Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x |
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the quarterly period ended July 31, 2020
or
| o |
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 333-68008
PHARMACYTE BIOTECH, INC.
(Exact name of registrant as specified in its charter)
| Nevada |
62-1772151 |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
23046 Avenida de la Carlota, Suite 600, Laguna Hills, CA
92653
(Address of principal executive offices)
(917) 595-2850
(Registrant’s telephone number, including area code)
| |
| Securities
registered pursuant to Section 12(b) of the Act: |
| |
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| N/A |
|
N/A |
|
N/A |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405) during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company”, and “emerging growth company” in Rule
12b-2 of the Exchange Act.
| |
Large
accelerated filer o |
Accelerated
filer o |
| |
Non-accelerated
filer x |
Smaller
reporting company x |
| |
Emerging
growth company o |
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. o
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes o No x
As of September 11, 2020, the registrant had 2,333,810,405
outstanding shares of common stock, with a par value of $0.0001 per
share.
PHARMACYTE BIOTECH, INC.
INDEX TO QUARTERLY REPORT ON
FORM 10-Q
FOR THE THREE MONTHS ENDED JULY 31, 2020
PART I – FINANCIAL
INFORMATION
Item 1. Financial
Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
| |
|
July 31,
2020 |
|
|
April 30,
2020 |
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,166,596 |
|
|
$ |
894,861 |
|
|
Prepaid expenses and other current assets |
|
|
136,537 |
|
|
|
142,785 |
|
|
Total current assets |
|
|
2,303,133 |
|
|
|
1,037,646 |
|
| |
|
|
|
|
|
|
|
|
| Other
assets: |
|
|
|
|
|
|
|
|
| Intangibles |
|
|
3,549,427 |
|
|
|
3,549,427 |
|
|
Investment in SG Austria |
|
|
1,572,193 |
|
|
|
1,572,193 |
|
|
Other assets |
|
|
7,372 |
|
|
|
7,372 |
|
|
Total other assets |
|
|
5,128,992 |
|
|
|
5,128,992 |
|
| |
|
|
|
|
|
|
|
|
| Total
Assets |
|
$ |
7,432,125 |
|
|
$ |
6,166,638 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
384,832 |
|
|
$ |
185,842 |
|
| Accrued
expenses |
|
|
726,818 |
|
|
|
816,638 |
|
|
Current portion of Small Business Administration – Paycheck
Protection Program loan |
|
|
41,498 |
|
|
|
28,918 |
|
|
Total current liabilities |
|
|
1,153,148 |
|
|
|
1,031,398 |
|
| |
|
|
|
|
|
|
|
|
| Long-term
liabilities, less current portion: |
|
|
|
|
|
|
|
|
|
Small Business Administration – Paycheck Protection Program
loan |
|
|
33,702 |
|
|
|
46,282 |
|
| |
|
|
|
|
|
|
|
|
| Total
Liabilities |
|
|
1,186,850 |
|
|
|
1,077,680 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and Contingencies
(Notes 7 and 9) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Stockholders'
equity: |
|
|
|
|
|
|
|
|
| Common stock,
authorized: 2,490,000,000 shares, $0.0001 par value; 1,875,143,738
and 1,638,637,839 shares issued and outstanding as of July 31, 2020
and April 30, 2020, respectively |
|
|
187,515 |
|
|
|
163,864 |
|
|
Additional paid-in capital |
|
|
110,818,995 |
|
|
|
108,805,062 |
|
|
Accumulated deficit |
|
|
(104,742,203 |
) |
|
|
(103,858,259 |
) |
|
Accumulated other comprehensive loss |
|
|
(19,032 |
) |
|
|
(21,709 |
) |
|
Total stockholders' equity |
|
|
6,245,275 |
|
|
|
5,088,958 |
|
| |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
|
$ |
7,432,125 |
|
|
$ |
6,166,638 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
|
Three
Months Ended July 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Revenue |
|
$ |
– |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development costs |
|
|
270,574 |
|
|
|
72,330 |
|
|
Compensation expense |
|
|
278,970 |
|
|
|
453,194 |
|
| Director
fees |
|
|
72,024 |
|
|
|
75,642 |
|
| Legal
and professional |
|
|
141,756 |
|
|
|
110,157 |
|
|
General and administrative |
|
|
118,352 |
|
|
|
422,752 |
|
|
Total operating expenses |
|
|
881,676 |
|
|
|
1,134,075 |
|
| |
|
|
|
|
|
|
|
|
| Loss from
operations |
|
|
(881,676 |
) |
|
|
(1,134,075 |
) |
| |
|
|
|
|
|
|
|
|
| Other
expense: |
|
|
|
|
|
|
|
|
| Interest
expense |
|
|
(388 |
) |
|
|
– |
|
|
Other expense |
|
|
(1,880 |
) |
|
|
– |
|
| Total
other expenses |
|
|
(2,268 |
) |
|
|
– |
|
| |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(883,944 |
) |
|
$ |
(1,134,075 |
) |
| |
|
|
|
|
|
|
|
|
| Basic and
diluted loss per share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| Weighted average shares
outstanding basic and diluted |
|
|
1,678,572,167 |
|
|
|
1,210,305,834 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
| |
|
Three
Months Ended July 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Net loss |
|
$ |
(883,944 |
) |
|
$ |
(1,134,075 |
) |
| Other comprehensive income
(loss): |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
2,677 |
|
|
|
(6,862 |
) |
|
Other comprehensive income (loss) |
|
|
2,677 |
|
|
|
(6,862 |
) |
| Comprehensive
loss |
|
$ |
(881,267 |
) |
|
$ |
(1,140,937 |
) |
See accompanying Notes to Condensed Consolidated Financial
Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JULY 31, 2020 AND 2019
(UNAUDITED)
| |
|
Common stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Accumulated Other
Comprehensive |
|
|
Total
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, April
30, 2020 |
|
|
1,638,637,839 |
|
|
$ |
163,864 |
|
|
$ |
108,805,062 |
|
|
$ |
(103,858,259 |
) |
|
$ |
(21,709 |
) |
|
$ |
5,088,958 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for
compensation |
|
|
– |
|
|
|
– |
|
|
|
67,320 |
|
|
|
– |
|
|
|
– |
|
|
|
67,320 |
|
| Stock
issued for services |
|
|
2,500,000 |
|
|
|
250 |
|
|
|
40,300 |
|
|
|
– |
|
|
|
– |
|
|
|
40,550 |
|
|
Stock issued for cash, net of issuance
costs of $194,150 |
|
|
234,005,899 |
|
|
|
23,401 |
|
|
|
1,833,996 |
|
|
|
– |
|
|
|
– |
|
|
|
1,857,397 |
|
|
Stock-based compensation
options |
|
|
– |
|
|
|
– |
|
|
|
72,317 |
|
|
|
– |
|
|
|
– |
|
|
|
72,317 |
|
|
Foreign currency translation
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,677 |
|
|
|
2,677 |
|
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(883,944 |
) |
|
|
– |
|
|
|
(883,944 |
) |
| Balance, July 31, 2020 |
|
|
1,875,143,738 |
|
|
$ |
187,515 |
|
|
$ |
110,818,995 |
|
|
$ |
(104,742,203 |
) |
|
$ |
(19,032 |
) |
|
$ |
6,245,275 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, April 30,
2019 |
|
|
1,186,004,505 |
|
|
$ |
118,600 |
|
|
$ |
104,966,158 |
|
|
$ |
(100,031,371 |
) |
|
$ |
(13,842 |
) |
|
$ |
5,039,545 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock
issued for compensation |
|
|
– |
|
|
|
– |
|
|
|
104,726 |
|
|
|
– |
|
|
|
– |
|
|
|
104,726 |
|
| Stock
issued for services |
|
|
5,500,000 |
|
|
|
550 |
|
|
|
311,266 |
|
|
|
– |
|
|
|
– |
|
|
|
311,816 |
|
|
Stock issued for cash, net of issuance
costs of $42,000 |
|
|
66,666,667 |
|
|
|
6,667 |
|
|
|
551,333 |
|
|
|
– |
|
|
|
– |
|
|
|
558,000 |
|
|
Stock-based compensation
options |
|
|
– |
|
|
|
– |
|
|
|
126,325 |
|
|
|
– |
|
|
|
– |
|
|
|
126,325 |
|
|
Foreign currency translation
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(6,862 |
) |
|
|
(6,862 |
) |
| Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,134,075 |
) |
|
|
– |
|
|
|
(1,134,075 |
) |
| Balance, July 31, 2019 |
|
|
1,258,171,172 |
|
|
$ |
125,817 |
|
|
$ |
106,059,808 |
|
|
$ |
(101,165,446 |
) |
|
$ |
(20,704 |
) |
|
$ |
4,999,475 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
PHARMACYTE BIOTECH, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
|
Three
Months Ended July 31, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(883,944 |
) |
|
$ |
(1,134,075 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
| Stock
issued for services |
|
|
40,550 |
|
|
|
311,816 |
|
| Stock
issued for compensation |
|
|
67,320 |
|
|
|
104,726 |
|
|
Stock-based compensation – options |
|
|
72,317 |
|
|
|
126,325 |
|
| Change
in assets and liabilities: |
|
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses and other current
assets |
|
|
6,248 |
|
|
|
(11,137 |
) |
| Increase
(decrease) in accounts payable |
|
|
198,990 |
|
|
|
(54,337 |
) |
|
Decrease in accrued expenses |
|
|
(52,483 |
) |
|
|
(106,458 |
) |
| Net cash
used in operating activities |
|
|
(551,002 |
) |
|
|
(763,140 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
| Net cash
provided by (used in) investing activities |
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
| Use of
funds for payment of insurance financing loan |
|
|
(37,337 |
) |
|
|
– |
|
|
Proceeds from sale of common stock, net of issuance costs |
|
|
1,857,397 |
|
|
|
582,500 |
|
| Net cash
provided by financing activities |
|
|
1,820,060 |
|
|
|
582,500 |
|
| |
|
|
|
|
|
|
|
|
| Effect of
currency rate exchange on cash |
|
|
2,677 |
|
|
|
(6,862 |
) |
| |
|
|
|
|
|
|
|
|
| Net increase (decrease) in cash |
|
|
1,271,735 |
|
|
|
(187,502 |
) |
| |
|
|
|
|
|
|
|
|
| Cash at beginning
of the period |
|
|
894,861 |
|
|
|
515,253 |
|
| Cash at end of
the period |
|
$ |
2,166,596 |
|
|
$ |
327,751 |
|
|
Supplemental disclosure of cash flows information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the periods for income taxes |
|
$ |
800 |
|
|
$ |
800 |
|
|
Cash paid during the periods for interest |
|
$ |
388 |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
schedule of noncash investing and financing activity: |
|
|
|
|
|
|
|
|
|
Issuance costs for shares issued |
|
$ |
– |
|
|
$ |
24,500 |
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
PHARMACYTE BIOTECH, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS
Overview
PharmaCyte Biotech, Inc. (“Company”) is a biotechnology company
focused on developing 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:
| |
• |
Level 1.
Observable inputs such as quoted prices in active
markets; |
| |
• |
Level 2.
Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and |
| |
• |
Level 3.
Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions. |
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:
| |
|
July 31, 2020 |
|
|
April 30, 2020 |
|
| Payroll related
costs |
|
$ |
443,906 |
|
|
$ |
435,577 |
|
| Director and Officer insurance
financing |
|
|
75,908 |
|
|
|
113,245 |
|
| Other |
|
|
207,004 |
|
|
|
267,816 |
|
| Total |
|
$ |
726,818 |
|
|
$ |
816,638 |
|
The Company financed the Director and Officer insurance policy. The
term of the policy is from March 8, 2020 through March 8, 2021. The
financing agreement has an interest rate of 4.25% per annum and
requires 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.
Item
2. Management’s Discussion and Analysis of Financial
Conditions and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Report on Form 10-Q (“Report”) includes “forward-looking
statements” within the meaning of the federal securities laws. All
statements other than statements of historical fact are
“forward-looking statements” for purposes of this Report, including
any projections of earnings, revenue or other financial items, any
statements regarding the plans and objectives of management for
future operations, any statements concerning proposed new products
or services, any statements regarding future economic conditions or
performance, any statements regarding expected benefits from any
transactions and any statements of assumptions underlying any of
the foregoing. In some cases, forward-looking statements can be
identified by use of terminology such as “may,” “will,” “should,”
“believes,” “intends,” “expects,” “plans,” “anticipates,”
“estimates,” “goal,” “aim,” “potential” or “continue,” or the
negative thereof or other comparable terminology regarding beliefs,
plans, expectations or intentions regarding the future, including
risks relating to the recent outbreak of COVID-19. Although we
believe that the expectations reflected in the forward-looking
statements contained in this Report are reasonable, there can be no
assurance that such expectations or any of the forward-looking
statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the
forward-looking statements. Thus, investors should refer to and
carefully review information in future documents we file with the
Commission. Our future financial condition and results of
operations, as well as any forward-looking statements, are subject
to inherent risk and uncertainties, including, but not limited to,
the risk factors set forth in “Part I, Item 1A – Risk Factors” set
forth in our Form 10-K for period ended April 30, 2020 and for the
reasons described elsewhere in this Report. Among others, these
include our estimates regarding expenses, future revenues, capital
requirements and needs for additional financing; whether the FDA
approves our recently submitted IND after it has been reviewed by
the FDA so that we can commence our planned clinical trial
involving LAPC; the success and timing of our preclinical studies
and clinical trials; the potential that results of preclinical
studies and clinical trials may indicate that any of our
technologies and product candidates are unsafe or ineffective; our
dependence on third parties in the conduct of our preclinical
studies and clinical trials; the difficulties and expenses
associated with obtaining and maintaining regulatory approval of
our product candidates; the material adverse impact that the
coronavirus pandemic may have on our business, including our
planned clinical trial involving LAPC, which could materially
affect our operations as well as the business or operations of
third parties with whom we conduct business; and whether the FDA
will approve our product candidates after our clinical trials are
completed, assuming the FDA allows our clinical trials to proceed
after review of our IND submission for LAPC. All forward- looking
statements and reasons why results may differ included in this
Report are made as of the date hereof, and we do not intend to
update any forward-looking statements except as required by law or
applicable regulations. Except where the context otherwise
requires, in this Report, the “Company,” “we,” “us” and “our” refer
to PharmaCyte Biotech, Inc., a Nevada corporation, and, where
appropriate, its subsidiaries.
Product Candidates
We are 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 LAPC and Type 1
and insulin dependent Type 2 diabetes will be developed.
We are developing therapies for pancreatic and other solid
cancerous tumors by using genetically engineered live human cells
that we believe are capable of converting a cancer prodrug into its
cancer-killing form, encapsulating those cells using the
Cell-in-a-Box® technology and placing those capsules in
the body as close as possible to the tumor. In this way, we believe
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, we submitted our IND to the FDA for a Phase
2b clinical trial in LAPC. However, no assurance as to the timing
of the trial can be given or whether the FDA will allow us 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 our product candidate to treat LAPC,
as well as information regarding our proposed clinical trial
program and other information and documentation required by FDA
regulations. On September 4, 2020, we received an Information
Request from the FDA. We responded to the FDA’s Information Request
on September 11, 2020.
We must wait a minimum of 30 calendar days from the date of the IND
submission before initiating our clinical trial. During this time,
the FDA has an opportunity to review the IND to ensure that it is
complete and that the planned clinical trial research patients will
not be subject to unreasonable risk. It also gives the FDA time to
ask for more information and clarification about the information
submitted as was done with the FDA’s September 4, 2020 Information
Request. If the FDA is not satisfied with the our September 11,
2020 response to the Information Request or our responses to any
future Information Requests or the FDA identifies other issues with
the our IND, the FDA can place a clinical hold on the clinical
trial described in the IND. If the FDA does so, we cannot initiate
the clinical trial to treat LAPC until or unless the FDA lifts the
clinical hold. It is possible that the FDA may not permit us to
initiate the clinical trial based on the available data and
information.
We are 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 us to
commence the clinical trial involving LAPC described in our
recently submitted IND, we will not spend any further resources
developing this program.
In addition, we are developing a therapy to delay the production
and accumulation of malignant ascites fluid that results from many
types of abdominal cancerous tumors. Malignant ascites fluid is
secreted by abdominal cancerous tumors into the abdomen after the
tumors have reached a certain stage of growth. This fluid contains
cancer cells that can seed and form new tumors throughout the
abdomen. This fluid accumulates in the abdominal cavity, causing
swelling of the abdomen, severe breathing difficulties and extreme
pain. We are using our therapy for pancreatic cancer to determine
if it can prevent or delay the production and accumulation of
malignant ascites fluid. As with our Cannabis program, until
the FDA allows us to commence the clinical trial involving LAPC
described in our recently submitted IND, we will not spend any
further resources developing this program.
We are also developing a therapy for Type 1 diabetes and
insulin-dependent Type 2 diabetes. Our 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, we are not spending any further
resources developing this program until the FDA allows us to
commence the clinical trial involving LAPC described in our
recently submitted IND. However, work at 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, we have licensed from Hai Kang the right to certain
technology owned or controlled by Hai Kang related to COVID-19
diagnostic kits (“Kits”). Our 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, we 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
collectively, (“Territory”). A “Product” is defined as any existing
Kit of Hai Kang or any future Kit derived from Hai Kang’s Kits and
includes an in vitro diagnostic test.
We are required to use its commercially reasonable efforts to
develop and commercialize at least one Product in the Territory.
This obligation to develop and commercialize a Product includes,
among other things, the performance of non-clinical and clinical
studies of any Product, the preparation, filing and prosecution of
certain regulatory requests for authorization or approval for such
Product (including to allow the Company to market and sell the
Product and to get the Product approved for reimbursement). Hai
Kang is responsible for all aspects of the manufacture and supply
of the Products to be developed and sold under the Hai Kang License
Agreement.
During the term of the Hai Kang License Agreement, we are required
to pay a monthly fee to Hai Kang in the amount of $6,000, which
monthly fee increases to $50,000 once the first Product receives
regulatory authorization or approval from the FDA. In addition,
upon the first commercial sale of a Product, the Company is
required to make quarterly royalty payments equal to 10% of Net
Sales (as defined in the Hai Kang License Agreement) of any Product
sold pursuant to the Hai Kang License Agreement.
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.
COVID-19 Potential Impact on the Financial Condition and Results
of Operations
The development of our product candidates could be disrupted and
materially adversely affected in the future by a pandemic like the
recent outbreak of COVID-19. For example, as a result of measures
imposed by the governments in states affected by COVID-19,
businesses and schools have been suspended due to quarantines or
stay at home orders intended to contain the pandemic. COVID-19
continues to spread globally and, as of July 31, 2020, has spread
to over 150 countries, including the U.S. While the COVID-19
pandemic is thought to be in its early stages, international stock
markets continue to reflect the uncertainty associated with the
slow-down in the world economies and the reduced levels of
international travel experienced since the beginning of January
2020. As of the date of this Report, the COVID-19 pandemic has had
an impact upon our operations, although we believe that impact is
not material.
We are still assessing our business plans and the impact COVID-19
may have on our ability to advance the development of our product
candidates or to raise financing to support the development of our
product candidates, but no assurances can be given that this
assessment will enable us to avoid part or all of any impact from
the spread of COVID-19 or its consequences, including downturns in
the business sector generally or in our sector in particular. The
spread of COVID-19 may also result in the inability of our
suppliers to deliver components or raw materials on a timely basis
or materially and adversely affect our collaborators’ and potential
strategic partners’ ability to conduct our planned clinical trial
in LAPC and our other operations. The recent and ongoing COVID-19
pandemic could materially affect our operations, as well as the
business or operations of third parties with whom we conduct
business. Our business could be adversely affected by the effects
of other future health pandemics in regions where we or third
parties on which we rely have significant business operations. See
the risk factors set forth in “Part I, Item 1A – Risk Factors” set
forth in our Form 10-K for period ended April 30, 2020 and for the
reasons described elsewhere in this Report.
Performance Indicators
Non-financial performance indicators used by management to manage
and assess how the business is progressing will include, but are
not limited to, the ability to: (i) acquire appropriate funding for
all aspects of our operations; (ii) acquire and complete necessary
contracts; (iii) complete activities for producing genetically
modified human cells and having them encapsulated for our
preclinical studies and the planned clinical trial in LAPC; (iv)
have regulatory work completed to enable studies and trials to be
submitted to regulatory agencies; (v) complete all required tests
and studies on the cells and capsules we plan to use in our
clinical trial in patients with LAPC; and (vi) ensure completion of
the production of encapsulated cells according to cGMP regulations to use in
our planned clinical trial involving LAPC.
There are numerous items required to be completed successfully to
ensure our final product candidate is ready for use in our planned
clinical trial involving LAPC. The effects of material transactions
with related parties, and certain other parties to the extent
necessary for such an undertaking, may have substantial effects on
both the timeliness and success of our current and prospective
financial position and operating results. Nonetheless, we are
actively working to ensure strong ties and interactions to minimize
the inherent risks regarding success. We do not believe there are
factors which will cause materially different amounts to be
reported than those presented in this Report. We aim to assess this
regularly to provide accurate information to our shareholders.
Results of Operations
Three months ended July 31, 2020 compared to three months
ended July 31, 2019
Revenue
We had no revenues for the three months ended July 31, 2020 and
2019.
Operating Expenses and Loss from Operations
The following table summarizes our operating expenses and loss from
operations for the three months ended July 31, 2020 and 2019,
respectively:
|
Three Months Ended July 31, |
|
|
2020 |
|
|
2019 |
|
| $ |
881,676 |
|
|
$ |
1,134,075 |
|
The total operating expenses for the three-month period ended July
31, 2020 decreased by $252,399 from the three months ended July 31,
2019. The decrease is attributable to a decrease in general and
administrative (“G&A”) expenses of $304,400, a decrease in
director fees of $3,618, a decrease in compensation expense of
$174,224 net of an increase in legal and professional expense of
$31,599 and an increase in R&D expense of $198,244. The
decrease in G&A expenses were mainly attributable to reductions
in consulting fees and travel expenses.
Other expense
The following table sets forth our other expense for the three
months ended July 31, 2020 and 2019:
| Three Months Ended
July 31, |
|
| 2020 |
|
|
2019 |
|
| $ |
2,268 |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
Total other expense for the three months ended July 31, 2020
increased by the amount of $2,268 from the three months ended July
31, 2019. The increase is attributable to the increase of interest
expense in the amount of $388, an increase in income taxes of $800
and an increase in foreign exchange losses of $1,080.
Discussion of Operating, Investing and Financing
Activities
The following table presents a summary of our sources and uses of
cash for the three months ended July 31, 2020 and 2019,
respectively:
| |
|
Three Months Ended |
|
| |
|
July 31, 2020 |
|
|
July 31, 2019 |
|
| Net cash used in operating
activities: |
|
$ |
(551,002 |
) |
|
$ |
(763,140 |
) |
| Net cash used in investing
activities: |
|
|
– |
|
|
|
– |
|
| Net cash provided by financing
activities: |
|
|
1,820,060 |
|
|
|
582,500 |
|
| Effect of
currency rate exchange |
|
|
2,677 |
|
|
|
(6,862 |
) |
| Net increase
(decrease) in cash |
|
$ |
1,271,735 |
|
|
$ |
(187,502 |
) |
Operating Activities:
The net cash used in operating activities for the three months
ended July 31, 2020 is a result of our net losses, increases in
accounts payable, a decrease in prepaid expenses and an increase in
securities issued for services and compensation, net of a decrease
in accrued expenses. The cash used in operating activities for the
three months ended July 31, 2019 is a result of our net losses,
offset by an increase in stock issued, an increase to prepaid
expenses and decreases in accounts payable and accrued expenses.
See Condensed Consolidated Statements of Cash Flows on page 7.
Investing Activities:
There were no investing activities in the three months ended July
31, 2020 and 2019.
Financing Activities:
The cash provided from financing activities is mainly attributable
to the proceeds from the sale of our common stock net of the use of
funds for payment of insurance financing.
Liquidity and Capital Resources
As of July 31, 2020, our cash totaled approximately $2,167,000,
compared to approximately $328,000 at July 31, 2019. Working
capital was approximately $1,116,000 at July 31, 2020 and
approximately a negative $130,000 at July 31, 2019. The increase in
cash is attributable to a higher beginning cash balance, an
increase in proceeds from the sale of our common stock offset by a
decrease in our operating expenses. As of August 31, 2020, our cash
totaled approximately $4,537,000.
During the three months ended July 31, 2020, funding was provided
by investors to maintain and expand our operations and R&D.
Sales of our common stock were consummated using the S-3. During
the three months ended July 31, 2019, we continued to acquire funds
through our S-3 pursuant to Block Trades transactions in a program
which is structured to provide up to $25 million dollars to us less
certain commissions pursuant to the S-3.
As of August 13, 2020, we no longer met the eligibility
requirements to use the S-3.
In Note 2 – Going Concern to our Condensed Consolidated Financial
Statements set forth in this Report, we note that certain
conditions raise substantial doubt about our ability to continue as
a going concern.
Off-Balance Sheet Arrangements
Except as described below, we have no off-balance sheet
arrangements that could have a material current effect or that are
reasonably likely to have a material adverse effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources.
On May 14, 2018, we entered into the Amendments to all of the
material agreements with SG. Austria and Austrianova. See “Company
Background and Material Agreements” above for a description of
these Amendments.
Service Agreements
We entered into several service agreements, with both independent
and related parties, pursuant to which services will be provided
over the next twenty-four months related to our IND and clinical
trial involving LAPC. The services include regulatory affairs
strategy, advice and follow up work of the IND submission to the
FDA and services related to the planned LAPC trial. They also cover
a 24-month stability study, which includes the container closure
integrity testing, of the clinical trial product syringes. The
total cost is estimated to be approximately $195,000, of which the
related party portion will be approximately $80,000.
New Accounting Pronouncements
For a discussion of all recently adopted and recently issued but
not yet adopted accounting pronouncements, see Note 2 “Summary of
Significant Accounting Policies” of the Notes to our Condensed
Consolidated Financial Statements contained in this Report.
Available Information
Our website is located at www.PharmaCyte.com. In addition,
all our filings submitted to the Commission, including our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all our other reports and statements filed
with the Commission are available on the Commission’s web site at
www.sec.gov. Such filings are also available for download
free of charge on our website. The contents of the website are not,
and are not intended to be, incorporated by reference into this
Report or any other report or document filed with the Commission or
furnished by us, and any reference to the websites are intended to
be inactive textual references only.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
The information called for by Item 3 is not required for a smaller
reporting company.
Item 4. Controls and
Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, President and General Counsel, as our
principal executive officer (“Chief Executive Officer”), and our
Chief Financial Officer, as our principal financial officer (“Chief
Financial Officer”), evaluated the effectiveness of our “disclosure
controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Exchange Act. Disclosure controls and
procedures are designed to ensure that the information required to
be disclosed in the reports that we file or submit to the
Commission pursuant to the Exchange Act are recorded, processed,
summarized and reported within the period specified by the
Commission’s rules and forms and are accumulated and communicated
to our management, including our Chief Executive Officer, as
appropriate to allow timely decisions regarding required
disclosures. Based upon this evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that, as of
July 31, 2020, our disclosure controls and procedures were not
effective due to the material weaknesses in internal control over
financial reporting.
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or
mistake. Also, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people or by
management override of the controls. The design of any system of
controls is also based in part upon certain assumptions about the
likelihood of future events. There can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions.
Management’s Report on Internal Controls over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal controls over financial reporting as that term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal
controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with U.S. GAAP.
Under the supervision and with the participation of our Chief
Executive Officer and our Chief Financial Officer, management
conducted an evaluation of the effectiveness of our internal
controls over financial reporting as of July 31, 2020 based on the
criteria outlined in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and identified the following material
weaknesses in internal controls over financial reporting:
| |
· |
Insufficient
procedures and control documentation to implement control
procedures including lack of timely contract preparation and
review. We have developed procedures to provide ample review time
of financial information, including contract preparation and review
by qualified personnel as well as management. We have
implemented these procedures, determined they are still
insufficient and will continue to review these procedures to
determine ways to further improve them. |
| |
|
|
| |
· |
Insufficient
segregation of duties of the Chief Financial Officer. We have
delegated some of the duties of our Chief Financial Officer to
other personnel within the Company and have added review and
approval processes performed by the Chief Executive Officer.
However, we have determined that we still have insufficient
segregation of the duties of our Chief Financial Officer and will
continue to review these procedures to determine ways to further
improve them given our limited staff. |
| |
|
|
| |
· |
Insufficient
information technology controls and documentation. We currently use
accounting software which we have determined is inadequate to
provide the level of controls required by COSO. We are in the
process of initiating a review process to fully evaluate the
deficiencies in our technology controls and documentation. Based
upon the results of this review process, we intend to implement the
required remediation measures when it is reasonable to do
so. |
Because of these material weaknesses, our Chief Executive Officer
and our Chief Financial Officer concluded that, as of July 31,
2020, our internal controls over financial reporting were not
effective based on the COSO criteria.
We are in the process of investigating new procedures and controls
for the balance of fiscal year 2021. We plan to make changes to our
procedures and controls that we believe are reasonable and
reasonably likely to strengthen and materially affect our internal
controls over financial reporting.
Prior to the remediation of these material weaknesses, there
remains risk that the processes and procedures on which we
currently rely will fail to be sufficiently effective, which could
result in material misstatement of our financial position or
results of operations and require a restatement. Because of the
inherent limitations in all control systems, no evaluation of
controls - even where we conclude the controls are operating
effectively - can provide absolute assurance that all control
issues, including instances of fraud, if any, have been detected.
These inherent limitations include the realities that judgments in
decision making can be faulty and breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented
by the individual acts of a person, by collusion of two or more
people, or by management override of the controls. The design of
any system of controls also is based in part upon certain
assumptions about the likelihood of future events; accordingly,
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time,
our control systems, as we develop them, may become inadequate
because of changes in conditions or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected and could be
material to our financial statements.
Changes in Internal Controls over Financial
Reporting
There were no changes in our internal controls over financial
reporting during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
The Certifications of our Principal Executive and Principal
Financial Officer required in accordance with Rule 13a-14(a) under
the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002
(“Certifications”) are attached to this Report. The disclosures set
forth in this Item 4 contain information concerning: (i) the
evaluation of our disclosure controls and procedures, and changes
in internal control over financial reporting, referred to in
paragraph 4 of the Certifications; and (ii) material weaknesses in
the design or operation of our internal control over financial
reporting, referred to in paragraph 5 of the Certifications. The
Certifications should be read in conjunction with this Item 4 for a
more complete understanding of the matters covered by the
Certifications.
PART II – OTHER
INFORMATION
Item 1. Legal
Proceedings.
We are not currently a party to any material pending legal
proceedings. There are no material legal proceedings to which any
property of ours is subject.
Item 1A. Risk
Factors.
The information called for by Item 1A is not required for a smaller
reporting company.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During the three months ended July 31, 2020, we issued an aggregate
of 1.5 million unregistered shares of common stock to three of our
directors as disclosed in this Report. The non-cash expense for
these share issuances totaled $7,029.
During the three months ended July 31, 2020, we issued an aggregate
of 1.5 million stock options to three of our directors pursuant to
their DLAs. The non-cash expense for stock options totaled
$19,201.
During the three months ended July 31, 2020, we issued an aggregate
of 1 million unregistered shares of common stock to four
independent contractors pursuant to their professional services
agreements. The non-cash expense for these share issuances totaled
$4,199.
During the three months ended July 31, 2020, we issued four Common
Stock Purchase Warrants to Aeon for Block Trades transactions. The
warrants provide Aeon the right to purchase 11,433,333 shares of
common stock based upon these Block Trades pursuant to the Aeon
Engagement Agreement. We 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, we determined the
aggregate value of these warrants to be approximately $67,000. The
warrants have a cashless exercise feature.
All such securities were issued without registration under the
Securities Act of 1933, as amended, in reliance upon the exemption
afforded by Section 4(a)(2) of that Act based on the limited number
of investors, the sophistication of the individuals involved and
the use of restrictive legends on the securities issued to prevent
a public distribution of the relevant securities. No underwriters
were involved in any of these issuances.
Item 3. Defaults
Upon Senior Securities.
None.
Item 4. Mine
Safety Disclosure.
Not applicable.
Item 5. Other
Information.
None.
Item
6. Exhibits.
| Exhibit
No. |
|
Description |
|
Location |
| 10.1 |
|
Right
of First Refusal Agreement by and between PharmaCyte Biotech, Inc.
and Silver Rock Associates, Inc., dated May 4, 2020 |
|
Filed
herewith |
| |
|
|
|
|
| 10.2 |
|
Amendment
No. 1 to Right of First Refusal Agreement by and between PharmaCyte
Biotech, Inc. and Silver Rock Associates, Inc., dated July 15,
2020 |
|
Filed
herewith |
| |
|
|
|
|
| 31.1 |
|
Principal
Executive Officer Certification required by Rules 13a-14 and 15d-14
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
Filed
herewith |
| |
|
|
|
|
| 31.2 |
|
Principal
Financial Officer Certification required by Rules 13a-14 and 15d-14
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
Filed
herewith |
| |
|
|
|
|
| 32.1 |
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes Oxley Act of
2002. |
|
Filed
herewith |
| |
|
|
|
|
| 32.2 |
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes Oxley Act of
2002. |
|
Filed
herewith |
| |
|
|
|
|
| 101. |
|
Interactive
Data Files for the Company’s Form 10-Q for the period ended July
31, 2020 |
|
Submitted
herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
PharmaCyte Biotech, Inc.
| September
11, 2020 |
By:
/s/ Kenneth L.
Waggoner |
| |
Kenneth
L. Waggoner |
| |
Chief
Executive Officer |
| |
(Duly
Authorized Officer and Principal Executive Officer) |
| |
|
| |
|
| September
11, 2020 |
By:
/s/ Carlos A.
Trujillo |
| |
Carlos
A. Trujillo |
| |
Chief
Financial Officer |
| |
(Duly
Authorized Officer and Principal Financial and Principal Accounting
Officer) |
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