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 potentially cure the crippling and deadly Alzheimer’s. With our two product candidates, we aim to bring treatment or cures not only for Alzheimer’s, but also, bipolar disorder (“BD”), major depressive disorder (“MDD”) and post-traumatic stress disorder (“PTSD”). Existing Alzheimer’s treatments only temporarily relieve symptoms but do not, to our knowledge, slow or halt the underlying worsening of the disease. We have developed a novel approach 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: · 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. 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. - 50 - 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. Income Taxes. We recognize deferred income taxes for the future tax consequences attributed 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, 2024. Preferred Stock Classification. We analyze the terms of our preferred stock using Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity , to determine whether our preferred stock should be classified as a liability or equity, and if classified as equity, permanent or temporary. Common criteria we consider are redemption provisions, conversion options, cumulative of mandatory fixed dividends, discretionary dividends based on earning, voting rights and collateral requirements. 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. Plan of Operations We intend to develop and commercialize therapeutics that are better than existing treatments and have the potential to significantly improve the lives of individuals afflicted by Alzheimer’s, BD, MDD and PTSD. To achieve these goals, we are pursuing the following key business strategies: · Advance clinical development of AL001 for Alzheimer’s, BD, MDD and PTSD treatment; · Advance clinical development of ALZN002 for Alzheimer’s treatment; · Expand our pipeline of pharmaceuticals to include additional indications for AL001 and delivery methods; · Focus on translational and functional endpoints to efficiently develop product candidates; and · Optimize the value of AL001 and ALZN002 in major markets. Our pipeline consists of two novel therapeutic drug candidates: · AL001 - A patented ionic cocrystal technology delivering a therapeutic combination of lithium, salicylate and proline through three royalty-bearing exclusive worldwide licenses from the University of South Florida Research Foundation, Inc., as licensor (the “Licensor”); and · ALZN002 - 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 through a royalty-bearing exclusive worldwide license from the Licensor. - 51 - Our most advanced product candidate (lead product) licensed and in clinical development in humans is AL001, an ionic cocrystal of lithium for the treatment of Alzheimer’s, BD, MDD and PTSD. Based on our preclinical data involving mice models, AL001 treatment prevented cognitive deficits, depression and irritability and is superior in improving associative learning and memory and irritability compared with lithium carbonate treatments, supporting the potential of this lithium formulation for the treatment of Alzheimer’s, BD, MDD and PTSD in humans. Lithium has been marketed for more than 35 years and human toxicology regarding lithium use has been well characterized, potentially mitigating the regulatory burden for safety data. On May 5, 2022, we initiated a multiple-dose, steady-state, double-blind, ascending dose safety, tolerability, pharmacokinetic clinical trial of AL001 in patients with mild to moderate Alzheimer’s and healthy subjects. We completed the Phase IIA clinical trial in March 2023 and announced positive topline data in June 2023. We announced that we successfully identified a maximum tolerated dose (“MTD”) for development of AL001 from a multiple-ascending dose study as assessed by an independent safety review committee. This dose, providing lithium at a lithium carbonate equivalent dose of 240 mg 3-times daily (“TID”), is designed to be unlikely to require lithium therapeutic drug monitoring (“TDM”). Also, this MTD is risk mitigated for the purpose of treating fragile populations, such as Alzheimer’s patients. Lithium is a commonly prescribed drug for manic episodes in BP type 1 as well as maintenance therapy of BP in patients with a history of manic episodes. Lithium is also prescribed off-label for MDD, BP and treatment of PTSD, among other disorders. Lithium was the first mood stabilizer approved by the FDA and is still a first-line treatment option (considered the “gold standard”) but is underutilized perhaps because of the need for TDM. Lithium was the first drug that required TDM by regulatory authorities in product labelling because the effective and safe range of therapeutic drug blood concentrations is narrow and well defined for treatment of BP when using lithium salts. Excursions above this range can be toxic, and below can impair effectiveness. Based on the results from our Phase IIA MAD study, we plan to initiate two safety and efficacy clinical trials in subjects with mild to moderate dementia of the Alzheimer’s type. Additionally, we are investigating the potential of AL001 for patients suffering from BD, MDD and PTSD, and submitted IND applications to the FDA for these indications. The IND for BD was submitted in August 2023 and we received a “study may proceed” letter from the FDA in September 2023. The IND for MDD was submitted in October 2023 and we received a “study may proceed” letter from the FDA in November 2023. The IND for PTSD was submitted in November 2023 and we received a “study may proceed” from the FDA in December 2023. We intend to initiate clinical trials in 2025 at this MTD to determine relative increased lithium levels in the brain compared to a marketed lithium salt for Alzheimer’s, BD, MDD and PTSD, based on published mouse studies that predict that lithium can be given at lower doses for equivalent therapeutic benefit when treating with AL001. For example, the goal is to replace a 300 mg TID lithium carbonate dose for treatment of BD with a 240 mg TID AL001 lithium equivalent, which represents a daily decrease of 20% of lithium given to a patient. On September 28, 2022, we submitted an IND application to the FDA for ALZN002 and received a “study may proceed” letter on October 31, 2022. The product candidate is an immunotherapy vaccine designed to treat mild to moderate dementia of the Alzheimer’s type. ALZN002 is a proprietary “active” immunotherapy product, which means it is produced by each patient’s immune system. It consists of autologous DCs that are activated white blood cells taken from each individual patient so that they can be engineered outside of the body to attack Alzheimer’s-related amyloid-beta proteins. These DCs are pulsed with a novel amyloid-beta peptide (E22W) designed to bolster the ability of the patient’s immune system to combat Alzheimer’s; the goal being to foster tolerance to treatment for safety purposes while stimulating the immune system to reduce the brain’s beta-amyloid protein burden, resulting in reduced Alzheimer’s signs and symptoms. Compared to passive immunization treatment approaches that use foreign blood products (such as monoclonal antibodies), active immunization with ALZN002 is anticipated to offer a more robust and long-lasting effect on the clearance of amyloid. This could provide a safer approach due to its reliance on autologous immune components, using each individual patient’s own white blood cells rather than foreign cells and/or blood products. On April 3, 2023, we announced the initiation of a Phase I/IIA clinical trial for ALZN002 to treat mild to moderate dementia of the Alzheimer’s type. The purpose of this trial is to assess the safety, tolerability, and efficacy of multiple ascending doses of ALZN002 compared with that of a placebo in 20-30 subjects with mild to moderate morbidity. The primary goal of this clinical trial is to determine an appropriate dose of ALZN002 for treatment of patients with Alzheimer’s in a larger Phase IIB efficacy and safety clinical trial. On February 13, 2024, we received notice from the company we engaged as our contract research organization (“CRO”), Biorasi, LLC (“Biorasi”) that Biorasi was terminating our contract with them. We are currently pursuing the engagement of a replacement CRO. The continuation of our current plan of operations with respect to completing our IND applications and conducting the 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, 2024 Compared to Year Ended April 30, 2023 The following table summarizes the results of our operations for the years ended April 30, 2024 and 2023: For the Year Ended April 30, 2024 2023 $ Change % Change OPERATING EXPENSES Research and development $ 6,455,107 $ 7,445,857 $ (990,750 ) -13 % General and administrative 3,482,538 7,424,609 (3,942,071 ) -53 % Total operating expenses 9,937,645 14,870,466 (4,932,821 ) -33 % Loss from operations (9,937,645 ) (14,870,466 ) 4,932,821 -33 % OTHER EXPENSE, NET Interest expense (10,101 ) (7,701 ) (2,400 ) 31 % Total other expense, net (10,101 ) (7,701 ) (2,400 ) 31 % NET LOSS $ (9,947,746 ) $ (14,878,167 ) $ 4,930,421 -33 % Basic and diluted net loss per common share $ (14.70 ) $ (22.89 ) $ 8.19 * Basic and diluted weighted average common shares outstanding 676,565 650,126 * * Not meaningful Revenue We currently have only two product candidates, AL001 and ALZN002. These products are in the clinical 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, 2024 and 2023, 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, 2024 and 2023 were $6.5 million and $7.4 million, respectively. As reflected in the table below, research and development expenses primarily consisted of professional fees, clinical trial fees, stock-based compensation expense, as well as other research and development expenses: For the Year Ended April 30, 2024 2023 $ Change % Change Professional fees $ 2,898,402 $ 4,617,816 $ (1,719,414 ) -37 % Clinical trial fees 3,246,578 2,465,437 781,141 32 % Stock-based compensation expense 213,905 (42,589 ) 256,494 602 % Other research and development expenses 96,222 405,193 (308,971 ) -76 % Total research and development expenses $ 6,455,107 $ 7,445,857 $ (990,750 ) -13 % Professional Fees During the years ended April 30, 2024 and 2023, we incurred professional fees of $2.9 million and $4.6 million, respectively, which were primarily comprised of professional fees attributed to various types of scientific services, including FDA consulting services. The decrease relates to lower professional fees incurred related to the preparation for the clinical trial for ALZN002 during the year ended April 30, 2024, compared to professional fees incurred for the Phase IIA clinical trial for AL001 during the year ended April 30, 2023. - 53 - Clinical Trial Fees During the years ended April 30, 2024 and 2023, we incurred clinical trial fees of $3.2 million and $2.5 million, respectively, Clinical trial fees for the year ended April 30, 2024, consisted of $1.9 million for our Phase IIA clinical trial for AL001 and $1.3 million for our Phase IIA clinical trial for ALZN002. Clinical trial fees for the year ended April 30, 2023 were for our Phase I clinical trial for AL001. Stock-Based Compensation Expense During the years ended April 30, 2024 and 2023, we incurred $214,000 and $(43,000), respectively, in research and development stock-based compensation expense related to stock option grants to consultants. The increase in research and development stock-based compensation expense for the year ended April 30, 2024 was a result of the vesting of performance stock options grants. Other Research and Development Expenses During the years ended April 30, 2024 and 2023, we incurred other fees of $96,000 and $405,000, respectively, which were primarily comprised of scientific materials required for our clinical trials. General and Administrative Expenses General and administrative expenses for the years ended April 30, 2024 and 2023 were $3.5 million and $7.4 million, respectively. As reflected in the table below, general and administrative expenses primarily consisted of the following expense categories: stock-based compensation expense; salary and benefits; professional fees; marketing fees; insurance; travel and entertainment; as well as Board fees. For the years ended April 30, 2024 and 2023, the remaining general and administrative expenses of $381,000 and $514,000, 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, 2024 2023 $ Change % Change Salary and benefits $ 836,046 $ 1,042,860 $ (206,814 ) -20 % Stock-based compensation expense 741,728 3,625,214 (2,883,486 ) -80 % Professional fees 735,915 762,396 (26,481 ) -3 % Insurance 381,737 587,427 (205,690 ) -35 % Marketing fees 247,334 742,601 (495,267 ) -67 % Board fees 158,333 150,000 8,333 6 % Other general and administrative expenses 381,446 514,111 (132,665 ) -26 % Total general and administrative expenses $ 3,482,538 $ 7,424,609 $ (3,942,071 ) -53 % Salary and Benefits During the years ended April 30, 2024 and 2023, we incurred $836,000 and $1.0 million, respectively, in employee-related expenses. As of April 30, 2024, we had four full-time and three part-time employees. The decrease in salary and benefits expense was a result of lower bonuses earned during the year ended April 30, 2024. Stock-based Compensation Expense During the years ended April 30, 2024 and 2023, we incurred general and administrative stock-based compensation expense of $741,000 and $3.6 million, respectively, related to stock option grants to executives, employees and consultants. The decrease in stock-based compensation expense for the year ended April 30, 2024 was a result of fewer stock options vesting during the period compared to the prior year period. Professional Fees During the years ended April 30, 2024 and 2023, we incurred professional fees of $736,000 and $762,000, respectively. During the year ended April 30, 2024, we incurred $341,000 in audit and tax fees, $192,000 in investor relations, $104,000 in legal fees, $33,000 in related party consulting, $28,000 in Sarbanes-Oxley compliance fees and $38,000 in other professional fees. During the year ended April 30, 2023, we incurred $189,000 in Sarbanes-Oxley compliance fees, $187,000 in connection with a consulting agreement, $187,000 in audit and tax fees, $126,000 in legal fees, $50,000 in related party consulting and $23,000 in other professional fees. - 54 - Insurance Expense During the years ended April 30, 2024 and 2023, we incurred insurance expense of $382,000 and $587,000, respectively, which was primarily directors and officers insurance. Marketing Fees During the years ended April 30, 2024 and 2023, we incurred marketing fees of $247,000 and $743,000, respectively, which was primarily expenses related to the marketing and brand development agreement with AULT. Current and Deferred Income Taxes As of April 30, 2024 and 2023, we had deferred tax assets totaling $15.8 million and $10.8 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 more likely than not that some or all of the deferred tax assets will not 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 for the years ended April 30, 2024 and 2023. Liquidity and Capital Resources The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring net losses and operations have not provided sufficient cash flows. We believe that we will continue to incur operating and net losses each quarter until at least the time we begin significant deliveries of our products. We believe our current cash on hand is insufficient to fund our planned operations through one year after the date the financial statements are issued. These factors create substantial doubt about our ability to continue as a going concern for at least one year after the date that our audited financial statements are issued. Our inability to continue as a going concern could have a negative impact on our company, including our ability to obtain needed financing. We intend to finance our future development activities and our working capital needs largely through the sale of equity securities with some additional funding from other sources, including debt financing, until such time as funds provided by operations are sufficient to fund working capital requirements. Our 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 we be unable to continue as a going concern. As of April 30, 2024, we had cash of $376,000 and an accumulated deficit of $54.0 million. We have incurred recurring losses and reported losses for the year ended April 30, 2024 totaling $9.9 million. In the past, we have financed our operations principally through sales of equity securities and debt instruments. 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. As previously disclosed, we 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, we have been unable to initiate those clinical trials and reduce the working capital deficiency. 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; - 55 - · 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. On September 8, 2023, we entered into an At-the-Market Issuance Sales Agreement with Ascendiant Capital Markets, LLC, as sales agent to sell shares of our common stock, having an aggregate offering price of up to approximately $9.8 million from time to time, through an “at the market offering” (the “ATM Offering”) as defined in Rule 415 under the Securities Act. On September 8, 2023, we 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. During the year ended April 30, 2024, we sold an aggregate of 107,682 shares of common stock pursuant to the ATM Offering for proceeds of $1.3 million. On May 6, 2024, we terminated our ATM Offering. Series B Preferred Financing On January 31, 2024, we entered into a securities purchase agreement with Ault Lending (“AL SPA”) whereby Ault Lending may purchase of up to 6,000 shares of series B convertible preferred stock (“Series B Convertible Preferred Stock”) and warrants to purchase shares up to 600,000 shares of our 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, we sold 1,220 shares of Series B Convertible Preferred Stock and warrants to purchase 122,000 shares of common stock with an exercise price of $12.00, 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 us between November 9, 2023 and January 31, 2024 and a subscription receivable of $70,000. On March 26, 2024, we sold 780 shares of Series B Convertible Preferred Stock and warrants to purchase 78,000 shares of common stock with an exercise price of $12.00, for a total purchase price of $780,000. On April 29, 2024, we sold 100 shares of Series B Convertible Preferred Stock and warrants to purchase 10,000 shares of common stock with an exercise price of $12.00, for a total purchase price of $100,000. The Series B Convertible Preferred Stock has a stated value of $1,000 per share (“Series B 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 Series B Stated Value by $10.00 (the “ Series B Conversion Price”). The Series B Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Series B 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 Corporation 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 $8.73 (the “Voting Floor Price”), which represents the closing sale price of the common stock on the trading day immediately prior to the date of execution of the AL SPA. The Voting Floor Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions. The warrants have an exercise price of $12.00 (the “ Series B Exercise Price”) and become exercisable on the first business day after the six-month anniversary of issuance (the “ Series B Initial Exercise Date”) and have a five-year term, expiring on the fifth anniversary of the Series B Initial Exercise Date. The Series B Exercise Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Series B Exercise Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. For the period ended January 31, 2024, we recorded the Series B Convertible Preferred Stock as mezzanine equity and the warrant as a liability. On March 21, 2024, we amended our Amended and Restated Certificate of Designations for our Series B Convertible Preferred Stock to remove certain change of control language that could be interpreted to require either debt or equity classification of the Series B Convertible Preferred Stock. As a result, we classified both the Series B Convertible Preferred Stock and warrant as equity for the period ended April 30, 2024. - 56 - Series A Preferred Financing On May 8, 2024, we and Orchid Finance, LLC (“Orchid”) , entered into a securities purchase agreement (the “Orchid SPA”) for the purchase of up to 2,500 shares of Series A Convertible Preferred Stock (“Series A Convertible Preferred Stock”) and warrants to purchase shares up to 2,500,000 shares of common stock in several tranche closings. On May 10, 2024, we sold 100 shares of Series A Convertible Preferred Stock and warrants to purchase 80,000 shares of common stock with an exercise price of $12.50, for a total purchase price of $1.0 million. The purchase price was paid by the surrender and cancellation of a term note issued by us to Orchid of $311,356, consisting of $310,000 of principal and $1,356 of accrued and unpaid interest, $100,000 discount and net cash of $588,644. On June 25, 2024, we sold 150 shares of Series A Convertible Preferred Stock and warrants to purchase 120,000 shares of common stock with an exercise price of $12.50, for a total purchase price of $1.5 million. The purchase price was paid in cash. Pursuant to the Orchid SPA, Orchid has agreed to purchase the remaining 2,250 Preferred Shares based on our achievement of the milestones set forth below (the “Milestones”): • 250 Preferred Shares, for $2,500,000, within 30 days of the effectiveness of a resale registration statement (the “Registration Statement”); • 200 Preferred Shares, for $2,000,000, within 60 days of the effectiveness of the Registration Statement and the execution of a partnership agreement with a nationally renowned research facility for a clinical trial (the “Fourth Tranche”); and • 100 Preferred Shares, for $1,000,000, on each monthly anniversary of the effectiveness of the Registration Statement until all remaining 1,800 Preferred Shares have been sold (each, a “Final Tranche”). Notwithstanding the foregoing Milestones, Orchid has the ability to invest any amount in its sole discretion in advance of the dates that the foregoing Milestones shall have been met. In the event that the average closing price of the common stock during the three trading days preceding the date of a tranche closing shall not be equal to or greater than $2.50 a share (the “Floor Price”), then the applicable closing shall be delayed until such time as the price meets the required threshold. We agreed to pay Ault Lending an origination fee of five percent (5%) of the total gross proceeds we receive from Orchid upon each purchase of Series A Convertible Preferred Stock. We also agreed to pay Orchid a fee of $100,000 upon the first closing, which occurred on May 10, 2024, the Fourth Tranche and the third, eighth and thirteenth closings constituting parts of the Final Tranche. The Registration Statement registering for resale the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock and exercise of the warrants was declared effective on July 9, 2024. In addition, we agreed to use our best efforts to hold a special meeting of our stockholders within 90 days of the execution date of the Orchid SPA for purposes of seeking stockholder approval of the issuance of all the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock and the exercise of the warrants in excess of the “Nasdaq Limit”, which is 19.99% of our shares of common stock issued and outstanding on the execution date of the Orchid SPA. We held a special meeting of stockholders on July 8, 2024, at which time, the stockholders approved the issuance of all the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock and the exercise of the warrants in excess of the “Nasdaq Limit”. The Series A Convertible Preferred Stock has a stated value of $10,000 per share (“Series A Stated Value”) and accrues dividends at the rate of 15% per annum, payable quarterly in arrears in cash or paid-in-kind shares, in Orchid’s sole discretion. Each share of Series A Convertible Preferred Stock is convertible into a number of shares of common stock determined by dividing the Series A Stated Value by (y) the greater of (i) the Floor Price and (ii) the lesser of (A) $15.00 and (B) 80% of the lowest closing price of our common stock during the three trading days immediately prior to the date of conversion into conversion shares (the “ Series A Conversion Price”). The Series A Conversion Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Series A Conversion Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The holders of the Series A 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 Corporation 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 $5.63 (the “Series A Voting Floor Price”), which represents the closing sale price of the common stock on the trading day immediately prior to the date of execution of the Orchid SPA. The Series A Voting Floor Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions. The warrants have an exercise price of $12.50 (the “ Series A Exercise Price”) and are exercisable upon issuance and have a five-year term, expiring on the fifth anniversary of issuance. The Series A Exercise Price is subject to adjustment in the event of an issuance of common stock at a price per share lower than the Series A Exercise Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events. The warrants are exercisable on a cashless basis in the event that there is not then an effective resale registration statement for the common stock issuable upon exercise of the warrants. - 57 - Cash Flows The following table summarizes our cash flows for the years ended April 30, 2024 and 2023: For the Year Ended April 30, 2024 2023 Net cash provided by (used in): Operating activities $ (8,269,993 ) $ (8,923,152 ) Investing activities (147,243 ) - Financing activities 3,652,425 200 Net decrease in cash and cash equivalents $ (4,764,811 ) $ (8,922,952 ) Operating Activities During the year ended April 30, 2024, net cash used in operating activities was $8.3 million. This consisted primarily of a net loss of $9.9 million, partially offset by non-cash charges of $956,000 in stock-based compensation expense and an increase in our net operating assets and liabilities of $671,000. The increase in our net operating assets and liabilities was primarily due to an increase in accounts payable and accrued liabilities and a decrease in prepaid expenses. During the year ended April 30, 2023, net cash used in operating activities was $8.9 million. This consisted primarily of a net loss of $14.9 million, partially offset by non-cash charges of $3.6 million in stock-based compensation expense and an increase in our net operating assets and liabilities of $2.3 million. The increase in our net operating assets and liabilities was primarily due to an increase in accounts payable and accrued liabilities and a decrease in prepaid expenses – related party. Investing Activities During the year ended April 30, 2024, net cash used in investing activities was $147,000, from the purchase of equipment and machinery to be used in our ALZN002 Phase I/IIA clinical trial. Financing Activities During the year ended April 30, 2024, net cash provided by financing activities was $2.1 million from the sale of convertible preferred stock to Ault Lending, a related party, $1.3 million from proceeds from the ATM Offering and $300,000 from a promissory note. During the year ended April 30, 2023, net cash provided by financing activities was $200 from the exercise of stock options. Contractual Obligations On July 2, 2018, we 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 us 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, we entered into the First Amendments to the AL001 Licenses, on March 30, 2021, we entered into the Second Amendments to the AL001 Licenses and on June 8, 2023, we 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 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 AL001. As an additional licensing fee for the license of the AL001 technologies, the Licensor received 14,853 shares of our 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. On May 1, 2016, we entered into a Standard Exclusive License Agreement with Sublicensing Terms for ALZN002 with the Licensor (the “ALZN002 License”), 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. On August 18, 2017, we entered into the First Amendment to the ALZN002 License, on May 7, 2018, we entered into the Second Amendment to the ALZN002 License, on January 31, 2019, we entered into the Third Amendment to the ALZN002 License, on January 24, 2020, we entered into the Fourth Amendment to the ALZN002 License, on March 30, 2021, we entered into the Fifth Amendment to the ALZN002 License, on April 17, 2023, we entered into the Sixth Amendment to the ALZN002 License and on December 11, 2023, we 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. - 58 - The ALZN002 License Agreement requires us to pay royalty payments of 4% on net sales of products developed from the licensed technology for ALZN002. We have already paid an initial license fee of $200,000 for ALZN002. As an additional licensing fee for the license of ALZN002, the Licensor received 24,012 shares of our 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, we 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 us 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, we entered into the First Amendments to the November AL001 License and on April 17, 2023, we 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 us to pay royalty payments of 3% on net sales of products developed from the licensed technology for AL001 in those fields. We 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 licensee’s obligations to pay royalties expire under the applicable license agreement. Under our various license agreements, 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. 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 ALZN002 technology, as follows: Original AL001 Licenses: 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 NDA approval * Milestone met and completed ALZN002 License: Payment Due Date $ 50,000 * Upon IND application - 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 - 59 - 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 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.