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, 2022 (“2022 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 plan to develop 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 effort as we move closer to regulatory approvals. 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
Mast Hill Fund L.P.
On December 13, 2022, we entered into a Securities Purchase Agreement
(the “SPA”) with Mast Hill Fund, L.P. (“Mast Hill”). Pursuant to the SPA, we sold Mast Hill (i) an $870,000 face
value, one-year, 10% per annum Promissory Note convertible into shares of our common stock at $0.12 per share, (ii) a five-year share
purchase warrant entitling Mast Hill to acquire 2,000,000 shares of our common stock at $0.20 per share (the “Warrant”), and
(iii) a five-year warrant for 4,000,000 shares of our common stock at $0.20 per share issuable in the event of default. Net proceeds after
original discount, fees and expenses, was $723,868.
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LPC Purchase Agreement Draws
During the three months ended October 31, 2022, LPC
purchased a total of 1,133,591 shares of our common stock for total proceeds of $240,710 pursuant to the August 14, 2020, LPC Purchase
Agreement. Subsequent to October 31, 2022, LPC purchased an additional 1,100,000 shares for total proceeds of $200,320 and, as of December
14, 2022, LPC had purchased a total of 5,982,518 shares of our common stock for total proceeds of $2,461,296 and the remaining purchase
availability was $7,788,704 and the remaining shares available were 13,288,846.
Promissory Note
On September 21, 2022, we entered into a promissory
note for $30,000 with a consultant for investor relations services with an interest rate of 8% per annum and a due date of December 31,
2022.
Going Concern
We did not recognize any revenues for the year ended
July 31, 2022, or the three months ended October 31, 2022, and we had an accumulated deficit of $56,327,534 as of October 31, 2022. For
the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations. Cash available at
October 31, 2022, of $50,499 may not provide enough working capital to meet our current operating expenses through December 14, 2023.
The operating deficit indicates substantial doubt
about our ability to continue as a going concern. Our continued existence depends on the success of our efforts to raise additional capital
necessary to meet our obligations as they come due and to obtain sufficient capital to execute our business plan. We may obtain capital
primarily through issuances of debt or equity or entering into collaborative arrangements with corporate partners. There can be no assurance
that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can
be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we may be required
to further scale down or perhaps even cease operations.
The issuance of additional equity securities could
result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans
would be available, would increase our liabilities and future cash commitments. Our financial statements do not include adjustments that
might result from the outcome of this uncertainty.
If we are unable to raise additional capital by December
14, 2023, we will adjust our business plan. Due to the unknown and volatile nature of the stock price and trading volume of our common
stock, is it is difficult to predict the timing and amount of availability pursuant to our equity line of credit with LPC. Given our recurring
losses, negative cash flow, accumulated deficit and the impact of COVID-19, there is substantial doubt about our ability to continue as
a going concern.
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.
Significant Accounting Policies and Use of Estimates
During the three months ended October 31, 2022, there
were no significant changes to our significant accounting policies and estimates as 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, 2022, which was filed with the
SEC on October 31, 2022.
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Results of Operations
We do not currently sell or market any products and
we did not have any revenue in the three-month periods ended October 31, 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.
Three Months Ended
October 31,
$
%
2022
2021
Change
Change
Research and development expense
$ 354,215
$ 322,504
$ 31,711
9.8%
General and administrative expense
1,723,589
1,106,884
616,705
55.7%
Loss from operations
(2,077,804 )
(1,429,388 )
648,416
45.3%
Interest expense
(71,302 )
(216,886 )
145,584
(67.1 )%
Other expense, net
(474 )
–
474
NM
Net loss
$ (2,149,580 )
$ (1,646,274 )
$ 503,306
30.6%
Basic and diluted net loss per share
$ (0.03 )
$ (0.02 )
$ 0.01
(42.3
)
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
October 31, 2022
compared to
three months ended
October 31, 2021
Increase (decrease) in:
Consultants
$ (73,700 )
Drug development
(252,632 )
Phase I clinical trial
423,943
Australian research and development rebate
46,812
Prototype phase
(114,612 )
Regulatory
1,900
$ 31,711
The decreases in drug development, consultants and
prototype phase were the result of the completion of the development of the concussion drug in the fourth quarter of fiscal 2022. The
increase in Phase I clinical trial relates to our concussion drug device trial.
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.
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The changes in General and administrative expense
were due to the following:
Three months ended
October 31, 2022
compared to
three months
ended
October 31, 2021
Increase (decrease) in:
Board and stock expense
$ 81,980
Business development and investor relations
533,523
Consulting fees
4,899
Financing fees
(30,113 )
Insurance expense
8,395
Legal and professional fees
17,578
Wages
6,160
Other
(5,717 )
$ 616,705
The increase in board and stock expense and business
development and investor relations was due to the granting of stock and stock options to the board, officers, employees and consultants.
Interest Expense
Interest expense includes interest on debt outstanding,
as well as the amortization of unamortized beneficial conversion feature, debt issuance costs and debt closing costs. Certain information
regarding debt outstanding was as follows:
Three Months Ended October 31,
2022
2021
Weighted average debt outstanding
$ 1,633,043
$ 1,221,196
Weighted average interest rate
6.75%
8.0%
The increase in the weighted average debt outstanding
was due to the addition of principal to both the LGH and Tysadco notes in exchange for extending the maturity date of the notes. In addition,
we issued a $30,000 promissory note during the first quarter of fiscal 2023.
The decrease in the weighted average interest rate
was due to the extension of maturity dates on the LGH and Tysadco notes that have flat interest rates.
Net Loss
Net loss increased in the three-month period ended
October 31, 2022 compared to the same period of 2021 primarily due to increased stock-based compensation.
Liquidity and Capital Resources
See Recent Funding above for a discussion of our recent debt and equity
financings.
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The following table sets forth the primary sources and uses of cash:
Three Months Ended October 31,
2022
2021
Net cash used in operating activities
$ (284,707 )
$ (1,165,210 )
Net cash used in investing activities
(8,038 )
–
Net cash provided by financing activities
270,710
1,079,766
To date, we have financed our operations primarily
through debt financing and limited 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.
Debt
The following notes payable were outstanding:
October 31, 2022
July 31, 2022
Convertible note issued to LGH due December 31, 2022 with a flat interest rate of 8.0% of the original principal of $1,050,000 and convertible at $0.20 per share
$ 1,295,000
$ 1,180,000
Promissory notes issued to officers and directors due December 31, 2022 with a fixed interest rate of 8.0% per annum (see Note 10)
125,000
125,000
Promissory note with an interest rate of 8% per annum due December 31, 2022
30,000
–
Tysadco convertible promissory note payable due March 1, 2022 with a flat interest rate of 8.0% of the original principal of $250,000 and convertible at $0.30 per share
275,000
275,000
1,725,000
1,580,000
Unamortized debt discount and closing costs
(95,009 )
(48,063 )
$ 1,629,991
$ 1,531,937
Australian Research and Development Rebate
In the first quarter of fiscal 2023, we incurred $663,436
of expenses related to our Phase I clinical trial of our concussion drug device combination that are eligible for the Australian research
and development rebate for a rebate due of $322,671, which was recorded as an offset to research and development expense during the quarter
ended October 31, 2022.
On November 18, 2022, we received a research and development
rebate from the government of Australia in the amount of $313,709 for clinical work performed in Australia related to our Phase I human
clinical trial during the fiscal year ended July 31, 2022.
On December 8, 2022, we received a goods and service
tax refund, which was accrued as part of our research and development rebate due from the Australian government, in the amount of $82,705
related to our Phase I human clinical trial during July, August and September 2022.
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.
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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.