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PharmaCyte Biotech, Inc. - Quarter Report: 2015 October (Form 10-Q)

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

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended October 31, 2015

or

 

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

 

For the transition period from __________ to __________

 

Commission file number 333-68008

 

PHARMACYTE BIOTECH, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 62-1772151
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

12510 Prosperity Drive, Suite 310, Silver Spring, Maryland 20904

(Address of principal executive offices)

 

(917) 595-2850

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

       
Large accelerated filer o Accelerated filer x
Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)      

 

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

 

As of December 10, 2015, registrant had 750,826,823 outstanding shares of common stock, with a par value of $0.0001 per share.

 

 

   
 

 

PHARMACYTE BIOTECH, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2015

 

    Page
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 3
 
  Condensed Consolidated Balance Sheets as of October 31, 2015 and April 30, 2015 (Unaudited) 3
 
  Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended October 31, 2015 and 2014 (Unaudited) 4
     
  Condensed Consolidated Statements of Comprehensive Loss for the Three Months and Six Months Ended October 31, 2015 and 2014 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2015 and 2014 (Unaudited) 6
 
  Notes to Condensed Consolidated Financial Statements (Unaudited) 7
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
     
Item 4. Controls and Procedures 21
     
PART II. OTHER INFORMATION 23
     
Item 1. Legal Proceedings 23
     
Item 1A. Risk Factors 23
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
     
Item 3. Defaults Upon Senior Securities 23
     
Item 4. Mine Safety Disclosures 23
     
Item 5. Other Information 23
     
Item 6. Exhibits 24

   

 

 

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PART I – FINANCIAL INFORMATION

 

Item1.  Financial Statements.

 

PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

                   

   October 31,   April 30, 
   2015   2015 
ASSETS          
Current assets:          
Cash  $2,312,430   $2,699,737 
Prepaid expenses and other current assets   74,757    119,257 
Deposit   125,000     
Total current assets   2,512,187    2,818,994 
           
Other assets:          
Intangibles   3,549,427    3,549,427 
Investment in SG Austria   1,572,193    1,572,193 
Other assets   7,854    7,854 
Total other assets   5,129,474    5,129,474 
           
Total Assets  $7,641,661   $7,948,468 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $427,208   $496,699 
Accrued expenses   52,797    23,667 
Derivative liability       492,049 
License agreement obligation   600,000    1,000,000 
Total current liabilities   1,080,005    2,012,415 
           
Total Liabilities   1,080,005    2,012,415 
           
Commitments and Contingencies (Notes 7 and 9)          
           
Preferred stock, authorized 10,000,000 shares, $0.0001 par value, 0 shares issued and outstanding, respectively        
           
Stockholders' equity:          
Common stock, authorized 1,490,000,000 shares, $0.0001 par value, 747,443,744 and 732,760,536 shares issued and outstanding as of October 31, 2015 and April 30, 2015, respectively  
 
 
 
 
74,749
 
 
 
 
 
 
 
73,273
 
 
Additional paid in capital   87,685,381    85,415,954 
Accumulated deficit   (81,200,061)   (79,554,636)
Accumulated other comprehensive income   1,587    1,462 
Total stockholders' equity   6,561,656    5,936,053 
           
Total Liabilities and Stockholders' Equity  $7,641,661   $7,948,468 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

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PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

                 

   Three Months Ended October 31,   Six Months Ended October 31, 
   2015   2014   2015   2014 
Revenues:                    
Product sales  $   $   $   $ 
Total revenue                
Cost of revenue                
Gross margin                
                     
Operating Expenses:                    
Research and development costs   439,711    347,763    595,389    347,763 
Sales and marketing               230,500 
Compensation expense   400,507    4,840,754    848,077    5,094,172 
Director fees   9,000        27,000     
Legal and professional   57,988    353,230    183,063    614,094 
General and administrative   222,039    703,692    483,454    1,542,070 
Total operating expenses   1,129,245    6,245,439    2,136,983    7,828,599 
                     
Loss from operations   (1,129,245)   (6,245,439)   (2,136,983)   (7,828,599)
                     
Other income (expense):                    
Unrealized gain on change in derivative   29,746        492,049     
Gain on settlement of stock recoveries       2,183,331        2,183,331 
Other income (expense)   430    508    335    1,496 
Interest expense, net   (194)   (2,073)   (826)   (4,725)
Total other income (expense), net   29,982    2,181,766    491,558    2,180,102 
                     
Net loss  $(1,099,263)  $(4,063,673)  $(1,645,425)  $(5,648,497)
                     
Basic and diluted loss per share  $(0.00)  $(0.01)  $(0.00)  $(0.01)
Weighted average shares outstanding basic and diluted   745,357,022    703,328,836    741,637,252    702,629,501 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

                       

 

   Three Months Ended October 31,   Six Months Ended October 31, 
   2015   2014   2015   2014 
                     
Net Loss  $(1,099,263)  $(4,063,673)  $(1,645,425)  $(5,648,497)
Other comprehensive income:                    
Foreign currency translation adjustment   (34)       1,587     
Other comprehensive income (loss)   (34)       1,587     
Comprehensive loss  $(1,099,297)  $(4,063,673)  $(1,643,838)  $(5,648,497)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PHARMACYTE BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

                     

 

   Six Months Ended October 31, 
   2015   2014 
Cash flows from operating activities:          
Net loss  $(1,645,425)  $(5,648,497)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock issued for services       297,500 
Stock issued for compensation   254,040    480,350 
Stock based compensation - options   287,928    4,307,822 
Stock based compensation - warrants       100,000 
Gain on recovery of stock for services       (2,183,332)
Gain on derivative liability   (492,049)    
Change in assets and liabilities:          
(Increase) / decrease in prepaid expenses and current assets   (80,500)   195,496 
Increase / (decrease) in accounts payable   (69,491)   84,067 
Increase / (decrease) in accrued expenses   29,130    (37,012)
Decrease in license agreement obligation   (400,000)    
Net cash used in operating activities   (2,116,367)   (2,403,606)
           
Cash flows from investing activities:          
Net cash provided by (used in) investing activities        
           
Cash flows from financing activities:          
Proceeds from sale of common stock   1,728,935    86,000 
Repayment of debt, related parties       (143,859)
Net cash provided by (used in) financing activities   1,728,935    (57,859)
           
Effect of currency rate exchange on cash   125     
           
Net decrease in cash   (387,307)   (2,461,465)
           
Cash at beginning of the period   2,699,737    3,616,470 
Cash at end of the period  $2,312,430   $1,155,005 
           
Supplemental disclosures of cash flows information:          
Cash paid during the period for interest  $826   $ 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

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PHARMACYTE BIOTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2015

(UNAUDITED)

 

NOTE 1 – NATURE OF BUSINESS

 

In 2013, PharmaCyte Biotech, Inc. (“Company”) restructured its operations in an effort to focus on biotechnology, having been a nutraceutical products company in the recent past. The restructuring resulted in the Company focusing all of its efforts upon the development of a unique, effective and safe way to treat cancer and diabetes. On January 6, 2015, the Company changed its name from Nuvilex, Inc. to PharmaCyte Biotech, Inc. to better reflect the nature of its business.

 

The Company is now a clinical stage biotechnology company focused on developing and preparing to commercialize treatments for cancer and diabetes using a proprietary cellulose-based live cell encapsulation technology known as “Cell-in-a-Box®.” This patented technology is being used as a platform upon which treatments for several types of cancer, including advanced, inoperable pancreatic cancer, and diabetes are being developed.

 

On May 26, 2011, the Company entered into an Asset Purchase Agreement (“SG Austria APA”) with SG Austria Private Limited (“SG Austria”) to purchase 100% of the assets and liabilities of SG Austria. As a result, Austrianova Singapore Private Limited ("Austrianova") and Bio Blue Bird AG ("Bio Blue Bird"), wholly-owned subsidiaries of SG Austria, were to become wholly-owned subsidiaries of the Company on the condition that the Company pay SG Austria $2.5 million and 100,000,000 shares of the Company’s common stock. The Company was to receive 100,000 shares of Austrianova’s common stock and nine Bio Blue Bird bearer shares representing 100% of the ownership of Bio Blue Bird.

 

Through two addenda to the SG Austria APA, the closing date of the SG Austria APA was extended twice by mutual agreement of the parties.

 

Effective as of June 25, 2013, the Company and SG Austria entered into a Third Addendum to the SG Austria APA (“Third Addendum”). The Third Addendum materially changed the transaction contemplated by the SG Austria APA. Under the Third Addendum, the Company acquired 100% of the equity interests in Bio Blue Bird and received a 14.5% equity interest in SG Austria. In addition, the Company received nine bearer shares of Bio Blue Bird to reflect the Company’s 100% ownership of Bio Blue Bird. The Company paid: (i) $500,000 to retire all outstanding debt of Bio Blue Bird; and (ii) $1.0 million to SG Austria. The Company also paid SG Austria $1,572,193 in exchange for the 14.5% equity interest of SG Austria. The new transaction required SG Austria to return to the Company the 100,000,000 shares of common stock held by SG Austria and the Company to return to SG Austria the 100,000 shares of common stock of Austrianova held by the Company.

 

Effective as of June 25, 2013, the Company and SG Austria entered into a Clarification Agreement to the Third Addendum to clarify and include certain language that was inadvertently omitted from the Third Addendum.

 

The Third Addendum provides the Company with an exclusive, worldwide license to use the Cell-in-a-Box® technology, with a right to sublicense, for the development of a treatment for cancer using certain types of genetically modified human cells (“Cells”) and the use of Austrianova’s Cell-in-a-Box® trademark for this technology. Bio Blue Bird licenses the Cells from Bavarian Nordic A/S and GSF-Forschungszentrum fur Umwelt u. Gesundeit GmbH (“Bavarian Nordic/GSF”), the patent holders of the Cells, to develop a treatment for cancer using these encapsulated Cells. The licensed rights to the Cells pertain to the countries in which Bavarian Nordic/GSF obtained patent protection.

 

Effective as of June 25, 2013, the Company also acquired from Austrianova an exclusive, worldwide license, with a right to sublicense, to use the Cell-in-a-Box® technology for the development of a treatment for diabetes and the use of Austrianova’s Cell-in-a-Box® trademark for this technology (“Diabetes Licensing Agreement”). The Company paid Austrianova $2.0 million to secure this license.

 

In October 2014, the Company acquired from the University of Technology Sydney (“UTS”) an exclusive, worldwide license to use genetically modified human cells (“Melligen Cells”) that have been modified to produce, store and release insulin in response to blood glucose levels in their surroundings. In addition, the Company obtained the non-exclusive worldwide rights to “know-how” associated with the Melligen cells. The Company is in the process of developing a treatment for insulin-dependent diabetes by encapsulating the Melligen cells using the Cell-in-a-Box® technology.

 

Effective as of December 1, 2014, the Company acquired from Austrianova an exclusive, worldwide license to use the Cell-in-a-Box® technology in combination with compounds from constituents of the Cannabis plant for development of treatments for diseases and their related symptoms and the use of Austrianova’s Cell-in-a-Box® trademark for this technology (“Cannabis Licensing Agreement”).

 

 

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NOTE 2 – MANAGEMENT PLANS

 

Management Goal and Strategies

 

The Company’s goal is to have the Company become an industry-leading biotechnology company using the Cell-in-a-Box® technology as a platform upon which treatments for cancer and diabetes are developed and obtain marketing approval for these treatments by regulatory agencies in the United States, the European Union, Australia and Canada.

 

The Company’s strategies to achieve this goal consist of the following:

 

  · The completion of the preparations for a Phase 2b clinical trial in advanced, inoperable non-metastatic pancreatic cancer and its associated pain to be conducted by Translational Drug Development, LLC (“TD2”) in the United States with study sites in Europe and Australia;

 

  · The completion of the preparations for a clinical trial that will examine the effectiveness of the Company’s pancreatic cancer treatment in reducing the accumulation of malignant ascites fluid in the abdomen that is characteristic of pancreatic and other abdominal cancers. This clinical trial will be conducted by TD2 in the United States;

 

  · The completion of preclinical studies that involve the encapsulation of the Melligen cells using the Cell-in-a-Box® technology to develop a treatment for Type 1 diabetes and Type 2 insulin-dependent diabetes;

 

  · The enhancement of the Company’s ability to expand into the biotechnology arena through further research and partnering agreements in cancer and diabetes;

 

  · The acquisition of contracts that generate revenue or provide research and development capital utilizing the Company’s sublicensing rights;

 

  · The further development of uses of the Cell-in-a-Box® technology platform through contracts, licensing agreements and joint ventures with other companies; and

 

  · The completion of testing, expansion and marketing of existing and newly derived product candidates.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

This Quarterly Report on Form 10-Q ("Report") should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended April 30, 2015. Unless the context otherwise requires, references in these notes are to the unaudited condensed consolidated financial statements of the Company and its consolidated subsidiaries.

 

Principles of Consolidation and Basis of Presentation

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“Commission”). Intercompany balances and transactions are eliminated. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The Company’s 14.5% investment in SG Austria is presented on the cost method of accounting.

 

 

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Use of Estimates

 

The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published and the reported amounts of revenues and expenses during the reporting period. 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.

 

Goodwill and Intangible Assets

 

The Company records the excess of purchase price over the fair value of the identifiable net assets acquired as goodwill and other indefinite-lived intangibles. 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 fiscal year.

 

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 recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. No impairment was identified or recorded during the period ended October 31, 2015.

 

Earnings per Share

 

Basic earnings (loss) per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. For the periods ended October 31, 2015 and 2014, the Company incurred net losses; therefore, the effect of any common stock equivalent would be anti-dilutive during these periods.

 

Fair Value of Financial Instruments

 

For certain of the Company’s non-derivative financial instruments, including cash, accounts payable and accrued expenses, the carrying amount approximates fair value due to the short-term maturities of these instruments.

 

Accounting Standards Codification ("ASC") Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values. This is because of the short period of time between the origination of such instruments, their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

  · Level 1. Observable inputs such as quoted prices in active markets;

 

  · Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

  · Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The carrying value of cash, accounts payable and accrued expenses, as reflected in the condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments.

 

 

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The following tables set forth by level within the fair value hierarchy, the Company’s derivative liability stated at fair value as of October 31, 2015 and April 30, 2015.

 

   October 31, 2015             
   Quoted Prices in Active Markets for Identical Assets   Significant Other Observable Inputs   Significant Unobservable Inputs 
   (Level 1)   (Level 2)   (Level 3)   Total 
Warrants - Cashless (derivative liability)  $        –   $        –   $29,746   $29,746 
Total  $   $   $29,746   $29,746 

 

   April 30, 2015             
   Quoted Prices in Active Markets for Identical Assets   Significant Other Observable Inputs   Significant Unobservable Inputs 
   (Level 1)   (Level 2)   (Level 3)   Total 
Warrants - Cashless (derivative liability)  $        –   $        –   $492,049   $492,049 
Total  $   $   $492,049   $492,049 

 

The following table sets forth a summary of the changes in the fair value of our Level 3 liability stated at fair value for the three and six months ended October 31, 2015 and 2014, respectively.

 

    Six Months Ended October 31, 2015       Six Months Ended October 31, 2014  
    Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
Balance, April 30, 2015   $ 492,049     Balance, April 30, 2014 $               
Gain on derivative liability included in net loss     (492,049 )   Loss on derivative liability included in net loss    
Balance, October 31, 2015   $     Balance, October 31, 2014 $  

 

    Three Months Ended October 31, 2015       Three Months Ended October 31, 2014  
    Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
Balance, April 30, 2015   $ 29,746     Balance, April 30, 2014 $               
Gain on derivative liability included in net loss     (29,746 )   Loss on derivative liability included in net loss    
Balance, October 31, 2015   $     Balance, October 31, 2014 $  

 

 

 

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Derivative Instruments

 

The Company issued cashless warrants that are accounted for as a derivative instruments. This prevents them from being considered indexed to the Company’s common stock and qualify for an exception to derivative accounting.

 

The Company recognized the derivative instruments as either assets or liabilities on the accompanying unaudited condensed consolidated balance sheets at fair value. The Company records changes in the fair value (gains or losses) of the derivatives in the accompanying unaudited condensed consolidated statements of operations. As of October 31, 2015, the balance of the derivative liability was zero because the ten day average closing price of the Company’s stock was less than the exercise price of the warrants.

 

Revenue Recognition

 

Sales of products and related costs of products sold are recognized when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. These terms are typically met upon the prepayment or invoicing and shipment of products.

 

Income Taxes

 

Deferred taxes are calculated using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

A valuation allowance is provided for deferred income tax assets when, in management’s judgment, based upon currently available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. The Company believes the determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is based, among other things, on an estimate of future taxable income in the United States and certain other jurisdictions. This is because it is susceptible to change, may or may not occur and the impact of adjusting a valuation allowance may be material. In determining when to release the valuation allowance established against the Company’s net deferred income tax assets, the Company considers all available evidence, both positive and negative. Consistent with the Company’s policy, and because of the Company’s history of operating losses, the Company does not currently recognize the benefit of all of its deferred tax assets, including tax loss carry forwards, that may be used to offset future taxable income. The Company continually assesses its ability to generate sufficient taxable income during future periods in which deferred tax assets may be realized. If and when the Company believes it is more likely than not that it will recover its deferred tax assets, the Company will reverse the valuation allowance as an income tax benefit in the Company’s statements of operations.

 

The Company accounts for its uncertain tax positions in accordance with U.S. GAAP. The purpose of this method is to clarify accounting for uncertain tax positions recognized. The U.S. GAAP method of accounting for uncertain tax positions utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority or the statute of limitations expires. Positions previously recognized are reversed 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.

 

 

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Research and Development

 

Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in research and development and that have no alternative future use are expensed when incurred. Technology developed for use in the Company’s product candidates is expensed as incurred until technological feasibility has been established.

 

Stock-Based Compensation

 

The Company’s stock-based employee compensation awards are described in Note 6. The Company has adopted the provisions of ASC 718, which requires the fair value measurement and recognition of compensation expense for all stock-based awards made to directors, executives and employees.

 

Concentration of Credit Risk

 

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains most of its cash balance at a financial institution located in California. Accounts at this institution are insured by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances aggregated approximately $2,062,000 at October 31, 2015. The Company has not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash.

 

Foreign Currency Translation

 

The Company translates the financial statements of its foreign subsidiary from the local (functional) currencies to U.S. dollars in accordance with FASB ASC 830, Foreign Currency Matters. All assets and liabilities of the Company’s foreign subsidiaries are translated at year-end exchange rates, while revenue and expenses are translated at average exchange rates prevailing during the year. Adjustments for foreign currency translation fluctuations are excluded from net income and are included in other comprehensive loss. Gains and losses on short-term intercompany foreign currency transactions are recognized as incurred.

 

Reclassification

 

Certain prior year balances have been reclassified to conform to the presentation in this Report, with no changes in net loss for prior periods presented.

 

Recent Accounting Pronouncements

 

We have reviewed all of the recent accounting pronouncements and have determined that they have not or will not have a material impact on the Company’s consolidated financial statements, or simply do not apply to the Company’s operations.

 

NOTE 4 – DEBT

 

The Company entered into a licensing agreement for a license to use the Cell-in-a-Box® technology to develop therapies involving the constituents of the Cannabis plant. As of October 31, 2015, the Company owes $600,000 out of a total required $2,000,000 “Upfront Payment” for the license (see Note 8).

 

NOTE 5 – COMMON STOCK TRANSACTIONS

 

The Company issued 3,600,000 shares of common stock to officers as part of their compensation agreements in the year ended April 30, 2015. These shares vest on a quarterly basis over a twelve-month period. During the six months ended October 31, 2015, 1,800,000 shares that vested were valued using the intrinsic value at the date of vesting and resulted in a non-cash compensation expense of $190,620.

 

The Company issued 1,200,000 shares of common stock to an employee as part of an employee agreement in the year ended April 30, 2015. These shares vest on a quarterly basis over a twelve-month period. During the six months ended October 31, 2015, 600,000 shares that vested were valued using the intrinsic value at the date of vesting and resulted in a non-cash expense of $63,510.

 

The shares listed above 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.

 

During the six months ended October 31, 2015, the Company sold and issued approximately 14.7 million shares of common stock pursuant to a registration statement at prices ranging from $0.08 to $0.16 per share. The Company received net proceeds of approximately $1.7 million from the sale of these shares.

 

 

 12 
 

 

 

NOTE 6 – STOCK OPTIONS AND WARRANTS

 

Stock Options

 

As of October 31, 2015, the Company had outstanding stock options held by its directors, officers and an employee that were issued pursuant to compensation and director agreements.

 

The Company has adopted the provisions of ASC 718, “Compensation-Stock,” which requires the measurement and recognition of compensation expense for all stock-based awards made to employees.

 

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model.

 

The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during the periods ended October 31, 2015 and 2014, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise behavior at this time and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting term of two and one fifth years for an average of two and two third years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. No amounts relating to employee stock-based compensation have been capitalized.

 

Presented below is the Company’s stock option activity for employees and directors:

 

A summary of the activity for unvested employee stock options during the six months ended October 31, 2015 is presented below: 

 

    Options Outstanding   Weighted Average Grant Date Fair Value per Share 
Nonvested, April 30, 2015    6,600,000   $0.10 
Granted         
Vested    3,600,000    0.10 
Forfeited         
Nonvested, October 31, 2015    3,000,000   $0.10 
             

The Company recorded approximately $141,000 and $286,000 and $0 and $0 of non-cash charges related to the vesting of stock options to certain directors and an employee in exchange for services during the three months and six months ended October 31, 2015 and 2014, respectively.

 

At October 31, 2015, there remained approximately $238,000 of unrecognized compensation expense related to unvested employee stock options to be recognized as expense over a weighted-average period of one year.

 

 

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The following table summarizes ranges of outstanding stock options at October 31, 2015:

 

    Exercise Prices  
Exercise Price   $ 0.19     $ 0.11     $ 0.18  
Number of Options     25,000,000       27,200,000       250,000  
Weighted Average Remaining Contractual Life (years)     3.92       4.17       4.47  
Weighted Average Stock Price   $ 0.19     $ 0.11     $ 0.18  
Number of Options Exercisable     25,000,000       27,200,000       250,000  
Weighted Average Contractual Life (years)     5       5       5  
Weighted Average Exercise Price   $ 0.19     $ 0.11     $ 0.18  

 

There was no aggregate intrinsic value of outstanding options as of October 31, 2015. This represents options whose exercise price was less than the closing fair market value of the Company’s common stock on October 31, 2015 of approximately $0.11 per share.

 

Warrants

 

Warrants issued in connection with a consulting agreement are classified as liabilities as opposed to equity due to their settlement terms (see Note 3). The other warrants issued by the Company are classified as equity. The fair value of the warrants was recorded as additional-paid-in-capital, and no further adjustments were made.

 

For stock warrants paid in consideration of services rendered by non-employees, the Company recognizes consulting expense in accordance with the requirements of ASC 505-50 and ASC 505, as amended.

 

A summary of the Company’s warrant activity and related information for the six months ended October 31, 2015 are shown below:

 

    Warrants   Weighted Average Price   Weighted Average Fair Value 
Outstanding, April 30, 2015    72,969,908   $    0.17   $    0.08 
Issued             
Exercised             
Outstanding, October 31, 2015    72,969,908    0.17    0.08 
Exercisable, October 31, 2015    72,969,908   $0.17   $0.08 
                  

There were no cashless exercises of warrants as of October 31, 2015 and 2014.

 

The following table summarizes additional information concerning warrants outstanding and exercisable at October 31, 2015:

 

Range of Exercise Prices   Number of Warrant Shares Exercisable at 10/31/2015     Weighted Average Remaining Contractual Life     Exercisable Weighted Average Exercise Price  
$0.08, $0.11, $0.12, $0.18 and $0.25     72,969,908       2.36     $     0.17  
                         
Five Year Term - $0.08     1,056,000       1.94          
Five Year Term - $0.12     18,347,508       2.25          
Five Year Term - $0.18     19,811,200       2.17          
Five Year Term - $0.25     18,755,200       2.18          
Five Year Term - $0.11     10,000,000       4.40          
Nine Month Term - $0.11     5,000,000       0.17          
      72,969,908                  

 

 

 

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NOTE 7 – LEGAL PROCEEDINGS

 

The Company is not currently a party to any pending legal proceedings, material or otherwise. There are no legal proceedings to which any property of the Company is subject. However, in the past the Company has been the subject of litigation, claims and assessments arising out of matters occurring in its normal business operations. In the opinion of management, none of these had a material adverse effect on the Company’s unaudited consolidated financial position, operations and cash flows presented in this Report. 

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

The Company had the following related party transactions:

 

The Company owns 14.5% of the equity in SG Austria. This equity interest is reported on the cost method of accounting. SG Austria has two subsidiaries: (i) Austrianova; and (ii) Austrianova Thailand Ltd. For the three months and six months ending October 31, 2015, the Company has purchased products from these subsidiaries in the approximate amount of $155,000 and $203,000 and for the three months and six months ending October 31, 2014, $6,000 and $6,000, respectively.

 

Effective April 1, 2014, the Company entered into a consulting agreement with Vin-de-Bona Trading Company Pte Ltd. (“Vin-de-Bona”) to provide professional consulting services to the Company. Vin-de-Bona is owned by Prof. Dr. Walter H. Günzburg and Dr. Brian Salmons, who are each an officer of SG Austria. The term of the agreement is for 12 months, which is automatically renewed for successive 12 month terms. After the initial term, either party has the right to terminate the consulting agreement by giving the other party 30 days written notice before the effective date of termination. For the three months and six months ending October 31, 2015, the amount the Company paid Vin-de-Bona for consulting services were approximately $11,000 and $19,000 and for the three months and six months ending October 31, 2014, approximately $6,000 and $9,000, respectively.

 

Under the Cannabis Licensing Agreement, the Company is required to pay Austrianova an “Upfront Payment” of $2,000,000. The Company has the right to make periodic monthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being made. Effective October 19, 2015, the parties extended the date by which the Upfront Payment must be made until June 30, 2016. As of October 31, 2015, the Company has paid Austrianova $1,400,000 of the Upfront Payment (see Note 4).

 

With the exception of Thomas Liquard, the Board has determined that none of the Company’s directors satisfies the definition of an “Independent Director” as established in the NASDAQ Marketplace Rules. Mr. Liquard has been determined by the Board to be an Independent Director.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product, such as approval of the product for marketing by a regulatory agency. If required by its license agreements, the Company may have to make royalty payments based upon a percentage of the sales of its products in the event that regulatory approval for marketing is obtained.

 

Office Lease

 

The Company currently leases office space at 12510 Prosperity Drive, Suite 310, Silver Spring, Maryland 20904. The lease is due to expire on July 31, 2016. Rent expense for the three months and six months ended October 31, 2015 and 2014 were $17,114 and $29,612 and $13,272 and $25,407, respectively.

 

 
Period ending, October 31,
  Amount  
2016   $ 38,619  
    $ 38,619  

 

 

 

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Third Addendum

 

The Third Addendum requires the Company to pay SG Austria future royalty and milestone payments as follows: (i) a 2% royalty payment on all gross sales; (ii) a 10% royalty payment on all gross revenues from sublicensing; (iii) a milestone payment of $100,000 after enrollment of the first human patient in the first clinical trial for each product; (iv) a milestone payment of $300,000 after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) a milestone payment of $800,000 after obtaining a marketing authorization from a regulatory agency. Additional milestone payments of $50,000 after the enrollment of the first veterinary patient for each product and $300,000 after obtaining marketing authorization for each veterinary product are also required to be paid to SG Austria.

 

Licensing Agreements

 

Diabetes Licensing Agreement

 

The Diabetes Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in the amount of $633,144 of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required to be paid three months later. In addition, the Diabetes Licensing Agreement requires the Company to pay a fee for producing the final encapsulated cell product of $633 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box® product.

 

The Diabetes Licensing Agreement requires the Company to make future royalty and milestone payments as follows: (i) a 10% royalty payment of the gross sale of all products the Company sells; (ii) a 20% royalty payment of the amount received by the Company from a sub-licensee on the gross sales by the sub-licensee; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical study using the encapsulated cells; (iv) a milestone payment of $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; (v) a milestone payment of $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and (vi) a milestone payment of $1,000,000 within 60 days after obtaining approval of a Biologics License Application (“BLA”) or a Marketing Authorization (“MA”) or its equivalent based on the country in which it is accepted for each product. The first milestone payment of $100,000 was paid on October 15, 2015 for the pre-clinical study using the encapsulated cells.

 

Melligen Cell License Agreement

 

The Melligen Cell License Agreement does not require an initial payment to UTS. The Company is required to pay UTS a patent administration fee of 15% on all amounts paid by UTS to prosecute and maintain patents related to the Melligen cells.

 

The Melligen Cell License Agreement requires that the Company pay royalty payments to UTS of (i) 6% gross revenue on product sales; and (ii) 25% of gross revenues if the product is sub-licensed by the Company. In addition, the Company is required to pay milestone payments of: (iii) AU$ 50,000 at the successful conclusion of a preclinical study; (iv) AU$ 100,000 at the successful conclusion of a Phase 1 clinical trial; (v) AU$ 450,000 at the successful conclusion of a Phase 2 clinical trial; and (vi) AU$ 3,000,000 at the successful conclusion of a Phase 3 clinical trial.

 

Cannabis Licensing Agreement

 

Under the Cannabis Licensing Agreement, the Company is required to pay Austrianova an “Upfront Payment” of $2,000,000. The Company has the right to make periodic monthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being made. Pursuant to a First Amendment to Licensing Agreement, the Upfront Payment due date was extended to December 31, 2015. Pursuant to a Second Amendment to Licensing Agreement, the Upfront Payment due date was extended to June 30, 2016. As of the October 31, 2015, the Company has paid Austrianova $1,400,000 of the Upfront Payment (See Notes 4 and 8).

 

The Cannabis Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in the amount of $800,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required to be paid three months later. In addition, the Cannabis Licensing Agreement requires the Company to pay a fee for producing the final encapsulated cell product of $800 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box® product. As of October 31, 2015, the specifications of the manufacturing agreement remain to be negotiated and the agreement remains unsigned by the parties.

 

 

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The Cannabis Licensing Agreement requires the Company to make future royalty and milestone payments as follows: (i) a 10% royalty payment of the gross sales of all products sold by the Company; (ii) a 20% royalty payment of the amount received by the Company from a sub-licensees on a sub-licensee’s gross sales of the sublicensed products; (iii) a milestone payment of $100,000 within 30 days of beginning the first pre-clinical study using the encapsulated cells; (iv) a milestone payment of $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; (v) a milestone payment of $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and (vi) a milestone payment of $1,000,000 due 90 days after obtaining approval of a BLA or a MA or its equivalent based on the country in which it is accepted for each product.

 

Bavarian Nordic/GSF License Agreement

 

The Company is required to pay Bavarian/Nordic/GSF a 4.5% royalty payment on the Company’s net sales for each product the Company develops that uses the genetically modified cells licensed from Bavarian Nordic/GSF.

 

NOTE 10 – INCOME TAXES

 

The Company had no income tax expense for the three months and six months ended October 31, 2015 and 2014, respectively. During the six months ended October 31, 2015 and 2014, the Company had a net operating loss (“NOL”) for each period which generated deferred tax assets for NOL carryforwards. The Company provided valuation allowances against the net deferred tax assets including the deferred tax assets for NOL carryforwards. Valuation allowances provided for the net deferred tax asset increased by approximately $435,000 and $1,796,000 for the six months ended October 31, 2015 and 2014, respectively.

 

There was no material difference between the effective tax rate and the projected blended statutory tax rate for the quarters ended October 31, 2015 and 2014.

 

In assessing the realization of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred asset will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the available objective evidence, including the history of operating losses and the uncertainty of generating future taxable income, management believes it is more likely than not that the net deferred tax assets at October 31, 2015 will not be fully realizable. Accordingly, management has maintained a valuation allowance against the net deferred tax asset at October 31, 2015.

 

There have been no changes to the Company’s liability for unrecognized tax benefits during the period ended October 31, 2015.

 

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 periods ended October 31, 2015 and 2014, the Company had accrued no interest or penalties related to uncertain tax positions.

 

See Note 13 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended April 30, 2015 for additional information regarding income taxes.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On November 27, 2015, the Company made a payment of $100,000 to Austrianova pursuant to the Cannabis Licensing Agreement.

 

From November 1, 2015 to December 3, 2015, the Company issued 3,383,079 shares of common stock under the S-3 Registration Statement. The issuance of the shares resulted in gross proceeds to the Company of approximately $301,000.

 

 

 

 

 17 
 

 

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

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (“Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of this Report, including any projections of earnings, revenue or other financial items, any statements regarding the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, any statements regarding expected benefits from any transactions and any statements of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Thus, investors should refer to and carefully review information in future documents we file with the Securities and Exchange Commission (“Commission”). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risk and uncertainties, including, but not limited to, the risk factors set forth in “Part I, Item 1A – Risk Factors” of our Annual Report on Form 10-K filed with the Commission on July 29, 2015 and for the reasons described elsewhere in this Report. All forward looking statements and reasons why results may differ included in this Report are made as of the date of this Report, and we do not intend to update any forward-looking statements except as required by law or applicable regulations. Except where the context otherwise requires, in this Report, the “Company,” “PharmaCyte Biotech,” “we,” “us” and “our” refer to PharmaCyte Biotech, Inc., a Nevada corporation, and, where appropriate, its subsidiaries.

 

Item 2 of this Report should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included under Part I, Item 1, of this Report. "Financial Statements" referenced in this Report refer to the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1, and to the "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended April 30, 2015.

 

Overview

 

We are a clinical stage biotechnology company focused on developing and preparing to commercialize treatments for cancer and diabetes based upon our use of a licensed proprietary cellulose-based live cell encapsulation technology we refer to as Cell-in-a-Box®. We are working to advance clinical research and development of new cellular-based therapies in the oncology and diabetes arenas. We are now actively engaged with Austrianova Singapore Pte Ltd (“Austrianova”), Translational Drug Development, LLC (“TD2”), Clinical Network Services (CNS) Pty. Ltd. (“CNS”), Imaging Endpoints, LLC and other companies, physicians and scientists in preparing for clinical trials for our treatment of pancreatic cancer and its symptoms using encapsulated live cells similar to those used in previous Phase 1/2 and Phase 2 clinical trials in pancreatic cancer that employed the same technology. We are also involved in preclinical studies to develop a treatment for Type 1 diabetes and Type 2 insulin-dependent diabetes.

 

Performance Indicators

 

Non-financial performance indicators used by management to manage and assess how the business is progressing will include, but are not limited to, the ability to: (i) acquire appropriate funding for all aspects of our operations; (ii) acquire and complete necessary contracts; (iii) complete activities for producing cells and having them encapsulated for the planned preclinical studies and clinical trials; (iv) have regulatory work completed to enable studies and trials to be submitted to regulatory agencies; (v) initiate all purity and toxicology cellular assessments; and (vi) ensure completion of cGMP produced encapsulated cells to use in our clinical trials.

 

There are numerous factors required to be completed successfully in order to ensure our final product candidates are ready for use in our clinical trials. Therefore, the effects of material transactions with related parties and certain other parties to the extent necessary for such an undertaking may have substantial effects on both the timeliness and success of our current and prospective financial position and operating results. Nonetheless, we are actively working to ensure strong ties and interactions to minimize the inherent risks regarding success. From our assessments to date, we do not believe there are factors which will cause materially different amounts to be reported than those presented in this Report and aim to assess this regularly to provide the most accurate information to our shareholders.

 

 

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Results of Operations

 

Period ended October 31, 2015 compared to period ended October 31, 2014

 

Revenue

 

We had no revenues in the periods ended October 31, 2015 and 2014.

 

Operating Expenses and Loss from Operations:

 

The following tables summarize our Operating Expenses and Loss from Operations for the three and six months ended October 31, 2015 and 2014:

 

 Three Months Ended October 31,    Six Months Ended October 31, 
 2015    2014    2015    2014 
$1,129,245   $6,245,439   $2,136,983   $7,828,599 

 

The total operating expenses for the three month period ended October 31, 2015 decreased by $5,116,194 from the three months ended October 31, 2014. The decrease is attributable to a reduction in general and administrative expenses of $481,653, a reduction in legal fees of $295,242 and by a decrease in compensation expense of $4,440,247, as we recognized stock based compensation of $249,339 in 2015 as compared to $4,023,981 in 2014.

 

The total operating expenses during the six months ended October 31, 2015 decreased by $5,691,616 from the six months ended October 31, 2014. The decrease is attributable to a reduction in general and administrative expenses of $1,058,616, a reduction in legal fees of $431,031 and by a decrease in compensation expense of $4,246,095, as we recognized stock based compensation of $541,968 in 2015 as compared to $4,122,081 in 2014.

 

Other income, net:

 

The following tables summarize our Other income, net for the three and six months ended October 31, 2015 and 2014:

 

 Three Months Ended October 31,    Six Months Ended October 31, 
 2015    2014    2015    2014 
$29,982   $2,181,766   $491,558   $2,180,102 

 

Other income, net for the three month period ended October 31, 2015 decreased by $2,151,784 from the three months ended October 31, 2014. The decrease is mainly attributable to the reduction of the gain on settlement of stock recoveries of from $2,183,331 in 2014 to $0 in 2015.

 

Other income, net for the period ended October 31, 2015, was $491,588, as compared to other income, net of $2,180,102 in the period ended October 31, 2014. Other income, net, is mainly attributable to the reduction of the gain on settlement of stock recoveries from $2,183,331 in 2014 to $0 in 2015.

 

Discussion of Operating, Investing and Financing Activities

 

The following table presents a summary of our sources and uses of cash for the periods ended:

 

   October 31, 2015   October 31, 2014 
Net cash used in operating activities:  $(2,116,367)   (2,403,606)
Net cash used in investing activities:  $     
Net cash provided by (used in) financing activities:  $1,728,935    (57,859)
Effect of currency rate exchange  $125     
Decrease in cash  $(387,307)   (2,461,465)

 

 

 

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Operating Activities:

 

The cash used in operating activities for the period ended October 31, 2015 is a result of our net losses: (i) offset by securities issued for services and compensation, changes to prepaid expenses, accounts payable and accrued expenses; (ii) increased by the gain on the derivative liability; and (iii) decreased by the reduction in license agreement liability. The cash used in operating activities for the period ended October 31, 2014 is a result of our net losses increased by stock issued, changes to prepaid expenses, accounts payable and accrued expenses.

 

Investing Activities:

 

There were no investing activities in the periods ended October 31, 2015 and 2014. 

 

Financing Activities:

 

The cash provided from financing activities is mainly attributable to the proceeds from the sale of our common stock.

 

Liquidity and Capital Resources

 

As of October 31, 2015, our cash totaled approximately $2.3 million, compared to approximately $2.7 million at April 30, 2015. Working capital was approximately $1.4 million at October 31, 2015 and approximately $800,000 at April 30, 2015. The decrease in cash is attributable to our operating expenses, net of the proceeds from the sale of our common stock.

 

We expect that our cash as of October 31, 2015 will be sufficient to fund our current operations and provide working capital for general corporate purposes for the next 12 months. We plan to pursue additional funding opportunities in connection with planning for and conducting our clinical trials. Among others, we intend on continuing the sale of our common stock to raise capital to fund these activities if necessary.

 

Off-Balance Sheet Arrangements

 

Except as described below, we have no off-balance sheet arrangements that could have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

 

As we reach certain “milestones” in the progression of our live cell encapsulation technology towards the development of treatments for cancer and diabetes, we will be required to make payments to SG Austria Pte. Ltd. (“SG Austria”) or Austrianova.

 

The future royalty and milestone payments for cancer required by the Third Addendum to the Asset Purchase Agreement we entered into with SG Austria are as follows: (i) a 2% royalty payment on all gross sales; (ii) a 10% royalty payment on all gross revenues from sublicensing; (iii) a milestone payment of $100,000 after enrollment of the first human patient in the first clinical trial for each product; (iv) a milestone payment of $300,000 after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) a milestone payment of $800,000 after obtaining a marketing authorization from a regulatory agency. Additional milestone payments of $50,000 after the enrollment of the first veterinary patient for each product and $300,000 after obtaining marketing authorization for each veterinary product are also required to be paid to SG Austria.

 

The future royalty and milestone payments for the treatment of diabetes required by our Licensing Agreement with Austrianova are as follows (i) a 10% royalty payment on all gross sales; (ii) a 20% percent royalty payment on gross revenues from sublicensing; (iii) a milestone payment of $100,000 after enrollment of the first human patient in the first clinical trial for each product; (iv) a milestone payment of $300,000 after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) a milestone payment of $800,000 after obtaining a marketing authorization from a regulatory agency.

 

The future royalty and milestone payments for the treatment of diseases and their related symptoms using constituents of the Cannabis plant under our Licensing Agreement with Austrianova are as follows: (i) a 10% royalty payment on all gross sales; (ii) a 20% percent royalty payment on gross revenues from sublicensing; (iii) a milestone payment of $100,000 after enrollment of the first human patient in the first clinical trial for each product; (iv) a milestone payment of $500,000 after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) a milestone payment of $800,000 after obtaining a marketing authorization from a regulatory agency.

 

 

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We are also required to pay a 4.5% royalty payment on net sales for each product we develop that uses the genetically modified cells we license from Bavarian Nordic A/S and GSF-Forschungszentrum fur Umwelt u. Gesundeit GmbH.

 

Critical Accounting Estimates and Policies

 

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In connection with the preparation of our financial statements, 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 consolidated 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 3 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended April 30, 2015 and Note 3 of Notes to Condensed Consolidated Financial Statements included in this Report.

 

We discuss our critical accounting estimates and policies in Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended April 30, 2015. There has been no material change in our critical accounting estimates and policies since April 30, 2015.

 

New Accounting Pronouncements

 

For a discussion of all recently adopted and recently issued but not yet adopted accounting pronouncements, see “New Accounting Pronouncements” in Note 3 of our notes to our condensed consolidated financial statements contained in this Report.

 

Available Information

 

Our website is located at www.pharmacyte.com. The website includes a section for investor relations under which we provide notifications of news or announcements regarding our financial performance, including Securities and Exchange Commission ("Commission") filings, investor events and press and earnings releases. In addition, all PharmaCyte Biotech, Inc. filings submitted to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as other PharmaCyte Biotech, Inc. reports and statements, 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 intended to be incorporated by reference into this Report or any other report or document filed 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.

 

Pursuant to Item 305(c) of Regulation S-K, we are not required to provide disclosures under this Item.

 

Item 4.  Controls and Procedures.

 

Our management, including our Chief Executive Officer, President and General Counsel, as its principal executive and accounting officer (“Principal Executive and Accounting Officer”), and our Vice President of Finance (“Vice President of Finance”) 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 is recorded, processed, summarized and reported within the time period specified by the Commission’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer, as appropriate to allow timely decisions regarding required disclosures. Based upon this evaluation, the Principal Executive and Accounting Officer and Vice President of Finance have concluded that, as of October 31, 2015, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

 

 

 

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No 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. Accordingly, 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 our 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. In addition, controls can be circumvented by the act of a single person, 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. Therefore, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

As of April 30, 2015, our management identified the following material weaknesses in internal control over financial reporting:

 

  · Ineffective corporate governance;

 

  · Ineffective communication of internal information;

 

  · Insufficient procedures and control documentation;

 

  · Insufficient segregation of duties; and

 

  · Insufficient information technology controls and documentation.

 

Because of these material weaknesses, the Principal Executive Officer and the Vice President of Finance concluded that, as of April 30, 2015, our internal control over financial reporting was not effective based on the criteria outlined in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). We have undertaken the process to review further our procedures and controls and plan to implement new procedures and controls in fiscal year 2016. Although we plan to make additional changes to our infrastructure and related processes that we believe are also reasonably likely to strengthen and materially affect our internal control over financial reporting, we have not yet made any such changes.

 

Prior to the remediation of these material weaknesses, there remains risk that the processes and procedures on which we currently rely will fail to be sufficiently effective. There is the possibility that this could result in material misstatement of our financial position or results of operations and require a restatement. As discussed above, because of the inherent limitations in all control systems, no evaluation of controls-even where we conclude the controls are operating effectively-can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected.

 

The Certifications of our Principal Executive and Accounting Officer required in accordance with Rule 13a-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002 (“Certifications”) are attached to this Report. The disclosures set forth in this Item 4 contain information concerning: (i) the evaluation of our disclosure controls and procedures, and changes in internal control over financial reporting, referred to in paragraph 4 of the Certifications; and (ii) material weaknesses in the design or operation of our internal control over financial reporting, referred to in paragraph 5 of the Certifications. The Certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the Certifications.

 

Changes in Internal Control over Financial Reporting

 

There were no changes, other than those detailed above under Management Report on Internal Control over Financial Reporting, in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

The Company is not currently a party to any material pending legal proceedings. There are no material legal proceedings to which any property of the Company is subject.

 

Item 1A.  Risk Factors.

 

Reference is made to Part I, Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended April 30, 2015 for information concerning risk factors. There have been no material changes in risk factors since April 30, 2015.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.  

 

Item 3.  Defaults upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosure.

 

Not applicable.

 

Item 5.  Other Information.

 

(a)  None.

 

 

 

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Item 6.  Exhibits.

 

Except as so indicated in Exhibits 32.1 and 32.2, the following exhibits are filed as part of, or incorporated by reference into, the Report.

 

Exhibit No.   Description   Location
31.1   Certification of Chief Executive and Interim Financial Officer (Principal Executive and Financial Officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Filed herewith.
         
32.1   Certification of Chief Executive and Interim Financial Officer (Principal Executive and Financial Officer) pursuant to 18 U.S.C. Section 1350, (Section 906 of the Sarbanes-Oxley Act of 2002).   Filed herewith.
         
101.INS   XBRL Instance Document   Filed or furnished herewith.
         
101.SCH   XBRL Taxonomy Extension Schema Document   Filed or furnished herewith.
         
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document   Filed or furnished herewith.
         
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document   Filed or furnished herewith.
         

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

 

Filed or furnished herewith.

         
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document   Filed or furnished herewith.

 

 

 

 

 

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this Report to be signed by the following persons on behalf of the Company and in the capacities and on the date indicated.

 

PharmaCyte Biotech, Inc.

 

December 10, 2015 By: /s/ Kenneth L. Waggoner
 

Kenneth L. Waggoner

Chief Executive Officer and Chairman of the Board
(Principal Executive Officer and acting Principal Financial

  and Accounting Officer on behalf of Registrant)

 

 

 

 

 

 

 

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