Alzamend Neuro, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2021, with fiscal 2020 comparatives. Although the request metadata says “2020 Q4,” this filing is an annual report for the year ended April 30, 2021. The financial statements were audited by Baker Tilly US, LLP, which gave an unqualified opinion; the auditor did not opine on internal control effectiveness.
Business context
Alzamend is a preclinical-stage biopharmaceutical company developing two licensed Alzheimer’s candidates: AL001 (LiProSal), a lithium, proline and salicylate ionic cocrystal, and AL002, an autologous dendritic-cell vaccine approach. The company had no approved products or product revenue. Its reported preclinical findings are not evidence of clinical safety or efficacy.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.31 million | $1.07 million |
| General and administrative expense | $3.64 million | $3.35 million |
| Total operating expenses / operating loss | $4.95 million | $4.42 million |
| Net loss | $5.05 million | $4.41 million |
| Basic and diluted loss per share | $0.07 | $0.06 |
| Net cash used in operating activities | $2.71 million | $2.35 million |
- Gross margin and operating margin are not meaningful because the company had no revenue.
- Cash at April 30, 2021 was $1.93 million, versus $90,285 a year earlier. Current assets were $2.91 million and current liabilities were $900,000, including $335,000 of convertible notes, net. Stockholders’ equity was $2.01 million.
- Accumulated deficit was $16.83 million. The company reported no cash equivalents at year-end. Cash-flow funding included $4.45 million from financing activities; operating cash use increased year over year.
- FY2021 expenses included $2.37 million of stock-based compensation, a noncash item. Other income and expense included a $62,000 PPP loan-forgiveness gain and approximately $159,000 of interest expense.
Changes versus prior year and subsequent financing
- Net loss increased by approximately $636,000, or 14%, from FY2020; operating expenses increased by approximately $528,000. R&D expense rose about $241,000, primarily from scientific and AL001 chemistry, manufacturing and controls services. G&A rose about $286,000, with higher stock compensation partly offset by lower professional fees.
- Cash increased from $90,000 to $1.93 million, supported by financing and related-party transactions. The company had $1.8 million of short-term advances from Ault Global converted into shares under the March 2021 Digital Power Lending transaction.
- After year-end, the June 2021 IPO sold 2.875 million shares at $5.00 each, generating approximately $14.4 million gross and $13.3 million net proceeds. Management said year-end cash plus IPO proceeds were expected to fund anticipated needs for the 12 months following issuance of the financial statements, while also stating that further capital will be needed to fund development.
- A separate Digital Power Lending agreement provided for up to $6 million in additional share purchases contingent on FDA and clinical milestones, plus a potential further $10 million investment right. The filing reports FDA authorization to proceed with AL001 Phase I on July 28, 2021, after the fiscal year-end; it expected completion of the initial Phase Ia trial in Q4 2021.
Outlook, risks and unusual items
- AL001’s IND was submitted June 30, 2021; the FDA’s July 28 response permitted Phase I clinical trials to proceed. AL002 remained preclinical. The filing reports completion of its preclinical program in May 2021 and positive GLP toxicology results announced in July 2021. Neither candidate had received breakthrough therapy designation; the proposed 505(b)(2) pathway for AL001 was not assured.
- Management expects continued losses and no foreseeable product revenue. Development, clinical trials, regulatory review and commercialization require substantial funding. The company’s ability to continue planned operations depends on capital availability and progress of its candidates.
- COVID-19 delayed AL001 manufacturing and development activities and AL002 nonclinical studies in 2020. The company said operations had returned toward pre-pandemic levels but uncertainty remained.
- University of South Florida licenses impose royalties and milestone payments; failure to meet obligations could result in loss of important license rights. Future milestones include significant payments, including $10 million upon specified approval events under certain agreements.
- The company disclosed a November 2019 SEC subpoena in an investigation concerning DPW Holdings/Ault Global; the investigation’s scope, outcome and potential impact were unknown. It also disclosed a June 2021 New York lawsuit alleging unjust enrichment and fraudulent conveyance connected to an Avalanche loan; Alzamend said it received $385,000 of the loan proceeds and intended to defend the claims.
- Management identified material weaknesses in financial reporting controls, including inadequate accounting staffing and segregation of duties, insufficient review procedures, and IT access-control deficiencies. Remediation was underway. The company stated its disclosure controls were effective at a reasonable-assurance level.
- Related-party, governance and dilution risks are notable: insiders and affiliates beneficially owned approximately 45.76% of shares after the IPO-related transactions; the company also disclosed a $14.88 million related-party note receivable for stock that remained outstanding at year-end. The filing reports no dividends planned.
Investor facts to verify
- Current cash runway and subsequent cash use, including whether the IPO proceeds and contingent Digital Power Lending tranches support the clinical plan.
- Actual Phase I start, enrollment, safety findings and timing for AL001, and the regulatory plan and funding needs for AL002.
- Whether the company remediates the disclosed control weaknesses and strengthens accounting and IT controls.
- Status and potential financial or governance consequences of the SEC inquiry and Dominion Capital litigation.
- Terms, remaining balance, collectability and repayment schedule of the $14.88 million related-party note receivable, and the extent of future dilution from shares, warrants and options.
- License milestone obligations, royalty terms and the consequences of missing deadlines or losing exclusivity.