Item 2. Management’s Discussion and Analysis
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking
statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this
report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and
objectives of management are forward-looking statements. The words “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “may,” “plans,” “projects,” “will,” “would”
and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these
identifying words.
We have based these forward-looking statements
on our current expectations and projections about future events. Although we believe that the expectations underlying our forward-looking
statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to risks and uncertainties.
Therefore, you should not place undue reliance on our forward-looking statements.
Many possible
events or factors could affect our future financial results and performance and could cause actual results or performance to differ materially
from those expressed, including those risks and uncertainties described in Part I, Item 1A. “Risk Factors” in our Annual Report
on Form 10-K for the year ended July 31, 2021 (“2021 Annual Report”) and those described from time to time in our future reports
filed with the Securities and Exchange Commission (the “SEC”). We believe these risks and uncertainties could cause
actual results or events to differ materially from the forward-looking statements that we make. Should one or more of these risks and
uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance
or financial condition may vary materially and adversely from those anticipated, estimated or expected. Our forward-looking statements
do not reflect the potential impact of future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We
do not assume any obligation to update any of the forward-looking statements contained herein, whether as a result of new information,
future events or otherwise, except as required by law. In the light of these risks and uncertainties, the forward-looking events and circumstances
discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking
statements.
Overview
Our business model is to develop or acquire unique
medical related products, engage third parties to manufacture such products and then distribute the products through various distribution
channels, including third parties. We are developing potentially life-saving technologies: the CardioMap® heart monitoring and screening
device; the Save A Life choking rescue device, a unique neurosteroid drug compound intended to treat concussions and a unique drug compound
to treat rare brain disorders in partnership with Prevacus, Inc. To date, none of our product candidates has received regulatory clearance
or approval for commercial sale.
We plan to license, improve, and develop our products
and identify and select distribution channels. We intend to establish agreements with distributors to get products to market quickly,
as well as to undertake and engage in our own direct marketing efforts. We will determine the most effective method of distribution for
each unique product that we include in our portfolio. We will engage third-party research and development firms who specialize in the
creation of our products to assist us in the development of our own products, and we will apply for trademarks and patents once we have
developed proprietary products.
Recent Funding
Private Placement
On February 2, 2022, we entered into an agreement
to raise money through a private investment in a public entity. We offered up to 14,285,714 Units (the “Units”), each Unit
consisting of one share of our common stock (the “Share”) and one-half of an accompanying warrant (the “Investor Warrants”)
exercisable for one share of our common stock. The Units will be sold at a price of $0.35 per Unit (the “Offering”).
To date, we have issued a total of 4,058,372 Units
for gross proceeds to us of $1,420,430. No additional sales will be made pursuant to this agreement.
See Notes 10 and 13 of Notes to Financial Statements
for additional information.
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Donation
In January
2022, we received a donation in the amount of $500,000 in partnership with the Erase PTSD Now organization and the Glenn Greenberg and
Linda Vester Foundation. These funds were recorded as Other income in our Statements of Operations and will be used to progress the Phase
1 human clinical trials for drug candidate PRV-002 for the treatment of concussion
Promissory Notes
On December 21, 2021,
and December 22, 2021, we entered into a total of five Promissory Notes (the “Notes”) with three of our directors and two
officers.
Mr. Joseph Michael Redmond,
President and Chief Executive Officer, Ms. Christine M. Farrell, Chief Financial Officer, Mr. Jerome H. Casey, Director, Mr. John P. Gandolfo,
Director, and Mr. Ricky W. Richardson, Director, each loaned us $25,000 for total proceeds of $125,000. The Notes bear interest at 8%
per annum and are due March 31, 2022. The notes have been extended to September 30, 2022.
LPC Securities Purchase Agreement
On October 22, 2021, we entered into a Securities
Purchase Agreement (the “SPA”) with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to which we received $250,000
in cash from LPC and LPC received (i) 1,500,000 restricted shares of our common stock, and (ii) 833,333 warrants exercisable at $0.50
per common share expiring in five years.
LPC Purchase Agreement Draws
During the nine months ended April 30, 2022, LPC
purchased a total of 1,174,482 shares of our common stock for total proceeds of $467,236 pursuant to the August 14, 2020, LPC Purchase
Agreement. As of April 30, 2022, LPC had purchased a total of 4,121,610 shares of our common stock for total proceeds of $1,938,711 and
remaining purchase availability was $8,311,289 and remaining shares available were 15,943,556.
Tysadco Partners
On August 29, 2021, we entered into a Securities
Purchase Agreement (the “SPA”) with Tysadco Partners (“Tysadco”) pursuant to which we entered into a $250,000
face value convertible promissory note which bears interest at a one-time rate of 8.0% applied to the face value and had an original maturity
date of March 1, 2022. We received $250,000 net cash from the issuance of the promissory note and issued 200,000 shares of common stock
with a fair value of $17,718 which is being expensed over the life of the note as a component of interest expense. The conversion rate
of the note is $0.30 for a total of 900,000 shares of our common stock if converted in full, including interest.
On March 31, 2022, the SPA was amended to extend
the maturity date to March 1, 2023, and, as consideration, $25,000 was added to the principal.
On October 18, 2021, we entered into a Securities
Purchase Agreement with Tysadco pursuant to which we received $250,000 in cash from Tysadco and Tysadco received (i) 1,500,000 restricted
shares of our common stock, and (ii) 833,333 warrants exercisable at $0.50 per common share expiring in five years.
Going Concern
See Note 1 of Notes to Financial Statements.
Impact of COVID-19
The COVID-19 global pandemic has had an unfavorable
impact on our business operations. The pandemic has impacted our ability to get financing, engage third-party vendors and the timing of
our clinical trial in Australia. The COVID-19 outbreak has adversely affected the U.S. and global economies and financial
markets, which may result in a long-term economic downturn that could negatively affect future performance and our ability to secure additional
debt or equity funding.
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Significant Accounting Policies and Use of
Estimates
During the nine months ended April 30, 2022, there
were no significant changes to our significant accounting policies and estimates are described in Note 2. Summary of Significant Accounting
Policies included in Part II, Item 8. of our Annual Report on Form 10-K for the year ended July 31, 2021, which was filed with the
Securities and Exchange Commission on October 29, 2021.
Results of Operations
We do not currently sell or market any products
and we did not have any revenue in the three or nine-month periods ended April 30, 2022 or 2021. We will commence actively marketing products
after the products and drugs in development have been FDA cleared or approved, but there can be no assurance, however, that we will be
successful in obtaining FDA clearance or approval for our products.
For the
Three Months Ended April 30,
$
%
For the
Nine Months Ended April 30,
$
%
2022
2021
Change
Change
2022
2021
Change
Change
Research and development
$ 63,139
$ 565,764
$ (502,625 )
-89%
$ 846,366
$ 608,383
$ 237,983
39%
General and administrative expense
2,803,397
2,088,556
714,841
34%
5,425,523
3,204,997
2,220,526
69%
In-process research and development
–
9,440,000
(9,440,000 )
-100%
–
9,440,000
(9,440,000 )
-100%
Loss from operations
(2,866,536 )
(12,094,320 )
9,227,784
-76%
(6,271,889 )
(13,253,380 )
6,981,491
-53%
–
–
Interest expense
(232,686 )
(357,370 )
124,684
-35%
(658,395 )
(779,124 )
120,729
-15%
Other income (expense), net
(49 )
50,000
492,024
0%
492,026
50,000
442,026
0%
Net loss and comprehensive loss
$ (3,099,271 )
$ (12,401,690 )
$ 9,302,419
-75%
$ (6,438,258 )
$ (13,982,504 )
$ 7,544,246
-54%
Basic and diluted net loss per share
$ (0.04 )
$ (0.13 )
$ 0.09
-72%
$ (0.07 )
$ (0.15 )
$ 0.08
-52%
Shares used for basic and diluted net loss per share
83,948,500
93,382,540
(9,434,040 )
-10%
88,843,353
93,135,527
(4,292,174 )
-5%
Research and Development Expense
Our Research and development expense includes
expenses related to our current projects and include, clinical research, design and manufacturing, formulation, regulatory and consultants.
Three months ended
April 30, 2022
compared to
three months ended
April 30, 2021
Nine months ended
April 30, 2022
compared to
nine months ended
April 30, 2021
Increase (decrease) in:
Consultants
$ (54,300 )
$ 75,538
Drug development
(378,518 )
102,233
Phase 1 clinical trial
204,963
400,888
Australian research and development rebate
(185,035 )
(425,126 )
Prototype phase
(92,510 )
67,325
Regulatory
2,775
17,125
$ (502,625 )
$ 237,983
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The decrease in consultants for the three months
ended April 30, 2022, compared to the same period of the prior year was the result of the completion of several phases of research and
development related primarily to PRV-002.
The decrease in drug development expenses for
the three months ended April 30, 2022, compared to the same period of the prior year was the result of completion of initial drug development
for PRV-002 in the second quarter of fiscal 2022.
The increases in Phase I clinical trial expenses
for the three and nine months ended April 30, 2022, compared to the same periods of the prior year were the result of increased study costs
as the trial progresses.
The decrease in prototype phase expenses for the
three months ended April 30, 2022, compared to the same period of the prior year was the result of completion of Phase 1 prototype costs
for the PRV-002 device used in the clinical trials in the second quarter of fiscal 2022.
The increases in consultants, drug development
and Phase 1 clinical trial expense for the nine months ended April 30, 2022, compared to the same period of the prior year were the result
of expenses incurred to develop the drug and start the Phase 1 clinical trial with PRV-002.
General and Administrative Expense
Our General and administrative expense includes
salaries and related benefits for employees in finance, accounting, sales, administrative and research and development activities, as
well as stock-based compensation, costs related to maintaining compliance as a public company and legal and professional fees.
The changes in General and administrative expense
were due to the following:
Three months ended
April 30, 2022
compared to
three months ended
April 30, 2021
Nine months ended
April 30, 2022
compared to
nine months ended
April 30, 2021
Increase (decrease) in:
Board and stock expense
$ (459,212 )
$ 338,193
Business development and investor relations
1,120,625
1,150,786
Consulting fees
5,505
(16,319 )
Financing fees
68,582
31,889
Insurance expense
10,478
47,243
Legal and professional fees
(8,352 )
(67,531 )
Wages
(18,658 )
723,225
Other
(4,127 )
13,040
$ 714,841
$ 2,220,526
The increases in business development and investor
relations in both periods related to the 3,000,000 shares of our common stock with a value of $1,610,000 issued to a consultant for investor
relations, partially offset by decreases in non-recurring investor relations expense.
The decrease in board and stock expense for the
three months ended April 30, 2022, compared to the same period of the prior year was due to the lower price of our common stock on the
date grants were issued, resulting in lower stock-based compensation.
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The decrease in wages for the three months ended
April 30, 2022, compared to the same period of the prior year was due to a $20,000 signing bonus issued in the prior year quarter.
The increase in board and stock expense for the
nine months ended April 30, 2022, compared to the same period of the prior year was due to the higher price of our common stock on the
date grants were issued, resulting in higher stock-based compensation.
The increase in wages in the nine-month period
ended April 30, 2022, compared to the same period of the prior year was due to bonuses totaling $400,000 granted to our executive officers
in the 2022 period and additional employees hired in the third quarter of 2021.
In-Process Research and Development
In-process research and development in the three
and nine month periods ended April 30, 2021, related to the Prevacus Asset Purchase Agreement that closed on March 1, 2021.
Interest Expense
Interest expense includes interest on debt outstanding,
as well as the amortization of unamortized debt issuance costs and debt closing costs. Certain information regarding debt outstanding
was as follows:
Three Months Ended April 30,
Nine Months Ended April 30,
2022
2021
2022
2021
Weighted average debt outstanding
$ 1,630,618
$ 573,977
$ 1,401,545
$ 532,667
Weighted average interest rate
12.3%
8.90%
11.2%
8.90%
The increases in interest expense for the three
and nine-month periods ended April 30, 2022, compared to the same periods of 2021 were due to LGH and Tysadco notes issued in April 2021
and October 2021 and amended in February and March 2022, respectively, and the issuance of promissory notes in December 2021.
Other Income, net
Other income, net in the nine-month period ended
April 30, 2022, includes a donation in the amount of $500,000 in partnership with the Erase PTSD
Now organization and the Glenn Greenberg and Linda Vester Foundation and foreign exchange gains and losses related to invoices
denominated and paid in foreign currencies. Other income, net in the 2021 periods represents the forgiveness of our SBA Paycheck Protection
Program Loan.
Net Loss
Net loss decreased in the three and nine months
ended April 30, 2022, compared to the same periods of the prior year due to the in-process research and development charge in the prior
year periods, partially offset by increased research and development expense, general and administrative expense and interest expense
in the current year periods as discussed above.
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Liquidity and Capital Resources
The following table sets forth the primary sources and uses of cash:
Nine Months Ended April 30,
2022
2021
Net cash used in operating activities
$ (2,554,811 )
$ (2,461,232 )
Net cash used in investing activities
45,220
–
Net cash provided by financing activities
2,309,747
3,776,505
To date, we have financed our operations primarily
through debt financing and sales of our common stock. Our ability to continue to access capital could be affected adversely by various
factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash
distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders
that might make them unable to meet their obligations to us. If these conditions continue and we cannot raise funds through a public or
private debt financing, or an equity offering, our ability to grow our business may be negatively affected. In such case, we may need
to suspend the creation of new products until market conditions improve.
Cash used in investing activities in the first
nine months of fiscal 2022 were for a patent related to our PRV-002 drug device combination.
Debt
The following notes payable were outstanding:
April 30, 2022
Convertible note issued to LGH due May 31, 2022 with a fixed interest rate of 8.0% over the term of the note (annual interest rate of 12.1%) and convertible at $1.00 per share
$ 1,250,000
Promissory notes issued to officers and directors due September
30, 2022 with a fixed interest rate of 8.0% per annum (see Note 13)
125,000
Tysadco convertible promissory note payable due March 1, 2023 with a fixed interest rate of 8.0% over the term of the note (annual interest rate of 15.2%) and convertible at $0.30 per share
275,000
1,650,000
Unamortized debt discount and closing costs
(88,863 )
$ 1,561,137
Inflation
Inflation did not have a material impact on our
business and results of operations during the periods being reported on.
Off Balance Sheet Arrangements
We do not have any material off balance sheet
arrangements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company and are not required to provide
information under this item.
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