See accompanying Notes to Condensed Consolidated Financial
Statements.
See accompanying Notes to Condensed Consolidated Financial
Statements.
See accompanying Notes to Condensed Consolidated Financial
Statements.
See accompanying Notes to Condensed Consolidated Financial
Statements.
See accompanying Notes to Condensed Consolidated Financial
Statements.
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.
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:
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Provide additional sequencing data and genetic stability studies; |
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Conduct a stability study on the Company’s final formulated product candidate as well as the cells from the Company’s Master Cell Bank; |
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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; |
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Provide additional detailed description of the manufacturing process of the Company’s product candidate for pancreatic cancer; |
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Provide additional product release specifications for the Company’s encapsulated cells; |
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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; |
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Conduct a biocompatibility assessment using the Company’s capsules material; |
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Address specified insufficiencies in the Chemistry, Manufacturing and Controls information in the cross-referenced Drug Master File; |
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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 |
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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. |
The FDA also requested that the Company address the
following issues as an amendment to the Company’s IND:
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Provide a Certificate of Analysis for pc3/2B1 plasmid that includes tests for assessing purity, safety, and potency; |
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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; |
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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; |
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Provide additional details for the methodology for the Resorufin (CYP2B1) potency and the PrestoBlue cell metabolic assays; |
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Provide a few examples of common microcatheters that fit the specifications in the Company’s Angiography Procedure Manual; |
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Clarify the language in our Pharmacy Manual regarding proper use of the syringe fill with the Company’s product candidate for pancreatic cancer; and |
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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 in the latter stages
of conducting the studies and providing the information requested by the FDA. The Company has completed the pilot study of two pigs and
is evaluating the preliminary data before commencing the larger study of 90 pigs.
Impact of COVID-19 on the Company’s Financial
Condition and Results of Operations
In March 2020, the World Health Organization declared
an outbreak of COVID-19 as a pandemic, and the world’s economies have experienced pronounced effects. Despite the multiple COVID-19
vaccines globally, there remains uncertainty around the extent and duration of disruption and any future related financial impact cannot
reasonably be estimated at this time. COVID-19 has caused and may continue to cause significant, industry-wide delays in clinical trials.
Although the Company is not yet in a clinical trial, the Company has filed an IND with the FDA to commence a clinical trial in LAPC, and
this clinical trial may experience delays relating to COVID-19 once commenced, including but not limited to: (i) delays or difficulties
in enrolling patients in the Company’s clinical trial if the FDA allows the Company to go forward with the trial; (ii) delays or
difficulties in clinical site activation, including difficulties in recruiting clinical site investigators and clinical site personnel;
(iii) delays in clinical sites receiving the supplies and materials needed to conduct the clinical trial, including interruption in global
shipping that may affect the transport of the Company’s clinical trial product; (iv) changes in local regulations as part of a response
to COVID-19 which may require the Company to change the ways in which its clinical trial is to be conducted, which may result in unexpected
costs, or to discontinue the clinical trial altogether; (v) diversion of healthcare resources away from the conduct of clinical trials,
including the diversion of hospitals serving as the Company’s clinical trial sites and hospital staff supporting the conduct of
the Company’s clinical trial; (vi) interruption of key clinical trial activities, such as clinical trial site monitoring, due to
limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial
subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data; (vii) risk that participants
enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical
trial, including by increasing the number of observed adverse events; (viii) delays in necessary interactions with local regulators, ethics
committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
(ix) limitations in employee resources that would otherwise be focused on the conduct of the Company’s clinical trial because of
sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (x) refusal of the FDA
to accept data from clinical trials in affected geographies; and (xi) interruption or delays to the Company’s clinical trial activities.
Many of these potential delays may be exacerbated by the impact of COVID-19 in foreign countries where the Company is conducting these
preclinical studies, including India, Europe, Singapore and Thailand.
Further, the various precautionary measures taken
by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may continue to have an adverse
effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials, manufacturing
and delivery efforts and other aspects of the global economy. COVID-19 could materially disrupt the Company’s business and operations,
hamper its ability to raise additional funds or sell securities, continue to slow down the overall economy, curtail consumer spending,
interrupt the Company’s supply chain, and make it hard to adequately staff the Company’s operations.
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.”
Reverse Stock Split
Effective July 12, 2021, the Company filed a Certificate
of Change with the Nevada Secretary of State that authorized a 1:1500 reverse stock split of the Company’s common stock. The reverse
stock split resulted in reducing the authorized number of shares of the Company’s common stock from 50 billion to 33,333,334 with
a par value of $0.0001 per share. Any fractional shares resulting from the reverse stock split were rounded up to the next whole share.
All warrant, option, share and per share information in this Quarterly Report gives retroactive effect to such 1:1500 reverse stock split.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation and Basis of Presentation
The Condensed Consolidated Financial Statements include
the accounts of the Company and its wholly owned subsidiaries. The Company operates independently and through four wholly owned subsidiaries:
(i) Bio Blue Bird; (ii) PharmaCyte Biotech Europe Limited; (iii) PharmaCyte Biotech Australia Pty. Ltd.; and (iv) Viridis Biotech, Inc.
and are prepared in accordance with 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 on the cost method of accounting.
Use of Estimates in the Preparation of Financial
Statements
The Condensed Consolidated Financial Statements are
prepared in accordance with U.S. generally accepted accounting principles (“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 consolidated financial position and results of operations. The severity,
magnitude and duration, as well as the economic consequences of COVID-19, are uncertain, rapidly changing and difficult to predict. Therefore,
the Company’s accounting estimates and assumptions may change over time in response to COVID-19 and may change materially in future
periods.
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 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 six months ended October 31, 2022, and 2021.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable. If the estimated
future cash flows (undiscounted and without interest charges) from the use of an asset are less than carrying value, a write-down would
be recorded to reduce the related asset to its estimated fair value. No impairment was identified or recorded during the six months ended
October 31, 2022, and 2021.
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 consolidated balance sheets for current liabilities qualify as financial instruments and are a reasonable estimate of their fair
values because of the short period between the origination of such instruments and their expected realization and their current market
rate of interest. The three levels of valuation hierarchy are defined as follows:
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Level 1. Observable inputs such as quoted prices in active markets; |
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Level 2. Inputs, other than the quoted prices in active markets, which are observable either directly or indirectly; and |
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Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Income Taxes
Deferred taxes are calculated using the liability
method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards,
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A valuation allowance is provided for deferred income
tax assets when, in management’s judgment, based upon currently available information and other factors, it is more likely than
not that all or a portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance
is based on an on-going evaluation of current information including, among other things, historical operating results, estimates of future
earnings in different taxing jurisdictions and the expected timing of the reversals of temporary differences. The Company believes the
determination to record a valuation allowance to reduce a deferred income tax asset is a significant accounting estimate because it is
based on, among other things, an estimate of future taxable income in the U.S. and certain other jurisdictions, which is susceptible to
change and may or may not occur, and because the impact of adjusting a valuation allowance may be material. In determining when to release
the valuation allowance established against the Company’s net deferred income tax assets, the Company considers all available evidence,
both positive and negative. Consistent with the Company’s policy, and because of the Company’s history of operating losses,
the Company does not currently recognize the benefit of all its deferred tax assets, including tax loss carry forwards, which may be used
to offset future taxable income. The Company continually assesses its ability to generate sufficient taxable income during future periods
in which deferred tax assets may be realized. When the Company believes it is more likely than not that it will recover its deferred tax
assets, the Company will reverse the valuation allowance as an income tax benefit in the statements of operations.
The U.S. GAAP method of accounting for uncertain tax
positions utilizes a two-step approach to evaluate tax positions. Step one, recognition, requires evaluation of the tax position to determine
if based solely on technical merits it is more likely than not to be sustained upon examination. Step two, measurement, is addressed only
if a position is more likely than not to be sustained. In step two, the tax benefit is measured as the largest amount of benefit, determined
on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities. If a position
does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period
in which the more likely than not standard is met, the issue is resolved with the taxing 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.
On March 27, 2020, Congress enacted the Coronavirus
Aid, Relief and Economic Security ("CARES") Act to provide certain relief as a result of the Coronavirus Disease 2019 outbreak.
The Company maintains a full valuation allowance on its U.S. net deferred tax assets. Deferred tax asset remeasurement (tax expense) was
offset by a net decrease in valuation allowance, which resulted in no impact on the Company's income tax expense. Therefore, the Company
does not expect the provisions in the CARES Act will impact the Company’s Condensed Consolidated Financial Statements.
On March 11, 2021, Congress enacted the American Rescue
Plan Act of 2021, the Company does not expect the provisions of this Act will impact the Company’s Condensed Consolidated Financial
Statements.
Research and Development
Research and development (“R&D”) expenses
consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies,
including licenses, 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 October 31,
2022, and 2021 were $177,996 and $135,220, respectively, and for the six months ended October 31, 2022, and 2021 were $337,269 and $278,833,
respectively.
Stock-Based Compensation
The Company recognizes stock-based compensation expense
for only those awards ultimately expected to vest on a straight-line basis over the requisite service period of the award. The Company
estimates the fair value of stock options using a Black-Scholes-Merton valuation model. This model requires the input of highly subjective
assumptions, including the option's expected term and stock price volatility. In addition, judgment is also required in estimating the
number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating
the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties
and the application of management's judgment. Thus, if factors change and the Company uses different assumptions, the stock-based compensation
expense could be materially different in the future.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations
of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains most
of its cash balance at 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 $1,060,000 and $86,658,000 at October
31, 2022 and 2021, respectively. The Company has not experienced any losses in such accounts. Management believes it is not exposed to
any significant credit risk on cash.
Foreign Currency Translation
The Company translates the financial statements of
its foreign subsidiaries from the local (functional) currencies to U.S. dollars in accordance with FASB ASC 830, Foreign Currency Matters.
All assets and liabilities of the Company’s foreign subsidiaries are translated at 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.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) and also
issued subsequent amendments to the initial guidance (collectively, “Topic 848”). Topic 848 is effective for all entities
as of March 12, 2020, through December 31, 2022, and provides optional guidance for contract modifications and certain hedging relationships
associated with the transition from reference rates that are expected to be discontinued. The Company will adopt Topic 848 when relevant
contracts are modified upon transition to alternative reference rates. The Company does not expect the adoption of Topic 848 to have a
material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 3 – ACCRUED EXPENSES
Accrued expenses at October 31, 2022, and April 30,
2022, are summarized below:
Schedule of accrued expenses | |
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October 31, 2022 | | |
April 30, 2022 | |
Payroll related costs | |
$ | 66,500 | | |
$ | 118,062 | |
R&D costs | |
| 377,155 | | |
| 377,155 | |
Other | |
| 6,200 | | |
| 3,792 | |
Total | |
$ | 449,855 | | |
$ | 499,009 | |
The Director and Officer Insurance Policy for the
policy term of September 8, 2021, through September 8, 2022, was paid in full on August 8, 2021. The Company financed the Director and
Officer Insurance Policy for the policy term of March 8, 2021, through September 8, 2021. The financing agreement had an interest rate
of 4.85% per annum and required eight monthly payments of $12,829. There were no unpaid balances as of October 31, 2022, and 2021.
NOTE 4 – 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 six months ended October 31, 2022, and 2021
is as follows:
During the six months ended October 31, 2020, three
non-employee members of the Board were issued 1,334 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
and $971 for the three months ended October 31, 2022, and 2021, respectively, and $0 and $4,342 for the six months ended October 31, 2022,
and 2021, respectively. There were zero unvested shares remaining related to such DLAs as of October 31, 2022.
In September 2020, a consultant was issued 333 shares
of common stock in respect of his services as the Chairman of the Company’s Medical and Scientific Advisory Board with vesting subject
to the consultant continuing to provide services to the Company. The Company recorded a non-cash consulting expense in the amount of $0
and $1,417 for the three months ended October 31, 2022, and 2021, respectively, and $0 and $3,542 for the six months ended October 31,
2022, and 2021, respectively. There were zero unvested shares remaining related to his compensation arrangement as of October 31, 2022,
and 2021, respectively.
In January 2021, the Company awarded 4,400 shares
of common stock to the executive officers of the Company as part of their compensation agreements for 2021. These shares vest monthly
over a twelve-month period and are subject to the executive officers continuing to provide service under their compensation agreements.
During the three months ended October 31, 2022, and 2021, the Company recorded a non-cash compensation expense in the amount of $0 and
$11,055, respectively, and $0 and $22,110 for the six months ended October 31, 2022, and 2021, respectively. There were zero and 733 unvested
shares as of October 31, 2022, and 2021, respectively.
During the six months ended October 31, 2021, three
non-employee members of the Board were issued 1,336 shares of common stock pursuant to their DLAs in respect of their service during that
year. The shares were fully vested upon issuance. The Company recorded a non-cash expense of $0 and $5,851 for the three months ended
October 31, 2022, and 2021, respectively, and $0 and $10,736 for the six months ended October 31, 2022, and 2021, respectively. There
were zero unvested shares remaining related to such DLAs as of October 31, 2022, and 2021, respectively.
During the six months ended October 31, 2021, two
consultants were issued 334 shares of common stock pursuant to their consulting agreements with the Company. The shares vest monthly over
a twelve-month period and are subject to the consultants continuing to provide services under their consulting agreements. The Company
recorded a non-cash consulting expense in the amount of $0 and $2,442 for the three months ended October 31, 2022, and 2021, respectively,
and $0 and $4,062 for the six months ended October 31, 2022, and 2021, respectively. There were zero and 167 unvested shares remaining
related to these consulting agreements as of October 31, 2022, and 2021, respectively.
In September 2021, a consultant was issued 334 shares
of common stock in respect of his services as the Chairman of the Company’s Medical and Scientific Advisory Board with vesting subject
to the consultant continuing to provide services to the Company. The Company recorded a non-cash consulting expense in the amount of $0
and $88 for the three months ended October 31, 2022, and 2021, respectively, and $0 and $88 for the six months ended October 31, 2022,
and 2021, respectively. There were zero unvested shares remaining related to his compensation arrangement as of October 31, 2022, and
2021, respectively.
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. These shares vest monthly
over a twelve-month period and are subject to the executive officers continuing to provide service under their compensation agreements.
During the three months ended October 31, 2022, and 2021, the Company recorded a non-cash compensation expense in the amount of $3,917
and $0, respectively, and $6,667 and $0 for the six months ended October 31, 2022, and 2021, respectively. There were 267 and zero unvested
shares as of October 31, 2022, and 2021, 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 six months ended October 31, 2022, three
non-employee members of the Board were issued 1,002 shares of common stock pursuant to their DLAs in respect of their service during that
year. The shares were fully vested upon issuance. The Company recorded a non-cash expense of $0 and $0 for the three months ended October
31, 2022, and 2021, respectively, and $2,278 for the six months ended October 31, 2022, and 2021, respectively. There were zero unvested
shares remaining related to such DLAs as of October 31, 2022, and 2021, 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.
On April 9, 2021, the Third S-3 (“Third S-3”)
was declared effective by the Commission for a public offering of up to $100 million on a “shelf offering” basis. During August
2021, the Company sold and issued approximately 19.1 million shares of common stock, at prices ranging from $4.25 to $5.00 per share.
Net of underwriting discounts, legal, accounting, and other offering expenses, the Company received approximately $87.4 million from the
sale of these shares and the exercise of approximately 2.5 million warrant shares.
On August 9, 2021, the Company entered into an underwriting
agreement to offer and sell shares of common stock, pre-funded warrants to purchase common stock and warrants to purchase common stock
in a public offering (“First Offering”). The gross proceeds of the First Offering were $15 million, before deducting underwriting
discounts, commissions, and offering expenses.
In August 2021, the Company received twenty-seven
(27) cash exercise notices relating to the common warrants with respect to the First Offering totaling 2,522,387 warrant shares (“Warrant
Exercises”). The Company received approximately $10,720,000 and issued 2,522,387 shares of common stock as a result of the exercise
notices.
On August 19, 2021, the Company entered into a securities
purchase agreement (“Securities Purchase Agreement”) with certain institutional investors (“Purchasers”) pursuant
to which the Company agreed to sell in a registered direct offering (“Registered Direct Offering”), shares of the Company’s
common stock and pre-funded warrants to purchase shares of common stock. Further, pursuant to the Securities Purchase Agreement, in a
concurrent private placement (together with the Registered Direct Offering, “Second Offering”), the Company also agreed to
issue to the Purchasers unregistered warrants (“Series A Warrants”) to purchase shares of common stock. The Company received
gross proceeds from the Second Offering, before deducting placement agent fees and estimated offering expenses payable by the Company,
of approximately $70 million. On November 17, 2021, the Company’s Registration Statement on Form S-3 registering the resale of the
common stock underlying the Series A Warrants was declared effective by the U.S. Securities and Exchange Commission (“Commission”).
A summary of the Company’s non-vested restricted
stock activity and related weighted average grant date fair value information for the last six months ended October 31, 2022, are as follows:
Schedule of non-vested restricted stock activity | |
| | |
| |
| |
Shares | | |
Weighted Average Grant Date Fair Value | |
| |
| | |
| |
Unvested, at April 30, 2022 | |
| 2,933 | | |
| 2.50 | |
Granted | |
| 1,002 | | |
| 2.27 | |
Vested | |
| (3,669 | ) | |
| 2.44 | |
Expired | |
| – | | |
| – | |
| |
| | | |
| | |
Unvested, at October 31, 2022 | |
| 266 | | |
$ | 2.50 | |
NOTE 5 – STOCK OPTIONS AND WARRANTS
2021 Equity Incentive Plan
Effective June 30, 2021, the Company implemented the
2021 Equity Incentive Plan (“2021 Equity Plan”) as approved by the Company’s stockholders. The 2021 Equity Plan is administered
by the Compensation Committee of the Board and has 166,667 shares available under this plan. The 2021 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 2021 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 October 31, 2022, the Company had 37,936 outstanding
stock options to its directors and officers (collectively, “Employee Options”) and consultants (“Non-Employee Options”).
During the six months ended October 31, 2022, and
2021, the Company granted 1,002 and 1,000 Employee Options, respectively.
The fair value of the Employee Options at the date
of grant was estimated using the Black-Scholes-Merton option-pricing model, based on the following weighted average assumptions:
Assumptions for options | |
| | |
| |
| |
Six Months Ended October 31, | |
| |
2022 | | |
2021 | |
Risk-free interest rate | |
| 2.9% | | |
| 0.92% | |
Expected volatility | |
| 139% | | |
| 121% | |
Expected lives (years) | |
| 2.5 | | |
| 2.5 | |
Expected dividend yield | |
| 0.00% | | |
| 0.00% | |
The Company’s computation of expected volatility
is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during the six months ended October
31, 2022, and 2021, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise
behavior now and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the
contractual term of the Company’s stock options of five years with the average vesting term of two and one-half years for an average
of three years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has
no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at
the time of the grant for instruments with a similar expected life.
During the six months ended October 31, 2022, the
Company granted no Non-Employee Options.
A summary of the Company’s stock option activity
and related information for the six months ended October 31, 2022, are shown below:
Schedule of stock option activity | |
| | |
| |
Options | |
Weighted Average Exercise Price per Share | | |
Weighted Average Grant Date Fair Value per Share | |
Outstanding, April 30, 2022 | |
| 40,900 | | |
$ | 53.05 | |
Issued | |
| 1,002 | | |
| 2.27 | |
Forfeited | |
| (3,966 | ) | |
| 102.80 | |
Outstanding, October 31, 2022 | |
| 37,936 | | |
$ | 46.51 | |
Exercisable, October 31, 2022 | |
| 37,603 | | |
$ | 46.90 | |
Vested and expected to vest | |
| 37,936 | | |
$ | 46.51 | |
A summary of the activity for unvested stock options
during the six months ended October 31, 2022, is as follows:
Unvested stock option activity | |
| | |
| |
| |
Options | | |
Weighted Average Grant Date Fair Value per Share | |
| |
| | |
| |
Unvested, April 30, 2022 | |
| 4,000 | | |
$ | – | |
Issued | |
| 1,002 | | |
| 2.27 | |
Vested | |
| (4,669 | ) | |
| – | |
Forfeited | |
| – | | |
| – | |
Unvested, October 31, 2022 | |
| 333 | | |
$ | 2.50 | |
The Company recorded $4,213 and $10,384 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 October 31, 2022, and 2021, respectively, and $7,131 and $34,528 during the six months ended October 31, 2022, and 2021, respectively.
At October 31, 2022, there remained $646 of unrecognized compensation expense related to unvested Employee Options granted to officers
and directors, to be recognized as expense over a weighted-average period of the remaining two months in the calendar year. The unvested
options vest at 167 shares per month and are expected to be fully vested on December 31, 2022.
The following table summarizes the outstanding stock
options by exercise price at October 31, 2022:
Schedule of options by exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83.70 |
|
|
|
6,000 |
|
|
|
0.10 |
|
|
$ |
83.70 |
|
|
|
6,000 |
|
|
$ |
83.70 |
|
$ |
80.10 |
|
|
|
800 |
|
|
|
0.85 |
|
|
$ |
80.10 |
|
|
|
800 |
|
|
$ |
80.10 |
|
$ |
80.85 |
|
|
|
667 |
|
|
|
0.25 |
|
|
$ |
80.85 |
|
|
|
667 |
|
|
$ |
80.85 |
|
$ |
102.45 |
|
|
|
333 |
|
|
|
0.33 |
|
|
$ |
102.45 |
|
|
|
333 |
|
|
$ |
102.45 |
|
$ |
97.35 |
|
|
|
333 |
|
|
|
0.47 |
|
|
$ |
97.35 |
|
|
|
333 |
|
|
$ |
97.35 |
|
$ |
74.25 |
|
|
|
6,000 |
|
|
|
0.83 |
|
|
$ |
74.25 |
|
|
|
6,000 |
|
|
$ |
74.25 |
|
$ |
57.00 |
|
|
|
800 |
|
|
|
1.90 |
|
|
$ |
57.00 |
|
|
|
800 |
|
|
$ |
57.00 |
|
$ |
60.60 |
|
|
|
667 |
|
|
|
0.75 |
|
|
$ |
60.60 |
|
|
|
667 |
|
|
$ |
60.60 |
|
$ |
55.50 |
|
|
|
333 |
|
|
|
0.83 |
|
|
$ |
55.50 |
|
|
|
333 |
|
|
$ |
55.50 |
|
$ |
51.00 |
|
|
|
333 |
|
|
|
0.97 |
|
|
$ |
51.00 |
|
|
|
333 |
|
|
$ |
51.00 |
|
$ |
61.20 |
|
|
|
6,000 |
|
|
|
1.31 |
|
|
$ |
61.20 |
|
|
|
6,000 |
|
|
$ |
61.20 |
|
$ |
36.00 |
|
|
|
667 |
|
|
|
1.25 |
|
|
$ |
36.00 |
|
|
|
667 |
|
|
$ |
36.00 |
|
$ |
37.05 |
|
|
|
333 |
|
|
|
1.33 |
|
|
$ |
37.05 |
|
|
|
333 |
|
|
$ |
37.05 |
|
$ |
15.75 |
|
|
|
333 |
|
|
|
1.47 |
|
|
$ |
15.70 |
|
|
|
333 |
|
|
$ |
15.70 |
|
$ |
10.05 |
|
|
|
6,000 |
|
|
|
1.90 |
|
|
$ |
10.05 |
|
|
|
6,000 |
|
|
$ |
10.05 |
|
$ |
26.55 |
|
|
|
667 |
|
|
|
1.75 |
|
|
$ |
26.55 |
|
|
|
667 |
|
|
$ |
26.55 |
|
$ |
16.20 |
|
|
|
334 |
|
|
|
1.83 |
|
|
$ |
16.20 |
|
|
|
334 |
|
|
$ |
16.20 |
|
$ |
3.19 |
|
|
|
334 |
|
|
|
1.97 |
|
|
$ |
3.19 |
|
|
|
334 |
|
|
$ |
3.19 |
|
$ |
2.50 |
|
|
|
6,000 |
|
|
|
2.50 |
|
|
$ |
2.50 |
|
|
|
5,667 |
|
|
$ |
2.50 |
|
$ |
2.29 |
|
|
|
668 |
|
|
|
2.25 |
|
|
$ |
2.29 |
|
|
|
668 |
|
|
$ |
2.29 |
|
$ |
2.24 |
|
|
|
334 |
|
|
|
2.33 |
|
|
$ |
2.24 |
|
|
|
334 |
|
|
$ |
2.24 |
|
|
Total |
|
|
|
37,936 |
|
|
|
1.05 |
|
|
$ |
46.51 |
|
|
|
37,603 |
|
|
$ |
46.90 |
|
The aggregate intrinsic value of outstanding options
as of October 31, 2022, was $3,161. This represents options whose exercise price was less than the closing fair market value of the Company’s
common stock on October 31, 2022, of approximately $2.94 per share.
Warrants
The warrants issued by the Company are equity classified.
The fair value of the warrants was recorded as additional paid-in-capital, and no further adjustments are made.
The Company concluded the following warrants met the
permanent equity criteria classification as they are freestanding financial instruments that are legally detachable and separately exercisable
from the shares of common stock with which they were issued. The warrants are immediately exercisable and do not embody an obligation
for the Company to repurchase the shares. The warrants also permit the holders to receive a fixed number of shares upon exercise and do
not provide any guarantee of value or return.
The Company elected to early adopt ASU No. 2020-06
Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity
(Subtopic 815-40) as of May 1, 2021. The early adoption of ASU No.2020-06 had an immaterial effect on the Company’s consolidated
financial statements.
Effective August 12, 2021, the Company issued Common
Stock Warrant Agreements (“Common Warrants”) with respect to the First Offering. The Company issued Common Warrants to purchase
4,028,528 shares of common stock based upon the underwriting agreement with H.C. Wainwright & Co., LLC (“Wainwright”).
The Common Warrants have a term of five years with an exercise price of $4.25 per warrant share, are fully vested upon issuance and have
a cashless exercise feature. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these
Common Warrants to be approximately $9,385,000 and is included in the non-cash equity issuance costs as presented on the Consolidated
Statements of Cash Flows of $34,477,000.
Additionally, with respect to the First Offering,
the Company issued common stock warrant agreements to Wainwright (“Underwriter Warrants”) to purchase 264,706 shares of common
stock. The Underwriter Warrants have a term of five years with an exercise price of $5.3125 per warrant share, are fully vested upon issuance
and have a cashless exercise feature. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value
of these Underwriter Warrants to be approximately $601,000 and is included in the non-cash equity issuance costs as presented on the Consolidated
Statements of Cash Flows of $34,477,000.
Effective August 12, 2021, the Company issued 899,027
pre-funded warrants (“Pre-funded Warrants”) to purchase common stock and Common Warrants based upon the underwriting agreement
with Wainwright with respect to the First Offering. The Pre-funded Warrants required a payment upon issuance of $4.249 per warrant share
and are fully vested upon issuance. The Company received approximately $3,820,000 from the issuance of the Pre-funded Warrants. The Pre-funded
Warrants have an exercise price of $0.001 per share, are exercisable immediately, have a cashless exercise feature and do not have an
expiration date. In August 2021, all 899,027 of the Pre-funded Warrants issued under the underwriting agreement were exercised. The Company
received $899 as a result of the exercise of the Pre-funded Warrants and issued 899,027 shares of common stock as a result of the exercise
notices. There was no additional effect on the Pre-funded Warrants as they were fully exercised.
Effective August 23, 2021, the Company issued additional
Common Stock Warrant Agreements (“Series A Warrants”) with respect to the Second Offering. The Company issued Series A Warrants
to purchase 7,000,000 shares of common stock based upon the Securities Purchase Agreement with certain institutional investors. The Series
A Warrants have a term of five years with an exercise price of $5.00 per warrant share, are fully vested upon issuance, have a cashless
exercise feature and are exercisable immediately. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate
fair value of these Series A Warrants to be approximately $21,340,000 and is included in the non-cash equity issuance costs as presented
on the Consolidated Statements of Cash Flows of $34,477,000.
Effective August 23, 2021, the Company issued additional
Common Stock Warrant Agreements (“Placement Agent Warrants”) with respect to the Second Offering. The Company issued Placement
Agent Warrants to purchase 1,050,000 shares of common stock to Wainwright or its designees based upon Wainwright acting as placement agent.
The Placement Agent Warrants have a term of five years with an exercise price of $6.25 per warrant share, are fully vested upon issuance,
have a cashless exercise feature and are exercisable immediately. Using the Black-Scholes-Merton option pricing model, the Company determined
the aggregate fair value of these Placement Agent Warrants to be approximately $3,151,000 and is included in the non-cash equity issuance
costs as presented on the Consolidated Statements of Cash Flows of $34,477,000.
Effective August 23, 2021, the Company issued Pre-funded
Warrants pursuant to the Second Offering to purchase 5,570,000 shares of common stock in the amount of approximately $27,844,000 which
required payments upon issuance of $4.999 per warrant share. The Pre-funded Warrants have an exercise price of $0.001 per share, are fully
vested upon issuance, are immediately exercisable, have a cashless exercise feature and do not have an expiration date. As of October
31, 2022, 5,500,000 of the Pre-funded Warrants have been exercised for aggregate gross proceeds of $5,500, which resulted in the issuance
of 5,500,000 shares. As of October 31, 2022, the remaining unexercised Pre-funded Warrants were 70,000 shares that can be exercised for
$70. The Company received a total of $4,749,930 pursuant to the issuance of the Pre-funded Warrants and these shares remain unissued as
of October 31, 2022.
In August 2021, the Company received twenty-seven
cash exercise notices relating to the Common Warrants with respect to the First Offering totaling 2,522,387 warrant shares. The Company
received approximately $10,720,000 and issued 2,522,387 shares of common stock as a result of the exercise notices.
Series A Warrants and Placement Agent Warrants were
issued pursuant to the Securities Purchase Agreement dated as of August 19, 2021. At the time, the Series A Warrants and the Placement
Agent Warrants were issued, neither the Series A Warrants, the Placement Agent Warrants nor the underlying common stock was registered
pursuant to the Securities Act. The Company registered the common stock underlying the Series A Warrants and the Placement Agent Warrants
pursuant to a Registration Statement on Form S-3 (“Registration Statement”) filed with the Commission on November 8, 2021.
The Registration Statement was declared effective by the Commission on November 17, 2021.
A summary of the Company’s warrant activity
and related information for the six months ended October 31, 2022, are shown below:
Schedule of warrant activity | |
| | |
| |
| |
Warrants | | |
Weighted Average Exercise Price Per Share | |
Outstanding, April 30, 2022 | |
| 10,772,736 | | |
$ | 4.59 | |
Issued | |
| – | | |
| – | |
Exercised | |
| (880,000 | ) | |
| – | |
Expired | |
| (1,889 | ) | |
| – | |
Outstanding, October 31, 2022 | |
| 9,890,847 | | |
| – | |
Exercisable, October 31, 2022 | |
| 9,890,847 | | |
$ | 4.99 | |
The following table summarizes additional information
concerning warrants outstanding and exercisable at October 31, 2022:
Schedule of warrants outstanding and exercisable |
|
|
|
|
|
|
|
|
|
Exercise Prices |
|
Number of
Warrant Shares
Exercisable at
October 31, 2022 |
|
|
Weighted
Average
Remaining
Contractual
Life Years |
|
|
Weighted
Average
Exercise Price Per Share |
|
|
|
|
|
|
|
|
|
|
|
$4.25 |
|
|
1,506,141 |
|
|
|
3.78 |
|
|
|
|
|
$5.3125 |
|
|
264,706 |
|
|
|
3.78 |
|
|
|
|
|
$5.00 |
|
|
7,000,000 |
|
|
|
3.82 |
|
|
|
|
|
$6.25 |
|
|
1,050,000 |
|
|
|
3.80 |
|
|
|
|
|
$0.001 |
|
|
70,000 |
|
|
|
– |
|
|
|
|
|
|
|
|
9,890,847 |
|
|
|
3.81 |
|
|
$ |
4.99 |
|
NOTE 6 – LEGAL PROCEEDINGS
The Company is not currently a party to any pending
legal proceedings, material or otherwise. There are no legal proceedings to which any property of the Company is subject.
NOTE 7 – OTHER RELATED PARTY TRANSACTIONS
The Company had the following related party transactions
during the three and six months ended October 31, 2022, and 2021, 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 $4,700 and $64,300 in the three and six
months ended October 31, 2022, respectively, and $53,000 and $111,000 for the three and six months ended October 31, 2021, respectively.
In April 2014, the Company entered the Vin-de-Bona
Consulting Agreement pursuant to which it agreed to provide professional consulting services to the Company. Vin-de-Bona is owned by Prof.
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, automatically renewable for successive 12-month terms. After the initial term, either party
can terminate the agreement by giving the other party 30 days’ written notice before the effective date of termination. The agreement
has been automatically renewed annually. The amounts incurred for the three and six months ended October 31, 2022, were approximately
$2,400 and $47,500, respectively, and for the three and six months ended October 31, 2021, were approximately $18,100 and $49,800, respectively.
The Company’s Director of Administration who has been serving in
that capacity for seven years is the wife of the Company’s Chief Executive Officer.
NOTE 8 – 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
On December 2, 2020, the Company entered into a lease
for its office space in Laguna Hills, California for a six-month term commencing on March 1, 2021, which expired on August 31, 2021.
On May 24, 2021, the Company entered into an additional
six-month lease of this office space, commencing on September 1, 2021, which expired on February 28, 2022.
In October 2021, the Company moved the Company’s
headquarters from Laguna Hills, California to Las Vegas, Nevada. In doing so, the Company entered into a lease for office space in Las
Vegas, Nevada. The term of the lease expired on April 30, 2022.
In January 2022, the Company entered into an additional
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 expires on April 30, 2023.
Rent expenses for the offices for the three and six
months ended October 31, 2022, were $1,369 and $2,469, respectively, and for the three and six months ended October 31, 2021, were $4,154
and $7,892, respectively.
The following table summarizes the Company’s
aggregate future minimum lease payments required under the operating lease as of:
Schedule of future minimum lease payments | |
| |
Year Ending April 30, | |
Amount | |
2023 | |
$ | 2,316 | |
| |
$ | 2,316 | |
Compensation Agreements
The Company entered into executive compensation agreements
with Kenneth L. Waggoner, Gerald W. Crabtree and Carlos A. Trujillo in March 2015, each of which was amended in December 2015 and March
2017. The Company’s compensation agreements with Mr. Waggoner and Mr. Trujillo were amended and restated effective January 1, 2022.
The compensation agreements with Dr. Crabtree had a term of two years and the compensation agreements for Mr. Waggoner and Mr. Trujillo
had a term of three years, with automatic renewals unless the Company or the officer provides written notice of termination at least ninety
days prior to the end of the current term.
Effective October 6, 2022, Mr. Waggoner signed the
Separation, Consulting and Release Agreement (“Separation Agreement”), whereby he resigned from all positions with the Company
and its subsidiaries. The Separation Agreement contains a consulting services agreement covering a twelve-month period, whereby Mr. Waggoner
will serve as an independent contractor for the Company in exchange for a monthly consulting fee of approximately $36,000 for the duration
of such period.
Effective October 11, 2022, Dr. Crabtree signed a
release agreement with the Company, whereby he resigned from all Company positions, including all positions with the Company’s subsidiaries.
In May 2017, the Company amended the compensation
agreements with each of the then-current independent Board members, and the terms of such amended agreements continue in effect until
a member is no longer on the Board.
As of October 31, 2022, the Company had six directors.
Pursuant to their director agreements at such time, each director was intitled to receive the same compensation: (i) $12,500 in cash for
each calendar quarter of service on the Board; (ii) 334 fully paid, non-assessable shares of the Company’s restricted common stock
(“Shares”) annually; and (iii) a five-year option to purchase 334 Shares annually at an exercise price equal to the fair market
value of the Shares on the date of grant. The Shares and the option Shares fully vest on the date of the respective grants. As of October
31, 2022, the Shares and option Shares had not been issued to the five newly appointed directors.
On August 15, 2022, the Company and the Board have:
(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. See Note 13 – Subsequent Events for a further discussion on additional changes to the Board.
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 $347,000, of which the related party (SG Austria
and its subsidiaries) portion will be approximately $291,000. These amounts take into account some of the cost associated with the work
and preclinical studies required to lift the clinical hold.
NOTE 9 – INCOME TAXES
At October 31, 2022, the Company had federal and state
net operating loss carryforwards of approximately $55,839,000 and $52,076,000, respectively, available to offset against future taxable
income; these operating loss carryforwards expire in 2021 through 2038. 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 six months
ended October 31, 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 $37,083,000 and $40,838,000 federal and state net operating loss carryforwards,
respectively, became limited in their availability. The remaining net operating loss carryforwards are approximately $18,756,000 and $11,239,000
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 six months ended October 31, 2022,
and 2021, the Company had accrued no interest or penalties related to uncertain tax positions.
See Note 10 of Notes to the Consolidated Financial
Statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2022, for additional information regarding
income taxes.
NOTE 10 – EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing
earnings 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 stock options and warrants. During the three
and six months ended October 31, 2022, and 2021, the Company incurred losses. Accordingly, the effect of any common stock equivalent would
be anti-dilutive during those periods and are not included in the calculation of diluted weighted average number of shares outstanding.
The table below sets forth the basic loss per share
calculations:
Earnings per share calculations | |
| | |
| |
| |
Three Months Ended October 31, | |
| |
2022 | | |
2021 | |
Net loss | |
$ | (1,880,507 | ) | |
$ | (979,746 | ) |
Basic weighted average number of shares outstanding | |
| 20,585,451 | | |
| 17,357,830 | |
Diluted weighted average number of shares outstanding | |
| 20,585,451 | | |
| 17,357,830 | |
Basic loss per share | |
$ | (0.09 | ) | |
$ | (0.06 | ) |
Diluted loss per share | |
$ | (0.09 | ) | |
$ | (0.06 | ) |
| |
| |
| |
| | | |
| | |
| |
Six Months Ended October 31, | |
| |
2022 | | |
2021 | |
Net loss | |
$ | (3,425,519 | ) | |
$ | (2,005,164 | ) |
Basic weighted average number of shares outstanding | |
| 20,742,383 | | |
| 9,474,568 | |
Diluted weighted average number of shares outstanding | |
| 20,742,383 | | |
| 9,474,568 | |
Basic loss per share | |
$ | (0.17 | ) | |
$ | (0.21 | ) |
Diluted loss per share | |
$ | (0.17 | ) | |
$ | (0.21 | ) |
The table below sets forth these potentially dilutive
securities:
Schedule of potentially dilutive securities | |
| | |
| |
| |
Six Months Ended October 31, | |
| |
2022 | | |
2021 | |
Excluded options | |
| 37,936 | | |
| 42,667 | |
Excluded warrants | |
| 9,890,847 | | |
| 9,823,828 | |
Total excluded options and warrants | |
| 9,928,783 | | |
| 9,866,495 | |
NOTE 11 – PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred
stock, with a par value of $0.0001, of which one share has been designated as "Series A Preferred Stock". As of October 31,
2022, there are no shares of preferred stock issued and outstanding.
The description of the Series A Preferred Stock below
is qualified in its entirety by reference to the Company’s Articles of Incorporation, as amended.
The Series A Preferred Stock has the following features:
|
· |
There is one share of preferred stock designated as Series A Preferred Stock; |
|
|
|
|
· |
The Series A Preferred Stock has a number of votes at any time equal to the number of votes then held by all other shareholders of the Company having a right to vote on any matter plus one. The Certificate of Designations that designated the terms of the Series A Preferred Stock cannot be amended without the consent of the holder of the Series A Preferred Stock; |
|
|
|
|
· |
The Company may redeem the Series A Preferred Stock at any time for a redemption price of $1.00 paid to the holder of the share of Series A Preferred Stock; and |
|
|
|
|
· |
The Series A Preferred Stock has no rights of transfer, conversion, dividends, preferences upon liquidation or participation in any distributions to shareholders. |
NOTE 12 – TREASURY STOCK
In May 2022, the Board authorized a share repurchase
program to acquire its outstanding Common Stock for up to $10,000,000. In conjunction with the share repurchase program, 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. During the six months ended October 31, 2022, the Company repurchased 2,075,134 shares at a total cost,
including commissions, of $5,475,891. These shares are treated as Treasury Stock using the cost method. The 2,075,134 shares repurchased
are included in Treasury Stock in the accompanying Condensed Consolidated Balance Sheets. At October 31, 2022, $4,524,109 remains available
to repurchase the Company’s Common Stock pursuant to the share repurchase program.
NOTE 13 – SUBSEQUENT EVENTS
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 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 his earlier 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.
In December 2022, pursuant to the share
repurchase program, the Company repurchased 800,362 shares at a total cost, including commissions of approximately $2,217,000.
Subsequent to these transactions there remained approximately $2,307,000 available to purchase additional shares of the
Company’s common stock.