ODYY Odyssey Group International Inc (QB)

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the expectations underlying our forward-looking statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to risks and uncertainties. Therefore, you should not place undue reliance on our forward-looking statements.

Many possible events or factors could affect our future financial results and performance and could cause actual results or performance to differ materially from those expressed, including those risks and uncertainties described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended July 31, 2020 (“2020 Annual Report”) and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). We believe these risks and uncertainties could cause actual results or events to differ materially from the forward-looking statements that we make. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance or financial condition may vary materially and adversely from those anticipated, estimated or expected. Our forward-looking statements do not reflect the potential impact of future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We do not assume any obligation to update any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise, except as required by law. In the light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Overview

Our business model is to develop or acquire medical related products, engage third parties to manufacture such products and then distribute the products through various distribution channels, including third parties. We have made significant investments in three different life saving technologies: the CardioMap® heart monitoring and screening device; the Save a Life choking rescue device; and a unique neurosteroid drug compound intended to treat rare brain disorders.

We intend to acquire other technologies and assets and plan to be a trans-disciplinary product development company involved in the discovery, development and commercialization of products and technologies that may be applied over various medical markets. We intend to license, improve and develop our products and identify and select distribution channels. We intend to establish agreements with distributors to get products to market quickly, as well as to undertake and engage in our own direct marketing efforts. We will determine the most effective method of distribution for each unique product that we include in our portfolio. We intend to engage third-party research and development firms who specialize in the creation of our products to assist us in the development of our own products We intend to apply for trademarks and patents once we have developed proprietary products.

We are not currently selling or marketing any products. Our products are in late-stage development and Food and Drug Administration ("FDA") clearance or approval to market our products will be required in order to sell them in the United States.

Recent Funding

In August 2020, we entered into two funding arrangements.

One with Labrys Fund, LP, which provided us with $315,000 of cash in exchange for a $350,000 promissory note and 420,000 shares of our common stock. See Note 4. of Notes to Financial Statements for additional information.

The second arrangement was with Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to which Lincoln Park agreed to purchase up to $10,250,000 worth of our common stock over a 36-month period in exchange for 793,802 shares of our common stock with a value of $369,118. Lincoln Park made an initial purchase of 602,422 shares of our common stock for $250,000. See Note 7. of Notes to Financial Statements for additional information.

On December 4, 2020, our registration statement on Form S-1 that was filed on November 23, 2020, was declared effective by the Securities and Exchange Commission. The final prospectus was filed on December 8, 2020. The registration statement contains one prospectus which is incorporated by reference into this filing and is available in electronic form through the Securities and Exchange Commission EDGAR system. We have not sold any shares under the prospectus.

We intend to use the proceeds from both the Labrys and Lincoln Park agreements for general corporate purposes, including for working capital, capital expenditures and for funding additional preclinical development and potentially future clinical development of our pipeline candidates.

Going Concern

Substantial doubt exists as to our ability to continue as a going concern based on the facts that we may not have adequate working capital to finance our day-to-day operations and we do not have any sources of revenue. We had an accumulated deficit of $29,562,242 as of October 31, 2020 and cash of $292,756. Management’s plans include engaging in further research and development and raising additional capital in the short term to fund such activities through sales of its common stock. Our continued existence depends on the success of our efforts to raise additional capital necessary to meet our obligations as they come due and to obtain sufficient capital to execute our business plan.

We may obtain capital primarily through issuances of debt or equity or entering into collaborative arrangements with corporate partners. There can be no assurance that we will be successful in completing additional financing or collaboration transactions or, if financing is available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may be required to further scale down or cease the operation of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.

For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as our management executes our current business plan. The cash of $292,756 available at October 31, 2020, may not provide enough working capital to meet our current operating expenses through December 10, 2021.

If we are unable to raise additional capital by December 10, 2021, we will adjust our current business plan. Due to the unknown and volatile nature of the stock price and trading volume of our common stock, is it is difficult to predict the timing and amount of availability pursuant to our equity line of credit with LPC (see Note 7. of Notes to Financial Statements). Given our recurring losses, negative cash flow, accumulated deficit, and the impact of COVID-19, there is substantial doubt about our ability to continue as a going concern.

Impact of COVID-19

The COVID-19 global pandemic has had an unfavorable impact on our business operations. Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus are disrupting the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. and global economies and financial markets, which may result in a long-term economic downturn that could negatively affect future performance and our ability to secure additional debt or equity funding. 

Significant Accounting Policies and Use of Estimates

During the three months ended October 31, 2020, there were no significant changes to our significant accounting policies and estimates are described in Note 2. Summary of Significant Accounting Policies included in Part II, Item 8. of our Annual Report on Form 10-K for the year ended July 31, 2020, which was filed with the Securities and Exchange Commission on November 16, 2020.

Results of Operations

We do not currently sell or market any products and we did not have any revenue in the three-month periods ended October 31, 2020 or 2019. We will commence actively marketing products after the products and drugs in development have been FDA cleared or approved, but there can be no assurance, however, that we will be successful in obtaining FDA clearance or approval for our products.

General and Administrative Expense

Our General and administrative expense includes salaries and related benefits for employees in finance, accounting, sales, administrative and research and development activities, as well as stock-based compensation, costs related to maintaining compliance as a public company and legal and professional fees. 

The decrease in General and administrative expense was due to a $918,032 decrease in board and stock expense due to the vesting of restricted stock units in the 2019 period and a $10,000 decrease research and development expense, offset by a $240,000 increase in financing expense and a $93,061 increase in legal and professional fees related to our agreements with Labrys and Lincoln Park, and a $20,393 increase in payroll expense.

The increase in interest expense for the three-month period ended October 31, 2020 compared to the same period of 2019 was due to the increased average debt outstanding and higher average interest rates due to the issuance of debt to Labrys in August 2020 as discussed above, as well as an $82,846 increase in amortization of debt discount and closing costs and an $18,204 increase in amortization of beneficial conversion feature, offset in part by the conversion of a $100,000 note payable also in August 2020.

Net Loss

Net loss decreased in the three-month period ended October 31, 2020 compared to the same period of 2019 due to the decrease in General and administrative expense, partially offset by the increase in Interest expense as discussed above.

To date, we have financed our operations primarily through debt financing and limited sales of our common stock. Our ability to continue to access capital could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If these conditions continue and we cannot raise funds through a public or private debt financing, or an equity offering, our ability to grow our business may be negatively affected. In such case, we may need to suspend the creation of new products until market conditions improve.

Convertible Notes

At October 31, 2020, we had 10 convertible notes outstanding with a total principal balance of $345,000, unamortized debt discount of $145,437 and accrued interest of $13,969. The notes bear interest at 7.0% annually and the entire outstanding principal, together with accrued interest are due between February 19, 2021 and May 8, 2021, unless converted before such date. At the option of the holder, the principal amount of the notes and any accrued interest may be converted into shares of our common stock at a conversion price of $1.00 per share, or at a 10% discount to the closing price on the day of conversion, but not lower than $0.80 per share. At maturity, we have the right to either pay off the notes and any accrued interest or convert the notes and any accrued interest into shares of our common stock.

Conversion of Convertible Note Payable

On August 14, 2020, we provided notice to a noteholder that we elected to convert their Convertible Promissory Note at the conversion price of $0.50 per share as determined in accordance with the terms of the related agreement. Accordingly, the number of shares of our common stock was determined by dividing (i) the sum of the outstanding principal and accrued interest on the Note of $100,000 and $7,000, respectively, by (ii) the conversion price of $0.50 per share, resulting in the issuance of 214,000 shares of our common stock.

Labrys Note Payable

On August 14, 2020, we entered into a Securities Purchase Agreement (the “Labrys SPA”) with Labrys Fund, LP (“Labrys”), pursuant to which Labrys purchased a $350,000 (the “Principal Amount”) Self-Amortization Promissory Note (the “Note”) for $315,000 in cash with an original issuance discount of approximately 10%. In consideration for entering into the Labrys SPA, we issued 420,000 shares (the “Commitment Shares”) of our common stock. 350,000 of the Commitment Shares (the “Second Commitment Shares”) will be returned to us if the Note is fully repaid and satisfied on or prior to August 14, 2021 (the “Maturity Date”). The Note bears interest at 12% per year.

Upon the occurrence of any “Event of Default” as defined in the Note, the Note is convertible into shares of our common stock at a price per share equal to the closing bid price of the common stock on the trading day immediately preceding the date of conversion (the “Conversion Price”); provided, however, that Labrys may not convert any portion of the Note which would cause Labrys, collectively with its affiliates, to hold more than 4.99% of our issued and outstanding common stock, unless such limit is waived. Labrys may not execute any short sales on any of our common stock at any time while the Note is outstanding.

The Note requires that we reserve from our authorized and unissued common stock a number of shares equal to the greater of: (a) 1,140,000 shares or (b) the sum of (i) the number of shares of common stock issuable upon conversion of or otherwise pursuant to the Note and such additional shares of common stock, if any, as are issuable on account of interest on the Note pursuant to the Labrys SPA issuable upon the full conversion of the Note (assuming no payment of the principal amount or interest) as of any issue date multiplied by (ii) one and a half. We are subject to penalties for failure to timely deliver shares to Labrys following a conversion request.

The Labrys SPA and the Note contain covenants and restrictions common with this type of debt transaction. Furthermore, we are subject to certain negative covenants under the Labrys SPA and the Note, which we believe are customary for transactions of this type. At October 31, 2020, we were in compliance with all covenants and restrictions.

In connection with the Labrys transaction, we engaged Alliance Group Partners, LLP (“A.G.P.”) as a placement agent. In exchange for their services, we paid A.G.P. $25,200 in cash and we also paid $6,500 in cash for Labrys’ legal fees in connection with the transaction.

PPP Note

On May 8, 2020, we received loan proceeds in the amount of $50,000 under the Paycheck Protection Program (“PPP”).  The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The unforgiven portion of the PPP loan, if any, is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.  We used the proceeds for purposes consistent with the PPP and anticipate that this PPP Note will be forgiven.

Stock Sale to Lincoln Park

On August 14, 2020, we entered into a Purchase Agreement (the “LPC Purchase Agreement”) and a Registration Rights Agreement (the “RRA”) with Lincoln Park Capital Fund, LLC (“LPC”). Upon the satisfaction of the conditions to our right to commence sales under the LPC Purchase Agreement, including the registration of shares of Common Stock issuable under the LPC Purchase Agreement in accordance with the RRA (the “Commencement”) and the date of satisfaction of such conditions the “Commencement Date”), we have the right, in our sole discretion, to sell to LPC up to $10,250,000 in shares of our common stock, from time to time over a 36-month period. In consideration for entering into the LPC Purchase Agreement, we issued 793,802 shares to LPC.

On December 4, 2020, our registration statement on Form S-1 that was filed on November 23, 2020, was declared effective by the Securities and Exchange Commission. The final prospectus was filed on December 8, 2020. The registration statement contains one prospectus which is incorporated by reference into this filing and is available in electronic form through the Securities and Exchange Commission EDGAR system. We have not sold any shares under the prospectus.

Upon entering into the LPC Purchase Agreement and RRA, we sold 602,422 shares of our common stock to LPC in an initial purchase for a total purchase price of $250,000. Thereafter, and subject to the conditions of the LPC Purchase Agreement and RRA, on any business day and subject to certain customary conditions, we may direct LPC to purchase to up to 200,000 shares of our common stock (such purchases, “Regular Purchases”). The amount of a Regular Purchase may increase up to 100,000 shares of common stock under certain circumstances based on the market price of the common stock. There are no limits on the price per share that LPC may pay to purchase common stock under the LPC Purchase Agreement, provided that LPC’s committed obligation under any Regular Purchase shall not exceed $50,000 unless the median aggregate dollar value of the volume of shares of common stock during the 20 consecutive trading day period ending on the date of the applicable Regular Purchase equals or exceeds $100,000, in which case LPC’s committed obligation under such single Regular Purchase shall not exceed $500,000.

In addition, if we have directed LPC to purchase the full amount of common stock available as a Regular Purchase on a given day, we may direct LPC to purchase additional amounts as “accelerated purchases” and “additional accelerated purchases” as set forth in the LPC Purchase Agreement. The purchase price of shares of our common stock will be based on the then prevailing market prices of such shares at the time of sale. The LPC Purchase Agreement limits our sale of shares of our common stock to LPC, and LPC’s purchase or acquisition of our common stock, to an amount of common stock that, when aggregated with all other shares of our common stock then beneficially owned by LPC would result in LPC having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of our common stock.

The LPC Purchase Agreement contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions. LPC has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s common stock. The LPC Purchase Agreement does not limit the Company’s ability to raise capital from other sources at its sole discretion; provided, however, that we shall not enter into any “Variable Rate Transaction” as defined in the LPC Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities, but excluding any “At-the-Market” offering with a registered broker-dealer, until the later of (i) the 36-month anniversary of the date of the LPC Purchase Agreement, and (ii) the 36-month anniversary of the Commencement Date (if the Commencement has occurred), in either case irrespective of any earlier termination of the LPC Purchase Agreement. The LPC Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.

In connection with the LPC transaction, we engaged A.G.P. as a placement agent to help raise capital. A.G.P. introduced us to LPC, for which we agreed to pay A.G.P. a fee of 8% of the amount of the funds received from LPC, which totaled $20,000 in the quarter ended October 31, 2020. A.G.P. will also receive a fee totaling 8% of any additional funds raised pursuant to the LPC Purchase Agreement.

In addition, and in consideration for the services provided related to both Labrys and LPC, we granted warrants that were immediately exercisable for a total of 550,000 shares of our common stock at $0.50 per share to A.G.P. and two partners of A.G.P. The warrants had a value of $220,000 and expire August 6, 2024. Of the $220,000, $91,667 was netted against the LPC equity transaction and $128,333 was recorded as debt closing costs related to the Labrys transaction and is being amortized over the one-year life of the note.

Inflation

Inflation did not have a material impact on our business and results of operations during the periods being reported on.

Off Balance Sheet Arrangements

We do not have any material off balance sheet arrangements.