PharmaCyte Biotech, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion may contain forward-looking statements that involve risks and uncertainties. As described under the caption “Cautionary Note Regarding Forward-Looking Statements,” our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, any factors discussed in this section as well as factors described in Part II, Item 1A. “Risk Factors” and under the caption “Cautionary Note Regarding Forward-Looking Statements.” Overview We are a biotechnology company focused on developing and preparing to commercialize cellular therapies for cancer, diabetes and malignant ascites based upon our 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 oncology and diabetes. We are actively engaged preparing for a clinical trial in LAPC using encapsulated live cells like those used in the previous Phase 1/2 and Phase 2 clinical trials discussed above. On September 1, 2020, we submitted an IND to the FDA for our planned clinical trial in LAPC. On October 1, 2020, we received notice from the FDA that it had placed our IND on clinical hold. On October 30, 2020, the FDA sent a letter to us setting forth the reasons for the clinical hold and specific guidance on what we must do to have the clinical hold lifted. To address our clinical hold, we assembled a team of regulatory and scientific experts to respond to the items requested by the FDA. That team has been working to complete the list of items requested by the FDA. For a complete discussion of what the FDA requires of us and the efforts we have undertaken to lift the clinical hold, see Item 1. Business under the Section entitled, “Clinical Hold” of this Report. We are also developing a way to delay the production and accumulation of malignant ascites that results from many types of abdominal cancerous tumors. Our therapy for malignant ascites involves using the same encapsulated cells we employ for pancreatic cancer but placing the encapsulated cells in the peritoneal cavity of a patient and administering ifosfamide intravenously. In addition to these cancer programs, we have also been considering ways to exploit the benefits of the Cell-in-a-Box ® technology to develop therapies for cancer that involve prodrugs based upon certain constituents of the Cannabis plant. However, until the FDA allows us to commence our clinical trial in LAPC and we are able to validate our Cell-in-a-Box ® encapsulation technology in a clinical trial, we are not spending any further resources developing our Cannabis Program. Finally, we have been developing a potential therapy for Type 1 diabetes and insulin-dependent Type 2 diabetes Our product candidate for the treatment of diabetes consists of encapsulated genetically modified insulin-producing cells. The encapsulation will be done using the Cell-in-a-Box ® technology. Implanting these encapsulated cells in the body is designed to function as a bio-artificial pancreas for purposes of insulin production. 74 Reverse Stock Split Effective July 12, 2021, we filed a Certificate of Change to our Articles of Incorporation, as amended (the “Articles of Incorporation”) with the Nevada Secretary of State that authorized a 1:1500 reverse stock split of our common stock. The reverse stock split resulted in reducing the authorized number of shares of our common stock from 50 billion to thirty-three million three hundred thirty-three thousand three hundred thirty-four 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 warrants, option, share and per share information in this Report gives retroactive effect to such 1:1500 reverse stock split. Increase in Authorized Shares On March 14, 2023, we filed a Certificate of Change with the State of Nevada, Secretary of State, to increase the number of authorized shares of our common stock to 133,333,334 shares effective immediately. The par value remained $0.0001 per share. COVID-19 Impact on Our Financial Condition and Results of Operations We face the ongoing risk that the coronavirus pandemic may slow our operations, our preclinical studies or the eventual enrollment of our planned clinical trial. In order to prioritize patient health and that of the investigators at clinical trial sites, we may need monitor enrollment of patients in our clinical study. In addition, some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services. These and other factors outside of our control could delay our ability to conduct clinical trials or release clinical trial results. In addition, the effects of the ongoing coronavirus pandemic may also increase non-trial costs such as insurance premiums, increase the demand for and cost of capital, increase loss of work time from key personnel, and negatively impact our key clinical trial vendors. Performance Indicators Non-financial performance indicators used by management to manage and assess how the business is progressing will include, but are not limited to, the ability to: (i) acquire appropriate funding for all aspects of our operations; (ii) acquire and complete necessary contracts; (iii) complete activities for producing genetically modified human cells and having them encapsulated for our preclinical studies and the planned clinical trial in LAPC; (iv) have regulatory work completed to enable studies and trials to be submitted to regulatory agencies; (v) complete all required tests and studies on the cells and capsules we plan to use in our clinical trial in patients with LAPC; (vi) ensure completion of the production of encapsulated cells according to cGMP regulations to use in our planned clinical trial; (vii) complete all of the tasked the FDA requires of us in order to have the clinical hold lifted; and (viii) obtain approval from the FDA to lift the clinical hold on our IND that we may commence our planned clinical trial in LAPC. There are numerous items required to be completed successfully to ensure our final product candidate is ready for use in our planned clinical trial in LAPC. The effects of material transactions with related parties, and certain other parties to the extent necessary for such an undertaking, may have substantial effects on both the timeliness and success of our current and prospective financial position and operating results. Nonetheless, we are actively working to ensure strong ties and interactions to minimize the inherent risks regarding success. We do not believe there are factors which will cause materially different amounts to be reported than those presented in this Report. We aim to assess this regularly to provide accurate information to our shareholders. 75 Liquidity and Capital Resources As of April 30, 2023, our cash and cash equivalents totaled approximately $68 million, compared to approximately $85.4 million as of April 30, 2022. Working capital was approximately $67.6 million as of April 30, 2023, and approximately $84.8 million as of April 30, 2022. The decrease in cash is attributable to the repurchase of our common stock pursuant to the Repurchase Programs, recorded as treasury stock and an increase in our operating expenses. 2021 Underwritten Offering On August 9, 2021, we entered into an underwriting agreement with H.C. Wainwright & Co. (“Wainwright”), pursuant to which we offered and sold an aggregate of 2,630,385 shares of common stock, and 899,027 pre-funded warrants to purchase common stock, and common warrants to purchase 4,028,528 shares of common stock (the “First 2021 Offering”). The common warrants sold in the First 2021 Offering have an exercise price of $4.25 per share, were exercisable immediately upon issuance, and expire five years following the date of issuance. The pre-funded warrants sold in the First 2021 Offering have an exercise price of $0.001 per share, were exercisable immediately upon issuance, and do not have an expiration date. The gross proceeds of the First 2021 Offering were $15 million, before deduction of underwriting discounts, commissions, and estimated offering expenses. Wainwright acted as the exclusive placement agent for the Second 2021 Offering pursuant to an engagement letter with the Company dated April 26, 2021 (the “Wainwright Engagement Letter”). Pursuant to the Wainwright Engagement Letter and in connection with the First 2021 Offering, we paid Wainwright a placement agent fee equal to 7.5% of the aggregate gross proceeds and a management fee equal to 1.0% of the gross proceeds, and we issued Wainwright warrants to purchase up to [ ] shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants have an exercise price of $6.25 per share, were exercisable immediately upon issuance, and expire five years following the date of issuance. In August 2021, we received twenty-seven (27) exercise notices from holders of the common warrants issued in the First 2021 Offering, pursuant to which we received approximately $10,720,000 and issued 2,522,387 shares of common stock (the “2021 Warrant Exercises”). 2021 Registered Direct Offering and Concurrent Private Placement On August 19, 2021, we entered into a securities purchase agreement with certain institutional investors, pursuant to which we sold (i) 8,430,000 shares of common stock and pre-funded warrants to purchase up to 5,570,000 shares of common stock in a registered direct offering and (ii) unregistered warrants to purchase up to 7,000,000 shares of common stock (the “Series A Warrants”) in a concurrent private placement (collectively, the “Second 2021 Offering”). The pre-funded warrants sold in the Second 2021 Offering have an exercise price of $0.001 per share, were exercisable immediately upon issuance, and do not have an expiration date. The Series A Warrants have an exercise price of $5.00 per share, were exercisable immediately upon issuance, and expire five years following the date of issuance. Wainwright acted as the exclusive placement agent for the Second 2021 Offering pursuant to the Wainwright Engagement Letter. Pursuant to such engagement letter and in connection with the Second 2021 Offering, we paid Wainwright a placement agent fee equal to 7.5% of the aggregate gross proceeds and a management fee equal to 1.0% of the gross proceeds, and we issued Wainwright an additional 1,050,000 Placement Agent Warrants. We received gross proceeds from the Second 2021 Offering, before deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $70 million. On November 17, 2021, our Registration Statement on Form S-3 registering the resale of the shares of common stock underlying the Series A Warrants and the Placement Agent Warrants was declared effective by the U.S. Securities and Exchange Commission (“Commission”). During the year ended April 30, 2022, we received approximately $87.4 million from the First 2021 Offering, the Second 2021 Offering and the 2021 Warrant Exercises. 76 Repurchase Programs Pursuant to the First Repurchase Program, we may acquire up to $10 million of our outstanding shares of common stock, as determined by a formula based on the market price of the common stock and average daily volumes. Pursuant to the Second Repurchase Program, we may acquire up to $10 million of our outstanding shares of common stock from time to time in open market transactions, privately negotiated block transactions or other means in accordance with applicable securities laws. For more information on the Repurchase Programs, see “Note 12 – Treasury Stock.” Other Liquidity Matters We have no other off-balance sheet arrangements that could have a material current effect or that are reasonably likely to have a material adverse effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. To meet our short and long-term liquidity needs, we expect to use existing cash balances and a variety of other means. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings, partnerships, collaborations and sale of assets. Our history of operating losses and liquidity challenges may make it difficult for us to raise capital on acceptable terms or at all. The demand for the equity and debt of pharmaceutical companies like ours is dependent upon many factors, including the general state of the financial markets. During times of extreme market volatility, capital may not be available on favorable terms, if at all. Our inability to obtain such additional capital could materially and adversely affect our business operations. Our future capital requirements are difficult to forecast and will depend on many factors, but we believe that our cash on hand will enable us to fund operating expenses for at least the next 12 months following the issuance of our consolidated financial statements. Year ended April 30, 2023, compared to year ended April 30, 2022 Revenue We had no revenues in the fiscal years ended April 30, 2023, and 2022. Operating Expenses Our total operating expenses during the year ended April 30, 2023 were $6,455,494, representing an increase of $2,063,480 compared to the year ended April 30, 2022. The increase is mainly attributable to increases in director fees and legal and professional expenses, net of decreases in R&D costs and compensation expense. Operating expenses: Year ended April 30, 2023 Change - Increase (Decrease) and Percent Year ended April 30, 2022 R&D $ 468,536 $ (222,401 ) $ 690,937 (32% ) Compensation expense $ 1,234,956 $ (309,795 ) $ 1,544,751 (20% ) Director fees $ 951,347 $ 694,857 $ 256,490 271% General and administrative, legal and professional $ 3,800,655 $ 1,900,819 $ 1,899,836 100% 77 Loss from Operations Loss from operations during the year ended April 30, 2023 was $6,455,494, an increase of $2,063,480 compared to the year ended April 30, 2022. The increase is mainly attributable to increases in director fees and legal and professional expenses, and consulting expenses in 2023 from 2022, net of decreases in R&D costs and compensation expense. See the table under “ Operating Expenses ” above for more detail. Other Income (Expenses), Net Other income, net for the year ended April 30, 2023, was $2,139,501, as compared to other income, net of $152,853 in the year ended April 30, 2022. Other income, net for the year ended April 30, 2023 is attributable to interest income of $1,937,499 net settlement of accounts payable of $152,976 and net of other income and expense of $49,026. Other income, net for the year ended April 30, 2022 is attributable to interest income of $157,645 net of interest expense and other expenses of $4,792. Discussion of Operating, Investing and Financing Activities The following table presents a summary of our sources and uses of cash for the years ended April 30, 2023 and 2022. Year Ended April 30, 2023 Year Ended April 30, 2022 Net cash used in operating activities: $ (3,793,731 ) $ (4,117,319 ) Net cash used in investing activities: $ – $ – Net cash provided by (used in) financing activities: $ (13,559,743 ) $ 87,311,244 Effect of currency rate exchange $ (7,246 ) $ 4,625 Increase (decrease) in cash $ (17,360,720 ) $ 83,198,550 Operating Activities: The cash used in operating activities for the years ended April 30, 2023 and 2022 is a result of our net losses offset by securities issued for services and compensation, changes to prepaid expenses, accounts payable and accrued expenses. Investing Activities : We had no investing activities for the years ended April 30, 2023, and 2022. Financing Activities: The cash used in financing activities for the year ended April 30, 2023 was mainly attributable to the Repurchase Programs, and the cash provided for the year ended April 30, 2022, is mainly attributable to the proceeds from the First 2021 Offering and the Second 2021 Offering. 78 Critical Accounting Estimates and Policies Our Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). We are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our Consolidated Financial Statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 2 of the Notes to our Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Report. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results and require management’s most difficult, subjective or complex judgments resulting from the need to make estimates about the effects of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with our Board. Research and Development Expenses 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 R&D and that have no alternative future use are expensed when incurred. Technology developed for use in our product candidates is expensed as incurred until technological feasibility has been established. Stock-Based Compensation Our stock-based compensation plans are described in Note 4 and 5 of the Notes of the Consolidated Financial Statements to this Report. We follow the provisions of ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees. Net Income (Loss) Per Share Basic net income (loss) per share of common stock is computed using the weighted-average number of shares of common stock outstanding. Diluted net income (loss) per share of common stock is computed using the weighted-average number of shares of common stock and shares of common stock equivalents outstanding. Potentially dilutive stock options and warrants to purchase 10,172,116 and 10,813,635 post reverse stock split shares of common stock at April 30, 2023 and 2022, respectively, were excluded from the computation of diluted net income (loss) per share because the effect would be anti-dilutive. New Accounting Pronouncements During the current and prior year, there were no new accounting pronouncements that need to be disclosed in the Company’s consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company and are not required to include information called for by this Item 7A. 79