NOTE 2 – LIQUIDITY AND MANAGEMENT
PLANS
Liquidity
The Company's consolidated financial statements
are prepared using United States (“U.S.”) generally accepted accounting principles in the (“U.S. GAAP”)
applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. As of July 31, 2016, the Company had an accumulated deficit of $85,723,583 and incurred a net loss for the three months
ended July 31, 2016 of $1,031,966.
During the quarter ended July 31, 2016,
funding was provided by investors to maintain and expand the Company. The remaining challenges, beyond the regulatory and clinical
aspects, include accessing funding for the Company to cover its future cash flow needs. Through the period July 31, 2016, the Company
continued to acquire funds through the Company’s S-3 Registration Statement pursuant to which its exclusive placement agent,
Chardan Capital Markets, LLC (“Chardan”), sold shares of common stock “at-the-market” or in negotiated
block trades in a program which is structured to provide up to $50 million dollars to the Company less certain commissions.
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 material 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 Company believes that cash as of July 31, 2016, the sales of unregistered shares of its common stock and any public
offerings of common stock the Company may engage in will provide sufficient capital to meet its capital requirements and to fund
its operations through July 31, 2017. However, the Company’s ability to raise additional capital is limited by its inability
to use a short form registration statement on Form S-3. As of the date of this Report, the Company does not meet the eligibility
requirements in order for it to be able to conduct a primary offering of its common stock under Form S-3 or to file a new Registration
Statement on Form S-3. The Company may be able to regain the use of Form S-3 if it meets one or both of the eligibility criteria,
including: (i) the aggregate market value of the Company’s common stock held by non-affiliates exceeds $75 million; or (ii)
the common stock is listed and registered on a national securities exchange.
If the Company is not able to raise substantial
additional capital in a timely manner, the Company may not be able to commence or complete its planned clinical trials.
The Company will continue to be dependent
on outside capital to fund its research and operating expenditures for the foreseeable future. If the Company fails to generate
positive cash flows or fails to obtain additional capital when required, the Company may need to modify, delay or abandon some
or all of its business plans.
Management Goal and Strategies to Implement
The Company’s goal is to become an
industry-leading biotechnology company using the Cell-in-a-Box
®
technology as a platform upon which therapies for
cancer and diabetes are developed and obtain marketing approval for these therapies from regulatory agencies in the U.S., the European
Union, Australia and Canada.
The Company’s strategies to achieve
this goal consist of the following:
|
·
|
The completion of clinical trials in locally advanced, inoperable non-metastatic pancreatic cancer and its associated pain;
|
|
·
|
The completion of preclinical studies and clinical trials that will demonstrate the effectiveness of the Company’s cancer therapy in reducing the production and accumulation of malignant ascites fluid in the abdomen that is characteristic of pancreatic and other abdominal cancers;
|
|
·
|
The completion of preclinical studies and clinical trials that involve the encapsulation of the Melligen cells using the Cell-in-a-Box
®
technology to develop a treatment for Type 1 diabetes and insulin-dependent Type 2 diabetes;
|
|
·
|
The enhancement of the Company’s ability to expand into the biotechnology arena through further research and partnering agreements in cancer and diabetes;
|
|
·
|
The acquisition of contracts that generate revenue or provide research and development capital utilizing the Company’s sublicensing rights;
|
|
·
|
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
General
The accompanying condensed consolidated
financial statements as of July 31, 2016 and for the three months ended July 31, 2016 and 2015 are unaudited. These unaudited condensed
consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and are presented
in accordance with the requirements of Rule S-X of the Securities and Exchange Commission (“SEC”) and with the instructions
to Form 10-Q. Accordingly, they do not include all the information and footnotes 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 months ended July 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending
April 30, 2017. The unaudited 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, 2016 and footnotes thereto included in the Annual Report on
Form 10-K of the Company filed with the SEC on July 29, 2016.
The condensed consolidated balance sheet
as of April 30, 2016 contained herein has been derived from the audited consolidated financial statements as of April 30, 2015,
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; (ii) PharmaCyte Biotech Europe Limited; (iii) PharmaCyte Biotech Australia Pty Ltd; and (iv) Viridis
Biotech, Inc. and are prepared in accordance with U.S. GAAP and the rules and regulations of the SEC. 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 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 consolidated financial
position and results of operations.
Intangible Assets
The Financial Accounting Standards Board
("FASB") standard on goodwill and other intangible assets prescribes a two-step process for impairment testing of goodwill
and indefinite-lived intangibles, which is performed annually, as well as when an event triggering impairment may have occurred.
The first step tests for impairment, while the second step, if necessary, measures the impairment. The Company has elected to perform
its annual analysis at the end of its reporting year.
The Company’s intangible assets are
licensing agreements related to the Cell-in-a-Box
®
technology for $1,549,427 and diabetes license for $2,000,0000
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 three months ended July 31, 2016.
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 three months ended July 31, 2016.
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 consolidated balance sheets for current liabilities qualify as financial instruments and are a reasonable
estimate of their fair values because of the short period of time 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 adopted ASC subtopic 820-10,
Fair Value Measurements and Disclosures and Accounting Standards Codification subtopic 825-10, Financial Instruments, which permits
entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had
an impact on the Company's financial position, results of operations or cash flows. The carrying value of cash, accounts payable
and accrued expenses, as reflected in the 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 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 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 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 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 derecognized when the Company subsequently determines the position no longer is more likely than not to be sustained.
Evaluation of tax positions, their technical merits and measurements using cumulative probability are highly subjective management
estimates. Actual results could differ materially from these estimates.
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.
Under the Cannabis Licensing Agreement,
the Company acquired from Austrianova an exclusive, world-wide license to use the Cell-in-a-Box
®
trademark and its
associated technology with genetically modified non-stem cell lines which are designed to activate cannabinoids to develop therapies
involving
Cannabis.
Under the Cannabis Licensing Agreement,
the Company is required to pay Austrianova an Upfront Payment (defined in Note 4) 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. Under the Cannabis Licensing Agreement, the Upfront Payment must be paid in full by no later than June 30, 2016. As
of July 31, 2016, the Company has paid Austrianova $2.0 million of the Upfront Payment. The $2 million cost of the license has
been recorded as research and development costs.
Research and development costs for the
three months ended July 31, 2016 and 2015 were $175,004, and $155,678, 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,
net of an estimated forfeiture rate. The Company estimates the fair value of stock options using a Black-Scholes-Merton valuation
model, which 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. As a result, if
factors change and the Company uses different assumptions, its 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. Accounts at this institution are insured
by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances aggregated approximately $2,089,816 and $1,656,223
at July 31, 2016 and April 30, 2016, respectively. 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 loss and are included in other comprehensive income. Gains and losses on short-term
intercompany foreign currency transactions are recognized as incurred.
Recent Accounting Pronouncements
ASU No. 2015-07,
Fair Value Measurement
(Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
("ASU
2015-07"), was issued in May 2015. This ASU removes the requirement to categorize within the fair value hierarchy table investments
without readily determinable fair values in entities that elect to measure fair value using net asset value per share (“NRV”)
or its equivalent. ASU 2015-07 requires that these investments continue to be shown in the fair value disclosure in order
to allow the disclosure to reconcile to the investment amount presented in the balance sheet. The Company’s prospective
adoption of this ASU did not have a material impact on its consolidated financial statements.
ASU No. 2014-15,
“Presentation
of Financial Statements – Going Concern”
, Subtopic 205-40,
“Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern.”
The amendments in this ASU apply to all entities and require management
to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that
are currently in U.S. auditing standards. Specifically, the amendments: (i) provide a definition of the term “substantial
doubt”; (ii) require an evaluation every reporting period including interim periods; (iii) provide principles for considering
the mitigating effect of management’s plans; (iv) require certain disclosures when substantial doubt is alleviated as a result
of consideration of management’s plans; (v) require an express statement and other disclosures when substantial doubt
is not alleviated; and (vi) require an assessment for a period of one year after the date that the financial statements are issued
or available to be issued. The amendments in this update are effective for the annual period ending after December 15, 2016. For
annual periods and interim periods thereafter, early application is permitted. The Company is currently evaluating the impact this
guidance will have on its consolidated financial position and results of operations.
ASU No. 2016-09,
Compensation—Stock
Compensation
, includes several areas of simplification to stock compensation including simplifications to the accounting for
income taxes, classification of excess tax benefits on the Statement of Cash Flows and forfeitures. ASU 2016-09 is effective for
annual reporting periods beginning after December 15, 2016. An entity that elects early adoption must adopt all of the amendments
in the same period. We did not early adopt ASU 2016-09 as of and for the period ended July 31, 2016. The Company is still
evaluating the effect of this update.
In May 2014, the FASB issued Accounting
Standards Update (“ASU”) No. 2014-09 "
Revenue from Contracts with Customers
" (“Topic 606”).
Topic 606 supersedes the revenue recognition requirements in Topic 605,
“Revenue Recognition”,
including most
industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments
create a new Subtopic 340-40,
“Other Assets and Deferred Costs—Contracts with Customers”.
In summary,
the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period; early application is not permitted. The Company is currently evaluating
the impact this guidance will have on its consolidated financial position and consolidated statement of operations. In August 2015,
the FASB issued ASU No. 2015-14,
Revenue with Customers – Deferral of the Effective Date
, as an amendment to ASU No.
2014-09, which defers the effective date of ASU No. 2014-09 by one year.
ASU No. 2016-01,
Recognition and Measurement
of Financial Assets and Financial Liabilities
, eliminates the requirement to disclose the methods and significant assumptions
used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance
sheet. The standard also clarifies the need to evaluate a valuation allowance on a deferred tax asset related to available-for-sale
securities in combination with other deferred tax assets. ASU 2016-01 is effective for annual reporting periods beginning after
December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated
financial statements.
ASU No. 2016-02,
Leases
, allows
the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous
US GAAP. 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 previous leases guidance. The
Update 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted.
The Company is still evaluating the effect of this update.
NOTE 4 – LICENSE AGREEMENT OBLIGATION
The Company entered into a licensing agreement
for a license to use the Cell-in-a-Box
®
technology to develop therapies involving
Cannabis
for a total amount
of $2,000,000 “Upfront Payment” for the license (see Note 9). As of July 31, 2016, the Company’s license agreement
obligation was paid in full. As of April 30, 2016, the Company’s license obligation was $150,000.
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 three months ended July 31, 2015, 900,000 shares vested and the Company recorded a
non-cash compensation expense of $110,520.
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 three months ended July 31, 2015, 300,000 shares vested and the Company recorded a
non-cash expense of $36,840.
The Company awarded 3,600,000 shares of
common stock to officers as part of their compensation agreements for 2016. These shares vest on a quarterly basis over a twelve-month
period and are subject to their continuing service under the agreements. During the three months ended July 31, 2016, 900,000 shares
vested and the Company recorded a non-cash compensation expense in the amount of $53,910.
The Company awarded 1,200,000 shares of
common stock to an employee as part of his compensation agreement for 2016. These shares vest on a quarterly basis over a twelve-month
period and are subject to the employee providing services under the agreement. During the three months ended July 31, 2016, 300,000
shares vested and the Company recorded a non-cash compensation expense in the amount of $17,970.
During the three months ended July 31,
2016, the Company issued 600,000 shares of common stock to a consultant. These shares vest on a quarterly basis over a twelve-month
period and are subject to the consultant providing services under the agreement. During the three months ended July 31, 2016, 150,000
shares vested and the Company recorded a non-cash expense in the amount of $8,550. All shares 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.
On October 28, 2014, the Company’s
Registration on Form S-3 was declared effective by the Commission for a public offering of up to $50 million on a “shelf
offering” basis. During the three months ended July 31, 2016 and 2015, the Company sold and issued approximately 66.8 and
9.9 million shares of common stock, respectively, at prices ranging from $0.02 to $0.16 per share. Net of underwriting discounts,
legal, accounting and other offering expenses, the Company received proceeds of approximately $1.33 and $1.27 million from the
sale of these shares for the periods ended July 31, 2016 and 2015, respectively. The Company has filed a prospectus supplement
for an “at-the-market” offering with an investment bank as sales agent. As of July 31, 2016, the Company did not meet
the eligibility requirements in order for it to be able to conduct a primary offering of its common stock under Form S-3 or to
file a new Registration Statement on Form S-3. See Note 2 for additional information.
A summary of the Company’s non-vested
restricted stock activity and related weighted average grant date fair value information for the three months ended July 31, 2016
are as follows:
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Non-vested, at April 30, 2016
|
|
|
3,600,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
600,000
|
|
|
|
0.06
|
|
Vested
|
|
|
1,350,000
|
|
|
|
0.06
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Non-vested, at July 31, 2016
|
|
|
2,850,000
|
|
|
$
|
0.06
|
|
NOTE 6 – STOCK OPTIONS AND WARRANTS
Stock Options
As of July 31, 2016, the Company had outstanding
stock options held by its directors, officers, an employee, (“employee options”) and a consultant, (“non-employee
options”) that were issued pursuant to compensation, director and consultant agreements.
During the three months ended July 31,
2016 and 2015, the Company granted 13,100,000 and zero non-employee options, respectively. The non-employee options consist of
600,000 guaranteed options and 12,500,000 non-guaranteed performance based options.
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 Company has adopted the provisions
of ASC 505-50,
“Equity-Based Payments to Non-Employee”
which addresses the accounting and reporting of share
based transactions made with non-employees.
The fair value of the non-employee options
was estimated using the Black-Scholes-Merton option-pricing model, based on the following weighted average assumptions:
|
|
Three Months Ended July 31,
|
|
|
|
2016
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
1.03%
|
|
|
|
–
|
|
Expected volatility
|
|
|
105%
|
|
|
|
–
|
|
Expected lives (years)
|
|
|
5.0
|
|
|
|
–
|
|
Expected dividend yield
|
|
|
0.00%
|
|
|
|
–
|
|
The Company’s computation of expected
volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during three
months ended July 31, 2016 and 2015, the Company used a calculated volatility for each grant. For employee options, 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
a typical vesting term of one year. For non-employee options, the Company used the contract term of five years to estimate the
expected term as guided under ASC 505. 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.
Non-employee option grants that do not
vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period,
the value of these options, as calculated using the Black-Scholes-Merton option-pricing model, is determined, and compensation
expense recognized or recovered during the period is adjusted accordingly. As a result, the amount of the future compensation expense
is subject to adjustment until the common stock options are fully vested.
A summary of the Company’s stock
option activity and related information for the three months ended July 31, 2016 are shown below:
|
|
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Grant Date Fair Value per Share
|
|
Outstanding, April 30, 2016
|
|
|
68,050,000
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
Issued
|
|
|
13,100,000
|
|
|
|
0.07
|
|
|
|
0.04
|
|
Exercised
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Total Outstanding as of July 31, 2016
|
|
|
81,150,000
|
|
|
|
0.11
|
|
|
|
0.09
|
|
Total Exercisable as of July 31, 2016
|
|
|
61,700,000
|
|
|
|
0.14
|
|
|
|
–
|
|
Total Vested and expected to vest as of July 31, 2016
|
|
|
68,650,000
|
|
|
$
|
0.12
|
|
|
$
|
–
|
|
The Company recorded $164,363 and $145,269
of stock-based compensation expense related to the issuance of employee options in exchange for services during the three months
ended July 31, 2016 and 2015, respectively. As of July 31, 2016, there remained approximately $274,000 of unrecognized compensation
expense related to unvested employee options granted, to be recognized as expense over a weighted-average period of approximately
one year. The non-vested employee options vest at 1,300,000 per month and are expected to be fully vested on December 31, 2016.
The Company recorded $5,750 and $0 of stock-based
compensation expense related to the issuance of non-employee options in exchange for services during the three months ended July
31, 2016 and 2015, respectively. The non-vested non-employee guaranteed options vest at 50,000 per month and are expected to be
fully vested on April 30, 2017.
The following table summarizes ranges of
outstanding stock options by exercise price at July 31, 2016:
|
|
Exercise Price
|
|
Exercise Price
|
|
$
|
0.19
|
|
|
$
|
0.11
|
|
|
$
|
0.18
|
|
|
$
|
0.063
|
|
|
$
|
0.069
|
|
Number of Options Outstanding
|
|
|
25,000,000
|
|
|
|
27,200,000
|
|
|
|
250,000
|
|
|
|
15,600,000
|
|
|
|
13,100,000
|
|
Weighted Average Remaining Contractual Life (years) of Outstanding Options
|
|
|
3.42
|
|
|
|
3.67
|
|
|
|
3.97
|
|
|
|
4.67
|
|
|
|
4.75
|
|
Weighted Average Exercise Price
|
|
$
|
0.19
|
|
|
$
|
0.11
|
|
|
$
|
0.18
|
|
|
$
|
0.063
|
|
|
$
|
0.069
|
|
Number of Options Exercisable
|
|
|
25,000,000
|
|
|
|
27,200,000
|
|
|
|
250,000
|
|
|
|
5,200,000
|
|
|
|
150,000
|
|
Weighted Average Exercise Price of Exercisable Options
|
|
$
|
0.19
|
|
|
$
|
0.11
|
|
|
$
|
0.18
|
|
|
$
|
0.063
|
|
|
$
|
0.069
|
|
The aggregate intrinsic value of outstanding
options as of July 31, 2016 was approximately $0. This represents options whose exercise price was less than the closing fair market
value of the Company’s common stock on July 31, 2016 of approximately $0.05 per share.
Warrants
The 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 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 505-50
and ASC 505, as amended.
A summary of the Company’s warrant
activity and related information for the three months ended July 31, 2016 are shown below:
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
Outstanding, April 30, 2016
|
|
|
84,969,908
|
|
|
$
|
0.16
|
|
Issued
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Total Outstanding, July 31, 2016
|
|
|
84,969,908
|
|
|
|
–
|
|
Total Exercisable, July 31, 2016
|
|
|
84,969,908
|
|
|
$
|
0.16
|
|
The following table summarizes additional
information concerning warrants outstanding and exercisable at July 31, 2016:
Range of Exercise Prices
|
|
Number of Warrant Shares Exercisable at 7/31/2016
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
$0.075, $0.11, $0.12, $0.18 and $0.25
|
|
|
84,969,908
|
|
|
|
2.30
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Year Term - $0.075
|
|
|
1,056,000
|
|
|
|
1.19
|
|
|
|
|
|
Five Year Term - $0.12
|
|
|
35,347,508
|
|
|
|
2.91
|
|
|
|
|
|
Five Year Term - $0.18
|
|
|
19,811,200
|
|
|
|
1.42
|
|
|
|
|
|
Five Year Term - $0.25
|
|
|
18,755,200
|
|
|
|
1.43
|
|
|
|
|
|
Five Year Term - $0.11
|
|
|
10,000,000
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
84,969,908
|
|
|
|
|
|
|
|
|
|
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 condensed consolidated financial position, operations and cash flows presented in this Quarterly Report on Form 10-Q.
NOTE 8 – RELATED PARTY TRANSACTIONS
The Company had the following related party
transactions.
The Company owns 14.5% of the equity in
SG Austria and is reported on the cost method of accounting. SG Austria has two subsidiaries: (i) Austrianova; and (ii) Austrianova
Thailand Ltd. The Company purchased products from these subsidiaries in the approximate amounts of $50,000 and $48,000 in the three
months ended July 31, 2016 and 2015, respectively.
In April 2014, the Company entered into
a consulting agreement with Vin-de-Bona Trading Company Pte Ltd (“Vin-de-Bona”) pursuant to which Vin-de-Bona agreed
to provide professional consulting services to the Company. Vin-de-Bona is owned by Prof. Walter H. Günzburg and Dr. Brian
Salmons. The term of the agreement is for 12 months, automatically renewable for successive 12 month terms. After the initial term,
either party can terminate the agreement by giving the other party 30 days’ written notice before the effective date of termination.
The amounts paid for the three months ended July 31, 2016 and 2015 are approximately $28,000 and $10,000, respectively.
Under the Cannabis Licensing Agreement,
the Company acquired from Austrianova an exclusive, world-wide license to use the Cell-in-a-Box
®
trademark and its
associated technology with genetically modified non-stem cell lines which are designed to activate cannabinoids to develop therapies
involving
Cannabis.
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.
Under the Cannabis Licensing Agreement, as amended, the Upfront Payments must be paid in full by no later than June 30, 2016. As
of July 31, 2016 and 2015, the Company has paid Austrianova $2.0 million and $1.3 million of the Upfront Payment, respectively.
During the three months ended July 31,
2016 and 2015, the Company issued stock options to officers, directors and employees (see Note 6).
With the exception of Thomas Liquard, the
Board has determined that none of the Company’s directors satisfies the definition of 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 (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 products in the event
that regulatory approval for marketing is obtained.
Office Lease
The Company formerly leased office space
at 12510 Prosperity Drive, Suite 310, Silver Spring, Maryland 20904. The term of the lease expired on July 31, 2016 and was extended
to August 31, 2016 at the same amount. Rent expense for the three months ending July 31, 2016 and 2015 were $13,852 and $15,010,
respectively.
The Company entered into a new office lease
agreement effective on September 1, 2016. The term of the lease is twelve months. The leased premises are located at 23046 Avenida
de la Carlota, Suite 600, Laguna Hills, California 92653.
The following table summarizes the Company’s
aggregate rent expense through July 31, 2017.
Period ending, July 31,
|
|
Amount
|
|
|
|
|
|
2017
|
|
$
|
21,167
|
|
2018
|
|
|
12,007
|
|
|
|
$
|
33,174
|
|
License Agreements
The Third Addendum
The Third Addendum requires the Company
to make future royalty and milestone payments as follows:
|
·
|
Two percent royalty on all gross sales received by the Company or its affiliates;
|
|
·
|
Ten percent royalty on gross revenues received by the Company or its affiliates from any sublicense or right to use the patents or the licenses granted by the Company or its affiliates;
|
|
·
|
Milestone payments of $100,000 due 30 days after enrollment of the first human patient in the first clinical trial for each product; $300,000 due 30 days after enrollment of the first human patient in the first Phase 3 clinical trial for each product; and $800,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each product; and
|
|
·
|
Milestone payments of $50,000 due 30 days after enrollment of the first veterinary patient in the first trial for each product and $300,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each veterinary product.
|
In addition, the parties to the Third Addendum
entered into a Manufacturing Framework Agreement pursuant to which the Company is required to pay a fee for producing the final
encapsulated cell product of $647 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of
any Cell-in-a-Box® product. The fees under the Manufacturing Framework Agreement are subject to annual increases according
to the annual inflation rate in the country in which the encapsulated cell products are manufactured.
Diabetes Licensing Agreement
The Diabetes Licensing Agreement requires
the Company to pay a fee for producing the final encapsulated cell product of $633.14 per vial of 300 capsules after production
with a minimum purchased batch size of 400 vials of any Cell-in-a-Box
®
product, subject to adjustment for inflation
in accordance with the terms of the Diabetes Licensing Agreement.
The Diabetes Licensing Agreement requires
the Company to make future royalty and milestone payments as follows: (i) ten percent royalty of the gross sale of all products
the Company sells; (ii) twenty percent royalty of the amount actually received by the Company from sub-licensees on sub-licensees’
gross sales; (iii) milestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated
cells; (iv) $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; (v) $800,000 within
30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and (vi) $1,000,000 due 60 days after
having a marketing application approved by the applicable regulatory authority for each product.
Melligen Cell License Agreement
The Melligen Cell License Agreement does
not require any “up-front” payment to UTS. The Company is required to pay to UTS a patent administration fee amounting
to 15% on all amounts paid by UTS to prosecute and maintain patents related to the licensed property.
The Melligen Cell License Agreement requires
that the Company pay royalty payments to UTS of (i) six percent gross exploitation revenue on product sales; and (ii) twenty-five
percent of gross revenues if the product is sub-licensed by the Company. In addition, the Company is required to pay milestone
payments of: (iii) AU$ 50,000 at the successful conclusion of clinical studies; (iv) AU$ 100,000 at the successful conclusion of
Phase 1 clinical trials; (v) AU$ 450,000 at the successful conclusion of Phase 2 clinical trials; and (vi) AU$ 3,000,000 at the
conclusion of Phase 3 clinical trials.
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.
Under the Cannabis Licensing Agreement, as amended, the Upfront Payments must be paid in full by no later than June 30, 2016. As
of July 31, 2016, the Company has paid Austrianova $2.0 million of the Upfront Payment (see Note 4).
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. As of July 31, 2016, the manufacturing agreement remains unsigned. 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, subject
to adjustment for inflation in accordance with the terms of the Cannabis Licensing Agreement.
The Cannabis Licensing Agreement requires
the Company to make future royalty and milestone payments as follows: (i) ten percent royalty of the gross sale of all products
sold by the Company; (ii) twenty percent royalty of the amount actually received by the Company from sub-licensees on sub-licensees’
gross sales value; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical experiments 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 having a marketing application approved by the applicable
regulatory authority for each product.
Consulting Agreement with ViruSure
The Company has engaged ViruSure, a
professional cell growing and adventitious agent testing company that has had extensive experience with the CYP2B1-expressing
cells that will be needed for the Company’s pancreatic cancer treatment. The Company did so in order to recover them
from frozen stocks of similar cells and regenerate new stocks for use by the Company in its preclinical studies and clinical
trials. ViruSure is in the process of cloning new cells from a selected clone. Those clones will be grown to populate a
Master Cell Band and a Working Cell Bank for the Company’s future clinical trials. There are approximately $171,000 in
future milestone payments relating to testing to be completed.
Compensation Agreements
The Company entered into executive compensation
agreements with its two executive officers and an employment agreement with one of its employees in March 2015, each of which was
amended in December 2015. Each agreement has a term of two years. The Company also entered into a compensation agreement with a
Board member in April 2015 which continues in effect until the member is no longer on the Board.
NOTE 10 - INCOME TAXES
The Company had no income tax expense for
the three months ended July 31, 2016 and 2015, respectively. During the three months ended July 31, 2016 and 2015, 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 $934,000 and $300,000 for the three months ended
July 31, 2016 and 2015, respectively.
There was no material difference between
the effective tax rate and the projected blended statutory tax rate for the three months ended July 31, 2016 and 2015.
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 July 31, 2016 will not be fully realizable. Accordingly, management has maintained a valuation allowance
against the net deferred tax assets at July 31, 2016.
There have been no changes to the Company’s
liability for unrecognized tax benefits during the three months ended July 31, 2016.
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 three months ended
July 31, 2016 and 2015, the Company had accrued no interest or penalties related to uncertain tax positions.
See Note 13 of Notes to Consolidated Financial
Statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2016 for additional information
regarding income taxes.
NOTE 11 – EARNINGS PER SHARE
Basic earnings (loss) per share is computed
by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average number of shares and potentially dilutive common
shares outstanding during the period increased to include the number of additional shares of common stock that would be outstanding
if the potentially dilutive securities had been issued. Potential common shares outstanding principally include stock options and
warrants. During the three months ended July 31, 2016 and 2015, the Company incurred losses. Accordingly, the effect of any common
stock equivalent would be anti-dilutive during those periods and are not included in the calculation of diluted weighted average
number of shares outstanding.
The table below sets forth the basic loss
per share calculations:
|
|
Three Months Ended July 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(1,031,966
|
)
|
|
$
|
(1,515,038
|
)
|
Basic weighted average number of shares outstanding
|
|
|
788,171,700
|
|
|
|
737,917,481
|
|
Diluted weighted average number of shares outstanding
|
|
|
788,171,700
|
|
|
|
737,917,481
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
|
(0.00
|
)
|
The table below sets forth these potentially
dilutive securities:
|
|
Three Months Ended July 31,
|
|
|
|
2016
|
|
|
2015
|
|
Excluded options
|
|
|
81,150,000
|
|
|
|
52,450,000
|
|
Excluded warrants
|
|
|
84,969,908
|
|
|
|
72,969,908
|
|
Total excluded options and warrants
|
|
|
166,119,908
|
|
|
|
125,419,908
|
|
NOTE 12 – SUBSEQUENT EVENTS
In August 2016, the Company entered into
an office lease agreement. The term of the lease is twelve months and is effective as of September 1, 2016.
Item 2. Management’s Discussion and Analysis
of Financial Conditions and Results of Operations.
Cautionary Note Regarding Forward-Looking
Statements
This Quarterly Report on Form 10-Q (“Report”)
includes “forward-looking statements” within the meaning of the federal securities laws. All statements other than
statements of historical fact are “forward-looking statements” for purposes of this Report, including any projections
of earnings, revenue or other financial items, any statements regarding the plans and objectives of management for future operations,
any statements concerning proposed new products or services, any statements regarding future economic conditions or performance,
any statements regarding expected benefits from any transactions and any statements of assumptions underlying any of the foregoing.
In some cases, forward-looking statements can be identified by the 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. 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 United States 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” set forth in our Form 10-K for the year ended April 30, 2016 and for the reasons described
elsewhere in this Report, among others, our estimates regarding expenses, future revenues, capital requirements and needs for additional
financing; 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; and the difficulties and expenses associated with
obtaining and maintaining regulatory approval of our product candidates. All forward looking statements and reasons why results
may differ included in this Report are made as of the date hereof, 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,”
“we,” “us” and “our” refer to PharmaCyte Biotech, Inc., a Nevada corporation, and, where appropriate,
its subsidiaries.
Overview
We are a clinical stage biotechnology company
focused on developing and preparing to commercialize treatments for cancer and diabetes based upon a proprietary cellulose-based
live cell encapsulation technology known as “Cell-in-a-Box
®
.” Our unique Cell-in-a-Box
®
technology
will be used as a platform upon which treatments for several types of cancer, including advanced, inoperable pancreatic cancer,
and diabetes will be developed.
We are developing therapies for pancreatic
and other solid cancerous tumors involving the encapsulation of live cells placed in the body to enable the delivery of cancer-killing
drugs at the source of the cancer. We are also developing a therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes based
upon the encapsulation of a human cell line genetically engineered to produce, store and secrete insulin at levels in proportion
to the levels of blood sugar in the human body using our Cell-in-a-Box
®
technology. In addition, we are examining
ways to exploit the benefits of the Cell-in-a-Box
®
technology to develop therapies for cancer based upon the constituents
of the Cannabis plant, known as “cannabinoids.”
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
Three months ended July 31, 2016 compared to three months
ended July 31, 2015
Revenue
We had no revenues in the three months ended July 31, 2016 and
2015.
Operating Expenses and Loss from Operations
The following tables summarize our Operating
Expenses and Loss from Operations for the three months ended July 31, 2016 and 2015, respectively:
2016
|
|
|
2015
|
|
$
|
1,031,397
|
|
|
$
|
1,514,311
|
|
|
|
|
|
|
|
|
The total operating expenses for the three-month
period ended July 31, 2016 decreased by $482,914 from the three months ended July 31, 2015. The decrease is attributable to an
increase in research and development cost of $19,326, a decrease in director fees of $9,000, an increase in legal fees of $52,930,
and a decrease in general and administrative expenses of $513,606. The decrease in general and administrative expenses was mostly
attributable to a decrease in consulting expenses.
Other income (expense), net
The following tables summarize our other income (expense), net
for the three months ended July 31, 2016 and 2015:
2016
|
|
|
2015
|
|
$
|
(569
|
)
|
|
$
|
(727
|
)
|
|
|
|
|
|
|
|
Total other income (expense), net, for
the three months ended July 31, 2016 decreased by the amount of $158 from the three months ended July 31, 2015. The increase is
mainly attributable to the decrease in foreign exchange income of $95 and reduction of interest expense in the amount of $63.
Discussion of Operating, Investing and Financing Activities
The following table presents a summary of our sources and uses
of cash for the three months ended July 31, 2016 and 2015, respectively:
|
|
Three Months Ended
|
|
|
|
July 31, 2016
|
|
|
July 31, 2015
|
|
Net cash used in operating activities:
|
|
$
|
(906,928
|
)
|
|
$
|
(1,063,517
|
)
|
Net cash used in investing activities:
|
|
$
|
–
|
|
|
$
|
–
|
|
Net cash provided by financing activities:
|
|
$
|
1,325,471
|
|
|
$
|
1,273,822
|
|
Effect of currency rate exchange
|
|
$
|
448
|
|
|
$
|
159
|
|
Increase in cash
|
|
$
|
418,991
|
|
|
$
|
210,464
|
|
Operating Activities
:
The cash used in operating activities for
the period ended July 31, 2016 is a result of our net losses: (i) offset by securities issued for services and compensation, decreases
to prepaid expenses, accounts payable and accrued expenses; and (ii) decreased by the reduction in license agreement liability.
The cash used in operating activities for the period ended July 31, 2015 is a result of our net losses, offset by an increase in
stock issued, decrease to prepaid expenses, accounts payable and an increase accrued expenses.
Investing Activities
:
There were no investing activities in the periods ended July
31, 2016 and 2015.
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 July 31, 2016, our cash totaled approximately
$2.3 million, compared to approximately $1.9 million at April 30, 2016. Working capital was approximately $1.9 million at July
31, 2016 and approximately $1.4 million at April 30, 2016. The increase in cash is attributable to our reduction of operating expenses,
net of the proceeds from the sale of our common stock.
We believe that cash as of July 31, 2016,
the sales of unregistered shares of its common stock and any public offerings of common stock the Company may engage in will provide
sufficient capital to meet its capital requirements and to fund its operations through July 31, 2017. 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 and for working capital for corporate purposes, if necessary.
We are ineligible to make offerings under
our effective Form S-3 registration statement until no earlier than the time that such aggregate market value reaches $75 million
or we are listed on a national stock exchange. Until then, if it becomes necessary to raise additional capital, we would be required
to engage in a private sale of securities or a public offering under Form S-1. However, there can be no assurance that such
financing will be available as needed or if available, on terms favorable to us, and may result in higher costs of capital to us
and higher transaction expenses. Additionally, any such future financing may be dilutive to stockholders’ present ownership
levels, and such additional securities may have rights, preferences, or privileges that are senior to those of our existing common
stock.
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 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% royalty payment on gross revenues from
sublicensing; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical experiments 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 a human patient in the first Phase 3 clinical trial; and
(vi) a milestone payment of $1,000,000 within 90 days after obtaining the first marketing authorization.
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. Gesundheit GmbH.