Item 7. Management’s Discussion and Analysis
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 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.
We are engaged preparing for a clinical trial
in LAPC using encapsulated live cells.
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.
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Private Placement
On May 9, 2023, we entered
into a securities purchase agreement with certain accredited investors, pursuant to which we issued and sold, in a private placement (the
“PIPE”), an aggregate of (i) 35,000 Series B Preferred Shares, initially convertible into up to 8,750,000 shares of common
stock at a conversion price of $4.00 per share, and (ii) warrants (the “PIPE Warrants”) to acquire up to 8,750,000 shares
of common stock at an exercise price of $4.00 per share. Each Series B Preferred Share and accompanying PIPE Warrants were sold together
at a combined offering price of $1,000. The terms of the Preferred Shares are as set forth in the Certificate of Designations of Series
B Convertible Preferred Stock of PharmaCyte Biotech, Inc. (the “Certificate of Designations”), which was filed and became
effective with the Secretary of State of the State of Nevada on May 10, 2023. The PIPE Warrants are immediately exercisable and expire
5 years from issuance.
In connection with the
PIPE, we entered into a registration rights agreement, pursuant to which we filed a Registration Statement on Form S-3 (File No. 333-272569)
to register the resale of the shares underlying the Series B Preferred Shares and the PIPE Warrants. Such Registration Statement was declared
effective by the Commission on September 29, 2023.
For descriptions of the
Series B Preferred Shares and the PIPE Warrants, see “Note 12 – Preferred Stock” and Note 6 – Stock Options and
Warrants,” respectively.
Femasys Transaction
On November 14, 2023,
we entered into a securities purchase agreement (the “Femasys Purchase Agreement”) with Femasys Inc. (“Femasys”),
pursuant to which we purchased from Femasys (i) senior unsecured convertible notes (the “Notes”) in an aggregate principal
amount of $5,000,000, convertible into shares of Femasys common stock, par value $0.001 per share (the “Femasys Shares”) at
a conversion price of $1.18 per share, (ii) Series A Warrants (the “Series A Warrants”) to purchase up to an aggregate of
4,237,288 Femasys Shares at an exercise price of $1.18 per share, and (iii) Series B Warrants (the “Series B Warrants” and,
together with the Series A Warrants, the “Femasys Warrants”) to purchase up to an aggregate of 4,237,288 Femasys Shares at
an exercise price of $1.475 per share (collectively, the “Femasys Transaction”).
The Femasys Purchase
Agreement contains certain representations and warranties, covenants and indemnities customary for similar transactions. Pursuant to the
Femasys Purchase Agreement, we have the right to nominate one individual to serve on Femasys’ board of directors (the “Femasys
Board”) until the earlier of (a) when the Company beneficially owns less than 4.99% of the number of Femasys Shares outstanding
and (b) the repayment of the Notes in full (such time, the “Investor Board Seat Fall-Away”). In addition, we agreed to a standstill
until the later of (a) our nominee remaining on the Femasys Board and (b) 12 months after the Investor Board Seat Fall-Away, during which
period we may not, among other things, acquire additional securities of Femasys other than pursuant to the Notes or Femasys Warrants.
The Notes are senior
unsecured obligations of Femasys and accrue interest at a rate of 6.00% per annum, payable annually, in cash or Femasys Shares at Femasys’
option, and mature two years after the date of issuance. The Notes are convertible into Femasys Shares at our election at any time at
an initial conversion price of $1.18. The conversion price is subject to customary adjustments for stock dividends, stock splits, reclassifications
and similar corporate events. Femasys agreed in the Femasys Purchase Agreement and the Notes not to issue or sell any of its equity securities
at a price below the then-current conversion price for a period of 18 months after closing, subject to certain exceptions.
Beginning six months
after issuance, Femasys may require us to convert our Notes into Femasys Shares if the closing price of the Femasys Shares exceeds $2.36
per share (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) for
10 consecutive trading days and the daily dollar trading volume of the Femasys Shares exceeds one million dollars ($1,000,000) per day
during the same period and certain equity conditions described in the Notes are satisfied.
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The Notes provide for
certain events of default, including, among other things, Femasys’ failure to file and maintain an effective registration statement
covering the sale of the securities registrable pursuant to a registration rights agreement and Femasys’ failure to pay any amounts
due to us when due. In connection with an event of default, we will be able to require Femasys to redeem in cash any or all of our Notes
at a premium of 115%.
Under the terms of the Notes, Femasys is subject
to certain affirmative and negative covenants regarding the incurrence of indebtedness, acquisition and investment transactions, the existence
of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions, and the transfer of
assets, among other matters.
The Series A Warrants
are exercisable for Femasys Shares immediately at an exercise price of $1.18 per share and expire five years from the date of issuance.
Femasys has the right to call the exercise of the Series A Warrants if the closing price of the Femasys Shares exceeds 200% of the exercise
price for 10 consecutive trading days and the daily dollar trading volume of the Femasys Shares exceeds one million dollars ($1,000,000)
per day during the same period and certain equity conditions are satisfied. The Series B Warrants are exercisable for Femasys Shares immediately
at an exercise price of $1.475 per share and expire one year from the date of issuance. Femasys has the right to call the exercise of
the Series B Warrants if the closing price of the Femasys Shares exceeds 200% of the exercise price for 10 consecutive trading days and
the daily dollar trading volume of the Femasys Shares exceeds one million dollars ($1,000,000) per day during the same period and certain
equity conditions are satisfied.
In connection with the
Femasys Transaction, we entered into a registration rights agreement with Femasys, pursuant to which Femasys was required to file a resale
registration statement with the Commission, registering 100% of the shares issuable pursuant to the Notes and the Femasys Warrants.
In connection with the
Femasys Transaction, we entered into a collaboration agreement with Femasys, dated November 14, 2023, whereby, if the Company and Femasys
agree to conduct research activities or enter into a research plan in connection with discussing, evaluating and seeking technology that
may be available to in-license or acquire with a view to enhancing the existing products of Femasys or adding new complementary products,
we will establish a joint research committee with two representatives of Femasys and one representative of the Company to oversee the
execution of the research plan and coordinate research activities.
TNF Transaction
On May 20, 2024, we entered
into a securities purchase agreement (the “TNF Purchase Agreement”) with TNF Pharmaceuticals, Inc. (f/k/a MyMD Pharmaceuticals,
Inc.) (“TNF”), pursuant to which we purchased from TNF (i) shares of TNF’s Series G Convertible Preferred Stock (the
“TNF Preferred Shares”), convertible into 3,854,626 shares of TNF’s common stock, par value $0.001 per share (the “TNF
Common Shares”), (ii) warrants to purchase up to 3,854,626 TNF Common Shares with a five-year term (the “Long-Term Warrants”)
and (iii) warrants to purchase up to 3,854,626 TNF Common Shares with an 18-month term (the “Short-Term Warrants” and, together
with the Long-Term Warrants, the “TNF Warrants”) for an aggregate purchase price of $7,000,000 (the purchase of the TNF Preferred
Shares, the Long-Term Warrants and the Short-Term Warrants, the “TNF Transaction”).
Pursuant to the TNF Purchase
Agreement, we have the right to participate in future sales of TNF’s equity and equity-linked securities until the second anniversary
of the closing or the date on which no TNF Preferred Shares remain outstanding, whichever is earlier. Additionally, we have the right
to nominate one individual to serve on TNF’s board of directors until the Company no longer beneficially owns 20% of the TNF Common
Shares on an as-converted basis.
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The terms of the TNF
Preferred Shares are as set forth a certificate of designations (the “TNF Certificate of Designations”), which TNF filed with
the Secretary of State for the State of Delaware on May 21, 2024. The TNF Preferred Shares are convertible into TNF Common Shares at our
election at any time at an initial conversion price of $1.816. The conversion price is subject to customary adjustments for stock dividends,
stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of TNF Common Shares,
or securities convertible, exercisable or exchangeable for TNF Common Shares, at a price below the then-applicable conversion price (subject
to certain exceptions). At any time after the issuance date of the TNF Preferred Shares, TNF has the option to redeem in cash all or any
portion of the outstanding TNF Preferred Shares then outstanding at a premium upon notice to the Company.
Pursuant to the TNF Certificate
of Designations, we will be entitled to dividends of 10% per annum, compounded monthly, which will be payable in cash or in TNF Common
Shares at our option. Upon the occurrence and during the continuance of a Triggering Event (as defined in the TNF Certificate of Designations),
the TNF Preferred Shares will accrue dividends at the rate of 15% per annum. Upon conversion or redemption, we are entitled to receive
a dividend make-whole payment. We will be entitled to vote with holders of the TNF Common Shares on as as-converted basis, with the number
of votes to which we are entitled to be calculated assuming a conversion price of $2.253 per share. TNF’s ability to settle conversions
and make dividend make-whole payments by issuing TNF Common Shares is subject to certain limitations set forth in the TNF Certificate
of Designations.
The TNF Certificate of
Designations includes certain triggering events, including, among other things, the failure by TNF to file and maintain an effective registration
statement covering the sale of the securities registrable pursuant to a registration rights agreement and the failure by TNF to pay any
amounts to us when due. In connection with a triggering event, we will be able to require TNF to redeem in cash any or all of its TNF
Preferred Shares at a premium set forth in the TNF Certificate of Designations.
TNF is subject to certain
affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, the repayment of indebtedness, the
payment of cash in respect of dividends (other than dividends pursuant to the TNF Certificate of Designations), distributions or redemptions,
and the transfer of assets, among other matters.
The Long-Term Warrants
are exercisable for TNF Common Shares immediately, at an exercise price of $1.816 per share and expire five years from the date of issuance.
The Short-Term Warrants are exercisable for TNF Common Shares immediately, at an exercise price of $1.816 per share and expire 18 months
from the date of issuance. The exercise price of each TNF Warrant is subject to customary adjustments for stock dividends, stock splits,
reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances
of TNF Common Shares or securities convertible, exercisable or exchangeable for TNF Common Shares at a price below the then-applicable
exercise price (subject to certain exceptions).
In connection with the
TNF Transaction, we entered into a registration rights agreement with TNF, pursuant to which TNF was required to file a resale registration
statement with the Commission, registering 200% of the shares issuable pursuant to the TNF Preferred Shares and the TNF Warrants.
Increase in Authorized Shares
On September 6, 2023, pursuant to stockholder
approval received at a special meeting of stockholders, we filed with the Secretary of State of the State of Nevada a Certificate of Change
to our Articles of Incorporation, as amended, to increase the number of authorized shares of common stock from 133,333,334 to 200,000,000.
The Certificate of Change had no impact on the number of authorized shares of preferred stock, which remains at 10,000,000.
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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.
Liquidity and Capital Resources
As of April 30, 2024, our cash and cash equivalents
totaled approximately $50.2 million, compared to approximately $68 million as of April 30, 2023. Working capital was approximately $43
million as of April 30, 2024, and approximately $67.6 million as of April 30, 2023. 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.
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 Second Repurchase Program, see “Note 13 – 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.
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Year ended April 30, 2024, compared to year
ended April 30, 2023
Revenue
We had no revenues in the fiscal years ended April
30, 2024, and 2023.
Operating Expenses
Our total operating expenses during the year ended
April 30, 2024 were $8,520,008, representing an increase of $2,064,514 compared to the year ended April 30, 2023. The increase is mainly
attributable to increases in compensation expenses, director fees and general and administrative expenses, net of decreases in R&D
and legal and professional expenses.
Operating expenses:
Year ended
April 30,
2024
Change -
Increase
(Decrease)
and Percent
Year ended
April 30,
2023
R&D
$ 407,431
$ (61,105 )
$ 468,536
(13% )
Compensation expense
$ 1,322,414
$ 87,458
$ 1,234,956
7%
Director fees
$ 1,141,215
$ 189,868
$ 951,347
20%
Impairment of asset
$ 2,000,000
$ 2,000,000
–
–
General and administrative, legal and professional
$ 3,648,948
$ (151,707 )
$ 3,800,655
(4% )
Loss from Operations
Loss from operations during the year ended April
30, 2024 was $8,520,008, an increase of $2,064,514 compared to the year ended April 30, 2023. The increase is mainly attributable to increases
in compensation expenses, director fees and general and administrative expense, impairment of asset, net of decreases in R&D and legal
and professional expenses. See the table under “ Operating Expenses ” above for more detail.
Other Income (Expenses), Net
Other income, net for the year ended April 30,
2024, was $8,853,771, as compared to other income, net of $2,139,501 in the year ended April 30, 2023. Other income, net for the year
ended April 30, 2024 is attributable to interest income of $3,398,819, changes in fair values of warrant liability of $3,343,000, derivative
liability of $586,000, convertible note receivable of $1,089,000 and warrant asset of $1,818,000, less loss on write-off of long term
asset of $1,572,193 net of other income of $191,145. Other income is attributable to recovery of accrued expenses of $195,000 less income
taxes and foreign exchange loss. 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.
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Loss on write-off of long-term asset
For the year ended April 30, 2024, the Company
recorded an asset loss of $1,572,193, related to the Company’s investment in SG Austria, reducing the carrying value of such investment
to zero. See Note 2 of the Consolidated Financial Statements to this Report for more information.
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, 2024 and 2023.
Year Ended
April 30,
2024
Year Ended
April 30,
2023
Net cash used in operating activities:
$ (2,151,457 )
$ (3,793,731 )
Net cash used in investing activities:
$ (5,000,000 )
$ –
Net cash used in financing activities:
$ (10,708,003 )
$ (13,559,743 )
Effect of currency rate exchange
$ (508 )
$ (7,246 )
Increase (decrease) in cash
$ (17,859,968 )
$ (17,360,720 )
Operating Activities:
The cash and cash equivalents used in operating
activities for the years ended April 30, 2024 and 2023 is a result of our net losses from operations offset by securities issued, assets
impaired, changes in fair values of warrant liability, derivative liability, note receivable, warrant asset, changes to prepaid expenses,
accounts payable and accrued expenses.
Investing Activities:
On November 14, 2023, we entered into a securities
purchase agreement, pursuant to which agreed to purchase a convertible note receivable in the amount of $5 million, convertible into common
stock and warrants (Series A and B) to purchase additional common stock. See Note 3 – Investment in Debt and Equity Securities.
We had no investing activities for the year ended April 30, 2023.
Financing Activities:
The cash and cash equivalents used in financing
activities for the year ended April 30, 2024 was mainly attributable to the Repurchase Programs of approximately $28,198,000, redemption
of preferred stock of approximately $16,161,000, and the cash provided by proceeds from the issuance of preferred stock of approximately
$33,650,000, net of transaction costs. For the year ended April 30, 2023, the cash and cash equivalents used is mainly attributable to
the Repurchase Programs of approximately $13,561,000.
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Critical Accounting Estimates
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.
Fair Value of Financial Instruments
Fair value measurements
are based upon certain market assumptions and pertinent information available as of and during the year ended April 30, 2024. The fair
value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model,
which uses as inputs the fair value of our common stock and estimates for the equity volatility and traded volume volatility of our common
stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to
maturity, dividend rate, a penalty dividend rate, and our probability of default. The fair value
of the warrant liability was estimated using the Black Scholes Model which uses as inputs the following weighted average assumptions:
dividend yield, expected term in years; equity volatility; and risk-free interest rate.
In addition, the Company elects to account for
its convertible note receivable, which meets the required criteria, at fair value at inception and at each subsequent reporting date.
Subsequent changes in fair value, including interest, are recorded as a component of non-operating income (loss) in the consolidated statements
of operations. The Company estimates the fair value of the convertible note receivable using the income approach, which uses as inputs
the fair value of debtor’s common stock and estimates for the equity volatility and volume volatility of debtor’s common stock,
the time to expiration of the convertible note, the discount rate, the stated interest rate compared to the current market rate, the risk-free
interest rate for a period that approximates the time to expiration, and probability of default. Therefore, the estimate of expected future
volatility is based on the actual volatility of debtor’s common stock and historical volatility of debtor’s common stock utilizing
a lookback period consistent with the time to expiration. The time to expiration is based on the contractual maturity date. The risk-free
interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately
equal to the time to expiration. The probability of default is estimated using the S&P Global default rate for companies with a similar
credit rating to debtors. The fair value in our warrant asset investment is estimated using a Monte Carlo simulation model, which uses
as inputs the fair value of the underlying common stock, and estimates for the equity volatility and traded volume volatility of the investee’s
common stock, the risk-free interest rate for a period that approximates the expected life of the warrants, and the expected life of the
warrants.
Impairment of Assets
We determined that the diabetes licensed asset
technology would likely not prove to be a viable technique for the production of insulin producing cells and the treatment of diabetes.
We believe that a buyer of this technology would ascribe a de minimis value to this asset. Therefore, we determined that there should
be a full impairment of the $2 million carrying value. We determined that research in the treatment of diabetes would no longer be pursued
until the Cell-in-a-Box® use in pancreatic cancer treatment can be substantiated in a clinical trial and a viable cell line is acquired.
We determined that due to the SG Austria financial
position, negative book value and viability make for an inconclusive determination of a specific value range of our minority interest
in SG Austria and the value as of the present time is likely minimal. Therefore, we determined that there should be a full impairment
of the approximately $1.6 million carrying value.
New Accounting Pronouncements Effective in Future Periods
For a discussion
of new accounting pronouncements effective in future periods, see “Recent Accounting Pronouncements” in Note 2 of our Notes
to our Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Report.
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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.