$PMCB Form 10-K/A

The Company restated its consolidated financial statements as of and for the year ended April 30, 2015 to reflect adjustments made to correct the treatment of the issuance of certain shares of common stock and certain warrants and certain other matters, as further described below, resulting in a material understatement to assets, a material overstatement to liabilities and a material understatement to stockholders’ equity for the fourth quarter of the year ended April 30, 2015, as well as corrections to disclosures relating to certain issuances of options of common stock to certain directors and officers of the Company. The impact of the restatement is reflected below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Restated Financial Statements contained in this Amended Filing.

The adjustments described above relate to the Company’s issuance of certain cashless warrants in connection with its entry into the Consultant Agreement with a consultant on March 23, 2015. The Company accounted for the cashless warrants as a derivative liability in the Original Filing. However, upon further analysis, the Company determined that the cashless warrants should have been accounted for as equity in accordance with U.S. GAAP. Additionally, the Company determined that the Consultant Agreement, issuance of shares of common stock to the consultant pursuant to the Consultant Agreement and the issuance of the cash warrants and the cashless warrants to the consultant should have been recorded as a prepaid asset and amortized over the term of the Consultant Agreement in accordance with U.S. GAAP. In the Original Filing, the Company recorded a derivative liability of $492,049 on its consolidated balance sheets as of and for the year ended April 30, 2015. As a result of the Company’s determination that the cashless warrants should be accounted for as equity, and that the Consultant Agreement, cash warrants and cashless warrants should be accounted for as a prepaid asset, the Company decreased general and administrative expenses by the net amount of $434,754 on its consolidated statements of operations for the year ended April 30, 2015, and increased prepaid expenses and other assets by the amount of $1,349,024, net of amortization, and decreased by the amount of $492,049 its total current liabilities on its consolidated balance sheet as of April 30, 2015, as set forth in the Restated Financial Statements. Moreover, the Company recorded a decrease to its accumulated deficit in the amount of $926,803, an increase to additional paid in capital in the amount of $914,270 and an increase to total stockholders’ equity in the amount of $1,841,073. As set forth in the Restated Financial Statements, the effect of the timing of the recognition of the cashless warrant expense and the reclassification of the Consultant Agreement, cash warrants and cashless warrants to prepaid assets also resulted in a decrease of $926,803 to reported net loss.

This summary does not purport to be a complete discussion of the impact of the restatement described above and additional effects of the restatement are presented below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Restated Financial Statements contained in this Amended Filing, including, but not limited to, Note 1A to the Restated Financial Statements.

The following discussion may contain forward-looking statements that involve risks and uncertainties. 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.”

Overview

We are a clinical stage biotechnology company focused on developing and preparing to commercialize treatments for cancer and diabetes based upon our proprietary cellulose-based live cell encapsulation technology, which we refer to as Cell-in-a-Box�. We are working to advance clinical research and development of new cellular-based therapies in the oncology and diabetes arenas. We are now actively engaged with Austrianova and other entities in preparation for clinical trials for the treatment of pancreatic cancer and its symptoms using encapsulated live cells similar to those used in the previous Phase 1/2 and Phase 2 clinical trials discussed above. We are also involved in preclinical studies to development treatment for insulin dependent diabetes.

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 cells and having them encapsulated for the planned preclinical studies and clinical trials; (iv) have regulatory work completed to enable studies and trials to be submitted to regulatory agencies; (v) initiate all purity and toxicology cellular assessments; and (vi) ensure completion of cGMP produced encapsulated cells to use in our clinical trials.

There are numerous factors required to be completed successfully in order to ensure our final product candidates are ready for use in our clinical trials. Therefore, 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. From our assessments to date, we do not believe there are factors which will cause materially different amounts to be reported than those presented in this Report and aim to assess this regularly to provide the most accurate information to our shareholders.

Quarterly Financial Data (As Restated)

The following table sets forth unaudited statements of operations data for each quarter during our most recent two fiscal years. This quarterly information has been derived from our unaudited condensed financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods covered. The quarterly financial data should be read in conjunction with our consolidated financial statements and related notes. The operating results for any quarter are not necessarily indicative of the operating results for any future period.

                                        Quarter          Quarter          Quarter          Quarter
                                         Ended            Ended            Ended            Ended
                                        31 July           31 Oct           31 Jan          30 April
2015
Net revenue                           $          -     $          -     $          -     $          -
Cost of revenue                                  -                -                -                -
Gross profit                                     -                -                -                -
Operating expenses                       1,583,160        6,200,845        1,456,554        4,020,176
Other income (expenses), net                (1,664 )      3,336,402           (1,496 )           (213 )
Net loss                              $ (1,584,824 )   $ (2,864,443 )   $ (1,458,050 )   $ (4,020,389 )
Net loss per common share, Basic
and Diluted                           $      (0.00 )   $      (0.01 )   $      (0.00 )   $      (0.01 )




                                        Quarter          Quarter         Quarter          Quarter
                                         Ended            Ended           Ended            Ended
                                        31 July           31 Oct          31 Jan         30 April
2014
Net revenue                           $          -     $          -     $        -     $           -
Cost of revenue                                  -                -              -                 -
Gross profit                                     -                -              -                 -
Operating expenses                       1,400,691          448,570        681,080        16,448,801
Other income (expenses), net            (3,265,676 )     (5,209,500 )      222,308           (22,010 )
Net loss                              $ (4,666,367 )   $ (5,658,070 )   $ (458,772 )   $ (16,470,811 )
Net loss per common share, Basic
and Diluted                           $      (0.01 )   $      (0.01 )   $    (0.00 )   $       (0.03 )

Our consolidated financial statements and related disclosures have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue in existence. We have not generated any revenues and have not yet achieved profitable operations. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. In addition, development activities, preclinical studies, clinical trials and commercialization of our product candidates will require significant additional financing. Our deficit accumulated through April 30, 2015 was $78,627,833. We expect to incur substantial and increasing losses in future periods.

Our ability to successfully pursue our business is subject to certain risks and uncertainties, including, among other things, uncertainty of product development, competition from third parties, uncertainty of capital availability, uncertainty in our ability to enter into agreements with collaborative partners, dependence on third parties and dependence on key personnel. We plan to finance future operations with a combination of proceeds from the issuance of equity, debt, licensing fees and revenues from future product sales, if any. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our planned products. We believe that our cash as of April 30, 2015, combined with the sales of our common stock described below, will provide us with the ability to fund our operations through the end of 2016. However, there can be no assurance in this regard. Such actions primarily include raising additional capital from existing investors or securing additional financing.

From our present assessments, we do not believe there are trends, events or uncertainties that have, or are reasonably likely to have, a material effect on our short-term or long-term liquidity. Our research and development activities are scalable. This means that we can increase or decrease our projected preclinical and clinical projects based on our available cash. We have no contractual obligations to perform clinical trials. We anticipate that, during the latter part of this year or next, we will perform certain clinical trials based on the availability of our cash. The principal source of our cash is the sale of our common stock as part of our S-3 Registration Statement.

Overall, the statement of cash flow is the focal point for our liquidity, although the exercising of warrants and/or options at appropriate times by investors, consultants, officers and directors of us will potentially have important positive effects on our liquidity. We also believe that the relationships between changes in operating results may induce changes in liquidity, in particular material changes in working capital components as seen by both acquisition of new capital through the “at-the-market” facility described below and conversion of warrants and/or options by investors, consultants, officers and directors of us. We rely solely on working capital as our liquidity indicator since we do not presently have any open credit lines, although we may try to obtain credit lines in the future. Further, as has often been a part of our mechanism(s) to maintain overall liquidity, internal sources of liquidity from others associated with us may be utilized if and when needed.

We do not utilize any advanced methodology of cash management beyond paying our normal expenses, yet we have begun to make important risk management policies to maintain success and ease the assessment of our financial condition.

On February 14, 2014, we entered into a purchase agreement (“Lincoln Park Purchase Agreement”) and a registration rights agreement with Lincoln Park Capital Fund, LLC pursuant to which Lincoln Park purchased $2,000,000 of our common stock. Under the Lincoln Park Purchase Agreement, we have the right to sell to Lincoln Park up to $25,000,000 in shares of additional common stock, subject to certain limitations.

On May 28, 2014, we and Lincoln Park entered into a Mutual Termination and Release Agreement (“Lincoln Park Termination Agreement”) terminating the Lincoln Park Purchase Agreement. The Lincoln Park Termination Agreement provides that:
(i) the representations and warranties of Lincoln Park and us contained in the Lincoln Park Purchase Agreement; (ii) the covenants regarding “Variable Rate Transactions” (as defined in the Lincoln Park Purchase Agreement) contained in the Lincoln Park Purchase Agreement (“Variable Rate Covenants”); (iii) the indemnification provisions set forth in Section 9 of the Lincoln Park Purchase Agreement; (iv) the agreements and covenants set forth in the Lincoln Park Purchase Agreement regarding notice, governing law and certain other related administrative provisions; and (v) the obligations of us to register for resale all 14,125,000 shares of common stock then owned by Lincoln Park each survive such termination and continue in full force and effect indefinitely, and provided further that the Variable Rate Covenants will terminate upon the earlier of the one year anniversary of the effectiveness of the registration referred to in the preceding clause (v) (“Effective Date”) and the date on which Lincoln Park has sold all of its shares of common stock.

In addition, Lincoln Park consented to us entering into the Chardan Agreement (as defined below), so long as there are no provisions within the Chardan Agreement that in any manner, directly or indirectly, limit Lincoln Park’s ability to carry out or effect the sale of shares of common stock pursuant to a registration statement or otherwise, or in any manner, directly or indirectly, conflict with the surviving obligations under the Lincoln Park Termination Agreement. We issued 1,062,500 shares of our common stock to Lincoln Park in connection with the Lincoln Park Termination Agreement.

On May 28, 2014, we entered into a financial advisory offering and an at the market offering engagement agreement (“Chardan Agreement”) with Chardan Capital Markets, LLC (“Chardan”) pursuant to which Chardan agreed to use its reasonable best efforts to act as our sales agent in connection with the sale of our common stock in “at-the-market” or privately negotiated transactions of up to $50,000,000, depending upon market conditions and at our discretion. In connection with such transactions, we agreed to pay Chardan: (i) a cash fee of 3% of the gross proceeds from the sale of any shares of common stock sold in an “at-the-market” offering; and (ii) a cash fee of 7% of the aggregate sales price of any distinct blocks of common stock sold under the Chardan Agreement, plus five-year warrants representing 5% of the number of shares of common stock sold. In addition, we agreed to reimburse certain expenses of Chardan in an amount not to exceed $15,000.

With the proceeds received upon the sale of shares of common stock to Lincoln Park, through bridge financing being provided by new investors and existing shareholders and with the sale of our stock under the Chardan Agreement, we have been able to maintain sufficient capital resources to meet projected cash flow needs. If we are unable to raise sufficient funds through the sale of our common stock and we are unable to raise additional capital on acceptable terms through other means, our business, results of operations, liquidity and financial condition will be materially adversely affected. We believe that the “at-the-market” sale of our shares will provide sufficient capital to fund our operations through July 31, 2016. Our current cash expenditures are approximately $250,000 per month. As of July 27, 2015, we had approximately $3,025,000 in cash.

Year ended April 30, 2015 compared to years ended April 30, 2014 and 2013 (As Restated)

Revenue

We had no revenues in the fiscal years ended April 30, 2015 and 2014.

Operating Expenses (As Restated)

As a result of the restatement of our consolidated financial statements for the year ended April 30, 2015 relating to the change in the accounting treatment of cashless warrants and other corrections, consolidated general and administrative expenses (consulting expense) initially increased by $914,270. The reclassifications of the cashless warrants, cash warrants and the common stock issuance under the Consultant Agreement to prepaid expenses reduced consulting expense by $1,349,024 for a net reduction to consolidated general and administrative expenses in the amount of $434,754. Accordingly, consolidated general and administrative expenses decreased from $3,711,243 to $3,276,489 for the year ended April 30, 2015.

The total operating expenses during the year ended April 30, 2015 decreased by $5,718,407 to $13,260,735 from $18,979,142 in the year ended April 30, 2014. The decrease is attributable to a reduction in compensation expense as we awarded less stock based compensation in 2015 than in 2014. For the year ended April 30, 2014, there was an increase in operating expenses of $17,292,241 to $18,979,142 from $1,686,901 in the year ended April 30, 2013. The increase was attributable to an increase in stock based compensation in 2014. The table below provides additional details relating to our operating expenses.

                                                    Change -                               Change -
                                Year ended          Increase                               Increase          Year ended
                                 April 30,       (Decrease) and        Year ended       (Decrease) and        April 30,
Operating expenses:                2015              Percent         April 30, 2014         Percent             2013
Research and development       $   3,476,912     $     3,153,412     $      323,500     $       323,500     $           -
                                                             975 %                                  100 %

Compensation expense           $   6,489,334     $    (7,120,661 )   $   13,609,995     $    12,931,288     $     678,707
                                                             -52 %                                 1905 %

Director fees                  $      18,000     $      (750,000 )   $      768,000     $       768,000     $           -
                                                             -98 %                                  100 %

General and administrative,
legal and sales and
marketing                      $   3,276,489     $    (1,001,158 )   $    4,277,647     $     3,269,453     $   1,008,194
                                                             -23 %                                  324 %

As a result of the restatement of our consolidated financial statements for the year ended April 30, 2015 relating to the change in the accounting treatment of cashless warrants and other corrections, consolidated general and administrative expenses (consulting expense) initially increased by $914,270. The reclassification of cashless warrants, cash warrants and the share issuance under the Consultant Agreement to prepaid expenses resulted in a reduction to consulting expense by the amount of $1,349,024 for a net reduction to consolidated general and administrative expenses in the amount of $434,754. Accordingly, the loss from operations decreased by $434,754 from $13,695,489 to $13,260,735 for the year ended April 30, 2015.

Loss from operations during the year ended April 30, 2015 decreased by $5,718,407 from $18,979,142 in the year ended April 30, 2014 to $13,260,735. The decrease is attributable to a reduction in compensation expense as we awarded less stock based compensation in 2015 than in 2014. For the year ended April 30, 2014, there was an increase in loss from operations of $17,294,781 to $18,979,142 from $1,684,361 in the year ended April 30, 2014. The increase was attributable to an increase in stock based compensation in 2014.

Other income (expenses), net (As Restated)

As a result of the restatement of our consolidated financial statements for the year ended April 30, 2015 relating to the change in the accounting treatment of cashless warrants and other corrections, total other income increased by $492,049 due to the reversal of the unrealized loss on change in the derivative liability. Total other income increased from $2,840,980 to $3,333,092 for the year ended April 30, 2015.

Other income, net for the year ended April 30, 2015 was $3,333,029 as compared to other expense, net of $8,274,878 in the year ended April 30, 2014. Other income, net for the year ended April 30, 2015 is attributable to gain on the recovery of 15.6 million shares from officers and directors as part of three settlements. Other expenses, net for the year ended April 30, 2014 was $8,274,878 as compared to other income, net of $86,259 in the year ended April 30, 2013. Other expenses, net for the year ended April 30, 2014 are attributable to a non-cash expense of $5,895,000 on the conversion of preferred stock, a non-cash expense of $3,993,295 for settlement of debt and a recovery of $1,633,380 on the forgiveness of debt.

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,



                                               Year Ended         Year Ended         Year Ended
                                             April 30, 2015     April 30, 2014     April 30, 2013
Net cash used in operating activities:       $   (4,560,169 )   $   (1,554,708 )   $     (390,426 )
Net cash used in investing activities:       $            -     $   (3,559,069 )   $     (646,750 )
Net cash provided by financing activities:   $    3,641,974     $    8,530,944     $    1,220,756
Effect of currency rate exchange             $        1,462     $            -     $            -
Increase (decrease) in cash                  $     (916,733 )   $    3,417,167     $      183,580

The cash used in operating activities for the years ended April 30, 2015, 2014 and 2013 are a result of our net losses offset by securities issued for services and compensation, changes to prepaid expenses, accounts payable and accrued expenses for 2015 and 2013 and increased by the loss on recovery of shares for compensation and services, the loss on settlement of preferred stock, forgiveness of debt, changes to prepaid expenses, accounts payable and accrued expenses for 2014.

Investing Activities:

The cash used in investing activities is mainly attributable to the purchase of licenses.

Financing Activities:

The cash provided from financing activities is mainly attributable to the proceeds from the sale of our common stock.

Off-Balance Sheet Arrangements

Except as described below, we have no off-balance sheet arrangements that could have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

As we reach certain “milestones” in the progression of the live cell encapsulation technology towards the development of treatments for cancer and diabetes, payments will be made by us to SG Austria or Austrianova. The future royalty and milestone payments are as follows: (i) two percent royalty on all gross sales; (ii) ten percent royalty on gross revenues from sublicensing; (iii) milestone payments of $100,000 after enrollment of the first human patient in the first clinical trial for each product; (iv) $300,000 after the enrollment of the first human patient in the first Phase 3 clinical trial; and (v) $800,000 after obtaining a marketing authorization the Regulatory Agencies. Additional milestone payments of $50,000 after the enrollment of the first veterinary patient for each product and $300,000 after obtaining marketing authorization for each veterinary product are required.

Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, 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 3 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

Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in research and development 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 employee compensation plans are described in Note 8 of the Notes to Financial Statements. 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.

For stock warrants paid in consideration of services rendered by non-employees, we recognize compensation expense in accordance with the requirements of ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”).

Net Income (Loss) Per Share

Basic net income (loss) per common share is computed using the weighted-average number of common shares outstanding. Diluted net income (loss) per common share is computed using the weighted-average number of common shares and common share equivalents outstanding. Potentially dilutive stock options and warrants to purchase approximately 125,419,908, 57,665,600 and 59,433,600 shares at April . . .