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NUVILEX, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 4, 2014

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."

Results of Operations for the Years Ended April 30, 2014

The Company, through its acquisition of Bio Blue Bird, has successfully completed its first acquisition as a biotechnology company. The Company and the principals of SG Austria worked together for the Company to fully acquire Bio Blue Bird, the now wholly-owned subsidiary of the Company that holds the exclusive worldwide licensing rights to the use of our live cell encapsulation technology for treating pancreatic cancer.

The Company is now actively engaged with Austrianova Singapore and other entities in preparation for new clinical trials for the treatment of pancreatic and other cancers using encapsulated live cells in the previous Phase 1/2 clinical trials. We are working together to advance clinical research and development of new cellular-based therapies in the oncology arena. Due to this significant successful acquisition, the Company business is that of a biotechnology company with a specialty in live cell encapsulation. The Company's present focus is in the oncology and diabetes arenas.

Performance Indicators



As our first key performance indicator, the acquisition of our right to use the live cell encapsulation technology has enabled the company to be in a position to immediately move toward preparations for a clinical trial for treating pancreatic cancer and associated symptoms. Non-financial performance indicators used by management to manage and assess how the business is progressing will include, but are not limited to: (i) the ability to acquire appropriate funding for all aspects of the company 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 these 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 ready for clinical trial use.

There are numerous factors required to be completed successfully in order to ensure the final product is ready for use in 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 the company's current and prospective financial position and operating results. Nonetheless, the Company is currently 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.

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Trends, Liquidity and Capital Expenditures

Our 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 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 during the development stage through April 30, 2014 was $68,700,127. Management expects 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 others, 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 and cash equivalents as of April 30, 2014, combined with our financing described below, will provide for our ability to continue to fund our operations through the end of 2015; however, there can be no assurance in this regard. Such actions primarily include raising additional capital from existing investors or securing additional external 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 short-term or long-term liquidity. Overall, the statement of cash flow is the focal point for the Company's liquidity, although the exercising of warrants at appropriate times by investors and officers of the Company will potentially have important positive effects on the liquidity of the Company. Management also believes 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 by present investors and officers of the Company. At present, the Company relies solely on working capital as its liquidity indicator since we do not presently have any open credit lines, although this valuable resource type may at any time become a part of the Company's mechanism(s) for maintenance of its liquidity. Further, as has often been a part of the Company's mechanism(s) to maintain overall liquidity, internal sources of liquidity from others associated with the Company may be utilized if and when needed.

Currently, we do not utilize any advanced methodology of cash management beyond paying normal Company 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, the Company entered into a purchase agreement ("Lincoln Park Purchase Agreement") and a registration rights agreement with Lincoln Park pursuant to which Lincoln Park purchased $2,000,000 of our common stock and the Company had 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, the Company 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 the Company 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 the Company to register for resale all 14,125,000 shares of common stock currently 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.

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On May 28, 2014, the Company 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 has agreed to use its reasonable best efforts to act as the Company's sales agent in connection with the sale of the Company's common stock in "at-the-market" or privately negotiated transactions of up to $50,000,000, depending upon market conditions and at the discretion of the Company. In connection with such transactions, the Company has 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, the Company has agreed to reimburse certain expenses of Chardan in an amount not to exceed $15,000.

Pursuant to the Lincoln Park Termination Agreement, Lincoln Park consented to the entry into of the Chardan Agreement, 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. The Company has issued 1,062,500 shares of its common stock to Lincoln Park in connection with the Lincoln Park Termination Agreement.

With the proceeds received upon the sale of shares of common stock to Lincoln Park and by adjusting the Company's operations and through bridge financing being provided by new investors and existing shareholders, the Company has been able to maintain sufficient capital resources to meet projected cash flow needs. Failure by the Company to generate sufficient liquidity from operations or in raising sufficient capital resources on acceptable terms may have a materially adverse effect on the Company's business, results of operations, liquidity and financial condition.

As of April 30, 2014, we had successfully eliminated the amount of its remaining debt from prior company operations.

We have no off-balance sheet arrangements, special purpose entities, financing partnerships or guarantees

Year ended April 30, 2014 compared to year ended April 30, 2013

Revenue



The report on the revenue indicates a net loss from operations for the year ending April 30, 2014 compared to 2013, increasing $17,294,781 from $1,684,361 to $18,979,142 as a result of multiple factors. Of the expenses during the current year that contributed to the large increase in the loss from operations $768,000 was non-cash expense for stock issued to directors, $13,333,788 was non-cash expense for stock issued to officers for compensation and $3,826,521 was non-cash expense for stock issued for other services. In addition, there was no revenue generated during the year as the Company determined to commit all of the funds to maintain the Company and acquire the necessary components and personnel for its biotechnology operations going forward.

Selling, General and Administrative Expenses

The overall general and administrative expenses during the year ended April 30, 2014 compared to the year ended April 30, 2013, increased $1,624,008 to $2,241,279 from $617,271 in the prior year. The increased can be attributed to increased travel expense and stock issued for services.

Loss from Continuing Operations

For the year ended April 30, 2014, net loss increased $25,655,918 to $27,254,020 compared to $1,598,102 in the prior year. The large increase in the net loss can be attributed to the non-cash expense of stock issued for compensation and services as discussed above as well as a $5,895,000 loss on the conversion of preferred stock and a loss of $3,993,295 on the settlement of debt.


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Source: Edgar Glimpses


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