10-Q 1 pharmacyte_i10q-013124.htm FORM 10-Q FOR JAN 2024
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Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2024

or

 

  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 001-40699

 

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.)

 

3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV 89169

(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
Common Stock, Par Value $0.0001 Per Share   PMCB   The Nasdaq Stock Market LLC (Nasdaq Capital Market)

 

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 No

 

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 No

 

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  Accelerated filer 
  Non-accelerated filer  Smaller reporting company 
  Emerging growth company   

 

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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

 

As of March 15, 2024, the registrant had 8,464,824 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

THREE AND NINE MONTHS ENDED JANUARY 31, 2024

 

    Page
     
PART I. FINANCIAL INFORMATION 3
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
     
  Condensed Consolidated Balance Sheets as of January 31, 2024 and April 30, 2023 (Unaudited) 3
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2024 and 2023 (Unaudited) 4
     
  Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended January 31, 2024 and 2023 (Unaudited) 5
     
  Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Nine Months Ended January 31, 2024 and 2023 (Unaudited) 6
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2024 and 2023 (Unaudited) 8
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
     
Item 4. Controls and Procedures 36
     
PART II. OTHER INFORMATION 38
     
Item 1. Legal Proceedings 38
     
Item 1A. Risk Factors 38
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
     
Item 3. Defaults Upon Senior Securities 39
     
Item 4. Mine Safety Disclosures 39
     
Item 5. Other Information 39
     
Item 6. Exhibits 39
     
  Signatures 40

 

 

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Information.

 

PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

         
   January 31,
2024
   April 30,
2023
 
ASSETS          
Current assets:          
Cash and cash equivalents  $61,210,328   $68,039,936 
Prepaid expenses and other current assets   297,762    107,681 
Total current assets   61,508,090    68,147,617 
           
Other assets:          
Intangibles   3,549,427    3,549,427 
Investment in SG Austria   1,572,193    1,572,193 
Convertible note receivable   2,012,000     
Warrant asset   2,710,000     
Other assets   7,688    7,688 
Total other assets   9,851,308    5,129,308 
           
Total Assets  $71,359,398   $73,276,925 
           
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $484,198   $128,281 
Accrued expenses   774,439    458,300 
Accrued Series B convertible preferred stock redemptions and dividends   6,280,102     
Total current liabilities   7,538,739    586,581 
           
Other liabilities:          
Warrant liability   11,494,000     
Derivative liability   3,433,000     
Total other liabilities   14,927,000     
           
Total Liabilities   22,465,739    586,581 
           
Commitments and Contingencies (Notes 7 and 9)        
           
Convertible Preferred Stock:          
Series B convertible preferred stock: authorized 35,000 shares, $0.0001 par value and $1,000 face value, 23,397 and 0 shares issued and outstanding excluding 8,083 and 0 shares subject to redemption as of January 31, 2024 and April 30, 2023, respectively. Liquidation preference of $23,769,945 and 0, as of January 31, 2024 and April 30, 2023, respectively   17,518,700     
Stockholders' equity:          
Preferred stock, authorized 10,000,000 shares        
Series A preferred stock: authorized 1 share, $0.0001 par value and 0 shares issued and outstanding as of January 31, 2024 and April 30, 2023        
Common stock, authorized: 200,000,000 shares, $0.0001 par value; 21,672,078 shares issued and 8,521,159 shares outstanding as of January 31, 2024 and 21,602,078 shares issued and 16,793,980 shares outstanding as of April 30, 2023   2,167    2,160 
Additional paid-in capital   189,221,416    202,230,583 
Accumulated deficit   (116,971,711)   (115,958,773)
Treasury stock, at cost, 13,150,919 and 4,808,098 shares as of January 31, 2024 and April 30, 2023, respectively   (40,853,840)   (13,560,623)
Accumulated other comprehensive loss   (23,073)   (23,003)
Total stockholders' equity   31,374,959    72,690,344 
           
Total Liabilities, Convertible Preferred Stock and Stockholders' Equity  $71,359,398   $73,276,925 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 3 

 

 

PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

                 
   Three Months Ended
January 31,
   Nine Months Ended
January 31,
 
   2024   2023   2024   2023 
                 
Revenue  $   $   $   $ 
                     
Operating expenses:                    
Research and development costs   126,732    45,393    313,248    382,662 
Compensation expense   620,777    251,556    1,089,934    979,694 
Director fees   638,762    795,969    995,715    951,031 
Legal and professional   230,772    103,180    1,075,073    2,454,227 
General and administrative   251,903    356,885    1,879,822    784,597 
Total operating expenses   1,868,946    1,552,983    5,353,792    5,552,211 
                     
Loss from operations   (1,868,946)   (1,552,983)   (5,353,792)   (5,552,211)
                     
Other income (expenses):                    
Interest income   881,662    635,889    2,651,721    1,214,562 
Change in fair value of warrant liability   10,000        2,633,000     
Change in fair value of derivative liability   636,000        (663,000)    
Change in fair value of convertible note receivable   138,000        138,000     
Change in fair value of warrant asset   (416,000)       (416,000)    
Other income (expense), net   (253)   152,958    (2,867)   147,994 
Total other income, net   1,249,409    788,847    4,340,854    1,362,556 
                     
Net loss   (619,537)   (764,136)   (1,012,938)   (4,189,655)
                     
Preferred stock dividends   (781,507)       (1,688,242)    
Preferred stock accretion   (4,219,069)       (11,995,681)    
                     
Net loss attributable to common stockholders  $(5,620,113)  $(764,136)  $(14,696,861)  $(4,189,655)
                     
Basic and diluted loss per share attributable to common stockholders  $(0.65)  $(0.04)  $(1.47)  $(0.21)
                     
Weighted average shares outstanding basic and diluted   8,606,957    18,995,442    9,991,326    20,051,617 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 4 

 

 

PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

                 
  

Three Months Ended

January 31,

  

Nine Months Ended

January 31,

 
   2024   2023   2024   2023 
                 
Net loss  $(619,537)  $(764,136)  $(1,012,938)  $(4,189,655)
                     
Other comprehensive loss:                    
Foreign currency translation   1,070    (2,554)   (70   (1,970)
Other comprehensive income (loss)   1,070    (2,554)   (70   (1,970)
Comprehensive loss  $(618,467)  $(766,690)  $(1,013,008)  $(4,191,625)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 5 

 

 

PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED JANUARY 31, 2024 AND 2023

(UNAUDITED)

 

                                                   
   Preferred Stock   Common Stock   Additional Paid-in   Treasury Stock   Accumulated   Accumulated Other
Comprehensive
   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Loss   Equity 
                                         
Balance, April 30, 2023      $    21,602,078   $2,160   $202,230,583    (4,808,098)  $(13,560,623)  $(115,958,773)  $(23,003)  $72,690,344 
Stock issued for warrant exercise           70,000    7    63                    70 
Accrued preferred stock dividends                   (319,849)                    (319,849)
Preferred stock accretion       3,272,033            (3,272,033)                   (3,272,033)
Foreign currency translation adjustment                                   451    451 
Net loss                               (3,183,297)       (3,183,297)
Repurchase of common stock                       (8,085,879)   (26,721,897)           (26,721,897)
Issuance of Series B Preferred Stock, net of discounts and issuance costs of $18,246,925   35,000    16,753,075                                 
Balance, July 31, 2023   35,000    20,025,108    21,672,078    2,167    198,638,764    (12,893,977)   (40,282,520)   (119,142,070)   (22,552)   39,193,789 
                                                   
Series B preferred stock subject to redemption   (3,520)   (3,188,536)                                
Series B preferred stock dividends                   (586,886)                   (586,886)
Preferred stock accretion       4,461,097            (4,461,097)                   (4,461,097)
Repurchase of common stock                       (78,109)   (166,603)           (166,603)
Foreign currency translation adjustment                                   (1,591)   (1,591)
Net income                               2,789,896        2,789,896 
Balance, October 31, 2023   31,480    21,297,669    21,672,078    2,167    193,590,781    (12,972,086)   (40,449,123)   (116,352,174)   (24,143)   36,767,508 
                                                   
Stock-based compensation options                   674,693                    674,693 
Series B preferred stock subject to redemption   (8,083)   (8,041,520)                                
Series B preferred stock dividends                   (781,507)                   (781,507)
Preferred stock accretion       4,262,551            (4,262,551)                   (4,262,551)
Repurchase of common stock                       (178,833)   (404,717)           (404,717)
Foreign currency translation adjustment                                   1,070    1,070 
Net loss                               (619,537)       (619,537)
Balance, January 31, 2024   23,397   $17,518,700    21,672,078   $2,167   $189,221,416    (13,150,919)  $(40,853,840)  $(116,971,711)  $(23,073)  $31,374,959 

 

 

 

 6 

 

 

 

   Preferred Stock   Common Stock   Additional Paid-in   Treasury Stock   Accumulated   Accumulated Other
Comprehensive
   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Loss   Equity 
                                                   
Balance, April 30, 2022      $    20,721,047   $2,072   $201,582,107       $   $(111,648,656)  $(15,757)  $89,919,766 
Stock issued for compensation                   2,750                    2,750 
Stock issued for services           1,002        2,278                    2,278 
Stock-based compensation options                   4,595                    4,595 
Stock issued for warrant exercise           880,000    88    792                    880 
Foreign currency translation adjustment                                   1,304    1,304 
Net loss                               (1,545,012)       (1,545,012)
Repurchase of common stock                       (851,981)   (2,090,847)           (2,090,847)
Balance, July 31, 2022           21,602,049    2,160    201,592,522    (851,981)   (2,090,847)   (113,193,668)   (14,453)   86,295,714 
                                                   
Stock issued for compensation                   3,917                    3,917 
Stock options granted                   4,212                    4,212 
Reverse stock split adjustment           29                             
Foreign currency translation adjustment                                   (720)   (720)
Net loss                               (1,880,507)       (1,880,507)
Repurchase of common stock                       (1,223,153)   (3,385,044)           (3,385,044)
Balance, October 31, 2022           21,602,078    2,160    201,600,651    (2,075,134)   (5,475,891)   (115,074,175)   (15,173)   81,037,572 
                                                   
Stock issued for compensation                   667                    667 
Stock options granted                   629,265                    629,265 
Reverse stock split adjustment                                        
Foreign currency translation adjustment                                   (2,554)   (2,554)
Net loss                               (764,136)       (764,136)
Repurchase of common stock                       (1,317,926)   (3,778,114)           (3,778,114)
Balance, January 31, 2023      $    21,602,078   $2,160   $202,230,583    (3,393,060)  $(9,254,005)  $(115,838,311)  $(17,727)  $77,122,700 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 7 

 

 

PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

         
   Nine Months Ended January 31, 
   2024   2023 
Cash flows from operating activities:          
Net loss  $(1,012,938)  $(4,189,655)
Adjustments to reconcile net loss to net cash used in operating activities:          
Other non-cash expense       165,868 
Stock issued for services       2,278 
Stock issued for compensation       7,334 
Stock-based compensation   674,693    638,072 
Change in fair value of warrant liability   (2,633,000)    
Change in fair value of derivative liability   663,000     
Change in fair value of convertible note receivable   (138,000)    
Change in fair value of warrant asset   416,000     
Change in assets and liabilities:          
Increase in prepaid expenses and other current assets   (190,081)   (86,836)
Increase in accounts payable   355,918    74,706 
Increase (decrease) in accrued expenses   45,909    (117,110)
Net cash used in operating activities   (1,818,499)   (3,505,343)
           
Cash flows from investing activities:          
Investment - note receivable and warrants   (5,000,000)    
Net cash used in investing activities   (5,000,000)    
           
Cash flows from financing activities:          
Repurchase of common stock   (27,022,987)   (9,254,005)
Proceeds from issuance of preferred stock, net of transaction costs   33,650,075     
Redemption of preferred stock   (6,638,197)    
Proceeds from warrant exercise   70    880 
Net cash used in financing activities   (11,039)   (9,253,125)
           
Effect of currency rate exchange on cash and cash equivalents   (70)   (1,970)
           
Net decrease in cash and cash equivalents   (6,829,608)   (12,760,438)
           
Cash and cash equivalents at beginning of the periods   68,039,936    85,400,656 
Cash and cash equivalents at end of the periods  $61,210,328   $72,640,218 
           
Supplemental disclosure of cash flows information:          
Cash paid during the periods for income taxes  $1,600   $ 
           
Supplemental schedule of non-cash investing and financing activities:          
Non-cash derivative liability at initial fair value  $2,770,000   $ 
Non-cash warrant liability at initial fair value  $14,127,000   $ 
Reclassification of Series B Convertible Preferred Stock and dividends to current liability  $12,918,299   $ 
Accretion of discounts to redemption value of Series B Preferred Stock  $11,995,681   $ 
Excise tax accrued on repurchase of common stock  $270,230   $ 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 8 

 

 

PHARMACYTE BIOTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 – NATURE OF BUSINESS

 

PharmaCyte Biotech, Inc. (“Company”) is a biotechnology company focused on developing cellular therapies for cancer, diabetes and malignant ascites 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”) will be developed. The current generation of the Company’s product candidate is referred to as “CypCaps™.”

 

The Company is a Nevada corporation incorporated in 1996. In 2013, the Company restructured its operations to focus on biotechnology. The Company acquired licenses from SG Austria Pte. Ltd., a Singapore corporation (“SG Austria”) to treat cancer and Austrianova Singapore Pte. Ltd., a Singapore corporation (“Austrianova Singapore”) to treat diabetes using the Cell-in-the-Box technology. 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. In October 2021, the Company moved its headquarters from Laguna Hills, California to Las Vegas, Nevada.

 

On September 1, 2020, the Company submitted an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (“FDA”) for a planned clinical trial in LAPC. On October 1, 2020, the Company received notice from the FDA that it had placed the IND on clinical hold. On October 30, 2020, the FDA sent a letter to the Company setting forth the reasons for the clinical hold and specific guidance on what the Company must do to have the clinical hold lifted.

 

To lift the clinical hold, the FDA informed the Company that it needs to conduct several additional preclinical studies. The FDA also requested additional information regarding several topics, including DNA sequencing data, manufacturing information and product release specifications. The Company has been in the process of conducting these studies and gathering additional information to submit to the FDA. See “Investigational New Drug Application and Clinical Hold” below.

 

On August 15, 2022, the Company entered into a Cooperation Agreement (“Cooperation Agreement”) with Iroquois Master Fund Ltd. and its affiliates, pursuant to which the Company elected a reconstituted Board of Directors (“Board”). The Board has formed a Business Review Committee to evaluate, investigate and review the Company’s business, affairs, strategy, management and operations and in its sole discretion to make recommendations to the Company’s management and Board with respect thereto. The Business Review Committee is also reviewing many of the risks relative to the Company’s business. In addition, the Board is reviewing the Company’s development programs and its relationship with SG Austria, including that all licensed patents have expired, that know-how relating to the Company’s Cell-in-a-Box® technology solely resides with SG Austria, and that the incentives of SG Austria and its management may not be currently aligned with those of the Company. The Board has curtailed spending on the Company’s programs, including pre-clinical and clinical activities, until the review by the Business Review Committee and the Board is complete and the Board has determined the actions and plans to be implemented. The Business Review Committee’s recommendations will include potentially seeking a new framework for the Company’s relationship with SG Austria and its subsidiaries. In the event the Company is unsuccessful in seeking an acceptable new framework, the Company will reevaluate whether it should continue those programs which are dependent on SG Austria, including its development programs for LAPC, diabetes and malignant ascites. The issues involving SG Austria have delayed the Company’s timeline for addressing the FDA clinical hold for its planned clinical trial in LAPC and could result in other delays or termination of the development activities. In addition, the curtailment of spending on the Company’s programs pending the review by the Business Review Committee and the Board may cause additional delays.

 

The Cell-in-a-Box® encapsulation technology potentially enables genetically engineered live human cells to be used as a means to produce various biologically active molecules. The technology is intended to result in the formation of pinhead sized cellulose-based porous capsules in which genetically modified live human cells can be encapsulated and maintained. In a laboratory setting, this proprietary live cell encapsulation technology has been shown to create a micro-environment in which encapsulated cells survive and flourish. They are protected from environmental challenges, such as the sheer forces associated with bioreactors and passage through catheters and needles, which the Company believes enables greater cell growth and production of the active molecules. The capsules are largely composed of cellulose (cotton) and are bioinert.

 

 

 9 

 

 

The Company has been 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. The Company encapsulates those cells using the Cell-in-a-Box® technology and places those capsules in the body as close as possible to the tumor. In this way, the Company believes that when a 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 cancerous tumor may be optimized.

 

The Company has also been developing a way to delay the production and accumulation of malignant ascites that results from many types of abdominal cancerous tumors. The Company’s therapy for malignant ascites involves using the same encapsulated cells it employs for pancreatic cancer but placing the encapsulated cells in the peritoneal cavity of a patient and administering ifosfamide intravenously.

 

In addition to the two cancer programs discussed above, the Company has been working on 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. However, until the FDA allows us to commence our clinical trial in LAPC and we are able to validate our Cell-in-a-Box® encapsulation technology in a clinical trial, we are not spending any further resources developing our Cannabis Program.

 

Finally, the Company has been developing a potential therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes. The Company’s product candidate for the treatment of diabetes consists of encapsulated genetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box® technology. Implanting these encapsulated cells in the body is designed to have them function as a bio-artificial pancreas for purposes of insulin production.

 

Until the review by the Business Review Committee and the Board is complete and the Board has determined the actions and plans to be implemented, spending on the Company’s programs has been curtailed.

 

Investigational New Drug Application and Clinical Hold

 

On September 1, 2020, the Company submitted an IND to the FDA for a planned clinical trial in LAPC. On October 1, 2020, the Company received notice from the FDA that it had placed the Company’s IND on clinical hold. On October 30, 2020, the FDA sent the Company a letter setting forth the reasons for the clinical hold and providing specific guidance on what the Company must do to have the clinical hold lifted.

 

In order to address the clinical hold, the FDA requested that the Company:

 

  · Provide additional sequencing data and genetic stability studies;
     
  · Conduct a stability study on ‌the Company’s final formulated product candidate as well as the cells from the Company’s Master Cell Bank;
     
  · Evaluate the compatibility of the delivery devices (the prefilled syringe and the microcatheter used to implant the CypCaps) with ‌the Company’s product candidate for pancreatic cancer;
     
  · Provide additional detailed description of the manufacturing process of ‌the Company’s product candidate for pancreatic cancer;
     
  · Provide additional product release specifications for the Company’s encapsulated cells;
     
  · Demonstrate comparability between the 1st and 2nd generation of ‌the Company’s product candidate for pancreatic cancer and ensure adequate and consistent product performance and safety between the two generations;
     
  · Conduct a biocompatibility assessment using the Company’s capsules material;
     
  · Address specified insufficiencies in the Chemistry, Manufacturing and Controls information in the cross-referenced Drug Master File;
     
  · Conduct an additional nonclinical study in a large animal (such as a pig) to assess the safety, activity, and distribution of the product candidate for pancreatic cancer; and
     
  · Revise the Investigators Brochure to include any additional preclinical studies conducted in response to the clinical hold and remove any statements not supported by the data the Company generated.

 

 

 10 

 

 

The FDA also requested that the Company address the following issues as an amendment to the Company’s IND:

 

  · Provide a Certificate of Analysis for pc3/2B1 plasmid that includes tests for assessing purity, safety, and potency;
     
  · Perform qualification studies for the drug substance filling step to ensure that the Company’s product candidate for pancreatic cancer remains sterile and stable during the filling process;
     
  · Submit an updated batch analysis for the Company’s product candidate for the specific lot that will be used for manufacturing all future product candidates;
     
  · Provide additional details for the methodology for the Resorufin (CYP2B1) potency and the PrestoBlue cell metabolic assays;
     
  · Provide a few examples of common microcatheters that fit the specifications in ‌the Company’s Angiography Procedure Manual;
     
  · Clarify the language in ‌our Pharmacy Manual regarding proper use of the syringe fill with the Company’s product candidate for pancreatic cancer; and
     
  · Provide a discussion with data for trial of the potential for cellular and humoral immune reactivity against the heterologous rat CYP2B1 protein and potential for induction of autoimmune-mediated toxicities in ‌our study population.

 

The Company assembled a scientific and regulatory team of experts to address the FDA requests. That team has been working diligently to complete the items requested by the FDA. The Company is conducting studies of the technology. The Company has completed the pilot study of two pigs and is evaluating the preliminary data before commencing the larger study of 90 pigs.

 

Nasdaq Listing

 

The Company’s common stock began trading on Nasdaq on August 10, 2021, under the symbol “PMCB.” Prior to that, the Company’s common stock was quoted on the OTCQB Market under the symbol “PMCB.”

 

Increase in Authorized Shares

 

On September 6, 2023, pursuant to stockholder approval received at a special meeting of stockholders, the Company filed with the Secretary of State of the State of Nevada a Certificate of Change to its Articles of Incorporation, as amended, to increase the number of authorized shares of common stock from 133,333,334 to 200,000,000. The Certificate of Change had no impact on the number of authorized shares of preferred stock, which remains at 10,000,000.

 

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) PharmaCyte Biotech Europe Limited; (ii) PharmaCyte Biotech Australia Pty. Ltd.; and (iii) Viridis Biotech, Inc. and are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and the Rules and Regulations of the Commission. Upon consolidation, intercompany balances and transactions are eliminated. The Company’s 14.3% investment in SG Austria is presented using the measurement alternative allowed under ASC 325 Investments for investments with no readily determinable fair value. In March 2023, Bio Blue Bird was liquidated and was de-consolidated in these consolidated financial statements.

 

 

 

 11 

 

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in accordance with U.S. GAAP. U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s condensed consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s condensed consolidated financial position and results of operations.

  

Cash and Cash Equivalents

 

Cash and cash equivalents include cash in banks and short-term liquid investments purchased with maturities of three months or less.

  

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 in process R&D obtained through the acquisition of licensing agreements related to the Cell-in-a-Box® technology for $1,549,427 and 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 intangible assets for the nine months ended January 31, 2024 and 2023.

 

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 indicators were identified or recorded during the nine months ended January 31, 2024 and 2023.

 

Convertible Note Receivable

 

As permitted under Financial Accounting Standards Board ("FASB”) ASC 825, Financial Instruments ("ASC 825”), the Company elects to account for its convertible note receivable, which meets the required criteria, at fair value at inception and at each subsequent reporting date. Subsequent changes in fair value, including interest, are recorded as a component of non-operating income (loss) in the condensed consolidated statements of operations. As a result of electing the fair value option, direct costs and fees related to the convertible note receivable were expensed as incurred.

 

The Company estimates the fair value of the convertible note receivable using the income approach, which uses as inputs the fair value of debtor’s common stock and estimates for the equity volatility and volume volatility of debtor’s common stock, the time to expiration of the convertible note, the discount rate, the stated interest rate compared to the current market rate, the risk-free interest rate for a period that approximates the time to expiration, and probability of default. Therefore, the estimate of expected future volatility is based on the actual volatility of debtor’s common stock and historical volatility of debtor’s common stock utilizing a lookback period consistent with the time to expiration. The time to expiration is based on the contractual maturity date. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately equal to the time to expiration. Probability of default is estimated using the S&P Global default rate for companies with a similar credit rating to debtor’s.

 

 

 12 

 

 

Fair Value of Financial 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 assets and 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. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. 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, which 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.

 

These unobservable inputs are significant to the fair value measurement.

  

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 condensed consolidated statements of operations.

 

 

 13 

 

 

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 authorities 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.

 

Consideration of Inflation Reduction Act Excise Tax

 

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly-traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

 

The Company repurchased 8,342,821 shares of common stock with a total cost of $27,293,217 during the nine months ended January 31, 2024 and 178,833 shares of common stock with a total cost of $404,717 for the three months ended January 31, 2024. The Company recorded $270,230 in excise tax related to the IR Act, which is included in Treasury stock and a related accrual for the three and nine months ended January 31, 2024.

 

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, which 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 costs for the three months ended January 31, 2024 and 2023 were $126,732 and $45,393, respectively, and for the nine months ended January 31, 2024 and 2023 were $313,248 and $382,662, 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.

 

 

 14 

 

 

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 financial institutions located throughout the United States. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances aggregated approximately $16,480,000 and $1,100,000 at January 31, 2024 and 2023, respectively. The Company has not experienced any losses in such accounts. Management believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

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 year-end exchange rates, while revenue and expenses are translated at average exchange rates prevailing during the year. Adjustments for foreign currency translation fluctuations are excluded from net loss and are included in other comprehensive income (loss). Gains and losses on short-term intercompany foreign currency transactions are recognized as incurred.

 

NOTE 3 – INVESTMENT IN DEBT AND EQUITY SECURITIES

 

On November 14, 2023, the Company entered into a Securities Purchase Agreement (the “Femasys Purchase Agreement”) with Femasys Inc. (“Femasys”), pursuant to which it agreed to purchase from Femasys for a sum of $5,000,000 (i) senior unsecured convertible notes (the “Femasys Notes”) in an aggregate principal amount of $5,000,000, convertible into shares of Femasys common stock, par value $0.001 per share (the “Femasys Shares”) at a conversion price of $1.18 per share, (ii) Series A Warrants (the “Series A Warrants”) to purchase up to an aggregate of 4,237,288 Femasys Shares at an exercise price of $1.18 per share, and (iii) Series B Warrants (the “Series B Warrants”, together with the Series A Warrants, the “Femasys Warrants,” and, together with the Notes, the “Femasys Securities”) to purchase up to an aggregate of 4,237,288 Femasys Shares at an exercise price of $1.475 per share (collectively, the “Investment”). The Femasys Notes accrue interest at 6.0% per annum, payable annually, and mature two years after the date of issuance. The Femasys Warrants expire five years from the date of issuance.

 

Pursuant to the terms of the Femasys Purchase Agreement, the Company’s interim Chief Executive Officer was appointed to the Femasys board of directors.

 

The convertible note receivable is not traded in active markets and the fair value was determined using a Monte Carlo simulation. The convertible note receivable is accounted for as available-for-sale debt securities based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset. The Company elected the fair value option for the Femasys Notes, therefore, holding gains and losses are included within change in fair value of the notes in the consolidated statement of operations. The Femasys Warrants are accounted for as an equity security and are valued using a Monte Carlo simulation based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, recorded at fair value with subsequent changes included within change in fair value of the warrants in the consolidated statement of operations.

 

The Company recognized the Femasys Note and Femasys Warrants based on their respective fair values on the issuance date of $1,874,000 and $3,126,000, respectively. Subsequent changes in the fair value of the Femasys Note and Femasys Warrants will be recognized in earnings, at each reporting date. During the three and nine months ended January 31, 2024, the Company recognized a change in fair value of the convertible note receivable and warrant asset of $138,000 and ($416,000), respectively.

 

Below is a summary of activity for the Note and Warrants as of January 31, 2024: 

     
Balance of Notes as of May 1, 2023  $ 
Issued   1,874,000 
Change in fair value   138,000 
Balance of Notes as of January 31, 2024  $2,012,000 

 

Balance of Warrants as of May 1, 2023  $ 
Issued   3,126,000 
Change in fair value   (416,000)
Balance of Warrants as of January 31, 2024  $2,710,000 

 

 

 15 

 

 

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses at January 31, 2024 and April 30, 2023, are summarized below:

          
         
   January 31, 2024   April 30, 2023 
Payroll related costs  $158,803   $112,894 
R&D costs, including related parties   287,310    287,310 
Other, including excise tax on stock repurchases   328,326    58,096 
Total  $774,439   $458,300 

  

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 and nine months ended January 31, 2024 and 2023 is as follows:

 

In January 2022, the Company awarded 4,400 shares of common stock to the executive officers of the Company as part of their compensation agreements for 2022. During the nine months ended January 31, 2024 and 2023, the Company recorded a non-cash compensation expense in the amount of $0 and $7,333, respectively. There were zero unvested shares as of January 31, 2024 and 2023, respectively. Two of the executive officers terminated their services in October 2022 and pursuant to their separation agreements the shares were fully vested.

   

During the nine months ended January 31, 2023, three non-employee members of the Board were issued 1,002 shares of common stock pursuant to their Director Letter Agreements (“DLAs”) in respect of their service during that year. The shares were fully vested upon issuance. The Company recorded a non-cash expense of $0 for the three months ended January 31, 2024 and 2023, respectively, and $0 and $2,278 for the nine months ended January 31, 2024 and 2023, respectively. There were zero unvested shares remaining related to such DLAs as of January 31, 2024 and 2023, respectively.

 

All shares were issued without registration under the Securities Act of 1933 as amended (“Securities Act”) in reliance upon the exemption afforded by Section 4(a)(2) of the Securities Act.

 

There were no shares granted, vested or expired during the nine months ended January 31, 2024.

 

NOTE 6 – STOCK OPTIONS AND WARRANTS

 

2022 Equity Incentive Plan

 

Effective December 28, 2022, the Company implemented the 2022 Equity Incentive Plan (“2022 Equity Plan”) as approved by the Company’s stockholders. The 2022 Equity Plan is administered by the Compensation Committee of the Board and has 2,750,000 shares available under this plan. The 2022 Equity Plan can issue various types of awards, as follows: stock options, stock appreciation rights, restricted stock, restricted stock units, and cash or other stock-based awards. The 2022 Equity Plan is available to be issued to employees, directors, consultants, and other individuals who provide services to the Company. An incentive stock options (“ISOs”) can only be granted to employees and shall not exceed 10-years (5-years in the case of ISOs granted to any 10% shareholder).

 

Stock Options

 

As of January 31, 2024, the Company had 779,794 outstanding stock options to its directors and officers (collectively, “Employee Options”) and consultants (“Non-Employee Options”).

 

During the nine months ended January 31, 2024 and 2023, the Company granted 499,992 and 251,002 Employee Options, respectively. For the nine months ended January 31, 2024 and 2023, the director options vested immediately and the officers options vested 50% immediately and the remaining 50% upon the one-year anniversary of the grant date.

 

 

 16 

 

 

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:

        
   Nine Months Ended January 31, 
   2024   2023 
Risk-free interest rate   4.42%    3.30% 
Expected volatility   115%    133% 
Expected lives (years)   5.1    3.5 
Expected dividend yield   0.00%    0.00% 

 

For stock option grants issued during the nine months ended January 31, 2024 and 2023, the Company used a calculated volatility for each grant based on the Company’s historical stock values. 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 ten years with the average vesting term of six months. 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.

 

A summary of the Company’s stock option activity and related information for the nine months ended January 31, 2024, are shown below:

        
Options  Number of Options   Weighted Average Grant Date Fair Value per Share 
Outstanding, April 30, 2023   281,269   $6.94 
Issued   499,992    2.18 
Expired   (1,467)   89.10 
Outstanding, January 31, 2024   779,794   $3.73 
Exercisable, January 31, 2024   652,294   $4.04 
Vested and expected to vest   779,794   $3.73 

 

There were 127,500 unvested stock options during the nine months ended January 31, 2024.

 

The Company recorded $674,693 and $629,264 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 January 31 2024 and 2023, respectively, and $674,693 and $638,072 during the nine months ended January 31, 2024 and 2023, respectively. At January 31, 2024, there remained $234,692 of unrecognized compensation expense related to unvested Employee Options granted to officers and directors.

 

 

 

 17 

 

 

The following table summarizes the outstanding stock options by exercise price at January 31, 2024:

                                           
Exercise Price     Number of
Options
Outstanding
    Weighted
Average
Remaining
Contractual Life
(Years) of
Outstanding
Options
    Weighted
Average
Exercisable
Price Per Share
    Number of
Options
Exercisable
    Weighted Average
Exercise Price Per Share
of Exercisable
Options
 
                                             
$ 74.25       6,000       0.13     $ 74.25       6,000     $ 74.25  
$ 57.00       800       0.64     $ 57.00       800     $ 57.00  
$ 60.60       667       0.25     $ 60.60       667     $ 60.60  
$ 55.50       333       0.41     $ 55.50       333     $ 55.50  
$ 51.00       333       0.69     $ 51.00       333     $ 51.00  
$ 61.20       6,000       0.92     $ 61.20       6,000     $ 61.20  
$ 36.00       667       1.25     $ 36.00       667     $ 36.00  
$ 37.05       333       1.41     $ 37.05       333     $ 37.05  
$ 15.75       333       1.69     $ 15.75       333     $ 15.75  
$ 10.05       6,000       1.92     $ 10.05       6,000     $ 10.05  
$ 26.55       667       2.25     $ 26.55       667     $ 26.55  
$ 16.20       333       2.41     $ 16.20       333     $ 16.20  
$ 3.19       334       2.69     $ 3.19       334     $ 3.19  
$ 2.50       6,000       2.92     $ 2.50       6,000     $ 2.50  
$ 2.29       668       3.25     $ 2.29       668     $ 2.29  
$ 2.24       334       3.41     $ 2.24       334     $ 2.24  
$ 2.97       250,000       8.79     $ 2.97       250,000     $ 2.97  
$ 2.18       499,992       9.81     $ 2.18       372,492     $ 2.18  
  Total       779,794       3.73     $ 4.04       652,294     $ 4.04  

 

The aggregate intrinsic value of outstanding options as of January 31, 2024 was $3,725. This represents options with exercise prices less than the $2.19 per share closing price of the Company’s common stock on January 31, 2024.

 

Warrants

 

Pursuant to the Private Placement (as defined below), the Company issued investors Warrants (as defined below) to purchase 8,750,000 shares of Common Stock, with an exercise price of $4.00 per share (subject to adjustment), for a period of five years from the date of issuance. For more information on the Private Placement, see “Note 11 – Preferred Stock”.

 

The Warrants were determined to be within the scope of ASC 480-10 as they are puttable to the Company at Holders’ election upon the occurrence of a Fundamental Transaction (as defined in the agreements). As such, the Company recorded the Warrants as a liability at fair value with subsequent changes in fair value recognized in earnings. The Company utilized the Black-Scholes-Merton Model to calculate the value of the Warrants issued during the nine months ended January 31, 2024. The fair value of the Warrants of approximately $14,127,000 was estimated at the date of issuance using the fair value of our common stock of $2.74 on the issuance date and was based on the following weighted average assumptions: dividend yield 0%; expected term of 5.0 years; equity volatility of 80.0%; and a risk-free interest rate of 3.37%.

 

Transaction costs incurred attributable to the issuance of the Warrants of approximately $0.9 million were immediately expensed in accordance with ASC 480 and is included in general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.

 

 

 18 

 

 

During the nine months ended January 31, 2024, the Company recorded a gain of approximately $2,633,000 related to the change in fair value of the warrant liability which is recorded in other income (expense) on the Condensed Consolidated Statements of Operations. The fair value of the Warrants of $11,494,000 was estimated at January 31, 2024, utilizing the Black-Scholes-Merton Model using the fair value of our common stock of $2.19 and the following weighted average assumptions: dividend yield 0%; remaining term of 4.27 years; equity volatility of 95.0%; and a risk-free interest rate of 3.96%.

 

A summary of the Company’s warrant activity and related information for the nine months ended January 31, 2024, are shown below:

        
   Warrants  

Weighted
Average
Exercise Price

Per Share

 
Outstanding, April 30, 2023   9,890,847   $4.99 
Issued   8,750,000    4.00 
Exercised   (70,000)    
Expired        
Outstanding, January 31, 2024   18,570,847     
Exercisable, January 31, 2024   18,570,847   $4.54 

  

The following table summarizes additional information concerning warrants outstanding and exercisable at January 31, 2024:

            
Exercise Prices  Number of
Warrant Shares
Exercisable at
January 31, 2024
   Weighted
Average
Remaining
Contractual
Life (Years)
   Weighted
Average
Exercise Price Per Share
 
             
$4.25   1,506,141    2.53      
$5.3125   264,706    2.52      
$5.00   7,000,000    2.56      
$6.25   1,050,000    2.55      
$4.00   8,750,000    4.28      
    18,570,847    3.37   $4.54 

 

NOTE 7 – LEGAL PROCEEDINGS

 

From time to time, the Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of pending claims cannot be predicted with certainty, the Company does not believe that the outcome of any pending claims will have a material adverse effect on our financial condition or operating results.

 

On December 4, 2023, H.C. Wainwright & Co., LLC (“Wainwright”) filed a complaint against the Company in the Supreme Court of the State of New York, County of New York, asserting a single cause of action for breach of contract and alleging that the Company breached an April 2021 engagement agreement with Wainwright by failing to pay a purported “tail fee” allegedly due in connection with a private placement transaction that closed in 2023. Wainwright seeks damages of not less than $1,950,000, warrants to purchase an aggregate of 656,250 shares of our common stock at an exercise price of $5.00 per share, and attorney’s fees. On February 28, 2024, the Company responded to the complaint with an answer and affirmative defenses. The Company intends to vigorously defend against Wainwright’s complaint and does not believe that any potential loss is reasonably estimable at this time.

 

To our knowledge there are no other legal proceedings pending to which any property of the Company is subject.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

The Company had the following related party transactions during the three and nine months ended January 31, 2024 and 2023, respectively.

 

The Company owns 14.3% 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. The Company purchased products and services from these subsidiaries in the approximate amounts of $0 and $0 in the three months ended January 31, 2024 and 2023, respectively, and $0 and $64,000 for the nine months ended January 31, 2024 and 2023, respectively.

 

 

 19 

 

 

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. Günzburg and Dr. Salmons, both of whom are involved in numerous aspects of the Company’s scientific endeavors relating to cancer and diabetes (Prof. Günzburg 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 and is 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. To date, the agreement has been automatically renewed annually. The amounts incurred for the three months ended January 31, 2024 and 2023, were approximately $2,600 and $2,400, respectively, and approximately $5,300 and $47,500 for the nine months ended January 31, 2024 and 2023, respectively.

 

The Company’s Interim Chief Executive Officer was appointed to the Femasys board of directors, see Note 3.

 

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 products if regulatory approval for marketing is obtained.

 

Office Lease

 

In January 2022, the Company entered into a six-month lease of the Las Vegas, Nevada office space, commencing on May 1, 2022, which expired on October 31, 2022.

 

In July 2022, the Company entered into an additional six-month lease of the Las Vegas, Nevada office space, commencing on November 1, 2022, which expired on April 30, 2023.

 

In January 2023, the Company entered into a month-to-month agreement of the Las Vegas office space, commencing on May 1, 2023. Additionally, the Company rents storage space pursuant to a month-to-month agreement in Laguna Hills, California.

 

Rent expenses for the office for the three and nine months ended January 31, 2024 were $6,825 and $22,424, respectively, and for the three and nine months ended January 31, 2023 were $5,789 and $17,041, respectively.

 

With the month-to-month office rental agreements there are no aggregate future minimum lease payments required to be made.

 

Compensation Agreements

 

On January 1, 2022, the Company entered into an amended and restated executive compensation agreement with Carlos A. Trujillo, the Company’s Chief Financial Officer. The compensation agreement for Mr. Trujillo has a term of three years, with automatic renewals unless the Company or Mr. Trujillo provides written notice of termination at least ninety days prior to the end of the current term.

 

As of January 31, 2024, the Company had five directors. Each non-employee director was entitled to receive $12,500 in cash for each calendar quarter of service on the Board. Effective November 20, 2023, each non-employee director is entitled to receive $15,000 each quarter of service on the Board, plus an additional $2,500 quarterly for each non-employee director who serves as chair of the Board’s audit committee, compensation committee or nominating and corporate governance committee.

 

On August 15, 2022, the Company and the Board: (i) accepted the previously tendered irrevocable resignation of each of Dr. Matthias Löhr, Dr. Raymond C.F. Tong, Thomas Liquard, Dr. Gerald W. Crabtree, and Carlos A. Trujillo, as members of the Board, and (ii) appointed Jonathan L. Schechter, Joshua N. Silverman, Daniel Allen, Daniel S. Farb, and Jack E. Stover as independent members of the Board, effective immediately, each with a term expiring at the Company’s 2022 annual meeting of shareholders or until such person’s earlier death, resignation, disqualification or removal.

 

 

 20 

 

 

On November 1, 2022, Jack E. Stover notified the Company of his decision to resign from the Board effective immediately. On November 14, 2022, in accordance with the recommendation of the Company’s Nominating Committee, Robert Weinstein was appointed to serve as a director of the Board and the Chairperson of the Audit Committee, with a term expiring at the Company’s annual meeting of shareholders or until death, resignation, disqualification or removal.

 

On November 14, 2022, the Board approved the employment of Mr. Joshua Silverman as the Interim Chief Executive Officer, Interim President and Interim Chairman of the Board on a month-to-month basis. Upon Mr. Silverman accepting employment he was no longer an independent director.

 

On December 28, 2022, the Company held its annual meeting of stockholders. The stockholders voted to elect the following directors to serve one-year terms expiring at the annual meeting of stockholders to be held during the year ended April 30, 2024: Joshua N. Silverman, Jonathan L. Schechter, Michael M. Abecassis, Robert Weinstein and Wayne R. Walker.

 

Service Agreements

 

The Company has entered into several service agreements with independent and related parties pursuant to which services will be provided over a specified period-of-time related to the IND which the FDA has placed on clinical hold. The services include regulatory affairs strategy, advice and follow up work on the IND and services related to having the clinical hold lifted. The total cost is estimated to be approximately $332,000, of which the related party (SG Austria and its subsidiaries) portion will be approximately $157,000. These amounts take into account some of the cost associated with the work and preclinical studies required to lift the clinical hold.

  

NOTE 10 – INCOME TAXES

 

At January 31, 2024, the Company had federal and state net operating loss carryforwards of approximately $58,018,000 and $49,924,000, respectively, available to offset against future taxable income. Approximately $39,336,000 of the federal operating losses expire in 2023 through 2038 and the state operating losses expire in 2035 through 2043. Internal Revenue Code Section 382 imposes an annual limitation for the utilization of tax attributes if there is an “ownership change”. Based upon the equity activity during the year ended April 30, 2022, the Company had an ownership change in August 2021. As a result of the change in-control that occurred in the Company’s shareholder base in August 2021, approximately $37,060,000 and $40,808,000 federal and state net operating loss carryforwards, respectively, became limited in their availability. The remaining net operating loss carryforwards were approximately $20,958,000 and $9,117,000 for federal and state purposes, respectively.

 

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.

  

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 nine months ended January 31, 2024 and 2023, the Company had accrued no interest or penalties related to uncertain tax positions.

 

See Note 9 of Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2023, 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 per share is computed by dividing net income 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 preferred stock, stock options and warrants. During the three and nine months ended January 31, 2024 and 2023, the Company incurred losses attributable to common stockholders. 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.

 

 

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The table below sets forth the basic loss per share calculations:

        
   Three Months Ended January 31, 
   2024   2023 
Net loss attributable to common stockholders  $(5,620,113)  $(764,136)
Basic and diluted weighted average number of shares outstanding   8,606,957    18,995,442 
Basic and diluted loss per share  $(0.65)  $(0.04)

 

         
   Nine Months Ended January 31, 
   2024   2023 
Net loss attributable to common stockholders  $(14,696,861)  $(4,189,655)
Basic and diluted weighted average number of shares outstanding   9,991,326    20,051,617 
Basic and diluted loss per share  $(1.47)  $(0.21)

 

The table below sets forth these potentially dilutive securities:

    
   Nine Months Ended January 31, 
   2024   2023 
Excluded options   779,794    281,936 
Excluded warrants   18,570,847    9,890,847 
Series B convertible preferred stock   5,929,053     
Total preferred stock, options and warrants   25,279,694    10,172,783 

 

NOTE 12 – PREFERRED STOCK

  

The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001, of which 35,000 shares have been designated as “Series B Convertible Preferred Stock”. As of January 31, 2024 and 2023, there were 23,397 and zero shares issued and outstanding, respectively, and 8,083 and zero, shares, respectively, subject to redemption which are classified as Accrued Series B convertible preferred redemptions and dividends on the condensed consolidated balance sheet.

 

On May 10, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which it agreed to sell to the Investors (i) an aggregate of 35,000 shares of the Company’s newly-designated Series B convertible preferred stock with a stated value of $1,000 per share, initially convertible into up to 8,750,000 shares of the Company’s common stock, par value $0.0001 per share at a conversion price of $4.00 per share (the “Preferred Shares”), and (ii) warrants to acquire up to an aggregate of 8,750,000 shares of common stock (the “Warrants”) (collectively, the “Private Placement”).

 

The terms of the Preferred Shares are as set forth in a Certificate of Designations (the “Certificate of Designations”), which was filed with the Secretary of the State of Nevada on May 10, 2023. The Preferred Shares are convertible into common stock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $4.00 (the “Conversion Price”). The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). The Company is required to settle the Preferred Shares in equal monthly installments, commencing on November 9, 2023. The amortization payments due upon such redemption are payable, at the Company’s election, in cash, or subject to certain limitations, in shares of common stock valued at the lower of (i) the Conversion Price then in effect and (ii) the greater of (A) a 20% discount to the average of the three lowest closing prices of the Company’s common stock during the thirty trading day period immediately prior to the date the amortization payment is due or (B) the lower of $0.556 and 20% of the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) on the date of receipt of Nasdaq Stockholder Approval (as defined below); provided that if the amount set forth in clause B is the lowest effective price, the Company will be required to pay the amortization payment in cash. The Company may require holders to convert their Preferred Shares into Conversion Shares if the closing price of the common stock exceeds $6.00 per share for 20 consecutive trading days and the daily trading volume of the common stock exceeds 1,000,000 shares per day during the same period and certain equity conditions described in the Certificate of Designations are satisfied.

 

 

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The holders of the Preferred Shares are entitled to dividends of 4% per annum, compounded monthly, which are payable in cash or shares of common stock at the Company’s option, in accordance with the terms of the Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Preferred Shares will accrue dividends at the rate of 15% per annum. The holders of Preferred Shares have no voting rights on account of the Preferred Shares, other than with respect to certain matters affecting the rights of the Preferred Shares.

 

Notwithstanding the foregoing, the Company’s ability to settle conversions and make amortization payments using shares of common stock is subject to certain limitations set forth in the Certificate of Designations, including a limit on the number of shares that may be issued until the time, if any, that the Company’s stockholders have approved the issuance of more than 19.9% of the Company’s outstanding shares of common stock in accordance with Nasdaq listing standards (the “Nasdaq Stockholder Approval”). The Company received Nasdaq Stockholder Approval at its special meeting of stockholders held on August 31, 2023. Further, the Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of common stock issuable upon conversion of, or as part of any amortization payment under, the Certificate of Designations or Warrants.

 

The Certificate of Designations includes certain Triggering Events (as defined in the Certificate of Designations), including, among other things, the failure to file and maintain an effective registration statement covering the sale of the holder’s securities registrable pursuant to a registration rights agreement entered into by the Company and the Investors simultaneously with the Purchase Agreement and the Company’s failure to pay any amounts due to the holders of the Preferred Shares when due. In connection with a Triggering Event, each holder of Preferred Shares will be able to require the Company to redeem in cash any or all of the holder’s Preferred Shares at a premium set forth in the Certificate of Designations.

 

The Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified the following embedded features that are not clearly and closely related to the debt host instrument: 1) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate of Designation), and 2) variable share-settled installment conversion. These features were bundled together, assigned probabilities of being affected and measured at fair value. Subsequent changes in the fair value of these features are recognized in the Condensed Consolidated Statements of Operations. The Company estimated the $2.8 million fair value of the bifurcated embedded derivative at issuance using a Monte Carlo simulation model, with the following inputs: the fair value of the Company’s common stock of $2.74 on the issuance date, estimated equity volatility of 55.0%, estimated traded volume volatility of 355.0%, the time to maturity of 1.50 years, a discounted market interest rate of 15.9%, a risk free rate of 4.3%, dividend rate of 4.0%, a penalty dividend rate of 15.0%, and probability of default of 27.0%. The fair value of the bifurcated derivative liability was estimated utilizing the with and without method which uses the probability weighted difference between the scenarios with the derivative and the plain vanilla maturity scenario without a derivative.

 

The discount to the fair value is included as a reduction to the carrying value of the Preferred Shares. During the nine months ended January 31, 2024, the Company recorded a total discount of approximately $18.2 million upon issuance of the Preferred Shares, which was comprised of the issuance date fair value of the associated embedded derivative of approximately $2.8 million, stock issuance costs of approximately $1.3 million and the fair value of the Warrants of approximately $14.1 million. It was deemed probable that the Preferred Shares will become redeemable, the Company accreted the Preferred Shares from inception to January 31, 2024, pursuant to ASC 480-10-S99-3A.

 

During the three and nine months ended January 31, 2024, the Company recorded a gain of approximately $0.7 million related to the change in fair value of the derivative liability, which is recorded in other income, net on the Condensed Consolidated Statements of Operations. The Company estimated the $3.4 million fair value of the bifurcated embedded derivative at January 31, 2024 using a Monte Carlo simulation model, with the following inputs: the fair value of our common stock of $2.19 on the valuation date, estimated equity volatility of 75.0%, estimated traded volume volatility of 260.0%, the time to maturity of 0.78 years, a discounted market interest rate of 10.6%, a risk free rate of 4.93%, dividend rate of 4.0%, a penalty dividend rate of 15.0%, probability of default of 27.0%, and instrument term elapsed of 47.9%

 

During the three and nine months ended January 31, 2024, the Company made all installment payments in cash pursuant to installment redemptions. The first three installment redemptions were paid in cash in the amounts of $6,638,196, which includes $5,770,833 of the Preferred Shares, $491,616 of accrued dividends and $375,747 of additional 6% cash premium pursuant to the terms of the Series B Preferred stock. During the three and nine months ended January 31, 2024, the Company made all installment payments in cash pursuant to installment redemptions and accreted $8,041,520 and $11,995,681, respectively, of discount related to the Preferred Shares. During the three months ended January 31, 2024, the Company recognized a deemed dividend of $499,417 related to the amounts owed in addition to dividends if amortization is paid in cash which is included in Preferred stock dividends on the condensed consolidated statement of operations.

 

 

 23 

 

 

As of January 31, 2024, the Company has reclassified a portion of the Preferred Shares to an accrued liability for the fourth and fifth installment redemptions owed to investors in cash of $6,280,102 which includes $5,833,333 of the stated value of the Preferred Shares, $103,039 of dividends payable, and $343,730 of additional 6% cash premium pursuant to the terms of the Series B Preferred stock. The Company provided notice to the investors of their intent to redeem the first five installments in cash prior to January 31, 2024.

  

The Company has one share of preferred stock designated as “Series A Preferred Stock” as of January 31, 2024 and April 30, 2023, there were no shares of Series A 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 – TREASURY STOCK

 

In May 2022, the Board authorized a share repurchase program to acquire its outstanding common stock for up to $10 million. In January 2023, the Board authorized an additional share repurchase program to acquire up to an additional $10 million of the Company’s outstanding common stock. In conjunction with the share repurchase programs, the Company selected a broker to repurchase shares on behalf of the Company. The amount of common stock repurchased on any given trading day is determined by a formula, which is based on the market price of the common stock and average daily volumes. Shares repurchased are held in treasury for general corporate purposes. The shares are treated as Treasury Stock using the cost method. During the three and nine months ended January 31, 2024, the Company repurchased 178,833 and 256,942, respectively, additional shares under the repurchase program. As of January 31, 2024, the total number of shares repurchased pursuant to the repurchase programs was 5,065,040 shares at a total cost, including commissions and excise taxes of $14,131,942. Repurchased shares are included in Treasury Stock in the accompanying Condensed Consolidated Balance Sheets. At January 31, 2024, $5,868,058 remains available to repurchase the Company’s common stock pursuant to the share repurchase programs.

 

Tender Offer

 

On May 11, 2023, the Company commenced a tender offer, in accordance with Rule 13e-4 promulgated under the Securities Exchange Act of 1934, as amended, to purchase up to 7,750,000 shares of its common stock, par value $0.0001 per share, at a price of $3.25 per share. The tender offer expired one minute after 11:59 p.m. on June 9, 2023, and following such expiration the Company accepted for purchase a total of 8,085,879 shares at $3.25 per share, including 335,879 shares that the Company elected to purchase pursuant to its right to purchase up to an additional 2% of its outstanding shares. The resultant aggregate purchase price was $26,721,897, including excise tax, fees and expenses relating to the tender offer. These shares are treated as Treasury Stock using the cost method and are included as Treasury Stock in the accompanying Condensed Consolidated Balance Sheets, Statements of Convertible Preferred Stock and Stockholders’ Equity.

 

As of January 31, 2024, the total number of shares held in Treasury Stock is 13,150,919 shares at a total cost of $40,853,840.

 

 

 

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NOTE 14 – FAIR VALUE MEASUREMENTS

 

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the nine months ended January 31, 2024. The carrying amounts of cash equivalents, other current assets, accounts payable and accrued expenses approximate their fair values at January 31, 2024 due to their short-term nature. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of the Company’s common stock and guideline companies estimates for the equity volatility and traded volume volatility of our common stock, the time maturity of the convertible preferred stock, the risk-free interest rate for a period of time that approximates the time to maturity, dividend rate, a penalty dividend rate and the probability of default. The fair value of the warrant liability was estimated using the Black Scholes Merton Model which uses as inputs the following weighted average assumptions, as noted above: dividend yield, expected terms in years, equity volatility and risk-free rate.

 

Fair Value on a Recurring Basis

 

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported and reported at fair at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of the warrant liability and bifurcated embedded derivative represent Level 3 measurements. The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis at January 31, 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

                       
Description   Level     January 31, 2024     April 30, 2023  
Liabilities:                        
Warrant liability (Note 5)     3     $ 11,494,000     $  
Bifurcated embedded derivative (Note 11)     3     $ 3,433,000     $  

 

The following table sets forth a summary of the change in the fair value of the warrant liability that is measured at fair value on a recurring basis.

    
   January 31, 2024 
Balance on April 30, 2023  $ 
Issuance of warrants   14,127,000 
Change in fair value of warrant liability   (2,633,000)
Balance on January 31, 2024  $11,494,000 

 

The following table sets forth a summary of the change in the fair value of the bifurcated embedded derivative liability that is measured on a recurring basis:

 

   January 31, 2024 
Balance on April 30, 2023  $ 
Issuance of convertible preferred stock with bifurcated embedded derivative liability   2,770,000 
Change in fair value of bifurcated embedded derivative   663,000 
Balance on January 31, 2024  $3,433,000 

 

The fair values of financial instruments by class as of January 31, 2024 are as follows: 

               
   Level 1   Level 2   Level 3 
Financial Assets               
Convertible note receivable – investment in debt security  $   $   $2,012,000 
Warrant asset           2,710,000 
Total  $   $   $4,722,000 

 

Assumptions used in the valuation of the Level 3 assets include time to expiration, discount rate, risk-free rate, volatility and probability of default.

 

NOTE 15 – SUBSEQUENT EVENTS

 

Stock Repurchase

 

From February 1, 2024 to March 15, 2024, the Company repurchased 56,335 shares of common stock through the stock repurchase program for $119,73.

 

 

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Item 2.  Management’s Discussion and Analysis of Financial Conditions and Results of Operations

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (including but not limited to this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to qualify for the “safe harbor” created by those sections. In addition, we may make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission (“SEC”), and our management and other representatives may make forward-looking statements orally or in writing to analysts, investors, representatives of the media and others. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

 

Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts and include, but are not limited to, statements using terminology such as “can”, “may”, “could”, “should”, “assume”, “forecasts”, “believe”, “designed to”, “will”, “expect”, “plan”, “anticipate”, “estimate”, “potential”, “position”, “predicts”, “strategy”, “guidance”, “intend”, “seek”, “budget”, “project” or “continue”, or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future.   You should read statements that contain these words carefully because they:

 

  · discuss our future expectations;
     
  · contain projections of our future results of operations or of our financial condition; and
     
  · state other “forward-looking” information.

 

We believe it is important to communicate our expectations. However, forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and are subject to known and unknown risks, uncertainties and other factors. Accordingly, our actual results and the timing of certain events may differ materially from those expressed or implied in such forward-looking statements due to a variety of factors and risks, including, but not limited to, those set forth in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report, those set forth from time to time in our other filings with the U.S. Securities and Exchange Commission (“Commission”), including our Annual Report on Form 10-K for the fiscal year ended April 30, 2023 and the following factors and risks:

 

  · As a result of the clinical hold that has been placed on our IND by the FDA, it has taken and may continue to take considerable time and expense to respond to the FDA, and no assurance can be given that the FDA will remove the clinical hold in which case our business and prospects will likely suffer material adverse consequences;
     
  · We contract with Austrianova for the manufacture of our product candidates and for certain preclinical and clinical activities. Austrianova may not be able to manufacture sufficient quantities of our product candidates for preclinical studies and clinical trials which could delay, prevent or impair our development or commercialization efforts. The production of our product candidates relies in part on the proprietary know-how of Austrianova which is held by them as a trade secret and as to which we are not privy;
     
  · We rely on officers of Austrianova for the development of our product candidates. If they decide to terminate their relationship with us, we may not be successful in the development of our product candidates;
     
  · In the event Austrianova experiences financial difficulties, their ability to provide products or services to us may be delayed or curtailed and may affect the carrying value of our intellectual property and cost-based investment in Austrianova;
     
  · At this time, we are unaware of any available substitute manufacturer other than Austrianova;

 

 

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  · We are seeking FDA approval to commence a clinical trial in the U.S. of our product candidate for LAPC based on clinical data that was obtained in trials conducted nearly 20 years ago outside the U.S., and it is possible that the FDA may not accept data from trials conducted in such locations or conducted nearly 20 years ago nor allow us to proceed with a Phase 2b as opposed to a Phase 1 or Phase 1/2 trial;
     
  · The Business Review Committee and the Board are evaluating, investigating and reviewing our business, affairs, strategy, management and operations, including our development programs and our relationship with SG Austria (as defined below). There can be no guarantee that the Business Review Committee and the Board will be successful in achieving an acceptable new framework for our relationship with SG Austria, and if that is the case, we may need to reevaluate certain development programs. We have curtailed spending on our programs pending the review by the Business Review Committee and the Board, and delays caused by such curtailment may have an adverse effect on our business.
     
  · Results in previous clinical trials of our encapsulated live cell and ifosfamide combination for pancreatic cancer may not be replicated in future clinical trials which could result in development delays or a failure to obtain marketing approval;
     
  · Due to the significant resources required for the development of our programs, and depending on our ability to access capital, we must prioritize development of certain product candidates. We may expend our limited resources on programs that do not yield a successful product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success;
     
  · As the patents covering our Cell-in-a-Box technology have expired, our intellectual property, which is primarily trade secrets, and data and market exclusivity may not be sufficient to block others from commercializing identical or competing products; and
     
  · We have experienced significant management changes which could increase our control risks and have a material adverse effect on our ability to do business and our results of operations.

 

Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:

 

  · our expectations of future revenues, expenditures, capital or other funding requirements;
     
  · the inherent uncertainties of product development based on our new and as yet not fully proven technologies;
     
  · the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically;
     
  · the inherent uncertainties associated with clinical trials of product candidates;
     
  · the inherent uncertainties associated with the process of obtaining regulatory clearance or approval to market product candidates;
     
  · the inherent uncertainties associated with commercialization of products that have received regulatory clearance or approval;
     
  · economic and industry conditions generally and in our specific markets; and
     
  · the volatility of, and decline in, our stock price.

 

All forward-looking statements and risk factors included in this Quarterly Report are made as of the date hereof, in each case based on information available to us as of the date hereof, and we assume no obligations to update any forward-looking statement or risk factor, unless we are required to do so by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make updates with respect to other forward-looking statements or that we will make any further updates to those forward-looking statements at any future time.

 

 

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Forward-looking statements may include our plans and objectives for future operations, including plans and objectives relating to our product candidates and our future economic performance, projections, business strategy and timing and likelihood of success. Assumptions relating to the forward-looking statements included in this Quarterly Report involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

  

Any of the assumptions underlying the forward-looking statements contained in this Quarterly Report could prove inaccurate and, therefore, we cannot assure you that any of the results or events contemplated in any of such forward-looking statements will be realized. Based on the significant uncertainties inherent in these forward-looking statements, the inclusion of any such statement should not be regarded as a representation or as a guarantee by us that our objectives or plans will be achieved, and we caution you against relying on any of the forward-looking statements contained herein.

 

Overview of Business

 

We are a biotechnology company focused on developing cellular therapies for cancer, diabetes, and malignant ascites 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, will be developed. The current generation of our product candidate is referred to as “CypCaps™.”

 

On August 15, 2022, we entered into a Cooperation Agreement (the “Cooperation Agreement”) with Iroquois Master Fund Ltd. and its affiliates, pursuant to which we elected a reconstituted board of directors (the “Board”). The Board then formed a Business Review Committee to evaluate, investigate and review our business, affairs, strategy, management and operations and in its sole discretion, to make recommendations to our management and Board with respect thereto. The Business Review Committee is also reviewing many of the risks relative to our business. In addition, the Board is reviewing risks associated with our development programs and our relationship with SG Austria Pte. Ltd (“SG Austria”), including that all licensed patents have expired, that know-how relating to our Cell-in-a-Box® technology solely resides with SG Austria, and that the incentives of SG Austria and its management may not be currently aligned with ours. The Board has curtailed spending on our programs, including pre-clinical and clinical activities, until the review by the Business Review Committee and the Board is complete and the Board has determined the actions and plans to be implemented. The Business Review Committee’s recommendations will include potentially seeking a new framework for our relationship with SG Austria and its subsidiaries. If we are unsuccessful in seeking an acceptable new framework, we will reevaluate whether we should continue those programs which are dependent on SG Austria, including our development programs for locally advanced, inoperable, non-metastatic pancreatic cancer (“LAPC”), diabetes and malignant ascites. The issues involving SG Austria have delayed our timeline for addressing the FDA clinical hold for its planned clinical trial in LAPC and could result in other delays or termination of the development activities. In addition, the curtailment of spending on our programs pending the review by the Business Review Committee and the Board may cause additional delays.

 

The Cell-in-a-Box® encapsulation technology potentially enables genetically engineered live human cells to be used as a means to produce various biologically active molecules. The technology is intended to result in the formation of pinhead-sized cellulose-based porous capsules in which genetically modified live human cells can be encapsulated and maintained. In a laboratory setting, this proprietary live cell encapsulation technology has been shown to create a micro-environment in which encapsulated cells survive and flourish. They are protected from environmental challenges, such as the sheer forces associated with bioreactors and passage through catheters and needles, which we believe enables greater cell growth and production of the active molecules. The capsules are largely composed of cellulose (cotton) and are bioinert.

 

We have been 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. We encapsulate those cells using the Cell-in-a-Box® technology and place those capsules in the body as close as possible to the tumor. In this way, we believe that when a 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 cancerous tumor may be optimized.

 

We have also been developing a way to delay the production and accumulation of malignant ascites that results from many types of abdominal cancerous tumors. Our potential therapy for malignant ascites involves using the same encapsulated cells we employ for pancreatic cancer but placing the encapsulated cells in the peritoneal cavity of a patient and administering ifosfamide intravenously.

 

 

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We have also been developing a potential therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes. Our product candidate for the treatment of diabetes consists of encapsulated genetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box® technology. Implanting these encapsulated cells in the body is designed to have them function as a bio-artificial pancreas for purposes of insulin production.

 

In addition to the two cancer programs discussed above, we have been working on 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. However, until the FDA allows us to commence our clinical trial in LAPC and we are able to validate our Cell-in-a-Box® encapsulation technology in a clinical trial, we are not spending any further resources developing our Cannabis Program.

  

Finally, we have been developing a potential therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes. Our product candidate for the treatment of diabetes consists of encapsulated genetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box® technology. Implanting these encapsulated cells in the body is designed to have them function as a bio-artificial pancreas for purposes of insulin production.

 

Until the Business Review Committee completes its evaluation of our programs and we enter into a new framework for its relationship with SG Austria, spending on our development programs has been curtailed.

 

Investigational New Drug Application and Clinical Hold

 

On September 1, 2020, we submitted an IND to the FDA for a planned clinical trial in LAPC. On October 1, 2020, we received notice from the FDA that it had placed our IND on clinical hold. On October 30, 2020, the FDA sent us a letter setting forth the reasons for the clinical hold and providing specific guidance on what we must do to have the clinical hold lifted.

 

In order to address the clinical hold, the FDA has requested that we:

 

  · Provide additional sequencing data and genetic stability studies;
     
  · Conduct a stability study on our final formulated product candidate as well as the cells from our Master Cell Bank (“MCB”);
     
  · Evaluate the compatibility of the delivery devices (the prefilled syringe and the microcatheter used to implant the CypCaps) with our product candidate for pancreatic cancer;
     
  · Provide additional detailed description of the manufacturing process of our product candidate for pancreatic cancer;
     
  · Provide additional product release specifications for our encapsulated cells;
     
  · Demonstrate comparability between the 1st and 2nd generation of our product candidate for pancreatic cancer and ensure adequate and consistent product performance and safety between the two generations;
     
  · Conduct a biocompatibility assessment using the capsules material;
     
  · Address specified insufficiencies in the Chemistry, Manufacturing and Controls information in the cross-referenced Drug Master File;
     
  · Conduct an additional nonclinical study in a large animal (such as a pig) to assess the safety, activity, and distribution of the product candidate for pancreatic cancer; and
     
  · Revise the Investigators Brochure to include any additional preclinical studies conducted in response to the clinical hold and remove any statements not supported by the data we generated.

 

 

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The FDA also requested that we address the following issues as an amendment to our IND:

 

  · Provide a Certificate of Analysis for pc3/2B1 plasmid that includes tests for assessing purity, safety, and potency;
     
  · Perform qualification studies for the drug substance filling step to ensure that the product candidate for pancreatic cancer remains sterile and stable during the filling process;
     
  · Submit an updated batch analysis for the product candidate for the specific lot that will be used for manufacturing all future product candidates;
     
  · Provide additional details for the methodology for the Resorufin (CYP2B1) potency and the PrestoBlue cell metabolic assays;
     
  · Provide a few examples of common microcatheters that fit the specifications in our Angiography Procedure Manual;
     
  · Clarify the language in our Pharmacy Manual regarding proper use of the syringe fill with the product candidate for pancreatic cancer; and
     
  · Provide a discussion with data for trial of the potential for cellular and humoral immune reactivity against the heterologous rat CYP2B1 protein and potential for induction of autoimmune-mediated toxicities in our study population.

 

We assembled a scientific and regulatory team of experts to address the FDA requests. That team has been working diligently to complete the items requested by the FDA. We are in the latter stages of conducting the studies and providing the information requested by the FDA. We have completed the pilot study of two pigs and are evaluating the preliminary data before it commences the larger study of 90 pigs.

 

The following provides a detailed summary of our activities to have the clinical hold lifted:

 

  · Additional Regulatory Expertise Added to IND Team. In addition to ‌our existing team of regulatory experts, we retained Biologics Consulting to perform a regulatory “Gap Analysis” and to assist us with our resubmission of the IND. Biologics Consulting is a full-service regulatory and product development consulting firm for biologics, pharmaceuticals and medical devices and has personnel with extensive FDA experience.
     
  · Stability Studies on Our Clinical Trial Product Candidate for Pancreatic Cancer. We have successfully completed the required product stability studies. The timepoints were 3, 6, 9, 12, 18 and 24 months of our product candidate for pancreatic cancer being stored frozen at -80C. These studies included container closure integrity testing for certain timepoints.
     
  · Additional Studies Requested by the FDA. We have successfully completed various additional studies requested by the FDA, including a stability study on the cells from our MCB used to make our CypCaps™. We are already at the 36-month stability timepoint for the cells from our MCB. We are also collating existing information on the reproducibility and quality of the filling of the MCB cells into vials ready for CypCaps™ manufacturing.
     
  · Determination of the Exact Sequence of the Cytochrome P450 2B1 Gene. We have completed the determination of the exact sequence of the cytochrome P450 2B1 gene inserted at the site previously identified on chromosome 9 using state-of-the-art nanopore sequencing. This is a cutting edge, unique and scalable technology that permits real-time analysis of long DNA fragments. The result of this analysis of the sequence data confirmed that the genes are intact.
 
  · Confirmation of the Exact Sequence of the Cytochrome P450 2B1 Gene Insert. An additional, more detailed analysis of the integration site of the cytochrome P450 2B1 gene from the augmented HEK293 cell clone that is used in our CypCaps™ was found to be intact. In this new study, we were able to confirm the previously determined structure of the integrated transgene sequence using more data points. These studies also set the stage for a next step analysis to determine the genetic stability of the cytochrome P450 2B1 gene at the DNA level after multiple rounds of cell growth. This new study has been completed in which our original Research Cell Bank (“RCB”) cells were compared with cells from the MCB. The analysis confirmed that the cytochrome P450 2B1 and the surrounding sequence has remained stable with no changes detected at the DNA level.

 

 

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  · Biocompatibility Studies. We have been involved with 10 biocompatibility studies requested by the FDA, eight of which have been completed successfully. The remaining studies are underway or about to start. The Acute Systemic Toxicity Study of Empty Cellulose Sulphate Capsules in Mice is underway. The Skin Sensitization Study of Empty Cellulose Sulphate Capsules in Guinea Pigs is about to start. These last two studies ‌should be completed well before the pig study (see below) is completed. To enable the biocompatibility studies to be performed, we had Austrianova Singapore Pte. Ltd. (“Austrianova”) manufacture an additional 400 syringes of empty capsules.
     
  · Systemic Toxicity Testing. We evaluated the potential toxicity of the capsule component of our product candidate for pancreatic cancer‌ and determined there is no evidence of toxicity in any of the parameters examined. The study also confirmed previous data that shows our capsule material is bioinert.
     
  · Micro-Compression and Swelling Testing. This testing is underway. We are developing and optimizing two reproducible methods for testing and confirming the physical stability and integrity of our CypCaps™ under extreme pressure. These studies required the acquisition of new equipment by Austrianova as well as validation and integration into Austrianova’s Quality Control laboratory.
     
  · Break Force and Glide Testing. We are in the process of developing a protocol to measure whether the syringe, attached to the catheter when used to expel the capsules, will still have a break and glide force that is within the specifications we have established. We are setting the specifications based on the syringe/plunger manufacturer’s measured break and glide forces, or alternatively, accepted ranges for glide forces routinely used in the clinic.

 

  · Capsules Compatibility with the Syringe and Other Components of the Microcatheter Delivery System. We are in the process of showing that CypCaps™ are not in any way adversely affected by the catheters used by interventional radiologists to deliver them into a patient. Compatibility data is being generated to demonstrate that the quality of the CypCaps™ is maintained after passage through the planned microcatheter systems.
     
  · CypCaps Capsules and Cell Viability after Exposure to Contrast Medium. We have commenced testing to show that exposure of CypCaps™ to the contrast medium interventional radiologists ‌used to implant the CypCaps™ in a patient has no adverse effect on CypCaps™. Contrast medium is used to visualize the blood vessels during implantation.
     
  · Master Drug File Information. Austrianova is providing additional detailed confidential information on the manufacturing process, including information on the improvements and advancements made to our product candidate for pancreatic cancer since the last clinical trials were conducted with respect to reproducibility and safety. However, Austrianova has not changed the overall physical characteristics of CypCaps™ between the 1st and 2nd generations.
     
  · Additional Documentation Requested by the FDA. We are in the process of updating our IND submission documentation, including our discussion on immunological aspects of our treatment for LAPC.
     
  · Pig Study. We have commenced a study in pigs to address biocompatibility and long-term implantation and dispersion of CypCaps™. The study has two phases: (i) a pilot study with 2 pigs; and (ii) a 90-pig study. The first phase has been completed and we are evaluating preliminary data. We believe this study should complement the positive data already available from the previous human clinical trials showing the safety of CypCaps™ implantation in human patients. The second phase of the pig study may be delayed as a result of supply chain problems, production delays at Austrianova, and to our curtailment of spending pending review of our programs by the Business Review Committee and the reconstituted Board, including seeking a new framework for its relationship with SG Austria and its subsidiaries.

 

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; (vi) ensure completion of the production of encapsulated cells according to cGMP regulations to use in our planned clinical trial; (vii) complete all of the tasked the FDA requires of us in order to have the clinical hold lifted; and (viii) obtain approval from the FDA to lift the clinical hold on our IND so that we may commence our clinical trial in LAPC.

 

 

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There are numerous items required to be completed successfully to ensure our final product candidate is ready for use in our planned clinical trial in 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. In addition, the review of our programs by our Business Review Committee and reconstituted Board and the curtailment of spending until their review is complete and recommendations are made may have an adverse effect on the timeliness and success of our programs. In addition, if we are unsuccessful in seeking a new framework for the Company’s relationship with SG Austria and its subsidiaries, the Company will reevaluate whether it should continue those programs which are dependent on SG Austria, including its programs for LAPC, diabetes and malignant ascites. See “Overview of Business.” We will assess these factors on a regular basis to provide accurate information to our shareholders.

  

Results of Operations

 

Three and nine months ended January 31, 2024, compared to three and nine months ended January 31, 2023

 

Revenue

 

We had no revenues for the three and nine months ended January 31, 2024 and 2023.

 

Operating Expenses and Loss from Operations

 

The total operating expenses and loss from operations during the three months ended January 31, 2024 were $1,868,946, an increase of $315,963 compared to the three months ended January 31, 2023. The increase is mainly attributable to increases in R&D costs, compensation expense and legal and professional expense costs, net of decreases in general and administrative costs, convertible note receivable transactional costs of $58,002 and director fees in the three months ended January 31, 2024.

 

Operating expenses:   Three Months
Ended
January 31,
2024
    Change -
Increase
(Decrease)
and Percent
    Three Months
Ended
January 31,
2023
 
R&D   $ 126,732     $ 81,339     $ 45,393  
              179%          
                         
Compensation expense   $ 620,777     $ 369,221     $ 251,556  
              147%          
                         
Director fees   $ 638,762     $ (157,207   $ 795,969  
              (20%        
                         
General and administrative, legal and professional   $ 482,675     $ 22,610     $ 460,065  
              5%          

 

The total operating expenses and loss from operations during the nine months ended January 31, 2024 decreased by $198,419 to $5,353,792 compared to the nine months ended January 31, 2023. The decrease is mainly attributable to decreases in R&D costs, legal and professional expense, and consulting expense in 2024 from 2023, net of increases in compensation expense, director fees and general and administrative costs of $1,095,225, which includes warrant issuance costs of $913,640 and convertible note receivable transactional costs of $58,002.

 

Operating expenses:   Nine Months Ended
January 31,
2024
    Change -
Increase
(Decrease)
and Percent
    Nine Months Ended
January 31,
2023
 
R&D   $ 313,248     $ (69,414   $ 382,662  
              (18%        
                         
Compensation expense   $ 1,089,934     $ 110,240     $ 979,694  
              11%          
                         
Director fees   $ 995,715     $ 44,684     $ 951,031  
              5%          
                         
General and administrative, legal and professional   $ 2,954,895     $ (283,929   $ 3,238,824  
              (9%        

 

 

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Other Income (Expenses), Net

 

Other income (expenses), net for the three months ended January 31, 2024 was $1,249,409 as compared to other income (expenses), net of $788,847 for the three months ended January 31, 2023. Other income (expenses), net for the three months ended January 31, 2024 is attributable to interest income of $881,662 net of changes in fair value of warrant liability of $10,000, a change in fair value of derivative liability of $636,000, a change in the fair value of convertible note receivable of $138,000, a change in the fair value of the warrant asset of $(416,000) and other expenses of $(253). Other income, net for the three months ended January 31, 2023 is attributable to interest income of $635,889 and other income of $152,958. The increase in interest income is attributable to an increase in the rates of interest.

 

Other income (expenses), net for the nine months ended January 31, 2024 was $4,340,854 as compared to other income (expenses), net of $1,362,556 for the nine months ended January 31, 2023. Other income (expenses), net for the nine months ended January 31, 2024 is attributable to interest income of $2,651,721 net of changes in fair value of warrant liability of $2,633,000, a change in fair value of derivative liability of $(663,000) a change in the fair value of convertible note receivable of $138,000, a change in the fair value of the warrant asset of $(416,000) and other expenses of $(2,867). Other income, net for the nine months ended January 31, 2023 is attributable to interest income of $1,214,562 net of other income of $147,994. The increase in interest income is attributable to an increase in the rates of interest.

 

Discussion of Operating, Investing and Financing Activities

 

The following table presents a summary of our sources and uses of cash for the nine months ended January 31, 2024 and 2023.

 

   Nine Months
Ended
January 31,
2024
   Nine Months
Ended
January 31,
2023
 
Net cash used in operating activities:  $(1,818,499)  $(3,505,343)
Net cash used in investing activities:  $(5,000,000)  $ 
Net cash used in financing activities:  $(11,039)  $(9,253,125)
Effect of currency rate exchange  $(70)  $(1,970)
Net decrease in cash and cash equivalents  $(6,829,608)  $(12,760,438)

 

Operating Activities:

 

The cash and cash equivalents used in operating activities for the nine months ended January 31, 2024 is a result of our net losses and offset by the change in fair value of warrant liability of $2,633,000 offset by the change in the fair value of the derivative liability of $663,000, a change in fair value of convertible note receivable of $138,000, offset by the change in fair value of warrant asset of $416,000 and changes to prepaid expenses and other current assets, accounts payable, and accrued expenses, totaling approximately $211,746. The cash and cash equivalents used in operating activities for the nine months ended January 31, 2023 is a result of our net losses offset by securities issued for services and compensation of approximately $647,684, non-cash expense of $165,868 and changes to prepaid expenses, accounts payable and accrued expenses of approximately $129,240.

 

Investing Activities:

 

On November 14, 2023, we entered into a securities purchase agreement, pursuant to which agreed to purchase a convertible note receivable in the amount of $5 million, convertible into common stock. See Note 3 – Investment in Debt and Equity Securities. We had no investing activities for the nine months ended January 31, 2023.

 

Financing Activities:

 

The cash and cash equivalents provided by in financing activities for the nine months ended January 31, 2024 is mainly attributable to the repurchase of common stock of approximately $27,023,000, redemption of preferred stock of approximately $6,638,000 and net of the proceeds from the issuance of preferred stock of approximately $33,650,000, net of issuance costs. The cash and cash equivalents used in operating activities for the nine months ended January 31, 2023 is mainly attributable to the repurchase of common stock of approximately $9,254,000.

 

 

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Liquidity and Capital Resources

 

As of January 31, 2024, our cash and cash equivalents totaled approximately $61 million, compared to approximately $73 million as of January 31, 2023. Working capital was approximately $62 million as of January 31, 2024, compared to approximately $68 million as of January 31, 2023. The increase in cash for the nine months ended January 31, 2024 is attributable to a decrease in our operating expenses of approximately $0.2 million and the repurchase of our common stock of approximately $27 million, redemption of preferred stock of approximately $7 million, net of proceeds from the issuance of preferred stock and warrants of $34 million.

 

On May 10, 2023, we entered into the Purchase Agreement, pursuant to which we sold to the Investors 35,000 Preferred Shares and Warrants to acquire up to an aggregate of 8,750,000 shares of common stock. The gross proceeds of the Private Placement were $35 million, before offering expenses. If all of the Warrants were exercised for cash, we would receive additional gross proceeds of approximately $35 million. 

 

To meet our short and long-term liquidity needs, we expect to use existing cash balances and a variety of other means. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings, partnerships, collaborations and sale of assets. Our history of operating losses and liquidity challenges may make it difficult for us to raise capital on acceptable terms or at all. The demand for the equity and debt of pharmaceutical companies like ours is dependent upon many factors, including the general state of the financial markets. During times of extreme market volatility, capital may not be available on favorable terms, if at all. Our inability to obtain such additional capital could materially and adversely affect our business operations. Our future capital requirements are difficult to forecast and will depend on many factors, but we believe that our cash on hand will enable us to fund operating expenses for at least the next 12 months following the issuance of our financial statements.

 

On November 14, 2023, we entered into the Femasys Purchase Agreement. Pursuant to the agreement we agreed to purchase (i) senior unsecured convertible notes in an aggregate principal amount of $5 million, convertible into shares of Femasys common stock at a conversion price of $1.18 per share, and (ii) Series A warrants to purchase up to an aggregate of 4,237,288 shares of Femasys common stock at an exercise price of $1.18 and (iii) Series B warrants to purchase an aggregate of 4,237,288 shares of Femasys common stock at an exercise price $1.475 per share.

 

On November 20, 2023, the Board granted to each non-employee director (i) a cash retainer fee of $60,000 and (ii) options to purchase 61,248 shares at an exercise price of $2.18 per share, vesting in full on the first business day after the Company’s next annual meeting of stockholders. Additionally, the Board granted each non-employee director who chairs the audit, compensation or nominating and corporate governance committees an additional cash retainer fee of $10,000.

 

On November 20, 2023, the Board adopted a non-employee director compensation policy, which provides for the automatic annual grant of nonqualified stock options with a grant date fair value of $60,000 to each non-employee director. Such grants shall occur annually on the first business day after the Company’s annual meeting of stockholders and shall vest on the one-year anniversary of the grant date, subject to the director’s continued service on the Board on the vesting date. The policy also provides for the payment of an annual $60,000 cash retainer fee to each non-employee director, plus, for each non-employee director who chairs the audit, compensation or nominating and corporate governance committees, an additional annual $10,000 cash retainer fee. Finally, the policy provides for the automatic grant of nonqualified stock options with a grant date fair value of $50,000 to each new non-employee director upon joining the Board.

  

Service Agreements

 

We entered into several service agreements, with both independent and related parties, pursuant to which services will be provided over the next twelve months related to the clinical hold on our IND submission involving LAPC. The services include developing studies and strategies relating to clearing the clinical hold. The total cost is estimated to be approximately $332,000, of which the related party portion will be approximately $157,000. These agreements are under review by our Business Review Committee and reconstituted Board which has curtailed spending on this program until their review is complete and recommendations are made.

 

 

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Critical Accounting Estimates

 

Our financial statements are prepared in accordance with U.S. GAAP. We are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

 

Our significant accounting policies are discussed in Note 2 of the Notes to our Condensed Consolidated Financial Statements contained in this Quarterly Report. Management believes that the accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results and require management’s most difficult, subjective or complex judgments resulting from the need to make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with our Board.

 

Realizable Value of Intangible Assets and Investments

 

We test the carrying amount of our indefinite-lived intangible assets for impairment prior to testing long-lived assets for impairment. As prescribed under ASC 350, we first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not (that is, a likelihood of more than 50%) that our indefinite-lived intangible asset is impaired. If it is more likely than not that the asset is impaired, we would calculate the fair value of the asset and record an impairment charge if the carrying amount exceeds fair value. If we determine that it is not more likely than not that the asset is impaired, no further action is required.

 

Convertible Note Receivable and Warrant Asset

 

We account for the convertible note receivable, which is not traded in active markets and determined the fair value using the Monte Carlo simulation method. The convertible note receivable is accounted for as available-for-sale debt securities based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset. The warrant asset is accounted for as an equity security and is valued using the Monte Carlo simulation method based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, recorded at fair value.

 

For both the convertible note receivable and the warrant asset, changes in the estimated fair value are recognized as a non-cash gain or loss on the condensed consolidated statements of operations.

 

Warrant Liabilities

 

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, or date of modification, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the warrant liability was estimated using a Black Scholes valuation approach with assumption relevant as of the valuation date.

 

 

 

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Derivative Financial Instruments

 

The Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s balance sheet.

 

Preferred Stock

 

In accordance with ASC 480, the Company’s Series B Preferred Stock is classified as temporary equity as it is redeemable upon certain contingent events that are considered outside of the Company’s control. Further, in accordance with ASC 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity, the Series B Preferred Stock does not meet any of the criteria that would preclude equity classification. The stock discount is amortized from the date of issuance using the effective interest method.

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share of common stock is computed using the weighted-average number of shares of common stock outstanding. Diluted net income (loss) per share of common stock is computed using the weighted-average number of shares of common stock and shares of common stock equivalents outstanding.

 

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 Quarterly 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 Quarterly 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.

 

 

 

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Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our Interim Chairman, Interim Chief Executive Officer, and Interim President, 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 January 31, 2024, certain of our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting.

 

Reference should be made to our Form 10-K filed with the Commission on July 31, 2023, for additional information regarding discussion of the effectiveness of the Company’s control and procedures.

  

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 achi