UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-40483

ALZAMEND NEURO, INC.

(Exact name of registrant as specified in its charter)

Delaware		81-1822909
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3500 Lenox Rd NE, Suite 1500, Atlanta, GA	30326	(844) 722-6303
(Address of principal executive offices)	(Zip Code)	(Registrant’s telephone number, including area code)

3802 Spectrum Boulevard, Suite 112C, Tampa, FL 33612

(Former address, if changed since last report)

Securities registered under Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	ALZN	NASDAQ Capital Market

Securities registered under Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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 the 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 ☐
Non-accelerated filer	☒	Smaller reporting company ☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 15, 2022 there were 90,102,623 shares of registrant’s common stock, $0.0001 par value per share, outstanding.

Table of Contents

		Page

PART I.	FINANCIAL INFORMATION	F-1
Item 1.	Financial Statements (unaudited)	F-1
	Condensed Balance Sheets	F-1
	Condensed Statements of Operations	F-2
	Condensed Statements of Stockholders’ Equity (Deficit)	F-3
	Condensed Statements of Cash Flows	F-7
	Notes to Condensed Financial Statements	F-8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12

PART II	OTHER INFORMATION	14
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	15
	Signatures	16

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Alzamend Neuro, Inc.

Condensed Balance Sheets

(Unaudited)


	January 31, 2022			April 30, 2021
ASSETS
CURRENT ASSETS
Cash	$	11,790,289		$	1,929,270
Prepaid expenses and other current assets		638,827			983,320
TOTAL CURRENT ASSETS		12,429,116			2,912,590
TOTAL ASSETS	$	12,429,116		$	2,912,590

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	464,895		$	503,593
Related party payable		2,082			60,749
Convertible notes, net		-			335,303
TOTAL CURRENT LIABILITIES		466,977			899,645

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Convertible Preferred stock, $0.0001 par value: 10,000,000 shares authorized; Series A Convertible Preferred Stock, $0.0001 stated value per share, 1,360,000 shares designated; nil and 750,000 shares issued and outstanding as of January 31, 2022 and April 30, 2021, respectively		-			75
Common stock, $0.0001 par value: 300,000,000 shares authorized; 90,102,623 and 67,429,525 shares issued and outstanding as of January 31, 2022 and April 30, 2021 respectively		9,010			6,743
Additional paid-in capital		52,161,522			33,721,859
Note receivable for common stock – related party		(14,883,295	)		(14,883,295	)
Accumulated deficit		(25,325,098	)		(16,832,437	)
TOTAL STOCKHOLDERS’ EQUITY		11,962,139			2,012,945
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	12,429,116		$	2,912,590

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-1

Alzamend Neuro, Inc.

Condensed Statements of Operations

(Unaudited)


	For the Three Months Ended January 31,						For the Nine Months Ended January 31,
	2022			2021			2022			2021
OPERATING EXPENSES
Research and development	$	873,653		$	234,262		$	3,540,111		$	1,018,021
General and administrative		1,682,913			881,397			4,906,628			2,713,891
Total operating expenses		2,556,566			1,115,659			8,446,739			3,731,912
Loss from operations		(2,556,566	)		(1,115,659	)		(8,446,739	)		(3,731,912	)

OTHER INCOME (EXPENSE), NET
Interest expense		(16,299	)		(57,366	)		(45,922	)		(108,181	)
Interest expense - related party		-			(8,277	)		-			(13,765	)
Interest income - related party		-			-			-			1,706
Gain on extinguishment of debt					62,418						62,418

Total other income (expense), net		(16,299	)		(3,225	)		(45,922	)		(57,822	)

NET LOSS	$	(2,572,865	)	$	(1,118,884	)	$	(8,492,661	)	$	(3,789,734	)

Basic and diluted net loss per common share	$	(0.03	)	$	(0.02	)	$	(0.09	)	$	(0.05	)

Basic and diluted weighted average common shares outstanding		94,165,225			72,262,858			89,484,601			72,262,858

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-2

Alzamend Neuro, Inc.

Condensed Statements of Stockholders’ Equity

For the Three Months Ended January 31, 2022

(Unaudited)


	Series A Convertible								Additional		Note Receivable for
	Preferred Stock				Common Stock				Paid-In		Common Stock -			Accumulated
	Shares		Amount		Shares		Amount		Capital		Related Party			Deficit			Total
BALANCES, October 31, 2021		-	$	-		88,850,358	$	8,885	$	50,652,054	$	(14,883,295	)	$	(22,752,233	)	$	13,025,411

Stock-based compensation to employees and consultants		-		-		-		-		1,130,795		-			-			1,130,795

Proceeds from stock option exercise		-		-		1,000,000		100		300		-			-			400

Issuance of shares of common stock for conversion of note		-		-		252,265		25		378,373		-			-			378,398

Net loss		-		-		-		-		-		-			(2,572,865	)		(2,572,865	)

BALANCES, January 31, 2022		-	$	-		90,102,623	$	9,010	$	52,161,522	$	(14,883,295	)	$	(25,325,098	)	$	11,962,139

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-3

Alzamend Neuro, Inc.

Condensed Statements of Stockholders’ Equity (Deficit)

For the Three Months Ended January 31, 2021

(Unaudited)


	Series A Convertible								Additional		Note Receivable for
	Preferred Stock				Common Stock				Paid-In		Common Stock -			Accumulated
	Shares		Amount		Shares		Amount		Capital		Related Party			Deficit			Total
BALANCES, October 31, 2020		750,000	$	75		64,762,858	$	6,476	$	28,666,695	$	(14,883,295	)	$	(14,456,719	)	$	(666,768	)

Stock-based compensation to employees and consultants		-		-		-		-		489,705		-			-			489,705

Net loss		-		-		-		-		-		-			(1,118,884	)		(1,118,884	)

BALANCES, January 31, 2021		750,000	$	75		64,762,858	$	6,476	$	29,156,400	$	(14,883,295	)	$	(15,575,603	)	$	(1,295,947	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-4

ALZAMEND NEURO, INC.

Condensed Statements of Stockholders’ Equity

For the Nine Months Ended January 31, 2022

(Unaudited)


	Series A Convertible										Additional			Note Receivable for
	Preferred Stock						Common Stock				Paid-In			Common Stock -			Accumulated
	Shares			Amount			Shares		Amount		Capital			Related Party			Deficit			Total
BALANCES, April 30, 2021		750,000		$	75			67,429,525	$	6,743	$	33,721,859		$	(14,883,295	)	$	(16,832,437	)	$	2,012,945

Issuance of common stock for restricted stock awards		-			-			212,500		21		(21	)		-			-			-

Stock-based compensation to employees and consultants		-			-			-		-		3,150,801			-			-			3,150,801

Proceeds from sale of common stock and warrants-related party, net		-			-			1,333,333		133		1,999,867			-			-			2,000,000

Proceeds from stock option exercise		-			-			3,000,000		300		900			-			-			1,200

Proceeds from initial public offering, net of underwriters' discounts and commissions and issuance costs of $1.5 million		-			-			2,875,000		288		12,911,168			-			-			12,911,456

Issuance of shares of common stock for conversion of note		-						252,265		25		378,373			-			-			378,398

Conversion of Series A convertible stock		(750,000	)		(75	)		15,000,000		1,500		(1,425	)		-			-			-

Net loss		-			-			-		-		-			-			(8,492,661	)		(8,492,661	)

BALANCES, January 31, 2022		-		$	-			90,102,623	$	9,010	$	52,161,522		$	(14,883,295	)	$	(25,325,098	)	$	11,962,139

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-5

ALZAMEND NEURO, INC.

Condensed Statements of Stockholders’ Equity (Deficit)

For the Nine Months Ended January 31, 2021

(Unaudited)


	Series A Convertible								Additional		Note Receivable for
	Preferred Stock				Common Stock				Paid-In		Common Stock -			Accumulated
	Shares		Amount		Shares		Amount		Capital		Related Party			Deficit			Total
BALANCES, April 30, 2020		750,000	$	75		64,762,858	$	6,476	$	27,584,227	$	(14,983,200	)	$	(11,785,869	)	$	821,709

Stock-based compensation to employees and consultants		-		-		-		-		1,479,231		-			-			1,479,231

Proceeds from note receivable – related party for common stock		-		-		-		-		-		99,905			-			99,905

Fair value of warrants issued in connection with convertible notes		-		-		-		-		78,642		-			-			78,642

Fair value of warrants issued in connection with convertible notes- related party		-		-		-		-		14,300		-			-			14,300

Net loss		-		-		-		-		-		-			(3,789,734	)		(3,789,734	)

BALANCES, January 31, 2021		750,000	$	75		64,762,858	$	6,476	$	29,156,400	$	(14,883,295	)	$	(15,575,603	)	$	(1,295,947	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-6

Alzamend Neuro, Inc.

Condensed Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended January 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(8,492,661	)	$	(3,789,734	)
Adjustments to reconcile net loss to net cash used in operating activities:
Interest expense - debt discount		12,770			97,446
Interest expense - debt discount, related party		-			12,088
Gain on extinguishment of debt		-			(62,418	)
Stock-based compensation to employees and consultants		3,150,801			1,735,497
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		344,493			605,279
Accounts payable and accrued expenses		(67,040	)		(52,312	)
Net cash used in operating activities		(5,051,637	)		(1,454,154	)
Cash flows from investing activities:
Proceeds from repayments of notes receivable - related party		-			100,915
Net cash provided by investing activities		-			100,915
Cash flows from financing activities:
Proceeds from the issuance of common stock and warrants - related party, net		2,000,000			-
Proceeds from stock option exercise		1,200			-
Advances from related party payable		-			1,676
Proceeds from short-term advances, related party		-			800,000
Proceeds from note payable		-			62,110
Proceeds from note receivable for common stock – related party		-			99,905
Proceeds from convertible note payable		-			290,000
Proceeds from convertible note payable, related party		-			50,000
Proceeds from initial public offering, net of underwriters' discounts and commissions and issuance costs		12,911,456			-
Net cash provided by financing activities		14,912,656			1,303,691
Net increase (decrease) in cash		9,861,019			(49,548	)
Cash at beginning of period		1,929,270			90,285
Cash at end of period	$	11,790,289		$	40,737

Supplemental disclosures of cash flow information:
Non-cash financing activities:
Fair value of warrants issued in connection with initial public offering	$	461,877		$	-
Fair value of warrants issued in connection with convertible notes payable, related party	$	4,799,742		$	14,300
Fair value of warrants issued in connection with convertible notes payable	$	-		$	78,642
Issuance of common stock on conversion of note	$	378,373		$	-

The accompanying notes are an integral part of these unaudited condensed financial statements.

F-7

Alzamend Neuro, Inc.

Notes to Unaudited Condensed Financial Statements

DESCRIPTION OF BUSINESS

Organization

Alzamend Neuro, Inc. (the “Company” or “Alzamend”), is an early clinical-stage biopharmaceutical company focused on developing novel products for the treatment of neurodegenerative diseases and psychiatric disorders. The Company’s primary focus is Alzheimer’s disease (“Alzheimer’s”). With two current and future product candidates, Alzamend aims to bring treatments and/or potential cures to market as quickly as possible. The Company’s current pipeline consists of two novel therapeutic drug candidates (collectively, the “Technology”): (i) a patented ionic cocrystal technology delivering a therapeutic combination of lithium, proline and salicylate, known as AL001 or LiProSal, through two royalty-bearing exclusive worldwide licenses from the University of South Florida Research Foundation, Inc. (the “Licensor”), and (ii) a patented method using a mutant peptide sensitized cell as a cell-based therapeutic vaccine that seeks to restore the ability of a patient’s immunological system to combat Alzheimer’s, known as AL002 or CA022W, through a royalty-bearing exclusive worldwide license with Licensor.

The Company is devoting substantially all its efforts towards research and development of its Technology. The Company has not generated any product revenue to date. The Company has financed its operations to date primarily through debt financings and through the sale of its common stock, par value $0.0001 per share (the “Common Stock”). The Company expects to continue to incur net losses in the foreseeable future.

Initial Public Offering

On June 14, 2021, the Company’s registration statement on Form S-1 (File No. 333-255955) for its initial public offering of Common Stock (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). On June 15, 2021, the Company issued and sold 2,875,000 shares of Common Stock in the IPO at a public offering price of $5.00 per share, resulting in net proceeds of $12.9 million after deducting underwriting discounts and commissions and offering expenses of $1.5 million paid by the Company. Digital Power Lending, LLC (“DPL”), a California limited liability company and a related party, purchased 2,000,000 of the Company’s IPO shares on June 15, 2021. The Company’s Common Stock is listed on The Nasdaq Capital Market under the ticker symbol “ALZN”.

In connection with the closing of the IPO, all of the Company’s outstanding shares of Series A convertible preferred stock (the “Series A Preferred Shares”) were converted into 15,000,000 shares of Common Stock.

LIQUIDITY AND GOING CONCERN

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. As of January 31, 2022, the Company had cash of $11.8 million and an accumulated deficit of $25.3 million. The Company incurred losses for the three and nine months ended January 31, 2022 totaling $2.6 million and $8.5 million, respectively.

The Company expects to continue to incur losses for the foreseeable future and needs to raise additional capital until it is able to generate revenues from operations sufficient to fund its development and commercial operations. However, based on the Company’s current business plan, management believes that the Company’s cash and cash equivalents at January 31, 2022, are sufficient to meet the Company’s anticipated cash requirements during the twelve-month period subsequent to the issuance of the financial statements included in this Quarterly Report.

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission applicable to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Report on Form 10-K for the year ended April 30, 2021, filed with the SEC on July 29, 2021. In the opinion of management, the accompanying condensed interim financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Annual Report on Form 10-K have been omitted. The accompanying condensed balance sheet at April 30, 2021 has been derived from the audited balance sheet at April 30, 2021 contained in such Form 10-K.

F-8

Accounting Estimates

The preparation of financial statements, in conformity with U.S. 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 expenses during the reporting period. The Company’s critical accounting policies that involve significant judgment and estimates include stock-based compensation, warrant valuation, and valuation of deferred income taxes. Actual results could differ from those estimates

Cash and Cash Equivalents

The Company considers all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents. As of January 31, 2022 and April 30, 2021, the Company had no cash equivalents.

Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 assumptions: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities including liabilities resulting from imbedded derivatives associated with certain warrants to purchase Common Stock.

The fair values of warrants issued in connection with equity or debt issuance are determined using the Black-Scholes valuation model, a “Level 3” fair value measurement, based on the estimated fair value of the underlying Common Stock, volatility based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities, the expected life based on the remaining contractual term of the conversion option and warrants and the risk free interest rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ contractual life.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees and lab supplies, as well as fees paid to clinical research organizations that conduct certain research and development activities on behalf of the Company.

The Company has acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire licenses, products or rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is no alternative future use of the rights in other research and development projects.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. The Company’s stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the satisfaction of the performance conditions as of the reporting date.

F-9

The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and the Company uses significantly different assumptions or estimates, the Company’s stock-based compensation could be materially different.

Warrants

The Company accounts for stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant agreement.

Debt Issued with Warrants

The Company considers guidance within ASC 470-20, Debt (“Subtopic 470-20”), ASC 480, and ASC 815 when accounting for the issuance of convertible debt with detachable warrants. As described above under the caption “Warrants,” the Company classifies warrants to purchase Common Stock as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement.

In circumstances in which debt is issued with equity-classified warrants, the proceeds from the issuance of convertible debt are allocated to the warrants and convertible debt based on their relative estimated fair values. The allocated fair value of equity warrants is recorded as a discount to the convertible debt with a corresponding increase to additional paid-in capital. The debt discount is amortized as interest expense using the effective interest method.

Embedded Derivatives. The Company considers whether there are any embedded features in debt instruments that require bifurcation and separate accounting as derivative financial instruments pursuant to ASC 815.

Beneficial Conversion Feature. If the amount allocated to the convertible debt results in an effective per share conversion price less than the fair value of the underlying Common Stock on the commitment date, the intrinsic value of this beneficial conversion feature is recorded as a discount to the convertible debt with a corresponding increase to additional paid-in capital. The beneficial conversion feature discount is equal to the difference between the effective conversion price and the fair value of the underlying Common Stock at the commitment date, unless limited by the remaining proceeds allocated to the debt.

Loss per Common Share

The Company utilizes FASB ASC Topic No. 260, Earnings per Share. Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted loss per common share reflects the potential dilution that could occur if convertible preferred stock, options and warrants were to be exercised or converted or otherwise resulted in the issuance of Common Stock that then shared in the earnings of the entity.

Since the effects of outstanding options, warrants and convertible preferred stock are anti-dilutive in the periods presented, shares of Common Stock underlying these instruments have been excluded from the computation of loss per common share.

The following sets forth the number of shares of Common Stock underlying outstanding convertible preferred stock, options, warrants, and convertible notes that have been excluded from the computation of loss per common share:

	For the Nine Months Ended January 31,
	2022		2021
Series A convertible preferred stock		-		15,000,000
Stock options ⁽¹⁾		13,500,000		16,300,000
Warrants		8,830,785		6,769,635
Convertible notes		-		245,999
		22,330,785		38,315,634

(1)

The Company has excluded 4,500,000 stock options, with an exercise price of $0.0004, from its anti-dilutive securities as these shares have been included in our determination of basic loss per share as they represent shares issuable for little or no cash consideration upon the satisfaction of certain conditions pursuant to ASC 260-10-45-14.

F-10

Recent Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”). The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. The Company adopted ASU 2018-13 as of May 1, 2020. Adoption of this standard had no material impact on its financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2018-13 as of May 1, 2021. Adoption of this standard had no material impact on the Company’s financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods therein. Adoption is either a modified retrospective method or a fully retrospective method of transition. The adoption of this standard on May 1, 2021 did not have a material impact on the Company’s financial position or results of operations.

The Company has considered all other recently issued accounting standards and does not believe the adoption of such standards will have a material impact on its financial statements.

NOTE RECEIVABLE FOR COMMON STOCK, RELATED PARTY

On April 30, 2019, the Company and Ault Life Sciences Fund, LLC (“ALSF”) entered into a Securities Purchase Agreement (“SPA”) for the purchase of 10,000,000 shares of the Company’s Common Stock for a total purchase price of $15,000,000, or $1.50 per share with 5,000,000 warrants with a 5-year life and an exercise price of $3.00 per share and vesting upon issuance. The total purchase price of $15,000,000 was in the form of a non-interest bearing note receivable with a 12-month term from ALSF, a related party. In November 2019, the term of the note receivable was extended to December 31, 2021, and in May 2021, the term of the note receivable was extended to December 31, 2023. The note is secured by a pledge of the purchased shares. As the note receivable from ALSF is related to the issuance of Common Stock, it is recorded as an offset to additional paid-in capital. At January 31, 2022 and April 30, 2021, the outstanding balance of the note receivable was $14,883,295.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets are as follows:

	January 31, 2022		April 30, 2021
Prepaid consulting fees	$	256,667	$	966,260
Prepaid insurance		370,179		-
Other prepaid expenses		11,981		850
Other receivables		-		16,210
Total prepaid expenses and other current assets	$	638,827	$	983,320

On June 14, 2021, the Company purchased directors and officers insurance for 12 months at an annual premium amount of $855,000. Prepaid insurance at January 31, 2022 represents the unamortized portion of annual premium paid for this policy. At January 31, 2022, prepaid consulting fees represented the balance of fees paid for consulting services to Spartan Capital Securities, LLC (“Spartan Capital”) that are expected to be recognized over the remaining term of the agreement that runs through December 31, 2022.

F-11

STOCK-BASED COMPENSATION

2016 Stock Incentive Plan

On April 30, 2016, the Company’s stockholders approved the Company’s 2016 Stock Incentive Plan (the “Plan”). The Plan provides for the issuance of a maximum of 12,500,000 shares of Common Stock to be offered to the Company’s directors, officers, employees, and consultants. On March 1, 2019, the Company’s stockholders approved an additional 7,500,000 shares to be available for issuance under the Plan. Options granted under the Plan have an exercise price equal to or greater than the fair value of the underlying Common Stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. The options expire between five and 10 years from the date of grant. Restricted stock awards granted under the Plan are subject to a vesting period determined at the date of grant.

2021 Stock Incentive Plan

In February 2021, the Company’s board of directors (the “Board”) adopted, and the stockholders approved, the Alzamend Neuro, Inc. 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the grant to eligible individuals of (1) stock options (incentive and non-statutory), (2) restricted stock, (3) stock appreciation rights, or SARs, (4) restricted stock units, and (5) other stock-based compensation.

Stock Subject to the 2021 Plan. The maximum number of shares of Common Stock that may be issued under the 2021 Plan is 10,000,000 shares, which number will be increased to the extent that compensation granted under the 2021 Plan is forfeited, expires or is settled for cash (except as otherwise provided in the 2021 Plan). Substitute awards (awards made or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company that the Company acquires or any subsidiary of the Company or with which the Company or any subsidiary combines) will not reduce the shares authorized for grant under the 2021 Plan, nor will shares subject to a substitute award be added to the shares available for issuance or transfer under the 2021 Plan.

All options that the Company grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. The Company has valued the options at their date of grant utilizing the Black Scholes option pricing model. As of the date of issuance of these options, there was not an active public market for the Company’s shares. Accordingly, the fair value of the underlying options was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because the Company settles these obligations by issuing shares of Common Stock from its authorized shares instead of settling such obligations with cash payments.

A summary of stock option activity for the nine months ended January 31, 2022, is presented below:

				Outstanding Options
									Weighted
							Weighted		Average
	Shares						Average		Remaining		Aggregate
	Available for			Number of			Exercise		Contractual		Intrinsic
	Grant			Options			Price		Life (years)		Value
Balance at April 30, 2021		10,450,000			19,550,000		$	0.7195		5.92	$	35,159,500
Options granted		(1,750,000	)		1,750,000		$	2.9171
Options exercised		-			(3,000,000	)	$	0.0004
Options cancelled/forfeited		300,000			(300,000	)	$	1.5000
Balance at January 31, 2022		9,000,000			18,000,000		$	0.9826		6.00	$	13,118,800
Options vested and expected to vest at January 31, 2022					16,000,000		$	1.0418		6.41	$	1 0,529,200
Options exercisable at January 31, 2022					13,460,519		$	0.7891		5.87	$	9,806,358

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the estimated fair value on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options.

F-12

Stock Options Granted to Employees and Consultants

The estimated fair value of stock options granted to employees and consultants during the nine months ended January 31, 2022 and 2021, were calculated using the Black-Scholes option-pricing model using the following assumptions:

	For the Nine Months Ended January 31,
	2022	2021
Expected term (in years)	3.50 – 6.25	6.25
Volatility	85.53% - 87.10%	100.10%
Risk-free interest rate	1.01% – 1.07%	0.51%
Dividend yield	0.0%	0.0%

Expected Term: The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

Expected Volatility: The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company only has a limited trading history for its Common Stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate: The Company based the risk-free interest rate over the expected term of the options based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant.

Expected Dividend: The Company has not paid and does not anticipate paying any dividends in the near future. Therefore, the expected dividend yield was zero.

Stock-based compensation to employees and consultants from stock option grants for the nine months ended January 31, 2022 and 2021 were $3.2 million and $1.7 million, respectively.

Performance Contingent Stock Options Granted to Employee

In November 2018, the Board granted 2,000,000 performance-based options under the Plan to the Chief Executive Officer. These options have an exercise price of $1.00 per share.

These options have two separate performance triggers for vesting based upon the therapies achieving certain Food and Drug Administration (“FDA”) approval milestones within a specified timeframe. By definition, the performance condition in these options can only be achieved after the performance condition of FDA approval has been achieved. As such, the requisite service period is based on the estimated period over which the market condition can be achieved. When a performance goal is deemed to be probable of achievement, time-based vesting and recognition of stock-based compensation expense commences. In the event any of the milestones are not achieved by the specified timelines, such vesting award will terminate and no longer be exercisable with respect to that portion of the shares. The maximum potential expense associated with the performance-contingent awards is $1.2 million of general and administrative expense if all of the performance conditions are achieved as stated in the option agreement. Due to the significant risks and uncertainties associated with FDA approvals, as of January 31, 2022, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards.

On November 26, 2019, the Board granted 4,250,000 performance- and market-contingent awards to certain key employees and a director. These grants were made outside of the Plan. These awards have an exercise price of $1.50 per share. These awards have multiple separate market triggers for vesting based upon either (i) the successful achievement of stepped target closing prices on a national securities exchange for 90 consecutive trading days later than 180 days after the Company’s IPO for its Common Stock, or (ii) stepped target prices for a change in control transaction. The target prices range from $15 per share to $40 per share. In the event any of the stock price milestones are not achieved within three years, the unvested portion of the performance options will be reduced by 25%. Due to the significant risks and uncertainties associated with achieving the market-contingent awards, as of January 31, 2022, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards.

Performance Contingent Stock Options Granted to Consultants - TAMM Net

On March 23, 2021, the Company issued performance-based stock options to the certain team members at TAMM Net, Inc. to purchase an aggregate of 450,000 shares of Common Stock at a per share exercise price of $1.50 per share, of which 50% vest upon the completion of Phase I clinical trial for AL001 by March 31, 2022 and the remaining 50% vest upon completion of Phase I clinical trial for AL002 by December 31, 2022. The Company retained TAMM Net, Inc., a consulting firm based in Georgia for project management experienced with good manufacturing practices to lead, develop and manage the Company’s preclinical and clinical efforts, extending from the current status of each product candidate through the exit or commercialization of the technologies that the Company has licensed.

F-13

As of January 31, 2022, the Company believes the performance goal of completing Phase I clinical trial of AL001 will be achieved. The Company is recognizing stock compensation related to the completion of Phase I clinical trial of AL001 by March 31, 2022 over the implied service period expected to complete this milestone. Due to the significant risks and uncertainties associated with achieving the completion of Phase I for AL002, as of January 31, 2022, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards related to AL002.

Performance Contingent Stock Options Granted to Consultants -Other Consultants

On October 14, 2021, the Company issued performance-based stock options to two consultants to purchase an aggregate of 200,000 shares of Common Stock with an exercise price of $2.42 per share, of which 50,000 vest upon completion of each of the Phase II clinical trials of AL001 for a Bipolar indication, AL001 for a PTSD indication, AL001 for a depression indication and AL002 for an Alzheimer’s indication.

As of January 31, 2022, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards related to Phase II of AL001 and AL002.

Stock-Based Compensation Expense

The Company’s results of operations include expenses relating to stock-based compensation for the three and nine months ended January 31, 2022 and 2021, was comprised as follows:

	For the Three Months Ended January 31,				For the Nine Months Ended January 31,
	2022		2021		2022		2021
Research and development	$	106,102	$	21,813	$	359,286	$	65,439
General and administrative		1,024,693		553,314		2,791,515		1,670,058
Total	$	1,130,795	$	575,127	$	3,150,801	$	1,735,497

As of January 31, 2022, total unamortized stock-based compensation expense related to unvested employee and non-employee awards that are expected to vest was $5.2 million. The weighted-average period over which such stock-based compensation expense will be recognized is approximately 1.9 years.

WARRANTS

During the nine months ended January 31, 2022, the Company issued warrants to purchase an aggregate of 727,917 shares of Common Stock at exercise prices ranging from $3.00 to $6.25 per share.

(i)

On June 17 2021, the Company issued a warrant to purchase an aggregate of 61,250 shares of Common Stock at an exercise price equal to $6.25 per share of Common Stock in connection with the IPO. Based on the terms of the Company’s warrant agreement, the Company accounted for the warrant as an equity instrument as the warrant is indexed to the Common Stock, requires settlement in shares and would be classified as equity under ASC 815.

(ii)

On July 28, 2021, the Company received from the U.S. Food and Drug Administration a “Study May Proceed” letter for a Phase I study under the Company’s Investigational New Drug application for AL001. Based on the achievement of this milestone, the Company sold an additional 1,333,333 shares of Common Stock to DPL for $2 million, or $1.50 per share, and issued to DPL warrants to acquire 666,667 shares of Common Stock with an exercise price of $3.00 per share (see Note 8). Based on the terms of the Company’s warrant agreement, the Company accounted for the warrant as an equity instrument as the warrant is indexed to the Common Stock, requires settlement in shares and would be classified as equity under ASC 815.

F-14

The following table summarizes information about Common Stock warrants outstanding at January 31, 2022:

Outstanding								Exercisable
				Weighted
				Average		Weighted				Weighted
				Remaining		Average				Average
Exercise		Number		Contractual		Exercise		Number		Exercise
Price		Outstanding		Life (years)		Price		Exercisable		Price
$	1.00		500,000		2.3	$	1.00		500,000	$	1.00
$	1.75		175,672		3.0	$	1.75		175,672	$	1.75
$	3.00		8,093,863		3.1	$	3.00		8,093,863	$	3.00
$	6.25		61,250		4.6	$	6.25		61,250	$	6.25
	$1.00 - $6.25		8,830,785		3.1	$	2.88		8,830,785	$	2.88

The estimated fair value of warrants granted during the nine months ended January 31, 2022 and 2021, were calculated using the Black-Scholes option-pricing model using the following assumptions:

	For the Nine Months Ended January 31,
	2022	2021
Expected term (in years)	5.00	5.00
Volatility	86.31%	103.70%
Risk-free interest rate	0.87% - 0.90%	0.27% - 0.28%
Dividend yield	0.0%	0.0%

Expected Term: The expected term represents the period that the warrants granted are expected to be outstanding.

Risk-Free Interest Rate: The Company based the risk-free interest rate over the expected term of the warrants based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant.

Expected Dividend: The Company has not paid and does not anticipate paying any dividends in the near future. Therefore, the expected dividend yield was zero.

OTHER RELATED PARTY TRANSACTIONS

In March 2021, the Company entered into the SPA with DPL pursuant to which the Company agreed to sell an aggregate of 6,666,667 shares of Common Stock for an aggregate of $10 million, or $1.50 per share, which sales will be made in tranches. On March 9, 2021, DPL paid $4 million, less the $1.8 million in prior advances and the surrender for cancellation of a $50,000 convertible promissory note held by BitNile Holdings, Inc (“BitNile“), for an aggregate of 2,666,667 shares of Common Stock. Under the terms of the securities purchase agreement, DPL (i) purchased an additional 1,333,333 shares of Common Stock upon approval of the IND for Phase I clinical trials for AL001 for a purchase price of $2 million, and (ii) will purchase 2,666,667 shares of Common Stock upon the completion of the Phase I clinical trials for AL001 for a purchase price of $4 million. The Company further agreed to issue to DPL warrants to purchase a number of shares of Common Stock equal to 50% of the shares of Common Stock purchased under the securities purchase agreement at an exercise price of $3.00 per share. Finally, the Company agreed that for a period of 18 months following the date of the payment of the final tranche of $4 million, DPL will have the right to invest an additional $10 million on the same terms, except that no specific milestones have been determined with respect to the additional $10 million as of January 31, 2022.

In May 2021, the Board and Mr. Milton C. Ault, the Company’s Founder and Chairman Emeritus, agreed to certain arrangements with regard to Board composition and other matters. Contemporaneously with the effectiveness of the IPO, and in consideration for (i) the conversion of 750,000 shares of the Company’s Series A Preferred Shares beneficially owned by Mr. Ault through Ault Life Sciences, Inc. into 15,000,000 shares of Common Stock, (ii) the extension of the maturity date of the note in the original principal amount of $15,000,000 issued to the Company by Ault Life Sciences Fund, LLC, an entity controlled by Mr. Ault, to December 31, 2023, and (iii) the resignation by Mr. Ault as a director and executive officer of the Company, the Board agreed that William B. Horne will become Chairman of the Board and remain in that position for so long as Mr. Ault beneficially owns no less than 5% of the outstanding shares of Common Stock (for which Mr. Horne will be paid $50,000 per year), and Henry Nisser will remain a member of the Company’s Board for so long as Mr. Ault beneficially owns no less than 5% of the outstanding shares of Common Stock (for no additional remuneration). Additionally, Mr. Ault will hold the position of Founder and Chairman Emeritus and, as such, have the right to nominate an observer to the Board for a period of five years after the closing date of the IPO. Following the closing of the IPO, the Company entered into a five-year consulting agreement with Mr. Ault under which he will provide strategic advisory and consulting services to the Company in consideration for annual fees of $50,000.

F-15

COMMITMENTS AND CONTINGENCIES

Contractual Obligations

On May 1, 2016, the Company entered into a Standard Exclusive License Agreement for AL002 with Sublicensing Terms with Licensor, pursuant to which Licensor granted the Company a royalty bearing exclusive worldwide license limited to the field of Alzheimer’s Immunotherapy and Diagnostics, under United States Patent No. 8,188,046, entitled “Amyloid Beta Peptides and Methods of Use,” filed April 7, 2009 and granted May 29, 2012.

In addition to royalty payments of 4% on net sales of products developed from the licensed technology, the Company is required to pay milestone payments on the due dates to the licensor for the license of the technology, as follows:

Original AL001 License:

Payment		Due Date	Event
$	65,000	Paid in November 2021	IND application filing

$	190,000	Paid in November 2021	Upon first dosing of patient in a clinical trial

$	500,000	12 months from first patient dosing	Upon Completion of first clinical trial

$	1,250,000	12 months from completion of the first Phase II clinical trial	Upon first patient treated in a Phase III clinical trial

$	10,000,000	8 years from the effective date of the agreement	Upon FDA approval

AL002 License:

Payment		Due Date	Event
$	50,000	Upon IND application filing	Upon IND application filing

$	50,000	12 months from IND application filing date	Upon first dosing of patient in first Phase I clinical trial

$	175,000	12 months from first patient dosed in Phase I	Upon completion of first Phase I clinical trial

$	500,000	24 months from completion of first Phase I clinical trial	Upon completion of first Phase II clinical trial

$	1,000,000	12 months from completion of the first Phase II clinical trial	Upon first patient treated in a Phase III clinical trial

$	10,000,000	7 years from the effective date of the agreement	Upon FDA BLA approval

If the Company fails to meet a milestone by its specified date, the Licensor may terminate the license agreement.

Licensor was also granted a preemptive right to acquire such shares or other equity securities that may be issued from time to time by the Company while Licensor remains the owner of any equity securities of the Company.

There are certain license fees and milestone payments required to be paid pursuant to the terms of the Standard Exclusive license agreements with Sublicensing Terms, both effective July 2, 2018 (the “AL001 license agreements”) with Licensor and the University of South Florida. In addition, a royalty payment of 3% is required pursuant to License #18110 while License #1811 requires a royalty payment of 1.5% on net sales of products developed from the licensed technology. Additionally, the Company is required to pay milestone payments on the due dates to Licensor for the license of the technology, as follows:

F-16

Additional AL001 Licenses:

Payment		Due Date	Event
$	50,000	December 31, 2022	IND application filing

$	150,000	12 months from IND filing date	Upon first dosing of patient in a clinical trial

$	400,000	12 months from first patient dosing	Upon Completion of first clinical trial

$	1,000,000	36 months from completion of the first Phase II clinical trial	Upon first patient treated in a Phase III clinical trial

$	8,000,000	8 years from the effective date of the agreement	First commercial sale

10.

CONVERTIBLE NOTES

In February 2021, the Company entered into the SPA with an institutional investor to sell a convertible promissory note in the aggregate principal amount of $348,000 for a purchase price of $335,000. The purchase price of the February 2021 convertible promissory note satisfies the principal and accrued interest of the August 2020 and December 2020 convertible promissory notes with the same institutional investor. Since the terms of the February 2021 convertible promissory note were not substantially different from the August 2020 and December 2020 convertible promissory notes, no gain or loss was recognized as a result of this debt issuance. The convertible promissory note bears interest at 10% per annum, which principal and all accrued and unpaid interest were due on December 31, 2021. At January 31, 2022, the principal and interest earned on the convertible promissory note have been converted into shares of Common Stock at $1.50 per share, for a total of 252,265 shares.

The fair value of equity warrants was recorded as a discount to the convertible promissory note with a corresponding increase to additional paid-in capital. The Company computed the estimated fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $13,000 based on the estimated fair value of the warrants. The risk-free rate of 0.27% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 103.7% was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. In aggregate, the Company recorded debt discount in the amount of $137,000 based on the fair values of the warrants and original issue discount of $46,000. As of January 31, 2022, the debt discount has been fully amortized.

11.

EQUITY TRANSACTIONS

The Company is authorized to issue 10,000,000 shares of Preferred Stock $0.0001 par value. The Board has designated 1,360,000 shares as the Series A Preferred Shares. The rights, preferences, privileges and restrictions on the remaining authorized 8,640,000 shares of Preferred Stock have not been determined. The Board is authorized to create a new series of preferred shares and determine the number of shares, as well as the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred shares.

Series A Preferred Shares

In connection with the closing of the IPO, all of the outstanding Series A Preferred Shares were converted into 15,000,000 shares of Common Stock. As of January 31, 2022, there were no Series A Preferred Shares or other shares of Preferred Stock issued or outstanding.

Common Stock

On April 30, 2019, the Company and ALSF entered into a SPA for the purchase of 10,000,000 shares of Common Stock for a total purchase price of $15,000,000, or $1.50 per share with 5,000,000 warrants with a 5-year life and an exercise price of $3.00 per share and vesting upon issuance. The total purchase price of $15,000,000 was in the form of a non-interest bearing note receivable with a 12-month term from ALSF, a related party. The note is secured by a pledge of the purchased shares. Pursuant to the SPA, ALSF is entitled to full ratchet anti-dilution protection, most-favored nation status, denying the Company the right to enter into a variable rate transaction absent its consent, a right to participate in any future financing the Company may consummate and to have all the shares of Common Stock to which it is entitled under the SPA registered under the Securities Act within 180 days of the final closing of an initial public offering. In May 2021, the term of the note receivable was extended to December 31, 2023. The note is secured by a pledge of the purchased shares.

F-17

In March 2021, the Company entered into the SPA with DPL pursuant to which the Company agreed to sell an aggregate of 6,666,667 shares of Common Stock for an aggregate of $10 million, or $1.50 per share, which sales will be made in tranches. On March 9, 2021, DPL paid $4 million, less the $1.8 million in prior advances and the surrender for cancellation of a $50,000 convertible promissory note held by BitNile, for an aggregate of 2,666,667 shares of Common Stock. Under the terms of the securities purchase agreement, DPL (i) purchased an additional 1,333,333 shares of Common Stock upon approval by the FDA of the Company’s IND for its Phase Ia clinical trials for AL001 for a purchase price of $2 million, and (ii) will purchase 2,666,667 shares of Common Stock upon the completion of these Phase Ia clinical trials for AL001 for a purchase price of $4 million. The Company further agreed to issue to DPL warrants to purchase a number of shares of Common Stock equal to 50% of the shares of Common Stock purchased under the securities purchase agreement at an exercise price of $3.00 per share.

Finally, the Company agreed that for a period of 18 months following the date of the payment of the final tranche of $4 million, DPL will have the right to invest an additional $10 million on the same terms, except that no specific milestones have been determined with respect to the additional $10 million as of the date of this Quarterly Report.

12.

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there are no such events that warrant disclosure or recognition in the condensed financial statements presented herein.

F-18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following management’s discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on July 29, 2021.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. This section should be read in conjunction with our unaudited condensed financial statements and related notes included in Part I, Item 1 of this report. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

In this Quarterly Report, unless the context requires otherwise, references to the “Company,” “Alzamend,” “we,” “our company” and “us” refer to Alzamend Neuro, Inc., a Delaware corporation.

Overview

We were incorporated on February 26, 2016 as Alzamend Neuro, Inc. under the laws of the State of Delaware. We were formed to acquire and commercialize patented intellectual property and know-how to prevent, treat and potentially cure the crippling and deadly Alzheimer’s. Existing Alzheimer’s treatments only temporarily relieve symptoms but do not slow or halt the underlying worsening of the disease. We have developed a novel approach in an attempt to combat Alzheimer’s through immunotherapy.

Critical Accounting Policies and Estimates

Research and Development Expenses. Research and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees and lab supplies, as well as fees paid to clinical research organizations that conduct certain research and development activities on behalf of our company.

We have acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire licenses, products or rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is no alternative future use of the rights in other research and development projects.

Stock-Based Compensation. We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards.

We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:

Fair Value of Common Stock. See the subsection titled “Common Stock Valuations” below.

Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Expected Volatility. Because we do not have an extensive trading history for our Common Stock, the expected volatility was estimated based on the average volatility for comparable publicly traded life sciences companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on the similar size, stage in life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term), as we do not have sufficient historical data to use any other method to estimate expected term.

Expected Dividend Yield. We have never paid dividends on our Common Stock and have no plans to pay dividends on our Common Stock. Therefore, we used an expected dividend yield of zero.

Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Common Stock Valuations. Prior to our IPO in June 2021, there was no public market for our Common Stock, and, as a result, the fair value of the shares of Common Stock underlying our stock-based awards was estimated on each grant date by our Board. To determine the fair value of our Common Stock underlying option grants, our Board considered, among other things, input from management, and our Board’s assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors included, but were not limited to:

our results of operations and financial position, including our levels of available capital resources;

our stage of development and material risks related to our business;

progress of our research and development activities;

our business conditions and projections;

the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

the lack of marketability of our Common Stock as a private company;

the prices at which we sold shares of our Common Stock to outside investors in arms-length transactions;

the likelihood of achieving a liquidity event for our security holders, such as an IPO or a sale of our company, given prevailing market conditions;

trends and developments in our industry; and

external market conditions affecting the life sciences and biotechnology industry sectors.

Following the closing of our IPO, our Board determined the fair market value of our Common Stock based on the closing price of our Common Stock as reported on the date of grant.

Plan of Operations

Our plan of operations is currently focused on the development of both our therapeutic candidates which are at different stages of development. We submitted an Investigational New Drug (“IND”) application for AL001 to the FDA on June 30, 2021. On July 28, 2021, we announced receipt of FDA “Study May Proceed” letter for a Phase I study under our IND application for AL001, a lithium-based ionic cocrystal oral therapy for patients with dementia related to mild, moderate, and severe cognitive impairment associated with Alzheimer’s.

On August 17, 2021, we announced that we have contracted Altasciences to conduct a six-month Phase I relative bioavailability study for AL001 for dementia related to Alzheimer’s beginning in September 2021. The Phase I first-in-human study is for the purpose of determining potential clinically safe and appropriate dosing for AL001 in future studies. The Phase I study will investigate the pharmacokinetics (the movement of drug through the body) of lithium following a single dose of AL001 (the “study drug”) compared to a typical single dose of a marketed 300 mg immediate-release lithium carbonate capsule (the “comparator” – currently indicated to treat mood disorders) in healthy male and female subjects. The lithium and salicylate components of AL001 will be given within the amounts already approved for use in patients. The purpose of the research study is to test the safety, tolerability, and bioavailability (how much and when drug gets in the body) of the study drug, AL001, compared to the currently marketed formulation of the comparator, lithium carbonate. This is expected to ascertain what AL001 doses should be given, and how often, in subsequent Phase 2 safety and efficacy trials involving Alzheimer’s patients. At least 24 healthy male and female human subjects will complete the Phase I trial.

On September 13, 2021, we announced that the first group of healthy participants have been dosed in a six-month Phase I relative bioavailability study for AL001 for dementia related to Alzheimer’s. A full report of the Phase I first-in-human study will be completed in March 2022. The Phase 1 study is for the purpose of determining potential clinically safe and appropriate dosing for AL001 in a planned Phase 2 multiple ascending dose study. AL001 is a lithium-delivering ionic cocrystal under development as an oral treatment for patients with dementia related to mild, moderate, and severe cognitive impairment associated with Alzheimer’s.

We have an additional preclinical candidate for Alzheimer’s, AL002, which has transitioned from early-stage development to an extensive program of preclinical study and evaluation, which was completed on May 31, 2021 and was followed by a comprehensive report prepared by Charles River Laboratories, Inc., an independent preclinical service provider, received on July 23, 2021. Our preclinical program included a toxicologic evaluation, histopathology study and brain beta amyloid analysis and, after we received additional financing in March 2021, was expanded to include an immunoglobulin analysis and biodistribution study.

On July 30, 2021, we announced that we submitted a pre-IND meeting request for AL002 and supporting briefing documents to the Center for Biological Evaluation and Research of the FDA. On September 30, 2021, we announced that we have received a written response to our meeting request relating to our Type B Pre- IND application from the FDA providing a path for our planned clinical development of AL002. AL002 is a patented method using a mutant-peptide sensitized cell as a cell-based therapeutic vaccine that seeks to restore the ability of a patient’s immunological system to combat Alzheimer’s. Preclinical work supports AL002 being associated with a positive anti-inflammatory response and a decrease in brain amyloid contents. Based on AL002’s positive toxicology results, the biologic nature of this product and the urgent need to deliver treatments for Alzheimer’s to patients, we proposed, and the FDA agreed, to conduct a combined Phase 1/2 study.

We recently announced that the FDA’s agreement to us conducting a combined Phase 1/2 study, together with our process to identify the right manufacturing partner to provide our study drug materials for the Phase 1/2 study, has extended the timeline for when we anticipate filing the IND, which is now expected to be done in the second quarter of 2022, and we plan to initiate the clinical trial of AL002 as soon as possible after the approval of the IND by the FDA.

On December 17, 2021, we announced that we received positive topline data from our Phase I clinical trial for AL001. At this time, we will receive a summary of demographic data, the data for the primary endpoint and a summary of safety data. The purpose of the Phase I first-in-human study was to determine the pharmacokinetics, safety and tolerability of AL001 so as to target doses for a planned Phase II multiple ascending dose study in Alzheimer’s patients. AL001 is a lithium-delivery system; it is a lithium-salicylate-L-proline engineered ionic co-crystal under development as an oral treatment for patients with dementia related to mild, moderate and severe cognitive impairment associated with Alzheimer’s disease.

During Phase I first-in-human trial, participants received a single dose of AL001 containing lithium in an amount equivalent to 150mg lithium carbonate; this is the dose proposed by the inventors as likely appropriate for Alzheimer’s treatment when given three times daily. Currently, marketed immediate-release lithium carbonate 300mg are given three times daily; for example, lithium carbonate 300mg three times daily is a dose commonly used for bipolar affective disorders. It can be difficult to set the appropriate dose of lithium carbonate and other lithium products due to the small margin between effective and toxic blood levels and to avoid side effects or inadequate treatment outcomes. We see the possibility of providing the benefits from lithium at up to 50% of the currently approved lithium carbonate dosage, with the potential for better outcomes and with elimination of the need for lithium therapeutic drug monitoring. Moreover, the data confirms AL001’s potential as a replacement of the current lithium-based treatments and may provide a treatment for over 40 million Americans suffering from Alzheimer’s and other neurodegenerative diseases and psychiatric disorders.

Such findings may allow us to reduce or eliminate the need for Phase II or Phase III studies of efficacy and/or safety of AL001 in such indications as bipolar/affective disorders in which lithium efficacy has been established. Bioequivalence may have utility for AL001 when seeking approval for the indications of currently marketed lithium products, and for new indications as a benchmark for safety. Given the systemic pharmacokinetic similarity to marketed immediate-release lithium carbonate products, AL001 may be dosed three times daily in the planned Phase II study, a multiple ascending dose safety study in Alzheimer’s patients. In addition, we will pursue investigational new drug applications with the FDA for bipolar disorder, depression, and post-traumatic stress disorder indication.

The continuation of our current plan of operations with respect to completing our IND application and beginning the series of human clinical trials for each of our therapeutics requires us to raise additional capital to fund our operations.

Because our working capital requirements depend upon numerous factors, including the progress of our preclinical and clinical testing, timing and cost of obtaining regulatory approvals, changes in levels of resources that we devote to the development of manufacturing and marketing capabilities, competitive and technological advances, status of competitors, and our ability to establish collaborative arrangements with other organizations, we will require additional financing to fund future operations.

Results of Operations

Results of Operations for the Three Months Ended January 31, 2022 and 2021

The following table summarizes the results of our operations for the three months ended January 31, 2022 and 2021.

	For the Three Months Ended January 31,
	2022			2021			$ Change			% Change
OPERATING EXPENSES
Research and development	$	873,653		$	234,262		$	639,391			273	%
General and administrative		1,682,913			881,397			801,516			91	%
Total operating expenses		2,556,566			1,115,659			1,440,907			*
Loss from operations		(2,556,566	)		(1,115,659	)		(1,440,907	)		129	%

OTHER EXPENSE, NET
Interest expense		(16,299	)		(57,366	)		41,067			*
Interest expense - related party		-			(8,277	)		8,277			*
Gain on extinguishment of debt		-			62,418			(62,418	)		*
Total other expense, net		(16,299	)		(3,225	)		(13,074	)		*

NET LOSS	$	(2,572,865	)	$	(1,118,884	)	$	(1,453,981	)		130	%

Basic and diluted net loss per common share	$	(0.03	)	$	(0.02	)	$	(0.01	)		*

Basic and diluted weighted average common shares outstanding		94,165,225			72,262,858						*
* Not meaningful

Revenue

We were formed on February 26, 2016 to acquire and commercialize patented intellectual property and know-how to prevent, treat and cure the crippling and deadly disease, Alzheimer’s. We currently have only two product candidates, AL001 and AL002. These products are in the preclinical stage of development and will require extensive clinical study, review and evaluation, regulatory review and approval, significant marketing efforts and substantial investment before either or both of them, and any respective successors, will provide us with any revenue. We did not generate any revenues during the three months ended January 31, 2022 and 2021, and we do not anticipate that we will generate revenue for the foreseeable future.

General and Administrative Expenses

General and administrative expenses for the three months ended January 31, 2022 and 2021 were $1.7 million and $881,000, respectively. As reflected in the table below, general and administrative expenses primarily consisted of the following expense categories: stock compensation expense; professional fees; insurance; as well as salaries and benefits. For the three months ended January 31, 2022 and 2021, the remaining general and administrative expenses of $94,000 and $12,000, respectively, primarily consisted of payments for filing fees, transfer agent fees, license fees, travel, and other office expenses, none of which is significant individually.

	For the Three Months Ended January 31,
	2022		2021		$ Change			% Change
Stock compensation expense	$	1,024,693	$	553,314	$	471,379			85	%
Professional fees		145,780		202,970		(57,190	)		-28	%
Insurance		214,299		-		214,299			*
Salary and benefits		203,954		112,712		91,242			81	%
Other general and administrative expenses		94,187		12,401		81,786			660	%
Total general and administrative expenses	$	1,682,913	$	881,397	$	801,516			91	%

*Not meaningful

Stock Compensation Expense

During the three months ended January 31, 2022 and 2021, we incurred general and administrative stock compensation expense of $1.0 million and $553,000, respectively, related to stock option grants to executives, employees and consultants as well as shares issued for services to Spartan Capital. All option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black Scholes option pricing model. We valued the shares issued for services at their intrinsic value on the date of issuance. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares instead of settling such obligations with cash payments.

Insurance Expense

The second largest component of general and administrative expenses is insurance expense. During the three months ended January 31, 2022, we incurred insurance expense of $214,000, which was primarily directors and officers insurance that was required as part of the IPO process.

Professional Fees

During the three months ended January 31, 2022 and 2021, we reported professional fees of $146,000 and $203,000, respectively, which were principally comprised of the following items:

Three Months Ended January 31, 2022

In June 2017, we entered into a five-year consulting agreement with Spartan Capital pursuant to which Spartan Capital agreed to provide consulting services with respect to general corporate matters. In December 2017, we paid to Spartan Capital a consulting fee of $1.4 million for the services to be rendered over the 60-month term of this consulting agreement. During the three months ended January 31, 2022, we recorded an expense of $70,000 as a result of this consulting agreement.

During the three months ended January 31, 2022, we incurred $32,000 in management fees, $20,000 in audit fees, and $24,000 in related party consulting.

Three Months Ended January 31, 2021

During the three months ended January 31, 2021, we recorded an expense of $70,000 in connection with the five-year consulting agreement with Spartan Capital.

In June 2019, we entered into a two-year uplisting agreement (the “Uplisting Agreement”) with Spartan Capital pursuant to which Spartan Capital agreed to provide consulting services with respect to a potential public offering. Compensation under this agreement consisted of a cash payment in the amount of $475,000 and the issuance of 500,000 shares of Common Stock. We are amortizing the cost of these services over the two-year term of the Uplisting Agreement. During the three months ended January 31, 2021, we recorded an expense of $59,000 in connection with the Uplisting Agreement. The Uplisting Agreement was terminated on March 3, 2021.

During the three months ended January 31, 2021, we also incurred $33,000 in audit fees.

Salaries and Benefits

During the three months ended January 31, 2022 and 2021, we incurred $204,000 and $113,000, respectively, in employee-related expenses. As of January 31, 2022, we had three full-time and four part-time employees. We appointed Stephan Jackman, who is a full-time employee, as Chief Executive Officer as of November 30, 2018, and Lien Escalona as Chief Financial Officer in June 2021.

Henry C.W. Nisser, our Executive Vice President and General Counsel, Kenneth S. Cragun, our Senior Vice President of Finance, and David Katzoff, our Chief Operating Officer, work for us on a part-time basis. Messrs. Nisser and Katzoff spend no less than an average of 8 hours per week on our company’s business and Mr. Cragun spends no less than an average of 10 hours per week on our company’s business.

Research and Development Expenses

SEC Form 10-Q filed by Alzamend Neuro Inc.