Pharmacyte Biotech, Inc. — filing summary
Entity and period mismatch: The supplied filing is for Nuvilex, Inc., not Pharmacyte Biotech, Inc. It is a Form 10-Q for the six months ended October 31, 2011, including the quarter ended that date; financial statements are unaudited. The company described its strategy as developing and marketing health and biotechnology products, with product sales primarily from Cinnergen.
Financial results and position
| Metric | Three months ended Oct. 31, 2011 | Six months ended Oct. 31, 2011 | Comparable 2010 period |
|---|---|---|---|
| Revenue | $19,844 | $39,606 | $15,869 quarter; $42,829 six months |
| Gross profit / margin | $13,808 / 69.6% | $17,895 / 45.2% | $13,015 / 82.0% quarter; $33,048 / 77.2% six months |
| Operating expenses | $417,539 | $1,074,224 | $32,193 quarter; $131,561 six months |
| Net loss | $437,152 | $1,123,170 | $45,820 quarter; $180,079 six months |
- At October 31, 2011, cash was $14,506, current assets $606,491, and current liabilities $3,521,037; reported working capital deficit was $2,914,546. Total assets were $1,725,551 and total liabilities $3,521,037.
- All $2,366,746 of reported short-term debt was classified as current; accrued interest was an additional $346,384. Six-month interest expense was $66,841.
- Six-month cash used in operations was $171,195; investing cash outflow was $560,000, described as payments toward an acquisition. Financing provided $688,500, including $621,000 from stock sales and net related-party borrowing. Ending cash fell by $42,695.
- Common shares outstanding were 374,337,581 at October 31 and 378,162,581 as of December 12, 2011. The company recorded substantial stock compensation and stock payable.
Material changes and management commentary
- Six-month revenue declined 8% year over year, while quarterly revenue increased year over year. Management attributed the softer six-month results to restarting product sales, pricing changes, and stronger activity in the prior-year period.
- Six-month operating expenses increased sharply, particularly compensation expense ($628,327), sales and marketing ($128,730), and general and administrative expense ($249,052). Management cited stock compensation, restarting operations, and legal and professional costs. Quarterly expenses were lower than in the preceding quarter, according to management.
- The company paid $621,000 for stock during the six months and received $83,500 in related-party borrowings. It reported relying on investor support and bridge financing to fund operations.
- The proposed SG Austria asset acquisition, including Austrianova Singapore and BioBlueBird assets and pancreatic cancer treatment-related work, was not complete at the reporting date. The balance sheet included $560,000 prepaid on acquisition; the filing says $780,000 had been paid by December 12. Further funding and a share exchange remained necessary, and the original agreement contemplated raising approximately $3 million. The parties had extended the agreement through December 2011.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, a $39.1 million accumulated deficit, negative working capital, and dependence on additional funding. Management’s plans included cost restraint, asset sale or lease, revenue growth, and completing the SG Austria transaction; there is no quantified operating guidance.
- Cornerstone Bank dispute: The bank sued a subsidiary in July 2011 and sought foreclosure on its Cherry Hill, New Jersey property. Management said a loss of $750,000–$1 million was possible, with a worst case of full liability plus fees. The bank also sought to enforce a purported pledge of 14,605,614 common shares. The company recorded $730,281 related to the shares.
- The Cherry Hill property was carried at $1,081,000 and reclassified from held for sale to held and used because it had not been sold within one year. The related mortgage and other subsidiary obligations contributed to current debt classification.
- CK-41 remained delinquent on contractual purEffect royalty payments and penalties; the company said collection was uncertain and it was considering its options.
- Management assessed internal control over financial reporting as ineffective, citing timely and accurate filing. The filing also identifies financing, dilution, product demand, competition, regulatory, and execution risks.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Nuvilex, not Pharmacyte Biotech.
- Check the current status and full funding, share-exchange, and closing conditions of the SG Austria acquisition, including the use and recoverability of acquisition prepayments.
- Review developments and potential financial exposure in the Cornerstone Bank foreclosure and share-pledge litigation.
- Assess near-term liquidity, debt maturity and repayment obligations, and the availability and terms of further financing.
- Reconcile share issuances, stock compensation, stock payable, and subsequent share-count changes, and monitor remediation of ineffective financial-reporting controls.