PharmaCyte Biotech, Inc. (including, where appropriate, its subsidiaries, “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 the Company’s common stock, $0.0001 par value per share (“common stock”), 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 common stock and of options to purchase common stock to certain directors and officers of the Company.  The nature and impact of these adjustments are more particularly described below. See also Note 16, Quarterly Financial Information (Unaudited), to the consolidated financial statements and schedule and the consolidated notes thereto (the “Restated Financial Statements”), for the impact of these adjustments to the fourth quarter of the year ended April 30, 2015.

The adjustments described above relate to the Company’s issuance of certain warrants to purchase common stock with a cashless exercise feature (“cashless warrants”) in connection with its entry into a marketing and consulting agreement (“Consultant Agreement”) with a consultant on March 23, 2015.  The Company accounted for the cashless warrants as a derivative liability, as disclosed in our Annual Report on Form 10-K for the year ended April 30, 2015, which was filed with the Securities and Exchange Commission (“Commission”) on July 29, 2015 (the “Original Filing”). However, upon further analysis, the Company determined that the cashless warrants should have been accounted for as equity in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) in the Original Filing. 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 certain warrants to purchase common stock with a cash exercise feature (“cash warrants”) and the cashless warrants should have been recorded as a prepaid asset and amortized over the term of the Consultant Agreement in accordance with GAAP in the Original Filing. 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 amount of $434,754 on its consolidated statements of operations for the year ended April 30, 2015, and increased prepaid assets by the amount of $1,349,024, net of amortization, and decreased by the amount of $492,049 total current liabilities on its consolidated balance sheet as of April 30, 2015, as set forth in the Restated Financial Statements.  As a result of these adjustments, the Company also 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 this Note 1A and Note 9 to the Restated Financial Statements, the Company accounted for the expense of the cashless warrants for the year ended April 30, 2015 using the Black-Scholes option pricing model, which requires the exercise of significant judgment on the part of management and estimates for the inputs used in the model.  The following reflects the weighted-average assumptions used for purposes of the model:  risk-free interest rate of 1.41%; expected lives of the warrants of 5 years; expected volatility of 144%; no expected dividend yield; and the number of warrants of 10,000,000.

The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends.  The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life.  The expected lives are based on the remaining contractual lives of the related cashless warrants at the valuation date.  The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded common stock.

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 resulted in a decrease of $926,803 to reported net loss.  In addition, as set forth in the Restated Financial Statements, the correction to the treatment of the cashless warrant expense also resulted in an increase in consolidated other income in the net amount of $492,049 and an initial increase to consolidated general and administrative expenses of $914,270, reduced by the reclassification of $1,349,024 to prepaid expense, for a net reduction to consolidated general and administrative expenses in the amount of $434,754 in the Company’s consolidated statements of operations for the year ended for the year ended April 30, 2015. 

As set forth in the Restated Financial Statements, with respect to the consolidated statement of cash flows for the year ended April 30, 2015, the adjustments described above resulted in a decrease in net loss of $926,803, an increase in stock based compensation for warrants in the amount of $914,270, a reduction in loss on derivative liability in the amount of $492,049 and an increase in current assets (prepaid expenses) in the amount of $1,349,024.

Further, the Company also restated two disclosures in Note 7, Common Stock Transactions, to the Company’s consolidated financial statements contained in the Original Filing, as set forth in restated Note 7 to the Restated Financial Statements.  The first disclosure correction relates to the issuance of options to directors and officers to purchase 25 million shares of common stock during the year ended April 30, 2015.  The disclosure was restated to reflect that the current period non-cash compensation expense was $3,629,731 rather than the $4,307,822 as reported in the consolidated statements of operations for the year ended April 30, 2015 contained in the Original Filing.  The second disclosure correction relates to the issuance of 400,000 shares of common stock to two officers of the Company as compensation during the year ended April 30, 2015 that was originally reported as an issuance of 600,000 shares. The disclosure was restated to reflect that the current period non-cash expense was $87,200 rather than $133,440 as reported in the consolidated statements of operations for the year ended April 30, 2015 contained in the Original Filing and to remove the mention of the issuance of 2,400,000 shares of common stock issued to two officers that was included in a separate disclosure.

The impact of adjustments to the Company’s consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of stockholders’ equity (deficiency) and consolidated statements of cash flows as of and for the fiscal year ended April 30, 2015 is as follows: