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.
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 U.S. Food and Drug Administration (“FDA”) allows the Company to commence the clinical trial involving LAPC
described in the Company’s recently filed Investigational New Drug Application (“IND”) for which the FDA has
placed a clinical hold, 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 for which the FDA has placed a clinical hold, 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
the Company to commence the clinical trial involving LAPC described in its recently filed IND for which the FDA has placed a clinical
hold. However, related 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”). On November 19, 2020, the Company sent
Hai Kang a letter terminating the Hai Kang License Agreement. See Note 13- Subsequent Events.
Clinical Hold
On September 1, 2020, the Company submitted
an IND to the FDA for a planned Phase 2b clinical trial in LAPC. Shortly thereafter, the Company received Information Requests
from the FDA related to the IND. The Company timely responded to all information requests.
On October 1, 2020, the Company received
notice that the FDA had placed the IND on clinical hold.
On October 30, 2020, the FDA sent a letter
to the Company setting forth the reasons for the clinical hold and specific guidance on what the Company must do to have the clinical
hold lifted.
In order to lift the clinical hold, the
FDA has informed the Company that it needs to conduct several additional preclinical studies. The FDA also requested additional
information regarding several topics, including data, manufacturing information and product release specifications.
In addition, the FDA requested that several
items not related to the clinical hold be addressed through the submission of an IND amendment. Specifically, the FDA requested
that the Company perform qualification studies for the drug substance filling step to ensure that the product remains sterile and
stable during the filling process. The FDA also requested additional information, discussion and clarification on several other
topics.
There has been no further communication
with the FDA regarding the clinical hold.
The Company has assembled a scientific team to address the FDA
requests related to the clinical hold.
See Management’s Discussion and Analysis of Financial
Condition and Results of Operations-Clinical Hold for a further discussion of the clinical hold.
Impact of the COVID-19 Pandemic on the Company’s Operations
The coronavirus SARS-Cov2 pandemic (“COVID-19”)
is causing significant, industry-wide delays in clinical trials. Although the Company is not yet in a clinical trial, the Company
has filed an IND with the FDA to commence a clinical trial in LAPC. While the IND has been placed on clinical hold by the FDA,
the Company has assessed the impact of COVID-19 on its operations. Currently, many clinical trials are being delayed due to COVID-19.
There are numerous reasons for these delays. For example, patients have shown a reluctance to enroll or continue in a clinical
trial due to fear of exposure to COVID-19 when they are in a hospital or doctor’s office. There are local, regional and state-wide
orders and regulations restricting usual normal activity by people. These discourage and interfere with patient visits to a doctor’s
office if the visit is not COVID-19 related. Healthcare providers and health systems are shifting their resources away from clinical
trials toward the care of COVID-19 patients. The 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 response to the clinical
hold, including all preclinical studies. There may be further delays in generating responses to the requests from the FDA related
to the clinical hold.
As a result of the COVID-19 pandemic, commencement
of the Company’s planned clinical trial to treat LAPC may be delayed beyond the lifting of the clinical hold should that
occur. Also, enrollment may be difficult for 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 further adversely 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.
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.
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 AG; (ii) PharmaCyte Biotech Europe Limited; (iii) PharmaCyte Biotech Australia Pty. Ltd.;
and (iv) Viridis Biotech, Inc. and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S.
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 six months ended October 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 six months ended October 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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•
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Level 1. Observable inputs such as quoted prices in active markets;
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•
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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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•
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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.
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 Condensed Consolidated 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 COVID-19.
The Company maintains a full valuation allowance on its U.S. net deferred tax assets. Deferred tax asset remeasurement (tax expense)
was offset by a net decrease in valuation allowance, that resulted in no impact on the Company's income tax expense. Therefore,
the Company does not expect the provisions in the CARES Act will impact the Company’s Condensed Consolidated Financial Statements.
Research and Development
Research and development (“R&D”)
expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire
technologies, including licenses, that are utilized in R&D and that have no alternative future use are expensed when incurred.
Technology developed for use in the Company’s product candidates is expensed as incurred until technological feasibility
has been established.
R&D expenses for the three and six
months ended October 31, 2020 were $151,314 and $421,888, respectively, and for the three and six months ended October 31, 2019
were $17,940 and $90,270, 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 $3,439,000 and $618,000
at October 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 loss. 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 October 31, 2020, the Company has an accumulated deficit
of $105,692,395 and incurred a net loss for the six months ended October 31, 2020 of $1,834,136. 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 six months ended October 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 of 1933, as amended (“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 six months ended October 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.
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. From May 1, 2020 through August 13, 2020 the Company raised capital of approximately $4.7 million in Block Trade transactions
and “at-the-market” transactions.
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 December 31, 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. As part of the Company’s continuing
assessment of the adequacy of AU 2016-13, there are no factors to be considered at this time, as the Company does not have an allowance
for credit losses.
ASU No. 2019-12, Simplifying the Accounting
for Income Taxes ("ASU 2019-12"), was issued in December 2019. Under ASU 2019-12, the accounting for income taxes
is simplified by eliminating certain exceptions and implementing additional requirements which result in a more consistent application
of ASC 740. The Company is currently in the process of evaluating the impact of adopting ASU 2019-12 in 2021, but it does not expect
it to have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 3 – ACCRUED EXPENSES
Accrued expenses at October 31, 2020 and
April 30, 2020 are summarized below:
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October 31, 2020
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|
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April 30, 2020
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|
Payroll related costs
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|
$
|
462,781
|
|
|
$
|
435,577
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|
Director and Officer insurance financing
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38,168
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|
113,245
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Other
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8,473
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|
|
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267,816
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Total
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$
|
509,422
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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 October 31, 2020 and April 30, 2020
are $38,168 and $113,245, respectively, which are included in accrued expenses.
NOTE 4 – SMALL BUSINESS ADMINISTRATION
– PAYCHECK PROTECTION PROGRAM
On March 27, 2020, the CARES Act was enacted
to provide financial aid to family and businesses impacted by COVID-19. The Company participated in the CARES Act, and on
April 15, 2020, the Company entered into a note payable with a bank under the Small Business Administration (“SBA”)
Paycheck Protection Program (“PPP”) loan in the amount of $75,200. This loan payable matures on April 15, 2022 with
a fixed interest rate of 1% per annum with interest deferred for six months. The PPP loan has an initial term of two years, is
unsecured and guaranteed by the SBA. Under the terms of the PPP loan, the Company may apply for forgiveness of the amount due on
the PPP loan. The Company used the proceeds from the PPP loan for qualifying expenses as defined in the PPP. The Company intends
to apply for forgiveness of the PPP loan in accordance with the terms of the CARES Act. However, the Company cannot assure at this
time that the PPP loan will be forgiven partially or in full. The outstanding PPP loan balance as of October 31, 2020 and April
30, 2020 was $75,200.
NOTE 5 – COMMON STOCK TRANSACTIONS
A summary of the Company’s stock
activity and related weighted average grant date fair value information for the six months ended October 31, 2020 and 2019 is as
follows:
During the six months ended October 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 $0 and for the three and six
months ended October 31, 2020, respectively, and $5,408 and $19,212 for the three and six months ended October 31, 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 $0 for the three and six months ended October 31, 2020, respectively, and $0 and $12,816
for the three and six months ended October 31, 2019, respectively. There were zero unvested shares as of October 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 consultants
providing services under their respective consulting agreements. The Company recorded a non-cash consulting expense in the amount
of $0 and $0 for the three and six months ended October 31, 2020, respectively, and $4,701 and $11,910 for the three and six months
ended October 31, 2019, respectively. There were zero unvested shares as of October 31, 2020 and 2019.
During the six months ended October 31,
2019, a consultant was issued 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 $0 for the three and six months ended October 31, 2020, respectively, and $0 and $3,306 for the
three and six months ended October 31, 2019, respectively. There were zero unvested shares as of October 31, 2020 and 2019.
In January 2019, the Company awarded 6,600,000
shares of common stock to executive officers of the Company 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 their compensation agreements. During the
three and six months ended October 31, 2020, the Company recorded a non-cash compensation expense in the amount of $0 and $0,
respectively, and $104,727 and $209,453 for the three and six months ended October 31, 2019, respectively. There were zero and
1,100,000 unvested shares as of October 31, 2020 and 2019, respectively.
During the six months ended October 31,
2019, four non-employee members of the Board were issued 2,000,000 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 $3,205 and $10,561 for the three and six
months ended October 31, 2020, respectively, and $15,793 and $27,435 for the three and six months ended October 31, 2019, respectively.
There were zero unvested shares remaining related to these DLAs as of October 31, 2020 and 2019.
During the six months ended October 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 $0 for the three and six months ended October
31, 2020, respectively, and $4,701 and $11,851 for the three and six months ended October 31, 2019, respectively. There were zero
unvested shares remaining related to his compensation arrangement as of October 31, 2020 and 2019.
During the six months ended October 31,
2020, four non-employee members of the Board were issued 2,000,000 shares of common stock pursuant to their DLAs in respect of
their service during that year. The shares were fully vested upon issuance. The Company recorded a non-cash expense of $9,419 and
$16,448 for the three and six months ended October 31, 2020, respectively, and $0 and $0 for the three and six months ended October
31, 2019, respectively. There were zero unvested shares remaining related to such DLAs as of October 31, 2020.
During the six months ended October 31,
2020, four consultants were issued 1,000,000 shares of common stock pursuant to their consulting agreements 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 consulting agreements. The Company recorded a non-cash consulting expense in the
amount of $5,409 and $9,608 for the three and six months ended October 31, 2020, respectively, and $0 and $0 for the three and
six months ended October 31, 2019, respectively. There were 500,000 unvested shares remaining related to these consulting agreements
as of October 31, 2020.
In January 2020, the Company awarded 6,600,000
shares of common stock to the executive officers of the Company as part of their compensation agreements. These shares vest monthly
over a twelve-month period and are subject to them continuing service under their compensation agreements. During the three and
six months ended October 31, 2020, the Company recorded a non-cash compensation expense in the amounts of $67,320 and $134,640,
respectively. There were 1,100,000 unvested shares as of October 31, 2020.
During the six months ended October 31,
2020, a consultant was issued 500,000 shares of common stock in respect of his services as the Chairman of the Company’s
Medical and Scientific Advisory Board with the vesting subject to the consultant providing services to the Company. The Company
recorded a non-cash consulting expense in the amount of $708 and $708 for the three and six months ended October 31, 2020, respectively,
and $0 and $0 for the three and six months ended October 31, 2019, respectively. There were zero unvested shares remaining related
to his compensation arrangement as of October 31, 2020 and 2019.
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 six months ended October 31,
2020 and 2019, the Company sold and issued approximately 693 million and 137 million shares of common stock, respectively, at
prices of approximately $0.01 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 $4.7 million and $884,000 from the sale of these
shares for the six months ended October 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 six months ended October 31, 2020
are as follows:
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Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
Unvested, at April 30, 2020
|
|
|
4,600,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
3,500,000
|
|
|
|
0.02
|
|
Vested
|
|
|
(6,500,000
|
)
|
|
|
0.03
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Unvested, at October 31, 2020
|
|
|
1,600,000
|
|
|
$
|
0.03
|
|
NOTE 6 – STOCK OPTIONS AND WARRANTS
Stock Options
As of October 31, 2020, the Company had
69,200,000 outstanding stock options to its directors and executive officers (collectively, “Employee Options”) and
consultants (“Non-Employee Options”).
During the six months ended October 31,
2020 and 2019, the Company granted 2,000,000 and 2,000,000 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:
|
|
Six Months Ended October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Risk-free interest rate
|
|
|
0.3
|
%
|
|
|
2.0
|
%
|
Expected volatility
|
|
|
92
|
%
|
|
|
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
six months ended October 31, 2020 and 2019, the Company used a calculated volatility for each grant. The Company lacks adequate
information about the exercise behavior and therefore has determined the expected term assumption under the simplified method provided
for under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting
term of two and one-half years for an average of 2.5 years. The dividend yield assumption of zero is based upon the fact the Company
has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each
grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life.
During the six months ended October 31,
2020 and 2019, the Company granted zero and 1,200,000 Non-Employee Options, respectively. During the three months ended October
31, 2020 and 2019, the Company granted zero and 1,200,000 Non-Employee Options, respectively.
A summary of the Company’s stock
option activity and related information for the six months ended October 31, 2020 is shown below:
|
|
Options
|
|
|
Weighted
Average
Exercise Price per Share
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2020
|
|
|
67,200,000
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Granted
|
|
|
2,000,000
|
|
|
|
0.02
|
|
|
|
0.02
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding, October 31, 2020
|
|
|
69,200,000
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Exercisable, October 31, 2020
|
|
|
67,700,000
|
|
|
$
|
0.06
|
|
|
$
|
–
|
|
Vested and expected to vest
|
|
|
69,200,000
|
|
|
$
|
0.06
|
|
|
$
|
–
|
|
A summary of the activity for unvested
stock options during the six months ended October 31, 2020 is as follows:
|
|
Options
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
|
|
|
|
|
|
|
Unvested, April 30, 2020
|
|
|
6,200,000
|
|
|
$
|
0.05
|
|
Granted
|
|
|
2,000,000
|
|
|
|
0.02
|
|
Vested
|
|
|
(6,700,000
|
)
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Unvested, October 31, 2020
|
|
|
1,500,000
|
|
|
$
|
0.04
|
|
The Company recorded $56,059 and $93,995
of stock-based compensation expense related to the issuance of Employee Options to certain executive officers and directors in
exchange for services during the three months ended October 31, 2020 and 2019, respectively, and $128,376 and $210,909 during the
six months ended October 31, 2020 and 2019, respectively. At October 31, 2020, there remained $35,410 of unrecognized compensation
expense related to unvested Employee Options granted to executive officers and directors, to be recognized as expense over a weighted-average
period of the remaining two 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 $4,414 of stock-based
compensation related to the issuance of Non-Employee Options in exchange for services during the three months ended October 31,
2020 and 2019, respectively, and $0 and 13,825 during the six months ended October 31, 2020 and 2019, respectively. There were
no unvested Non-Employee Options on October 31, 2020.
The following table summarizes the outstanding
stock options by exercise price at October 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
|
|
|
|
0.10
|
|
|
$
|
0.063
|
|
|
|
15,600,000
|
|
|
$
|
0.063
|
|
$
|
0.104
|
|
|
|
10,450,000
|
|
|
|
0.87
|
|
|
$
|
0.104
|
|
|
|
10,450,000
|
|
|
$
|
0.104
|
|
$
|
0.0685
|
|
|
|
600,000
|
|
|
|
0.50
|
|
|
$
|
0.0685
|
|
|
|
600,000
|
|
|
$
|
0.0685
|
|
$
|
0.058
|
|
|
|
2,450,000
|
|
|
|
1.24
|
|
|
$
|
0.058
|
|
|
|
2,450,000
|
|
|
$
|
0.058
|
|
$
|
0.0734
|
|
|
|
1,200,000
|
|
|
|
0.84
|
|
|
$
|
0.0734
|
|
|
|
1,200,000
|
|
|
$
|
0.0734
|
|
$
|
0.0729
|
|
|
|
1,800,000
|
|
|
|
1.69
|
|
|
$
|
0.0729
|
|
|
|
1,800,000
|
|
|
$
|
0.0729
|
|
$
|
0.089
|
|
|
|
1,200,000
|
|
|
|
1.71
|
|
|
$
|
0.089
|
|
|
|
1,200,000
|
|
|
$
|
0.089
|
|
$
|
0.0553
|
|
|
|
500,000
|
|
|
|
0.97
|
|
|
$
|
0.0553
|
|
|
|
500,000
|
|
|
$
|
0.0553
|
|
$
|
0.0558
|
|
|
|
9,000,000
|
|
|
|
1.30
|
|
|
$
|
0.0558
|
|
|
|
9,000,000
|
|
|
$
|
0.0558
|
|
$
|
0.0534
|
|
|
|
1,200,000
|
|
|
|
2.85
|
|
|
$
|
0.0534
|
|
|
|
1,200,000
|
|
|
$
|
0.0534
|
|
$
|
0.0539
|
|
|
|
1,000,000
|
|
|
|
1.25
|
|
|
$
|
0.0539
|
|
|
|
1,000,000
|
|
|
$
|
0.0539
|
|
$
|
0.0683
|
|
|
|
500,000
|
|
|
|
1.33
|
|
|
$
|
0.0683
|
|
|
|
500,000
|
|
|
$
|
0.0683
|
|
$
|
0.0649
|
|
|
|
500,000
|
|
|
|
1.47
|
|
|
$
|
0.0649
|
|
|
|
500,000
|
|
|
$
|
0.0649
|
|
$
|
0.0495
|
|
|
|
9,000,000
|
|
|
|
2.03
|
|
|
$
|
0.0495
|
|
|
|
9,000,000
|
|
|
$
|
0.0495
|
|
$
|
0.0380
|
|
|
|
1,200,000
|
|
|
|
3.90
|
|
|
$
|
0.0380
|
|
|
|
1,200,000
|
|
|
$
|
0.0380
|
|
$
|
0.0404
|
|
|
|
1,000,000
|
|
|
|
1.75
|
|
|
$
|
0.0404
|
|
|
|
1,000,000
|
|
|
$
|
0.0404
|
|
$
|
0.0370
|
|
|
|
500,000
|
|
|
|
1.83
|
|
|
$
|
0.0370
|
|
|
|
500,000
|
|
|
$
|
0.0370
|
|
$
|
0.0340
|
|
|
|
500,000
|
|
|
|
1.97
|
|
|
$
|
0.0340
|
|
|
|
500,000
|
|
|
$
|
0.0340
|
|
$
|
0.0408
|
|
|
|
9,000,000
|
|
|
|
2.51
|
|
|
$
|
0.0408
|
|
|
|
7,500,000
|
|
|
$
|
0.0408
|
|
$
|
0.0240
|
|
|
|
1,000,000
|
|
|
|
2.25
|
|
|
$
|
0.0240
|
|
|
|
1,000,000
|
|
|
$
|
0.0240
|
|
$
|
0.0247
|
|
|
|
500,000
|
|
|
|
2.33
|
|
|
$
|
0.0247
|
|
|
|
500,000
|
|
|
$
|
0.0247
|
|
$
|
0.0105
|
|
|
|
500,000
|
|
|
|
2.47
|
|
|
$
|
0.0105
|
|
|
|
500,000
|
|
|
$
|
0.0105
|
|
|
Total
|
|
|
|
69,200,000
|
|
|
|
1.32
|
|
|
$
|
0.06
|
|
|
|
67,700,000
|
|
|
$
|
0.06
|
|
The aggregate intrinsic value of outstanding
options as of October 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 October 31, 2020 of approximately $0.0089 per share.
Warrants
The warrants issued by the Company are
equity-classified. The fair value of the warrants was recorded as additional paid-in-capital, and no further adjustments are made.
For stock warrants paid in consideration
of services rendered by non-employees, the Company recognizes consulting expense in accordance with the requirements of ASC 505.
Common Stock Purchase Warrants issued in conjunction with Block Trade transactions to Aeon Capital, Inc. (‘Aeon”) are
accounted for in accordance with ASC 815-40, with the fair value recorded to additional paid-in capital and offsetting amounts
recorded as equity issuance costs on the Condensed Consolidated Statement of Stockholders’ Equity.
Effective June 13, 2019, the Company issued
a Common Stock Purchase Warrant to 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 August 7, 2019, the Company issued
two Common Stock Purchase Warrants to Aeon for two Block Trade transactions. The Company issued two warrants to purchase a total
of 3,500,000 shares of common stock based on two Block Trades 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 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.
Effective August 3, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 4,500,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $24,000. The warrants
have a cashless exercise feature.
Effective August 6, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 4,100,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $29,000. The warrants
have a cashless exercise feature.
Effective August 6, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 5,000,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $18,000. The warrants
have a cashless exercise feature.
Effective August 7, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 2,500,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $13,000. The warrants
have a cashless exercise feature.
Effective August 7, 2020, the Company issued
a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 5,500,000 shares
of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants as
equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $19,000. The warrants
have a cashless exercise feature.
Effective August 10, 2020, the Company
issued a Common Stock Purchase Warrant to Aeon for a Block Trade transaction. The Company issued a warrant to purchase 1,333,333
shares of common stock based upon the Block Trade pursuant to the Aeon Engagement Agreement. The Company classified these warrants
as equity. The warrants have a term of five years with an exercise price of approximately $0.01 per warrant share. Using the Black-Scholes-Merton
option pricing model, the Company determined the aggregate fair value of these warrants to be approximately $7,000. The warrants
have a cashless exercise feature.
A summary of the Company’s warrant
activity and related information for the six months ended October 31, 2020 is shown below:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding, April 30, 2020
|
|
|
47,890,155
|
|
|
$
|
0.05
|
|
Issued
|
|
|
34,366,666
|
|
|
|
0.01
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding, October 31, 2020
|
|
|
82,256,821
|
|
|
|
0.03
|
|
Exercisable, October 31, 2020
|
|
|
82,256,821
|
|
|
$
|
0.03
|
|
The following table summarizes additional
information concerning warrants outstanding and exercisable at October 31, 2020:
Exercise Prices
|
|
Number of
Warrant Shares
Exercisable at
April 30, 2020
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
$0.12
|
|
|
17,000,000
|
|
|
|
0.19
|
|
|
|
|
|
$0.065
|
|
|
769,231
|
|
|
|
1.13
|
|
|
|
|
|
$0.0575
|
|
|
869,565
|
|
|
|
1.42
|
|
|
|
|
|
$0.03
|
|
|
2,500,000
|
|
|
|
2.07
|
|
|
|
|
|
$0.026
|
|
|
1,923,077
|
|
|
|
2.66
|
|
|
|
|
|
$0.025
|
|
|
2,000,000
|
|
|
|
1.73
|
|
|
|
|
|
$0.018
|
|
|
1,388,889
|
|
|
|
2.58
|
|
|
|
|
|
$0.011
|
|
|
2,272,727
|
|
|
|
3.00
|
|
|
|
|
|
$0.01
|
|
|
13,200,000
|
|
|
|
4.42
|
|
|
|
|
|
$0.015
|
|
|
833,333
|
|
|
|
4.47
|
|
|
|
|
|
$0.009
|
|
|
3,333,333
|
|
|
|
3.67
|
|
|
|
|
|
$0.0075
|
|
|
15.666.666
|
|
|
|
4.74
|
|
|
|
|
|
$0.005
|
|
|
20,500,000
|
|
|
|
4.13
|
|
|
|
|
|
|
|
|
82,256,821
|
|
|
|
3.28
|
|
|
$
|
0.03
|
|
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 and six months ended October 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 Company Ltd. The Company purchased products and services from these subsidiaries in the approximate amounts of $10,000
and $74,000 in the three and six months ended October 31, 2020, respectively, and $0 and $2,400 for the three and six months ended
October 31, 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 and six months ended October 31, 2020 were approximately $21,000
and $44,000, respectively, and $2,000 and $15,000 for the three and six months ended October 31, 2019, respectively. In addition,
during the six months ended October 31, 2020 the Company issued 250,000 shares of common stock to Dr. Salmons to be a member of
the Company’s Medical and Scientific Advisory Board. The Company recorded a noncash consulting expense of approximately
$2,300 relating to this share issuance for the six months ended October 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 expired on
August 31, 2020.
On May 28, 2020, the Company entered into
an additional six-month lease of the Leased Premises, commencing on September 1, 2020. The term of the new lease expires on February
28, 2021.
Rent expenses for these offices for the
three months ended October 31, 2020 and 2019 were $5,384 and $7,999, respectively, and for the six months ended October 31, 2020
and 2019 were $12,536 and $16,660, respectively.
The following table summarizes the Company’s
aggregate future minimum lease payments required under the operating lease as of October 31, 2020.
|
|
Amount
|
|
2021
|
|
$
|
5,144
|
|
|
|
$
|
5,144
|
|
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 executive 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 six months ended October 31, 2020 and 2019, respectively. During the six months ended October 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 $355,000 and $449,000 for the six months ended October
31, 2020 and 2019, respectively.
There was no material difference between
the effective tax rate and the projected blended statutory tax rate for the six months ended October 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 October 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 six months ended
October 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 six months ended October 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 October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(950,192
|
)
|
|
$
|
(1,067,122
|
)
|
Basic weighted average number of shares outstanding
|
|
|
2,309,218,013
|
|
|
|
1,325,086,933
|
|
Diluted weighted average number of shares outstanding
|
|
|
2,309,218,013
|
|
|
|
1,325,086,933
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
Six Months Ended October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(1,834,136
|
)
|
|
$
|
(2,201,197
|
)
|
Basic weighted average number of shares outstanding
|
|
|
1,993,895,090
|
|
|
|
1,267,696,383
|
|
Diluted weighted average number of shares outstanding
|
|
|
1,993,895,090
|
|
|
|
1,267,696,383
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
The table below sets forth these potentially
dilutive securities:
|
|
Six Months Ended October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Excluded options
|
|
|
69,200,000
|
|
|
|
85,650,000
|
|
Excluded warrants
|
|
|
82,256,821
|
|
|
|
48,056,822
|
|
Total excluded options and warrants
|
|
|
151,456,821
|
|
|
|
133,706,822
|
|
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 October 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
On November 19, 2020, the Company sent
Hai Kang a letter terminating the Hai Kang License Agreement. The Company did so out of concerns over the failure to timely obtain
an FDA Emergency Use Authorization for the Kits and the efficacy of the Kits. The Company is no longer pursuing this endeavor.
On December 2, 2020, the Company entered
into a six-month office lease extension commencing on March 1, 2021. The lease extension is for the office where the Company is
currently located in Laguna Hills, California. The term of the new lease expires on August 31. 2021 and requires monthly lease
payments of approximately $1,300.