Alzamend Neuro, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the notes thereto appearing elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” and elsewhere in this Annual Report. Overview We were incorporated on February 26, 2016 as Alzamend Neuro, Inc. under the laws of the State of Delaware. We were formed to acquire and commercialize patented intellectual property and know-how to prevent, treat and cure the crippling and deadly Alzheimer’s. Existing Alzheimer’s treatments only temporarily relieve symptoms but do not slow or halt the underlying worsening of the disease. We have developed a novel approach in an attempt to combat Alzheimer’s through immunotherapy. Critical Accounting Policies and Estimates Research and Development Expenses . Research and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees and lab supplies, as well as fees paid to other entities that conduct certain research and development activities on behalf of our company. We have acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, product or rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is no alternative future use of the rights in other research and development projects. Stock-Based Compensation. We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards. We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date. The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include: · Fair Value of Common Stock. See the subsection titled “– Common Stock Valuations” below; · Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option; · Expected Volatility. Because we do not have an extensive trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded life sciences companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on the similar size, stage in life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available; · Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term), as we do not have sufficient historical data to use any other method to estimate expected term; and · Expected Dividend Yield. We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero. - 49 - Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different. Common Stock Valuations. Prior to our IPO in June 2021, there was no public market for our common stock, and, as a result, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our Board of Directors. To determine the fair value of our common stock underlying option grants, our Board of Directors considered, among other things, input from management, and our Board of Directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors included, but were not limited to: · our results of operations and financial position, including our levels of available capital resources; · our stage of development and material risks related to our business; · progress of our research and development activities; · our business conditions and projections; · the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; · the lack of marketability of our common stock as a private company; · the prices at which we sold shares of our common stock to outside investors in arms-length transactions; · the likelihood of achieving a liquidity event for our security holders, such as an initial public offering or a sale of our company, given prevailing market conditions; · trends and developments in our industry; and · external market conditions affecting the life sciences and biotechnology industry sectors. Income Taxes. We recognize deferred income taxes for the future tax consequences attribute to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. In accordance with Internal Revenue Code § 382 (“IRC § 382”), the future deductibility of our net operating losses (“NOLs”) may be subject to an annual limitation in the event of a change in control as defined by applicable regulations. We have yet to complete a formal study to confirm NOLs are not limited in utilization per IRC § 382 and may reduce applicable deferred tax assets upon completion of such a study, in future periods. The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. We had no uncertain tax positions as of April 30, 2022. Recent Accounting Pronouncements See Note 3 to our financial statements included elsewhere in this report for additional information. Emerging Growth Company Status We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. - 50 - Plan of Operations Our plan of operations is currently focused on the development of both our therapeutic candidates which are at different stages of development. We submitted an IND application for AL001 to the FDA on June 30, 2021. On July 28, 2021, we announced receipt of FDA “Study May Proceed” letter for a Phase I study under our IND application for AL001, a lithium-based ionic cocrystal oral therapy for patients with dementia related to mild, moderate, and severe cognitive impairment associated with Alzheimer’s. On August 17, 2021, we announced that we have contracted Altasciences Clinical Kansas (“Altasciences”) to conduct a six-month Phase I relative bioavailability study for AL001 for dementia related to Alzheimer’s beginning in September 2021. The Phase I first-in-human study is for the purpose of determining potential clinically safe and appropriate dosing for AL001 in future studies. The Phase I study investigated the pharmacokinetics (the movement of drug through the body) of lithium following a single dose of AL001 (the “study drug”) compared to a typical single dose of a marketed 300 mg immediate-release lithium carbonate capsule (the “comparator” – currently indicated to treat mood disorders) in healthy male and female subjects. The lithium and salicylate components of AL001 have been given within the amounts already approved for use in patients. The purpose of the research study is to test the safety, tolerability, and bioavailability (how much and when drug gets in the body) of the study drug, AL001, compared to the currently marketed formulation of the comparator, lithium carbonate. This was to ascertain what AL001 doses should be given, and how often, in subsequent Phase 2 safety and efficacy trials involving Alzheimer’s patients. At least 24 healthy male and female human subjects completed the Phase I trial. On September 13, 2021, we announced that the first group of healthy participants have been dosed in a six-month Phase I relative bioavailability study for AL001 for dementia related to Alzheimer’s. On December 17, 2021, we announced that we received positive topline data from our Phase I clinical trial for AL001. A full report of the Phase I first-in-human study was completed in March 2022. The Phase I study was for the purpose of determining potential clinically safe and appropriate dosing for our ongoing Phase IIA MAD study. AL001 is a lithium-delivery system; it is a lithium-salicylate-L-proline engineered ionic co-crystal under development as an oral treatment for patients with dementia related to mild, moderate and severe cognitive impairment associated with Alzheimer’s. We have an additional preclinical candidate for Alzheimer’s, AL002, which has transitioned from early-stage development to an extensive program of preclinical study and evaluation, which was completed on May 31, 2021 and was followed by a comprehensive report prepared by Charles River Laboratories, Inc., an independent preclinical service provider, received on July 23, 2021. Our preclinical program included a toxicologic evaluation, histopathology study and brain beta amyloid analysis and was expanded to include an immunoglobulin analysis and biodistribution study. On July 30, 2021, we announced that we submitted a pre-IND meeting request for AL002 and supporting briefing documents to the Center for Biological Evaluation and Research of the FDA. On September 30, 2021, we announced that we have received a written response to our meeting request relating to our Type B Pre-IND application from the FDA providing a path for our planned clinical development of AL002. AL002 is a patented method using a mutant-peptide sensitized cell as a cell-based therapeutic vaccine that seeks to restore the ability of a patient’s immunological system to combat Alzheimer’s. Preclinical work supports AL002 being associated with a positive anti-inflammatory response and a decrease in brain amyloid contents. Based on AL002’s positive toxicology results, the biologic nature of this product and the urgent need to deliver treatments for Alzheimer’s to patients, we proposed, and the FDA agreed, to conduct a combined Phase I/II study. We recently announced that the FDA’s agreement to us conducting a combined Phase I/II study, together with our process to identify the right manufacturing partner to provide our study drug materials for the Phase I/II study, has extended the timeline for when we anticipate filing the IND, which is now expected to be done in the third calendar quarter of 2022, and we plan to initiate the clinical trial of AL002 as soon as possible after the approval of the IND by the FDA. On March 28, 2022, we announced receipt of full data set from Phase I clinical trial for AL001. The full data set builds upon topline data previously reported on December 17, 2021. These data affirmed that dose-adjusted relative bioavailability analyses of the rate and extent of lithium absorption in plasma indicate that AL001 at 150 mg dosage is bioavailability to the marketed 300 mg lithium carbonate product and the shapes of the lithium plasma concentration versus time curves are similar. AL001 salicylate plasma concentrations are observed to be well tolerated and consistently within safe limits and the safety profiles of both AL001 and the marketed lithium carbonate capsule were benign. - 51 - During Phase I first-in-human trial, participants received a single dose of AL001 containing lithium in an amount equivalent to 150 mg lithium carbonate; this is the dose proposed by the inventors as likely appropriate for Alzheimer’s treatment when given three times daily. Currently, marketed immediate-release lithium carbonate 300 mg are given three times daily; for example, lithium carbonate 300 mg three times daily is a dose commonly used for bipolar affective disorders. It can be difficult to set the appropriate dose of lithium carbonate and other lithium products due to the small margin between effective and toxic blood levels and to avoid side effects or inadequate treatment outcomes. We see the possibility of providing the benefits from lithium at up to 50% of the currently approved lithium carbonate dosage, with the potential for better outcomes and with elimination of the need for lithium therapeutic drug monitoring. Moreover, the data confirms AL001’s potential as a replacement of the current lithium-based treatments and may provide a treatment for over 40 million Americans suffering from Alzheimer’s and other neurodegenerative diseases and psychiatric disorders. Such findings may allow us to design a development program that will potentially reduce the amount of new data generated to support approval. Bioequivalence may have utility for AL001 when seeking approval for the indications of currently marketed lithium products, and for new indications as a benchmark for safety. Given the systemic pharmacokinetic similarity to marketed immediate-release lithium carbonate products, AL001 is being dosed three times daily in the ongoing Phase IIA MAD study. On April 4, 2022, we announced the appointment of Dr. Terri Hunter, Ph.D., a Technology Transfer Specialist, to our Scientific Advisory Board. During her tenure at the University of South Florida, Dr. Hunter was responsible for managing the patent portfolio associated with Alzamend’s two product candidates, AL001 and AL002. On April 11, 2022, we announced that we contracted with Altasciences and iResearch Atlanta, LLC (“iResearch”) to manage and conduct, respectively, our Phase IIA MAD study in patients with mild to moderate Alzheimer’s. The Phase IIA study, which commenced enrollment in May 2022, is for the purposes of evaluating the safety and tolerability of AL001 under multiple dose, steady-state conditions, and to determine the maximum tolerated dose in patients with mild to moderate Alzheimer’s. On April 28, 2022, we announced that DPL has made an additional investment in our company. On March 28, 2022, we announced receipt of the full data set from Phase I clinical trial for AL001. Based on the achievement of this milestone, under the March 12, 2021 securities purchase agreement, Alzamend sold an additional 2,666,667 shares of its common stock to DPL for $4 million, or $1.50 per share, and issued to DPL warrants to acquire 1,333,333 shares of its common stock with an exercise price of $3.00 per share. On May 5, 2022, we announced that the first patient with mild to moderate Alzheimer’s has been dosed in a 12-month Phase IIA MAD study for dementia related to Alzheimer’s. The Phase IIA study will evaluate the safety and tolerability of AL001 under multiple-dose, steady-state conditions and determine the maximum tolerated dose in patients diagnosed with mild to moderate Alzheimer’s. Lithium has been well characterized for safety and is approved/marketed in multiple formulations for bipolar affective disorders. Lithium dosing for the MAD cohorts is based on a fraction of the usual dose for treatment of bipolar affective disorder (i.e., AL001 lithium content at a lithium carbonate equivalent of 300 mg three times daily, daily total of 900 mg), with the target dose for Alzheimer’s treatment at half of that lithium carbonate equivalent value (150 mg three times daily, daily total of 450 mg). In each cohort, consisting of six active and two placebo patients (as per randomization), multiple ascending doses will be administered three times daily for 14 days under fasted conditions (at least 1 hour before or 4 hours after meals) up to tolerability/safety limits. The lithium and salicylate components of AL001 will be given within the amounts already approved for use in patients. Up to 40 subjects will complete the Phase IIA trial. The maximum tolerated dose will then be used for further studies. Topline data are expected in December 2022 from this study. On May 17, 2022, we announced that we have submitted a Pre-IND meeting request for AL001 and supporting briefing documents to the FDA for the treatment of bipolar disorder, MDD and PTSD. On July 18, 2022, we announced that we received a written response from the FDA. Based on the written response from the FDA, we plan to submit separate INDs for bipolar disorder, MDD, and PTSD after completion of the current Phase II MAD clinical trial, which would allow us to initiate Phase II studies in each of those indications. The continuation of our current plan of operations with respect to completing our IND application and our series of human clinical trials for each of our therapeutics requires us to raise additional capital to fund our operations. Because our working capital requirements depend upon numerous factors, including the progress of our preclinical and clinical testing, timing and cost of obtaining regulatory approvals, changes in levels of resources that we devote to the development of manufacturing and marketing capabilities, competitive and technological advances, status of competitors, and our ability to establish collaborative arrangements with other organizations, we will require additional financing to fund future operations. - 52 - Results of Operations Results of Operations for the Year Ended April 30, 2022 Compared to Year Ended April 30, 2021 The following table summarizes the results of our operations for the years ended April 30, 2022 and 2021: For the Year Ended April 30, 2022 2021 $ Change % Change OPERATING EXPENSES Research and development $ 5,201,314 $ 1,310,716 $ 3,890,598 297 % General and administrative 7,118,221 3,641,172 3,477,049 95 % Total operating expenses 12,319,535 4,951,888 7,367,647 149 % Loss from operations (12,319,535 ) (4,951,888 ) (7,367647 ) 149 % OTHER EXPENSE, NET Gain on extinguishment of debt 4,000 62,418 (58,418 ) -94 % Interest expense (46,524 ) (142,421 ) 95,897 -67 % Interest expense - related party - (16,382 ) 16,382 -100 % Interest income - related party - 1,706 (1,706 ) -100 % Total other expense, net (42,524 ) (94,679 ) 52,155 -55 % NET LOSS $ (12,362,059 ) $ (5,046,567 ) $ (7,315,492 ) 145 % Basic and diluted net loss per common share $ (0.14 ) $ (0.07 ) $ (0.07 ) * Basic and diluted weighted average common shares outstanding 89,095,274 72,650,073 * * Not meaningful Revenue We were formed on February 26, 2016 to acquire and commercialize patented intellectual property and know-how to prevent, treat and cure the crippling and deadly disease, Alzheimer’s. We currently have only two product candidates, AL001 and AL002. These products are in the preclinical stage of development and will require extensive clinical study, review and evaluation, regulatory review and approval, significant marketing efforts and substantial investment before either or both of them, and any respective successors, will provide us with any revenue. We did not generate any revenues during the years ended April 30, 2022 and 2021, and we do not anticipate that we will generate revenue for the foreseeable future. Research and Development Expenses Research and development expenses for the years ended April 30, 2022 and 2021 were $5.2 million and $1.3 million, respectively. As reflected in the table below, research and development expenses primarily consisted of professional fees, licenses and fees, as well as stock compensation expense: For the Year Ended April 30, 2022 2021 $ Change % Change Professional fees $ 3,869,032 $ 1,173,464 $ 2,695,568 230 % Licenses and fees 715,000 50,000 665,000 1330 % Stock compensation expense 423,167 87,252 335,915 385 % Other research and development expenses 194,115 - 194,115 * Total research and development expenses $ 5,201,314 $ 1,310,716 $ 3,890,598 297 % * Not meaningful - 53 - Professional Fees During the years ended April 30, 2022 and 2021, we reported incurring professional fees of $3.9 million and $1.2 million, respectively, which were principally comprised of professional fees attributed to various types of scientific services, including FDA consulting services. The increase relates to professional fees incurred related to the Phase I study for AL001 for dementia related to Alzheimer’s. Licenses and Fees There are certain initial license fees and milestone payments required to be paid to the University of South Florida and the Licensor, for the licenses of the technologies, pursuant to the terms of the Standard Exclusive License Agreement with Sublicensing Terms. During the year ended April 30, 2022, we incurred $715,000 in license fees related to completion of the Phase I study for AL001 for dementia related to Alzheimer’s. During the year ended April 30, 2021, we incurred $50,000 in license fees related to achieving the milestone of conducting pre-IND discussions with the FDA regarding AL001. Stock Compensation Expense During the years ended April 30, 2022 and 2021, we incurred $423,000 and $87,000, respectively, in research and development stock compensation expense related to stock option grants to consultants. All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black Scholes option pricing model. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from authorized shares instead of settling such obligations with cash payments. General and Administrative Expenses General and administrative expenses for the years ended April 30, 2022 and 2021 were $7.1 million and $3.6 million, respectively. As reflected in the table below, general and administrative expenses primarily consisted of the following expense categories: stock compensation expense; professional fees; insurances; as well as salaries and benefits. For the years ended April 30, 2022 and 2021, the remaining general and administrative expenses of $279,000 and $166,000, respectively, primarily consisted of payments for advertising and promotion, transfer agent fees, travel, and other office expenses, none of which is significant individually. For the Year Ended April 30, 2022 2021 $ Change % Change Stock compensation expense $ 3,985,403 $ 2,323,810 $ 1,661,593 72 % Professional fees 714,036 699,910 14,126 * Insurance 714,329 - 714,329 100 % Salary and benefits 873,013 451,921 421,092 93 % Licenses and fees 250,489 - 250,489 100 % Management services 302,089 - 302,089 100 % Other general and administrative expenses 278,862 165,531 113,331 * Total general and administrative expenses $ 7,118,221 $ 3,641,172 $ 3,477,049 95 % * Not meaningful Stock Compensation Expense During the years ended April 30, 2022 and 2021, we incurred general and administrative stock compensation expense of $4.0 million and $2.3 million, respectively, related to stock option grants to executives, employees and consultants as well as shares issued for services to Spartan Capital Securities, LLC (“Spartan Capital”). All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black Scholes option pricing model. We valued the shares issued for services at their intrinsic value on the date of issuance. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from authorized shares instead of settling such obligations with cash payments. Salaries and Benefits The second largest component of general and administrative expenses is salaries and benefits expense. During the years ended April 30, 2022 and 2021, we incurred $873,000 and $452,000, respectively, in employee-related expenses. As of April 30, 2022, we had four full-time and four part-time employees. - 54 - Insurance Expense During the year ended April 30, 2022, we incurred insurance expense of $714,000, which was primarily directors and officers insurance that was required as part of the IPO process. Professional Fees During the years ended April 30, 2022 and 2021, we reported professional fees of $714,000 and $700,000, respectively, which were principally comprised of the following items: Year Ended April 30, 2022 · In June 2017, we entered into a five-year consulting agreement with Spartan Capital pursuant to which Spartan Capital agreed to provide consulting services with respect to general corporate matters. In December 2017, we paid to Spartan Capital a consulting fee of $1.4 million for the services to be rendered over the 60-month term of this consulting agreement. During the year ended April 30, 2022, we recorded an expense of $248,000 as a result of this consulting agreement. · During the year ended April 30, 2022, we incurred $249,000 in audit and tax fees, $89,000 in legal fees, $88,000 in related party consulting and $40,000 in investor relations expenses. Year Ended April 30, 2021 · During the year ended April 30, 2021, we recorded an expense of $280,000 in connection with the five-year consulting agreement with Spartan Capital. · In June 2019, we entered into a two-year uplisting agreement (the “Uplisting Agreement”) with Spartan Capital pursuant to which Spartan Capital agreed to provide consulting services with respect to a potential public offering. Compensation under this agreement consisted of a cash payment in the amount of $475,000 and the issuance of 500,000 shares of common stock. We are amortizing the cost of these services over the two-year term of the Uplisting Agreement. During the year ended April 30, 2021, we recorded an expense of $263,000 in connection with the Uplisting Agreement. The Uplisting Agreement was terminated on March 3, 2021. · During the year ended April 30, 2021, we incurred $107,000 in audit fees, $26,000 in legal fees and $24,000 in investor relations expenses. Other Expense, Net Gain on Extinguishment of Debt In May 2020, we received an advance of $4,000 and loan proceeds in the amount of $62,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after the earlier of (i) 24 weeks after the loan disbursement date and (ii) December 31, 2020; as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. We used the proceeds for purposes consistent with the PPP. In December 2020, we met the conditions and received forgiveness of the advance of $4,000 and loan of $62,000 and recorded the benefit as a gain on extinguishment of debt. Interest Expense Interest expense was $47,000 for the year ended April 30, 2022 related to the convertible promissory note issued in August 2020, including non-cash interest expense of $13,000 recorded from the amortization of debt discount. Interest expense was $142,000 for the year ended April 30, 2021 related to the convertible promissory note issued in August 2020, including non-cash interest expense of $124,000 recorded from the amortization of debt discount. - 55 - Current and Deferred Income Taxes As of April 30, 2022 and 2021, we had deferred tax assets totaling $10.1 million and $4.4 million, respectively. The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporary differences and net operating loss carryovers are deductible. Management considers the scheduled reversal of deferred tax liabilities, taxes paid in carryover years, projected future taxable income, available tax planning strategies, and other factors in making this assessment. Based on available evidence, management believes it is less likely than not that all of the deferred tax assets will be realized. Accordingly, we have established a 100% valuation allowance. As a result of the full valuation allowance, we did not record an income tax benefit during the years ended April 30, 2022 and 2021. Liquidity and Capital Resources The accompanying financial statements have been prepared on the basis that our company will continue as a going concern. As of April 30, 2022, we had cash of $14.1 million and an accumulated deficit of $29.2 million. We have incurred recurring losses and reported losses for the year ended April 30, 2022 totaling $12.4 million. In the past, we have financed our operations principally through sales of promissory notes and equity securities. In March of 2021, we entered into a securities purchase agreement with DPL, pursuant to which we agreed to sell an aggregate of 6,666,667 shares of common stock for an aggregate of $10 million, or $1.50 per share, which sales will be made in tranches. On March 9, 2021, DPL paid $4 million, less the $1.8 million in prior advances and the surrender for cancellation of the $50,000 convertible promissory note, previously issued to BitNile, for an aggregate of 2,666,667 shares of common stock. Under the terms of the securities purchase agreement, DPL (i) purchased, in July 2021, an additional 1,333,333 shares of common stock upon FDA approval of our IND for our Phase I clinical trials for AL001 for a purchase price of $2 million; and (ii) on April 26, 2022, purchase 2,666,667 shares of common stock upon completion of these Phase I clinical trials for AL001 for a purchase price of $4 million. In addition, we issued DPL warrants to purchase an aggregate of 6,666,667 shares of common stock at an exercise price of $3.00 per share. Finally, we agreed that for a period of 18 months following the date of the payment of the final tranche of $4 million on April 26, 2022, DPL will have the right to invest an additional $10 million on the same terms, except that no specific milestones have been determined with respect to the additional $10 million as of the date of this Annual Report. On June 17, 2021, we announced the closing of our IPO of 2,875,000 shares of common stock at a price to the public of $5.00 per share. The proceeds from the offering to us, net of underwriting discounts and commissions and offering expenses, were approximately $12.9 million. Our common stock is listed on The Nasdaq Capital Market under the ticker symbol “ALZN”. We will need to obtain substantial additional funding in the future for our clinical development activities and continuing operations. If we are unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts. Our future capital requirements will depend on many factors, including: · successful enrollment in and completion of clinical trials; · our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and, if our product candidates are approved, commercial manufacturing; · our ability to maintain our current research and development programs and establish new research and development programs; · addition and retention of key research and development personnel; · our efforts to enhance operational, financial, and information management systems, and hire additional personnel, including personnel to support development of our product candidates; · negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations; · the timing and amount of milestone and other payments we may receive under our collaboration arrangements; · our eventual commercialization plans for our product candidates; · the costs involved in prosecuting, defending, and enforcing patent claims and other intellectual property claims; and · the costs and timing of regulatory approvals. A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. We expect to continue to incur losses for the foreseeable future and need to raise additional capital until we are able to generate revenues from operations sufficient to fund our development and commercial operations. However, based on our current business plan, we believe that our cash and cash equivalents at April 30, 2022, are sufficient to meet our anticipated cash requirements during the twelve-month period subsequent to the issuance of the financial statements included in this Annual Report. - 56 - Cash Flows The following table summarizes our cash flows for the years ended April 30, 2022 and 2021: For the Year Ended April 30, 2022 2021 Net cash provided by (used in): Operating activities $ (6,613,990 ) $ (2,712,027 ) Investing activities (106,458 ) 100,915 Financing activities 18,854,989 4,450,097 Net increase in cash and cash equivalents $ 12,134,541 $ 1,838,985 Operating Activities During the year ended April 30, 2022, net cash used in operating activities was $6.6 million. This consisted primarily of a net loss of $12.4 million, partially offset by non-cash charges of $4.4 million in stock-based compensation expense and an increase in our net operating assets and liabilities of $1.3 million. The increase in our net operating assets and liabilities was due to an increase in accounts payable and accrued expenses and a decrease in prepaid expenses and other current assets. Prepaid expenses decreased primarily from the amortization of Spartan Capital consulting fees in the amount of $280,000 and offering costs in the amount of $353,000. During the year ended April 30, 2021, net cash used in operating activities was $2.7 million. This consisted primarily of a net loss of $5.0 million, offset by non-cash charges of $2.4 million in stock-based compensation expense and a decrease in our net operating assets and liabilities of $152,000. The decrease in our net operating assets and liabilities was due to a decrease in accounts payable and accrued expenses and an increase in prepaid expenses and other current assets. Investing Activities During the year ended April 30, 2022, net cash used in investing activities was $106,000, from the purchase of equipment and machinery. We purchased a CliniMACS Plus instrument to be used on the ALZN002 project at the University of Miami. The machine was purchased from Miltenyi Biotec and is utilized to separate the monocytes from blood. We purchased this equipment to streamline the development of DCs to create the AL002 vaccine for patients in the 24-months Phase I/II clinical trials. During the year ended April 30, 2021, net cash provided by investing activities was $101,000. This consisted of proceeds from repayment of notes receivable from Avalanche, a related party. In August 2020, the principal and accrued interest on the AVLP Note was paid in full. Financing Activities During the year ended April 30, 2022, net cash provided by financing activities was $18.9 million. This consisted primarily of proceeds from our initial public offering of $12.9 million, net of costs, and proceeds of $6 million from the issuance of common stock and warrants to DPL. On July 28, 2021, we received from the FDA a “Study May Proceed” letter for a Phase IA study under our IND application for AL001. Based on the achievement of this milestone, we sold an additional 1,333,333 shares of common stock to DPL for $2 million, or $1.50 per share, and issued to DPL warrants to acquire 666,667 shares of our common stock with an exercise price of $3.00 per share. On March 28, 2022, we a received the full data set from the Phase I clinical trial for AL001. Based on the achievement of this milestone, we sold an additional 2,666,667 shares of our common stock to DPL for $4.0 million, or $1.50 per share, and issued to DPL warrants to acquire 1,333,333 shares of our common stock with an exercise price of $3.00 per share. During the year ended April 30, 2021, net cash provided by financing activities was $4.5 million. This consisted primarily of proceeds from the issue of common stock and short-term advances from DPL. Contractual Obligations On May 1, 2016, we entered into a Standard Exclusive License Agreement for AL002 with Sublicensing Terms with the Licensor, pursuant to which the Licensor granted us a royalty bearing exclusive worldwide license limited to the field of Alzheimer’s Immunotherapy and Diagnostics, under United States Patent No. 8,188,046, entitled “Amyloid Beta Peptides and Methods of Use,” filed April 7, 2009 and granted May 29, 2012. - 57 - There are certain initial license fees and milestone payments required to be paid by us to the Licensor, pursuant to the terms of license agreements we have entered into with the Licensor. The license agreements for AL002 require us to pay royalty payments of 4% on net sales of products developed from the licensed technology for AL002 while the license agreements for AL001 require that we pay combined royalty payments of 4.5% on net sales of products developed from the licensed technology for AL001. We have already paid an initial license fee of $200,000 for AL002 and an initial license fee of $200,000 for AL001. As an additional licensing fee for the license of AL002, the Licensor received 3,601,809 shares of our common stock. As an additional licensing fee for the license of the AL001 technologies, the Licensor received 2,227,923 shares of our common stock. Minimum royalties for AL001 are $25,000 in 2023, $45,000 in 2024 and $70,000 in 2025 and every year thereafter, for the life of the agreement. Minimum royalties for AL002 are $20,000 in 2022, $40,000 in 2023 and $50,000 in 2024 and every year thereafter, for the life of the respective agreement. Additionally, we are required to pay milestone payments on the due dates to the Licensor for the license of the AL001 technologies and for the AL002 technology, as follows: Original AL001 License: Payment Due Date Event $ 50,000 * Completed September 2019 Pre-IND meeting $ 65,000 * Completed June 2021 ND application filing $ 190,000 * Completed December 2021 Upon first dosing of patient in a clinical trial $ 500,000 * Completed March 2022 Upon Completion of first clinical trial $ 1,250,000 12 months from completion of the first Phase II clinical trial Upon first patient treated in a Phase III clinical trial $ 10,000,000 8 years from the effective date of the agreement Upon FDA approval *Milestone met and completed AL002 License: Payment Due Date Event $ 50,000 * Upon IND application filing Upon IND application filing $ 50,000 12 months from IND application filing date Upon first dosing of patient in first Phase I clinical trial $ 175,000 12 months from first patient dosed in Phase I Upon completion of first Phase I clinical trial $ 500,000 24 months from completion of first Phase I clinical trial Upon completion of first Phase II clinical trial $ 1,000,000 12 months from completion of the first Phase II clinical trial Upon first patient treated in a Phase III clinical trial $ 10,000,000 7 years from the effective date of the agreement Upon FDA BLA approval *Milestone met and completed We have met the pre-IND meeting, IND application filing, and successfully completed the Phase I clinical trial milestones encompassing AL001. If we fail to meet a milestone by its specified date, Licensor may terminate the license agreement. The Licensor was also granted a preemptive right to acquire such shares or other equity securities that may be issued from time to time by us while the Licensor remains the owner of any equity securities of our company. On June 10, 2020, we obtained two (2) additional royalty-bearing exclusive worldwide licenses from the Licensor to a therapy named AL001. One of the additional licenses is for the treatment of neurodegenerative diseases excluding Alzheimer’s and the other license is for the treatment of psychiatric diseases and disorders. There are certain license fees and milestone payments required to be paid pursuant to the terms of the June AL001 License Agreements. Under each of the June AL001 License Agreements, a royalty payment of 3% is required on net sales of products developed from the licensed technology. For the two additional AL001 licenses, in the aggregate, we paid initial license fees of $20,000. Additionally, under each of the June AL001 License Agreements, we are required to pay milestone payments on the due dates to the Licensor for the license of the technology, as follows: - 58 - Additional AL001 Licenses: Payment Due Date Event $ 50,000 Upon IND application filing IND application filing $ 150,000 12 months from IND filing date Upon first dosing of patient in a clinical trial $ 400,000 12 months from first patient dosing Upon Completion of first clinical trial $ 1,000,000 36 months from completion of the first Phase II clinical trial Upon first patient treated in a Phase III clinical trial $ 8,000,000 8 years from the effective date of the agreement First commercial sale Recent Accounting Standards For information about recent accounting pronouncements that may impact our financial statements, please refer to Note 3 of Notes to Financial Statements under the heading “Recent Accounting Standards.” ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Because we are a smaller reporting company, this section is not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this Item 8 are included in this Annual Report following Item 16 hereof. As a smaller reporting company, we are not required to provide supplementary financial information. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.