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 quarter ended January 31, 2022, we undertook additional work
to determine the limits of the technology, maximize production efficiency, and
reduce production costs, 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 experience, regulatory relationships, 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 to begin
these commercialization efforts.
During the last three fiscal years and the recently completed quarter, we have
not generated revenue and have devoted our limited management, technical, and
financial resources to pay general and administrative expenses to position us to
be able to commercially exploit the licensed technology. In July 2021, we
completed efficacy testing of our licensed technology required to demonstrate
its commercial viability. As we seek to implement our commercialization plan, we
are seeking substantial amounts of required additional capital.
Results of Operations
Following is management's discussion of the relevant items affecting results of
operations for the three months ended October 31, 2022 and 2021.
Revenues. We generated no net revenues during the three months ended October 31,
2022 and 2021. We do not expect to generate revenues until we launch our
proposed commercialization program. We cannot predict whether or when that may
occur.
Consulting Fees. Consulting fees were $4,528,000 and $4,638,441 for the three
months ended October 31, 2022, and 2021, respectively. We recognized
stock-based compensation of $4,432,883 and $4,443,406 for the three months ended
October 31, 2022 and 2021, respectively, attributable to the issuance of options
and warrants. See Stock-based Compensation under Note 2 in the Notes to
Financial Statements for description of options and warrants granted.
Professional Fees. Professional fees were $170,223 and $248,655 for the three
months ended October 31, 2022 and 2021, respectively. Professional fees consist
of legal and accounting fees associated with our reporting obligations under
federal securities laws and the filing of a registration statement on behalf of
stockholders for the resale of outstanding securities.
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Other Operating Expenses. Selling, general, and administrative expenses were
$290,514 and $382,096 for the three months ended October 31, 2022, and 2021,
respectively. SG&A expenses include laboratory expenses, including office
facility charges, insurance, equipment, staff and other related laboratory
costs, which we expect will continue.
Other Income (Expenses). We had net other expenses of $112,411 and $27,627 for
the three months ended October 31, 2022, and 2021, respectively. Included in
other expenses for the nine months ended October 31, 2022 was the loss on sale
of equipment in the amount of $65,748. Also included in other expenses were
interest expenses related to our notes payable to related parties in the amount
of $46,663 and $27,627 for the three months ended October 31, 2022 and 2021,
respectively. The increase in interest expenses is a result of the increase in
loans and notes payable due to related parties. These borrowed funds were used
for operating expenses.
Net Loss. We had a net loss of $5,134,566 for the three months ended October 31,
2022, compared to $5,296,819 for the three months ended October 31, 2021. We
did not expect a major change in our net loss as our operations remain
relatively the same as the prior year.
Liquidity And Capital Resources
As of October 31, 2022
As of October 31, 2022, our primary source of liquidity consisted of $20,113 in
cash and cash equivalents. Since inception, we have financed our operations
through a combination of short and long-term loans from related parties and
through the private placement of our common stock.
For the three months ended October 31, 2022, cash increased $7,662 from $12,451
at July 31, 2022, to $20,113 at October 31, 2022.
Net cash used in operating activities was $221,247 during the three months ended
October 31, 2022, with a net loss of $5,134,566, stock-based compensation of
$4,432,883, loss on sale of equipment of $65,748, depreciation expense of
$33,418, an increase in accounts payable of $334,607, and an increase in accrued
liabilities of $46,663.
Net cash provided by investing activities was $10,125 during the three months
ended October 31, 2022 which consisted of the proceeds from the sale of
equipment.
During the three months ended October 31, 2022, financing activities provided
$218,784 in net cash which consisted of proceeds from notes payable - related
parties in the amount of $221,667and payments on notes payable - related parties
of $2,883.
Future Capital Requirements
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
attaining profitable operations. We expect that any financing we receive will be
similar to what we have heretofore received over the previous two years to
enable us to operate, which financing consists of short-term loans from related
parties at negotiated rates of interest. We cannot assure you that we will be
able to successfully complete any of these activities.
We are presently seeking additional debt and equity financing to provide
sufficient funds for payment of obligations incurred and to fund our ongoing
business plan. We expect to generate revenue pursuant to our new business plan,
dependent on the results on the Efficacy Demonstration now underway. We cannot
assure you, however, that any such financings will be available or will
otherwise be made on terms acceptable to us or that our present shareholders
might suffer substantial dilution as a result.
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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 $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, we are currently seeking between $12.0 and $15.0
million through the sale of common stock or convertible debt. We have received
$1,506,000 from the sale of common stock following July 31, 2021. We have no
commitments or agreements to complete the offering. In addition, we may receive
advance payments from joint venture partners, parties to strategic
relationships, or sublicensees.
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.
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, risks, 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 significant estimates made during the preparation of our financial
statements.
Our significant accounting policies are summarized in Note 2 of our financial
statements included in our July 31, 2022, Form 10-K. While these significant
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 policies that have the most significant impact on our financial
statements and require management to use a greater degree of judgment and
estimates. Actual results may differ from those 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 this report.
Recent Accounting Pronouncements
See Note 2 in the Notes to the Financial Statements. We have reviewed accounting
pronouncements issued during the past two years and have adopted any that are
applicable to the Company. We have determined that none had a material impact on
our financial position, results of operations, or cash flows for the periods
presented in this report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" ("SPE"s).
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