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, 2023 (“2023 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 have two different technologies in research and development; the CardioMap® heart monitoring
and screening device, and the Save a Life choking rescue device. To date, none of our product candidates have received regulatory clearance
or approval for commercial sale.
On October 4, 2023, we entered into an Asset
Agreement (the “Agreement”) with Oragenics, Inc. (“Oragenics”). Pursuant to the Agreement, we sold certain
assets and certain liabilities related to a segment of our business focused on developing medical products that treat brain
related illnesses and diseases (the “Assets”) to Oragenics. The closing was completed on December 28, 2023. See below
and Note 4 of Notes to Condensed Consolidated Financial Statements for additional information.
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 and
undertake and engage in direct marketing efforts as we move closer to regulatory approvals. We will determine the most effective distribution
method for each unique product we include in our portfolio. We will engage third-party research and development firms that specialize
in creating products to assist us in developing our own products, and we will apply for trademarks and patents once we have developed
proprietary products.
19
Recent Funding
LPC Purchase Agreement Draws
During the six months ended January 31, 2024,
LPC purchased a total of 600,000 shares of our common stock for total proceeds of $55,620 pursuant to the August 14, 2020, LPC Purchase
Agreement. At December 31, 2023, the LPC Purchase Agreement expired.
Asset Agreement with Oragenics, Inc.
On October 4, 2023, we entered into an Asset Agreement
with Oragenics, which closed on December 7, 2023. Pursuant to the Agreement, we sold the segment of our business and related assets focused
on developing medical products that treat brain related illnesses and diseases (the “Assets”) to Oragenics in exchange for
(i) $1,000,000 in cash; (ii) 8,000,000 shares of convertible Series F preferred stock; and (iii) the assumption of $325,672 of our accounts
payable. The total value of consideration received was $16,400,687.
The in-process research and development Assets
include drug candidates for treating mild traumatic brain injury (“mTBI”), also known as concussion, and for treating Niemann
Pick Disease Type C (“NPC”), as well as our proprietary powder formulation and its nasal delivery device.
We received $500,000 upon the execution of the
Agreement on October 4, 2023, and received the additional $500,000 on December 11, 2023, upon our stockholder approval for the sale of
the Asset. Following the closing of the Agreement on December 28, 2023, we received 8,000,000 shares of Series F preferred stock. Upon
receipt, 511,308 shares of the Series F preferred stock, which represented 19.9% of the then outstanding shares of Oragenics common stock,
converted into 511,308 shares of Oragenics common stock.
At the closing, we were required to obtain the
consent of Mast Hill to consummate the closing of the Asset Agreement. As part of the consent, we entered into a pledge agreement with
Mast Hill granting a security interest in 154,545 of the total preferred shares, and collectively with all of the common shares or other
securities into which the preferred shares are converted or exchanged into common shares, until the Mast Hill debt is paid.
The remaining shares of convertible Series F preferred
stock will convert upon Oragenics shareholder approval and upon certain listing and change in control criteria being achieved. In addition,
at our option, we are allowed to convert additional shares of the Series F preferred stock as long as we do not own a total of more than
19.9% of the then outstanding Oragenics common stock.
See Note 4 of Notes to Condensed
Consolidated Financial Statements for additional information.
Promissory Note
On February 13, 2024, we entered into a six-month
promissory note for $50,000, with Jonathan Lutz, an accredited investor, with an interest rate of 10% per annum and due August 11, 2024.
Accredited Investor Note Payable
On July 7, 2023, we received a $150,000 advance
from an accredited investor related to a $500,000 Note Purchase Agreement (the “NPA”) entered into with two accredited investors
on August 15, 2023, at which time the additional $350,000 was received.
See Note 6 of Notes to Condensed
Consolidated Financial Statements for additional information.
Going Concern
See Note 1 of Notes to Financial Statements.
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Significant Accounting Policies and Use of
Estimates
During the six months ended January 31, 2024,
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, 2023, which was filed
with the Securities and Exchange Commission on October 30, 2023.
Results of Operations
We do not currently sell or market any products
and we did not have any revenue in the three or six-month periods ended January 31, 2024 or 2023. 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 January 31,
$
%
2024
2023
Change
Change
In-process research and development expense
$ –
$ 170,000
$ (170,000 )
-100%
Research and development expense
42,765
3,889
38,876
1000%
Stock-based compensation
677,391
659,777
17,614
3%
General and administrative expense
437,274
652,826
(215,552 )
-33%
Loss from operations
(1,157,430 )
(1,486,492 )
329,062
-22%
Gain on sale of asset
15,900,687
–
15,900,687
100%
Investment revaluation
(1,332,980 )
–
(1,332,980 )
100%
Interest expense
(141,601 )
(194,191 )
52,590
-27%
Other income, net
8,890
8,955
(65 )
-1%
Net income (loss)
13,277,566
(1,671,728 )
14,949,294
-894%
Deemed dividend
(63,455 )
–
(63,455 )
100%
Net income (loss) attributable to common stockholders
$ 13,214,111
$ (1,671,728 )
$ 14,885,839
-890%
Basic net income (loss) per share
$ 0.14
$ (0.02 )
$ 0.16
Diluted net income (loss) per share
$ 0.12
$ (0.02 )
$ 0.14
Six Months Ended January 31,
$
%
2024
2023
Change
Change
In-process research and development expense
$ –
$ 170,000
$ (170,000 )
-100%
Research and development expense
65,766
358,104
(292,338 )
-82%
Stock-based compensation
1,000,188
1,439,667
(439,479 )
-31%
General and administrative expense
938,716
1,596,525
(657,809 )
-41%
Loss from operations
(2,004,670 )
(3,564,296 )
1,559,626
-44%
Gain on sale of asset
16,400,687
–
16,400,687
100%
Investment revaluation
(1,332,980 )
–
(1,332,980 )
100%
Interest expense
(332,462 )
(265,493 )
(66,969 )
25%
Other income, net
8,956
8,481
475
6%
Net income (loss)
12,739,531
(3,821,308 )
16,560,839
-433%
Deemed dividend
(63,455 )
–
(63,455 )
100%
Net income (loss) attributable to common stockholders
$ 12,676,076
$ (3,821,308 )
$ 16,497,384
-432%
Basic net income (loss) per share
$ 0.14
$ (0.05 )
$ 0.19
Diluted net income (loss) per share
$ 0.12
$ (0.05 )
$ 0.17
21
In-Process Research and Development
In-process research and development in the three
and six-month periods ended January 31, 2024, related to the value of the 1,000,000 shares of our common stock with a value of $0.17 per
share issued to Prevacus in connection with the November 2022 Option Agreement.
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.
The changes in Research and development expense
were due to the following:
Three months
ended
January 31, 2024
compared to three
months ended
January 31, 2023
Six months
ended
January 31, 2024
compared to six
months ended
January 31, 2023
Increase (decrease) in:
Consultants
$ 46,905
$ 48,198
Phase I clinical trial
21,724
(615,870 )
Australian research and development rebate
(40,453 )
269,684
Phase II clinical trial
10,000
10,000
Regulatory
700
(4,350 )
$ 38,876
$ (292,338 )
The decrease in the Phase I clinical trial as
well as the Australian research and development rebate in the six months ended January 31, 2024 compared to the six months ended January
31, 2023 is the result of the completion of the dosing of subject in the first quarter of fiscal 2023.
Stock-Based Compensation
The decrease in Stock-based compensation for the
six months ended January 31, 2024 was due to fewer unvested awards outstanding.
General and Administrative Expense
Our General and administrative expense includes
salaries and related benefits for employees, business development and investor relations activities, legal and professional fees, and
administrative costs related to maintaining compliance as a public company.
22
The decreases in General and administrative expense
were due to the following:
Three months
ended
January 31, 2024
compared to three
months ended
January 31, 2023
Six months
ended
January 31, 2024
compared to six
months ended
January 31, 2023
Increase (decrease) in:
Business development and investor relations
$ (198,589 )
$ (633,918 )
Consulting fees
(26,000 )
(47,000 )
Insurance expense
(3,750 )
(4,375 )
Legal and professional fees
62,835
55,861
Public Company Expense
12,971
30,033
Wages
(63,706 )
(55,086 )
Other
687
(3,324 )
$ (215,552 )
$ (657,809 )
The decreases in the current fiscal year periods
compared to the prior fiscal year were primarily a result of the decreases in business development activities due to limited resources.
Gain on Sale of Asset
The Gain on sale of asset in the fiscal 2024
periods was the result of the sale of assets pursuant to the Oragenics Asset Sale Agreement. See Note 4 of Notes to Condensed
Consolidated Financial Statements.
Interest Expense
Interest expense includes interest on debt outstanding,
as well as the amortization of beneficial conversion feature, debt discount and debt issuance costs. Certain information regarding debt
outstanding was as follows:
Three Months Ended January 31,
Six Months Ended January 31,
2024
2023
2024
2023
Weighted average debt outstanding
$ 1,724,492
$ 1,828,370
$ 1,836,816
$ 1,779,701
Weighted average interest rate
8.8%
6.2%
8.2%
6.8%
The decrease in the weighted average debt outstanding
for the three months ended January 31, 2024 was due to the conversion of convertible debt agreements with Mast Hill, ClearThink and the
two accredited investors. The increase in the weighted average debt outstanding quartering the first six months of fiscal 2024 was due
to convertible debt agreements entered into with two accredited investors, offset by conversions of convertible debt.
23
Net Income
We generated Net income in the fiscal 2024 periods
due to the Gain on sale of assets as well as lower operating expenses compared to the fiscal 2023 periods as discussed above.
Liquidity and Capital Resources
See Recent Funding above for a discussion of our
recent debt and equity financings.
The following table sets forth the primary sources and uses of cash:
Six Months Ended January 31,
2024
2023
Net cash used in operating activities
$ (951,544 )
$ (1,188,602 )
Net cash provided by (used in) investing activities
950,095
(8,038 )
Net cash provided by financing activities
130,724
1,159,898
Historically, we have financed our
operations primarily through debt financing, limited sales of our common stock and recently through the sale of our neurological
assets to Oragenics as discussed in Note 4 of Notes to Condensed Consolidated Financial Statements. 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:
January 31, 2024
July 31, 2023
Convertible note issued to LGH due June 30, 2024, with a set interest amount of $84,000 through July 7, 2023, then an interest rate of 8.0% per annum of outstanding principal and convertible at $0.12 per share
$ 1,035,000
$ 1,055,000
Promissory notes issued to officers and directors due July 31,
2024, with an interest rate of 8.0% per annum and convertible at $0.12 per share
100,000
125,000
Note purchase agreement issued to two accredited investors due August 15, 2024, with an interest rate of 12% per annum
–
150,000
ClearThink convertible promissory note due December 31, 2023, with a set interest amount of $20,000 and convertible at $0.20 per share
–
175,000
Mast Hill convertible promissory note due December 13, 2024, with an interest rate of 10% per annum and convertible at $0.072 per share
499,667
920,000
1,634,667
2,425,000
Unamortized beneficial conversion feature, debt discount and closing costs
(149,529 )
(280,340 )
$ 1,485,138
$ 2,144,660
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Australian Research and Development Rebate
In the first six months of fiscal 2024, we incurred
$43,092 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 $20,900, which was recorded as an offset to Research and development expense.
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.