UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
Commission
File No.
(Exact name of Registrant as specified in its charter)
(State
or other jurisdiction |
(I.R.S. employer identification number) | |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
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 (§232.405 of this chapter) 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 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 | ☐ |
| ☒ | 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 ☐ No
As of September 16, 2024, there were outstanding shares of the registrant’s Common Stock, $ par value.
vitro biopharma inc.
Form 10-q
For the quarterly period ended July 31, 2024
table of contents
| 2 |
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Vitro BioPharma, Inc.
Consolidated Balance Sheets
(Unaudited)
| July 31, 2024 | October 31, 2023 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Inventory | ||||||||
| Prepaid Expense | ||||||||
| Deferred Offering Costs | ||||||||
| Total Current Assets | ||||||||
| Goodwill | ||||||||
| Intangible Assets, Net | ||||||||
| Property and Equipment, Net | ||||||||
| Patents, Net | ||||||||
| Right of Use Asset – Operating Lease | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Accounts Payable | $ | $ | ||||||
| Deferred Revenue, Net | ||||||||
| Accrued Liabilities | ||||||||
| 2021 Series Convertible Note Payable – Related Party | ||||||||
| Accrued Interest Payable – Related Party | ||||||||
| 2024 Series Senior Secured Convertible Notes Payable – Stock Settled, Net | ||||||||
| Derivative/Warrant Liability | ||||||||
| Current Maturities of Capital Lease Obligations | ||||||||
| Current Maturities of Operating Lease Obligations | ||||||||
| Total Current Liabilities | ||||||||
| Capital Lease Obligations, Net of Current Portion | ||||||||
| Operating Lease Obligation, Net of Current Portion | ||||||||
| Unsecured 6% Note Payable – Related Party | ||||||||
| Unsecured 4% Note Payable – Related Party | ||||||||
| 2022 Series Convertible Notes Payable | ||||||||
| 2023 Series Convertible Notes Payable - Stock Settled, Net | ||||||||
| 2023 Series B Convertible Notes Payable – Stock Settled, Net | ||||||||
| Derivative/Warrant Liability | ||||||||
| Long Term Accrued Interest Payable | ||||||||
| Long Term Accrued Interest Payable – Related Party | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDERS’ (DEFICIT) | ||||||||
| Preferred Stock, Shares Authorized, par value $; Series A Convertible Preferred Stock, Shares Authorized, and Outstanding, respectively | ||||||||
| Common stock, Shares Authorized, par value $, and Outstanding, respectively | ||||||||
| Additional Paid in Capital | ||||||||
| Less Treasury Stock | ( | ) | ( | ) | ||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ (Deficit) | $ | $ | ||||||
The unaudited consolidated financial statements should be read in connection with the notes to the unaudited consolidated financial statements.
| 3 |
Vitro BioPharma, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | |||||||
| Product Sales | $ | $ | ||||||
| Product Sales, Related Party | ||||||||
| Total Revenue | ||||||||
| Less Cost of Goods Sold | ( | ) | ( | ) | ||||
| Gross Profit | ||||||||
| Operating Costs and Expenses: | ||||||||
| Selling, General and Administrative | ||||||||
| Research and Development | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Expense: | ||||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Other Project Income, Net | ||||||||
| Gain on Extinguishment of Debt | ||||||||
| Unrealized Gain on Derivative/Warrant Liability | ||||||||
| Net Loss Available to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss per Common Share, Basic and Diluted | $ | ) | $ | ) | ||||
| Shares Used in Computing Net Loss per Common Share, Basic and Diluted | ||||||||
The unaudited consolidated financial statements should be read in connection with the notes to the unaudited consolidated financial statements.
| 4 |
Vitro BioPharma, Inc.
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended July 31, 2024 | Nine Months Ended July 31, 2023 | |||||||
| Product Sales | $ | $ | ||||||
| Product Sales, Related Parties | ||||||||
| Consulting Revenue | ||||||||
| Total Revenue | ||||||||
| Less Cost of Goods Sold | ( | ) | ( | ) | ||||
| Gross Profit | ||||||||
| Operating Costs and Expenses: | ||||||||
| Selling, General and Administrative | ||||||||
| Research and Development | ||||||||
| Write-off of Offering Costs | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Expense: | ||||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Other Project Income, Net | ||||||||
| Gain on Extinguishment of Debt | ||||||||
| Unrealized Gain on Derivative/Warrant Liability | ||||||||
| Net Loss Available to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss per Common Share, Basic and Diluted | $ | ) | $ | ) | ||||
| Shares Used in Computing Net Loss per Common Share, Basic and Diluted | ||||||||
The unaudited consolidated financial statements should be read in connection with the notes to the unaudited consolidated financial statements.
| 5 |
Vitro BioPharma, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Nine Months Ended July 31, 2024 and 2023
(Unaudited)
| Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid
in Capital | Treasury Stock | Accumulated Deficit | Total | |||||||||||||||||||||||||
| Balance at October 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Forgiven Accrued Payables – Related Party | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at January 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock Based Compensation | - | - | ||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at April 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock Based Compensation | - | - | ||||||||||||||||||||||||||||||
| Payment for Fractional Warrants - Recapitalization | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at July 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock Issued for Services | - | |||||||||||||||||||||||||||||||
| Stock Based Compensation | - | - | ||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at January 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock Based Compensation | - | - | ||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at April 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock Based Compensation | - | - | ||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at July 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The unaudited consolidated financial statements should be read in connection with the notes to the unaudited consolidated financial statements.
| 6 |
Vitro BioPharma, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended July 31, 2024 | Nine Months Ended July 31, 2023 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to Reconcile Net Loss: | ||||||||
| Other Project Income, Net | ( | ) | ||||||
| Gain on Extinguishment of Debt | ( | ) | ||||||
| Unrealized Gain on Derivative/Warrant Liability | ( | ) | ( | ) | ||||
| Depreciation Expense | ||||||||
| Amortization Expense | ||||||||
| Amortization of Operating Lease – ROU Asset | ||||||||
| Accretion of Debt Discount | ||||||||
| Stock Based Compensation | ||||||||
| Common Stock Issued for Services | ||||||||
| Write-off of Offering Costs | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid Expenses | ||||||||
| Prepaid project costs | ( | ) | ||||||
| Accounts Payable | ||||||||
| Accounts Payable – Related Party | ||||||||
| Deferred Revenue | ||||||||
| Operating Lease Obligation | ( | ) | ( | ) | ||||
| Accrued Liabilities | ( | ) | ||||||
| Accrued Liabilities – Related Party | ( | ) | ||||||
| Accrued Interest | ||||||||
| Accrued Interest – Related Parties | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Investing Activities | ||||||||
| Acquisition of Property and Equipment | ( | ) | ||||||
| Patent Costs | ( | ) | ( | ) | ||||
| Other Assets | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Issuance of 2024 Series Senior Secured Convertible Notes Payable – Stock Settled | ||||||||
| Issuance of 2023 Series Convertible Notes Payable - Stock Settled | ||||||||
| Issuance of 2023 Series B Convertible Notes Payable – Stock Settled | ||||||||
| Capital Lease Principal Payments | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| Total Cash Provided (Used) During the Period | ( | ) | ||||||
| Beginning Cash Balance | ||||||||
| Ending Cash Balance | $ | $ | ||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Income Taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Financing Activities: | ||||||||
| Premium on issuance of 2024 Series Senior Secured Notes Payable - Stock Settled | $ | $ | ||||||
| Derivative/Warrant Liability on 2024 Series Senior Secured Notes Payable | $ | $ | ||||||
| Discount on Derivative/Warrant Liability on 2024 Series Senior Secured Notes Payable | $ | $ | ||||||
| Premium on issuance of 2023 Series Notes Payable | $ | $ | ||||||
| Derivative/Warrant Liability on 2023 Series Notes Payable | $ | $ | ||||||
| Discount on Derivative/Warrant Liability on 2023 Series Notes Payable | $ | $ | ||||||
| Forgiveness of Accrued Liabilities – Related Party | $ | $ | ||||||
| Deferred Offering Costs Recorded as Accounts Payable | $ | $ | ||||||
| Right of Use Asset | $ | $ | ||||||
The unaudited consolidated financial statements should be read in connection with the notes to the unaudited consolidated financial statements.
| 7 |
VITRO BIOPHARMA, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2024 AND 2023
NOTE 1 – NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization and Description of Business
Vitro Biopharma, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on March 31, 1986, under the name Imperial Management, Inc. On December 17, 1986, the Company merged with Labtek, Inc., a Colorado corporation, with the Company being the surviving entity and the name of the Company was changed to Labtek, Inc. The name was then changed to Vitro Diagnostics, Inc. on February 6, 1987. From November of 1990 through July 31, 2000, the Company was engaged in the development, manufacturing, and distribution of purified human antigens (“Diagnostics”) and related technologies. The Company also developed cell technology including immortalization of certain cells, which allowed entry into other markets besides Diagnostics. In August 2000, the Company sold the Diagnostics business, following which it focused on developing therapeutic products, its stem cell technology, patent portfolio and proprietary technology and cell lines for applications in autoimmune disorders and inflammatory disease processes and stem cell research. On February 3, 2021, the Company filed an amendment to the articles of incorporation with the Nevada Secretary of State, changing the name of the Company to Vitro BioPharma, Inc.
Summary of Significant Accounting Policies
Basis of Presentation
The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2023, as filed with the SEC (“Form 10-K”). Unless otherwise noted in this Interim Report, there have been no material changes to the disclosures contained in the notes to the audited financial statements for the year ended October 31, 2023, contained in the Form 10-K.
The Consolidated Balance Sheet as of October 31, 2023, was derived from the audited financial statements included in the Form 10-K. In management’s opinion, the unaudited interim Consolidated Balance Sheet, Statements of Operations, Statements of Changes in Shareholders’ Equity, and Statements of Cash Flows, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements. The results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Certain prior period amounts were reclassified to conform to the current presentation on the Consolidated Financial Statements.
The accompanying consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Basis of Consolidation
The consolidated financial statements include the operations of the Company and its wholly owned subsidiaries, Fitore, Inc. (“Fitore”) and InfiniVive MD, LLC (“InfiniVive”).
| 8 |
Cash Equivalents
For the purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage limits. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Concentrations
During
the nine months ended July 31, 2024 and 2023,
Deferred Offering Costs
The
Company defers, as Current Assets, the direct incremental costs of raising capital through equity offerings, until such time as the offering
is completed or abandoned. At the time of the offering completion, the costs are charged against the capital raised. Should the offering
be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated. During the nine
months ended July 31, 2024 and 2023 the Company recorded
as expense $
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets.
Use of Estimates
The preparation of the financial statements in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is satisfied. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on the Company’s consolidated financial statements.
| 9 |
For each performance obligation identified in accordance with ASC 606, the Company determines at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 606-10-25-27 through 25-29) or satisfies the performance obligation at a point in time (in accordance with paragraph 606-10-25-30). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.
Control is considered transferred over time if any one of the following criteria is met:
| ● | The customer simultaneously receives and consumes the benefits of the asset or service which the entity performs; | |
| ● | The entity’s performance creates or enhances an asset; or | |
| ● | The entity’s performance creates or enhances an asset that has no alternative use to the entity and the entity has the right to payment for work completed to date. |
For certain contracts to which the Company is party, it uses the recognition over time method to recognize revenue.
The Company recognizes revenue when performance obligations with the customer are satisfied. Product sales occur once control is transferred upon shipment to the customer at the time of the sale. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. The Company’s revenue is primarily derived from the sources listed below:
Sale of research and development product: Sales of research and development product include the sale of stem cell medium.
Sale of therapeutic product: Includes cell culture media to be used in therapeutic treatment.
Shipping: Includes amounts charged to customers for shipping products.
Consulting Revenue: The Company has agreed to assist another party to develop an FDA-approved biological product. Revenues are recognized when certain contractual milestones are achieved.
Fitore product sales online: Includes internet sales, via the Fitore Nutrition website, of dietary supplements called Stemulife, Spectrum+, Easy Sleep and Thought Calmer.
InfiniVive product sales: InfiniVive, via call-in orders, sells exosomes and daily cosmetic serum.
Disaggregation of revenue
The following table summarizes the Company’s revenue for the reporting periods, disaggregated by product or service type:
| Three
Months Ended July 31, 2024 | Three
Months Ended July 31, 2023 | |||||||
| Revenues: | ||||||||
| Research and development products | $ | $ | ||||||
| AlloRx Stem Cells to Foreign Third-Party Clinics | ||||||||
| InfiniVive products | ||||||||
| Fitore products | ||||||||
| Total | $ | $ | ||||||
| 10 |
| Nine
Months Ended July 31, 2024 | Nine
Months Ended July 31, 2023 | |||||||
| Revenues: | ||||||||
| Research and development products | $ | $ | ||||||
| AlloRx Stem Cells to Foreign Third-Party Clinics | ||||||||
| Consulting revenue | ||||||||
| InfiniVive products | ||||||||
| Fitore products | ||||||||
| Total | $ | $ | ||||||
Deferred Revenue
The Company has recorded deferred revenue in connection with a Joint Operating Agreement (as subsequently amended, the “JOA”) between the Company and European Wellness/BIO PEP USA (“BIO PEP”). Pursuant to this JOA, which expired in accordance with its terms on July 31, 2023 and has not been renewed, the Company was obligated to use its best efforts to identify, develop and deliver various potential active pharmaceutical ingredients and to oversee the development of a recombinant cell line by a third-party service provider. The Company was also engaged to establish a Quality Management System to be utilized by BIO PEP in their pursuit of FDA authorizations. Prior to its expiration, our work under the JOA had been suspended since April 2023 pending discussions regarding amounts believed to be owed to us under that agreement for work already completed. If those discussions are unsuccessful, we may not be able to collect all of the amounts believed to be owed to us or the other amounts originally expected to be received by us under the agreement.
The
Company records as deferred revenue amounts for which the Company has been paid but for which it has not yet achieved and delivered related
milestones or when the level of effort required to complete performance obligations under an arrangement cannot be reasonably estimated
under the terms of the related agreement. Deferred revenue is classified as current or long-term based on when management estimates the
revenue will be recognized. As of July 31, 2024, the Company has net deferred $
The table below summarizes Deferred Revenues as of July 31, 2024:
| October
31, 2023 | Other
Project Income Recognized | Net
Revenue Deferred | July
31, 2024 | |||||||||||||
| Deferred Revenue | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The table below summarizes Deferred Revenues as of July 31, 2023:
| October
31, 2022 | Revenue Recognized | Revenue Deferred | July
31, 2023 | |||||||||||||
| Deferred Revenue | $ | $ | ( | ) | $ | $ | ||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
As
of July 31, 2023, upon the expiration of the European Wellness Agreement, the Company recognized $
Accounts Receivable
Accounts
receivable consists of amounts due from customers. The Company considers accounts more than 30 days old to be past due. The Company uses
the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The
Company generally does not require collateral for its accounts receivable. As of July 31, 2024 and October 31, 2023, total accounts receivable
amounted to $
| 11 |
As
of July 31, 2024, two customers accounted for
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic income or loss per share) and potentially dilutive shares of common stock that are not anti-dilutive. For the nine months ended July 31, 2024 and 2023, the following number of potentially dilutive shares have been excluded from diluted net loss since such inclusion would be anti-dilutive:
| July 31, 2024 | July 31, 2023 | |||||||
| Stock options outstanding | ||||||||
| Shares to be issued in connection with exercise of warrants | ||||||||
| 2021 Series Convertible Notes Payable - Related Party – common shares | ||||||||
| 2022 Series Convertible Notes Payable - common shares | ||||||||
| 2023 Series Convertible Notes Payable – Stock Settled | ||||||||
| 2023 Series Convertible Notes Payable – Stock Settled – warrants issuable | ||||||||
| 2023 Series B Convertible Notes Payable – Stock Settled | ||||||||
| 2023 Series B Convertible Notes Payable - Stock Settled - warrants issuable | ||||||||
| 2024 Series Senior Secured convertible notes payable – stock settled | ||||||||
| 2024 Series Senior Secured convertible notes payable – stock settled – warrants issuable- | ||||||||
| 2024 Pre-funded Warrants | ||||||||
| Total | ||||||||
Inventory
Inventories, consisting of raw materials and finished goods, are stated at the lower of cost (using the specific identification method) or market. Inventories consisted of the following at the balance sheet dates:
| July 31, 2024 | October 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. During the nine months ended July 31, 2024 and 2023, the Company did not record any impairment expense.
Patents
Costs
related to filing and pursuing patent applications (including direct application fees, and the legal and consulting expenses related
to making such applications) are capitalized as incurred and will not be amortized until a patent is granted at which time they will
be amortized. Capitalized patent costs recorded as of July 31, 2024 and October 31, 2023 were $
| 12 |
Recent Accounting Standards
On August 5, 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in GAAP. This ASU is effective for fiscal years beginning after December 31, 2023. The Company is evaluating the impact the adoption will have on the financial statements.
NOTE 2 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going
concern. The Company incurred net losses of approximately $
These factors raise substantial doubt about the Company’s ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements, raise additional capital, and generate additional revenues and profit from operations.
Management plans to address the going concern include but are not limited to raising additional capital through an attempted public and/or private offering of equity securities, as well as potentially issuing additional debt instruments. The Company also has various initiatives underway to increase revenue generation through diversified offerings of products and services related to its stem cell technology and analytical capabilities. The goal of these initiatives is to achieve profitable operations as quickly as possible. Various strategic alliances that are ongoing and under development are also critical aspects of management’s overall growth and development strategy. There is no assurance that these initiatives will yield sufficient capital to maintain the Company’s operations. There is no assurance that the ongoing capital raising efforts will be successful. Should management fail to successfully raise additional capital and/or fully implement its strategic initiatives, it may be compelled to curtail part or all of its ongoing operations.
The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has historically financed its operations primarily through various private placements of debt and equity securities.
NOTE 3 – FAIR VALUE MEASUREMENT
ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a hierarchy for inputs used in measuring fair value for financial assets and liabilities that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
● Level 1: Quoted prices available in active markets for identical assets or liabilities;
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● Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; and
● Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash or valuation models.
The financial assets and liabilities are classified in the Consolidated Balance Sheets based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
As disclosed in Note 7, the two tranches, of 2023 Series Convertible Notes Payable - Stock Settled Derivative/Warrant Liability required identification and quantification of fair value. Similarly, the tranche of 2024 Series Senior Secured convertible notes – Stock Settled Derivative/Warrant Liability required identification and quantification of fair value. The derivative liabilities described below only relate to (i) the warrants included with the two tranches of the 2023 Series Convertible Notes Payable – Stock Settled debt and (ii) the warrants included with 2024 Series Senior Secured convertible note – Stock Settled debt. The estimated fair values as of the issuance date of these three tranches of notes are presented in Note 7.
As of July 31, 2024, the estimated fair values of the Company’s financial liabilities are presented in the following table:
| July 31, 2024 | ||||
| 2023 Series Convertible Notes Payable - Stock Settled - Derivative/Warrant Liability | $ | |||
| 2023 Series B Convertible Notes Payable – Stock Settled – Derivative/Warrant Liability | ||||
| 2024 Series Senior Secured convertible notes payable – stock settled – Derivative/Warrant Liability | ||||
| Total | $ | |||
The following table presents a roll forward of the fair value of the derivative liabilities associated with the Company’s warrants included with its 2023 Series and 2024 Series Convertible Notes Payable, categorized as Level 3:
Nine Months Ended | Year Ended October 31, 2023 | |||||||
| Beginning Balance | $ | $ | ||||||
| Additions | ||||||||
| Subtractions | ( | ) | ||||||
| Total (gains) or losses (unrealized) | ( | ) | ( | ) | ||||
| Ending Balance | $ | $ | ||||||
During
the three and nine months ended July 31, 2024 and 2023, the unrealized gain on the Derivative Warrant Liability associated with the two
tranches of 2023 Series Convertible Notes Payable – Stock Settled was $
During
the three and nine months ended July 31, 2024, the unrealized (gain) or loss on the Derivative Warrant Liability associated with the
2024 Series Senior Secured convertible notes payable – stock settled was $
The fair value of the warrants granted in connection with the two tranches of 2023 Series Convertible Notes Payable-Stock Settled during the periods presented was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| July 31, 2024 | October 31, 2023 | |||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Volatility factor | % | % | ||||||
| Weighted average expected life (years) | ||||||||
| 14 |
The fair value of the warrants granted in connection with the 2024 Series Senior Secured convertible notes payable - stock settled during the periods presented was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| July 31, 2024 | October 31, 2023 | |||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Volatility factor | % | % | ||||||
| Weighted average expected life (years) | ||||||||
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, and Convertible Notes Payable. The carrying values of cash, accounts receivable and accounts payable are representative of their fair values due to their short-term maturities. The carrying amount of the Company’s Convertible Notes Payable approximates fair value as they bear interest over the term of the loans.
NOTE 4 – PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated depreciation at the balance sheet dates:
| July 31, 2024 | October 31, 2023 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Property and equipment | ||||||||
| Total cost | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
expense for the three and nine months ended July 31, 2024 and 2023 was $
NOTE 5 – INTANGIBLE ASSETS
The following table sets forth the carrying amounts of intangible assets and goodwill including accumulated amortization as of July 31, 2024:
| Remaining Useful Life | Cost | Accumulated Amortization and Impairment | Net
Carrying Value | |||||||||||
| Trademarks and tradenames | $ | $ | ( | ) | $ | |||||||||
| Patents, know-how and unpatented technology | ( | ) | ||||||||||||
| Customer relationships | ( | ) | ||||||||||||
| Total | ( | ) | ||||||||||||
Remaining Useful Life | Cost | Impairment | Net Carrying Value | |||||||||||
| Goodwill | $ | $ | ( | ) | $ | |||||||||
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The table below presents anticipated future amortization expense related to the Company’s intangible assets for each of the succeeding five fiscal years ending October 31;
| 2024 (3 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total | $ |
During
the three and nine months ended July 31, 2024 and 2023, the Company recorded amortization expense of $
NOTE 6 – LEASE OBLIGATIONS
The Company accounts for its leases in accordance with ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 requires lessees to (i) recognize a right of use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities.
The
Company’s operating lease consists of a lease for office space. The Company’s finance lease activities consist of leases
for equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The office lease contains an option
to a renewal period of
In
May 2023, the Company executed a new office lease for
| 16 |
The following table shows the classification and location of the Company’s leases in the Consolidated Balance Sheets:
| Leases | Balance Sheet Location | July 31, 2024 | October 31, 2023 | |||||||
| Assets | ||||||||||
| Noncurrent: | ||||||||||
| Operating | Right-of-use asset – operating lease | $ | $ | |||||||
| Finance | Property and equipment, net | |||||||||
| Total Lease Assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Current: | ||||||||||
| Operating | Operating lease liabilities | $ | $ | |||||||
| Finance | Finance lease liabilities | |||||||||
| Noncurrent: | ||||||||||
| Operating | Operating lease liabilities | |||||||||
| Finance | Finance lease liabilities | |||||||||
| Total Lease Liabilities | $ | $ | ||||||||
The following table shows the classification and location and the Company’s lease costs in the Consolidated Statements of Operations:
| Statements of Operations | Nine Months Ended July 31, | |||||||||
| Location | 2024 | 2023 | ||||||||
| Operating lease expense | General and administrative expense | $ | $ | |||||||
| Finance lease expense: | ||||||||||
| Interest on lease liability | Interest expense | |||||||||
| Total Lease expense | $ | $ | ||||||||
Minimum remaining contractual obligations for the Company’s leases (undiscounted) as of July 31, 2024 were as follows:
| Operating | Finance | |||||||
| Fiscal year 2024 | $ | $ | ||||||
| Fiscal year 2025 | ||||||||
| Fiscal year 2026 | ||||||||
| Fiscal year 2027 | ||||||||
| Fiscal year 2028 | ||||||||
| Fiscal year 2029 | ||||||||
| Thereafter | ||||||||
| Total Lease Payments | $ | $ | ||||||
| Less Imputed interest | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ | ||||||
The following table shows the weighted average remaining lease term and the weighted average discount rate for the Company’s leases as of the dates indicated:
| July 31, 2024 | October 31, 2023 | |||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
| Weighted-average remaining lease term (in years) | ||||||||||||||||
| Weighted-average discount rate (1) | % | % | % | % | ||||||||||||
| (1) |
| 17 |
The following table includes other quantitative information for the Company’s leases for the periods indicated:
| Nine Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in measurement of lease liabilities | ||||||||
| Cash payments for operating leases | $ | $ | ||||||
| Cash payments for finance leases | $ | $ | ||||||
NOTE 7 – DEBT
The table below presents outstanding debt instruments as of July 31, 2024 and October 31, 2023:
| July 31, 2024 | October 31, 2023 | |||||||
| Short Term | ||||||||
| 2021 Series convertible notes – related party | $ | $ | ||||||
| 2024 Series Senior Secured convertible notes | ||||||||
| Premium 2024 Series Senior Secured convertible notes | ||||||||
| Total Short-Term Debt | ||||||||
| Long Term | ||||||||
| Unsecured 6% note payable – related party | $ | $ | ||||||
| Unsecured 4% note payable – related party | ||||||||
| 2022 Series convertible notes | ||||||||
| 2023 Series convertible notes – stock settled | ||||||||
| Discount 2023 Series convertible notes | ( | ) | ( | ) | ||||
| 2023 Series B convertible notes – stock settled | ||||||||
| Discount 2023 Series B convertible notes | ( | ) | ( | ) | ||||
| Total Long-Term Debt | ||||||||
| Total Debt | $ | $ | ||||||
The table below presents the future maturities of outstanding debt obligations as of July 31, 2024:
| Fiscal year 2024 | $ | |||
| Fiscal year 2025 | ||||
| Fiscal year 2026 | ||||
| Fiscal year 2027 | ||||
| Fiscal year 2028 | ||||
| Total | $ |
Unsecured 6% Note Payable - Related Party
Interest
expense on this note was $
Unsecured 4% Note Payable - Related Party
Interest
expense on this note was $
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2021 Series Convertible Note - Related Party
The
principal balance outstanding on the 2021 Series Convertible note amounted to $
On
August 2, 2024, we received a notice of default with respect to this note. We are in negotiations with the holder of the note to extend
the maturity date of the note, but there is no assurance we will reach an agreement to extend the maturity date of the note. The note
is convertible into our common stock at a price of $
2022 Series Convertible Notes
During
June and July, 2022, the Company issued a total of $
2023 Series Convertible Notes – Stock Settled
On
January 6, 2023, the Company sold $
On
various dates during March and April 2023, the Company sold $
On
various dates during June and July 2023, the Company sold $
The sale and purchase were made through a Convertible Note and Warrant Purchase Agreement (“Purchase Agreement”) entered into with each investor. The Company followed the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 480 “Distinguishing Liabilities from Equity” to account for the stock settled debt and ASC 815 “Derivatives and Hedging” to account for the derivative related to the notes and also to determine the number of warrants to be issued at the time of the issuance of the January 2023 Notes, March 2023 Notes, or the June 2023 Notes.
The
Company contemplated ASC 480-10-30-7 related to the valuation of the embedded conversion feature contained in the January 2023 Notes,
March 2023 Notes, and June 2023 Notes. The Company deemed that the most likely scenario to be utilized for valuing the conversion feature
was a qualified financing. Therefore, the Company deemed that the January 2023 Notes, March 2023 Notes, and June 2023 were issued at
a premium related to the definition of Discounted Qualified Financing Price contained in the Purchase Agreement. The premium recognized
at the inception of January 2023 Notes was $
The
Company assessed the January 2023 Warrants, March 2023 Warrants, and June 2023 first under ASC 480. Based on the attributes of the January
2023 Warrants, March 2023 Warrants, and June 2023 Warrants, the Company determined that each are outside of the scope of ASC 480 and
proceeded to assess each under ASC 815 to determine if any are considered indexed to the Company’s own common stock. Because the
inputs which affect the number of shares to be issued upon exercise of the January 2023 Warrants, March 2023 Warrants, and June 2023
Warrants are not the inputs per 815-40-15-7E, none are deemed to be indexed to the Company’s own stock and have been recorded as
liabilities under ASC 815 (Note 3) at the fair market value. At issuance, the Company recorded a warrant liability related to the January
2023 Warrants of $
| 19 |
The
combination of the $
The
combination of the $
The
combination of the $
During
the three and nine months ended July 31, 2024 and 2023, the Company recorded $
As
of July 31, 2024 and October 31, 2023, the Company had accrued $
2024 Series Senior Secured Convertible Notes – Stock Settled
On
November 16, 2023 and January 10, 2024, the Company entered into securities purchase agreements (the “January Purchase Agreements”)
with an accredited investor, pursuant to which the Company issued and sold to the investor, in a private placement, (i) senior secured
convertible notes (the “January Series 2024 Notes”) in the principal amount of $
On
April 11, 2024, the Company entered into a securities purchase agreement (the “April Purchase Agreement”) with an accredited
investor, pursuant to which the Company issued and sold to the investor, in a private placement, (i) senior secured convertible notes
(the “April Series 2024 Notes”) in the principal amount of $
| 20 |
On
May 13, 2024, the Company entered into securities purchase agreements (the “May Purchase Agreement”) with accredited investors,
pursuant to which the Company issued and sold to the investors, in a private placement, (i) senior secured convertible notes (the “May
Series 2024 Notes”) in the principal amount of $
On
June 21, 2024, the Company entered into a letter agreement (the “Target Extension Agreement”) with Target Capital 16 LLC
(“Target”). Pursuant to the Target Extension Agreement, the maturity date of the January Series 2024 Notes of the Company
held by Target, in the aggregate original principal amount of $
On
July 16, 2024, the Company entered into a second letter agreement (the “Target Consolidation Agreement”) with Target. Pursuant
to the Target Consolidation Agreement, in consideration of an additional $
The January Series 2024 Notes, April Series 2024 Notes, May Series 2024 Notes, and July Series 2024 Notes are collectively the “Series 2024 Notes.” The January Series 2024 Warrants, April Series 2024 Warrants, and May Series 2024 Warrants are collectively the “Series 2024 Warrants.” No Series 2024 Warrants were issued with the July Series 2024 Notes.
Interest
on the Series 2024 Notes will accrue commencing on the earlier of the maturity date or upon an event of default, at the annual rate of
20%, due the first day of each calendar month following such date. The January Series 2024 Notes will mature at the earlier of (i) six
months from the issuance date (the “Original Maturity Date”) and (ii) the occurrence of a Liquidity Event (as defined in
the January Series 2024 Notes), provided that the Company may extend the maturity date for an additional three months (the “January
Extension Period”). The April Series 2024 Notes will mature at the earlier of (i) May 16, 2024 and (ii) the occurrence of a Liquidity
Event (as defined in the April Series 2024 Notes), provided that the Company may extend the maturity date for an additional three months
(the “April Extension Period”). The May Series 2024 Notes will mature at the earlier of (i) May 16, 2024 and (ii) the occurrence
of a Liquidity Event (as defined in the May Series 2024 Notes), provided that the Company may extend the maturity date for an additional
three months (the “May Extension Period”). The July Series 2024 Notes will mature on October 16, 2024 (the “Original
Final Maturity Date”), provided that, if the Company (A) will have been diligently pursuing the consummation of a Liquidity Event
(as defined in the Notes) through such date (as evidenced by the filing of a registration statement under the Securities Act of 1933,
as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended) and (y) will have delivered an extension
notice, then the Original Final Maturity Date will be extended to November 16, 2024 (the “Extended Final Maturity Date”),
and (B) will have consummated a Liquidity Event on or before the Original Final Maturity Date or Extended Final Maturity Date, then the
Extended Final Maturity Date will be extended by 180 days from the date of such consummation. The Series 2024 Notes are secured by all
of the Company’s assets pursuant to a security agreement between the Company and the investors.
| 21 |
The Company followed the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 480 “Distinguishing Liabilities from Equity” to account for the stock settled debt, ASC 470 “Debt,” and ASC 815 “Derivatives and Hedging” to account for Series 2024 Notes and Series 2024 Warrants.
The Company contemplated ASC 480-10-30-7 related to the valuation of the embedded conversion feature contained in the Series 2024 Notes and determined that the value delivered to the investor is identical in all scenarios and only the number of shares differ. The number of shares are issued at a premium as there is a discount applicable in the case of a Liquidity Event.
In
order to determine the conversion price of the Series 2024 Notes, the Company analyzed the guidance in ASC 470 related to multi-step
discounts. The Company deemed that the most likely scenario to be utilized for valuing the conversion feature was a conversion following
a Liquidity Event at the option of the investor during the Extension Period as this represents the most advantageous scenario from the
perspective of the investor with the shortest period in which the investor could recognize a return on its investment. Because the Company
filed an amendment to its Form S-1 Registration Statement on February 2, 2024 which contemplates that, following effectiveness, the selling
shareholders may offer their shares at a fixed price of $ per share, the assumed Liquidity Event Price in this scenario is also
deemed to be $. For the January Series 2024 Notes, upon issuance, under the scenario based on the aforementioned assumptions, the
Company would issue shares of common stock upon conversion, and it recognized a premium of $
The
Company assessed the Series 2024 Warrants first under ASC 480. Based on the attributes of the Series 2024 Warrants, the Company determined
that each are outside of the scope of ASC 480 and proceeded to assess each under ASC 815 to determine if any are considered indexed to
the Company’s own common stock. Because the inputs which affect the number of shares to be issued upon exercise of the Series 2024
Warrants are not the inputs per 815-40-15-7E, none are deemed to be indexed to the Company’s own stock and have been recorded as
liabilities under ASC 815 (Note 3) at the fair market value. Because the scenario under which the Series 2024 Notes are analyzed assumes
a Liquidity Event, the scenarios under which to analyze the Series 2024 Warrants should also contain a Liquidity Event. As such, the
assumed exercise price is $
| 22 |
The
combination of the $
Pursuant
to ASC 480, the Company assessed the January Series 2024 Notes and the July Series 2024 Notes comparing the present value of the cash
flows of both notes at the January Series 2024 Notes effective interest rate. Because the difference between the present value of the
January Series 2024 Notes and July Series 2024 Notes cash flows was greater than 10%, the two sets of notes were deemed to be substantially
different and, as such, the extinguishment of January Series 2024 Notes were recorded as a gain in the statement of operations. Immediately
prior to the extinguishment, the Company recorded a gain on the fair value of the warrant liability of $
The
combination of the $
The
combination of the $
During
the three and nine months ended July 31, 2024,
NOTE 8– STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized shares of $ par value Preferred Stock, of which were designated as Series A Convertible Preferred Shares. As of July 31, 2024 and October 31, 2023, and shares of Series A Convertible Preferred Stock were issued and outstanding.
Activity for the nine months ended July 31, 2024 and 2023
There were no sales or grants of preferred shares during the nine months ended July 31, 2024 or 2023.
| 23 |
Common Stock
As of July 31, 2024, the Company had authorized shares of $ par value common stock. As of July 31, 2024 and October 31, 2023, and shares were issued and outstanding, respectively.
Activity for the nine months ended July 31, 2024 and 2023
On
November 16, 2023, the Company granted shares of common stock pursuant to the execution of a consulting agreement. The shares
were granted at $ per share. The shares vested immediately and are not subject to any revision based on the terms of the consulting
agreement. The Company has recorded the value of the shares granted, $
There were no grants of common stock during the nine months ended July 31, 2023.
Stock-Based Compensation
There were grants of stock purchase options during the nine months ended July 31, 2024 or 2023.
Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate intrinsic value | |||||||||||||
| Balance at October 31, 2023 | ||||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options forfeited | - | - | ||||||||||||||
| Balance at July 31, 2024 | $ | $ | ||||||||||||||
Stock based compensation expense related to options for the three and nine months ended July 31, 2024 and 2023, amounted to $ and $, and $ and $ respectively. As of July 31, 2024 and October 31, 2023, and options were exercisable, respectively. Unrecognized compensation expense related to outstanding options amounted to $ and $ as of July 31, 2024 and October 31, 2023, respectively.
Warrants
During
the nine months ended July 31, 2024, the Company issued pre-funded warrants to purchase
A summary of the Company’s common stock underlying the outstanding warrants as of July 31, 2024, is as follows:
Underlying Number of | Average Exercise Price | Weighted Average Life | ||||||||||
| Outstanding at October 31, 2023 | ||||||||||||
| Warrants A – Granted during the period | - | |||||||||||
| Warrants B – Granted during the period | - | |||||||||||
| Warrants A – Expired during the period | ( | ) | - | |||||||||
| Warrants B – Expired during the period | - | |||||||||||
| Outstanding at July 31, 2024 | $ | |||||||||||
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Employment agreements
On
July 6, 2022, the Company hired Christopher Furman as its new Chief Executive Officer. Mr. Furman will receive an annual base salary
of $
NOTE 10 – RELATED PARTY TRANSACTIONS
Accounts Payable
The
spouse of the Company’s Chief Science Officer, through an entity she controls, leases office and lab space to the Company. As of
July 31, 2024 and October 31, 2023, the Company owes this entity $
| 24 |
Convertible Notes, Debt Discount and Accrued Interest
The
principal balance outstanding on the 2021 Series Convertible note, which is owned by a relative of the former CFO, amounted to $
On
August 2, 2024, we received a notice of default with respect to this note. We are in negotiations with the holder of the note to extend
the maturity date of the note, but there is no assurance we will reach an agreement to extend the maturity date of the note. The note
is convertible into our common stock at a price of $
Consulting Agreement with 5% Stockholder
On
December 1, 2021, we entered into a consulting agreement with John Evans (the “Consulting Agreement”), a greater than 5%
stockholder and our former Chief Financial Officer, pursuant to which Mr. Evans provides advisory services to our Chief Executive and
Chief Financial Officers. Under the Consulting Agreement,
The Consulting Agreement will terminate on December 1, 2025 (the “Agreement Termination Date”). If Mr. Evans is terminated by the Company for any reason prior to the Agreement Termination Date, or there occurs a Change in Control (as defined in the Consulting Agreement), Mr. Evans will be entitled to the continued payment of amounts due under the Consulting Agreement for the remaining term of the Consulting Agreement, as well as continued vesting of all outstanding options granted to Mr. Evans.
| 25 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In the following discussion, “Vitro”.,” the “Company,” “we,” “our,” and “us” refer to Vitro BioPharma, Inc., and its subsidiaries, as the context requires.
The following discussion analyzes our operating results for the three and nine months ended July 31, 2024 and compares those results to the three and nine months ended July 31, 2023. The discussion below also analyzes our liquidity and capital resources as of July 31, 2024 and material changes in those resources since the October 31, 2023. We suggest that you read the following information in conjunction with our unaudited consolidated financial statements for the nine months ended July 31, 2024 and 2023 contained elsewhere in this Report and our audited consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. Further, we encourage you to review the Special Note Regarding Forward-Looking Statements.
Overview
We are an innovative biotechnology company targeting autoimmune diseases and inflammatory disorders, with an ancillary focus in the research services and cosmeceutical fields. With respect to our regenerative medicine business, we are developing novel cellular therapeutic candidates intended to address significant unmet medical needs. In the United States, we are authorized to conduct two clinical trials under two FDA IND applications to assess the safety and efficacy of AlloRx Stem Cell therapy in PTHS and Long COVID and expect to commence those trials in 2024 pending receipt of sufficient working capital. We generate revenue from our other technologies through a number of other activities, including through the sale of our stem cell products as well as cosmeceuticals through InfiniVive MD, our wholly-owned subsidiary, which helps to alleviate our capital expenses.
Components of Operating Results
Revenue
We generate revenue primarily from our proprietary products and technologies, including through supplying AlloRx Stem Cells, CAFs, native fibroblasts and other stem cell products and technologies developed by us. We have also generated consulting revenue from the Joint Operating Agreement (as subsequently amended, the “JOA”) among the Company, European Wellness Biomedical Group (“European Wellness”), a multinational company based in Europe, and its U.S. subsidiary, Bio Peptides LLC (“BioPep”), however, deliverables under the JOA were suspended since April 2023 pending discussions regarding amounts believed to be owed to us under the JOA for work already completed. If those discussions are unsuccessful, we may not be able to collect all of the amounts believed to be owed to us or the other amounts originally expected to be received by us under the JOA, which could have an adverse effect on our revenue, cash flow, operating results and financial condition. Furthermore, the JOA expired in accordance with its terms on July 31, 2023. While discussions are ongoing, management does not currently expect our agreement with European Wellness to be renewed beyond its expiration date. Regardless of whether the agreement is renewed, however, we intend to continue to seek to recover all amounts believed to be owed to us under that agreement for work completed.
In addition, our acquisitions of InfiniVive MD, and to a lesser extent, Fitore, provide us revenue through sales of topical cosmetic conditioned media and exosomes serums through InfiniVive MD and sales of dietary supplements, nutraceuticals and health products through Fitore. However, we expect that sales of Fitore products in the future will be limited, as we are currently selling such products solely from remaining inventory and with minimal marketing efforts, and do not anticipate manufacturing any additional Fitore products in the foreseeable future or at all. We also terminated the chief executive officer and all other employees of Fitore as of June 2022.
Selling, General and Administrative Expenses
Selling, General and Administrative (“SG&A”) expenses consist of salaries and other related costs, stock-based compensation, legal fees relating to corporate matters, other professional fees for accounting, auditing, tax and consulting services, insurance costs, travel expenses, and facility-related expenses.
We expect that our SG&A expenses will increase in the future as we expect to increase our headcount to support increased research and development activities relating to our clinical programs. We also expect to incur increased SG&A expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with stock exchange and SEC requirements, director and officer insurance costs, and investor and public relations costs.
Research and Development Expenses
All our research and development expenses to date have been incurred in connection with the discovery and development of our research products and product candidates. We expect our research and development expenses to increase significantly for the foreseeable future when we commence clinical trials and advance the pre-clinical and clinical development of our programs, including the conduct of our planned clinical trials.
Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, facility and other allocated expenses, including rent, depreciation, and allocated overhead costs, and other research and development expenses. Where appropriate, we will allocate our third-party research and development expenses on a program-by-program basis.
| 26 |
The successful development of product candidates is highly uncertain and subject to numerous risks and uncertainties.
Accordingly, at this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates and to obtain regulatory approval for one or more of these product candidates.
Other Income and Expenses
Other income/expense consisted of interest expense on our outstanding debt.
Going Concern
Our consolidated financial statements contained in this Report have been prepared assuming that we will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in our consolidated financial statements, we have an accumulated deficit as of July 31, 2024 of $35.9 million. We incurred net losses of approximately $7.8 million and $5.4 million during the nine months ended July 31, 2024 and the year ended October 31, 2023, respectively. We used cash in operating activities of $2.3 million and $2.0 million for the nine months ended July 31, 2024 and 2023, respectively. We had a working capital deficit of approximately $8.2 million as of July 31, 2024. These factors raise substantial doubt about our ability to continue as a going concern.
We have commenced the execution of our long-range business plan and efforts to generate additional revenue; however, our current cash position is not sufficient to support our daily operations for the next 12 months. Our ability to continue as a going concern is dependent upon our ability to raise additional funds through debt or equity financings and our ability to further implement our business plan and generate additional revenue.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Results of Operations
The following table summarizes our operating results for the three months ended July 31, 2024 and 2023:
Three Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Product Sales | $ | 318,109 | $ | 561,490 | ||||
| Product Sales, Related Parties | 1,800 | 15,750 | ||||||
| Total Revenue | 319,909 | 577,240 | ||||||
| Less: Cost of Goods Sold | (65,438 | ) | (96,815 | ) | ||||
| Gross Profit | 254,471 | 480,425 | ||||||
| Selling, General and Administrative Expenses | (1,383,346 | ) | (1,486,866 | ) | ||||
| Research and Development | (125,628 | ) | (33,146 | ) | ||||
| Interest Expense | (1,950,925 | ) | (81,976 | ) | ||||
| Other Project Income, Net | 191,746 | |||||||
| Gain on Extinguishment of Debt | 740,724 | - | ||||||
| Unrealized Gain (Loss) on Derivative/Warrant Liability | 2,315,624 | 58,133 | ||||||
| Net Loss | $ | (149,080 | ) | $ | (871,684 | ) | ||
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Net Loss
We recorded a net loss of $149,080 in the three months ended July 31, 2024, a decrease of $722,604 from the three months ended July 31, 2023, or 83%. The decreased loss in the three months ended July 31, 2024 was due to a significant unrealized gain on Derivative/Warrant Liability, a gain on extinguishment of debt and a reduction in legal expenses, offset by significant interest recorded as discount accretion related to the 2024 Senior Secured Notes and an increase in consulting expenses related to a common stock grant. We expect to continue reporting losses until such time, if ever, we can improve the operation of our newly acquired subsidiaries and/or commercialize one or more of our product candidates and generate sales sufficient to offset our operating costs and expenses and interest expenses.
Product Sales
Total revenue in the three months ended July 31, 2024, decreased by $257,331, or 45%, from the three months ended July 31, 2023. The decrease is attributable to the factors described below, primarily decreased sales of research and development products. Our revenue is generated by sales of research products, sales of AlloRx Stem Cells to foreign third-party clinics and medical centers, consulting revenue and sales from our subsidiaries, InfiniVive MD and Fitore, there was no consulting revenue recognized in the three months ended July 31, 2024, or 2023.
During the three months ended July 31, 2024 and 2023, research and development product sales were $72,913 and $284,306, respectively, a decrease in the three months ended July 31, 2024 of $211,393, or 74%. The decrease was attributable to biopharmaceutical institutions, university research labs and clinics purchasing fewer CAFs and native fibroblasts in the three months ended July 31, 2024. CAFs and native fibroblasts are used by such institutions for stem cell research and the development of advanced immunotherapy of cancer, and our sales to such institutions are generally completed on a purchase order basis and without minimum purchase obligations. As a result, sales volumes in a particular period may fluctuate based on the number of research programs then being pursued by such institutions.
Sales of AlloRx Stem Cells to foreign third-party clinics for the three months ended July 31, 2024 and 2023 were $214,839 and $217,991 respectively, a decrease of $3,152, or 1%. The decrease is attributable to decreased sales volumes, as third-party clinics for which we supply AlloRx Stem Cells treated slightly less patients during the three months ended July 31, 2024. We expect AlloRx Stem Cell sales internationally to increase over the next year as these products expand into additional foreign third-party clinics and medical centers and our current foreign third-party clinics and medical center customers increase their total monthly patients as international travel continues to pick back up.
Product Sales – Related Parties
Product sales to related parties are sales to the medical practice of Dr. Zamora, our former Chief Executive Officer. Such sales for the three months ended July 31, 2024 and 2023, were $1,800 and $15,750, respectively.
Cost of Goods Sold
Our cost of goods sold during the three months ended July 31, 2024 totaled $65,438 compared to $96,815 during the three months ended July 31, 2023, a decrease of $31,377, or 32%, resulting in gross profit of $254,471 and $480,425 for the three months ended July 31, 2024 and 2023, respectively. The gross profit percentages for the three months ended July 31, 2024 and 2023 were 80% and 83%, respectively. Cost of goods sold, as a percentage of product sales remained generally consistent for the three months ended July 31, 2024 and 2023. The overall decrease in gross profit in the three months ended July 31, 2024 was attributable to an decrease in revenue from product sales, as discussed above under “Product Sales.”
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Selling, General and Administrative Expenses
SG&A expenses decreased from $1,486,866 in the three months ended July 31, 2023, to $1,383,346 in the three months ended July 31, 2024. This decrease of $103,520 or 7% was primarily due to a reduction in legal fees of $87,558.
Research and Development
Research and development expenses for the three months ended July 31, 2024 and 2023 were $125,628 and $33,146, respectively, an increase of $92,482, as the Company continues working to identify additional indications for the study of AlloRx Stem Cell therapy and to prepare AlloRx Stem Cell therapy for future Phase 1/2a clinical trials for PTHS and Long COVID which have been authorized by the FDA. In the three months ended July 31, 2024, the Company primarily continued its efforts to prepare AlloRx Stem Cell therapy for future clinical trials. In the three months ended July 31, 2023, the Company had limited its research and development efforts.
Interest Expense
Interest expense for the three months ended July 31, 2024, was $1,950,925, an increase of $1,868,949 from the interest expense for the three months ended July 31, 2023, of $81,976. This increase is primarily due to debt discount accretion, related to the 2024 Senior Secured Notes. The interest expense related to the remaining debt on our balance sheet of approximately $8.6 million is expected to be all non-cash interest expense.
Gain on Extinguishment of Debt
During the three months ended July 31, 2024, the Company extinguished certain debt and issued a new debt instrument in its place. The transactions resulted in a gain on extinguishment of debt of $740,724. There were no similar transactions during the three months ended July 31, 2023.
Unrealized Gain on Derivative/Warrant Liability
During the year ended October 31, 2023, we issued 8% Convertible Notes and Senior Secured Notes in the aggregate principal amount of $6,436,350. In connection with these notes, the Company recognized a Derivative/Warrant liability. At July 31, 2024 and 2023, this liability was marked to market, resulting in an unrealized gain during the three months ended July 31, 2024 and 2023 of $2,315,624 and $58,133, respectively.
The following table summarizes our operating results for the nine months ended July 31, 2024 and 2023:
Nine Months Ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Product Sales | $ | 1,299,056 | $ | 1,170,364 | ||||
| Product Sales, Related Parties | 18,000 | 33,750 | ||||||
| Consulting Revenue | - | 25,000 | ||||||
| Total Revenue | 1,317,056 | 1,229,114 | ||||||
| Less: Cost of Goods Sold | (244,802 | ) | (225,960 | ) | ||||
| Gross Profit | 1,072,254 | 1,003,154 | ||||||
| Selling, General and Administrative Expenses | (5,068,793 | ) | (4,445,217 | ) | ||||
| Research and Development | (421,552 | ) | (106,426 | ) | ||||
| Write-off of Offering Costs | (2,656,962 | ) | - | |||||
| Interest Expense | (4,282,853 | ) | (178,606 | ) | ||||
| Other Project Income, Net | - | 191,746 | ||||||
| Gain on Extinguishment of Debt | 740,724 | - | ||||||
| Unrealized Gain on Derivative/Warrant Liability | 2,779,997 | 58,840 | ||||||
| Net Loss | $ | (7,837,185 | ) | $ | (3,476,509 | ) | ||
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Net Loss
We recorded a net loss of $7,837,185 in the nine months ended July 31, 2024, an increase of $4,360,676 from the nine months ended July 31, 2023, or 125%. The increased loss in the nine months ended July 31, 2024 was due primarily to the write-off of deferred offering costs related to prior efforts at an initial public offering that had been abandoned, significant interest recorded as discount accretion related to the 2024 Senior Secured Notes and an increase in consulting expenses related to common stock granted and cash expense recorded related to a consulting agreement, executed in connection with the issuance of our 2024 Senior Secured Notes Payable – Stock Settled. In addition, this was offset by a gain on extinguishment of debt and an increase in the unrealized gains on derivative/warrant liability in the nine months ended July 31, 2024, as discussed further below. Interest expense increased during the nine months ended July 31, 2024, due to the issuance of the 8% 2023 Series, 2023 Series B notes and the 2024 Senior Secured notes, in particular the discount accretion related to the 2024 Senior Secured Notes Payable. We expect to continue reporting losses until such time, if ever, we can improve the operation of our newly acquired subsidiaries and/or commercialize one or more of our product candidates and generate sales sufficient to offset our operating costs and expenses and interest expenses.
Product Sales
Total revenue in the nine months ended July 31, 2024, increased by $87,942, or 7%, from the nine months ended July 31, 2023. The increase is attributable to the factors described below, primarily increased sales of research and development products and sales of our AlloRx Stem Cells. Our revenue is generated by sales of research products, sales of AlloRx Stem Cells to foreign third-party clinics and medical centers, consulting revenue and sales from our subsidiaries, InfiniVive MD and Fitore. There was no consulting revenue recognized in the nine months ended July 31, 2024 and $25,000 in the nine months ended July 31, 2023.
During the nine months ended July 31, 2024 and 2023, research and development product sales were $322,870 and $307,324, respectively, an increase in the nine months ended July 31, 2024 of $15,546, or 5%. The increase was attributable to biopharmaceutical institutions, university research labs and clinics purchasing more CAFs and native fibroblasts in the nine months ended July 31, 2024. CAFs and native fibroblasts are used by such institutions for stem cell research and the development of advanced immunotherapy of cancer, and our sales to such institutions are generally completed on a purchase order basis and without minimum purchase obligations. As a result, sales volumes in a particular period may fluctuate based on the number of research programs then being pursued by such institutions.
Sales of AlloRx Stem Cells to foreign third-party clinics for the nine months ended July 31, 2024 and 2023 were $870,712 and $661,208 respectively, an decrease of $209,504, or 32%. The increase is attributable to increased sales volumes, as third-party clinics for which we supply AlloRx Stem Cells treated many more patients during the nine months ended July 31, 2024, due to increased interest in using AlloRx. We expect AlloRx Stem Cell sales internationally to increase over the next year as these products expand into additional foreign third-party clinics and medical centers and our current foreign third-party clinics and medical center customers increase their total monthly patients as international travel continues to pick back up.
Product Sales – Related Parties
Product sales to related parties are sales to the medical practice of Dr. Zamora, our former Chief Executive Officer. Such sales for the nine months ended July 31, 2024 and 2023, were $18,000 and $33,750, respectively.
Cost of Goods Sold
Our cost of goods sold during the nine months ended July 31, 2024 totaled $244,802 compared to $225,960 during the nine months ended July 31, 2023, an increase of $18,842, or 8%, resulting in gross profit of $1,072,254 and $1,003,154 for the nine months ended July 31, 2024 and 2023, respectively. The gross profit percentages for the nine months ended July 31, 2024 and 2023 were 81% and 82%, respectively. Cost of goods sold, as a percentage of product sales remained generally consistent for the nine months ended July 31, 2024 and 2023. The overall increase in gross profit in the nine months ended July 31, 2024 was attributable to an increase in revenue from product sales, as discussed above under “Product Sales.”
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Selling, General and Administrative Expenses
SG&A expenses increased from $5,068,793 in the nine months ended July 31, 2023 to $4,445,217 in the nine months ended July 31, 2024. This increase of $623,576 or 14% was primarily due to an increase in stock-based compensation of $253,592 and an increase in consulting expense of $898,668, offset by a reduction in legal fees of $379,722. The increased consulting costs were primarily related to common stock granted valued at $450,000 and cash expense recorded of $75,000 related to a consulting agreement, executed in connection with the issuance of our 2024 Series Senior Secured Notes Payable – Stock Settled.
Research and Development
Research and development expenses for the nine months ended July 31, 2024 and 2023 were $421,552 and $106,426, respectively, an increase of $315,126, as the Company continues working to identify additional indications for the study of AlloRx Stem Cell therapy and to prepare AlloRx Stem Cell therapy for future Phase 1/2a clinical trials for PTHS and Long COVID which have been authorized by the FDA. In the nine months ended July 31, 2024, the Company primarily continued its efforts to prepare AlloRx Stem Cell therapy for future clinical trials. In the nine months ended July 31, 2023, the Company had limited its research and development efforts.
Write-off of Offering Costs
During the nine months ended July 31, 2024,the Company recorded as expense $2,656,962 related to the write off of previously capitalized Deferred Offering Costs. The write off of the deferred costs was related to efforts at an initial public offering that has been abandoned by the Company. There was no comparable expense recorded during the comparable prior period.
Interest Expense
Interest expense for the nine months ended July 31, 2024 was $4,282,853, an increase of $4,104,247 from the interest expense for the nine months ended July 31, 2023 of $178,606. This increase is primarily due to debt discount accretion, related to the 2024 Senior Secured Notes. The interest expense related to the remaining debt on our balance sheet of approximately $8.6 million is expected to be all non-cash interest expense.
Gain on Extinguishment of Debt
During the nine months ended July 31, 2024, the Company extinguished certain debt and issued a new debt instrument in its place. The transactions resulted in a gain on extinguishment of debt of $740,724. There were no similar transactions during the nine months ended July 31, 2023.
Unrealized Gain on Derivative/Warrant Liability
During the year ended October 31, 2023 and the nine months ended July 31, 2024, we issued 8% Convertible Notes and Senior Secured Notes in the aggregate principal amount of $6,436,350. In connection with these notes, the Company recognized a Derivative/Warrant liability. At July 31, 2024 and 2023, this liability was marked to market, resulting in an unrealized gain during the nine months ended July 31, 2024 and 2023 of $2,779,997 and $58,840, respectively.
Liquidity and Capital Resources
Overview
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses as we advance the preclinical and clinical development of our programs. We expect that our sales, research and development, and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations for the next twelve months and beyond, which we hope to obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
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We currently have no credit facility or other committed sources of capital. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
In order to continue as a going concern, as well as to meet our operational goals, we will need to obtain additional capital in both the short and long term, which we will likely obtain through a variety of means, including through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To the extent that we raise additional capital through the sale of convertible debt or equity securities, the ownership interest of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Such financing may result in dilution to stockholders, imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Working Capital
As of July 31, 2024, we had a working capital deficit of approximately $8.2 million, comprised of current assets of $1.9 million and current liabilities of $10.1 million. The working capital deficit at July 31, 2024, increased approximately $6.6 million from October 31, 2023, our prior fiscal year end. Cash increased from $0.1 million as of October 31, 2023, to $1.5 million at July 31, 2024, due to our issuance of the 2024 Senior Secured Convertible Notes Payable.
During the nine months ended July 31, 2024, we sold $4.7 million of Senior Secured Convertible Notes Payable – Stock Settled as well as warrants to purchase our common stock for aggregate, net proceeds of $3.8 million. The Senior Secured Convertible Notes are payable solely in shares of our common stock. The Notes will be convertible, at the option of the holders, into common stock commencing on the maturity date, at a conversion price equal to the product of (x) the Liquidity Event Price as defined in the Notes and (y) 0.70 (or 0.60 if the Company has extended the maturity date), provided however, that if no Liquidity Event has occurred by the maturity date then the conversion price will be the amount obtained by dividing (i) $95,000,000 by (ii) the number of shares of common stock outstanding on such date calculated on a fully-diluted basis. In addition, the Company will have the right to effect conversion of the Notes if, at the time (a) a Liquidity Event has occurred and (b) the underlying shares are registered for resale. The proceeds from the sale of the Senior Secured Convertible Notes and the warrants have been and will be used for general corporate purposes. We continue efforts to raise capital for our short-term liquidity and capital needs.
As a result of our limited working capital position as of July 31, 2024, we continue to rely on cash from outside sources to meet our liquidity requirements. Our need for liquidity and capital in the next 12 months include:
| ● | advancing the clinical development of AlloRx Stem Cell therapy for the treatment of several indications; | |
| ● | pursuing the preclinical and clinical development of other current and future research programs and product candidates; | |
| ● | in-license or acquire the rights to other products, product candidates or technologies; | |
| ● | maintain, expand and protect our intellectual property portfolio; |
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| ● | hire additional personnel in research, manufacturing and regulatory and clinical development as well as management personnel; | |
| ● | seek regulatory approval for any product candidates that successfully complete clinical development; | |
| ● | expand our manufacturing capabilities; | |
| ● | expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company; and | |
| ● | pay our other administrative expenses. |
We may endeavor to raise additional capital through the sale of equity or debt in one or more non-public offerings. We do not anticipate commencing any clinical trials of our AlloRx Stem Cell therapy unless and until we receive substantial additional capital, as costs are estimated to be $4 million to $6 million to commence our contemplated Phase 1/2a clinical trials for PTHS and Long COVID, depending on whether we commence one or both trials.
Our significant contractual cash requirements as of July 31, 2024, primarily include payments for operating and finance lease liabilities and principal and interest on loans. Our current and long-term obligations related to these items are outlined in “Note 6—Lease Obligations,” and “Note 7—Debt,” of the Notes to our unaudited consolidated financial statements within this Report. Additionally, we may incur purchase obligations in the ordinary course of business that are enforceable and legally binding and enter into enforceable agreements to purchase goods or services that specify all significant terms, including fixed or minimum quantities to be purchased and fixed or estimated prices to be paid at the time of settlement. As of July 31, 2024, we had payments for lease, loan and other known contractual obligations of approximately $9.7 million, of which approximately $5.7 million are payable within 12 months as of July 31, 2024.
In addition to our other outstanding debt as further described in “Note 7—Debt” to our unaudited consolidated financial statement, we currently have outstanding a 5% Convertible Note in the original principal amount of $480,000 that matured on July 31, 2024. On August 2, 2024, we received a notice of default with respect to this note. We are in negotiations with the holder of the note to extend the maturity date of the note, but there is no assurance we will reach an agreement to extend the maturity date of the note. The note is convertible into our common stock at a price of $26.00 per share at the option of the holder and is subject to mandatory conversion in the event (i) our common stock is publicly traded, (ii) the common stock trades at a price of at least $3.00 per share for at least 20 days and the average daily trading volume during such 20 day period is at least 15,000 shares, and (iii) we either have an effective registration statement allowing for resale of the common stock free of any restrictions or the shares are eligible for sale without restriction by the holder upon conversion. Subject to such conditions, the note may be subject to mandatory conversion following completion of this offering, however, there can be no assurance the note will become subject to mandatory conversion. Though the default under this note also constitutes an event of default under certain other outstanding notes issued by the Company, such cross-defaults have been waived by the holders. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including such note, depends on our future performance and receipt of additional capital, which is subject to economic, financial, competitive and other factors beyond our control. Repayment of these obligations, even if we are able to obtain the requisite capital, would decrease the funds available to further our business plan.
On July 16, 2024, the Company entered into the Target Agreement with Target. Pursuant to the Target Agreement, in consideration of an additional $300,000 paid by Target to the Company, the outstanding notes issued by the Company to Target under the November 2023 Purchase Agreement, consisting of a (i) $2,500,000 original principal amount note dated November 16, 2023 (“First Note”) and (ii) $1,250,000 original principal amount note dated January 4, 2024 (the “Second Note,” and collectively with the First Note, the “Outstanding Notes”), each as amended by the letter agreement between the Company and Target, dated June 19, 2024, were consolidated, amended and restated into a new note (the “Consolidated Note”) under the November 2023 Purchase Agreement. The Consolidated Note has a subscription amount of $3,300,000, an original issue discount of $825,000, and an original principal amount of $4,125,000, and otherwise has the same material terms as the Outstanding Notes.
Our working capital needs beyond the next 12 months include ongoing general and administrative expenses and research and development expenses, the latter of which are expected to increase if and when we commence one or more of our planned clinical trials. In addition to our long-term debt obligations, our long-term capital requirements also include the cost of building a planned new cGMP biomanufacturing facility, which is estimated to cost approximately $1.0 to $3.0 million depending on the amount of anticipated production increase, available capital and manufacturing demands at that time.
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Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
| ● | the progress, costs and results of our clinical trials for our programs for our cell-based therapies; | |
| ● | the progress, costs and results of additional research and preclinical studies in other research programs we initiate in the future; | |
| ● | the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs we advance through preclinical and clinical development; | |
| ● | our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements; | |
| ● | the extent to which we in-license or acquire rights to other products, product candidates or technologies; and | |
| ● | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims. |
Cash Flows
The following table summarizes our cash flows for the nine months ended July 31, 2024 and 2023:
Nine months ended July 31, | ||||||||
| 2024 | 2023 | |||||||
| Net Cash Used in Operating Activities | $ | (2,282,833 | ) | $ | (1,966,899 | ) | ||
| Net Cash Used in Investing Activities | (634 | ) | (160,289 | ) | ||||
| Net Cash provided by (Used in) Financing Activities | 3,724,801 | 1,670,825 | ||||||
| Beginning Cash Balance | 101,754 | 741,538 | ||||||
| Ending Cash Balance | $ | 1,543,088 | $ | 285,175 | ||||
Operating Activities
Net cash used in operating activities during the nine months ended July 31, 2024, was $2,282,833, compared to $1,966,899 during the nine months ended July 31, 2023, representing an increase of $315,934, or 16%. While net loss increased significantly during the nine months ended July 31, 2024, compared to the nine months ended July 31, 2023, most of the increases were non-cash in nature.
Investing Activities
Cash used by investing activities during the nine months ended July 31, 2024, was $634 compared to $160,289 in the nine months ended July 31, 2023, representing an decrease in cash used of $159,655. During the nine months ended July 31, 2024, we incurred patent costs of $634. During the nine months ended July 31, 2023, we acquired property and equipment for $127,158 and incurred patent and other costs of $33,131.
Financing Activities
Cash provided by financing activities during the nine months ended July 31, 2024, was $3,724,801, while cash provided by financing activities during the nine months ended July 31, 2023 was $1,670,825. During the nine months ended July 31, 2024, we issued $4,718,750 in Senior Secured Convertible Notes and common stock purchase warrants for net proceeds of $3.775 million and made capital lease principal payments of $50,199. During the nine months ended July 31, 2023, we issued $1,717,600 in 8% Convertible Notes and common stock purchase warrants and made capital lease principal payments of $46,775.
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Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to stock-based awards and Goodwill and Other Intangible Assets. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Of our policies, we consider the following the most critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment, involving critical accounting estimates and assumptions impacting our consolidated financial statements. We have applied our policies and critical accounting estimates consistently across our businesses.
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.
Estimating the Fair Value of Common Stock
When performing the fair value calculations using the Black-Scholes option pricing model, we are required to estimate the fair value of our common stock underlying our stock-based awards, which is the most subjective input into the Black-Scholes option pricing model. Because there has previously been no public market for our common stock, the fair value of our common stock underlying stock options has been determined on each grant date by the Board, with input from management, primarily by referencing arms-length transactions inclusive of our common stock underlying such transactions which occurred on or near the valuation date(s). In addition to an evaluation of arms-length transactions involving our common stock, the Board considered various objective and subjective factors to estimate the estimated fair value of our common stock, including:
| ● | the estimated value of our securities both outstanding and anticipated; | |
| ● | the anticipated capital structure, which will directly impact the value of the currently outstanding securities; | |
| ● | our results of operations and financial position; | |
| ● | the status of our research and development efforts; | |
| ● | the lack of liquidity of our common stock as a private company; | |
| ● | our stage of development and business strategy and the material risks related to our business and industry; | |
| ● | external market conditions affecting the life sciences and biotechnology industry sectors; | |
| ● | U.S. and global economic conditions; | |
| ● | the likelihood of achieving a liquidity event for the holders of common stock, such as a public offering, or a sale of our Company, given prevailing market conditions; and | |
| ● | the market value of comparable companies. |
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In determining the estimated fair value of our common stock for equity awards granted from August 2021 to February 2022, the Board primarily considered the then most recent independent third-party valuation obtained by the Company in connection with its acquisition of InfiniVive MD and Fitore on August 1, 2021, in addition to the subjective factors discussed above. After considering the independent third-party valuation and the other subjective factors discussed above, the Board determined valuations of our common stock of $4.94 per share as of August 1, 2021, and such valuations by the Board were used for the purposes of determining the stock-based compensation expense for all stock options and equity awards granted from August 2021 to February 2022. More recently, in determining the estimated fair value of our common stock underlying stock options and equity awards granted since February 22, 2022, the Board, with input from management and recognizing the arms-length nature of the transaction, primarily considered the holder’s election in February 2022 to voluntarily convert a Senior Secured Convertible Promissory Note into 142,788 shares of our common stock at the embedded conversion price of $26.00 per share pursuant to the terms of the Senior Secured Convertible Promissory Note. The Board also considered other pertinent information available to it at the time of the grants, including the subjective factors discussed above. After considering these factors, the Board determined valuations of our common stock of $26.00 per share as of March 1, 2022 and July 6, 2022, and such valuations by the Board were used for the purposes of determining the stock-based compensation expense for the options granted on each of March 1, 2022 and July 6, 2022. Stock based compensation expense related to options for the fiscal years ended October 31, 2023 and 2022 amounted to $1,292,270 and $2,197,597, respectively. Stock based compensation expense related to options for the three and nine months ended July 31, 2024 and 2023 amounted to $383,429 and $1,156,280, and $386,616 and $902,688, respectively.
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
Intangibles
Most of our identifiable intangible assets were recognized as part of business combinations we have executed in prior periods. Our identifiable intangible assets are considered definite life intangible assets and are comprised of, trademarks and trade names, customer relationships and patents. Definite life intangible assets are amortized using the straight-line method over their estimated period of useful life.
Our determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions. We believe that the fair value assigned to the assets are based on reasonable assumptions and estimates that a market participant would use. Should conditions differ from management’s estimates at the time of the acquisition, including changes in volume or timing to current expectations of future revenue growth rates and forecasted margins, or changes in market factors outside of our control, such as discount rates, material write-downs of intangible assets may be required, which would adversely affect our operating results.
We monitor events and changes in circumstances that could indicate carrying amounts of intangible assets may not be recoverable. We review the carrying amounts of our intangible assets for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators may include any significant changes in the manner of our use of the assets or the strategy of our overall business, certain reorganization initiatives, significant negative industry or economic trends and significant decline in our share price for a sustained period.
When such events or changes in circumstances occur, we compare the carrying amounts of the asset or assets groups with their respective estimated undiscounted future cash flows. If the asset or assets group are determined to be impaired, an impairment charge is recorded in the amount by which the carrying amount of the asset or assets group exceed their fair value.
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Goodwill
Goodwill reflects the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Goodwill is not amortized but rather is tested for impairment annually, or whenever events or circumstances present an indication of impairment.
Determining the fair value requires significant judgment, including judgments about the appropriate terminal growth rates, weighted average costs of capital and the amounts and timing of projected future cash flows. Fair value determinations are sensitive to changes in underlying assumptions, estimates, and market factors. Projected future cash flows are based on our most recent budget, forecasts and strategic plans as well as certain growth rate assumptions.
We will continue to monitor the fair value to determine whether events and changes in circumstances such as further deterioration in the business climate or operating results, further significant decline in our share price, changes in management’s business strategy or downward changes of our cash flows projections, warrant further interim impairment testing.
The Company accounts for other indefinite life intangible assets in accordance ASC Topic 350, Goodwill and Other Intangible Assets (ASC 350). ASC 350 requires that intangible assets that have indefinite lives are required to be tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying amount exceed their fair value. Intangible assets that have finite lives will continue to be amortized over their useful lives. The Company has recorded Goodwill of $3,608,949. The Company has one reporting unit. As of October 31, 2023, the Company assessed the Goodwill for impairment and determined the fair value of the Company’s single reporting unit was greater than the negative carrying amount of approximately $(1.1) million of the Company’s single reporting unit.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this Report include, but are not limited to, statements about:
| ● | the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results; | |
| ● | the timing of commencement and focus of our ongoing and future preclinical studies and clinical trials, and the reporting of data from those studies and trials; | |
| ● | our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing for enrollment and the timing and availability of data from such studies; | |
| ● | the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting; | |
| ● | our expectations with regard to the timing of submission of an amended request for orphan drug designation (“ODD”) and the eligibility of Pitt-Hopkins or any other indications to qualify for ODD or any other regulatory incentives; | |
| ● | our expectations with respect to entry into clinical trial agreements and other agreements with contract research organizations (“CROs”), potential collaborators and clinical trial sites for our preclinical studies and clinical trials; |
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| ● | our ability to acquire, discover, develop and advance product candidates into, and successfully complete, clinical trials; | |
| ● | developments and projections relating to our competitors and our industry and the success of competing therapies that are or may become available; | |
| ● | the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates; | |
| ● | our ability to obtain and maintain regulatory approval of our product candidates; | |
| ● | our plans relating to the further development and commercialization of our product candidates, including additional disease states or indications we may pursue; | |
| ● | our expectations regarding future sales of our other products, including MSC-Gro, and future consulting revenues; | |
| ● | our expectations regarding our ability to renew our agreement with European Wellness and to collect amounts believed to be owed to us for work already completed under our JOA with European Wellness, which expired on July 31, 2023; | |
| ● | the potential effects of public health crises, such as the COVID-19 pandemic, on our preclinical and clinical programs and business; | |
| ● | existing regulations and regulatory developments in the United States and other jurisdictions; | |
| ● | our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available and our ability to avoid infringing the intellectual property rights of others; | |
| ● | our ability to effectively manage our growth, including the need to hire additional personnel and our ability to attract, recruit and retain such personnel, and maintain our culture; | |
| ● | our ability to fund the acquisition of fully automated closed system bioprocessing and other equipment and for the development of a new current Good Manufacturing Practices compliant manufacturing facility we expect to lease; | |
| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; | |
| ● | our plans and ability to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our product candidates, and to continue as a going concern; | |
| ● | the performance of our third-party suppliers, CROs and manufacturers; | |
| ● | our financial performance; and | |
| ● | the period over which we estimate our existing cash will be sufficient to fund our future operating expenses and capital expenditure requirements. |
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” in our Form 10-K. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information required under this item.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported, within time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of July 31, 2024, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to ineffective internal control over financial reporting. See information under “Changes in Internal Control Over Financial Reporting” below for information as to a material weakness in our internal control, which in turn affected our disclosure controls and procedures.
Changes In Internal Control Over Financial Reporting
During the fiscal year ended October 31, 2022, the Company identified a material weakness in its internal controls with respect to revenue recognition. Specifically, the Company improperly recognized revenue in accordance with the terms of the JOA that was entered into in August 2021. The material weakness resulted in a restatement of our financial statements for the three and nine months ended July 31, 2022.
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Other than as described above, there was no change in the Company’s internal control over financial reporting during the quarter ended July 31, 2024 that materially affected, or is likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. However, to our knowledge, except as set forth below, no legal proceedings, government actions, administrative actions, investigations, or claims are currently pending or threatened against us or our officers and directors in which we are adverse. The results of any future litigation cannot be predicted with certainty, and 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.
On August 27, 2024, Tanner Haas brought a complaint against us in District Court, City and County of Denver, Colorado. The complaint alleges that the Company failed to repay an outstanding promissory note issued by the Company to the plaintiff upon maturity on July 31, 2024. The plaintiff is seeking payment of the outstanding principal amount of $555,660 plus interest from the maturity date and legal fees and costs.
ITEM 1A. Risk Factors.
There are many risks inherent in our business. Factors that could materially adversely affect our business, financial condition, operating results or liquidity, and the trading price of our common stock are described under Item 1A, Risk Factors, of the Form 10-K filed with the SEC on January 29, 2024. There have been no material changes regarding risk factors since that date:
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None required to be reported.
ITEM 3. Defaults Upon Senior Securities
The Company failed to repay a promissory note that matured on July 31, 2024. On August 2, 2024, we received a notice of default with respect to this indebtedness, and on August 27, 2024, the noteholder filed a complaint against us in connection with this default (see “Legal Proceedings”). The total amount we owe under this note, including accrued interest through the date of the filing of this report is $555,090.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
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ITEM 6. Exhibits [ADD EXHIBITS AS NECESSARY FOR 8-Ks]
The following exhibits are filed, furnished or incorporated by reference with this report:
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements 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.
| VITRO BIOPHARMA, INC. | ||
| (Registrant) | ||
| Date: September 16, 2024 | By: | /s/ Christopher Furman |
| Christopher Furman, Chief Executive Officer | ||
| Date: September 16, 2024 | /s/ Thomas W. Ohrt | |
| Thomas W. Ohrt, Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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