hold, including all requested preclinical studies. There may be further delays in generating responses to the requests from the FDA related to the clinical hold.
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As a result of the COVID-19 pandemic, commencement of our planned clinical trial to treat LAPC may be delayed beyond the lifting of the clinical hold should that occur. Also, enrollment may be difficult for the reasons 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 clinical trial, miss scheduled therapy appointments or follow-up visits or otherwise fail to follow the clinical trial protocol. If patients are unable to follow the clinical 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 clinical trial may be compromised or not be accepted by the FDA. This could further adversely impact or delay our clinical development program.
It is highly speculative in projecting the effects of COVID-19 on our clinical development program and on us generally. The effects of COVID-19 quickly and dramatically change over time. Its evolution is difficult to predict, and no one is able to say with certainty when the pandemic will subside.
COVID-19 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 risk factors 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 cancer 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 requiredrespond to the issues raised by the FDA forin its clinical hold on our cellular therapies; (v) ensure the manufacture of our encapsulated live cells is in compliance with current good manufacturing practice (“GMP”) regulations as required by the applicable regulatory agencies so they may be used in our clinical trials;IND and (vi)otherwise have regulatory work completed to enable studies and clinical 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 current Good Manufacturing Practices regulations to use in our planned clinical trial involving LAPC.
There are numerous factorsitems required to be completed successfully in order for the FDA’s clinical hold on our IND to ensurebe lifted and 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 nine months ended January 31, 20202021 compared to three and nine months ended January 31, 20192020
Revenue
We had no revenues for the three and nine months ended January 31, 20202021 and 2019.2020.
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Operating Expenses and Loss from Operations
The following table summarizes our operating expenses and loss from operations for the three and nine months ended January 31, 20202021 and 2019,2020, respectively:
| Three Months Ended January 31, | Three Months Ended January 31, | Nine Months Ended January 31, | Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| 2021 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||
| $ | 875,308 | $ | 676,347 | $ | 3,076,505 | $ | 2,928,284 | 756,847 | $ | 875,308 | $ | 2,588,038 | $ | 3,076,505 | ||||||||||||||
The total operating expenses for the three-month period ended January 31, 2020 increased2021 decreased by $198,961$118,461 from the three months ended January 31, 2019.2020. The increasedecrease is attributable to an increasea decrease in R&Dgeneral and administrative (“G&A”) expenses of $54,152, an increase$75,215, a decrease in director fees of $29,269, an increase in compensation expense of $34,435, an increase$13,316, a decrease in legal and professional expense of $59,307 and$20,811 a decrease in compensation expense of $69,911, net of an increase in generalR&D expense of $60,792. The decrease in G&A expenses were mainly attributable to reductions in consulting fees and administrative expenses of $21,798.travel expenses.
The total operating expenses for the nine-month period ended January 31, 2020 increased2021 decreased by $148,221$488,467 from the nine months ended January 31, 2019.2020. The increasedecrease is attributable to an increasea decrease in G&A expenses of $696,333, a decrease in director fees of $48,263, an increase$30,471, a decrease in compensation expense of $137,819, a decrease in legal and professional expense of $99,824$16,254, net of an increase in R&D expense of $392,410. The decrease in G&A expenses were mainly attributable to reductions in consulting fees and travel expenses.
Other expense
The following table sets forth our other expense for the three and nine months ended January 31, 2021 and 2020:
| Three Months Ended January 31, | Nine Months Ended January 31, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||
| $ | 249 | $ | – | $ | 3,194 | $ | – | |||||||
Total other expense for the three months ended January 31, 2021 increased by the amount of $249 from the three months ended January 31, 2020. The increase is attributable to the increase of interest expense in the amount of $249.
Total other expense for the nine months ended January 31, 2021 increased by the amount of $3,194 from the nine months ended January 31, 2020. The increase is attributable to the increase of interest expense in the amount of $2,006, an increase in income taxes of $800 and an increase in general and administrative expensesforeign exchange losses of $132,513, and an increase in compensation expense of $106,094, net of a decrease in R&D expenses of $238,473. The increase in general and administrative expenses was mainly attributable to an increase in travel expense net of a decrease in consulting expense.$388.
Discussion of Operating, Investing and Financing Activities
The following table presents a summary of our sources and uses of cash for the nine months ended January 31, 20202021 and 2019,2020, respectively:
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| January 31, 2020 | January 31, 2019 | January 31, 2021 | January 31, 2020 | |||||||||||||
| Net cash used in operating activities: | $ | (1,698,981 | ) | $ | (2,216,549 | ) | $ | (2,390,586 | ) | $ | (1,698,981 | ) | ||||
| Net cash used in investing activities: | $ | – | $ | – | ||||||||||||
| Net cash provided by (used in) investing activities: | – | – | ||||||||||||||
| Net cash provided by financing activities: | $ | 1,333,500 | $ | 1,860,000 | 4,586,002 | 1,333,500 | ||||||||||
| Effect of currency rate exchange | $ | (7,530 | ) | $ | (3,787 | ) | 694 | (7,530 | ) | |||||||
| Net decrease in cash | $ | (373,011 | ) | $ | (360,336 | ) | ||||||||||
| Net increase (decrease) in cash | $ | 2,196,110 | $ | (373,011 | ) | |||||||||||
| 31 |
Operating Activities:
The net cash used in operating activities for the nine months ended January 31, 20202021 is a result of our net losses, increasesdecreases in accounts payable, and accrued expenses and a decrease in prepaid expenses and an increase in securities issued for services and compensation. The cash used in operating activities for the nine months ended January 31, 20192020 is a result of our net losses, offset by an increase in stock issued, decreases toa decrease in prepaid expenses and increases in accounts payable and an increase in accrued expenses. See Condensed Consolidated Statements of Cash Flows on page 7.8.
Investing Activities:
There were no investing activities in the nine months ended January 31, 20202021 and 2019.2020.
Financing Activities:
The cash provided from financing activities is mainly attributable to the proceeds from the sale of Common Stock.
our common stock net of the use of funds for payment of director and officer insurance financing.
Liquidity and Capital Resources
As of January 31, 2020,2021, our cash totaled approximately $142,000,$3,091,000, compared to approximately $699,000$142,000 at January 31, 2019.2020. Working capital was approximately $2,492,000 at January 31, 2021 and approximately a negative $810,000 at January 31, 2020 and approximately $227,000 at January 31, 2019.2020. The decreaseincrease in cash is attributable to a lowerhigher beginning cash balance, a decreasean increase in proceeds from the sale of Common Stockour common stock offset by an increasea decrease in our operating expenses which generated a net loss.expenses.
During the nine months ended January 31, 2020,2021, funding was provided by investors to maintain and expand our operations and R&D. Sales of Common Stockour common stock were consummated using the S-3. From May 1, 2019 through August 12, 2019,During the nine months ended January 31, 2020, we continued to acquire funds through our S-3 pursuant to Block Trades transactions in a program which is structured to provide up to $25 million dollars to us less certain commissions pursuant to the S-3. We also raised funds from private placements with investors. From May 1, 2019 through January 31, 2020 we raised capital from private placements of approximately $1,400,000.
As of August 13, 2019,2020, we did not meetno longer met the eligibility requirements to use the S-3. In late January 2020, we regained our eligibility to use the S-3.
We plan to sell shares of our registered Common Stock using the S-3 until we file our Annual Report on Form 10-K for the fiscal year ended April 30, 2020 with the Commission, at which time we believe the S-3 will no longer be available. We will need to raise additional funds to complete preparation of our IND filing with the FDA relating to LAPC.
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. However, we believe the cash on hand, the potential sales of unregistered shares of its common stock and any public offerings of common stock in 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 March 31, 2022.
Use of Estimates and Critical Accounting Policies
For a discussion regarding the Company’s use of estimates and critical accounting policies, see Note 2 “Summary of Significant Accounting Policies” of the Notes to our Condensed Consolidated Financial Statements contained in this Report.
| 32 |
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,conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
The future royalty and other payments under the Third Addendum, as amended, are royalty payments of 4% royalty on all gross sales by us and 20% 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 SG Austria will receive 50% of what we receive 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 sublicensees of the Cell-in-a-Box® technology.
The future royalty and other payments under the Diabetes License Agreement are royalty payments of 4% royalty on all gross sales by us and 20% 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% 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 patents related to the licensed intellectual property.
Service Agreements
We entered into several service agreements with both independent and related parties pursuant to which services will be provided over the next four to twenty-four monthsa specified period-of-time related to our IND which was placed on clinical hold by the FDA and proposed clinical trial involving LAPC. The services include regulatory affairs strategy, advice and completion offollow up work on the IND submissionand services related to having the FDA,clinical hold lifted. They also cover a 24-month stability study, which is approximately fifty percent complete. including the container closure integrity testing of the clinical trial product syringes over the course of two years, a two year stability study and the preparation of angiography guidelines for implantation of the encapsulated cells for use in our planned clinical trial in LAPC.syringes. The total cost is estimated to be approximately $220,000,$437,000, of which the related party portion will be $40,000.
Contractual Obligations
Asapproximately $310,000. These amounts take into account some of January 31, 2020, 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 January 31, 2020 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 | 16,590 | 16,590 | – | – | – | |||||||||||||||
| Purchase Obligations | – | – | – | – | – | |||||||||||||||
| Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under U.S. GAAP | – | – | – | – | – | |||||||||||||||
| Total | $ | 16,590 | $ | 16,590 | $ | – | $ | – | $ | – | ||||||||||
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 accordancethe cost associated with the requirements of Regulation S-X of the Commissionwork 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 arepreclinical studies required to make assumptions and estimates about future events and apply judgments that affectlift 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.FDA’s clinical hold.
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 atwww.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 atwww.sec.gov. www.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)Rules 13a - 15(e) and 15d - 15(e) promulgated under the Securities Exchange Act of 1934, as amended, (“Exchange 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 January 31, 2020,2021, 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.
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 January 31, 20202021 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 January 31, 2020,2021, 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. We2021. At the appropriate time we plan to make reasonable 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 Officer 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.
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 applicableIn addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Form 10-K filed with the Commission on August 13, 2020. The information set forth therein and in this Report could materially affect our business, financial position and results of operations. There are no material changes from the risk factors set forth the 10-K, except as follows:
As a result of the clinical hold that has been placed on our IND by the FDA, it may take considerable time and expense to respond to the FDA and no assurance can be given that the FDA will remove the clinical hold in which case our business and prospects will likely suffer material adverse consequences.
On October 1, 2020, we received notice that the FDA had placed our IND for a planned Phase 2b clinical trial in LAPC on clinical hold. As part of the clinical hold process, the FDA has asked for additional information, tasks to be performed by us and new preclinical studies. It may take a considerable period of time, the length of which is unknown at this time, for us to conduct such tasks and preclinical studies and to generate and prepare the requested information. In addition, the significant expense of such work is likely to require us to raise additional capital. It is possible that the service providers that we will utilize for such work may have considerable backlogs and/or are suffering from slowdowns as a result of COVID-19 and may not be able to perform such work for an extended period of time. Even if we are able to fully respond to the FDA’s requests, they may subsequently make additional requests that we would need to fulfill prior to the lifting of the clinical hold and we may never be able to begin our clinical trial in LAPC, obtain regulatory approval or obtain commercialization for our product candidates. An inability to conduct clinical trial in LAPC as a smaller reporting company.result of the clinical hold or otherwise, would likely force us to terminate our clinical development plans. It is possible that we will be unable to fully respond to the FDA in a satisfactory manner, and as a result the clinical hold may never be lifted. If the clinical hold is not lifted or if the lifting takes an extended period of time, our business and prospects will likely suffer material adverse consequences.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
OnDuring the three months ended January 2, 2020,31, 2021, we issued an aggregate of 6.6 million unregistered shares of Common Stockcommon stock to our executive officers pursuant to their respective 2021 executive compensation agreement as disclosed in this Report. The non-cash expense for thesethis share issuancesissuance totaled $369,600.$44,220.
OnDuring the three months ended January 2, 2020,31, 2021, we issued an aggregate of 9 million stock options to our three executive officers pursuant to their 2020respective 2021 executive compensation agreements.agreement. The non-cash expense for these stock options totaled $212,464.
On November 11, 2019, we issued an aggregate of 60 million unregistered shares of Common Stock through the sale of unregistered Common Stock to accredited investors pursuant to two subscription agreements. The net proceeds received by us were $300,000.$38,344.
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.
* This exhibit is being filed pursuant to Item 601(b)(3)(i) of Regulation S-K which requires a conformed version of the Company’s Articles of Incorporation, as amended, reflecting all amendments in one document.
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.
| March | By:/s/ Kenneth L. Waggoner |
| Kenneth L. Waggoner | |
| Chief Executive Officer | |
| (Duly Authorized Officer and Principal Executive Officer) | |
| March | By:/s/ Carlos A. Trujillo |
| Carlos A. Trujillo | |
| Chief Financial Officer | |
| (Duly Authorized Officer and Principal Financial and Principal Accounting Officer) |