Alzamend Neuro, Inc 10-Q for FY2025 Q1
Alzamend Neuro, Inc. (ALZN)
About this 10-Q
Alzamend Neuro, Inc filed this 10-Q on September 11, 2024, covering the quarter ended July 31, 2024 (FY2025 Q1).
Headline figures
Quarter ended July 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $974.41K
- compared with a net loss of $3.53M a year earlier
- Diluted EPS
- -$1.25
- compared with -$5.38 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered under Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of each exchange on which registered |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ¨ | Accelerated filer ¨ |
| x | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
As of September 11, 2024 there were shares of registrant’s common stock, $0.0001 par value per share, outstanding.
Table of Contents
| Page | ||
| PART I. | FINANCIAL INFORMATION | 3 |
| Item 1. | Financial Statements (unaudited) | 3 |
| Condensed Balance Sheets | 3 | |
| Condensed Statements of Operations | 4 | |
| Condensed Statements of Stockholders’ (Deficit) Equity | 5 | |
| Condensed Statements of Cash Flows | 7 | |
| Notes to Condensed Financial Statements | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27 |
| Item 4. | Controls and Procedures | 27 |
| PART II. | OTHER INFORMATION | 29 |
| Item 1. | Legal Proceedings | 29 |
| Item 1A. | Risk Factors | 29 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 |
| Item 3. | Defaults Upon Senior Securities | 29 |
| Item 4. | Mine Safety Disclosures | 29 |
| Item 5. | Other Information | 29 |
| Item 6. | Exhibits | 30 |
| Signatures | 31 |
| 2 |
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
Alzamend Neuro, Inc.
Condensed Balance Sheets
(Unaudited)
July 31, 2024 | April 30, 2024 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Note payable | ||||||||
| TOTAL LIABILITIES, ALL CURRENT | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Series A Convertible Preferred Stock, $ stated value per share, shares designated; and nil issued and outstanding as of July 31, 2024 and April 30, 2024, respectively | ||||||||
| Series B Convertible Preferred Stock, $ stated value per share, designated; issued and outstanding as of July 31, 2024 and April 30, 2024 | ||||||||
| Common stock, $ par value: shares authorized; and issued and outstanding as of July 31, 2024 and April 30, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
Alzamend Neuro, Inc.
Condensed Statements of Operations
(Unaudited)
| For the Three Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| OPERATING EXPENSES | ||||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| OTHER EXPENSE, NET | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other expense, net | ( | ) | ( | ) | ||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share | $ | ) | $ | ) | ||||
| Basic and diluted weighted average common shares outstanding | ||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
Alzamend Neuro, Inc.
Condensed Statements of Stockholders’ Deficit
For the Three Months Ended July 31, 2024
(Unaudited)
| Series A Convertible | Series B Convertible | Additional | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| BALANCES, April 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of preferred stock for cash | - | - | ||||||||||||||||||||||||||||||||||
| Conversion of note payable and interest to preferred stock | - | - | - | |||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Stock-based compensation to employees and consultants | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| BALANCES, July 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
Alzamend Neuro, Inc.
Condensed Statements of Stockholders’ Equity (Deficit)
For the Three Months Ended July 31, 2023
(Unaudited)
| Series A Convertible | Additional | Note Receivable for | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Common Stock - | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Related Party | Deficit | Total | |||||||||||||||||||||||||
| BALANCES, April 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation to employees and consultants | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCES, July 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
Alzamend Neuro, Inc.
Condensed Statements of Cash Flows
(Unaudited)
| For the Three Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Interest expense - debt discount | ||||||||
| Stock-based compensation to employees and consultants | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Prepaid expenses - related party | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from the issuance of preferred stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Non-cash financing activities: | ||||||||
| Conversion of Series A convertible preferred stock | $ | $ | ||||||
| Fair value of warrants issued in connection with Series A convertible preferred stock | $ | $ | ||||||
| Conversion of note payable and accrued interest into Series B convertible preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
Alzamend Neuro, Inc.
Notes to Unaudited Condensed Financial Statements
| 1. | DESCRIPTION OF BUSINESS |
Organization
Alzamend Neuro, Inc. (the “Company” or “Alzamend”), is a clinical-stage biopharmaceutical company focused on developing novel products for the treatment of Alzheimer’s disease (“Alzheimer’s”), bipolar disorder (“BD”), major depressive disorder (“MDD”) and post-traumatic stress disorder (“PTSD”). With two current product candidates, Alzamend aims to bring treatments or cures to market at a reasonable cost as quickly as possible. The Company’s current pipeline consists of two novel therapeutic drug candidates: (i) a patented ionic cocrystal technology delivering a therapeutic combination of lithium, proline and salicylate, known as AL001, through two royalty-bearing exclusive worldwide licenses from the University of South Florida Research Foundation, Inc., as licensor (the “Licensor”); and (ii) 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, known as ALZN002, through a royalty-bearing exclusive worldwide license from the same Licensor.
The Company is devoting substantially all its efforts towards research and development of its two product candidates and raising capital. The Company has not generated any product revenue to date. The Company has financed its operations to date primarily through debt financings and through the sale of its common stock, par value $ per share (“Common Stock”) and its preferred stock, par value $ per share. The Company expects to continue to incur net losses in the foreseeable future.
Reverse Stock Split
On October 27, 2023, pursuant to the authorization provided by the Company’s stockholders at a special meeting of stockholders, the Company filed an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding Common Stock by a ratio of one-for-fifteen (the “First Reverse Split”). The First Reverse Split did not affect the number of authorized shares of Common Stock, preferred stock or their respective par value per share. As a result of the First Reverse Split, each fifteen shares of Common Stock issued and outstanding prior to the First Reverse Split were converted into one share of Common Stock. The First Reverse Split became effective in the State of Delaware on October 31, 2023. All share amounts in these financial statements have been updated for all periods presented to reflect the First Reverse Split.
On July 10, 2024, pursuant to the authorization provided by the Company’s stockholders at its annual meeting of stockholders, the Company filed an amendment to the Certificate of Incorporation to effectuate a reverse stock split of the Company’s issued and outstanding Common Stock by a ratio of one-for-ten (the “Second Reverse Split”). The Second Reverse Split did not affect the number of authorized shares of Common Stock, preferred stock or their respective par value per share. As a result of the Second Reverse Split, each ten shares of Common Stock issued and outstanding prior to the Second Reverse Split were converted into one share of Common Stock. The Second Reverse Split became effective in the State of Delaware on July 16, 2024. All share amounts in these financial statements have been updated for all periods presented to reflect the Second Reverse Split.
| 2. | LIQUIDITY AND GOING CONCERN |
The accompanying condensed
financial statements have been prepared on the basis that the Company will continue as a going concern. As of July 31, 2024, the Company
had cash of $
Management believes its current cash on hand is not sufficient to fund its planned operations through one year after the date the condensed financial statements are issued. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that these condensed financial statements are issued.
The Company’s inability to continue as a going concern could have a negative impact on the Company, including its ability to obtain needed financing. The Company’s condensed 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 it be unable to continue as a going concern.
The Company expects to continue to incur losses for the foreseeable future and needs to raise additional capital until it is able to generate revenues from operations sufficient to fund its development and commercial operations. These factors create substantial doubt about our ability to continue as a going concern. However, based on the Company’s current business plan, management believes that the Company’s cash and cash equivalents at July 31, 2024, together with the anticipated receipt of funds from the sale of its Series A and Series B Convertible Preferred Stock pursuant to the securities purchase agreements related thereto, will be sufficient to meet the Company’s anticipated cash requirements during the twelve-month period subsequent to the issuance of the financial statements included in this Quarterly Report.
| 8 |
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Report on Form 10-K for the year ended April 30, 2024, filed with the SEC on July 30, 2024. In the opinion of management, the accompanying condensed interim financial statements include all adjustments necessary in order to make the condensed financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the condensed financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Report on Form 10-K have been omitted. The accompanying condensed balance sheet at April 30, 2024 has been derived from the audited balance sheet at April 30, 2024 contained in such Form 10-K.
Accounting Estimates
The preparation of condensed financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. The Company’s significant accounting policies that involve significant judgment and estimates include stock-based compensation, warrant valuation, and valuation of deferred income taxes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all
highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents. As of July 31, 2024
and April 30, 2024, the Company had
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 assumptions: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities including liabilities resulting from imbedded derivatives associated with certain warrants to purchase Common Stock.
The fair values of warrants are determined using the Black-Scholes valuation model, a “Level 3” fair value measurement, based on the estimated fair value of Common Stock, volatility based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities, the expected life based on the remaining contractual term of the warrants and the risk free interest rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ contractual life.
Property and Equipment, Net
Property and equipment
are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated
useful life of
| 9 |
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees, clinical trial fees and lab supplies, as well as fees paid to other entities that conduct certain research and development activities on behalf of the Company.
The Company has acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, products or rights, as well as any future milestone payments, are immediately recognized as research and development expenses, provided that there is no alternative future use of the rights in other research and development projects.
The Company recognizes stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. The Company’s 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 Company recognizes stock-based compensation expense for restricted stock units on a straight-line basis over the requisite service period and account for forfeitures as they occur. The Company’s stock-based compensation for restricted stocks is based upon the estimated fair value of the Common Stock.
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and the Company uses significantly different assumptions or estimates, the Company’s stock-based compensation could be materially different.
Warrants
The Company accounts for stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with FASB ASC 480, Distinguishing Liabilities from Equity and FASB ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant agreement.
Based on the terms of the Company’s warrant agreements, the Company accounted for the warrants as equity instruments as the warrants were indexed to the Common Stock, required settlement in shares and would be classified as equity under ASC 815.
The Company utilizes FASB ASC 260, Earnings per Share. Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted loss per common share reflects the potential dilution that could occur if convertible preferred stock, options and warrants were to be exercised or converted or otherwise resulted in the issuance of Common Stock that then shared in the earnings of the entity.
Since the effects of outstanding stock options, restricted stock units and warrants are anti-dilutive in the periods presented, shares of Common Stock underlying these instruments have been excluded from the computation of loss per common share.
The following sets forth the number of shares of Common Stock underlying outstanding stock options, restricted stock units and warrants that have been excluded from the computation of loss per common share:
| Schedule of antidilutive securities excluded from computation of earnings per share | ||||||||
| For the Three Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Stock options (1) | ||||||||
| Restricted stock units | ||||||||
| Warrants | ||||||||
| (1) |
| 10 |
Recent Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.
Management has considered all other recently issued accounting standards and does not believe the adoption of such standards will have a material impact on its condensed financial statements.
| 4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets were as follows:
| Schedule of prepaid expenses and other current assets | ||||||||
| July 31, 2024 | April 30, 2024 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Other prepaid expenses | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
On June 14, 2024, the Company
purchased directors’ and officers’ insurance for 12 months in the amount of $
| 5. | STOCK-BASED COMPENSATION |
2016 Stock Incentive Plan
On April 30, 2016, the Company’s stockholders approved the Company’s 2016 Stock Incentive Plan (the “Plan”). The Plan provides for the issuance of a maximum of shares of Common Stock to be offered to the Company’s directors, officers, employees, and consultants. On March 1, 2019, the Company’s stockholders approved an additional shares to be available for issuance under the Plan. Options granted under the Plan have an exercise price equal to or greater than the fair value of the underlying Common Stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. The options expire between five and years from the date of grant. Restricted stock awards granted under the Plan are subject to a vesting period determined at the date of grant.
2021 Stock Incentive Plan
In February 2021, the Company’s board of directors (the “Board”) adopted, and the stockholders approved, the Alzamend Neuro, Inc. 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the grant to eligible individuals of (1) stock options (incentive and non-statutory), (2) restricted stock, (3) stock appreciation rights, or SARs, (4) restricted stock units, and (5) other stock-based compensation.
Stock Subject to the 2021 Plan. The maximum number of shares of Common Stock that may be issued under the 2021 Plan is 66,667 shares, which number will be increased to the extent that compensation granted under the 2021 Plan is forfeited, expires or is settled for cash (except as otherwise provided in the 2021 Plan). Substitute awards (awards made or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company that the Company acquires or any subsidiary of the Company or with which the Company or any subsidiary combines) will not reduce the shares authorized for grant under the 2021 Plan, nor will shares subject to a substitute award be added to the shares available for issuance or transfer under the 2021 Plan.
Restricted Stock. In May 2021, the Company issued restricted stock awards pursuant to the 2021 Plan to one employee. The restricted stock award vests over 48 months. The award requires continued service to the Company during the vesting period. The vesting provisions of individual awards may vary as approved by the Board. Compensation expense for restricted stock is generally recorded based on its market value on the date of grant and recognized ratably over the associated service and performance period.
Stock Options. All options that the Company grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. The Company has valued the options at their date of grant utilizing the Black Scholes option pricing model. As of the date of issuance of these options, there was not an active public market for the Company’s shares. Accordingly, the fair value of the underlying options was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because the Company settles these obligations by issuing shares of Common Stock from its authorized shares instead of settling such obligations with cash payments.
| 11 |
A summary of stock option activity for the three months ended July 31, 2024 is presented below:
| Schedule of share-based payment arrangement, option, activity | ||||||||||||||||||||
| Outstanding Options | ||||||||||||||||||||
| Shares Available for Grant |
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (years) |
Aggregate Intrinsic Value |
||||||||||||||||
| Balance at April 30, 2024 | $ | $ | ||||||||||||||||||
| Options granted | $ | - | ||||||||||||||||||
| Options exercised | $ | - | ||||||||||||||||||
| Options expired | ( |
) | $ | - | ||||||||||||||||
| Balance at July 31, 2024 | $ | $ | ||||||||||||||||||
| Options vested and expected to vest at July 31, 2024 | $ | $ | ||||||||||||||||||
| Options exercisable at July 31, 2024 | $ | $ | ||||||||||||||||||
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the estimated fair value on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options.
Restricted stock unit activity for the three months ended July 31, 2024 is presented below:
| Schedule of nonvested restricted stock units activity | ||||||||
| Shares |
Weighted Average Grant Date Fair Value |
|||||||
| Unvested at April 30, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Cancelled | ||||||||
| Unvested at July 31, 2024 | $ | |||||||
Performance Contingent Stock Options Granted to Employee
On November 26, 2019, the Board granted performance and market contingent awards to certain key employees and a director. These grants were made outside of the Plan. These awards have an exercise price of $225.00 per share. These awards have multiple separate market triggers for vesting based upon either (i) the successful achievement of stepped target closing prices on a national securities exchange for 90 consecutive trading days later than 180 days after the Company’s initial public offering (“IPO”) for its common stock, or (ii) stepped target prices for a change in control transaction. The target prices ranged from $1,500 per share to $6,000 per share. , the unvested portion of the performance options will be reduced by 25%.
On November 22, 2022, the Compensation Committee of the Board modified the performance criteria for these awards. The target price range is now $1,500 per share to $3,000 per share. Additionally, if the stock price milestones are now not achieved by November 27, 2026, as opposed to within three years, the unvested portion of the portion of the performance options will be reduced by 25%. Due to the significant risks and uncertainties associated with achieving the market-contingent awards, as of July 31, 2024, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards.
On November 29, 2022, the Compensation Committee of the Board granted 13,333 performance-based stock option to the Chief Executive Officer at an exercise price of $175.50 per share, of which 50% vest upon the completion and announcement of topline data from the Company’s Phase II clinical trial of AL001 within three years from grant date and the remaining 50% vest upon the completion and announcement of topline data from the Company’s Phase II clinical trial of ALZN002 within four years from the grant date. During the three months ended July 31, 2023, management believed that it was probable that the performance condition of the completion and announcement of topline data from the Company’s Phase II clinical trial of AL001 would be achieved and had recognized the related stock-based compensation. As of July 31, 2024, management believed that the achievement of the second performance condition was not probable and, as a result, no compensation cost has been recognized related to Phase I/IIA of ALZN002.
| 12 |
Performance Contingent Stock Options Granted to TAMM Net
On March 23, 2021, the Company issued performance-based stock options to certain team members at TAMM Net, Inc. (“TAMM Net”) to purchase an aggregate of 3,000 shares of Common Stock at a per share exercise price of $225.00 per share, of which 50% would vest upon the completion of Phase I of AL001 by March 31, 2022, and the remaining 50% would vest upon completion of Phase I/IIA of ALZN002 by December 31, 2022.
On January 19, 2023, the Board modified the performance criteria for these awards. The remaining 50% of the grant will now vest upon the completion and announcement of topline data of the first cohort from a Phase I/IIA clinical trial of ALZN002 on/or before March 31, 2024. The modified performance criteria was not met on or before March 31, 2024 and, as a result, the remaining unvested stock options were cancelled and no compensation cost has been recognized for these awards related to ALZN002.
Performance Contingent Stock Options Granted to Consultants
On October 14, 2021, the Company issued performance-based stock options to two consultants to purchase an aggregate of 1,334 shares of Common Stock with an exercise price of $363.00 per share, of which 333 vest upon completion of each of the Phase II clinical trials of AL001 for a BD indication, AL001 for a PTSD indication, AL001 for an MDD indication and ALZN002 for an Alzheimer’s indication.
On January 19, 2023, the Board modified the performance criteria for these awards. The revised grant will vest 25% if the Company (a) completes and announces topline data from a Phase II clinical trial of AL001 and ALZN002, as applicable, that would support a new drug application for the drug candidate and the indication listed below, and (b) obtained a “Study May Proceed” letter from the U.S. Food and Drug Administration (“FDA”) for the additional Investigational New Drug (“IND”) on/or before December 31, 2023, as follows: (i) AL001 – BD; (ii) AL001- MDD; (iii) AL001 – PTSD; and (iv) ALZN002 – Alzheimer’s.
During the year ended April 30, 2024, the Company filed INDs for BD, MDD and PTSD and received a “Study May Proceed” letter for BD in October 2023, MDD in November 2023 and PTSD in December 2023. As a result, 75% of the performance grant vested and the Company recognized stock-based compensation related to the vesting. As of July 31, 2024, management believed that the achievement of the remaining requisite performance condition was not probable and, as a result, no compensation cost has been recognized for these awards related to ALZN002 – Alzheimer’s.
Stock-Based Compensation Expense
The Company’s results of operations included expenses relating to stock-based compensation for three months ended July 31, 2024 and 2023, were comprised as follows:
| Schedule of stock-based compensation | ||||||||
| For the Three Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| General and administrative | $ | $ | ||||||
As of July 31, 2024, total unamortized stock-based compensation expense related to unvested employee and non-employee awards that are expected to vest was $. The weighted-average period over which such stock-based compensation expense will be recognized was approximately years.
| 6. | WARRANTS |
During the three months ended
July 31, 2024, the Company issued warrants to purchase an aggregate of
| (i) | On May 10, 2024, the Company issued a warrant to purchase |
| (ii) | On June 25, 2024, the Company issued a warrant to purchase |
| 13 |
Warrant activity for the three months ended July 31, 2024 is presented below:
| Schedule of warrant activity | |||||||
|
Number Outstanding |
Weighted Average Exercise Price |
||||||
| Outstanding at April 30, 2024 | $ |
||||||
| Granted | $ |
||||||
| Cancelled/Expired | ( |
) | $ |
||||
| Outstanding at July 31, 2024 | $ |
||||||
The following table summarizes information about Common Stock warrants outstanding and exercisable at July 31, 2024:
| Schedule of common stock warrants outstanding | |||||||||||||||||||||
| Outstanding | Exercisable | ||||||||||||||||||||
| Weighted | |||||||||||||||||||||
| Average | Weighted | Weighted | |||||||||||||||||||
| Remaining | Average | Average | |||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
| Price | Outstanding | Life (years) | Price | Exercisable | Price | ||||||||||||||||
| - | $ | $ | |||||||||||||||||||
| $ | $ | ||||||||||||||||||||
| $ | $ | ||||||||||||||||||||
| $ | $ | ||||||||||||||||||||
| - | $ | $ | |||||||||||||||||||
| 7. | COMMITMENTS AND CONTINGENCIES |
Contractual Obligations
On July 2, 2018, the Company 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 the Company 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, the Company entered into the First Amendments to the AL001 Licenses, on March 30, 2021, the Company entered into the Second Amendments to the AL001 Licenses and on June 8, 2023, the Company 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 of the license fees.
The
AL001 License Agreements require that the Company pay combined royalty payments of
On May 1, 2016, the Company entered into a Standard Exclusive License Agreement with Sublicensing Terms for ALZN002 with the Licensor (the “ALZN002 License”), pursuant to which the Licensor granted the Company 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, the Company entered into the First Amendment to the ALZN002 License, on May 7, 2018, the Company entered into the Second Amendment to the ALZN002 License, on January 31, 2019, the Company entered into the Third Amendment to the ALZN002 License, on January 24, 2020, the Company entered into the Fourth Amendment to the ALZN002 License, on March 30, 2021, the Company entered into the Fifth Amendment to the ALZN002 License, on April 17, 2023, the Company entered into the Sixth Amendment to the ALZN002 License and on December 11, 2023, the Company 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 of the license fees.
The
ALZN002 License Agreement requires the Company to pay royalty payments of
| 14 |
On November 19, 2019, the Company 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 the Company 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, the Company entered into the First Amendments to the November AL001 License and on April 17, 2023, the Company 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 the Company to pay royalty payments of
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 Company’s obligations to pay royalties expire under the applicable license agreement. Under the various license agreements, if the Company fails 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 the Company while the Licensor remains the owner of any equity securities of the Company.
Additionally, the Company is required to complete milestones and make 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:
| Schedule of contractual obligation, fiscal year maturity | |||||
| Payment | Due Date | Event | |||
| $ | * | Pre-IND meeting | |||
| $ | * | IND application filing | |||
| $ | * | Upon first dosing of patient in a clinical trial | |||
| $ | * | Upon completion of first clinical trial | |||
| $ | Upon first patient treated in a Phase III clinical trial | ||||
| $ | Upon FDA new drug application approval | ||||
| * | Milestone met and payment made |
ALZN002 License:
| Payment | Due Date | ||
| $ | * | ||
| $ | |||
| $ | |||
| $ | |||
| $ | |||
| * | Milestone met and payment made |
Additional AL001 Licenses:
| Payment | Due Date | Event | |||
| $ | Upon first patient treated in a Phase III clinical trial | ||||
| $ | First commercial sale | ||||
| 15 |
| 8. | EQUITY TRANSACTIONS |
The Company is authorized to issue shares of Preferred Stock, $ par value. The Board has designated shares as Series A Convertible Preferred Stock and shares as Series B Convertible Preferred Stock. The rights, preferences, privileges and restrictions on the remaining authorized shares of Preferred Stock have not been determined. The Board is authorized to create a new series of preferred shares and determine the number of shares, as well as the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred shares.
Series A Convertible Preferred Stock
On May 8, 2024, the Company and Orchid entered into a securities purchase agreement (the “Orchid SPA”) for the purchase of up to shares of Series A Convertible Preferred Stock and warrants to purchase shares up to 2,000,000 shares of Common Stock in several tranche closings.
On May 10, 2024, the Company
sold 100 shares of Series A Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
On June 25, 2024, the Company
sold 150 shares of Series A Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
Series B Convertible Preferred Stock
On January 31, 2024, the
Company and Ault Lending, LLC (“Ault Lending”) entered into a securities purchase agreement (the “AL SPA”)
for the purchase of up to 6,000 shares of Series B Convertible Preferred Stock and warrants to purchase shares up to
shares of the Company’s 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.
On January 31, 2024, the Company
sold shares of Series B Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
On March 26, 2024, the Company
sold shares of Series B Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
On April 29, 2024, the Company
sold shares of Series B Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
The Series B Convertible Preferred Stock has a stated value of $1,000 per share (“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 Stated Value by $10.00 (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an issuance of Common Stock at a price per share lower than the 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 Company 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 Execution Date. The Voting Floor Price shall be adjusted for stock dividends, stock splits, stock combinations and other similar transactions. Upon a liquidation event the holders of Series B Convertible Preferred Stock receive a liquidation preference ahead of holders of Common Stock.
The warrants have an exercise price of $12.00 (the “Exercise Price”) and become exercisable on the first business day after the six-month anniversary of issuance (the “Initial Exercise Date”) and have a five-year term, expiring on the fifth anniversary of the Initial Exercise Date. The Exercise Price is subject to adjustment in the event of an issuance of Common Stock at a price per share lower than the Exercise Price then in effect, as well as upon customary stock splits, stock dividends, combinations or similar events.
| 16 |
Common Stock
Orchid SPA
During the three months ended July 31, 2024, Orchid converted 62.477 shares of Series A Convertible Preferred Stock into shares of Common Stock.
| 9. | RELATED PARTY TRANSACTIONS |
In connection with the Orchid
SPA, the Company 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. During the three months ended July 31,
2024, origination fees due to Ault Lending were $
| 10. | SUBSEQUENT EVENTS |
On August 19, 2024, the Company
sold shares of Series A Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
On August 21, 2024, the Company
sold shares of Series A Convertible Preferred Stock and warrants to purchase shares of Common Stock with an exercise price
of $
From August 1, 2024 to September 10, 2024, Orchid converted 632.4909 shares of Series A Convertible Preferred Stock into shares of Common Stock.
| 17 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following management’s discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on July 30, 2024.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This section should be read in conjunction with our unaudited condensed financial statements and related notes included in Part I, Item 1 of this report. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
In this Quarterly Report, unless the context requires otherwise, references to the “Company,” “Alzamend,” “we,” “our company” and “us” refer to Alzamend Neuro, Inc., a Delaware corporation.
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 disease (“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 progression 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.
| 18 |
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 a sufficient trading history for our common stock (“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. The 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. |
| · | 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. |
Certain of these 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.
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.
Plan of Operations
We intend to develop and commercialize therapeutics and vaccines 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. |
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.
| 19 |
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 BD type 1 as well as maintenance therapy of BD in patients with a history of manic episodes. Lithium is also prescribed off-label for MDD, BD and treatment of PTSD, among other disorders. Lithium was the first mood stabilizer approved by the U.S. Food and Drug Administration (“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 BD 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 investigational new drug (“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. In August 2024, we announced that we had partnered with Massachusetts General Hospital to serve as the CRO for these clinical trials.
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, with 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 initiating 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.
| 20 |
Results of Operations
Results of Operations for the Three Months Ended July 31, 2024 and 2023
The following table summarizes the results of our operations for the three months ended July 31, 2024 and 2023:
| For the Three Months Ended July 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research and development | $ | 206,571 | $ | 2,366,137 | $ | (2,159,566 | ) | -91 | % | |||||||
| General and administrative | 755,834 | 1,159,794 | (403,960 | ) | -35 | % | ||||||||||
| Total operating expenses | 962,405 | 3,525,931 | (2,563,526 | ) | -73 | % | ||||||||||
| Loss from operations | (962,405 | ) | (3,525,931 | ) | 2,563,526 | 73 | % | |||||||||
| OTHER EXPENSE, NET | ||||||||||||||||
| Interest expense | (12,006 | ) | (1,835 | ) | (10,171 | ) | -554 | % | ||||||||
| Total other expense, net | (12,006 | ) | (1,835 | ) | (10,171 | ) | -554 | % | ||||||||
| NET LOSS | $ | (974,411 | ) | $ | (3,527,766 | ) | $ | 2,553,355 | 72 | % | ||||||
| Basic and diluted net loss per common share | $ | (1.25 | ) | $ | (5.38 | ) | $ | 4.12 | * | |||||||
| Basic and diluted weighted average common shares outstanding | 777,821 | 656,267 | * | |||||||||||||
| * | 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 three months ended July 31, 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 three months ended July 31, 2024 and 2023 were $207,000 and $2.4 million, respectively. As reflected in the table below, research and development expenses primarily consisted of professional fees and clinical trial fees:
| For the Three Months Ended July 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Professional fees | $ | 184,164 | $ | 1,069,589 | $ | (885,425 | ) | -83 | % | |||||||
| Clinical trial fees | - | 1,245,118 | (1,245,118 | ) | -100 | % | ||||||||||
| Other research and development expenses | 22,407 | 51,430 | (29,023 | ) | -56 | % | ||||||||||
| Total research and development expenses | $ | 206,571 | $ | 2,366,137 | $ | (2,159,566 | ) | -91 | % | |||||||
| 21 |
Professional Fees
During the three months ended July 31, 2024 and 2023, we incurred professional fees of $184,000 and $1.1 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 minimal clinical trial activities.
Clinical Trial Fees
During the three months ended July 31, 2024 and 2023, we incurred clinical trial fees of nil and $1.2 million, respectively. We had no clinical trial activity for the three months ended July 31, 2024. Clinical trial fees for the three months ended July 31, 2023 were for our Phase IIA clinical trial for AL001 and our Phase I/IIA clinical trial for ALZN002.
Other Research and Development Expenses
During the three months ended July 31, 2024 and 2023, we incurred other fees of $22,000 and $51,000, respectively, which were primarily comprised of scientific materials required for our clinical trials.
General and Administrative Expenses
General and administrative expenses for the three months ended July 31, 2024 and 2023 were $756,000 and $1.2 million, respectively. As reflected in the table below, general and administrative expenses primarily consisted of the following expense categories: salaries and benefits; professional fees; insurance; stock-based compensation expense; marketing fees; as well as board of director fees. For the three months ended July 31, 2024 and 2023, the remaining general and administrative expenses of $62,000 and $83,000, respectively, primarily consisted of payments for filing fees, transfer agent fees, travel and entertainment and other office expenses, none of which was significant individually.
| For the Three Months Ended July 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Salaries and benefits | $ | 227,795 | $ | 153,324 | $ | 74,471 | 49 | % | ||||||||
| Professional fees | 222,427 | 151,180 | 71,247 | 47 | % | |||||||||||
| Insurance | 78,395 | 117,696 | (39,301 | ) | -33 | % | ||||||||||
| Stock-based compensation expense | 81,277 | 369,380 | (288,103 | ) | -78 | % | ||||||||||
| Marketing fees | 40,000 | 247,334 | (207,334 | ) | -84 | % | ||||||||||
| Board of director fees | 43,750 | 37,500 | 6,250 | 17 | % | |||||||||||
| Other general and administrative expenses | 62,190 | 83,380 | (21,190 | ) | -25 | % | ||||||||||
| Total general and administrative expenses | $ | 755,834 | $ | 1,159,794 | $ | (403,960 | ) | -35 | % | |||||||
Salaries and Benefits
During the three months ended July 31, 2024 and 2023, we incurred $228,000 and $153,000, respectively, in employee-related expenses. The decrease in salaries and benefits was due to a reversal of bonus accrual. As of July 31, 2024, we had four full-time and three part-time employees.
Professional Fees
During the three months ended July 31, 2024 and 2023, we incurred professional fees of $222,000 and $151,000, respectively. During the three months ended July 31, 2024, we incurred $85,000 in investor relations fees, $74,000 in legal fees, $56,000 in audit fees, and $7,000 in tax preparation fees. During the three months ended July 31, 2023, we incurred $78,000 in audit fees, $29,000 in investor relations fees, $16,000 in tax preparation fees, $13,000 in related party consulting, $6,000 in Sarbanes-Oxley compliance fees and $9,000 in other professional fees. The increase in professional fees was due mainly to investor relations related to our reverse split and legal fees, partially offset by lower related party consulting, audit fees and tax preparation fees.
Insurance Expense
During the three months ended July 31, 2024 and 2023, we incurred insurance expense of $78,000 and $118,000, respectively, which was primarily directors’ and officers’ insurance.
Stock-Based Compensation Expense
During the three months ended July 31, 2024 and 2023, we incurred general and administrative stock-based compensation expense of $81,000 and $369,000, respectively, related to stock option grants and restricted stock grants to executives, employees and consultants. The decrease in stock-based compensation expense for the three months ended July 31, 2024 was a result of fewer stock options vesting during the period compared to the prior year period.
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Marketing Fees
During the three months ended July 31, 2024 and 2023, we incurred marketing fees of $40,000 and $247,000, respectively. The decrease was due to the completion of the marketing and branding agreement with Ault Alliance, Inc.
Liquidity and Capital Resources
The accompanying condensed financial statements have been prepared assuming that we will continue as a going concern. We have 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 are able to generate revenues from operations. We believe our current cash on hand is insufficient to fund our planned operations through one year after the date the condensed 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 condensed 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 condensed 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 July 31, 2024, we had cash of $1.2 million, a working capital deficiency of $1.5 million, an accumulated deficit of $55.0 million and stockholders’ deficit of $1.2 million. We have incurred recurring losses and reported losses for the three ended July 31, 2024 totaling $974,000. 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. 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; |
| · | 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.
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Series B Preferred Financing
On January 31, 2024, we entered into a securities purchase agreement (“AL SPA”) with Ault Lending, LLC (“Ault Lending”) 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.
During the year ended April 30, 2024, we sold an aggregate of 2,100 shares of Series B Convertible Preferred Stock and warrants to purchase 210,000 shares of common stock with an exercise price of $12.00, for a total purchase price of $2.1 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 the remaining $950,000 in cash.
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.
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. On August 19, 2024, we sold 200 shares of Series A Convertible Preferred Stock and warrant to purchase 160,000 shares of common stock with an exercise price of $12.50, for a total purchase price of $2.0 million. The purchase price was paid in cash. On August 21, 2024, we sold 250 shares of Series A Convertible Preferred Stock and warrant to purchase 200,000 shares of common stock with an exercise price of $12.50, for a total purchase price of $2.5 million less $100,000 discount. The purchase price was paid in cash.
Pursuant to the Orchid SPA, Orchid has agreed to purchase the remaining 1,800 Preferred Shares based on our achievement of the milestones set forth below (the “Milestones”):
| • | 200 Preferred Shares, for $2,000,000, within 60 days of the effectiveness of the resale registration statement (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 resale registration statement, which was declared effective on July 9, 2024, until all remaining 1,600 Preferred Shares have been sold (each, a “Final Tranche”). |
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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.
Cash Flows
The following table summarizes our cash flows for the three months ended July 31, 2024 and 2023:
| For the Three Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (1,055,742 | ) | $ | (3,298,200 | ) | ||
| Investing activities | (90,000 | ) | (147,243 | ) | ||||
| Financing activities | 1,963,644 | - | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | 817,902 | $ | (3,445,443 | ) | |||
Operating Activities
During the three months ended July 31, 2024, net cash used in operating activities was $1.1 million. This consisted primarily of a net loss of $974,000 and a decrease in our net operating assets and liabilities of $185,000, partially offset by non-cash charges of $103,000. The non-cash charges primarily consisted of stock-based compensation expense. The decrease in our net operating assets and liabilities was due to a decrease in accounts payable and accrued liabilities and an increase in prepaid expenses and other current assets.
Investing Activities
During the three months ended July 31, 2024, net cash used in investing activities was $90,000 from the purchase of equipment. We purchased equipment, which measures lithium levels in the brain, to be used in the AL001 clinical trial.
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Financing Activities
During the three months ended July 31, 2024, net cash provided by financing activities was $2.0 million from the sale of Series A Convertible Preferred Stock.
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 of 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 of the license fees.
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 of 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.
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Additionally, we are required to complete milestones and make 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 new drug application approval | ||
| * | Milestone met and payment made |
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 payment made |
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
None.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Because we are a smaller reporting company, this section is not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon our evaluation, each of our principal executive officer and principal financial officer has concluded that the Company’s internal control over financial reporting was not effective as of the end of the period covered by this Quarterly Report on Form 10-Q because the Company has not yet completed its remediation of the material weakness previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended April 30, 2024, the end of its most recent fiscal year.
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Specifically, management has identified the following material weaknesses:
| 1. | we do not have sufficient resources in our accounting function, which restricts our ability to perform sufficient reviews and approval of manual journal entries posted to the general ledger and to consistently execute review procedures over general ledger account reconciliations, financial statement preparation and accounting for non-routine transactions; and |
| 2. | our primary user access controls (i.e., provisioning, de-provisioning, privileged access and user access reviews) to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not designed and/or implemented effectively. We did not design and/or implement sufficient controls for program change management to certain financially relevant systems affecting our processes. |
A material weakness is a control deficiency or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Planned Remediation
We are implementing measures designed to improve our internal control over financial reporting to remediate material weaknesses, including the following:
| · | Continue to formalize our internal control documentation and strengthening supervisory reviews by our management; and |
| · | Developing plans to add additional accounting personnel and segregating duties amongst accounting personnel. |
Management continues to work to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding our information technology systems and applications. Management will continue to implement measures to remediate material weaknesses, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) enhancing design and documentation related to both user access and change management processes and control activities; and (ii) developing and communicating additional policies and procedures to govern the area of information technology change management. In order to achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
| · | Engaging a third-party specialist to assist management with improving the Company’s overall control environment, focusing on change management and access controls; and |
| · | Implementing new applications and systems that are aligned with management’s focus on creating strong internal controls. |
We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Despite the existence of these material weaknesses, we believe that the condensed financial statements included in the period covered by this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Changes in Internal Control
Except as detailed above, during the quarter ended July 31, 2024, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
| ITEM 1A. | RISK FACTORS |
The risks described in Part I, Item 1A, “Risk Factors,” in our 2024 Annual Report on Form 10-K, could materially and adversely affect our business, financial condition and results of operations, and the trading price of our Common Stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The Risk Factors section of our 2024 Annual Report on Form 10-K remains current in all material respects.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None of the Company’s directors and officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended July 31, 2024 (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).
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| ITEM 6. | EXHIBITS |
*Filed herewith.
** This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ALZAMEND NEURO, INC. | |||
| Date: September 11, 2024 | By: |
/s/ Stephan Jackman Stephan Jackman | |
| Date: September 11, 2024 | By: |
/s/ David J. Katzoff David J. Katzoff |
31
Exhibit 31.1
CERTIFICATION
I, Stephan Jackman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alzamend Neuro, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: September 11, 2024
| /s/ Stephan Jackman | |
| Name: Stephan Jackman | |
| Title: Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, David J. Katzoff, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alzamend Neuro, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: September 11, 2024
| /s/ David J. Katzoff | |
| Name: David J. Katzoff | |
| Title: Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Alzamend Neuro, Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: September 11, 2024 | |
| By: /s/ Stephan Jackman | |
| Name: Stephan Jackman | |
| Title: Chief Executive Officer | |
| (Principal Executive Officer) |
| Date: September 11, 2024 | |
| By: /s/ David J. Katzoff | |
| Name: David J. Katzoff | |
| Title: Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |