Item 7. Management’s Discussion and Analysis
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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.
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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. You should understand that the following important factors
could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in
our forward-looking statements:
·
our limited operating history and lack of revenue, on which to evaluate our ability to achieve our business objective and projected cash needs and our expected future revenues, operations and expenditures;
·
our potential ability to obtain additional financing on favorable terms;
·
our public securities’ potential liquidity and trading;
·
the extent to which we acquire or invest in businesses, products, and technologies; the scope, progress, results and costs of our clinical trials for our drug candidates and medical devices;
·
our ability to successfully integrate our acquired products and technologies into our business, including the possibility that we will not fully realize the expected benefits of the transactions will not be fully realized by us or may take longer to realize than expected;
·
the safety and efficacy of our product candidates;
·
the progress and timing of clinical trials;
·
the costs, timing, and outcome of regulatory review of our product candidates;
·
the timing of submissions to, and decisions made by the U.S. Food and Drug Administration (FDA) and other regulatory agencies, related to our product candidates to the satisfaction of the FDA and such other regulatory agencies;
·
our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property or regulatory exclusivity protection of our product candidates and the ability to operate our business without infringing on the intellectual property rights of others;
·
the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing, and defending intellectual property-related claims;
·
the emergence of competing technologies and other adverse market developments;
·
changes in accounting standards; and
·
the other risks and uncertainties discussed herein and in our other filings with the SEC.
Overview
Our business model is to develop or acquire unique
medical related products, engage third parties to develop and manufacture such products and then distribute the products through various
distribution channels, including third parties. We have two different technologies in research and development stage ; 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.
Upon receiving adequate funding, we plan to license
and develop our products and identify other product potentials we can develop or acquire. We will then engage third-party research and
development firms that specialize in creating products to assist us, and we will apply for trademarks and patents at appropriate product
development advances.
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Recent Funding
Accredited Investor Promissory Note
In August 2024, we entered into a one-year, $300,000
promissory note with an interest rate of 18% per annum due August 14, 2025.
Accredited Investor Promissory Note
On February 13, 2024, we entered into a six-month,
$50,000 promissory note with an accredited investor, with an interest rate of 10% per annum and due August 11, 2024 and convertible into
20,000 shares of Oragenics common stock currently held by us at the investor’s option. In June 2024, this note was amended to provide
for settlement of the note by issuing the accredited investor 30,000 shares of Oragenics common stock currently held by us at the investor’s
option. As of the date of this filing, this note remains outstanding.
LPC Purchase Agreement Draws
During the year ended July 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 Sale
Agreement (the “Agreement”) with Oragenics, which closed on December 28, 2023. Pursuant to the Agreement, we sold certain
assets related to the treatment of brain related illnesses and diseases (the “Assets”) with a total carrying value of $48,367
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 $16,449,054, which resulted in a gain of $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.
See Note 4 of Notes to Condensed Consolidated Financial
Statements for additional information.
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 7 of Notes to Condensed Consolidated Financial
Statements for additional information.
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Going Concern
See Note 1 of Notes to Financial Statements.
Critical Accounting Policies and Estimates
The SEC defines critical
accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of
operations and require management’s judgment. Our discussion and analysis of our financial condition and results of operations are
based on our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses. We base our estimates on experience and on various assumptions that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from those estimates.
Reference is made to our significant accounting policies
set forth in Note 2 of Notes to Consolidated Financial Statements.
Results of Operations
We do not currently sell or market any products and
we did not have any revenue for the years ended July 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.
Fiscal Year Ended July 31,
$
%
2024
2023
Change
Change
In-process research and development expense
$ –
$ 170,000
$ (170,000 )
100%
Research and development expense
55,166
201,329
(146,163 )
-73%
Stock-based compensation
577,805
2,820,311
(2,242,506 )
-80%
General and administrative expense
1,506,641
2,122,375
(615,734 )
-29%
Gain on sale of assets
(16,400,687 )
–
(16,400,687 )
n/a
Gain (loss) from operations
14,261,075
(5,314,015 )
19,575,090
-368%
Impairment of investment
(12,955,437 )
–
(12,955,437 )
n/a
Unrealized loss on investment
(1,638,743 )
–
(1,638,743 )
n/a
Interest expense
(518,476 )
(614,083 )
95,607
16%
Other income, net
9,265
8,677
588
7%
Net loss
(842,316 )
(5,919,421 )
5,077,105
-86%
Deemed dividend
63,455
–
63,455
n/a
Net loss attributable to common stockholders
$ (905,771 )
$ (5,919,421 )
$ (5,013,650 )
-85%
Basic net loss per share
$ (0.01 )
$ (0.07 )
$ 0.06
-87%
Diluted net loss per share
$ (0.01 )
$ (0.07 )
$ 0.06
-87%
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In-Process Research and Development
In-process research and development in fiscal 2023
relates 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. See Notes 2 and 5 of Notes to Consolidated Financial Statements.
Research and Development
Research and development relates to our current projects
and includes expenses for clinical research, design and manufacturing, formulation, regulatory and consultants.
The change in Research and development was due to
the following:
Fiscal Year Ended
July 31, 2024
compared to
Fiscal Year Ended
July 31, 2023
Increase (decrease) in:
Consultants
$ 24,637
Phase I clinical trial
(452,321 )
Australian research and development rebate
276,471
Phase II clinical trial
10,000
Regulatory
(4,950 )
$ (146,163 )
The decreases in the Phase I clinical trial and the
Australian research and development rebate in fiscal year 2024 compared to fiscal year 2023, were the result of the completion of the
dosing of subject in the first quarter of fiscal 2023. No additional expenses are expected related to ONP-002 as a result of the sale
of the asset to Oragenics.
In fiscal 2024, we earned a research and development
rebate from the Australian government of $53,578 related to our Phase I clinical trial of our concussion drug device combination compared
to $330,050 in fiscal 2023. These amounts were recorded as offsets to Research and development expense.
Stock-Based Compensation
The decrease in Stock-based compensation in fiscal
year 2024 compared to fiscal year 2023 was due to fewer grants and unvested awards outstanding.
General and Administrative
General and administrative includes expenses related
to 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 decrease in General and administrative was due
to the following:
Fiscal Year
Ended July 31, 2024 compared to Fiscal Year Ended
July 31, 2023
Increase (decrease) in:
Business development and investor relations
$ (247,268 )
Consulting fees
(76,000 )
Insurance expense
(11,875 )
Legal and professional fees
(82,815 )
Public company expense
25,820
Travel
(32,228 )
Wages
(196,843 )
Bad debt expense
27,833
Other
(22,358 )
$ (615,734 )
The decrease in business development, investor relations
and consulting fees was a result of decreased activities related to business development. Legal and professional fees decreased due to
lower expense in the second half of fiscal 2024. The decrease in wages was due to lower employee headcount for the second half of 2024.
Gain on Sale of Asset
The gain on sale of asset in fiscal 2024 relates to
our sale of our 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 to Oragenics
in December 2023.
Impairment of Investment
Impairment of investment in fiscal 2024 relates
to the revaluation to zero of the preferred stock of Oragenics held by us as an investment. See Notes 2 and 6 of Notes to Consolidated
Financial Statements for additional information.
Unrealized Losses on Investment
Unrealized losses on investment in fiscal 2024
relates to the common stock of Oragenics held by us as an investment. See Notes 2 and 6 of Notes to Consolidated Financial Statements
for additional information.
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:
Fiscal Year Ended July 31,
2024
2023
Weighted average debt outstanding
$ 1,754,425
$ 2,003,425
Weighted average interest rate
8.09%
7.10%
The decrease in interest expense was due to lower
weighted average debt outstanding, partially offset by a higher weighted average interest rate.
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Liquidity and Capital Resources
The following table sets forth the primary sources
and uses of cash:
Fiscal Year Ended July 31,
2024
2023
Net cash used in operating activities
$ (1,215,210 )
$ (1,474,696 )
Net cash provided by (used in) investing activities
1,000,000
(10,061 )
Net cash provided by financing activities
180,724
1,449,088
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
have suspended research and development activities until market conditions improve.
Cash used in investing activities was for a patent
related to our ONP-002 drug device combination.
Debt
The following notes payable were outstanding:
July 31, 2024
July 31, 2023
Convertible note issued to LGH due December 31, 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 $0.072 per share
$ 1,035,000
$ 1,055,000
Promissory notes issued to officers and directors due December 31, 2024, with an interest rate of 8.0% per annum and convertible at $0.12 per share
100,000
125,000
Accredited investor promissory note due August 11, 2024, with an interest rate of 10% per annum and convertible into 30,000 shares of Oragenics common stock held by us. As of the date of this filing, this note remains outstanding.
50,000
–
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
1,684,667
2,425,000
Unamortized debt discount and closing costs
(38,134 )
(246,866 )
Unamortized beneficial conversion feature
–
(33,474 )
$ 1,646,533
$ 2,144,660
See Note 14 of Notes to Consolidated Financial Statements
for information regarding a $300,000 promissory note entered into in August 2024.
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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 7A.
Quantitative and Qualitative Disclosures About Market Risk
As a Smaller Reporting Company, we are not required
to provide information under this item.