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 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

Stock Subscriptions

In February 2021, we sold a total of 952,171 shares to 11 accredited investors for total proceeds of $689,500.

In March 2021, we sold 525,000 Units at $1.00 per unit. Each Unit consisted of one share of our common stock and a right to purchase one share of our common stock $2.00. This right expires one year from the date of closing.

LGH

On December 11, 2020, we entered into a Securities Purchase Agreement with LGH Investments, LLC, pursuant to which we entered into a $165,000 face value convertible promissory note which bears interest at a one-time rate of 8.0% applied to the face value and is due September 11, 2021. We received $142,500 net cash from the issuance of the Note and incurred a $15,000 original issue discount and $7,500 of closing costs, which are being amortized over the life of the note.

On March 5, 2021, LGH notified us of their intent to convert their $165,000 convertible promissory note plus $13,200 of interest. We negotiated with them to convert $89,100 of the total into 594,000 shares of our common stock and paid the remaining $89,100 in cash.

See Note 5 of Notes to Financial Statements for additional information.

Labrys and Lincoln Park

In August 2020, we entered into two funding arrangements as follows:

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 5 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, two additional purchases in January 2021 for a total of 200,000 shares for $35,080 and additional purchases through March 10, 2021 totaling 1,173,124 shares for total proceeds of $1,018,448. See Note 8 of Notes to Financial Statements for additional information.

On December 4, 2020, our registration statement on Form S-1 for the registration of shares to be sold to Lincoln Park was declared effective by the Securities and Exchange Commission.

We intend to use the proceeds from all of the 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.

Asset Purchase Agreement

On January 7, 2021, we entered into an Asset Purchase Agreement (“APA”) with Prevacus, Inc. (“Prevacus”) pursuant to which we will purchase the assets and all of the rights, interests and intellectual property in a certain drug program (PRV-002) for treating mild brain trauma (concussion) and delivery device (the “Asset”) in exchange for (i) 7,000,000 shares of our common stock plus (ii) the Milestone Consideration, if any.

On March 1, 2021, our APA with Prevacus closed and we issued 6,000,000 shares of our common stock with a value of $7,080,000. We withheld 1,000,000 shares of our common stock in exchange for our payment of certain liabilities of Prevacus.

See Note 3 of Notes to Financial Statements for additional information

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 $30,431,542 as of January 31, 2021 and cash of $63,072. 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 $63,072 available at January 31, 2021 may not provide enough working capital to meet our current operating expenses through March 10, 2022.

If we are unable to raise additional capital by March 10, 2022, 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 8 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 six months ended January 31, 2021, 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 or six month periods ended January 31, 2021 or 2020. 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 increase in General and administrative expense in the three months ended January 31, 2021 as compared to the same period of 2020 was due to a $70,147 decrease in board and stock expense due to the vesting of restricted stock units in the 2020 period and a $77,477 decrease in consulting fees, offset by $42,619 increase research and development expense, a $115,297 increase in legal and professional fees, a $52,565 increase in business development and investor relations, a $25,674 increase in insurance expense and a $46,806 increase in financing.

The decrease in General and administrative expense in the six months ended January 31, 2021 as compared to the same period of 2020 was due to a $988,178 decrease in board and stock expense due to the vesting of restricted stock units in the 2020 period and a $158,192 decrease in consulting fees, offset by a $275,504 increase in legal and professional fees, a $32,619 increase in research and development expense, a $58,950 increase in business development and investor relations, $18,257 in payroll costs, a $29,841 increase in insurance expense and a $66,806 increase in financing costs.

The increases in interest expense for the three and six months ended January 31, 2021 compared to the same periods of 2020 were due to the increased average debt outstanding and higher average interest rates due to the issuance of debt to Labrys in August 2020 and to LGH in December 2020 as discussed above, as well as a $149,594 and a $250,464 increase, respectively, in amortization of debt discount, beneficial conversion feature and closing costs, offset in part by the conversion of a $100,000 note payable in August 2020.

Net Loss

Net loss increased in the three months ended January 31, 2021 compared to the same period of the prior year due to increased General and administrative expense and interest expense as discussed above. The decrease in the six months ended January 31, 2021 compared to the same period of 2020 was 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 January 31, 2021, we had 10 convertible notes outstanding with a total principal balance of $345,000, unamortized debt discount of $58,546 and accrued interest of $20,056. 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.

LGH Convertible Note Payable

On December 11, 2020, we entered into a Securities Purchase Agreement (the “SPA”) with LGH Investments, LLC (“LGH”), pursuant to which we entered into a $165,000 face value convertible promissory note which bears interest at a one-time rate of 8.0% applied to the face value and is due September 11, 2021 (the “Note”). We received $142,500 net cash from the issuance of the Note and incurred a $15,000 original issue discount and $7,500 closing costs, which are being amortized over the life of the Note.

The Note is convertible at a price of $0.15 per share, subject to adjustment as provided in the Note. If an Event of Default occurs as defined in the Note, the conversion price will be the lesser of (i) $0.15 per share; or (ii) 70% of the lowest traded price in the prior twenty trading days immediately preceding the Notice of Conversion.

The SPA included the issuance of (i) a five-year share purchase warrant exercisable for 470,000 shares of our common stock at a price of $0.35 per share (the “Warrant”); and (ii) 200,000 shares of our common stock (the “Inducement Shares”).

The value of the 470,000 warrants was $82,720 and the value of the 200,000 shares of common stock was $40,000 for a total value of $112,720, which is being amortized over the life of the Note as closing costs. Additionally, 100,000 shares valued at $44,000 was expensed as financing costs when incurred.

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.

See Note 5. of Notes to Financial Statements for additional information.

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. On February 11, 2021, we received notice that the PPP Note was forgiven.

Stock Sales 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”). Pursuant to the LPC Purchase Agreement, 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.

Upon entering into the LPC Purchase Agreement, we sold 602,422 shares of our common stock to LPC in an initial purchase for a total purchase price of $250,000. In January 2021, we sold an additional 200,000 shares of our common stock to LPC for total proceeds $35,080.

From February 1, 2021 through March 10, 2021, LPC purchased an additional 1,173,124 shares of our common stock for a total price of $1,018,448 and, as of March 10, 2021, there was $8,946,472 remaining purchase availability.

See Note 8 and 11 of Notes to Financial Statements for additional information.

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.