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 and six months ended January 31, 2023 and 2022.
Revenues. We generated no net revenues during the three and six months ended
January 31, 2023 and 2022. 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 $4,006,725 and $2,335,887 for the three
months ended January 31, 2023, and 2022, respectively. Consulting fees were
$8,534,725 and $6,974,328 for the six months ended January 31, 2023, and 2022,
respectively. We recognized stock-based compensation of $8,364,037 and
$6,663,700 for the six months ended January 31, 2023 and 2022, 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 $178,495 and $236,608 for the three
months ended January 31, 2023 and 2022, respectively. Professional fees were
$348,718 and $485,262 for the six months ended January 31, 2023 and 2022,
respectively. Professional fees consist of legal and accounting fees associated
with our reporting
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obligations under federal securities laws and the filing of a registration
statement on behalf of stockholders for the resale of outstanding securities.
Other Operating Expenses. Selling, general, and administrative expenses were
$233,408 and $581,197 for the three months ended January 31, 2023, and 2022,
respectively. Selling, general, and administrative expenses were $523,922 and
$963,294 for the six months ended January 31, 2023, and 2022, 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 $48,830 and $2,764,555 for
the three months ended January 31, 2023, and 2022, respectively. We had net
other expenses of $161,241 and $2,792,182 for the six months ended January 31,
2023, and 2022, respectively. Included in other expenses for the three and six
months ended January 31, 2022, was the impairment of intangible assets in the
amount of $2,734,839. Included in other expenses for the six months ended
January 31, 2023, 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 $95,493 and $57,343 for the six
months ended January 31, 2023 and 2022, 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 $4,500,876 for the three months ended January 31,
2023, compared to $5,918,247 for the three months ended January 31, 2022. We
had a net loss of $9,635,442 for the six months ended January 31, 2023, compared
to $11,215,066 for the three months ended January 31, 2022. 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 January 31, 2023
As of January 31, 2023, our primary source of liquidity consisted of $2,401 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 six months ended January 31, 2023, cash decreased $10,050 from $12,451
at July 31, 2022, to $2,401 at January 31, 2023.
Net cash used in operating activities was $323,664 during the six months ended
January 31, 2023, with a net loss of $9,635,442, stock-based compensation of
$8,364,037, loss on sale of equipment of $65,748, depreciation expense of
$66,836, an increase in accounts payable of $719,664, and an increase in accrued
liabilities of $95,493.
Net cash provided by investing activities was $10,125 during the six months
ended January 31, 2023 which consisted of the proceeds from the sale of
equipment.
During the six months ended January 31, 2023, financing activities provided
$303,489 in net cash which consisted of proceeds from the sale of common stock
of $30,000, proceeds from notes payable - related parties in the amount of
$276,372 and 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 estimate that we will require a minimum of approximately $8.5 million in
external capital to continue and to fund our activities during the next 12
months. This consists of about $2.0 million for accounts payable,
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approximately $3.5 million under a promissory note payable for our licensed
technology, and approximately $3.0 million for obligations due a promissory note
for advances that have funded our operations to date. Approximately $7.8
million of the above obligations are due to related parties. Any additional
funds available would be used for planned laboratory work to improve and
customize our licensed processes and commercialize our technology. 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.
Less available capital will require us to implement cost-cutting measures and
may delay planned activities.
We are currently seeking between $10.0 and $20.0 million through the sale of
convertible secured notes to reduce our liabilities and to fund our proposed
activities. If we obtain a minimum of $10.0 million in offering proceeds, we
will be able to repay current liabilities of about $2.0 million at January 31,
2023, including $1.3 million due officers, directors, and other affiliates for
compensation, office sharing expenses, and advances We also will pay the $3.5
million note, plus interest, due Cell Science under our Integrated License
Agreement. We are also obligated to the OZ Corporation of approximately $3.0
million under a promissory note for previous advances for operating expenses and
laboratory equipment. We may seek to extend the due date of this obligation or
convert it to other securities. The balance of about $2.5 million, or $5.5
million if the note due the OZ Corporation is converted, will be available to
advance our proposed technology customization and refinement and our licensing
effort and general and administrative expenses, including salaries and
consulting fees, including compensation to officers and directors. If we obtain
up to $20.0 million in gross proceeds from the sale of convertible debt, we will
devote the additional funds to expanding and accelerating our implantation of
our licensing plan and to payment of the approximate $3.0 note due April 10,
2023 to The OZ Corporation, as affiliate. Alternatively, in order to maximize
cash proceeds from the offering we may seek to accept cancellation of this
approximate $3.0 million note as payment for the purchase of convertible debt in
the offering.
We have no commitments or agreements to complete the above offering
We expect to generate revenue pursuant to our new business plan, dependent on
obtaining additional capital to fund activities. 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. 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.
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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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