The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act
relating to future events or our future performance. The following discussion
should be read in conjunction with our consolidated financial statements and
notes to our financial statements included elsewhere in this report. This
discussion contains forward-looking statements that relate to future events or
our future performance. Although management believes that the assumptions made
and expectations reflected in the forward-looking statements are reasonable, we
cannot assure that the underlying assumptions will, in fact, prove to be correct
or that actual results will not be different from expectations expressed in this
report.
Business Overview
Since December 2018, we have focused on testing and commercializing cannabis
plant cell-extraction and replication technologies under a technology license
granted by Cell Science. This licensed technology uses plant cell-extraction and
replication technology and related proprietary equipment, processes, and medium
formulations in a commercially-sized bioreactor laboratory to produce,
manufacture, and sell plant-based cannabis products-sometimes referred in the
industry as cannabinoids-exclusively in North and Central America and the
Caribbean for medical, food additive, and recreational uses.
During our fiscal year ended July 31, 2021, we collaborated with Cell Science,
through Dr. Peter Whitten, the principal inventor of the technology and an
affiliate of both Cell Science and us, to demonstrate application of the
technology. In a July 2021 amendment to our license agreement with Cell
Science, we altered the testing requirements and accepted the results then
achieved, which required us to issue a one-year note for a one-time payment of
$3.5 million, subject to specified setoffs, to obtain a fully paid license. In
January 2022, we agreed to accept assignment of all rights under the lease for
the facility in which the laboratory is located and all rights in all laboratory
equipment and related assets used in the Efficacy Demonstration testing process
in lieu of any reduction to the one-time payment note. See below and Item 13.
Certain Relationships and Related Transactions, and Director Independence.
During our most recent fiscal year completed on July 31, 2022, we expanded our
consulting team to support our efforts to organize the launch of our
commercialization efforts, identify possible sources of required financing, and
initiate conversations with potential commercialization partners, particularly
selected multi-state operators with established production, distribution, and
marketing infrastructure, expertise, and financing. Conversations with some of
these sources and potential commercialization partners continue, but we have not
reached any definitive commitments, understandings, or agreements. We are
continuing our efforts.
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We now propose to undertake additional work to determining the limits of the
technology, maximize production efficiency, reduce production costs, and
customize products for prospective commercial partners, which we believe will
enhance our commercialization efforts. Subject to successfully completing our
ongoing work, we intend to seek to commercialize the licensed technology through
joint ventures strategic partners, sublicenses, and other arrangements that may
enable us to take advantage of the technical, regulatory relationships and
experience, and financial resources of experienced cannabinoid production firms.
We intend to authorize these third parties to incorporate the technology into
production facilities they fund, build, and operate to produce medical, food
additive, and recreational cannabis-related products in compliance with
applicable state and federal law. We will need additional financing from
external sources for these efforts.
During the last three fiscal years, we have not generated revenue and have
devoted our limited management, technical, and financial resources to pay
general and administrative expenses in order to position us to be able to
commercially exploit the licensed technology after completion of the efficacy
testing required to demonstrate its commercial viability, organize our corporate
structure, and seek substantial amounts of additional capital required to
implement our business plan.
We need additional external capital to continue operations.
Results of Operations
Years Ended July 31, 2022 and 2021
Revenues. We had no revenues during the years ended July 31, 2022 and 2021.
Consulting Fees. Consulting fees were $15,379,799 and $4,892,478 for the years
ended July 31, 2022 and 2021, respectively, an increase of $10,487,321, or 214%,
as we substantially increased our 2022 fiscal year activities following
successful demonstration of the efficacy of our licensed technology near the end
of our preceding fiscal year. During the year ended July 31, 2022, we issued
16,420,000 stock options and 15,000,000 stock warrants and recognized
stock-based compensation of $14,616,834 as we continued to rely on equity
incentives for employees and consultants in the face of limited cash resources.
As of July 31, 2022, there was $42,288,293 of total unrecognized stock-based
compensation that is expected to be recognized over the vesting period of each
option or warrant.
Professional Fees. Professional fees were $900,492 and $535,361 for the years
ended July 31, 2022 and 2021, respectively, an increase of $365,131, or 68%
during the latter period. Increases in professional fees period over the period
resulted from our increased activities and our corresponding periodic reporting
obligations under federal securities laws. We expect these increased costs will
continue.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses were $1,762,877 and $1,394,524 for the years ended July
31, 2022 and 2021, respectively, an increase of $368,353, or 26%. The increase
period over period is attributable to increasing activities and laboratory
expenses, including costs under our office sharing agreement with an affiliate,
insurance, equipment, staff and other related laboratory related costs, which we
expect will continue to increase.
Other Income (Expenses). We had net other expenses of $2,871,772 and $67,647 for
the years ended July 31, 2022 and 2021, respectively, which is over a four-fold
increase in fiscal 2022. Included in other expenses for the year ended July 31,
2022, was the impairment of intangible assets in the amount of $2,734,839
associated with the acquisition of tangible and intangible laboratory assets
from an affiliate. Also included in other expenses were interest expenses
related to our $136,933 in notes payable to related parties for the year ended
July 31, 2022. The increase in interest expenses is a result of the increase in
loans and notes payable due to related parties, which increased by a principal
amount of $4,442,948 from July 31, 2021 to July 31, 2022. We used these borrowed
funds for operating expenses.
Net Loss. We had a net loss of $20,914,940 for the year ended July 31, 2022,
compared to $6,890,010 for the year ended July 31, 2021, an increase of
$14,024,930, or 204%. Since we had no revenues in either year, the increase in
net loss was due to the increased expenses as discussed above.
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Liquidity and Capital Resources
As of July 31, 2022
As of July 31, 2022, we had cash of $12,451, compared to $46,929 as of July 31,
2021. We continue to consume working capital in the pursuit of our business plan
using proceeds from loans or sales of our equity.
For the year ended July 31, 2022, cash decreased by $34,478 from $46,929 on July
31, 2021 to $12,451 on July 31, 2022.
Net cash used in operating activities was $2,583,430 during the year ended July
31, 2022, because of a net loss of $20,914,940, which was offset by stock-based
compensation of $14,616,834, impairment of intangible assets of $2,734,839,
depreciation of $76,517, an increase in accounts payable of $766,388, and an
increase in accrued liabilities of $136,932.
During the year ended July 31, 2022, we had no net cash flows from investing
activities.
During the year ended July 31, 2022, financing activities provided $2,548,952 in
net cash, which consisted of $1,606,004 in proceeds from the sale of common
stock and $1,058,994 in proceeds from notes payable issued to related parties,
which were reduced by $116,046 paid to related parties to reduce outstanding
indebtedness.
Future Capital Requirements
Our July 31, 2022, current capital resources plus $1,420,000 in proceeds from
our private sale of common stock after July 31, 2022, will not be sufficient to
fund our planned laboratory activities, continue our planned efforts to seek to
commercialize our licensed technology, and meet other financial requirements
during the next 12 months. Our ability to continue as a going concern is
contingent upon our ability to obtain capital through the sale of equity or
issuance of debt and, ultimately, to attain profitable operations. We expect
that we will continue to rely on debt and equity financing from external
sources, including related parties during the next 12 months. We cannot assure
that we will be able to successfully complete any of these activities.
We are presently seeking debt and equity financing to fund the $3.5 million
One-time Payment to Cell Science due January 2023 and the $3,085,013 due for
related-party advances and accrued interest under a note due December 31, 2022.
We cannot assure, however, that any required financing ro repay indebtedness
will be obtained or will be available on terms acceptable to us. Any transaction
involving the issuance of common stock, or securities convertible into common
stock, would result in dilution, possibly substantial, to our existing security
holders. Further, we cannot assure that these related parties will extend the
payment dates for this indebtedness aggregating about $6.6 million.
We estimate that we will require approximately $8.5 million in external capital
to fund our activities during the next 12 months. This consists of between $1.1
million and $1.4 million during the next twelve months for our planned
laboratory work to improve and customize our licensed processes. The actual
amount of work completed will depend on the amount of capital available for
those expenditures. Reductions in available capital would correspondingly delay
and disrupt laboratory plans and, in turn, the commencement of our
commercialization program that we anticipate will lead to recurring revenue. In
addition to the above, we expect that operating capital for planned regular,
non-laboratory corporate operations with require between approximately $5.8
million and $6.2 million during the next 12 months. Less available capital will
require us to implement cost-cutting measures and may delay planned activities.
To fund the above requirements totaling about $15.1 million, we are currently
seeking between $12.0 and $15.0 million through the sale of common stock or
convertible debt. We received $1,420,000 from the sale of common stock after
July 31, 2021. We have no commitments or agreements to complete the offering.
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We may also seek additional debt and equity financing to fund payment of
additional trade and other obligations incurred and costs of implementing our
business plan. Our ability to attract debt financing will be substantially
impaired by our current lack of both revenues and a robust, viable trading
market for our common stock. Accordingly, any debt financing will likely be
convertible to common stock, at the lender's option, at prices discounted to our
stock trading price at the time of conversion, which could dilute the interests
of existing stockholders. We cannot assure that any such financings will be
available, or can be completed on terms acceptable, to us. Any transaction
involving the issuance of preferred or common stock, or securities convertible
into common stock, would result in dilution, possibly substantial, to our
current security holders.
Management's Plan to Continue as a Going Concern
Our independent registered public accounting firm's report on our financial
statements for the years ended July 31, 2022 and 3031, as for previous years,
contains an explanatory paragraph expressing substantial doubt about our ability
to continue as a going concern, which may hinder our ability to obtain future
financing. In order to continue as a going concern, we will need, among other
things, additional capital resources. Management's plans to obtain capital from
the sale of our securities and short-term borrowings from stockholders or
related parties when needed. However, management cannot provide any assurance
that we will be successful in accomplishing any of our plans. Our ability to
continue as a going concern is dependent upon our ability to successfully
accomplish the plans described in the preceding paragraph and eventually secure
other sources of financing and attain profitable operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Pronouncements
Our financial statements and related public financial information are based on
the application of generally accepted accounting principles in the United States
("GAAP"). GAAP requires the use of estimates, assumptions, judgments, and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenues, and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures,
including information regarding contingencies, risk, and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor estimates made during the preparation of our financial statements.
Financial Reporting Release No. 60, published by the SEC, recommends that all
companies include a discussion of critical accounting policies used in the
preparation of their financial statements.
While all these accounting policies impact our financial condition and results
of operations, we view certain of these policies as critical. Policies
determined to be critical are those that have the most substantial impact on our
financial statements and require management to use a greater degree of judgment
and estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause a material effect on our results of
operations, financial position, or liquidity for the periods presented in our
annual report.
Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
Revenue Recognition
Revenue is recognized upon delivery of goods when the sales price is fixed or
determinable and collectability is reasonably assured. Revenue is not recognized
until persuasive evidence of an arrangement exists.
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Stock-Based Compensation
We account for stock-based compensation under Accounting Standards Codification
Topic 718, "Compensation-Stock Compensation," using the fair value-based method.
Under this method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is usually
the vesting period. This guidance establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments.
Advertising
Advertising costs that are not material for the periods presented are expensed
as incurred.
Basic and Fully Diluted Net Loss per Share
Basic net loss per common share is based on the weighted average number of
shares outstanding during the periods presented. Diluted earnings per share is
computed using the weighted average number of common shares plus dilutive common
share equivalents outstanding during the period. There are no common stock
equivalents as of July 31, 2021 and 2020, and for the periods presented.
Recent Accounting Pronouncements
We have evaluated recent accounting pronouncements and believe that none of them
will have a material effect on our financial statements.
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