Alzamend Neuro, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Alzamend Neuro, Inc. Condensed Balance Sheets (Unaudited) January 31, 2024 April 30, 2023 ASSETS CURRENT ASSETS Cash $ 282,867 $ 5,140,859 Prepaid expenses and other current assets 310,738 447,589 Prepaid expenses - related party - 247,334 TOTAL CURRENT ASSETS 593,605 5,835,782 Property, plant and equipment, net 189,031 79,843 TOTAL ASSETS $ 782,636 $ 5,915,625 LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 3,826,457 $ 2,870,122 TOTAL CURRENT LIABILITIES 3,826,457 2,870,122 LONG-TERM LIABILITIES Warrant liability 742,263 - TOTAL LIABILITIES 4,568,720 2,870,122 COMMITMENTS AND CONTINGENCIES MEZZANINE EQUITY Series B Convertible Preferred Stock, $ 0.0001 stated value per share, 6,000 shares designated; 1,220 and nil 0 issued and outstanding as of January 31, 2024 and April 30, 2023, respectively 477,737 - STOCKHOLDERS’ (DEFICIT) EQUITY Series A Convertible Preferred Stock, $ 0.0001 stated value per share, 1,360,000 shares designated; nil 0 issued and outstanding as of January 31, 2024 and April 30, 2023 - - Common stock, $ 0.0001 par value: 300,000,000 shares authorized; 6,618,766 and 6,462,675 issued and outstanding as of January 31, 2024 and April 30, 2023, respectively 662 646 Additional paid-in capital 48,974,396 62,000,814 Note receivable for common stock – related party - ( 14,883,295 ) Subscription receivable for preferred stock – related party ( 70,000 ) - Accumulated deficit ( 53,168,879 ) ( 44,072,662 ) TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY ( 4,263,821 ) 3,045,503 TOTAL LIABILITIES MEZZANINE AND STOCKHOLDERS’ (DEFICIT) EQUITY $ 782,636 $ 5,915,625 The accompanying notes are an integral part of these unaudited condensed financial statements. 3 Alzamend Neuro, Inc. Condensed Statements of Operations (Unaudited) For the Three Months Ended January 31, For the Nine Months Ended January 31, 2024 2023 2024 2023 OPERATING EXPENSES Research and development $ 1,908,757 $ 2,888,847 $ 6,271,677 $ 5,797,789 General and administrative 751,173 2,534,665 2,815,904 5,767,668 Total operating expenses 2,659,930 5,423,512 9,087,581 11,565,457 Loss from operations ( 2,659,930 ) ( 5,423,512 ) ( 9,087,581 ) ( 11,565,457 ) OTHER EXPENSE, NET Interest expense ( 2,488 ) ( 2,062 ) ( 8,636 ) ( 7,182 ) Total other expense, net ( 2,488 ) ( 2,062 ) ( 8,636 ) ( 7,182 ) NET LOSS $ ( 2,662,418 ) $ ( 5,425,574 ) $ ( 9,096,217 ) $ ( 11,572,639 ) Basic and diluted net loss per common share $ ( 0.38 ) $ ( 0.83 ) $ ( 1.35 ) $ ( 1.78 ) Basic and diluted weighted average common shares outstanding 7,054,319 6,555,078 6,726,926 6,517,698 The accompanying notes are an integral part of these unaudited condensed financial statements. 4 Alzamend Neuro, Inc. Condensed Statements of Stockholders’ Deficit For the Three Months Ended January 31, 2024 (Unaudited) Series A Convertible Additional Note Receivable for Subscription Receivable Preferred Stock Common Stock Paid-In Common Stock - for Preferred Stock - Accumulated Shares Amount Shares Amount Capital Related Party Related Party Deficit Total BALANCES, October 31, 2023 - $ - - 6,469,657 $ 647 $ 62,699,614 $ ( 14,876,293 ) $ - $ ( 50,506,461 ) $ ( 2,682,493 ) Issuance of common stock for cash - - 810,277 81 964,369 - - 964,450 Subscription receivable for issuance of preferred stock - related party - - - - - - ( 70,000 ) - ( 70,000 ) Return of common stock for note receivable - related party - - ( 661,168 ) ( 66 ) ( 14,876,227 ) 14,876,293 - - - Stock-based compensation to employees and consultants - - - - 186,640 - - - 186,640 Net loss - - - - - - - - ( 2,662,418 ) ( 2,662,418 ) BALANCES, January 31, 2024 - $ - - 6,618,766 $ 662 $ 48,974,396 $ - $ ( 70,000 ) $ ( 53,168,879 ) $ ( 4,263,821 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 5 Alzamend Neuro, Inc. Condensed Statements of Stockholders’ Equity For the Three Months Ended January 31, 2023 (Unaudited) Series A Convertible Additional Note Receivable for Preferred Stock Common Stock Paid-In Common Stock - Accumulated Shares Amount Shares Amount Capital Related Party Deficit Total BALANCES, October 31, 2022 - $ - 6,366,286 $ 637 $ 59,011,641 $ ( 14,883,295 ) $ ( 35,341,560 ) $ 8,787,423 Issuance of common stock for related party payable - - 62,222 6 989,328 - - 989,334 Stock-based compensation to employees and consultants - - - - 1,508,322 - - 1,508,322 Net loss - - - - - - ( 5,425,574 ) ( 5,425,574 ) BALANCES, January 31, 2023 - $ - 6,428,508 $ 643 $ 61,509,291 $ ( 14,883,295 ) $ ( 40,767,134 ) $ 5,859,505 The accompanying notes are an integral part of these unaudited condensed financial statements. 6 Alzamend Neuro, Inc. Condensed Statements of Stockholders’ (Deficit) Equity For the Nine Months Ended January 31, 2024 (Unaudited) Series A Convertible Additional Note Receivable for Subscription Receivable Preferred Stock Common Stock Paid-In Common Stock - for Preferred Stock - Accumulated Shares Amount Shares Amount Capital Related Party Related Party Deficit Total BALANCES, April 30, 2023 - $ - 6,462,675 $ 646 $ 62,000,814 $ ( 14,883,295 ) $ - $ ( 44,072,662 ) $ 3,045,503 Issuance of common stock for cash - - 816,426 82 982,455 - - - 982,537 Issuance of common stock for restricted stock awards - - 833 - - - - - - Subscription receivable for issuance of preferred stock – related party - - - - - - ( 70,000 ) - ( 70,000 ) Subscription receivable payment received – related party - - - - ( 7,002 ) 7,002 - - - Return of common stock for note receivable – related party - - ( 661,168 ) ( 66 ) ( 14,876,227 ) 14,876,293 - - - Stock-based compensation to employees and consultants - - - - 874,356 - - - 874,356 Net loss - - - - - - - ( 9,096,217 ) ( 9,096,217 ) BALANCES, January 31, 2024 - $ - 6,618,766 $ 662 $ 48,974,396 $ - $ ( 70,000 ) $ ( 53,168,879 ) $ ( 4,263,821 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 7 Alzamend Neuro, Inc. Condensed Statements of Stockholders’ Equity For the Nine Months Ended January 31, 2023 (Unaudited) Series A Convertible Additional Note Receivable for Preferred Stock Common Stock Paid-In Common Stock - Accumulated Shares Amount Shares Amount Capital Related Party Deficit Total BALANCES, April 30, 2022 - $ - 6,365,453 $ 637 $ 57,428,664 $ ( 14,883,295 ) $ ( 29,194,495 ) $ 13,351,511 Issuance of common stock for restricted stock awards - - 833 - - - - - Stock-based compensation to employees and consultants - - - - 3,091,299 - - 3,091,299 Issuance of common stock for related party payable - - 62,222 6 989,328 - - 989,334 Net loss - - - - - - ( 11,572,639 ) ( 11,572,639 ) BALANCES, January 31, 2023 - $ - 6,428,508 $ 643 $ 61,509,291 $ ( 14,883,295 ) $ ( 40,767,134 ) $ 5,859,505 The accompanying notes are an integral part of these unaudited condensed financial statements. 8 Alzamend Neuro, Inc. Condensed Statements of Cash Flows (Unaudited) For the Nine Months Ended January 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 9,096,217 ) $ ( 11,572,639 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 38,055 17,743 Stock-based compensation to employees and consultants 874,356 3,091,299 Changes in operating assets and liabilities: Prepaid expenses and other current assets 136,851 ( 196,580 ) Prepaid expenses - related party 247,334 492,584 Accounts payable and accrued liabilities 956,335 1,479,623 Net cash used in operating activities ( 6,843,286 ) ( 6,687,970 ) Cash flows from investing activities: Purchase of machinery ( 147,243 ) - Net cash used in investing activities ( 147,243 ) - Cash flows from financing activities: Proceeds from the issuance of common stock, net 982,537 - Proceeds from the issuance of preferred stock - related party 1,150,000 - Net cash provided by financing activities 2,132,537 - Net decrease in cash ( 4,857,992 ) ( 6,687,970 ) Cash at beginning of period 5,140,859 14,063,811 Cash at end of period $ 282,867 $ 7,375,841 Supplemental disclosures of cash flow information: Non-cash financing activities: Return of common stock for note receivable – related party $ ( 14,883,295 ) $ - Issuance of preferred stock for subscription receivable - related party $ 70,000 $ - Fair value of warrants issued in connection with preferred stock – related party $ 742,263 $ - Issuance of common stock for related party payable $ - $ 989,334 The accompanying notes are an integral part of these unaudited condensed financial statements. 9 Alzamend Neuro, Inc. Notes to Unaudited Condensed Financial Statements 1. DESCRIPTION OF BUSINESS Organization Alzamend Neuro, Inc. (the “Company” or “Alzamend”), is a clinical-stage biopharmaceutical company focused on developing novel products for the treatment of Alzheimer’s disease (“Alzheimer’s”), bipolar disorder (“BD”), major depressive disorder (“MDD”) and post-traumatic stress disorder (“PTSD”). With two current product candidates, Alzamend aims to bring treatments or cures to market at a reasonable cost as quickly as possible. The Company’s current pipeline consists of two novel therapeutic drug candidates: (i) a patented ionic cocrystal technology delivering a therapeutic combination of lithium, proline and salicylate, known as AL001, through two royalty-bearing exclusive worldwide licenses from the University of South Florida Research Foundation, Inc., as licensor (the “Licensor”); and (ii) 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, known as ALZN002, through a royalty-bearing exclusive worldwide license from the same Licensor. The Company is devoting substantially all its efforts towards research and development of its two product candidates and raising capital. The Company has not generated any product revenue to date. The Company has financed its operations to date primarily through debt financings and through the sale of its common stock, par value $ 0.0001 per share (“Common Stock”) and its preferred stock, par value $ 0.0001 per share. The Company expects to continue to incur net losses in the foreseeable future. Reverse Stock Split On October 27, 2023, pursuant to the authorization provided by the Company’s stockholders at a special meeting of stockholders, the Company filed an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding Common Stock by a ratio of one-for-fifteen (the “Reverse Split”). The Reverse Split did not affect the number of authorized shares of Common Stock, preferred stock or their respective par value per share. As a result of the Reverse Split, each fifteen shares of Common Stock issued and outstanding prior to the Reverse Split were converted into one share of Common Stock. The Reverse Split became effective in the State of Delaware on October 31, 2023. All share amounts in these condensed financial statements have been updated for all periods presented to reflect the Reverse Split. 2. LIQUIDITY AND GOING CONCERN The accompanying condensed financial statements have been prepared on the basis that the Company will continue as a going concern. As of January 31, 2024, the Company had cash of $ 283,000 , a working capital deficiency of $ 3.2 million, an accumulated deficit of $ 53.2 million and stockholders’ deficit of $ 4.3 million. For the three and nine months ended January 31, 2024, the Company had net losses of $ 2.7 million and $ 9.1 million, respectively. For the nine months ended January 31, 2024, cash used in operating activities was $ 6.8 million. Historically, the Company has financed its operations principally through issuances of equity and debt instruments. The Company believes its current cash on hand is not sufficient to fund its planned operations through one year after the date the condensed financial statements are issued. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that these condensed financial statements are issued. The Company’s inability to continue as a going concern could have a negative impact on the Company, including its ability to obtain needed financing. The Company’s condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should it be unable to continue as a going concern. In order to continue as a going concern, the Company will need to raise additional funds. The Company has raised funds subsequent to the quarter end through an “at-the-market” offering, and plans to seek additional funding through public equity, including the “at-the-market” offering, private equity and debt financings. Additional funds may also be received from the exercise of warrants (Note 7). The terms of any additional financing may adversely affect the holdings or rights of the Company’s stockholders. If the Company is unable to obtain funding, it could be required to delay, reduce or eliminate research and development programs and planned clinical trials which could adversely affect the Company’s business operations. As previously disclosed the Company had anticipated beginning Phase II clinical trials for AL001 additional indications in the first quarter of calendar 2024. Due to the Company’s inability to obtain significant additional financing, the Company has been unable to initiate those clinical trials and reduce its capital deficiency. 10 During the period between February 1, 2024 through March 22, 2024, the Company sold an aggregate of 248,080 shares of Common Stock pursuant to an “at the market offering” (the “ATM Offering”), as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), for gross proceeds of $ 266,000 (Note 9). 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Report on Form 10-K for the year ended April 30, 2023, filed with the SEC on July 27, 2023. In the opinion of management, the accompanying condensed interim financial statements include all adjustments necessary in order to make the condensed financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the condensed financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Report on Form 10-K have been omitted. The accompanying condensed balance sheet at April 30, 2023 has been derived from the audited balance sheet at April 30, 2023 contained in such Form 10-K. Accounting Estimates The preparation of condensed financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. The Company’s significant accounting policies that involve significant judgment and estimates include stock-based compensation, warrant valuation, and valuation of deferred income taxes. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents. As of January 31, 2024 and April 30, 2023, the Company had no cash equivalents. Fair Value of Financial Instruments Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 assumptions: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities including liabilities resulting from imbedded derivatives associated with certain warrants to purchase Common Stock. The fair values of warrants are determined using the Black-Scholes valuation model, a “Level 3” fair value measurement, based on the estimated fair value of Common Stock, volatility based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities, the expected life based on the remaining contractual term of the warrants and the risk free interest rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ contractual life. 11 Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of five years. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Research and Development Expenses Research and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees, clinical trial fees and lab supplies, as well as fees paid to other entities that conduct certain research and development activities on behalf of the Company. The Company has acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, products 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 The Company recognizes stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. The Company’s 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 Company recognizes stock-based compensation expense for restricted stock units on a straight-line basis over the requisite service period and account for forfeitures as they occur. The Company’s stock-based compensation for restricted stocks is based upon the estimated fair value of the Common Stock. The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and the Company uses significantly different assumptions or estimates, the Company’s stock-based compensation could be materially different. Warrants The Company accounts for stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with FASB ASC 480, Distinguishing Liabilities from Equity and FASB ASC 815, Derivatives and Hedging (“ASC 815”) , depending on the specific terms of the warrant agreement. Loss per Common Share The Company utilizes FASB ASC 260, Earnings per Share . Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted loss per common share reflects the potential dilution that could occur if convertible preferred stock, options and warrants were to be exercised or converted or otherwise resulted in the issuance of Common Stock that then shared in the earnings of the entity. Since the effects of outstanding stock options, restricted stock units and warrants are anti-dilutive in the periods presented, shares of Common Stock underlying these instruments have been excluded from the computation of loss per common share. The following sets forth the number of shares of Common Stock underlying outstanding stock options, restricted stock units and warrants that have been excluded from the computation of loss per common share: Schedule of antidilutive securities excluded from computation of earnings per share For the Nine Months Ended January 31, 2024 2023 Stock options (1) 1,210,554 1,210,554 Restricted stock units 2,500 4,167 Warrants 1,563,316 676,649 2,776,370 1,891,370 (1) The Company has excluded 100,000 stock options for the nine months ended January 31, 2024 and 2023, with an exercise price of $0.006, from its anti-dilutive securities as these shares have been included in our determination of basic loss per share as they represent shares issuable for little or no cash consideration upon the satisfaction of certain conditions pursuant to FASB ASC 260-10-45-14. 12 Recent Accounting Standards From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting standards and does not believe the adoption of such standards will have a material impact on its condensed financial statements. 4. NOTE RECEIVABLE FOR COMMON STOCK, RELATED PARTY On April 30, 2019, the Company and Ault Life Sciences Fund, LLC (“ALSF”) entered into a securities purchase agreement for the purchase of 666,666 shares of Common Stock for a total purchase price of $ 15,000,000 , or $22.50 per share with 333,333 warrants with a 5 -year life and an exercise price of $ 45.00 per share and vesting upon issuance (“ALSF Warrants”). The total purchase price of $15,000,000 was in the form of a non-interest bearing note receivable with a 12 -month term from ALSF, a related party. In November 2019, the term of the note receivable was extended to December 31, 2021, and in May 2021, the term of the note receivable was extended to December 31, 2023. The note was secured by a pledge of the purchased shares. As the note receivable from ALSF was related to the issuance of Common Stock, it was recorded as an offset to additional paid-in capital. ALSF is wholly owned by Ault Life Sciences, Inc. (“ALSI”). ALSI is majority owned by Ault & Company, Inc. (“Ault & Co.”). Messrs. Ault, Horne and Nisser, directors of the Company, are also directors of Ault & Co. On January 19, 2024, the Company and ALSF entered into a settlement agreement and release of claims whereby ALSF returned to the Company 661,168 shares of Common Stock and the ALSF Warrants for settlement of the outstanding balance of the note receivable in the amount of $ 14,876,293 . 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets were as follows: Schedule of prepaid expenses and other current assets January 31, 2024 April 30, 2023 Prepaid clinical trial fees $ 149,595 $ 352,635 Prepaid insurance 148,049 92,154 Other prepaid expenses 13,094 2,800 Total prepaid expenses and other current assets $ 310,738 $ 447,589 Prepaid clinical trial fees at January 31, 2024 and April 30, 2023 represented the unused portion of the prepaid clinical trial fees. On June 14, 2023, the Company purchased directors’ and officers’ insurance for 12 months in the amount of $ 337,000 . Prepaid insurance at January 31, 2024 represented the unamortized portion of directors’ and officers’ insurance. 6. STOCK-BASED COMPENSATION 2016 Stock Incentive Plan On April 30, 2016, the Company’s stockholders approved the Company’s 2016 Stock Incentive Plan (the “Plan”). The Plan provides for the issuance of a maximum of 833,333 shares of Common Stock to be offered to the Company’s directors, officers, employees, and consultants. On March 1, 2019, the Company’s stockholders approved an additional 500,000 shares to be available for issuance under the Plan. Options granted under the Plan have an exercise price equal to or greater than the fair value of the underlying Common Stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. The options expire between five and 10 years from the date of grant. Restricted stock awards granted under the Plan are subject to a vesting period determined at the date of grant. 2021 Stock Incentive Plan In February 2021, the Company’s board of directors (the “Board”) adopted, and the stockholders approved, the Alzamend Neuro, Inc. 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the grant to eligible individuals of (1) stock options (incentive and non-statutory), (2) restricted stock, (3) stock appreciation rights, or SARs, (4) restricted stock units, and (5) other stock-based compensation. 13 Stock Subject to the 2021 Plan. The maximum number of shares of Common Stock that may be issued under the 2021 Plan is 666,667 shares, which number will be increased to the extent that compensation granted under the 2021 Plan is forfeited, expires or is settled for cash (except as otherwise provided in the 2021 Plan). Substitute awards (awards made or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company that the Company acquires or any subsidiary of the Company or with which the Company or any subsidiary combines) will not reduce the shares authorized for grant under the 2021 Plan, nor will shares subject to a substitute award be added to the shares available for issuance or transfer under the 2021 Plan. All options that the Company grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. The Company has valued the options at their date of grant utilizing the Black-Scholes option pricing model. As of the date of issuance of these options, there was not an active public market for the Company’s shares. Accordingly, the fair value of the underlying options was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because the Company settles these obligations by issuing shares of Common Stock from its authorized shares instead of settling such obligations with cash payments. A summary of stock option activity for the nine months ended January 31, 2024 is presented below: Schedule of share-based payment arrangement, option, activity Outstanding Options Shares Available for Grant Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value Balance at April 30, 2023 612,778 987,222 $ 18.96 6.18 $ 819,900 Options granted - - $ - - Options exercised - - $ - - Options expired 7,222 ( 7,222 ) $ 75.00 - Balance at January 31, 2024 620,000 980,000 $ 18.96 5.47 $ 85,400 Options vested and expected to vest at January 31, 2024 913,334 $ 17.83 5.22 $ 85,400 Options exercisable at January 31, 2024 897,523 $ 17.62 5.17 $ 174,500 The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the estimated fair value on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options. Restricted stock unit activity for the nine months ended January 31, 2024 is presented below: Schedule of nonvested restricted stock units activity Shares Weighted Average Grant Date Fair Value Unvested at April 30, 2023 3,333 $ 2.50 Granted - - Vested ( 833 ) 2.50 Cancelled - - Unvested at January 31, 2024 2,500 $ 2.50 Performance Contingent Stock Options Granted to Employee On November 26, 2019, the Board granted 283,333 performance- and market-contingent awards to certain key employees and a director. These grants were made outside of the Plan. These awards have an exercise price of $22.50 per share. These awards have multiple separate market triggers for vesting based upon either (i) the successful achievement of tiered target closing prices on a national securities exchange for 90 consecutive trading days later than 180 days after the Company’s initial public offering (“IPO”) for its Common Stock, or (ii) tiered target prices for a change in control transaction. The target prices ranged from $150 per share to $600 per share. In the event any of the stock price milestones are not achieved within three years , the unvested portion of the performance options will be reduced by 25%. 14 On November 22, 2022, the Compensation Committee of the Board modified the performance criteria for these awards. The target price range is now $150 per share to $300 per share. Additionally, if the stock price milestones are now not achieved by November 27, 2026, as opposed to within three years, the unvested portion of the performance options will be reduced by 25%. Due to the significant risks and uncertainties associated with achieving the market-contingent awards, as of January 31, 2024, the Company believed that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost has been recognized for these awards. On November 29, 2022, the Compensation Committee of the Board granted 133,333 performance-based stock option to the Chief Executive Officer at an exercise price of $17.55 per share, of which 50% vest upon the completion and announcement of topline data from the Company’s Phase II clinical trial of AL001 within three years from grant date and the remaining 50% vest upon the completion and announcement of topline data from the Company’s Phase I/IIA clinical trial of ALZN002 within four years from the grant date. During the three months ended January 31, 2023, the Company believed that it was probable that the performance condition of the completion and announcement of topline data from the Company’s Phase II clinical trial of AL001 would be achieved and had recognized the related stock-based compensation. As of January 31, 2024, the Company believed that the achievement of the second performance condition was not probable and, as a result, no compensation cost has been recognized related to Phase I/IIA of ALZN002. Performance Contingent Stock Options Granted to TAMM Net On March 23, 2021, the Company issued performance-based stock options to certain team members at TAMM Net, Inc. (“TAMM Net”) to purchase an aggregate of 30,000 shares of Common Stock at a per share exercise price of $22.50 per share, of which 50% would vest upon the completion of Phase I of AL001 by March 31, 2022, and the remaining 50% would vest upon completion of Phase I/IIA of ALZN002 by December 31, 2022. The performance goal of completing Phase I of AL001 was achieved on March 22, 2022, and the Company recognized stock-based compensation related to the completion of Phase I of AL001 over the implied service period to complete this milestone. On January 19, 2023, the Board modified the performance criteria for these awards. The remaining 50% of the grant will now vest upon the completion and announcement of topline data of the first cohort from a Phase I/IIA clinical trial of ALZN002 on/or before March 31, 2024. Due to the significant risks and uncertainties associated with achieving the completion of Phase I/IIA for ALZN002, as of January 31, 2024, the Company believed that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost has been recognized for these awards related to ALZN002. Performance Contingent Stock Options Granted to Consultants On October 14, 2021, the Company issued performance-based stock options to two consultants to purchase an aggregate of 13,333 shares of Common Stock with an exercise price of $36.30 per share, of which 3,333 vest upon completion of each of the Phase II clinical trials of AL001 for a BD indication, AL001 for a PTSD indication, AL001 for an MDD indication and ALZN002 for an Alzheimer’s indication. On January 19, 2023, the Board modified the performance criteria for these awards. The revised grant will vest 25% if the Company (a) completes and announces topline data from a Phase II clinical trial of AL001 and ALZN002, as applicable, that would support a new drug application for the drug candidate and the indication listed below, and (b) obtained a “Study May Proceed” letter from the U.S. Food and Drug Administration (“FDA”) for the additional Investigational New Drug (“IND”) on/or before December 31, 2023, as follows: (i) AL001 – bipolar disorder; (ii) AL001- major depressive disorder; (iii) AL001 – post-traumatic stress disorder; and (iv) ALZN002 – Alzheimer’s disease. During the nine months ended January 31, 2024, the Company filed INDs for BD and MDD and received a “Study May Proceed” letter for BD in October 2023 and MDD in November 2023. As a result, 50% of the performance grant vested and the Company recognized stock-based compensation related to the vesting and the probability of achieving the MDD criteria. During the three months ended January 31, 2024, the Company filed an IND for PTSD and received a “Study May Proceed” letter. As a result, 25% of the performance grant vested and the Company recognized stock-based compensation related to the vesting of achieving the PTSD criteria. As of January 31, 2024, the Company believed that the achievement of the remaining requisite performance conditions was not probable and, as a result, no compensation cost has been recognized for these awards related to ALZN002 – Alzheimer’s disease. 15 Stock-Based Compensation Expense The Company’s results of operations included expenses relating to stock-based compensation for three and nine months ended January 31, 2024 and 2023 comprised as follows: Schedule of stock-based compensation For the Three Months Ended January 31, For the Nine Months Ended January 31, 2024 2023 2024 2023 Research and development $ 71,302 $ ( 42,589 ) $ 213,905 $ ( 42,589 ) General and administrative 115,338 1,550,911 660,451 3,133,888 Total $ 186,640 $ 1,508,322 $ 874,356 $ 3,091,299 As of January 31, 2024, total unamortized stock-based compensation expense related to unvested employee and non-employee awards that are expected to vest was $ 418,000 . The weighted-average period over which such stock-based compensation expense will be recognized was approximately 1.6 years. 7. WARRANTS On January 31, 2024, the Company issued a warrant to purchase 1,220,000 shares of Common Stock at an exercise price of $1.20 in connection with the sale of convertible preferred stock to Ault Lending for $1,220,000. Based on the terms of the Company’s warrant agreement, the Company accounted for the warrant as a liability. The following table summarizes information about Common Stock warrants outstanding and exercisable at January 31, 2024: Schedule of common stock warrants outstanding Outstanding Exercisable Weighted Average Weighted Weighted Remaining Average Average Exercise Number Contractual Exercise Number Exercise Price Outstanding Life (years) Price Exercisable Price $ 1.20 1,220,000 5.5 $ 1.20 - - $ 15.00 33,333 0.1 $ 15.00 33,333 $ 15.00 $ 26.25 10,756 0.8 $ 26.25 10,756 $ 26.25 $ 45.00 295,144 2.1 $ 45.00 295,144 $ 45.00 $ 93.75 4,083 2.4 $ 93.75 4,083 $ 93.75 $ 1.20 - $ 93.75 1,563,316 4.7 $ 10.18 343,316 $ 10.18 8. COMMITMENTS AND CONTINGENCIES Contractual Obligations On July 2, 2018, the Company entered into two Standard Exclusive License Agreements with Sublicensing Terms for AL001 with the Licensor and its affiliate, the University of South Florida (the “AL001 Licenses”), pursuant to which the Licensor granted the Company a royalty bearing exclusive worldwide licenses limited to the field of Alzheimer’s, under United States Patent Nos. (i) 9,840,521, entitled “Organic Anion Lithium Ionic Cocrystal Compounds and Compositions”, filed September 24, 2015 and granted December 12, 2017, and (ii) 9,603,869, entitled “Lithium Co-Crystals for Treatment of Neuropsychiatric Disorders”, filed May 21, 2016 and granted March 28, 2017. On February 1, 2019, the Company entered into the First Amendments to the AL001 Licenses, on March 30, 2021, the Company entered into the Second Amendments to the AL001 Licenses and on June 8, 2023, the Company entered into the Third Amendments to the AL001 Licenses (collectively, the “AL001 License Agreements”). The Third Amendments to the AL001 Licenses modified the timing of the payments for the license fees. The AL001 License Agreements require that the Company pay combined royalty payments of 4.5% on net sales of products developed from the licensed technology for AL001. The Company has already paid an initial license fee of $200,000 for AL001. As an additional licensing fee for the license of the AL001 technologies, the Licensor received 148,528 shares of Common Stock. Minimum royalties for AL001 License Agreements are $40,000 on the first anniversary of the first commercial sale, $80,000 on the second anniversary of the first commercial sale and $100,000 on the third anniversary of the first commercial sale and every year thereafter, for the life of the AL001 License Agreements. 16 On May 1, 2016, the Company entered into a Standard Exclusive License Agreement with Sublicensing Terms for ALZN002 with the Licensor (the “ALZN002 License”), pursuant to which the Licensor granted the Company 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. On August 18, 2017, the Company entered into the First Amendment to the ALZN002 License, on May 7, 2018, the Company entered into the Second Amendment to the ALZN002 License, on January 31, 2019, the Company entered into the Third Amendment to the ALZN002 License, on January 24, 2020, the Company entered into the Fourth Amendment to the ALZN002 License, on March 30, 2021, the Company entered into the Fifth Amendment to the ALZN002 License, on April 17, 2023, the Company entered into the Sixth Amendment to the ALZN002 License and on December 11, 2023, the Company entered into the Seventh Amendment to the ALZN002 License (collectively, the “ALZN002 License Agreement”). The Seventh Amendment to the ALZN002 License modified the timing of the payments for the license fees. The ALZN002 License Agreement requires the Company to pay royalty payments of 4% on net sales of products developed from the licensed technology for ALZN002. The Company has already paid an initial license fee of $200,000 for ALZN002. As an additional licensing fee for the license of ALZN002, the Licensor received 240,120 shares of Common Stock. Minimum royalties for ALZN002 are $20,000 on the first anniversary of the first commercial sale, $40,000 on the second anniversary of the first commercial sale and $50,000 on the third anniversary of the first commercial sale and every year thereafter, for the life of the ALZN002 License Agreement. On November 19, 2019, the Company entered into two Standard Exclusive License Agreements with Sublicensing Terms for two additional indications of AL001 with the Licensor (the “November AL001 License”), pursuant to which the Licensor granted the Company a royalty bearing exclusive worldwide licenses limited to the fields of (i) neurodegenerative diseases excluding Alzheimer’s and (ii) psychiatric diseases and disorders. On March 30, 2021, the Company entered into the First Amendments to the November AL001 License and on April 17, 2023, the Company entered into the Second Amendments to the November AL001 License (collectively, the “November AL001 License Agreements”). The Second Amendments to the November AL001 License modified the timing of the payments for the license fees. The November AL001 License Agreements require the Company to pay royalty payments of 3% on net sales of products developed from the licensed technology for AL001 in those fields. The Company paid an initial license fee of $20,000 for the additional indications. Minimum royalties for November AL001 License Agreements are $40,000 on the first anniversary of the first commercial sale, $80,000 on the second anniversary of the first commercial sale and $100,000 on the third anniversary of the first commercial sale and every year thereafter, for the life of the November AL001 License Agreements. These license agreements have an indefinite term that continue until the later of the date no licensed patent under the applicable agreement remains a pending application or enforceable patent, the end date of any period of market exclusivity granted by a governmental regulatory body, or the date on which the Company’s obligations to pay royalties expire under the applicable license agreement. Under the various license agreements, if the Company fails 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 the Company while the Licensor remains the owner of any equity securities of the Company. Additionally, the Company is required to pay milestone payments on the due dates to the Licensor for the license of the AL001 technologies and for the ALZN002 technology, as follows: Original AL001 Licenses: Schedule of contractual obligation, fiscal year maturity Payment Due Date Event $ 50,000 * Completed September 2019 Pre-IND meeting $ 65,000 * Completed June 2021 IND 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 March 2025 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 17 ALZN002 License: Payment Due Date $ 50,000 * Completed January 2022 $ 50,000 Upon first dosing of patient in first Phase I clinical trial $ 500,000 Upon completion of first Phase IIb clinical trial $ 1,000,000 Upon first patient treated in a Phase III clinical trial $ 10,000,000 Upon first commercial sale * Milestone met and completed Additional AL001 Licenses: Payment Due Date Event $ 2,000,000 March 2026 Upon first patient treated in a Phase III clinical trial $ 16,000,000 August 1, 2029 First commercial sale 9. EQUITY TRANSACTIONS The Company is authorized to issue 10,000,000 shares of Preferred Stock $ 0.0001 par value. The Board has designated 1,360,000 shares as Series A Convertible Preferred Stock and 6,000 shares as Series B Convertible Preferred Stock. The rights, preferences, privileges and restrictions on the remaining authorized 8,634,000 shares of Preferred Stock have not been determined. The Board is authorized to create a new series of preferred shares and determine the number of shares, as well as the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred shares. Series A Convertible Preferred Stock As of January 31, 2024, there were no shares of Series A Convertible Preferred Stock issued or outstanding. Series B Convertible Preferred Stock On January 31, 2024, the Company and Ault Lending, entered into a securities purchase agreement (the “AL SPA”) for the purchase of up to 6,000 shares of Series B Convertible Preferred Stock and warrants to purchase shares up to 6,000,000 shares of the Company’s Common Stock. The AL SPA provides that Ault Lending may purchase up to $6 million of Series B Convertible Preferred Stock in one or more closings. Ault Lending has the right to purchase up to $2 million of Series B Convertible Preferred Stock, on or before March 31, 2024, and the right to purchase up to $4 million of Series B Convertible Preferred Stock after March 31, 2024, but on or before March 31, 2025 (the “Termination Date”). The Agreement will automatically terminate if the final closing has not occurred prior to the Termination Date. On January 31, 2024, the Company sold 1,220 shares of Series B Convertible Preferred Stock and warrants to purchase 1,220,000 shares of Common Stock with an exercise price of $ 1.20 , for a total purchase price of $ 1.22 million. The purchase price was paid by the cancellation of $ 1.15 million of cash advances made by Ault Lending to the Company between November 9, 2023 and January 31, 2024 and a subscription receivable of $ 70,000 . The Series B Convertible Preferred Stock has a stated value of $1,000 per share (“Stated Value”) and does not accrue dividends. Each share of Series B Convertible Preferred Stock is convertible into a number of shares of Common Stock determined by dividing the Stated Value by $1.00 (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of Common Stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The holders of the Series B Convertible Preferred Stock are entitled to vote with the Common Stock as a single class on an as-converted basis, subject to applicable law provisions of the Delaware General Company Law and Nasdaq, provided however, that for purposes of complying with Nasdaq regulations, the conversion price, for purposes of determining the number of votes the holder of Series B Convertible Preferred Stock is entitled to cast, shall not be lower than $0.873 (the “Voting Floor Price”), which represents the closing sale price of the Common Stock on the trading day immediately prior to the Execution Date. The Voting Floor Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions. Upon a liquidation event the holders of Series B Convertible Preferred Stock receive a liquidation preference ahead of Common Stock holders. 18 The warrants have an exercise price of $1.20 (the “Exercise Price”) and become exercisable on the first business day after the six-month anniversary of issuance (the “Initial Exercise Date”) and have a five-year term, expiring on the fifth anniversary of the Initial Exercise Date. The Exercise Price is subject to adjustment in the event of an issuance of Common Stock at a price per share lower than the Exercise Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. Common Stock ALSF Investment On April 30, 2019, the Company and ALSF entered into a securities purchase agreement (the “SPA”) for the purchase of 666,667 shares of Common Stock for a total purchase price of $ 15,000,000 , or $ 22.50 per share with 333,333 warrants with a 5 -year life and an exercise price of $ 45.00 per share and vesting upon issuance. The total purchase price of $ 15,000,000 was in the form of a non-interest bearing note receivable with a 12 -month term from ALSF, a related party. The note was secured by a pledge of the purchased shares. Pursuant to the SPA, ALSF was entitled to full ratchet anti-dilution protection, most-favored nation status, denying the Company the right to enter into a variable rate transaction absent its consent, a right to participate in any future financing the Company may consummate and to have all the shares of Common Stock to which it is entitled under the SPA registered under the Securities Act within 180 days of the final closing of the IPO. In May 2021, the term of the note receivable was extended to December 31, 2023. The note was secured by a pledge of the purchased shares. On January 19, 2024, the Company and ALSF entered into a settlement agreement and release of claims whereby ALSF returned to the Company 661,168 shares of Common Stock and the ALSF Warrants for settlement of the outstanding balance of the note receivable in the amount of $ 14,876,293 . At-the-Market Offering On September 8, 2023, the Company entered into an At-the-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, as sales agent to sell shares of its Common stock, having an aggregate offering price of up to approximately $9.8 million (the “Shares”) from time to time, through the ATM Offering. On September 8, 2023, the Company filed a prospectus supplement with the SEC relating to the offer and sale of up to approximately $9.8 million in shares of Common Stock in the ATM Offering. The offer and sale of the Shares will be made pursuant to the Company’s effective “shelf” registration statement on Form S-3 and an accompanying base prospectus contained therein (Registration Statement No. 333-273610) filed with the SEC on August 2, 2023 and declared effective by the SEC on August 10, 2023. During the nine months ended January 31, 2024, the Company sold an aggregate of 816,426 shares of Common Stock pursuant to the ATM Offering for gross proceeds of $1.0 million and net proceeds of $ 983,000 . In accordance with Nasdaq listing rule 5810(c)(3)(A), the Company has 180 calendar days, or until July 30, 2024, to regain compliance. The Deficiency Letter states that to regain compliance, the bid price for the Common Stock must close at $1.00 per share or more (the “Minimum Bid Price”) for a minimum of 10 consecutive business days during the compliance period ending July 30, 2024. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that its Common Stock will be subject to delisting. At that time, the Company may appeal any such delisting determination to a Nasdaq hearings panel. The Deficiency Letter has no immediate effect on the listing of the Common Stock, and the Common Stock continues to trade on the Nasdaq Capital Market under the symbol “ALZN.” The Company intends to actively monitor the closing bid price for the Common Stock between now and July 30, 2024, and may, if appropriate, evaluate available options to resolve the deficiency and regain compliance with the Minimum Bid Price requirement. While the Company is exercising diligent efforts to maintain the listing of its Common Stock on Nasdaq, there can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price or maintain compliance with the other Nasdaq listing standards. 19 10. OTHER RELATED PARTY TRANSACTIONS In November 2022, the Company entered into a marketing and brand development agreement with Ault Alliance, Inc. (“AULT”), effective August 1, 2022, whereby AULT will provide various marketing services over twelve months valued at $1.4 million. The Company had the right to pay the fee in cash or shares of its common stock with a value of $22.50 per share. On November 11, 2022, the Company elected to pay the fee with 62,222 shares of its common stock. The Company recorded the value of the agreement using the closing price of the Company’s common stock on November 11, 2022, and amortizes the expense over twelve months beginning in August 2022. At January 31, 2024, the balance of related party prepaid expenses was zero. 11. SUBSEQUENT EVENTS During the period between February 1, 2024 through March 22, 2024, the Company sold an aggregate of 248,080 shares of Common Stock pursuant to the ATM Offering for gross proceeds of $ 266,000 . On March 21, 2024, the Company amended its Amended and Restated Certificate of Designations for its Series B Convertible Preferred Stock to remove certain change of control language. On March 21, 2024, the Company and Ault Lending amended the warrant issued to Ault Lending as part of the AL SPA to remove certain anti-dilution language. 20