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 of incorporation or organization) |
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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)
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Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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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
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As of June 13, 2023, there were outstanding shares of the registrant’s Common Stock, $0.001 par value.
vitro biopharma inc.
Form 10-q
For the quarterly period ended April 30, 2023
table of contents
| 2 |
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Vitro BioPharma, Inc.
Consolidated Balance Sheets
| April 30, 2023 | October 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Inventory | ||||||||
| Prepaid Expense | ||||||||
| Prepaid project costs | ||||||||
| 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 | ||||||||
| Accrued Liabilities | ||||||||
| Accrued Liabilities – Related Party | ||||||||
| 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 | ||||||||
| 2021 Series Convertible Notes 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’ EQUITY | ||||||||
| 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’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
These financial statements should be read in connection with the notes to these unaudited consolidated financial statements.
| 3 |
Vitro BioPharma, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months April 30, 2023 | Three Months April 30, 2022 | |||||||
| Product Sales | $ | $ | ||||||
| Product Sales, Related Parties | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Loss on Conversion of Senior Secured Note Payable | ( | ) | ||||||
| Unrealized Gain on Derivative/Warrant Liability | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Deemed Dividend on Series A Convertible Preferred Stock | ( | ) | ||||||
| Cumulative Series A Convertible Preferred Stock Dividend Requirement | ( | ) | ||||||
| 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 | ||||||||
These financial statements should be read in connection with the notes to these unaudited consolidated financial statements.
| 4 |
Vitro BioPharma, Inc.
Consolidated Statements of Operations
(Unaudited)
Six Months April 30, 2023 | Six Months April 30, 2022 | |||||||
| 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 | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Expense: | ||||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Loss on Conversion of Senior Secured Note Payable | ( | ) | ||||||
| Unrealized Gain on Derivative/Warrant Liability | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Deemed Dividend on Series A Convertible Preferred Stock | ( | ) | ||||||
| Cumulative Series A Convertible Preferred Stock Dividend Requirement | ( | ) | ||||||
| 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 | ||||||||
These financial statements should be read in connection with the notes to these unaudited consolidated financial statements.
| 5 |
Vitro BioPharma, Inc.
Consolidated Statement of Changes in Stockholders’ Equity
For the Six Months Ended April 30, 2023 and 2022
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid in | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Stock | 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
These financial statements should be read in connection with the notes to these unaudited consolidated financial statements.
| 6 |
Vitro BioPharma, Inc.
Consolidated Statement of Changes in Stockholders’ Equity
For the Six Months Ended April 30, 2023 and 2022
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid in | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Stock | Deficit | Total | |||||||||||||||||||||||||
| Balance at October 31, 2021 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Beneficial conversion feature on convertible preferred stock | - | - | ||||||||||||||||||||||||||||||
| Deemed dividend on convertible preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at January 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Stock issued in connection with note conversion | ||||||||||||||||||||||||||||||||
| Stock issued in connection with preferred stock conversions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Beneficial conversion feature on convertible preferred stock | - | - | ||||||||||||||||||||||||||||||
| Deemed dividend on convertible preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at April 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
These financial statements should be read in connection with the notes to these unaudited consolidated financial statements.
| 7 |
Vitro BioPharma, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months April 30, 2023 | Six Months April 30, 2022 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to Reconcile Net Loss: | ||||||||
| Unrealized Gain on Derivative/Warrant Liability | ( | ) | ||||||
| Loss on Conversion of Senior Secured Note Payable | ||||||||
| Depreciation Expense | ||||||||
| Amortization Expense | ||||||||
| Amortization of Operating Lease – ROU Asset | ||||||||
| Accretion of Debt Discount | ||||||||
| Stock Based Compensation | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Accounts Receivable, Related Parties | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid Expenses | ||||||||
| Prepaid project costs | ( | ) | ||||||
| Accounts Payable | ||||||||
| 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 | ||||||||
| Deferred Offering Costs | ( | ) | ||||||
| Issuance of 2023 Series Convertible Notes Payable - Stock Settled | ||||||||
| Issuance of 2023 Series B Convertible Notes Payable – Stock Settled | ||||||||
| Capital Lease Principal Payments | ( | ) | ( | ) | ||||
| Payments on Revolving Line of Credit | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Total Cash 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 2023 Series Notes Payable - Stock Settled | $ | $ | ||||||
| Derivative/Warrant Liability on 2023 Series Notes Payable | $ | $ | ||||||
| Discount on 2023 Series Notes Payable | $ | $ | ||||||
| Forgiveness of Accrued Liabilities – Related Party | $ | $ | ||||||
| Recognition of New Capital Leases | $ | $ | ||||||
| Beneficial Conversion Feature and Deemed Dividend on Convertible Preferred Stock | $ | $ | ||||||
| Deferred Offering Costs Recorded as Accounts Payable | $ | $ | ||||||
| Common Stock Issued for Conversion of Senior Secured Note Payable | $ | $ | ||||||
| Common Stock Issued for Conversion of Related Party Note Payable | $ | $ | ||||||
These financial statements should be read in connection with the notes to these unaudited consolidated financial statements.
| 8 |
VITRO BIOPHARMA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023 AND 2022
(UNAUDITED)
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, 2022 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, 2022 contained in the Form 10-K.
The Consolidated Balance Sheet as of October 31, 2022 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.
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”).
Concentrations
During
the six months ended April 30, 2023 and 2022,
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.
| 9 |
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.
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 delivery 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.
| 10 |
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 April 30, 2023 | Three Months Ended April 30, 2022 | |||||||
| Revenues: | ||||||||
| Research and development products | $ | $ | ||||||
| AlloRx Stem Cells to Foreign Third-Party Clinics | ||||||||
| InfiniVive products | ||||||||
| Fitore products | ||||||||
| Total | $ | $ | ||||||
| Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | |||||||
| 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”) executed between the Company and European Wellness/BIO PEP USA (“BIO PEP”). Under the terms of this JOA, the Company is 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. However, our work under the JOA has 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 April 30, 2023, the Company has deferred $
The table below summarizes Deferred Revenues as of April 30, 2023:
| October 31, 2022 | Revenue Recognized | Revenue Deferred | April 30, 2023 | |||||||||||||
| Deferred Revenue | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
During
the six months ended April 30, 2023 and 2022, the Company recognized $ and $
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 April 30, 2023 and October 31, 2022, total accounts
receivable amounted to $
| 11 |
As
of April 30, 2023, six 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 six months ended April 30, 2023 and 2022, the following number of potentially dilutive shares have been excluded from diluted net loss since such inclusion would be anti-dilutive:
| April 30, 2023 | April 30, 2022 | |||||||
| 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 Settlement | ||||||||
| 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 | ||||||||
| 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:
| April 30, 2023 | October 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
| 12 |
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 six months ended April 30, 2023 and 2022, the Company did
Recent Accounting Standards
The Company periodically reviews new accounting standards that are issued and has not identified any new standards that it believes merit further discussion or would have a significant impact on its 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 has 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 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;
● 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.
| 13 |
The financial assets and liabilities are classified in the Condensed 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 2023 Series Convertible Notes Payable - Stock Settled Derivative/Warrant Liability required identification and quantification of fair value. To be clear, the derivative is only related to the warrants included with the 2023 Series Convertible Notes Payable. The estimated fair values as of January 10, 2023, the issuance date of the notes, are presented in Note 7.
As of April 30, 2023, the estimated fair values of the Company’s financial liabilities are presented in the following table:
| April 30, 2023 | ||||
| 2023 Series Convertible Notes Payable - Stock Settled - Derivative/Warrant Liability | $ | |||
| 2023B Series 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 Convertible Notes Payable, categorized as Level 3:
| Six Months Ended April 30, 2023 | Year Ended October 31, 2022 | |||||||
| Beginning Balance | $ | $ | ||||||
| Additions | ||||||||
| Total (gains) or losses (realized/unrealized) | ( | ) | ||||||
| Included in operations | ||||||||
| Ending Balance | $ | $ | ||||||
The fair value of the warrants granted in connection with the 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:
| April 30, 2023 | October 31, 2022 | |||||||
| Risk-free interest rate | % | |||||||
| Dividend yield | ||||||||
| Volatility factor | % | |||||||
| Weighted average expected life | ||||||||
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.
| 14 |
NOTE 4 – PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated depreciation at the balance sheet dates:
| April 30, 2023 | October 31, 2022 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Property and equipment | ||||||||
| Total cost | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
expense for the three and six months ended April 30, 2023 and 2022 was $
NOTE 5 – INTANGIBLE ASSETS
The following table sets forth the carrying amounts of intangible assets and goodwill including accumulated amortization as of April 30, 2023:
| Remaining Useful Life | Cost | Accumulated Amortization | Net Carrying Value | |||||||||||
| Trademarks and tradenames | $ | $ | ( | ) | $ | |||||||||
| Patents, know-how and unpatented technology | ( | ) | ||||||||||||
| Customer relationships | ( | ) | ||||||||||||
| Total | ( | ) | ||||||||||||
Remaining Useful Life | Cost | Impairment | Net Carrying Value | |||||||||||
| Goodwill | $ | $ | ( | ) | $ | |||||||||
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;
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ |
During
the three and six months ended April 30, 2023 and 2022, the Company recorded amortization expense of $
NOTE 6 – LEASE OBLIGATIONS
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
| 15 |
The following table shows the classification and location of the Company’s leases in the Consolidated Balance Sheets:
| Leases | Balance Sheet Location | April 30, 2023 | October 31, 2022 | |||||||
| 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 | Six Months Ended April 30, | |||||||||
| Location | 2023 | 2022 | ||||||||
| Operating lease expense | General and administrative expense | $ | $ | |||||||
| Finance lease expense: | ||||||||||
| Interest on lease liability | Interest expense | |||||||||
| Total Lease expense | $ | $ | ||||||||
Minimum contractual obligations for the Company’s leases (undiscounted) as of April 30, 2023 were as follows:
| Operating | Finance | |||||||
| Fiscal year 2023 | $ | $ | ||||||
| Fiscal year 2024 | ||||||||
| Fiscal year 2025 | ||||||||
| Fiscal year 2026 | ||||||||
| Fiscal year 2027 | ||||||||
| 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:
| April 30, 2023 | April 30, 2022 | |||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
| Weighted-average remaining lease term (in years) | ||||||||||||||||
| Weighted-average discount rate (1) | % | % | % | % | ||||||||||||
| (1) |
| 16 |
The following table includes other quantitative information for the Company’s leases for the periods indicated:
| Six Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in measurement of lease liabilities | ||||||||
| Cash payments for operating leases | $ | $ | ||||||
| Cash payments for finance leases | $ | $ | ||||||
The
Company recorded amortization of the operating lease right-of-use asset of $
NOTE 7 – DEBT
The table below presents outstanding debt instruments as of April 30, 2023 and October 31, 2022:
| April 30, 2023 | October 31, 2022 | |||||||
| Long Term | ||||||||
| Unsecured 6% note payable – related party | $ | $ | ||||||
| Unsecured 4% note payable – related party | ||||||||
| 2021 Series convertible notes – 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 | $ | $ | ||||||
The table below presents the future maturities of outstanding debt obligations as of April 30, 2023:
| Fiscal year 2023 | $ | |||
| 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 $
2021 Series Convertible Notes - Related Party
The
remaining principal balance outstanding on the 2021 Series Convertible notes amounted to $
| 17 |
Senior Secured Convertible Note Payable
The
outstanding balance of the note was $
2022 Series Convertible Notes
During
the three and six months ended April 30, 2023 and 2022, the Company recorded $
2023 Series Convertible Notes – Stock Settled
On
January 6, 2023, the Company sold $
On
various dates during March and April 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 or the March 2023 Notes.
Both
the January 2023 Notes and the March 2023 Notes bear interest at the rate of eight per cent per annum and are payable solely in shares
of the Company’s common stock. Both the January 2023 Notes and the March 2023 Notes may be converted at any time at the option
of the holder and are payable in full at the earliest of (i) the completion of a “Qualified Financing,” as defined below,
(ii) a change in control, (iii) in the event of default, or (iv) the maturity date, which is five years from the date of issuance. A
Qualified Financing is defined in the Purchase Agreement as any financing completed after the date of issuance of either the January
2023 Notes or the March 2023 Notes involving the sale of the Company’s equity securities primarily for capital raising purposes
resulting in gross proceeds to the Company of at least $
| 18 |
The
Discounted Qualified Financing Price is defined as the per share price at which the shares of the Qualified Financing Securities are
sold in such Qualified Financing as determined for accounting purposes under GAAP, multiplied by . The Capped Price is the per share
price implied by a fully-diluted (on an as-converted to common stock basis), pre-money valuation of $
Each
January 2023 Warrant issuable by the Company pursuant to the Purchase Agreement entitles the holder to purchase that number of fully paid
and nonassessable shares of the Company’s common stock determined (A) in the case following a Qualified Financing, by dividing
(i) the sum of the aggregate outstanding principal amount of the January 2023 Note plus all accrued and unpaid interest thereon at the
time of conversion multiplied by
Each
March 2023 Warrant issuable by the Company pursuant to the Purchase Agreement entitles the holder to purchase that number of fully
paid and nonassessable shares of the Company’s common stock determined (A) in the case following a Qualified Financing, by
dividing (i) the sum of the aggregate outstanding principal amount of the March 2023 Note plus all accrued and unpaid interest
thereon at the time of conversion by (ii) the quotient of the Discounted Qualified Financing Price divided by
Participation
Rights. Both the January 2023 Notes and March 2023 Notes entitle the holder to purchase in a Qualified Financing an amount of Qualified
Financing Securities (as defined above) up to
The
Company contemplated ASC 480-10-30-7 related to the valuation of the embedded conversion feature contained in the January 2023 Notes
and March 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 and March 2023 Notes 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 and March 2023 Warrants first under ASC 480. Based on the attributes of the January 2023 Warrants
and March 2023 Warrants, the Company determined that the January 2023 Warrants and March 2023 Warrants are outside of the scope of ASC
480 and proceeded to assess the January 2023 Warrants and March 2023 Warrants under ASC 815 to determine if the January 2023 Warrants
and March 2023 Warrants 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 and March 2023 Warrants are not the inputs per 815-40-15-7E, the January
2023 Warrants and March 2023 Warrants are not 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 $
During
the three and six months ended April 30, 2023 the Company recorded $
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 April 30, 2023 and October 31, 2022, and shares of Series A Convertible Preferred Stock were issued and outstanding.
Activity for the six months ended April 30, 2023
There were no sales or grants of preferred shares during the six months ended April 30, 2023.
Activity for the six months ended April 30, 2022
There were no sales of Series A Convertible Preferred Shares during the six months ended April 30, 2022.
On March 31, 2022, the holders of all shares of Series A Convertible Preferred Stock outstanding converted those shares into shares of Common Stock of the Company at $ cents per share. As of April 30, 2022, there were Series A Convertible Preferred Shares outstanding.
Dividend
The
holders of the Series A Convertible Preferred Shares were entitled to receive dividends at an annual rate of
| 20 |
Cumulative dividends earned as of April 30, 2023 and 2022 are set forth in the table below:
| Stockholders at Period End | Accumulated Dividends | |||||||
| Balance at October 31, 2021 | $ | |||||||
| Issued | ||||||||
| Converted | ( | ) | ( | ) | ||||
| Balance at April 30, 2022 | $ | |||||||
| Balance at October 31, 2022 | $ | |||||||
| Issued | ||||||||
| Converted | ||||||||
| Balance at April 30, 2023 | $ | |||||||
Common Stock
As of April 30, 2023, the Company had authorized shares of $ par value common stock. As of April 30, 2023 and October 31, 2022, and shares were issued and outstanding, respectively.
There were no grants of common shares during the six months ended April 30, 2023.
Activity for the six months ended April 30, 2022
On
February 22, 2022, the Company issued Common Shares at $
On March 31, 2022, the Company issued Common Shares at $ in connection with the conversion of shares of Series A Convertible Preferred Stock.
On
April 15, 2022, the Company issued Common Shares in connection with the conversion of $
On
April 15, 2022, the Company issued Common Shares in connection with the conversion of $
Stock-Based Compensation
There were no grants of stock purchase options during the six months ended April 30, 2023.
Activity for the six months ended April 30, 2022
On March 1, 2022, the Company issued stock purchase options to an employee and a consultant to the Company. The options are exercisable at $ per share. Options granted on March 1, 2022, vest as follows of the total issued vested at the date of grant, of the total issued vest on each anniversary date until fully vested. The options are exercisable for a period of ten years.
Grants during the six months ended April 30, 2022, were all considered to be non-qualified.
| 21 |
| April 30, 2023 | April 30, 2022 | |||||||
| Risk-free interest rate | ||||||||
| Dividend yield | ||||||||
| Volatility factor | % | |||||||
| Weighted average expected life | ||||||||
| Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (in years) |
Aggregate intrinsic value | |||||||||||||
| Balance at October 31, 2021 | $ | $ | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options granted | ||||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options forfeited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at April 30, 2022 | $ | $ | ||||||||||||||
| Balance at October 31, 2022 | ||||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options forfeited | - | - | ||||||||||||||
| Balance at April 30, 2023 | $ | $ | ||||||||||||||
Stock based compensation expense related to options for the three and six months ended April 30, 2023 and 2022 amounted to $ and $, and $ and $ respectively. As of April 30, 2023 and October 31, 2022, and options were exercisable, respectively. Unrecognized compensation expense related to outstanding options amounted to $ and $ as of April 30, 2023 and October 31, 2022, respectively.
Warrants
During the six months ended April 30, 2023 and 2022 the Company did not issue any warrants.
A summary of the Company’s common stock underlying the outstanding warrants as of April 30, 2023 and April 30, 2022 is as follows:
Underlying Number of | Average Exercise Price | Weighted Average Life | ||||||||||
| Outstanding – October 31, 2021 | $ | |||||||||||
| 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 – April 30, 2022 | $ | |||||||||||
| Outstanding at October 31, 2022 | ||||||||||||
| 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 – April 30, 2023 | $ | |||||||||||
| 22 |
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 $
On
December 1, 2021, the Company and John Evans entered into a Consulting Agreement (“Evans Consulting Agreement”). Under the
terms of the Evans Consulting Agreement, Mr. Evans is to provide advisory services to the CEO and CFO of the Company. The term of the
Evans Consulting Agreement is for
On
December 8, 2020, the Company entered into a new employment agreement with Tiana States, Chief Manufacturing Officer (the “States
Agreement”). Pursuant to the terms of the States Agreement, the Company agreed to pay Mrs. States a base salary of $
On
December 1, 2020, the Company entered into a new employment agreement with James Musick, Chief Science Officer (the “Musick Agreement”).
Pursuant to the terms of the Musick Agreement, the Company agreed to pay Dr. Musick a base salary of $
On December 1, 2020, the Company entered into a new employment agreement with Dr. Jack Zamora, Chief Executive Officer and President (“Zamora Agreement”) with a term of five years. On November 20, 2022, the Company entered into a Mutual Release and Settlement Agreement with Dr. Zamora relating to his separation from the Company (the “Settlement Agreement”). Among other things, the Settlement Agreement provides that Dr. Zamora in not entitled to any additional compensation from the Company under the Zamora Agreement. See Note 10 for additional information relating to the Settlement Agreement.
| 23 |
On
October 1, 2021, the Company appointed Nathan Haas as the Chief Financial Officer and entered into an employment agreement with him.
Pursuant to the terms the Nathan Haas CFO Agreement, the Company agreed to pay Mr. Haas a base salary of $
On
August 1, 2021, the Company entered into a new employment agreement (the “Tanner Haas Agreement”) with Tanner Haas, the chief
executive officer of Fitore. The Company agreed to pay Mr. Haas a base salary of $
NOTE 10 – RELATED PARTY TRANSACTIONS
Settlement Agreement with Dr. Zamora
As part of the Settlement Agreement dated November 20, 2022 (the “Effective Date”), the parties agreed to confidentiality and non-disparagement restrictions, as well as a release of any potential claims against each other. In addition, certain provisions of Dr. Zamora’s Employment Agreement that survive termination of employment were modified to provide that Dr. Zamora shall not, for a period of one year from the Effective Date, “directly or indirectly solicit any person who has been a customer or employee of the Company during the period of one (1) year prior to the Effective Date.” The Settlement Agreement also provides for the termination of all previous supply agreements between the Company and Dr. Zamora, effective immediately, with such previous agreements to be replaced by the Supply Agreement described below.
Standstill Agreement
On the Effective Date, in connection with the Settlement Agreement, the Company entered into a Standstill Agreement with Dr. Zamora (the “Standstill Agreement”).
Supply Agreement
On the Effective Date, in connection with the Settlement Agreement, the Company entered into a Supply Agreement with Dr. Zamora (the “Supply Agreement”), pursuant to which the Company agreed to provide InfiniVive MD Exosome Serum and InfiniVive Daily Serum (the “Cosmetic Products”) to Dr. Zamora at his request. The provision of the Cosmetic Products under the Supply Agreement is subject to minimum and maximum quantity limitations. The Supply Agreement is effective for a period of five years, unless earlier terminated. The Company or Dr. Zamora may terminate the Supply Agreement immediately in prescribed circumstances, including if either party defaults with respect to its obligations under the Supply Agreement and, if the default is capable of being cured, does not cure such default within 30 days after receiving notice of such default. If the Supply Agreement is deemed terminated by Dr. Zamora for failure of the Company to supply the Cosmetic Products in accordance with its terms or by the Company without cause, the Standstill Agreement would be deemed terminated and of no further force or effect.
Memorandum of Understanding
On the Effective Date, in connection with the Settlement Agreement, the Company entered into a Memorandum of Understanding with Dr. Zamora (the “MOU”) in order to support clinical research for the Company’s AlloRx® stem cells (“AlloRx”). Under the MOU, the Company agreed to provide AlloRx at a specified price to international clinical research facilities or other clinics with which Dr. Zamora may become affiliated, provided that certain regulatory conditions are satisfied, including proof of satisfaction of applicable United States and local legal requirements. The MOU will be effective for a period of five years, unless earlier terminated or replaced by mutual written agreement between Dr. Zamora and the Company. The MOU may also be earlier terminated in the event any clinic or the Company materially breaches the terms and conditions of the MOU. In the event the MOU is terminated by Dr. Zamora for failure of the Company to supply AlloRx in accordance with its terms or by the Company without cause, the Standstill Agreement would be deemed terminated and of no further force or effect.
| 24 |
Accounts Receivable and Revenues
Dr.
Zamora was also a significant customer of the Company in his capacity as a practicing physician. (See Note 9 for more information regarding
Dr. Zamora.) As of April 30, 2023 and October 31, 2022, Dr. Zamora owed the Company $ and $, respectively. During the three and six
months ended April 30, 2023 and 2022, Dr. Zamora accounted for $
Accounts Payable and Other Accrued Liabilities
The
spouse of the Company’s Chief Science Officer, through an entity she controls, leases office and lab space to the Company. As of
April 30, 2023 and October 31, 2022, the Company owes this entity $
As
of April 30, 2023 and October 31, 2022, the Company owed an entity controlled by Dr. Zamora $
As
of April 30, 2023 and October 31, 2022, the Company owed the former CEO of Fitore $
Convertible Notes, Debt Discount and Accrued Interest
On
August 1, 2021, in connection with the acquisition of Fitore (Note 4), the Company issued 2021 Series Unsecured Convertible Notes in
the amount of $
NOTE 11 – SUBSEQUENT EVENTS
On June 5, 2023,
the Company sold additional
On June 13,
2023, the Company sold additional
| 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 six months ended April 30, 2023 and compares those results to results for the three and six months ended April 30, 2022. The discussion below also analyzes our liquidity and capital resources as of April 30, 2023 and material changes in those resources since the October 31, 2022. We suggest that you read the following information in conjunction with our unaudited consolidated financial statements for the three and six months ended April 30, 2023 and 2022 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 sometime in 2023 pending receipt of sufficient working capital. We generate revenue from our other technologies through a number of other activities, including providing research services and 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 also generate 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 have been 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 is scheduled to terminate by its current terms on July 31, 2023 and if those discussions are unsuccessful, the JOA would not be expected to be renewed or extended and would terminate in accordance with its terms.
In addition, our acquisitions of InfiniVive MD and Fitore also 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.
| 26 |
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.
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 April 30, 2023 of $25.3 million. We incurred net losses of approximately $2.6 million and $6.9 million during the six months ended April 30, 2023 and the year ended October 31, 2022, respectively. We used cash in operating activities of $1.6 million and $1.2 million for the six months ended April 30, 2023 and 2022, respectively. We had a working capital deficit of approximately $208,000 as of April 30, 2023. 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.
| 27 |
Results of Operations
The following table summarizes our operating results for the three months ended April 30, 2023 and 2022:
| Three Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Product sales | $ | 307,843 | $ | 1,039,718 | ||||
| Product sales, related parties | - | 12,750 | ||||||
| Total revenue | 307,843 | 1,052,468 | ||||||
| Less: Cost of goods sold | (62,634 | ) | (138,015 | ) | ||||
| Gross profit | 245,209 | 914,453 | ||||||
| Selling, general and administrative expenses | (1,537,181 | ) | (1,442,060 | ) | ||||
| Research and development | (66,447 | ) | (65,471 | ) | ||||
| Interest expense | (56,937 | ) | (46,970 | ) | ||||
| Loss on conversion of senior secured note payable | - | (695,342 | ) | |||||
| Unrealized Gain on Derivative/Warrant liability | 656 | - | ||||||
| Net Loss | $ | (1,414,700 | ) | $ | (1,335,390 | ) | ||
| Deemed dividend on convertible preferred stock | - | (744,665 | ) | |||||
| Cumulative convertible preferred stock dividend requirement | - | (68,033 | ) | |||||
| Net Loss to Common Stockholders | $ | (1,414,700 | ) | $ | (2,148,088 | ) | ||
Net Loss
We recorded a net loss of $1,414,700 in the three months ended April 30, 2023, an increase of $79,310 from the three months ended April 30, 2022, or 6%. The increased loss in the three months ended April 30, 2023 was due a 71% drop in product sales revenue primarily attributable to diminished sales of research and development products, as discussed further below. In addition, there were increases in selling, general and administrative (“SG&A”) expenses in three months ended April 30, 2023, as discussed further below. Interest expense increased during the three months ended April 30, 2023 due to the issuance of the 8% 2023 Series and 2023 Series B notes. In the three months ended April 30, 2022, we incurred a loss on conversion of senior secured note 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.
Net Loss to Common Stockholders
In connection with the sale of the Series A Convertible Preferred Stock in Fiscal 2020 and 2021, we determined that there was an embedded conversion feature associated with the value of the beneficial conversion feature. The initial embedded conversion feature was initially determined to be $930,577. For the three months ended April 30, 2022, the accretion of this embedded conversion feature was $744,665 and has been recorded as a deemed dividend. All of the Series A Convertible Preferred Stock was converted during the year ended October 31, 2022, so there was no corresponding accretion of dividend in the three months ended April 30, 2023. Including the deemed dividend on the Series A Convertible Preferred Stock for the three months ended April 30, 2022 and the cumulative dividend on that Preferred Stock, the net loss to common stockholders for that period was $2,148,088, or $0.02 per share.
Product Sales
Total revenue in the three months ended April 30, 2023 decreased by $744,625, or 71%, from the three months ended April 30, 2022. 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 April 30, 2023 or 2022.
During the three months ended April 30, 2023 and 2022, research and development product sales were $79,568 and $489,350, respectively, a decrease in the three months ended April 30, 2023 of $409,782, or 84%. The decrease was attributable to diminished sales volumes. Sales of AlloRx Stem Cells to foreign third-party clinics for the three months ended April 30, 2023 and 2022 were $164,830 and $390,109 respectively, a decrease of $225,279, or 58%.
For the three months ended April 30, 2023 and 2022, InfiniVive MD revenue amounted to $45,850 and $103,503, respectively.
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For the three months ended April 30, 2023 and 2022, Fitore product revenue amounted to $17,035 and $69,506, respectively. Fitore revenues were lower in the three months ended April 30, 2023 due to reduced efforts at marketing Fitore products, compared to the three months ended April 30, 2022. We are currently selling Fitore products solely from remaining inventory and with minimal marketing efforts.
For additional information regarding our product sales and management expectations, see “—Comparison of the Six Months Ended April 30, 2023 to the Six Months Ended April 30, 2022—Product Sales.”
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 April 30, 2023 and 2022, were $0 and $12,750, respectively.
Cost of Goods Sold
Our cost of goods sold during the three months ended April 30, 2023 totaled $62,634 compared to $138,015 during the three months ended April 30, 2022, a decrease of $75,381, or 55%, resulting in gross profit of $245,209 and $914,453 for the three months ended April 30, 2023 and 2022, respectively. The gross profit percentages for the three months ended April 30, 2023 and 2022 were 80% and 87%, respectively. Cost of goods sold, as a percentage of product sales remained generally consistent for the three months ended April 30, 2023 and 2022. The overall decrease in gross profit in the three months ended April 30, 2023 was primarily attributable to a decrease in revenue from product sales, as discussed above under “Product Sales.”
Selling, General and Administrative Expenses
SG&A expenses increased from $1,537,181 in the three months ended April 30, 2022 to $1,442,060 in the three months ended April 30, 2023. This increase of $95,121 (7%) was due to an increase in legal fees of $101,823, an increase in consulting fees of $53,917, and an increase of $90,725 in stock-based compensation, partially offset by reductions in other expense items where work efforts were brought in-house or cost reductions were achieved, i.e. advertising ($56,321), accounting ($11,765), salaries ($20,046), supplies ($42,568) and shareholder relations ($10,541).
Research and Development
Research and development expenses for three months ended April 30, 2023 and 2022 were $66,447 and $65,471, respectively, 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.
Interest Expense
Interest expense for the three months ended April 30, 2023 was $56,937, a increase of $9,967 from the interest expense for the three months ended April 30, 2022 of $46,970. This increase is related to the issuance of 8% convertible promissory notes (the “8% Convertible Notes”) at various dates between January 2023 through April 2023. The interest expense related to the remaining debt on our balance sheet of approximately $3.2 million is expected to be all non-cash interest expense.
Unrealized Gain on Derivative/Warrant Liability
During the three months ended April 30, 2023, we issued the 8% Convertible Notes in the aggregate principal amount of $787,600. In connection with these notes, the Company recognized a Derivative/Warrant liability. At April 30, 2023, this liability was marked to market, resulting in an unrealized gain of $656.
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Results of Operations
The following table summarizes our operating results for the six months ended April 30, 2023 and 2022:
| Six Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Product sales | $ | 608,874 | $ | 1,678,324 | ||||
| Product sales, related parties | 18,000 | 30,500 | ||||||
| Consulting revenue | 25,000 | 500,000 | ||||||
| Total revenue | 651,874 | 2,208,824 | ||||||
| Less: Cost of goods sold | (129,145 | ) | (295,862 | ) | ||||
| Gross profit | 522,729 | 1,912,962 | ||||||
| Selling, general and administrative expenses | (2,958,351 | ) | (2,724,998 | ) | ||||
| Research and development | (73,280 | ) | (68,041 | ) | ||||
| Interest expense | (96,630 | ) | (121,703 | ) | ||||
| Loss on conversion of senior secured note payable | - | (695,342 | ) | |||||
| Unrealized Gain on Derivative/Warrant liability | 707 | - | ||||||
| Net Loss | $ | (2,604,825 | ) | $ | (1,697,122 | ) | ||
| Deemed dividend on convertible preferred stock | - | (793,175 | ) | |||||
| Cumulative convertible preferred stock dividend requirement | - | (111,333 | ) | |||||
| Net Loss to Common Stockholders | $ | (2,604,825 | ) | $ | (2,601,630 | ) | ||
Net Loss
We recorded a net loss of $2,604,825 in the six months ended April 30, 2023, an increase of $907,703 from the six months ended April 30, 2022, or 53%. The increased loss in the six months ended April 30, 2023 was due a 63% drop in product sales revenue attributable to diminished sales volumes, coupled with decreased consulting revenue, of which $500,000 was recognized in the six months ended April 30, 2022, and only $25,000 in the six months ended April 30, 2023. In addition, there was a modest increase in selling, general and administrative expenses in the six months ended April 30, 2023, as discussed further below. Interest expense decreased during the six months ended April 30, 2023 due to the conversion during the year ended October 31, 2022 of $3 million in senior convertible 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.
Net Loss to Common Stockholders
In connection with the sale of the Series A Convertible Preferred Stock in Fiscal 2020 and 2021, we determined that there was an embedded conversion feature associated with the value of the beneficial conversion feature. The initial embedded conversion feature was initially determined to be $930,577. For the six months ended April 30, 2022, the accretion of this embedded conversion feature was $793,175 and has been recorded as a deemed dividend. All of the Series A Convertible Preferred Stock was converted during the year ended October 31, 2022, so there was no corresponding accretion of dividend in the six months ended April 30, 2023. Including the deemed dividend on the Series A Convertible Preferred Stock for the six months ended April 30, 2022 and the cumulative dividend on that Preferred Stock, the net loss to common stockholders for that period was $2,601,630, or $0.03 per share.
Product Sales
Total product sales revenue in the six months ended April 30, 2023 decreased by $1,069,450, or 64%, from the six months ended April 30, 2022. 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.
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During the six months ended April 30, 2023 and 2022, research and development product sales were $155,211 and $787,419, respectively, a decrease in the six months ended April 30, 2023 of $632,208 or 80%. The decrease was attributable to diminished sales volumes.
Sales of AlloRx Stem Cells to foreign third-party clinics for the six months ended April 30, 2023 and 2022 were $313,113 and $545,700 respectively, a decrease of $232,587 or 43%, again related to diminished sales volumes. 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.
For the six months ended April 30, 2023 and 2022, InfiniVive MD revenue amounted to $120,900 and $238,578, respectively.
For the six months ended April 30, 2023 and 2022, Fitore product revenue amounted to $37,650 and $137,127, respectively. Fitore revenues were lower in the six months ended April 30, 2023 due to reduced efforts at marketing Fitore products, compared to the six months ended April 30, 2022. We are currently selling Fitore products solely from remaining inventory and with minimal marketing efforts, and do not anticipate manufacturing any additional products in the foreseeable future or at all. In addition, we terminated the chief executive officer and all other employees of Fitore in June 2022; consequently, we expect that sales of Fitore products in the future will be limited.
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 in the six months ended April 30, 2023 and 2022 were $18,000 and $30,500, respectively.
Consulting Revenue
During the six months ended April 30, 2023 and 2022, our consulting revenue was derived from our contract with European Wellness under which we agreed to assist in the discovery, development and commercialization of biological products related to regenerative medicine. During the six months ended April 30, 2022, we recognized $500,000 in revenue as we completed two milestones under the contract. During the six months ended April 30, 2023, we recognized $25,000 in consulting revenue under this agreement. In addition to the revenue that was recognized, we recorded deferred revenue of $650,000 related to those services during the year ended October 31, 2022. During the six months ended April 30, 2023, we recorded an additional $189,970 in deferred revenue related to this agreement. Deferred revenue will be recognized if and when related milestones under the contract are achieved.
We suspended deliverables under the agreement with European Wellness in 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 JOA, which could have an adverse effect on our revenue, cash flow, operating results and financial condition. In addition, if those discussions are unsuccessful, our agreement with them, which is scheduled to terminate by its current terms on July 31, 2023, would not be expected to be renewed or extended and would terminate in accordance with its terms. If the contract with European Wellness is not renewed or extended, we expect our consulting revenue in the future will be limited unless and until an alternative consulting partnership or collaboration becomes available to us.
Cost of Goods Sold
Our cost of goods sold during the six months ended April 30, 2023 totaled $129,145 compared to $295,862 during the six months ended April 30, 2022, a decrease of $166,717 or 56%, resulting in gross profit of $522,729 and $1,912,962 for the six months ended April 30, 2023 and 2022, respectively. The gross profit percentages for the six months ended April 30, 2023 and 2022 were 80% and 87%, respectively. Cost of goods sold, as a percentage of product sale remained generally consistent for the six months ended April 30, 2023 and 2022. The overall decrease in gross profit in the six months ended April 30, 2023 was primarily attributable to a $475,000 decrease in consulting revenue for that period compared to the same six months ended April 30, 2022 as discussed above. Also contributing to the decrease in gross profit was a decrease 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 $2,724,998 in the six months ended April 30, 2022 to $2,958,351 in the six months ended April 30, 2023. This increase of $233,353 (9%) was due to an increase in legal fees of $383,432 and an increase in consulting fees of $56,642, offset by a reduction of approximately $29,000 in stock-based compensation and reductions in other expense items where work efforts were brought in-house or cost reductions were achieved, including advertising ($89,925), accounting ($23,064), public relations ($15,000), supplies ($27,584) and shareholder relations ($19,208).
Research and Development
Research and development expenses for six months ended April 30, 2023 and 2022 were $73,280 and $68,401, respectively. The increase of $5,239 in the six months ended April 30, 2023 was attributable to additional efforts to identify possible 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.
Interest Expense
Interest expense for the six months ended April 30, 2023 was $96,930, a decrease of $25,073 from the interest expense for the six months ended April 30, 2022 of $121,703. This decrease results from the conversion of debt instruments to equity. During the second quarter of the year ended October 31, 2022, we were able to convert approximately $3.3 million in debt into common stock. The interest expense related to the remaining debt on our balance sheet of approximately $3.1 million is expected to be all non-cash interest expense.
Unrealized Gain on Derivative/Warrant Liability
During the six months ended April 30, 2023, we issued $1,192,600 of the 8% Convertible Notes. In connection with these notes, the Company recognized a Derivative/Warrant liability. At April 30, 2023, this liability was marked to market, resulting in an unrealized gain of $707.
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.
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.
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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 April 30, 2023, we had a working capital deficit of approximately $208,000, comprised of current assets of $2.6 million and current liabilities of $2.9 million. The working capital at April 30, 2023 decreased $0.6 million from October 31, 2022, our prior fiscal year end. Cash was reduced from $0.7 million as of October 31, 2022 to $0.3 million at April 30, 2023 as we used cash for operations and preparation for a proposed public offering of our securities.
During the six months ended April 30, 2023, we sold $1,192,600 of 8% Convertible Notes as well as warrants to purchase our common stock for aggregate proceeds of $1,192,600. The 8% Convertible Notes are payable solely in shares of our common stock and are convertible upon the happening of certain events, including the completion of a “Qualified Financing.” The proceeds from the sale of the 8% Convertible Notes and the warrants has been and will be used for general corporate purposes. We continue efforts to raise capital for our short term liquidity and capital needs.
Subsequent to the six months ended April 30, 2023, we sold additional 8% Convertible Notes in an aggregate principal amount of $425,000 and common stock purchase warrants to one accredited investor for aggregate gross proceeds to the Company of $425,000. The sale and purchase were made through a Convertible Note and Warrant Purchase Agreement entered into with the investor.
As a result of our limited working capital position as of April 30, 2023, 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; | |
| ● | 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; |
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| ● | 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 have filed a registration statement on Form S-1 with the SEC to register our securities for sale in a proposed underwritten public offering. If that offering is successful, we intend to use the proceeds to initiate and conduct one or more clinical trials of our AlloRx Stem Cell therapy, for preclinical activities for other possible treatments with AlloRx, and for working capital and other general corporate purposes. If we are successful in completing a public offering of our securities, including our common stock, and obtaining a market for that stock, we may realize additional capital through the exercise of outstanding common stock purchase warrants. However, that will depend on the warrants being “in the money,” in addition to having a market for our stock. We may also 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 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. 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.
Cash Flows
The following table summarizes our cash flows for the six months ended April 30, 2023 and 2022:
| Six Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Net Cash Used in Operating Activities | $ | (1,607,374 | ) | $ | (1,192,293 | ) | ||
| Net Cash Used in Investing Activities | (44,163 | ) | (195,680 | ) | ||||
| Net Cash provided by (Used in) Financing Activities | 1,161,719 | (771,233 | ) | |||||
| Beginning Cash Balance | 741,538 | 4,376,983 | ||||||
| Ending Cash Balance | $ | 251,720 | $ | 2,217,777 | ||||
Operating Activities
Net cash used in operating activities during the six months ended April 30, 2023 was $1,607,374, compared to $1,192,293 during the six months ended April 30, 2022, representing an increase of $415,081. This increase is primarily attributable to the significantly increased net loss in the 2023 period.
Investing Activities
Cash used by investing activities during the six months ended April 30, 2023 was $44,163 compared to $195,680 in the six months ended April 30, 2022, representing a decrease in cash used of $151,517. We purchased a small amount of property and equipment and incurred some IP-related costs during the six months ended April 30, 2023, while there was a significant item of equipment purchased during the six months ended April 30, 2022.
Financing Activities
Cash provided by financing activities during the six months ended April 30, 2023 was $1,161,719, while cash used by financing activities during the six months ended April 30, 2022 was $771,233. During the six months ended April 30, 2023, we issued $1,192,600 in 8% Convertible Notes and common stock purchase warrants, and made capital lease principal payments of $30,881. During the six months ended April 30, 2022, we made capital lease principal payments and revolving line of credit principal payments totaling $40,643 and incurred $730,511 of deferred offering costs in connection with our proposed public offering.
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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 are believed 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, the following are considered 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.
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.
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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.
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. Potential changes in our costs and operating structure
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.
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; |
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| ● | 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; | |
| ● | 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 revenues from our agreement with European Wellness; | |
| ● | 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.
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.
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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 April 30, 2023, 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.
Management has commenced taking steps to remediate this weakness discovered during the prior fiscal year and to enhance our internal control over financial reporting.
These steps may include:
| (1) | Improving the communication between Company management and the Company staff working on the JOA. | |
| (2) | Establishing formal billing templates and protocols with the counterparty to the JOA so as to achieve proper recognition of milestones achieved under the terms of the JOA. | |
| (3) | Establishing a formal review process for all revenue recognized under the terms of the JOA in accordance with the appropriate accounting standards codification. |
Other than as described above, there was No change in the Company’s internal control over financial reporting during the quarter ended April 30, 2023 that materially affected, or is likely to materially affect, the Company’s internal control over financial reporting.
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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, 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.
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 27, 2023. Other than the risk factor included below, there have been no material changes regarding risk factors since that date:
A significant portion of our revenue is concentrated on a few large customers and we have suspended work on an agreement with one of those customers pending discussions regarding amounts believed to be owed to us for work already completed. If we lose one or more of them, our results of operations may be adversely impacted.
Our revenue is currently concentrated in a small number of our domestic customers and European Wellness/BioPep. The sales to three domestic customers accounted for approximately 17%, 15% and 14% of our sales in fiscal year 2022. The consulting revenue from European Wellness/BioPep has accounted for approximately 18% of our sales in fiscal year 2022. With respect to European Wellness/BioPep, we have recently suspended delivering work product to it under our agreement while we engage in discussions regarding amounts believed to be owed to us under that agreement for work already completed. If those discussions are unsuccessful, our agreement with them, which is scheduled to terminate by its current terms on July 31, 2023, would not be expected to be renewed or extended and would terminate in accordance with its terms, and we may not be able to collect all of the amounts believed to be owed to us through the date of termination or the other amounts originally expected to be received by us under the agreement for completion of all services thereunder as originally contemplated. The loss of all or a part of our revenue from one or more of these customers could have a material adverse effect on our revenue, cash flow, operating results and financial condition until an alternative partnership or collaboration might be developed, and there can be no assurance that an alternative partnership or collaboration will be available to us, on terms acceptable to us or at all, in such a circumstance.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None required to be reported.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
The following exhibits are filed, furnished or incorporated by reference with this report:
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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: June 13, 2023 | By: | /s/ Christopher Furman |
| Christopher Furman, Chief Executive Officer | ||
| Date: June 13, 2023 | /s/ Nathan Haas | |
| Nathan Haas, Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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