UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2015
or
o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 333-68008
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.) |
12510 Prosperity Drive, Suite 310, Silver
Spring, Maryland 20904
(Address of principal executive offices)
(917) 595-2850
(Registrant’s telephone number, including
area code)
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 x No o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted 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 and post such files). Yes x No o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
x |
Non-accelerated filer |
o |
Smaller reporting company |
o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of December 10, 2015, registrant had
750,826,823 outstanding shares of common stock, with a par value of $0.0001 per share.
PHARMACYTE BIOTECH, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED OCTOBER
31, 2015
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Page |
PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
3 |
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Condensed Consolidated Balance Sheets as of October 31, 2015 and April 30, 2015 (Unaudited) |
3 |
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Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended October 31, 2015 and 2014 (Unaudited) |
4 |
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Condensed Consolidated Statements of Comprehensive Loss for the
Three Months and Six Months Ended October 31, 2015 and 2014 (Unaudited) |
5 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2015 and 2014 (Unaudited) |
6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
21 |
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Item 4. |
Controls and Procedures |
21 |
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PART II. |
OTHER INFORMATION |
23 |
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Item 1. |
Legal Proceedings |
23 |
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Item 1A. |
Risk Factors |
23 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
23 |
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Item 3. |
Defaults Upon Senior Securities |
23 |
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Item 4. |
Mine Safety Disclosures |
23 |
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Item 5. |
Other Information |
23 |
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Item 6. |
Exhibits |
24 |
PART I – FINANCIAL INFORMATION
Item1. Financial Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| |
October 31, | | |
April 30, | |
| |
2015 | | |
2015 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 2,312,430 | | |
$ | 2,699,737 | |
Prepaid expenses and other current assets | |
| 74,757 | | |
| 119,257 | |
Deposit | |
| 125,000 | | |
| – | |
Total current assets | |
| 2,512,187 | | |
| 2,818,994 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Intangibles | |
| 3,549,427 | | |
| 3,549,427 | |
Investment in SG Austria | |
| 1,572,193 | | |
| 1,572,193 | |
Other assets | |
| 7,854 | | |
| 7,854 | |
Total other assets | |
| 5,129,474 | | |
| 5,129,474 | |
| |
| | | |
| | |
Total Assets | |
$ | 7,641,661 | | |
$ | 7,948,468 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 427,208 | | |
$ | 496,699 | |
Accrued expenses | |
| 52,797 | | |
| 23,667 | |
Derivative liability | |
| – | | |
| 492,049 | |
License agreement obligation | |
| 600,000 | | |
| 1,000,000 | |
Total current liabilities | |
| 1,080,005 | | |
| 2,012,415 | |
| |
| | | |
| | |
Total Liabilities | |
| 1,080,005 | | |
| 2,012,415 | |
| |
| | | |
| | |
Commitments and Contingencies (Notes 7 and 9) | |
| | | |
| | |
| |
| | | |
| | |
Preferred stock, authorized 10,000,000 shares, $0.0001
par value, 0 shares issued and outstanding, respectively | |
| – | | |
| – | |
| |
| | | |
| | |
Stockholders' equity: | |
| | | |
| | |
Common stock, authorized 1,490,000,000 shares, $0.0001 par value, 747,443,744 and 732,760,536
shares issued and outstanding as of October 31, 2015 and April 30, 2015, respectively |
|
|
74,749 |
|
|
|
73,273 |
|
Additional paid in capital | |
| 87,685,381 | | |
| 85,415,954 | |
Accumulated deficit | |
| (81,200,061 | ) | |
| (79,554,636 | ) |
Accumulated other comprehensive income | |
| 1,587 | | |
| 1,462 | |
Total stockholders' equity | |
| 6,561,656 | | |
| 5,936,053 | |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity | |
$ | 7,641,661 | | |
$ | 7,948,468 | |
See accompanying notes to condensed consolidated
financial statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
Three Months Ended October 31, | | |
Six Months Ended October 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Product sales | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
Total revenue | |
| – | | |
| – | | |
| – | | |
| – | |
Cost of revenue | |
| – | | |
| – | | |
| – | | |
| – | |
Gross margin | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | |
Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development costs | |
| 439,711 | | |
| 347,763 | | |
| 595,389 | | |
| 347,763 | |
Sales and marketing | |
| – | | |
| – | | |
| – | | |
| 230,500 | |
Compensation expense | |
| 400,507 | | |
| 4,840,754 | | |
| 848,077 | | |
| 5,094,172 | |
Director fees | |
| 9,000 | | |
| – | | |
| 27,000 | | |
| – | |
Legal and professional | |
| 57,988 | | |
| 353,230 | | |
| 183,063 | | |
| 614,094 | |
General and administrative | |
| 222,039 | | |
| 703,692 | | |
| 483,454 | | |
| 1,542,070 | |
Total operating expenses | |
| 1,129,245 | | |
| 6,245,439 | | |
| 2,136,983 | | |
| 7,828,599 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (1,129,245 | ) | |
| (6,245,439 | ) | |
| (2,136,983 | ) | |
| (7,828,599 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Unrealized gain on change in derivative | |
| 29,746 | | |
| – | | |
| 492,049 | | |
| – | |
Gain on settlement of stock recoveries | |
| – | | |
| 2,183,331 | | |
| – | | |
| 2,183,331 | |
Other income (expense) | |
| 430 | | |
| 508 | | |
| 335 | | |
| 1,496 | |
Interest expense, net | |
| (194 | ) | |
| (2,073 | ) | |
| (826 | ) | |
| (4,725 | ) |
Total other income (expense), net | |
| 29,982 | | |
| 2,181,766 | | |
| 491,558 | | |
| 2,180,102 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (1,099,263 | ) | |
$ | (4,063,673 | ) | |
$ | (1,645,425 | ) | |
$ | (5,648,497 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.00 | ) | |
$ | (0.01 | ) | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
Weighted average shares outstanding basic and diluted | |
| 745,357,022 | | |
| 703,328,836 | | |
| 741,637,252 | | |
| 702,629,501 | |
See accompanying notes to condensed consolidated financial statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
| |
Three Months Ended October 31, | | |
Six Months Ended October 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (1,099,263 | ) | |
$ | (4,063,673 | ) | |
$ | (1,645,425 | ) | |
$ | (5,648,497 | ) |
Other comprehensive income: | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| (34 | ) | |
| – | | |
| 1,587 | | |
| – | |
Other comprehensive income (loss) | |
| (34 | ) | |
| – | | |
| 1,587 | | |
| – | |
Comprehensive loss | |
$ | (1,099,297 | ) | |
$ | (4,063,673 | ) | |
$ | (1,643,838 | ) | |
$ | (5,648,497 | ) |
See accompanying notes to condensed consolidated financial statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Six Months Ended October 31, | |
| |
2015 | | |
2014 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (1,645,425 | ) | |
$ | (5,648,497 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock issued for services | |
| – | | |
| 297,500 | |
Stock issued for compensation | |
| 254,040 | | |
| 480,350 | |
Stock based compensation - options | |
| 287,928 | | |
| 4,307,822 | |
Stock based compensation - warrants | |
| – | | |
| 100,000 | |
Gain on recovery of stock for services | |
| – | | |
| (2,183,332 | ) |
Gain on derivative liability | |
| (492,049 | ) | |
| – | |
Change in assets and liabilities: | |
| | | |
| | |
(Increase) / decrease in prepaid expenses and current assets | |
| (80,500 | ) | |
| 195,496 | |
Increase / (decrease) in accounts payable | |
| (69,491 | ) | |
| 84,067 | |
Increase / (decrease) in accrued expenses | |
| 29,130 | | |
| (37,012 | ) |
Decrease in license agreement obligation | |
| (400,000 | ) | |
| – | |
Net cash used in operating activities | |
| (2,116,367 | ) | |
| (2,403,606 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Net cash provided by (used in) investing activities | |
| – | | |
| – | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from sale of common stock | |
| 1,728,935 | | |
| 86,000 | |
Repayment of debt, related parties | |
| – | | |
| (143,859 | ) |
Net cash provided by (used in) financing activities | |
| 1,728,935 | | |
| (57,859 | ) |
| |
| | | |
| | |
Effect of currency rate exchange on cash | |
| 125 | | |
| – | |
| |
| | | |
| | |
Net decrease in cash | |
| (387,307 | ) | |
| (2,461,465 | ) |
| |
| | | |
| | |
Cash at beginning of the period | |
| 2,699,737 | | |
| 3,616,470 | |
Cash at end of the period | |
$ | 2,312,430 | | |
$ | 1,155,005 | |
| |
| | | |
| | |
Supplemental disclosures of cash flows information: | |
| | | |
| | |
Cash paid during the period for interest | |
$ | 826 | | |
$ | – | |
See accompanying notes to condensed consolidated financial statements.
PHARMACYTE BIOTECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
October 31, 2015
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS
In 2013, PharmaCyte Biotech, Inc. (“Company”)
restructured its operations in an effort to focus on biotechnology, having been a nutraceutical products company in the recent
past. The restructuring resulted in the Company focusing all of its efforts upon the development of a unique, effective and safe
way to treat cancer and diabetes. On January 6, 2015, the Company changed its name from Nuvilex, Inc. to PharmaCyte Biotech, Inc.
to better reflect the nature of its business.
The Company is now a clinical stage biotechnology
company focused on developing and preparing to commercialize treatments for cancer and diabetes using a proprietary cellulose-based
live cell encapsulation technology known as “Cell-in-a-Box®.” This patented technology is being used
as a platform upon which treatments for several types of cancer, including advanced, inoperable pancreatic cancer, and diabetes
are being developed.
On May 26, 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. As a result, Austrianova Singapore Private Limited ("Austrianova")
and Bio Blue Bird AG ("Bio Blue Bird"), 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. The Company was to receive 100,000 shares of Austrianova’s common stock and nine Bio Blue Bird bearer shares 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 mutual agreement of the parties.
Effective as of June 25, 2013, the Company
and SG Austria entered into a Third Addendum to the SG Austria APA (“Third Addendum”). The Third Addendum materially
changed 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 the Company’s 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 new transaction required SG Austria to return to the Company the 100,000,000 shares of common
stock held by SG Austria and the Company to return to SG Austria the 100,000 shares of common stock of Austrianova held by the
Company.
Effective as of June 25, 2013, the Company
and SG Austria entered into a Clarification Agreement to the Third Addendum to clarify and include certain language that was inadvertently
omitted from the Third Addendum.
The Third Addendum provides the Company
with an exclusive, worldwide license to use the Cell-in-a-Box® technology, with a right to sublicense, for the development
of a treatment for cancer using certain types of genetically modified human cells (“Cells”) and the use of Austrianova’s
Cell-in-a-Box® trademark for this technology. Bio Blue Bird licenses the Cells from Bavarian Nordic A/S and GSF-Forschungszentrum
fur Umwelt u. Gesundeit GmbH (“Bavarian Nordic/GSF”), the patent holders of the Cells, to develop a treatment for cancer
using these encapsulated Cells. The licensed rights to the Cells pertain to the countries in which Bavarian Nordic/GSF obtained
patent protection.
Effective as of June 25, 2013, the Company
also acquired from Austrianova an exclusive, worldwide license, with a right to sublicense, to use the Cell-in-a-Box®
technology for the development of a treatment for diabetes and the use of Austrianova’s Cell-in-a-Box® trademark
for this technology (“Diabetes Licensing Agreement”). The Company paid Austrianova $2.0 million to secure this license.
In October 2014, the Company acquired from
the University of Technology Sydney (“UTS”) an exclusive, worldwide license to use genetically modified human cells
(“Melligen Cells”) that have been modified to produce, store and release insulin in response to blood glucose levels
in their surroundings. In addition, the Company obtained the non-exclusive worldwide rights to “know-how” associated
with the Melligen cells. The Company is in the process of developing a treatment for insulin-dependent diabetes by encapsulating
the Melligen cells using the Cell-in-a-Box® technology.
Effective as of December 1, 2014, the Company
acquired from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® technology in combination with
compounds from constituents of the Cannabis plant for development of treatments for diseases and their related symptoms
and the use of Austrianova’s Cell-in-a-Box® trademark for this technology (“Cannabis Licensing Agreement”).
NOTE 2 – MANAGEMENT PLANS
Management Goal and Strategies
The Company’s goal is to have
the Company become an industry-leading biotechnology company using the Cell-in-a-Box® technology as a platform
upon which treatments for cancer and diabetes are developed and obtain marketing approval for these treatments by
regulatory agencies in the United States, the European Union, Australia and Canada.
The Company’s strategies to
achieve this goal consist of the following:
|
· |
The completion of the preparations for a Phase 2b clinical
trial in advanced, inoperable non-metastatic pancreatic cancer and its associated pain to be conducted by Translational Drug
Development, LLC (“TD2”) in the United States with study sites in Europe and Australia; |
|
· |
The completion of the preparations for a clinical trial that
will examine the effectiveness of the Company’s pancreatic cancer treatment in reducing the accumulation of malignant
ascites fluid in the abdomen that is characteristic of pancreatic and other abdominal cancers. This clinical trial will be
conducted by TD2 in the United States; |
|
· |
The completion of preclinical studies that involve the encapsulation of the Melligen cells using the Cell-in-a-Box® technology to develop a treatment for Type 1 diabetes and Type 2 insulin-dependent diabetes; |
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· |
The enhancement of the Company’s ability to expand into the biotechnology arena through further research and partnering agreements in cancer and diabetes; |
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· |
The acquisition of contracts that generate revenue or provide research and development capital utilizing the Company’s sublicensing rights; |
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· |
The further development of uses of the Cell-in-a-Box® technology platform through contracts, licensing agreements and joint ventures with other companies; and |
|
· |
The completion of testing, expansion and marketing of existing and newly derived product candidates. |
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
This Quarterly Report on Form 10-Q
("Report") should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended
April 30, 2015. Unless the context otherwise requires, references in these notes are to the unaudited condensed consolidated
financial statements of the Company and its consolidated subsidiaries.
Principles of Consolidation and Basis of Presentation
The unaudited condensed consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited condensed consolidated
financial statements are prepared in accordance with generally accepted accounting principles in the United States
(“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“Commission”).
Intercompany balances and transactions are eliminated. In the opinion of the Company’s management, the unaudited
condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for
fair financial statement presentation. 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. Uncertainties with respect to such estimates and assumptions are
inherent in the preparation of the Company’s 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.
Goodwill and Intangible Assets
The Company records the excess of purchase
price over the fair value of the identifiable net assets acquired as goodwill and other indefinite-lived intangibles. 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 fiscal year.
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 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 period ended October 31, 2015.
Earnings per Share
Basic earnings (loss) per share are
computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares
during the period. Diluted earnings per share are computed by dividing net income by the weighted average number of shares
outstanding during the period increased to include the number of additional shares of common stock that would have been
outstanding if the potentially dilutive securities had been issued. For the periods ended October 31, 2015 and 2014, the
Company incurred net losses; therefore, the effect of any common stock equivalent would be anti-dilutive during these
periods.
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 receivables and
current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values. This is because
of the short period of time between the origination of such instruments, 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 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.
The following tables set forth
by level within the fair value hierarchy, the Company’s derivative liability stated at fair value as of October 31,
2015 and April 30, 2015.
| |
October
31, 2015 | | |
| | |
| | |
| |
| |
Quoted Prices in Active Markets for Identical Assets | | |
Significant Other Observable Inputs | | |
Significant Unobservable Inputs | |
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
Warrants - Cashless (derivative liability) | |
$ | – | | |
$ | – | | |
$ | 29,746 | | |
$ | 29,746 | |
Total | |
$ | – | | |
$ | – | | |
$ | 29,746 | | |
$ | 29,746 | |
| |
April 30, 2015 | | |
| | |
| | |
| |
| |
Quoted Prices in Active Markets for Identical Assets | | |
Significant Other Observable Inputs | | |
Significant Unobservable Inputs | |
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
Warrants - Cashless (derivative liability) | |
$ | – | | |
$ | – | | |
$ | 492,049 | | |
$ | 492,049 | |
Total | |
$ | – | | |
$ | – | | |
$ | 492,049 | | |
$ | 492,049 | |
The
following table sets forth a summary of the changes in the fair value of our Level 3 liability stated at fair value for the three
and six months ended October 31, 2015 and 2014, respectively.
|
|
Six Months Ended October 31, 2015 |
|
|
|
Six
Months Ended October 31, 2014 |
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
|
|
Fair
Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
Balance, April 30, 2015 |
|
$ |
492,049 |
|
|
Balance, April 30, 2014 |
$ |
– |
|
Gain on derivative liability included in net loss |
|
|
(492,049 |
) |
|
Loss on derivative liability included in net loss |
|
– |
|
Balance, October 31, 2015 |
|
$ |
– |
|
|
Balance, October 31, 2014 |
$ |
– |
|
|
|
Three
Months Ended October 31, 2015 |
|
|
|
Three
Months Ended October 31, 2014 |
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
|
|
Fair
Value Measurements Using Significant Unobservable Inputs (Level 3) |
|
Balance, April 30, 2015 |
|
$ |
29,746 |
|
|
Balance, April 30, 2014 |
$ |
– |
|
Gain on derivative liability included in net loss |
|
|
(29,746 |
) |
|
Loss on derivative liability included in net loss |
|
– |
|
Balance, October 31, 2015 |
|
$ |
– |
|
|
Balance, October 31, 2014 |
$ |
– |
|
Derivative Instruments
The Company issued cashless warrants that
are accounted for as a derivative instruments. This prevents them from being considered indexed to the Company’s common stock
and qualify for an exception to derivative accounting.
The Company recognized the derivative
instruments as either assets or liabilities on the accompanying unaudited condensed consolidated balance sheets at fair
value. The Company records changes in the fair value (gains or losses) of the derivatives in the accompanying
unaudited condensed consolidated statements of operations. As of October 31, 2015, the balance of the derivative liability
was zero because the ten day average closing price of the Company’s stock was less than the exercise price of the
warrants.
Revenue Recognition
Sales of products and related costs of
products sold are recognized when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price
is fixed or determinable; and (iv) collectability is reasonably assured. These terms are typically met upon the prepayment or invoicing
and shipment of products.
Income Taxes
Deferred taxes are calculated using the
liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit
carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of 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, among other things, on an estimate of future taxable income in the United States and certain other
jurisdictions. This is because it is susceptible to change, may or may not occur and 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 of
its deferred tax assets, including tax loss carry forwards, that 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.
If and when the Company believes it is more likely than not that it will recover its deferred tax assets, the Company will reverse
the valuation allowance as an income tax benefit in the Company’s statements of operations.
The Company accounts for its uncertain
tax positions in accordance with U.S. GAAP. The purpose of this method is to clarify accounting for uncertain tax positions recognized.
The U.S. GAAP method of accounting for uncertain tax positions utilizes a two-step approach to evaluate tax positions. Step one,
recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not
to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained.
In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which
is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely
than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely
than not standard is met, the issue is resolved with the taxing authority or the statute of limitations expires. Positions previously
recognized are reversed when the Company subsequently determines the position no longer is more likely than not to be sustained.
Evaluation of tax positions, their technical merits and measurements using cumulative probability are highly subjective management
estimates. Actual results could differ materially from these estimates.
Research and Development
Research and development 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 research and development and that have no alternative future use are expensed when incurred.
Technology developed for use in the Company’s product candidates is expensed as incurred until technological feasibility
has been established.
Stock-Based Compensation
The Company’s stock-based employee
compensation awards are described in Note 6. The Company has adopted the provisions of ASC 718, which requires the fair value measurement
and recognition of compensation expense for all stock-based awards made to directors, executives and employees.
Concentration of Credit Risk
The Company has no significant off-balance-sheet
concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The
Company maintains most of its cash balance at a financial institution located in California. Accounts at this institution are insured
by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances aggregated approximately $2,062,000 at October
31, 2015. The Company has not experienced any losses in such accounts, and management believes it is not exposed to any significant
credit risk on cash.
Foreign Currency Translation
The Company translates the financial statements
of its foreign subsidiary 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 year-end exchange rates,
while revenue and expenses are translated at average exchange rates prevailing during the year. Adjustments for foreign currency
translation fluctuations are excluded from net income and are included in other comprehensive loss. Gains and losses on short-term
intercompany foreign currency transactions are recognized as incurred.
Reclassification
Certain prior year balances have been reclassified
to conform to the presentation in this Report, with no changes in net loss for prior periods presented.
Recent Accounting Pronouncements
We have reviewed all of the recent accounting
pronouncements and have determined that they have not or will not have a material impact on the Company’s consolidated financial
statements, or simply do not apply to the Company’s operations.
NOTE 4 – DEBT
The Company entered into a licensing agreement
for a license to use the Cell-in-a-Box® technology to develop therapies involving the constituents of the Cannabis
plant. As of October 31, 2015, the Company owes $600,000 out of a total required $2,000,000 “Upfront Payment” for the
license (see Note 8).
NOTE 5 – COMMON STOCK TRANSACTIONS
The Company issued 3,600,000 shares of
common stock to officers as part of their compensation agreements in the year ended April 30, 2015. These shares vest on a quarterly
basis over a twelve-month period. During the six months ended October 31, 2015, 1,800,000 shares that vested were valued using
the intrinsic value at the date of vesting and resulted in a non-cash compensation expense of $190,620.
The Company issued 1,200,000 shares of
common stock to an employee as part of an employee agreement in the year ended April 30, 2015. These shares vest on a quarterly
basis over a twelve-month period. During the six months ended October 31, 2015, 600,000 shares that vested were valued using the
intrinsic value at the date of vesting and resulted in a non-cash expense of $63,510.
The shares listed above were issued without
registration under the Securities Act of 1933, as amended (“Securities Act”), in reliance upon the exemption afforded
by Section 4(a)(2) of the Securities Act.
During the six months ended October 31,
2015, the Company sold and issued approximately 14.7 million shares of common stock pursuant to a registration statement at prices
ranging from $0.08 to $0.16 per share. The Company received net proceeds of approximately $1.7 million from the sale of these shares.
NOTE 6 – STOCK OPTIONS AND WARRANTS
Stock Options
As of October 31, 2015, the Company had
outstanding stock options held by its directors, officers and an employee that were issued pursuant to compensation and director
agreements.
The Company has adopted the provisions
of ASC 718, “Compensation-Stock,” which requires the measurement and recognition of compensation expense for
all stock-based awards made to employees.
The fair value of the stock options at
the date of grant was estimated using the Black-Scholes option-pricing model.
The Company’s computation of expected
volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during the
periods ended October 31, 2015 and 2014, the Company used a calculated volatility for each grant. The Company lacks adequate information
about the exercise behavior at this time and has determined the expected term assumption under the simplified method provided for
under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting
term of two and one fifth years for an average of two and two third 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. No amounts relating to employee stock-based compensation have been capitalized.
Presented below is the Company’s
stock option activity for employees and directors:
A summary of the activity for unvested
employee stock options during the six months ended October 31, 2015 is presented below:
| | |
Options Outstanding | | |
Weighted Average Grant Date Fair Value per Share | |
Nonvested, April 30, 2015 | | |
| 6,600,000 | | |
$ | 0.10 | |
Granted | | |
| – | | |
| – | |
Vested | | |
| 3,600,000 | | |
| 0.10 | |
Forfeited | | |
| – | | |
| – | |
Nonvested, October 31,
2015 | | |
| 3,000,000 | | |
$ | 0.10 | |
| | | |
| | | |
| | |
The Company recorded approximately $141,000
and $286,000 and $0 and $0 of non-cash charges related to the vesting of stock options to certain directors and an employee in
exchange for services during the three months and six months ended October 31, 2015 and 2014, respectively.
At October 31, 2015, there remained approximately
$238,000 of unrecognized compensation expense related to unvested employee stock options to be recognized as expense over a weighted-average
period of one year.
The following table summarizes ranges of
outstanding stock options at October 31, 2015:
|
|
Exercise Prices |
|
Exercise Price |
|
$ |
0.19 |
|
|
$ |
0.11 |
|
|
$ |
0.18 |
|
Number of Options |
|
|
25,000,000 |
|
|
|
27,200,000 |
|
|
|
250,000 |
|
Weighted Average Remaining Contractual Life (years) |
|
|
3.92 |
|
|
|
4.17 |
|
|
|
4.47 |
|
Weighted Average Stock Price |
|
$ |
0.19 |
|
|
$ |
0.11 |
|
|
$ |
0.18 |
|
Number of Options Exercisable |
|
|
25,000,000 |
|
|
|
27,200,000 |
|
|
|
250,000 |
|
Weighted Average Contractual Life (years) |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Weighted Average Exercise Price |
|
$ |
0.19 |
|
|
$ |
0.11 |
|
|
$ |
0.18 |
|
There was no aggregate intrinsic value
of outstanding options as of October 31, 2015. This represents options whose exercise price was less than the closing fair market
value of the Company’s common stock on October 31, 2015 of approximately $0.11 per share.
Warrants
Warrants issued in connection with a consulting
agreement are classified as liabilities as opposed to equity due to their settlement terms (see Note 3). The other warrants issued
by the Company are classified as equity. The fair value of the warrants was recorded as additional-paid-in-capital, and no further
adjustments were 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 505-50
and ASC 505, as amended.
A summary of the Company’s warrant
activity and related information for the six months ended October 31, 2015 are shown below:
| | |
Warrants | | |
Weighted Average Price | | |
Weighted Average Fair Value | |
Outstanding, April 30, 2015 | | |
| 72,969,908 | | |
$ | 0.17 | | |
$ | 0.08 | |
Issued | | |
| – | | |
| – | | |
| – | |
Exercised | | |
| – | | |
| – | | |
| – | |
Outstanding, October 31, 2015 | | |
| 72,969,908 | | |
| 0.17 | | |
| 0.08 | |
Exercisable, October 31, 2015 | | |
| 72,969,908 | | |
$ | 0.17 | | |
$ | 0.08 | |
| | | |
| | | |
| | | |
| | |
There were no cashless exercises of warrants
as of October 31, 2015 and 2014.
The following table summarizes additional information concerning
warrants outstanding and exercisable at October 31, 2015:
Range of Exercise Prices |
|
Number of Warrant Shares Exercisable at 10/31/2015 |
|
|
Weighted Average Remaining Contractual Life |
|
|
Exercisable Weighted Average Exercise Price |
|
$0.08, $0.11, $0.12, $0.18 and $0.25 |
|
|
72,969,908 |
|
|
|
2.36 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Year Term - $0.08 |
|
|
1,056,000 |
|
|
|
1.94 |
|
|
|
|
|
Five Year Term - $0.12 |
|
|
18,347,508 |
|
|
|
2.25 |
|
|
|
|
|
Five Year Term - $0.18 |
|
|
19,811,200 |
|
|
|
2.17 |
|
|
|
|
|
Five Year Term - $0.25 |
|
|
18,755,200 |
|
|
|
2.18 |
|
|
|
|
|
Five Year Term - $0.11 |
|
|
10,000,000 |
|
|
|
4.40 |
|
|
|
|
|
Nine Month Term - $0.11 |
|
|
5,000,000 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
72,969,908 |
|
|
|
|
|
|
|
|
|
NOTE 7 – 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.
However, in the past the Company has been the subject of litigation, claims and assessments arising out of matters occurring in
its normal business operations. In the opinion of management, none of these had a material adverse effect on the Company’s
unaudited consolidated financial position, operations and cash flows presented in this Report.
NOTE 8 – RELATED PARTY TRANSACTIONS
The Company had the following related party transactions:
The Company owns 14.5% of the equity in
SG Austria. This equity interest is reported on the cost method of accounting. SG Austria has two subsidiaries: (i) Austrianova;
and (ii) Austrianova Thailand Ltd. For the three months and six months ending October 31, 2015, the Company has purchased products
from these subsidiaries in the approximate amount of $155,000 and $203,000 and for the three months and six months ending October
31, 2014, $6,000 and $6,000, respectively.
Effective April 1, 2014, the Company entered
into a consulting agreement with Vin-de-Bona Trading Company Pte Ltd. (“Vin-de-Bona”) to provide professional consulting
services to the Company. Vin-de-Bona is owned by Prof. Dr. Walter H. Günzburg and Dr. Brian Salmons, who are each an officer
of SG Austria. The term of the agreement is for 12 months, which is automatically renewed for successive 12 month terms. After
the initial term, either party has the right to terminate the consulting agreement by giving the other party 30 days written notice
before the effective date of termination. For the three months and six months ending October 31, 2015, the amount the Company paid
Vin-de-Bona for consulting services were approximately $11,000 and $19,000 and for the three months and six months ending October
31, 2014, approximately $6,000 and $9,000, respectively.
Under the Cannabis Licensing Agreement,
the Company is required to pay Austrianova an “Upfront Payment” of $2,000,000. The Company has the right to make periodic
monthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being
made. Effective October 19, 2015, the parties extended the date by which the Upfront Payment must be made until June 30, 2016.
As of October 31, 2015, the Company has paid Austrianova $1,400,000 of the Upfront Payment (see Note 4).
With the exception of Thomas Liquard, the
Board has determined that none of the Company’s directors satisfies the definition of an “Independent Director”
as established in the NASDAQ Marketplace Rules. Mr. Liquard has been determined by the Board to be an Independent Director.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company acquires assets still in development
and enters into research and development arrangements with third parties that often require milestone and royalty payments to the
third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone
payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the
pharmaceutical product, such as approval of the product for marketing by a regulatory agency. If required by its license agreements,
the Company may have to make royalty payments based upon a percentage of the sales of its products in the event that regulatory
approval for marketing is obtained.
Office Lease
The Company currently leases office space
at 12510 Prosperity Drive, Suite 310, Silver Spring, Maryland 20904. The lease is due to expire on July 31, 2016. Rent expense
for the three months and six months ended October 31, 2015 and 2014 were $17,114 and $29,612 and $13,272 and $25,407, respectively.
Period ending, October 31, |
|
Amount |
|
2016 |
|
$ |
38,619 |
|
|
|
$ |
38,619 |
|
Third Addendum
The Third Addendum requires the Company
to pay SG Austria future royalty and milestone payments as follows: (i) a 2% royalty payment on all gross sales; (ii) a 10% royalty
payment on all gross revenues from sublicensing; (iii) a milestone payment of $100,000 after enrollment of the first human patient
in the first clinical trial for each product; (iv) a milestone payment of $300,000 after the enrollment of the first human patient
in the first Phase 3 clinical trial; and (v) a milestone payment of $800,000 after obtaining a marketing authorization from a regulatory
agency. Additional milestone payments of $50,000 after the enrollment of the first veterinary patient for each product and $300,000
after obtaining marketing authorization for each veterinary product are also required to be paid to SG Austria.
Licensing Agreements
Diabetes Licensing Agreement
The Diabetes Licensing Agreement requires
the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in
the amount of $633,144 of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is
required to be paid three months later. In addition, the Diabetes Licensing Agreement requires the Company to pay a fee for producing
the final encapsulated cell product of $633 per vial of 300 capsules after production with a minimum purchased batch size of 400
vials of any Cell-in-a-Box® product.
The Diabetes Licensing Agreement
requires the Company to make future royalty and milestone payments as follows: (i) a 10% royalty payment of the gross sale of
all products the Company sells; (ii) a 20% royalty payment of the amount received by the Company from a sub-licensee on the
gross sales by the sub-licensee; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical
study using the encapsulated cells; (iv) a milestone payment of $500,000 within 30 days after enrollment of the first human
patient in the first clinical trial; (v) a milestone payment of $800,000 within 30 days after enrollment of the first human
patient in the first Phase 3 clinical trial; and (vi) a milestone payment of $1,000,000 within 60 days after obtaining
approval of a Biologics License Application (“BLA”) or a Marketing Authorization
(“MA”) or its equivalent based on the country in which it is accepted for each product. The first
milestone payment of $100,000 was paid on October 15, 2015 for the pre-clinical study using the encapsulated cells.
Melligen Cell License Agreement
The Melligen Cell License Agreement does
not require an initial payment to UTS. The Company is required to pay UTS a patent administration fee of 15% on all amounts paid
by UTS to prosecute and maintain patents related to the Melligen cells.
The Melligen Cell License Agreement requires
that the Company pay royalty payments to UTS of (i) 6% gross revenue on product sales; and (ii) 25% of gross revenues if the product
is sub-licensed by the Company. In addition, the Company is required to pay milestone payments of: (iii) AU$ 50,000 at the successful
conclusion of a preclinical study; (iv) AU$ 100,000 at the successful conclusion of a Phase 1 clinical trial; (v) AU$ 450,000 at
the successful conclusion of a Phase 2 clinical trial; and (vi) AU$ 3,000,000 at the successful conclusion of a Phase 3 clinical
trial.
Cannabis Licensing Agreement
Under the Cannabis Licensing Agreement,
the Company is required to pay Austrianova an “Upfront Payment” of $2,000,000. The Company has the right to make periodic
monthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being
made. Pursuant to a First Amendment to Licensing Agreement, the Upfront Payment due date was extended to December 31, 2015. Pursuant
to a Second Amendment to Licensing Agreement, the Upfront Payment due date was extended to June 30, 2016. As of the October 31,
2015, the Company has paid Austrianova $1,400,000 of the Upfront Payment (See Notes 4 and 8).
The Cannabis Licensing Agreement
requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing
setup fee in the amount of $800,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a
product and 50% is required to be paid three months later. In addition, the Cannabis Licensing Agreement requires the Company
to pay a fee for producing the final encapsulated cell product of $800 per vial of 300 capsules after production with a
minimum purchased batch size of 400 vials of any Cell-in-a-Box® product. As of October 31, 2015, the
specifications of the manufacturing agreement remain to be negotiated and the agreement remains unsigned by the parties.
The Cannabis Licensing Agreement requires
the Company to make future royalty and milestone payments as follows: (i) a 10% royalty payment of the gross sales of all products
sold by the Company; (ii) a 20% royalty payment of the amount received by the Company from a sub-licensees on a sub-licensee’s
gross sales of the sublicensed products; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical
study using the encapsulated cells; (iv) a milestone payment of $500,000 within 30 days after enrollment of the first human patient
in the first clinical trial; (v) a milestone payment of $800,000 within 30 days after enrollment of the first human patient in
the first Phase 3 clinical trial; and (vi) a milestone payment of $1,000,000 due 90 days after obtaining approval of a BLA or a
MA or its equivalent based on the country in which it is accepted for each product.
Bavarian Nordic/GSF License Agreement
The Company is required to pay Bavarian/Nordic/GSF
a 4.5% royalty payment on the Company’s net sales for each product the Company develops that uses the genetically modified
cells licensed from Bavarian Nordic/GSF.
NOTE 10 – INCOME TAXES
The Company had no income tax expense for
the three months and six months ended October 31, 2015 and 2014, respectively. During the six months ended October 31, 2015 and
2014, 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 $435,000 and $1,796,000 for the six months
ended October 31, 2015 and 2014, respectively.
There was no material difference between
the effective tax rate and the projected blended statutory tax rate for the quarters ended October 31, 2015 and 2014.
In assessing the realization of deferred
tax assets, management considered whether it is more likely than not that some portion or all of the deferred asset will not be
realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Based on the available objective evidence, including the history
of operating losses and the uncertainty of generating future taxable income, management believes it is more likely than not that
the net deferred tax assets at October 31, 2015 will not be fully realizable. Accordingly, management has maintained a valuation
allowance against the net deferred tax asset at October 31, 2015.
There have been no changes to the Company’s
liability for unrecognized tax benefits during the period ended October 31, 2015.
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 periods ended October
31, 2015 and 2014, the Company had accrued no interest or penalties related to uncertain tax positions.
See Note 13 of Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended April 30, 2015 for additional information regarding income
taxes.
NOTE 11 – SUBSEQUENT EVENTS
On November 27, 2015, the Company made
a payment of $100,000 to Austrianova pursuant to the Cannabis Licensing Agreement.
From November 1, 2015 to December 3, 2015,
the Company issued 3,383,079 shares of common stock under the S-3 Registration Statement. The issuance of the shares resulted in
gross proceeds to the Company of approximately $301,000.
Item 2. Management’s
Discuss and Analysis of Financial Conditions and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Report”)
includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). 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-looking statements can be identified by the use of terminology such as “may,” “will,”
“expects,” “plans,” “anticipates,” “estimates,” “potential” or “continue,”
or the negative thereof or other comparable terminology. 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 Securities and
Exchange Commission (“Commission”). Our future financial condition and results of operations, as well as any forward-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” of our Annual Report on Form 10-K filed with the Commission on July 29, 2015 and for the
reasons described elsewhere in this Report. All forward looking statements and reasons why results may differ included in this
Report are made as of the date of this Report, and we do not intend to update any forward-looking statements except as required
by law or applicable regulations. Except where the context otherwise requires, in this Report, the “Company,” “PharmaCyte
Biotech,” “we,” “us” and “our” refer to PharmaCyte Biotech, Inc., a Nevada corporation,
and, where appropriate, its subsidiaries.
Item 2 of this Report should be read in
conjunction with the unaudited condensed consolidated financial statements and related notes included under Part I, Item 1, of
this Report. "Financial Statements" referenced in this Report refer to the unaudited condensed consolidated financial
statements and related notes included in Part I, Item 1, and to the "Financial Statements and Supplementary Data" of
our Annual Report on Form 10-K for the year ended April 30, 2015.
Overview
We are a clinical stage biotechnology company
focused on developing and preparing to commercialize treatments for cancer and diabetes based upon our use of a licensed proprietary
cellulose-based live cell encapsulation technology we refer to as Cell-in-a-Box®. We are working to advance clinical
research and development of new cellular-based therapies in the oncology and diabetes arenas. We are now actively engaged with
Austrianova Singapore Pte Ltd (“Austrianova”), Translational Drug Development, LLC (“TD2”), Clinical Network
Services (CNS) Pty. Ltd. (“CNS”), Imaging Endpoints, LLC and other companies, physicians and scientists in preparing
for clinical trials for our treatment of pancreatic cancer and its symptoms using encapsulated live cells similar to those used
in previous Phase 1/2 and Phase 2 clinical trials in pancreatic cancer that employed the same technology. We are also involved
in preclinical studies to develop a treatment for Type 1 diabetes and Type 2 insulin-dependent diabetes.
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 cells and having them encapsulated for the planned preclinical studies and clinical trials; (iv) have regulatory
work completed to enable studies and trials to be submitted to regulatory agencies; (v) initiate all purity and toxicology cellular
assessments; and (vi) ensure completion of cGMP produced encapsulated cells to use in our clinical trials.
There are numerous factors required to
be completed successfully in order to ensure our final product candidates are ready for use in our clinical trials. Therefore,
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.
From our assessments to date, we do not believe there are factors which will cause materially different amounts to be reported
than those presented in this Report and aim to assess this regularly to provide the most accurate information to our shareholders.
Results of Operations
Period ended October 31, 2015 compared to period ended
October 31, 2014
Revenue
We had no revenues in the periods ended October 31, 2015 and
2014.
Operating Expenses and Loss from Operations:
The following tables summarize our Operating Expenses and Loss
from Operations for the three and six months ended October 31, 2015 and 2014:
| Three
Months Ended October 31, | | |
| Six
Months Ended October 31, | |
| 2015 | | |
| 2014 | | |
| 2015 | | |
| 2014 | |
$ | 1,129,245 | | |
$ | 6,245,439 | | |
$ | 2,136,983 | | |
$ | 7,828,599 | |
The total operating expenses for the
three month period ended October 31, 2015 decreased by $5,116,194 from the three months ended October 31, 2014. The decrease
is attributable to a reduction in general and administrative expenses of $481,653, a reduction in legal fees of $295,242 and
by a decrease in compensation expense of $4,440,247, as we recognized stock based compensation of $249,339 in 2015 as
compared to $4,023,981 in 2014.
The total operating expenses during the
six months ended October 31, 2015 decreased by $5,691,616 from the six months ended October 31, 2014. The decrease is attributable
to a reduction in general and administrative expenses of $1,058,616, a reduction in legal fees of $431,031 and by a decrease in
compensation expense of $4,246,095, as we recognized stock based compensation of $541,968 in 2015 as compared to $4,122,081 in
2014.
Other income, net:
The following tables summarize our Other income, net for
the three and six months ended October 31, 2015 and 2014:
| Three
Months Ended October 31, | | |
| Six
Months Ended October 31, | |
| 2015 | | |
| 2014 | | |
| 2015 | | |
| 2014 | |
$ | 29,982 | | |
$ | 2,181,766 | | |
$ | 491,558 | | |
$ | 2,180,102 | |
Other income, net for the three month period
ended October 31, 2015 decreased by $2,151,784 from the three months ended October 31, 2014. The decrease is mainly attributable
to the reduction of the gain on settlement of stock recoveries of from $2,183,331 in 2014 to $0 in 2015.
Other income, net for the period ended
October 31, 2015, was $491,588, as compared to other income, net of $2,180,102 in the period ended October 31, 2014. Other income,
net, is mainly attributable to the reduction of the gain on settlement of stock recoveries from $2,183,331 in 2014 to $0 in 2015.
Discussion of Operating, Investing and Financing Activities
The following table presents a summary of our sources and uses
of cash for the periods ended:
| |
October 31, 2015 | | |
October 31, 2014 | |
Net cash used in operating activities: | |
$ | (2,116,367 | ) | |
| (2,403,606 | ) |
Net cash used in investing activities: | |
$ | – | | |
| – | |
Net cash provided by (used in) financing activities: | |
$ | 1,728,935 | | |
| (57,859 | ) |
Effect of currency rate exchange | |
$ | 125 | | |
| – | |
Decrease in cash | |
$ | (387,307 | ) | |
| (2,461,465 | ) |
Operating Activities:
The cash used in operating activities for
the period ended October 31, 2015 is a result of our net losses: (i) offset by securities issued for services and compensation,
changes to prepaid expenses, accounts payable and accrued expenses; (ii) increased by the gain on the derivative liability; and
(iii) decreased by the reduction in license agreement liability. The cash used in operating activities for the period ended October
31, 2014 is a result of our net losses increased by stock issued, changes to prepaid expenses, accounts payable and accrued expenses.
Investing Activities:
There were no investing activities in the periods ended October
31, 2015 and 2014.
Financing Activities:
The cash provided from financing activities
is mainly attributable to the proceeds from the sale of our common stock.
Liquidity and Capital Resources
As of October 31, 2015, our cash totaled
approximately $2.3 million, compared to approximately $2.7 million at April 30, 2015. Working capital was approximately $1.4 million
at October 31, 2015 and approximately $800,000 at April 30, 2015. The decrease in cash is attributable to our operating expenses,
net of the proceeds from the sale of our common stock.
We expect that our cash as of October 31,
2015 will be sufficient to fund our current operations and provide working capital for general corporate purposes for the next
12 months. We plan to pursue additional funding opportunities in connection with planning for and conducting our clinical trials.
Among others, we intend on continuing the sale of our common stock to raise capital to fund these activities if necessary.
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 future effect on
our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures,
or capital resources.
As we reach certain “milestones”
in the progression of our live cell encapsulation technology towards the development of treatments for cancer and diabetes, we
will be required to make payments to SG Austria Pte. Ltd. (“SG Austria”) or Austrianova.
The future royalty and milestone payments
for cancer required by the Third Addendum to the Asset Purchase Agreement we entered into with SG Austria are as follows: (i) a
2% royalty payment on all gross sales; (ii) a 10% royalty payment on all gross revenues from sublicensing; (iii) a milestone payment
of $100,000 after enrollment of the first human patient in the first clinical trial for each product; (iv) a milestone payment
of $300,000 after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) a milestone payment of
$800,000 after obtaining a marketing authorization from a regulatory agency. Additional milestone payments of $50,000 after the
enrollment of the first veterinary patient for each product and $300,000 after obtaining marketing authorization for each veterinary
product are also required to be paid to SG Austria.
The future royalty and milestone payments
for the treatment of diabetes required by our Licensing Agreement with Austrianova are as follows (i) a 10% royalty payment on
all gross sales; (ii) a 20% percent royalty payment on gross revenues from sublicensing; (iii) a milestone payment of $100,000
after enrollment of the first human patient in the first clinical trial for each product; (iv) a milestone payment of $300,000
after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) a milestone payment of $800,000 after
obtaining a marketing authorization from a regulatory agency.
The future royalty and milestone payments
for the treatment of diseases and their related symptoms using constituents of the Cannabis plant under our Licensing Agreement
with Austrianova are as follows: (i) a 10% royalty payment on all gross sales; (ii) a 20% percent royalty payment on gross revenues
from sublicensing; (iii) a milestone payment of $100,000 after enrollment of the first human patient in the first clinical trial
for each product; (iv) a milestone payment of $500,000 after the enrollment of the first human patient in the first Phase 3 clinical
trial; and (v) a milestone payment of $800,000 after obtaining a marketing authorization from a regulatory agency.
We are also required to pay a 4.5% royalty
payment on net sales for each product we develop that uses the genetically modified cells we license from Bavarian Nordic A/S and
GSF-Forschungszentrum fur Umwelt u. Gesundeit GmbH.
Critical Accounting Estimates and Policies
Our condensed consolidated financial statements
are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In connection
with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply
judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our
assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be
relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting
policies, assumptions, estimates and judgments to ensure that our 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. Our significant accounting policies are discussed in Note
3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended April 30, 2015 and
Note 3 of Notes to Condensed Consolidated Financial Statements included in this Report.
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, 2015. There has been no material change in our critical accounting
estimates and policies since April 30, 2015.
New Accounting Pronouncements
For a discussion of all recently adopted
and recently issued but not yet adopted accounting pronouncements, see “New Accounting Pronouncements” in Note 3 of
our notes to our condensed consolidated financial statements contained in this Report.
Available Information
Our website is located at www.pharmacyte.com.
The website includes a section for investor relations under which we provide notifications of news or announcements regarding
our financial performance, including Securities and Exchange Commission ("Commission") filings, investor events and press
and earnings releases. In addition, all PharmaCyte Biotech, Inc. filings submitted to the SEC, including our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as other PharmaCyte Biotech, Inc. reports and statements,
are available on the Commission’s web site at www.sec.gov. Such filings
are also available for download free of charge on our website. The contents of the website are not intended to be incorporated
by reference into this Report or any other report or document filed 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.
Pursuant to Item 305(c) of Regulation S-K,
we are not required to provide disclosures under this Item.
Item 4. Controls and Procedures.
Our management, including our Chief Executive
Officer, President and General Counsel, as its principal executive and accounting officer (“Principal Executive and Accounting
Officer”), and our Vice President of Finance (“Vice President of Finance”) evaluated the effectiveness of our
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the 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 is recorded, processed, summarized and reported within the time period
specified by the Commission’s rules and forms and is accumulated and communicated to our management, including our Principal
Executive Officer, as appropriate to allow timely decisions regarding required disclosures. Based upon this evaluation, the Principal
Executive and Accounting Officer and Vice President of Finance have concluded that, as of October 31, 2015, our disclosure controls
and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
No 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. Accordingly, 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
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. In addition, controls can be circumvented by the act of a
single person, 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. Therefore, there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of April 30, 2015, our management identified
the following material weaknesses in internal control over financial reporting:
|
· |
Ineffective corporate governance; |
|
· |
Ineffective communication of internal information; |
|
· |
Insufficient procedures and control documentation; |
|
· |
Insufficient segregation of duties; and |
|
· |
Insufficient information technology controls and documentation. |
Because of these material weaknesses, the
Principal Executive Officer and the Vice President of Finance concluded that, as of April 30, 2015, our internal control over financial
reporting was not effective based on the criteria outlined in Internal Control-Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). We have undertaken the process to
review further our procedures and controls and plan to implement new procedures and controls in fiscal year 2016. Although we plan
to make additional changes to our infrastructure and related processes that we believe are also reasonably likely to strengthen
and materially affect our internal control over financial reporting, we have not yet made any such changes.
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.
There is the possibility that this could result in material misstatement of our financial position or results of operations and
require a restatement. As discussed above, because of the inherent limitations in all control systems, no evaluation of controls-even
where we conclude the controls are operating effectively-can provide absolute assurance that all control issues, including instances
of fraud, if any, have been detected.
The Certifications of our Principal Executive
and Accounting 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.
Changes in Internal Control over Financial Reporting
There were no changes, other than those
detailed above under Management Report on Internal Control over Financial Reporting, in our internal control over financial reporting
during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not currently a party to
any material pending legal proceedings. There are no material legal proceedings to which any property of the Company is subject.
Item 1A. Risk Factors.
Reference is made to Part I, Item 1A. “Risk
Factors” included in our Annual Report on Form 10-K for the year ended April 30, 2015 for information concerning risk factors.
There have been no material changes in risk factors since April 30, 2015.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
(a) None.
Item 6. Exhibits.
Except as so indicated in Exhibits 32.1
and 32.2, the following exhibits are filed as part of, or incorporated by reference into, the Report.
Exhibit No. |
|
Description |
|
Location |
31.1 |
|
Certification of Chief Executive and Interim Financial Officer (Principal Executive and Financial Officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Filed herewith. |
|
|
|
|
|
32.1 |
|
Certification of Chief Executive and Interim Financial Officer (Principal Executive and Financial Officer) pursuant to 18 U.S.C. Section 1350, (Section 906 of the Sarbanes-Oxley Act of 2002). |
|
Filed herewith. |
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
Filed or furnished herewith. |
|
|
|
|
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101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
Filed or furnished herewith. |
|
|
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101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
Filed or furnished herewith. |
|
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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Filed or furnished herewith. |
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101.LAB |
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XBRL Taxonomy Extension Labels Linkbase Document |
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Filed or furnished herewith. |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
|
Filed or furnished herewith. |
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Report to be signed by the following persons on behalf of the
Company and in the capacities and on the date indicated.
PharmaCyte Biotech, Inc.
December 10, 2015 |
By: /s/ Kenneth L. Waggoner |
|
Kenneth L. Waggoner
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer and acting Principal Financial |
|
and Accounting Officer on behalf of Registrant) |
EXHIBIT 31.1
CERTIFICATION
I, Kenneth L. Waggoner, certify that:
1. I have reviewed
this Annual Report on Form 10-Q of PharmaCyte Biotech, Inc. (“Report”) and its subsidiaries for the period ended October
31, 2015;
2. Based on my knowledge,
this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this Report;
3. Based on my knowledge,
the financial statements, and other financial information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4. The registrant’s
other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such
disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this Report is being prepared;
(b) Designed such
internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles in the United States;
(c) Evaluated the
effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation;
(d) Disclosed in
this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether
or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Dated: December 10, 2015 |
|
By: |
/s/ Kenneth L. Waggoner |
|
|
|
Name: Kenneth L. Waggoner |
|
|
|
Title: Chief Executive Officer and President
(Principal Executive Officer and acting Principal Financial and Accounting Officer on behalf of Registrant) |
EXHIBIT 32.1
WRITTEN STATEMENT
PURSUANT TO
18 U.S.C. SECTION 1350
In connection with Annual Report of PharmaCyte
Biotech, Inc. and its subsidiaries (“Company”) on Form 10-Q for the period ended October 31, 2015 as filed with the
Securities and Exchange Commission on the date hereof (“Report”), the undersigned, Kenneth L. Waggoner, Chief Executive
Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the
requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: December 10, 2015 |
|
By: |
/s/ Kenneth L. Waggoner |
|
|
|
Name: Kenneth L. Waggoner |
|
|
|
Title: Chief Executive Officer
(Principal Executive Officer and acting Principal Financial and Accounting Officer on behalf of Registrant) |
A signed original of this written statement
required by Section 906 of the Sarbanes Oxley Act of 2002 has been provided to the Company and will be retained by the Company
and will be furnished to the SEC or its staff upon request. This exhibit is not “filed” for purposes of Section
18 of the Securities Exchange Act of 1934 but is instead furnished as provided by applicable rules of the SEC.