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.
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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.
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.
The terms of the Preferred Shares are as set forth
in a Certificate of Designations (the “Certificate of Designations”), which was filed with the Secretary of the State of Nevada
on May 10, 2023. The Preferred Shares are convertible into common stock (the “Conversion Shares”) at the election of the holder
at any time at an initial conversion price of $4.00 (the “Conversion Price”). The Conversion Price is subject to customary
adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any
issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable
Conversion Price (subject to certain exceptions). We are required to settle the Preferred Shares in equal monthly installments, commencing
on November 9, 2023. The amortization payments due upon such redemption are payable, at our election, in cash, or subject to certain limitations,
in shares of common stock valued at the lower of (i) the Conversion Price then in effect and (ii) the greater of (A) a 20% discount to
the average of the three lowest closing prices of our common stock during the thirty trading day period immediately prior to the date
the amortization payment is due or (B) the lower of $0.556 and 20% of the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq
Stock Market) on the date of receipt of Nasdaq Stockholder Approval (as defined below); provided that if the amount set forth in clause
B is the lowest effective price, we will be required to pay the amortization payment in cash. We may require holders to convert their
Preferred Shares into Conversion Shares if the closing price of the common stock exceeds $6.00 per share for 20 consecutive trading days
and the daily trading volume of the common stock exceeds 1,000,000 shares per day during the same period and certain equity conditions
described in the Certificate of Designations are satisfied.
The holders of the Preferred Shares are entitled
to dividends of 4% per annum, compounded monthly, which are payable in cash or shares of common stock at our option, in accordance with
the terms of the Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the
Certificate of Designations), the Preferred Shares will accrue dividends at the rate of 15% per annum. The holders of Preferred Shares
have no voting rights on account of the Preferred Shares, other than with respect to certain matters affecting the rights of the Preferred
Shares.
Notwithstanding the foregoing, our ability to
settle conversions and make amortization payments using shares of common stock is subject to certain limitations set forth in the Certificate
of Designations, including a limit on the number of shares that may be issued until the time, if any, that our stockholders have approved
the issuance of more than 19.9% of the our outstanding shares of common stock in accordance with Nasdaq listing standards (the “Nasdaq
Stockholder Approval”). We received Nasdaq Stockholder Approval at its special meeting of stockholders held on August 31, 2023.
Further, the Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares
of common stock issuable upon conversion of, or as part of any amortization payment under, the Certificate of Designations or Warrants.
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The Certificate of Designations includes certain
Triggering Events (as defined in the Certificate of Designations), including, among other things, the failure to file and maintain an
effective registration statement covering the sale of the holder’s securities registrable pursuant to a registration rights agreement
entered into by us and the Investors simultaneously with the Purchase Agreement and our failure to pay any amounts due to the holders
of the Preferred Shares when due. In connection with a Triggering Event, each holder of Preferred Shares will be able to require us to
redeem in cash any or all of the holder’s Preferred Shares at a premium set forth in the Certificate of Designations.
As of April 30, 2025, all preferred shares were
redeemed and no remaining obligations exist.
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 initial annual interest payment was paid in stock. 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. During the years ended April 30, 2025 and 2024, the Notes earned $300,000 and $137,500, respectively. On
November 21, 2024, we received a settlement of twelve months of interest in the form of 315,790 shares of Femasys common stock. The fair
value of the shares was measured at April 30, 2025, resulting in an unrealized gain of $66,316.
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.
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.
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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 expired on November 21, 2024.
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.
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). In April
2025, the conversion price was adjusted to $0.1832 per share as a result of stock option grants. 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.
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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 initial 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 initial 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 April 2025, the exercise price for both the Long-Term Warrants and Short-Term Warrants was adjusted
to $0.1832 per share. As a result of the exercise price adjustment, the number of warrant shares attributable to both the Long-Term and
Short-Term Warrants increased to 38,209,611 each.
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.
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.
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Liquidity and Capital Resources
As of April 30, 2025, our cash and cash equivalents
totaled approximately $15.2 million, compared to approximately $50.2 million as of April 30, 2024. Working capital was approximately $19.5
million as of April 30, 2025, and approximately $43 million as of April 30, 2024. The decrease in cash is attributable to our investment
in TNF, the redemption of preferred stock, the repurchase of our common stock pursuant to the Repurchase Programs, recorded as treasury
stock and 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.
Year ended April 30, 2025, compared to year
ended April 30, 2024
Revenue
We had no revenues in the fiscal years ended April
30, 2025, and 2024.
Operating Expenses
Our total operating expenses during the year ended
April 30, 2025 were $4,377,862, representing a decrease of $4,142,146 compared to the year ended April 30, 2024. The decrease is mainly
attributable to decreases in compensation expenses, director fees, impairment of asset, legal and professional and general and administrative
expenses, net of an increase in R&D.
Research and development expenses
R&D expense was $438,416 for the year ended
April 30, 2025, as compared to $407,431 for the year ended April 30, 2024, an increase of $30,985. The increase in cost is primarily due
to entering into an agreement with consultants to conduct additional research into the treatment of pancreatic cancer.
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General and administrative expenses
The majority of our operating losses from operations
are from general and administrative expenses. General and administrative expenses consist primarily of costs associated with our overall
operations and with being a public company. These costs include personnel, legal and professional services, insurance, investor relations
and compliance related fees. These expenses were $3,939,446 and $6,112,577, respectively, for the years ended April 30, 2025 and 2024,
a decrease of $2,173,131, or 36%. Compensation expenses decreased by $37,210 to a reduction in accrued vacation. Director fees decreased
by $585,271 due to a reduction in equity compensation and payments made to directors. Investor relations decreased by $198,364 due to
having two stockholder meetings in 2024 and one meeting in 2025. Legal and professional fees decreased by $300,266 primarily due to a
reduction in legal fees relating to non-recurring legal issues. Warrant issuance costs decrease of $913,640 incurred in 2024 were non-recurring
in 2025.
Impairment asset impairment
For the year ended April 30, 2024, we impaired
a license in the amount of $2,000,000.
Other Income (Expenses), Net
Other income, net for the year ended April 30,
2025, was $35,033,912, as compared to other income, net of $8,853,771 in the year ended April 30, 2024. Other income, net for the year
ended April 30, 2025 is attributable to interest income of $1,415,561, changes in fair values of warrant liability of $10,446,000, derivative
liability of $2,184,000, convertible note receivable of $941,000, preferred stock investment – TNF of $5,063,950, and gain on related
party investment – TNF of $21,395,734 and unrealized gain on the fair value of marketable securities of $66,316, less decreases
in the fair value of Femasys warrant asset of $2,091,000, TNF warrant asset of $2,367,684, settlement of legal complaint of $2,019,000
and other expenses of $965. Other income, net for the year ended April 30, 2024 of $8,853,771 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. For the years ended April 30,
2025 and 2024, we recorded an asset loss of $0 and $1,572,193, respectively, related to the Company’s investment in SG Austria,
reducing the carrying value of such investment to zero.
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, 2025 and 2024.
Year Ended
April 30,
2025
Year Ended
April 30,
2024
Net cash used in operating activities:
$ (2,978,296 )
$ (2,151,457 )
Net cash used in investing activities:
$ (7,000,000 )
$ (5,000,000 )
Net cash used in financing activities:
$ (25,029,151 )
$ (10,708,003 )
Effect of currency rate exchange
$ (358 )
$ (508 )
Decrease in cash
$ (35,007,805 )
$ (17,859,968 )
Operating Activities:
The cash used in operating activities for the
year ended April 30, 2025 is a result of our net income of $30,656,050, offset by non-cash transactions, change in fair value of
warrant asset in Femasys of $2,091,000 and legal settlement of $1,550,000, stock based compensation of $478,637, legal settlement
warrant liability of $469,000, change in fair value of TNF warrants of $2,367,684, offset by the gain on related party investment of
$(21,395,734) the changes in fair value of warrant liability of $(10,446,000), investment – TNF of $(5,063,950), derivative
liability of $(2,184,000), convertible note receivable of $(941,000), change in unrealized gain of marketable securities of
$(66,316), non-cash interest income of $(300,000), and changes to prepaid expenses, accounts payable, accrued expenses, and accrued
dividends totaling $(193,667).
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The cash used in operating activities for the
year ended April 30, 2024 is a result of our net income of $333,763, convertible note receivable of $(1,089,000), changes in fair value
of warrant liability of $(3,343,000), derivative liability of $(586,000), warrant asset – Femasys of $(1,818,000), other non-cash
adjustments of $(195,000) offset by stock based compensation of $674,693, asset impairment of $2,000,000, loss on long term asset of $1,572,193,
and changes to prepaid expenses, accounts payable and accrued expenses of $298,894.
Investing Activities:
The cash used in investing activities for the
year ended April 30, 2025 is mainly attributable to our entry into the TNF Purchase Agreement with a public company operating in the medical
industry, Pursuant to the TNF Purchase Agreement, we purchased (i) 7,000 shares of TNF’s Series G Convertible Preferred Stock (the
“Preferred Shares” or “Series G Preferred Stock”), representing approximately 33% of TNF’s issued and outstanding
share capital on an as-converted basis (and approximately 78% of all shares of Series G Preferred Stock outstanding), at a price of $1.816
per Preferred Share, which are convertible into 3,854,626 shares of Common Stock (as defined below); (ii) warrants to purchase up to 3,854,626
shares of TNF’s Common Stock with a five-year term; and (iii) warrants to purchase up to 3,854,626 shares of TNF’s Common
Stock with a 18-month, for an aggregate purchase price of $7,000,000.
The cash used in investing activities for the
year ended April 30, 2024 is mainly attributable to our entry into a Securities Purchase Agreement (the “Femasys Purchase Agreement”)
with Femasys Inc. (“Femasys”), pursuant to which we purchased from Femasys for a sum of $5,000,000, (i) senior unsecured convertible
notes (the “Femasys Notes”) in an aggregate principal amount of $5,000,000, convertible into shares of Femasys common stock,
par value $0.001 per share (the “Femasys Shares”) at a conversion price of $1.18 per share, (ii) Series A Warrants (the “Series
A Warrants”) to purchase up to an aggregate of 4,237,288 Femasys Shares at an exercise price of $1.18 per share, and (iii) Series
B Warrants (the “Series B Warrants”, together with the Series A Warrants, the “Femasys Warrants,” and, together
with the Notes, the “Femasys Securities”) to purchase up to an aggregate of 4,237,288 Femasys Shares at an exercise price
of $1.475 per share. The Series B Warrants expired on November 21, 2024.
Financing Activities:
The cash used in financing activities for the
year ended April 30, 2025 is mainly attributable to the repurchase of common stock of approximately $2,542,000 and redemption of preferred
stock of approximately $22,487,000.The cash 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, offset by the cash provided
by proceeds from the issuance of preferred stock of approximately $33,650,000, net of transaction costs.
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.
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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, 2025. 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, we elect 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.
We estimate 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.
The fair value of the convertible note receivable
using the income approach, which uses as inputs the fair value of debtor’s common stock and estimates for the equity volatility
and volume volatility of debtor’s common stock, the time to expiration of the convertible note, the discount rate, the stated interest
rate compared to the current market rate, the risk-free interest rate for a period that approximates the time to expiration, and probability
of default. Therefore, the estimate of expected future volatility is based on the actual volatility of debtor’s common stock and
historical volatility of debtor’s common stock utilizing a lookback period consistent with the time to expiration. The time to expiration
is based on the contractual maturity date. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in
effect at the time of measurement for time periods approximately equal to the time to expiration. Probability of default is estimated
using the S&P Global default rate for companies with a similar credit rating to debtor’s
Fair Value of Long-Lived 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.
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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
In August 2023, the FASB issued ASU 2023-05 –
Business Combinations – Joint Venture Formations (Subtopic 805-60), which requires public entities that qualify as a joint venture
or corporate joint venture to establish a new basis of accounting upon formation. The guidance is effective for our annual periods beginning
May 1, 2025, and early adoption is permitted. We are evaluating the impact of adoption of this standard on its financial statements and
disclosures but does not expect it to have a material effect on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09
- Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within
their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose
both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items
meet a quantitative threshold. The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received,
by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold.
The guidance is effective for our annual periods beginning May 1, 2025 on a prospective basis, with a retrospective option, and early
adoption is permitted. We are evaluating the impact of adoption of this standard on its financial statements and disclosures but does
not expect it to have a material effect on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03
(“ASU 2024-03”), Disaggregation of Income Statement Expenses. The guidance requires additional, disaggregated disclosure about
certain income statement expense line items. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after
December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted, and is required to be
applied prospectively with the option of retrospective application. We are currently evaluating the impact on the consolidated financial
statements and related disclosures.
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.