NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS
Overview
PharmaCyte Biotech, Inc. (“Company”)
is a biotechnology company focused on developing cellular therapies for cancer and diabetes based upon a proprietary cellulose-based
live cell encapsulation technology known as “Cell-in-a-Box®.” The Cell-in-a-Box® technology
is intended to be used as a platform upon which therapies for several types of cancer, including locally advanced, inoperable,
pancreatic cancer (“LAPC”), and Type 1 and insulin dependent Type 2 diabetes will be developed.
The Company is developing therapies for
pancreatic and other solid cancerous tumors by using genetically engineered live human cells that it believes are capable of converting
a cancer prodrug into its cancer-killing form, encapsulating those cells using the Cell-in-a-Box® technology and
placing those capsules in the body as close as possible to the tumor. In this way, the Company believes that when the cancer prodrug
is administered to a patient with a particular type of cancer that may be affected by the prodrug, the killing of the patient’s
tumor may be optimized. On September 1, 2020, the Company submitted an Investigational New Drug Application (“IND”)
to the U.S. Food and Drug Administration (“FDA”) for a planned Phase 2b clinical trial in LAPC. On September 4, 2020,
the Company received an Information Request from the FDA. The Company responded to the FDA’s Information Request on September
11, 2020. See Note 13 “Subsequent Events”.
The Company is also examining ways to exploit
the benefits of the Cell-in-a-Box® technology to develop therapies for cancer that involve prodrugs based upon certain
constituents of the Cannabis plant; these constituents are of the class of compounds known as “cannabinoids.”
Until the FDA allows the Company to commence the clinical trial involving LAPC described in the Company’s recently filed
IND, the Company is not spending any further resources developing this program.
In addition, the Company is developing
a therapy to delay the production and accumulation of malignant ascites fluid that results from many types of abdominal cancerous
tumors. Malignant ascites fluid is secreted by abdominal cancerous tumors into the abdomen after the tumors have reached a certain
stage of growth. This fluid contains cancer cells that can seed and form new tumors throughout the abdomen. This fluid accumulates
in the abdominal cavity, causing swelling of the abdomen, severe breathing difficulties and extreme pain.
The Company is using its therapy for pancreatic
cancer to determine if it can prevent or delay the production and accumulation of malignant ascites fluid. As with the Company’s
Cannabis program, until the FDA allows it to commence the clinical trial involving LAPC described in its recently filed IND, the
Company is not spending any further resources developing this program.
The Company is also developing a therapy
for Type 1 diabetes and insulin-dependent Type 2 diabetes. The Company’s diabetes therapy consists of encapsulated genetically
modified human liver cells and insulin-producing stem cells. The encapsulation for each type of cell will be done using the Cell-in-a-Box®
technology. Implanting these cells in the body is designed to function as a bio-artificial pancreas for purposes of insulin production.
As with the two previous programs, the Company is not spending any further resources developing this program until the FDA allows
it to commence the clinical trial involving LAPC described in its recently filed IND. Additionally, work at the University of Technology,
Sydney (“UTS”) on the Melligen cells continues. Melligen cells are human liver cells that have been genetically engineered
to produce, store and release insulin in response to the levels of blood sugar in the body.
Finally, the Company has licensed (“Hai
Kang License Agreement”) from Hai Kang Life Corporation (“Hai Kang”) the right to certain technology owned or
controlled by Hai Kang related to SARS-Cov2 COVID-19 diagnostic kits (“Kits”).
The Company’s license is both for
the sale of Kits as well as for the use of the technology underlying the Kits. Pursuant to the Hai Kang License Agreement, the
Company may directly (or through a third party) conduct research, use, develop, market, sell, distribute, import and export Kits
and utilize their underlying technology for human and veterinary uses in North America, the United Kingdom and certain other European
sites. A Kit is defined as any existing Kit of Hai Kang or any future Kit derived from Hai Kang’s Kits. The Kits will be
manufactured and supplied to the Company by Hai Kang. With respect to the Hai Kang License Agreement and related products, including
the Kits, we may not be able to (i) develop a related product candidate with our current resources, on a timely basis, or at all;
(ii) obtain the necessary regulatory authorizations or approvals for such a product candidate or for a Kit; (iii) commercialize
any such product candidate or Kit; or (iv) obtain reimbursement for such a product candidate or Kit in the U.S. and elsewhere.
It is uncertain that any such product candidates or Kit will comply with U.S. regulatory requirements or that any health care
facility or provider will be willing or able to use such product candidates or Kits.
Impact of the COVID-19 Pandemic on the Company’s Operations
The coronavirus SARS-Cov2 (“COVID-19”)
pandemic is causing significant, industry-wide delays in clinical trials. Although the Company is not yet in a clinical trial,
the Company has filed an IND with the FDA to commence a clinical trial in LAPC and is awaiting a response from the FDA. Currently,
many clinical trials are being delayed due to COVID-19. There are numerous reasons for these delays. For example, patients have
shown a reluctance to enroll or continue in a clinical trial due to fear of exposure to COVID-19 when they are in a hospital or
doctor’s office. There are local, regional and state-wide orders and regulations restricting usual normal activity by people.
These discourage and interfere with patient visits to a doctor’s office if the visit is not COVID-19 related. Healthcare
providers and health systems are shifting their resources away from clinical trials toward the care of COVID-19 patients. The
FDA and other healthcare providers are making product candidates for the treatment of COVID-19 a priority over product candidates
unrelated to COVID-19. As of the date of this Report on Form 10-Q (“Report”), the COVID-19 pandemic has had an impact
upon the Company’s operations, although the Company believes that impact is not material. The impact primarily relates to
delays in tasks associated with the preparation of the Company’s recently submitted IND to treat LAPC. There may be further
delays in generating responses required by the Company to comments by or requests from the FDA related to the IND.
As a result of the COVID-19 pandemic, commencement
of the Company’s planned clinical trial to treat LAPC may be delayed. Also, enrollment may be difficult for the reasons discussed
above. In addition, after enrollment in the trial, if patients contract COVID-19 during their participation in the trial or are
subject to isolation or shelter in place restrictions, this may cause them to drop out of our trial, miss scheduled therapy appointments
or follow-up visits or otherwise fail to follow the trial protocol. If patients are unable to follow the trial protocol or if the
trial results are otherwise affected by the consequences of the COVID-19 pandemic on patient participation or actions taken to
mitigate COVID-19 spread, the integrity of data from the trial may be compromised or not be accepted by the FDA. This could impact
or delay the Company’s clinical development program.
It is highly speculative in projecting
the effects of COVID-19 on the Company’s clinical development program and the Company generally. The effects of COVID-19
quickly and dramatically change over time. Its evolution is difficult to predict, and no one is able to say with certainty when
the pandemic will subside and life as we knew it before the pandemic will return to normal.
Company Background
The Company is a Nevada corporation incorporated
in 1996. In 2013, the Company restructured its operations to focus on biotechnology. The restructuring resulted in the Company
focusing all its efforts upon the development of a novel, effective and safe way to treat cancer and diabetes. In January 2015,
the Company changed its name from Nuvilex, Inc. to PharmaCyte Biotech, Inc. to reflect the nature of its current business.
Commencing in May 2011, the Company entered
into a series of agreements and amendments with SG Austria to acquire certain assets from SG Austria as well as an exclusive, worldwide
license to use, with a right to sublicense, the Cell-in-a-Box® technology and trademark for the development of therapies
for cancer. (“SG Austria APA”)
In June 2013, the Company and SG Austria
entered 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. 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 a 14.5% equity interest of SG
Austria. The transaction required SG Austria to return to the Company the 100,000,000 shares of our common stock held by SG Austria
and for the Company to return to SG Austria the 100,000 shares of common stock of Austrianova which the Company held.
Effective as of the same date the Company
entered into the Third Addendum, the Company and SG Austria also entered into a Clarification Agreement to the Third Addendum (“Clarification
Agreement”) to clarify and include certain language that was inadvertently left out of the Third Addendum. Among other things,
the Clarification Agreement confirmed that the Third Addendum granted the Company an exclusive, worldwide license to use, with
a right to sublicense, the Cell-in-a-Box® Trademark and its Associated Technology for the development of therapies
for cancer.
With respect to Bio Blue Bird, Bavarian
Nordic A/S (“Bavarian Nordic”) and GSF-Forschungszentrum für Umwelt u. Gesundheit GmbH (collectively, “Bavarian
Nordic/GSF”) and Bio Blue Bird entered into a non-exclusive License Agreement (“Bavarian Nordic/GSF License Agreement”)
in July 2005, whereby Bio Blue Bird was granted a non-exclusive license to further develop, make, have made (including services
under contract for Bio Blue Bird or a sub-licensee, by Contract Manufacturing Organizations, Contract Research Organizations, Consultants,
Logistics Companies or others), obtain marketing approval, sell and offer for sale the clinical data generated from the pancreatic
cancer clinical trials that used the cells and capsules developed by Bavarian Nordic/GSF (then known as “CapCells”)
or otherwise use the licensed patent rights related thereto in the countries in which patents had been granted. Bio Blue Bird was
required to pay Bavarian Nordic a royalty of 3% of the net sales value of each licensed product sold by Bio Blue Bird and/or its
Affiliates and/or its sub-licensees to a buyer. The term of the Bavarian Nordic/GSF License Agreement continued on a country by
country basis until the expiration of the last valid claim of the licensed patent rights.
Bavarian Nordic/GSF and Bio Blue Bird amended
the Bavarian Nordic License Agreement in December 2006 (“First Amendment to Bavarian Nordic/GSF License Agreement”)
to reflect that: (i) the license granted was exclusive; (ii) a royalty rate increased from 3% to 4.5%; (iii) Bio Blue Bird assumed
the patent prosecution expenses for the existing patents; and (iv) to make clear that the license will survive as a license granted
by one of the licensors if the other licensor rejects performance under the Bavarian Nordic License Agreement due to any actions
or declarations of insolvency.
In June 2013, the Company acquired from
Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® Trademark and its Associated Technology for
the development of a therapy for Type 1 and insulin-dependent Type 2 diabetes (“Diabetes Licensing Agreement”). This
allows the Company to develop a therapy to treat diabetes through encapsulation of a human cell line that has been genetically
modified to produce, store and release insulin in response to the levels of blood sugar in the human body.
In October 2014, the Company entered into
an exclusive, worldwide license agreement with the UTS (“Melligen Cell License Agreement”) in Australia to use insulin-producing
genetically engineered human liver cells developed by UTS to treat Type 1 diabetes and insulin-dependent Type 2 diabetes. These
cells, named “Melligen”, were tested by UTS in mice and shown to produce insulin in direct proportion to the amount
of glucose in their surroundings. In those studies, when Melligen cells were transplanted into immunosuppressed diabetic mice,
the blood glucose levels of the mice became normal. In other words, the Melligen cells reportedly reversed the diabetic condition.
In December 2014, the Company acquired
from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® Trademark and its Associated Technology
in combination with genetically modified non-stem cell lines which are designed to activate cannabinoid prodrug molecules for development
of therapies for diseases and their related symptoms (“Cannabis Licensing Agreement”). This allows the Company to develop
a therapy to treat cancer and other diseases and symptoms through encapsulation of genetically modified cells designed to convert
cannabinoids to their active form using the Cell-in-a-Box® trademark and its associated technologies.
In July 2016, the Company entered into
a Binding Memorandum of Understanding with Austrianova (“Austrianova MOU”). Pursuant to the Austrianova MOU, Austrianova
will actively work with the Company to seek an investment partner or partners who will finance clinical trials and further develop
products for the Company’s therapy for cancer, in exchange for which the Company, Austrianova and any future investment partner
will each receive a portion of the net revenue from the sale of cancer products.
In October 2016, Bavarian Nordic/GSF and
Bio Blue Bird further amended the Bavarian Nordic License Agreement (“Second Amendment to Bavarian Nordic/GSF License Agreement”)
in order to: (i) include the right to import in the scope of the license; (ii) reflect ownership and notification of improvements;
(iii) clarify which provisions survive expiration or termination of the Bavarian Nordic License Agreement; (iv) provide rights
to Bio Blue Bird to the clinical data after the expiration of the licensed patent rights; and (v) change the notice address and
recipients of Bio Blue Bird.
In May 2018, the Company entered into a
series of binding term sheet amendments (“Binding Term Sheet Amendments”). The Binding Term Sheet Amendments provide
that the Company’s obligation to make milestone payments to Austrianova is eliminated in their entirety under the: (i) Cannabis
License Agreement; and (ii) the Diabetes License Agreement, as amended. The Binding Term Sheet Amendments also provide that the
Company’s obligation to make milestone payments to SG Austria for therapies for cancer to be eliminated in their entirety.
In addition, the Binding Term Sheet Amendments also provides that the scope of the Diabetes License Agreement is expanded to include
all cell types and cell lines of any kind or description now or later identified, including, but not limited to, primary cells,
mortal cells, immortal cells and stem cells at all stages of differentiation and from any source specifically designed to produce
insulin for the treatment of diabetes.
In addition, one of the Binding Term Sheet
Amendments provides that the Company will have a 5-year right of first refusal from August 30, 2017 in the event that Austrianova
chooses to sell, transfer or assign at any time during this period the Cell-in-a-Box® Trademark and Associated Technologies
, intellectual property, trade secrets and know-how, which includes the right to purchase any manufacturing facility used for the
Cell-in-a-Box® encapsulation process and a non-exclusive license to use the special cellulose sulfate utilized with
the Cell-in-a-Box® encapsulation process (collectively, “Associated Technologies”); provided, however,
that the Associated Technologies subject to the right of first refusal do not include Bac-in-a-Box®. Additionally,
for a period of one year from August 30, 2017 one of the Binding Term Sheet Amendments provides that Austrianova will not solicit,
negotiate or entertain any inquiry regarding the potential acquisition of the Cell-in-a-Box® and its Associated
Technologies.
The Binding Term Sheet Amendments further
provide that: (i) the royalty payments on gross sales as specified in the SG Austria APA, the Cannabis License Agreement and the
Diabetes License Agreement are changed to 4%; and (ii) the royalty payments on amounts received by the Company from sublicensees
on sublicensees’ gross sales under the same agreements are changed to 20% of the amount received from the sublicensees,
provided, however, that in the event the amounts received by the Company from sublicensees is 4% or less of sublicensees’
gross sales, Austrianova will receive 50% of what the Company receives (up to 2%) and then additionally 20% of any amount the
Company receives over that 4%.
One of the Binding Term Sheet Amendments
requires that the Company pay $900,000 to Austrianova ratably over a nine-month period in the amount of two $50,000 payments each
month during the nine-month period on the days of the month to be agreed upon between the parties, with a cure period of 20 calendar
days after receipt by the Company of written notice from Austrianova that the Company has failed to pay timely a monthly payment. As of
April 30, 2020, the $900,000 amount has been paid in full. The Binding Term Sheet Amendments also provide that Austrianova receives
50% of any other financial and non-financial consideration received from the Company’s sublicensees of the Cell-in-a-Box®
technology.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
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 United States Generally Accepted Accounting Principles (“U.S.
GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“Commission”).
Intercompany balances and transactions are eliminated. The Company’s 14.5% investment in SG Austria is presented on the cost
method of accounting.
Use of Estimates
The preparation of financial statements
in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published and the reported
amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates these estimates including
those related to fair values of financial instruments, intangible assets, fair value of stock-based awards, income taxes and contingent
liabilities, among others. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the
Company’s Condensed Consolidated Financial Statements; accordingly, it is possible that the actual results could differ from
these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s condensed consolidated
financial position and results of operations.
Intangible Assets
The Financial Accounting Standards Board
("FASB") standard on goodwill and other intangible assets prescribes a two-step process for impairment testing of goodwill
and indefinite-lived intangibles, which is performed annually, as well as when an event triggering impairment may have occurred.
The first step tests for impairment, while the second step, if necessary, measures the impairment. The Company has elected to perform
its annual analysis at the end of its reporting year.
The Company’s intangible assets are
licensing agreements related to the Cell-in-a-Box® technology for $1,549,427 and the diabetes license for $2,000,000
for an aggregate total of $3,549,427.
These intangible assets have an indefinite
life; therefore, they are not amortizable.
The Company concluded that there was no
impairment of the carrying value of the intangibles for the three months ended July 31, 2020 and 2019.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable.
If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than carrying
value, a write-down would be recorded to reduce the related asset to its estimated fair value. No impairment was identified or
recorded during the three months ended July 31, 2020 and 2019.
Fair Value of Financial Instruments
For certain of the Company’s non-derivative
financial instruments, including cash, accounts payable and accrued expenses, the carrying amount approximates fair value due to
the short-term maturities of these instruments.
Accounting Standards Codification ("ASC")
Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying
amounts reported in the condensed consolidated balance sheets for current liabilities qualify as financial instruments and are
a reasonable estimate of their fair values because of the short period between the origination of such instruments and their expected
realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
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Level 1. Observable inputs such as quoted prices in active markets;
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Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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Income Taxes
Deferred taxes are calculated using the
liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit
carry forwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A valuation allowance is provided for deferred
income tax assets when, in management’s judgment, based upon currently available information and other factors, it is more
likely than not that all or a portion of such deferred income tax assets will not be realized. The determination of the need for
a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating
results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences.
The Company believes the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting
estimate because it is based on, among other things, an estimate of future taxable income in the U.S. and certain other jurisdictions,
which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material.
In determining when to release the valuation allowance established against the Company’s net deferred income tax assets,
the Company considers all available evidence, both positive and negative. Consistent with the Company’s policy, and because
of the Company’s history of operating losses, the Company does not currently recognize the benefit of all its deferred tax
assets, including tax loss carry forwards, which may be used to offset future taxable income. The Company continually assesses
its ability to generate sufficient taxable income during future periods in which deferred tax assets may be realized. When the
Company believes it is more likely than not that it will recover its deferred tax assets, the Company will reverse the valuation
allowance as an income tax benefit in the statements of operations.
The U.S. GAAP method of accounting for
uncertain tax positions utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of
the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination.
Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is
measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized
upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition
in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue
is resolved with the taxing authority or the statute of limitations expires. Positions previously recognized are derecognized
when the Company subsequently determines the position no longer is more likely than not to be sustained. Evaluation of tax positions,
their technical merits and measurements using cumulative probability are highly subjective management estimates. Actual results
could differ materially from these estimates.
On March 27, 2020, Congress enacted the
“Coronavirus Aid, Relief and Economic Security ("CARES") Act” to provide certain relief as a result of the
2019 Coronavirus pandemic. The Company maintains a full valuation allowance on its U.S. net deferred tax assets. Deferred tax asset
remeasurement (tax expense) was offset by a net decrease in valuation allowance, that resulted in no impact on the Company's income
tax expense. Therefore, the Company does not expect the provisions in the CARES Act will impact the Company’s Condensed Consolidated
Financial Statements.
Research and Development
Research and development (“R&D”)
expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire
technologies, including licenses, that are utilized in 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.
R&D expenses for the three months ended
July 31, 2020 and 2019 were $270,574 and $72,330, respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation
expense for only those awards ultimately expected to vest on a straight-line basis over the requisite service period of the award.
The Company estimates the fair value of stock options using a Black-Scholes-Merton valuation model. This model requires the input
of highly subjective assumptions, including the option's expected term and stock price volatility. In addition, judgment is also
required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical
experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these
estimates involve inherent uncertainties and the application of management's judgment. Thus, if factors change and the Company
uses different assumptions, the stock-based compensation expense could be materially different in the future.
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 $1,887,000 and
$618,000 at July 31, 2020 and April 30, 2020, respectively. The Company has not experienced any losses in such accounts. Management
believes it is not exposed to any significant credit risk on cash.
Foreign Currency Translation
The Company translates the financial statements
of its foreign subsidiaries from the local (functional) currencies to U.S. dollars in accordance with FASB ASC 830, Foreign
Currency Matters. All assets and liabilities of the Company’s foreign subsidiaries are translated at period-end exchange
rates, while revenue and expenses are translated at average exchange rates prevailing during the period. Adjustments for foreign
currency translation fluctuations are excluded from net loss and are included in other comprehensive income. Gains and losses
on short-term intercompany foreign currency transactions are recognized as incurred.
Going Concern
The accompanying Condensed Consolidated
Financial Statements have been prepared assuming that the Company will continue as a going concern; however, the following conditions
raise substantial doubt about the Company's ability to do so. As of July 31, 2020, the Company has an accumulated deficit
of $104,742,203 and incurred a net loss for three months ended July 31, 2020 of $883,944. The Company requires substantial additional
capital to finance its planned business operations and expects to incur operating losses in future periods due to the expenses
related to the Company’s core businesses. The Company has not realized any revenue since it commenced doing business in the
biotechnology sector, and there can be no assurance that it will be successful in generating revenues in the future in this sector.
The Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to
continue as a going concern.
For the three months ended July 31, 2020,
funding was provided by investors to maintain and expand the Company’s operations. Sales of the Company’s common stock
were made under an operative Form S-3 (“S-3”) allowing for offerings of up to $50 million dollars in transactions that
are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act or transactions structured
as a public offering of a distinct block or blocks of the shares of the Company’s common stock. During the three months ended
July 31, 2020, the Company continued to acquire funds through the Company’s S-3 pursuant to which the placement agent sells
shares of common stock “at-the-market” in a program which is structured to provide up to $25 million to the Company
less certain commissions pursuant to the S-3. From May 1, 2020 through July 31, 2020 the Company raised capital of approximately
$1.9 million in Block Trade transactions and “at-the-market” transactions.
From August 1, 2020 through August 12,
2020, the Company raised capital of approximately $2.8 million in Block Trades net of commissions.
On August 13, 2020, the Company no longer
met the eligibility requirements to use the S-3 to raise capital, and the Company ceased to use the S-3 to raise capital after
that date.
Management determined that its plans to
raise additional capital alleviate substantial doubt about the Company’s ability to continue as a going concern. The Company
believes the cash on hand, the potential sales of unregistered shares of its common stock and any public offerings of common stock
in which the Company may engage in will provide sufficient capital to meet the Company’s capital requirements and to fund
the Company’s operations through September 30, 2021.
Recent Accounting Pronouncements
ASU No. 2016-13, Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), was issued in
June 2016. Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale
debt securities will be replaced with a new forward-looking "expected loss" model that generally will result in the earlier
recognition of allowances for losses. The Company’s adoption of ASU 2016-13 during the quarter ended July 31, 2020 did not
result in an impact on the Company’s Condensed Consolidated Financial Statements.
ASU No. 2019-12, Simplifying the Accounting
for Income Taxes ("ASU 2019-12"), was issued in December 2019. Under ASU 2019-12, the accounting for income taxes
is simplified by eliminating certain exceptions and implementing additional requirements which result in a more consistent application
of ASC 740. The Company is currently in the process of evaluating the impact of adopting ASU 2019-12 in 2021, but it does not expect
it to have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 3 – ACCRUED EXPENSES
Accrued expenses at July 31, 2020 and April
30, 2020 are summarized below:
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July 31, 2020
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April 30, 2020
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Payroll related costs
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$
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443,906
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$
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435,577
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Director and Officer insurance financing
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75,908
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113,245
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Other
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207,004
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267,816
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Total
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$
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726,818
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$
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816,638
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The Company financed the Director and
Officer insurance policy. The term of the policy is from March 8, 2020 through March 8, 2021. The financing agreement has an interest
rate of 4.25% per annum and requires eight monthly payments of $12,806. The unpaid balances as of July 31, 2020 and April 30,
2020 are $75,908 and $113,245, respectively, are included in accrued expenses.
NOTE 4 – SMALL BUSINESS ADMINISTRATION
– PAYCHECK PROTECTION PROGRAM
On March 27, 2020, the CARES Act was enacted
to provide financial aid to family and businesses impacted by the COVID-19 pandemic. The Company participated in the CARES
Act, and on April 15, 2020, the Company entered into a note payable with a bank under the Small Business Administration (“SBA”)
Paycheck Protection Program (“PPP loan”) in the amount of $75,200. This loan payable matures on April 15, 2022 with
a fixed interest rate of 1% per annum with interest deferred for six months. The PPP loan has an initial term of two years, is
unsecured and guaranteed by the SBA. Under the terms of the PPP loan, the Company may apply for forgiveness of the amount due on
the PPP loan. The Company used the proceeds from the PPP loan for qualifying expenses as defined in the PPP. The Company intends
to apply for forgiveness of the PPP loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this
time that the PPP loan will be forgiven partially or in full. If the loan is not forgiven based on the PPP guidelines to be issued
by the SBA, as defined, then, the monthly payment amount will be $4,229 beginning on October 15, 2020 through April 15, 2022. The
PPP loan balance as of July 31, 2020 and April 30, 2020 was $75,200.
NOTE 5 – COMMON STOCK TRANSACTIONS
A summary of the Company’s compensatory
stock activity and related weighted average grant date fair value information for the three months ended July 31, 2020 and 2019
is as follows:
During the three months ended July 31,
2019, the Company issued 2,000,000 shares of common stock to four non-employee members of the Company’s Board of Directors
(“Board”) pursuant to Director Letter Agreements (“DLAs”) with the Company for services relating to the
prior year. The shares vested upon issuance and the Company recorded a non-cash expense of $0 and $13,804 for the three months
ended July 31, 2020 and 2019, respectively.
Effective July 1, 2018, the Company issued
1,200,000 shares of common stock to a consultant. The term of the agreement is for twelve months. The shares vest monthly over
a twelve-month period and are subject to the consultant providing services under the agreement. The Company recorded a non-cash
consulting expense in the amount of $0 and $12,816 for the three months ended July 31, 2020 and 2019, respectively. There were
zero unvested shares as of July 31, 2020 and 2019, respectively.
During the month of April 2019, two consultants
were issued 2,500,000 shares of common stock pursuant to their consulting agreements. The term of the agreements is for twelve
months which covered prior and current periods. The shares vest monthly over a twelve-month period and are subject to the consultant
providing services under their respective consulting agreements. The Company recorded a non-cash consulting expense in the amount
of $0 and $7,209 for the three months ended July 31, 2020 and 2019, respectively. There were zero and 83,333 unvested shares as
of July 31, 2020 and 2019, respectively.
During the three months ended July 31,
2019, a consultant was owed 500,000 shares of common stock pursuant to his consulting agreement with the Company. The term of the
consulting agreement is for twelve months which covered prior and current periods. The shares vest monthly over a twelve-month
period and are subject to the consultant providing services under his consulting agreement. The Company recorded a non-cash consulting
expense in the amount of $0 and $3,306 for the three months ended July 31, 2020 and 2019, respectively. As of July 31, 2020 and
2019, zero and 500,000 shares remained unissued, respectively.
The Company awarded 6,600,000 shares of
common stock to officers as part of their compensation agreements for 2019. These shares vest monthly over a twelve-month period
and are subject to them continuing service under the agreements. During the three months ended July 31, 2020 and 2019, the Company
recorded a non-cash compensation expense in the amount of $0 and $104,726, respectively. There were zero and 2,750,000 unvested
shares as of July 31, 2020 and 2019, respectively.
During the three months ended July 31,
2019, three non-employee members of the Board were issued 1,500,000 shares of common stock pursuant to their DLAs with the Company.
The shares were fully vested upon issuance. The Company recorded a non-cash expense of $7,356 and $11,642 for the three months
ended July 31, 2020 and 2019, respectively. There were zero unvested shares of Common Stock remaining related to these DLAs as
of July 31, 2020 and 2019.
During the three months ended July 31,
2019, a consultant was issued 2,000,000 shares of common stock in respect of his services as the Chairman of the Company’s
Medical and Scientific Advisory Board over a four-year period with their vesting subject to the consultant providing services to
the Company. The Company recorded a non-cash consulting expense in the amount of $0 and $7,150 for the three months ended July
31, 2020 and 2019, respectively. There were zero unvested shares remaining related to these compensation agreements as of July
31, 2020 and 2019.
During the three months ended July 31,
2020, three non-employee members of the Board were issued 1,500,000 shares of Common Stock pursuant to their DLAs in respect of
their service during that year. The shares were fully vested upon issuance. The Company recorded a non-cash expense of $7,029 and
$0 for the three months ended July 31, 2020 and 2019, respectively. There were zero unvested shares remaining related to a DLA
as of July 31, 2020.
During the three months ended July 31,
2020, four consultants were issued 1,000,000 shares of restricted Common Stock pursuant to their respective consulting agreement
with the Company. The terms of the agreements are for twelve months. The shares vest monthly over a twelve-month period and are
subject to the consultants providing services under the consultant’s respective consulting agreement. The Company recorded
a non-cash consulting expense in the amount of $4,199 and $0 for the three months ended July 31, 2020 and 2019, respectively. There
were 750,000 unvested shares remaining related to these consulting agreements as of July 31, 2020.
In January 2020, the Company awarded 6,600,000
shares of common stock to officers as part of their compensation agreements. These shares vest monthly over a twelve-month period
and are subject to them continuing service under the agreements. During the three months ended July 31, 2020, the Company recorded
a non-cash compensation expense in the amount of $67,320. There were 2,750,000 unvested shares as of July 31, 2020.
All shares listed above were issued without
registration under the Securities Act in reliance upon the exemption afforded by Section 4(a)(2) of the Securities Act.
During the three months ended July 31,
2020 and 2019, the Company sold and issued approximately 234 million and 66.7 million shares of common stock, respectively, at
prices ranging from approximately $0.01 to $0.03 per share pursuant to the Company’s S-3. Net of underwriting discounts,
legal, accounting and other offering expenses, the Company received net proceeds of approximately $1,857,000 and $558,000 from
the sale of these shares for the three months ended July 31, 2020 and 2019, respectively.
A summary of the Company’s unvested
restricted stock activity and related weighted average grant date fair value information for the three months ended July 31, 2020
are as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
Unvested, at April 30, 2020
|
|
|
4,600,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
2,500,000
|
|
|
|
0.02
|
|
Vested
|
|
|
(3,600,000
|
)
|
|
|
0.03
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Unvested, at July 31, 2020
|
|
|
3,500,000
|
|
|
$
|
0.04
|
|
NOTE 6 – STOCK OPTIONS AND WARRANTS
Stock Options
As of July 31, 2020, the Company had 68,700,000
outstanding stock options to its directors and officers (collectively, “Employee Options”) and consultants (“Non-Employee
Options”).
During the three months ended July 31,
2020 and 2019, the Company granted 1,500,000 and 1,500,000 Employee Options, respectively.
The fair value of the Employee Options
at the date of grant was estimated using the Black-Scholes-Merton option-pricing model, based on the following weighted average
assumptions:
|
|
Three Months Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Risk-free interest rate
|
|
|
0.3
|
%
|
|
|
2.1
|
%
|
Expected volatility
|
|
|
91
|
%
|
|
|
91
|
%
|
Expected term (years)
|
|
|
2.5
|
|
|
|
2.5
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The Company’s computation of expected
volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during the
three months ended July 31, 2020 and 2019, the Company used a calculated volatility for each grant. The Company lacks adequate
information about the exercise behavior now and has determined the expected term assumption under the simplified method provided
for under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting
term of two and one-half years for an average of three years. The dividend yield assumption of zero is based upon the fact the
Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used
for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life.
During the three months ended July 31,
2020 and 2019, the Company granted no Non-Employee Options.
A summary of the Company’s stock
option activity and related information for the three months ended July 31, 2020 is shown below:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2020
|
|
|
67,200,000
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Issued
|
|
|
1,500,000
|
|
|
|
0.02
|
|
|
|
0.02
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding, July 31, 2020
|
|
|
68,700,000
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Exercisable, July 31, 2020
|
|
|
64,950,000
|
|
|
$
|
0.06
|
|
|
$
|
–
|
|
Vested and expected to vest
|
|
|
68,700,000
|
|
|
$
|
0.06
|
|
|
$
|
–
|
|
A summary of the activity for unvested
stock options during the three months ended July 31, 2020 is as follows:
|
|
Options
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
|
|
|
|
|
|
|
Unvested, April 30, 2020
|
|
|
6,200,000
|
|
|
$
|
0.05
|
|
Granted
|
|
|
1,500,000
|
|
|
|
0.02
|
|
Vested
|
|
|
(3,950,000
|
)
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Unvested, July 31, 2020
|
|
|
3,750,000
|
|
|
$
|
0.03
|
|
The Company recorded $72,317 and $116,914
of stock-based compensation related to the issuance of Employee Options to certain officers and directors in exchange for services
during the three months ended July 31, 2020 and 2019, respectively. At July 31, 2020, there remained $88,526 of unrecognized compensation
expense related to unvested Employee Options granted to officers and directors, to be recognized as expense over a weighted-average
period of the remaining five months in the calendar year. The unvested options vest at 750,000 shares per month and are expected
to be fully vested on December 31, 2020.
The Company recorded $0 and $9,411 of stock-based
compensation related to the issuance of Non-Employee Options in exchange for services during the three months ended July 31, 2020
and 2019, respectively. There were no unvested Non-Employee Options on July 31, 2020.
The following table summarizes the outstanding
stock options by exercise price at July 31, 2020:
Exercise Price
|
|
|
Number of
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual Life
of Outstanding
Options (years)
|
|
|
Weighted
Average
Exercisable
Price
|
|
|
Number of
Options
Exercisable
|
|
|
Weighted Average
Exercise Price
of Exercisable
Options
|
|
$
|
0.063
|
|
|
|
15,600,000
|
|
|
|
0.25
|
|
|
$
|
0.063
|
|
|
|
15,600,000
|
|
|
$
|
0.063
|
|
$
|
0.104
|
|
|
|
10,450,000
|
|
|
|
1.03
|
|
|
$
|
0.104
|
|
|
|
10,450,000
|
|
|
$
|
0.104
|
|
$
|
0.0685
|
|
|
|
600,000
|
|
|
|
0.75
|
|
|
$
|
0.0685
|
|
|
|
600,000
|
|
|
$
|
0.0685
|
|
$
|
0.058
|
|
|
|
2,450,000
|
|
|
|
1.43
|
|
|
$
|
0.058
|
|
|
|
2,450,000
|
|
|
$
|
0.058
|
|
$
|
0.0734
|
|
|
|
1,200,000
|
|
|
|
0.96
|
|
|
$
|
0.0734
|
|
|
|
1,200,000
|
|
|
$
|
0.0734
|
|
$
|
0.0729
|
|
|
|
1,800,000
|
|
|
|
1.94
|
|
|
$
|
0.0729
|
|
|
|
1,800,000
|
|
|
$
|
0.0729
|
|
$
|
0.089
|
|
|
|
1,200,000
|
|
|
|
1.96
|
|
|
$
|
0.089
|
|
|
|
1,200,000
|
|
|
$
|
0.089
|
|
$
|
0.0553
|
|
|
|
500,000
|
|
|
|
1.10
|
|
|
$
|
0.0553
|
|
|
|
500,000
|
|
|
$
|
0.0553
|
|
$
|
0.0558
|
|
|
|
9,000,000
|
|
|
|
1.45
|
|
|
$
|
0.0558
|
|
|
|
9,000,000
|
|
|
$
|
0.0558
|
|
$
|
0.0534
|
|
|
|
1,200,000
|
|
|
|
3.10
|
|
|
$
|
0.0534
|
|
|
|
1,200,000
|
|
|
$
|
0.0534
|
|
$
|
0.0539
|
|
|
|
1,000,000
|
|
|
|
1.38
|
|
|
$
|
0.0539
|
|
|
|
1,000,000
|
|
|
$
|
0.0539
|
|
$
|
0.0683
|
|
|
|
500,000
|
|
|
|
1.46
|
|
|
$
|
0.0683
|
|
|
|
500,000
|
|
|
$
|
0.0683
|
|
$
|
0.0649
|
|
|
|
500,000
|
|
|
|
1.60
|
|
|
$
|
0.0649
|
|
|
|
500,000
|
|
|
$
|
0.0649
|
|
$
|
0.0495
|
|
|
|
9,000,000
|
|
|
|
1.88
|
|
|
$
|
0.0495
|
|
|
|
9,000,000
|
|
|
$
|
0.0495
|
|
$
|
0.0380
|
|
|
|
1,200,000
|
|
|
|
4.15
|
|
|
$
|
0.0380
|
|
|
|
1,200,000
|
|
|
$
|
0.0380
|
|
$
|
0.0404
|
|
|
|
1,000,000
|
|
|
|
1.88
|
|
|
$
|
0.0404
|
|
|
|
1,000,000
|
|
|
$
|
0.0404
|
|
$
|
0.0370
|
|
|
|
500,000
|
|
|
|
1.96
|
|
|
$
|
0.0370
|
|
|
|
500,000
|
|
|
$
|
0.0370
|
|
$
|
0.0340
|
|
|
|
500,000
|
|
|
|
2.10
|
|
|
$
|
0.0340
|
|
|
|
500,000
|
|
|
$
|
0.0340
|
|
$
|
0.0408
|
|
|
|
9,000,000
|
|
|
|
2.66
|
|
|
$
|
0.0408
|
|
|
|
5,250,000
|
|
|
$
|
0.0408
|
|
$
|
0.0240
|
|
|
|
1,000,000
|
|
|
|
2.38
|
|
|
$
|
0.0240
|
|
|
|
1,000,000
|
|
|
$
|
0.0240
|
|
$
|
0.0247
|
|
|
|
500,000
|
|
|
|
2.46
|
|
|
$
|
0.0247
|
|
|
|
500,000
|
|
|
$
|
0.0247
|
|
|
Total
|
|
|
|
68,700,000
|
|
|
|
1.47
|
|
|
$
|
0.06
|
|
|
|
64,950,000
|
|
|
$
|
0.06
|
|
The aggregate intrinsic value of outstanding
options as of July 31, 2020 was zero. This represents options whose exercise price was less than the closing fair market value
of the Company’s common stock on July 31, 2020 of approximately $0.014 per share.
Warrants
The warrants issued by the Company are
equity-classified. The fair value of the warrants was recorded as additional paid-in-capital, and no further adjustments are made.
For stock warrants paid in consideration
of services rendered by non-employees, the Company recognizes consulting expense in accordance with the requirements of ASC 505.
Effective June 13, 2019, the Company issued
a Common Stock Purchase Warrant to Aeon Capital, Inc. (“Aeon”) for a Block Trade transaction. The Company issued a
warrant to purchase 1,338,889 shares of common stock based upon the Block Trade transaction pursuant to the Company’s engagement
agreement with Aeon dated February 22, 2018 (“Aeon Engagement Agreement”). The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $9,000. The warrants
have a cashless exercise feature.
Effective July 15, 2019, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 1,944,444 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $12,000. The warrants
have a cashless exercise feature.
Effective July 10, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 4,100,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $29,000. The warrants
have a cashless exercise feature.
Effective July 18, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 3,500,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $18,000. The warrants
have a cashless exercise feature.
Effective July 19, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 1,333,333 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $7,000. The warrants
have a cashless exercise feature.
Effective July 27, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 2,500,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $13,000. The warrants
have a cashless exercise feature.
A summary of the Company’s warrant
activity and related information for the three months ended July 31, 2020 is shown below:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding, April 30, 2020
|
|
|
47,890,155
|
|
|
$
|
0.05
|
|
Issued
|
|
|
11,433,333
|
|
|
|
0.01
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding, July 31, 2020
|
|
|
59,323,488
|
|
|
|
0.04
|
|
Exercisable, July 31, 2020
|
|
|
59,323,488
|
|
|
$
|
0.04
|
|
The following table summarizes additional
information concerning warrants outstanding and exercisable at July 31, 2020:
Exercise Prices
|
|
Number of
Warrant Shares
Exercisable at
April 30, 2020
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
$0.12
|
|
|
17,000,000
|
|
|
|
0.44
|
|
|
|
|
|
$0.065
|
|
|
769,231
|
|
|
|
1.39
|
|
|
|
|
|
$0.0575
|
|
|
869,565
|
|
|
|
1.68
|
|
|
|
|
|
$0.03
|
|
|
2,500,000
|
|
|
|
2.32
|
|
|
|
|
|
$0.026
|
|
|
1,923,077
|
|
|
|
2.91
|
|
|
|
|
|
$0.025
|
|
|
2,000,000
|
|
|
|
1.99
|
|
|
|
|
|
$0.018
|
|
|
1,388,889
|
|
|
|
2.83
|
|
|
|
|
|
$0.011
|
|
|
2,272,727
|
|
|
|
3.25
|
|
|
|
|
|
$0.01
|
|
|
9,100,000
|
|
|
|
4.52
|
|
|
|
|
|
$0.015
|
|
|
833,333
|
|
|
|
4.72
|
|
|
|
|
|
$0.009
|
|
|
3,333,333
|
|
|
|
3.92
|
|
|
|
|
|
$0.0075
|
|
|
7,333,333
|
|
|
|
4.97
|
|
|
|
|
|
$0.005
|
|
|
10,000,000
|
|
|
|
4.41
|
|
|
|
|
|
|
|
|
59,323,488
|
|
|
|
2.96
|
|
|
$
|
0.04
|
|
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.
NOTE 8 – RELATED PARTY TRANSACTIONS
The Company had the following related party
transactions during the three months ended July 31, 2020 and 2019.
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 Pte Ltd. The Company purchased products and services from these subsidiaries in the approximate amounts of $64,000 and
$2,400 in the three months ended July 31, 2020 and 2019, respectively.
In April 2014, the Company entered the
Vin-de-Bona Consulting Agreement pursuant to which it agreed to provide professional consulting services to the Company. Vin-de-Bona
is owned by Prof. Walter H. Günzburg (“Prof. Günzburg) and Dr. Brian Salmons (“Dr. Salmons”), both
of whom are involved in numerous aspects of the Company’s scientific endeavors relating to cancer and diabetes (Prof. Gunzburg
is the Chairman of Austrianova, and Dr. Salmons is the Chief Executive Officer and President of Austrianova). 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 agreement has been
automatically renewed annually. The amounts incurred for the three months ended July 31, 2020 and 2019 were approximately $13,000
and $13,000, respectively. In addition, during the three months ended July 31, 2020 the Company issued 250,000 shares of common
stock to Dr. Salmons. The Company recorded a noncash consulting expense of approximately $8,000 relating to these share issuances
for the three months ended July 31, 2020.
During the year ended April 30, 2020, the
Company issued one share of Series A Preferred Stock to the Chief Executive Officer of the Company for $1 pursuant to a Subscription
Agreement. The Series A Preferred Stock is described in detail in Note 12 – Preferred Stock. The Board exercised its right
to have the Company redeem the one share of Series A Preferred Stock. It is no longer issued and outstanding.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company acquires assets still in development
and enters R&D arrangements with third parties that often require milestone and royalty payments to the third-party contingent
upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required,
contingent upon the successful achievement of an important point in the development lifecycle of the pharmaceutical product (e.g.,
approval of the product for marketing by a regulatory agency). If required by the license agreements, the Company may have to make
royalty payments based upon a percentage of the sales of the pharmaceutical product if regulatory approval for marketing of the
product candidate is obtained.
Office Lease
Effective September 1, 2017, the Company
entered into an office lease at 23046 Avenida de la Carlota, Suite 600, Laguna Hills, California (“Leased Premises”).
The term of the lease is for 24 months and expired on August 31, 2019. In May 2019, the Company entered into an additional one-year
lease for the Leased Premises, commencing upon the expiration of the term of the prior lease. The term of the lease expires on
August 31, 2020.
On May 28, 2020, the Company entered into
an additional six-month lease of the Leased Premises, commencing on September 1, 2020. The term of the new lease expires on February
28, 2021.
Rent expenses for these offices for the
three months ended July 31, 2020 and 2019 were $7,152 and $8,661, respectively.
The following table summarizes the Company’s
aggregate future minimum lease payments required under the operating lease as of July 31, 2020.
|
|
Amount
|
|
2021
|
|
$
|
12,456
|
|
|
|
$
|
12,456
|
|
Material Agreements
The Company’s material agreements
are identified and summarized in Note 1 – Nature of Business – Company Background.
Compensation Agreements
The Company entered into executive compensation
agreements with its three executive officers in March 2015, each of which was amended in December 2015 and March 2017. Each agreement
has a term of two years with automatic annual extensions thereafter unless the Company or the officer provides written notification
of termination at least ninety days prior to the end of the term or subsequent extensions. The Company also entered a compensation
agreement with a Board member in April 2015 which continued in effect until amended in May 2017.
In May 2017, the Company amended the compensation
agreement with the Board members and the terms continue in effect until a member is no longer on the Board.
The Company has four independent directors.
Each director receives the same compensation: (i) $12,500 in cash for each calendar quarter of service on the Board; (ii) 500,000
fully-paid, non-assessable shares of the Company’s restricted common stock (“Shares”) annually; and (iii) a five-year
option to purchase 500,000 Shares annually at an exercise price equal to the fair market value of the Shares on the date of grant.
The Shares and the option Shares fully vest on the date of the grants.
NOTE 10 - INCOME TAXES
The Company had no income tax expense for
the three months ended July 31, 2020 and 2019, respectively. During the three months ended July 31, 2020 and 2019, the Company
had a net operating loss (“NOL”) for each period which generated deferred tax assets for NOL carryforwards. The Company
provided valuation allowances against the net deferred tax assets including the deferred tax assets for NOL carryforwards. Valuation
allowances provided for the net deferred tax asset increased by approximately $98,000 and $201,000 for the three months ended July
31, 2020 and 2019, 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, 2020 and 2019.
Current tax laws limit the amount of loss
available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available
to offset future taxable income may be limited. Based on the assessment of all available evidence including, but not limited to,
the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability
of its technology, the impact of government regulations and healthcare reform initiatives and other risks normally associated with
biotechnology companies, the Company has concluded that is more likely than not that these operating loss carryforwards will not
be realized. Accordingly, 100% of the deferred tax valuation allowance has been recorded against these assets at July 31, 2020.
The Company’s policy is to recognize
any interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of the three months ended
July 31, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions.
See Note 10 of Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2020 for additional
information regarding income taxes.
NOTE 11 – EARNINGS PER SHARE
Basic earnings (loss) per share is computed
by dividing earnings (loss) available to common stockholders by the weighted average number of shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares and potentially
dilutive shares of common stock outstanding during the period increased to include the number of additional shares of common stock
that would be outstanding if the potentially dilutive securities had been issued. Potential shares of common stock outstanding
principally include stock options and warrants. During the three months ended July 31, 2020 and 2019, the Company incurred losses.
Accordingly, the effect of any common stock equivalent would be anti-dilutive during those periods and are not included in the
calculation of diluted weighted average number of shares outstanding.
The table below sets forth the basic loss
per share calculations:
|
|
Three Months Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(883,944
|
)
|
|
$
|
(1,134,075
|
)
|
Basic weighted average number of shares outstanding
|
|
|
1,678,572,167
|
|
|
|
1,210,305,834
|
|
Diluted weighted average number of shares outstanding
|
|
|
1,678,572,167
|
|
|
|
1,210,305,834
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
The table below sets forth these potentially
dilutive securities:
|
|
Three Months Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Excluded options
|
|
|
68,700,000
|
|
|
|
108,950,000
|
|
Excluded warrants
|
|
|
59,323,488
|
|
|
|
45,411,130
|
|
Total excluded options and warrants
|
|
|
128,023,488
|
|
|
|
154,361,130
|
|
NOTE 12 – PREFERRED STOCK
The Company has authorized 10,000,000
shares of preferred stock, with a par value of $0.0001, of which one share has been designated as "Series A Preferred Stock".
The one share of Series A Preferred Stock was issued on October 30, 2019 and repurchased by the Company on December 3, 2019. As
of July 31, 2020, there are no shares of preferred stock issued and outstanding.
The description of the Series A Preferred
Stock below is qualified in its entirety by reference to the Company’s Articles of Incorporation, as amended.
The Series A Preferred Stock has the following
features:
|
•
|
There is one share of preferred stock designated as Series A Preferred Stock;
|
|
|
|
|
•
|
The Series A
Preferred Stock has a number of votes at any time equal to the number of votes then held by all other shareholders of the
Company having a right to vote on any matter plus one. The Certificate of Designations that designated the terms of the
Series A Preferred Stock cannot be amended without the consent of the holder of the Series A Preferred Stock;
|
|
|
|
|
•
|
The Company may redeem the Series A Preferred Stock at any time for a redemption price of $1.00 paid to the holder of the share of Series A Preferred Stock; and
|
|
|
|
|
•
|
The Series A Preferred Stock has no rights of transfer, conversion, dividends, preferences upon liquidation or participation in any distributions to shareholders.
|
NOTE 13 – SUBSEQUENT EVENTS
From August 1, 2020 through August 12,
2020, the Company sold approximately 459 million shares of common stock using the S-3 structured as Block Trade transactions. The
issuance of these shares resulted in gross proceeds to the Company of approximately $3 million. Pursuant to the Aeon Engagement
Agreement, the Company paid Aeon a fee of approximately $183,000 and provided warrant coverage of 5% of the number of shares of
commons stock sold in the Block Trade transactions This amounted to approximately 34 million warrant shares with a five-year term.
The warrants have a cashless exercise feature. In addition, the Company incurred transaction fees of approximately $96,000 to an
unrelated party.
On September 1, 2020, the Company submitted
the IND to the FDA to allow the Company to commence a Phase 2b human clinical trial involving LAPC. Although no assurance as to
the timing of the trial can be given or whether the FDA will allow the Company to commence a Phase 2b clinical trial as opposed
to a Phase 1 clinical trial or further preclinical studies. The IND consisted of all available preclinical information (e.g. animal
toxicity studies), Chemistry, Manufacturing and Controls information and other pre-clinical information about the Company’s
product candidate to treat LAPC, as well as information regarding the proposed clinical trial program and other information and
documentation required by FDA regulations. On September 4, 2020, the Company received an Information Request from the FDA. The
Company responded to the FDA’s Information Request on September 11, 2020.