Odyssey Health, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, 2021 (“2021 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 unique medical related products, engage third parties to manufacture such products and then distribute the products through various distribution channels, including third parties. We are developing potentially life-saving technologies: the CardioMap® heart monitoring and screening device; the Save A Life choking rescue device, a unique neurosteroid drug compound intended to treat concussions and a unique drug compound to treat rare brain disorders in partnership with Prevacus, Inc. To date, none of our product candidates has received regulatory clearance or approval for commercial sale. We plan 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 will 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, and we will apply for trademarks and patents once we have developed proprietary products. Recent Funding Donation In January 2022, we received a donation in the amount of $500,000 in partnership with the Erase PTSD Now organization and the Glenn Greenberg and Linda Vester Foundation. These funds were recorded as Other income in our Statements of Operations and will be used to progress the Phase 1 human clinical trials for drug candidate PRV-002 for the treatment of concussion 16 Promissory Notes On December 21, 2021 and December 22, 2021, we entered into a total of five Promissory Notes (the “Notes”) with three of our directors and two officers. Mr. Joseph Michael Redmond, President and Chief Executive Officer, Ms. Christine M. Farrell, Chief Financial Officer, Mr. Jerome H. Casey, Director, Mr. John P. Gandolfo, Director, and Mr. Ricky W. Richardson, Director, each loaned us $25,000 for total proceeds of $125,000. The Notes bear interest at 8% per annum and are due March 31, 2022. LPC Securities Purchase Agreement On October 22, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to which we received $250,000 in cash from LPC and LPC received (i) 1,500,000 restricted shares of our common stock, and (ii) 833,333 warrants exercisable at $0.50 per common share expiring in five years. LPC Purchase Agreement Draws During the six months ended January 31, 2022, LPC purchased a total of 974,482 shares of our common stock for total proceeds of $367,035 pursuant to the August 14, 2020 LPC Purchase Agreement. As of January 31, 2022, LPC had purchased a total of 3,127,808 shares of our common stock pursuant to the agreement and remaining purchase availability was $8,411,489 and remaining shares available were 16,143,556. Tysadco Partners On August 29, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with Tysadco Partners (“Tysadco”) pursuant to which we entered into a $250,000 face value convertible promissory note which bears interest at a one-time rate of 8.0% applied to the face value and is due March 1, 2022. We received $250,000 net cash from the issuance of the promissory note and issued 200,000 shares of common stock with a fair value of $17,718 which is being expensed over the life of the note as a component of interest expense. The conversion rate of the note is $0.30 for a total of 900,000 shares of our common stock if converted in full, including interest. On October 18, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with Tysadco pursuant to which we received $250,000 in cash from Tysadco and Tysadco received (i) 1,500,000 restricted shares of our common stock, and (ii) 833,333 warrants exercisable at $0.50 per common share expiring in five years. Going Concern See Note 1 of Notes to Financial Statements. Impact of COVID-19 The COVID-19 global pandemic has had an unfavorable impact on our business operations. The pandemic has impacted our ability to get financing, engage third-party vendors and the timing of our clinical trial in Australia. 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, 2022, 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, 2021, which was filed with the Securities and Exchange Commission on October 29, 2021. 17 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, 2022 or 2021. 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. Three Months Ended January 31, $ % 2022 2021 Change Change Research and development expense $ 460,723 $ 42,619 $ 418,104 981% General and administrative expense 1,515,241 591,173 924,068 156% Loss from operations (1,975,964 ) (633,793 ) (1,342,171 ) 212% Interest expense (208,767 ) (235,507 ) (26,740 ) 11% Other income, net 492,018 – 492,018 100% Net loss $ (1,692,713 ) $ (869,299 ) $ (872,414 ) 95% Basic and diluted net loss per share $ (0.02 ) $ (0.01 ) $ (0.01 ) 100% Six Months Ended January 31, $ % 2022 2021 Change Change Research and development expense $ 783,227 $ 42,619 $ 740,608 1738% General and administrative expense 2,622,126 1,116,442 1,505,684 135% Loss from operations (3,405,353 ) (1,159,061 ) (2,246,292 ) 194% Interest expense (425,709 ) (421,753 ) 3,956 (1% ) Other income, net 492,075 – 492,075 100% Net loss $ (3,338,987 ) $ (1,580,814 ) $ (1,758,173 ) 111% Basic and diluted net loss per share $ (0.04 ) $ (0.02 ) $ (0.02 ) 100% Research and Development Expense Our Research and development expense includes expenses related to our current projects and include, clinical research, design and manufacturing, formulation, regulatory and consultants. The increases in Research and development were due to expenses related to our PRV-002 drug device combination. Research and development expense was offset in the three and six month periods ended January 31, 2022 by research and development rebates from the government of Australia in the amount of $6,219 and $220,339, respectively, for clinical work performed in Australia related to our Phase 1 human trial for safety and efficacy for the treatment of concussed individuals. 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. 18 The increases in General and administrative expense were due to the following: Three months ended January 31, 2022 compared to three months ended January 31, 2021 Six months ended January 31, 2022 compared to six months ended January 31, 2021 Increase (decrease) in: Board and stock expense $ 397,081 $ 797,405 Business development and investor relations (62,580 ) 26,610 Consulting fees (8,450 ) (21,824 ) Financing fees (46,806 ) (36,693 ) Insurance expense 11,826 36,765 Legal and professional fees 48,884 (59,179 ) Wages 576,558 741,882 Other 7,555 20,718 $ 924,068 $ 1,505,684 The increases in board and stock expense were due to the vesting of restricted stock units and the increases in wages was due to the bonus granted to our executive officers in 2022. Interest Expense Interest expense includes interest on debt outstanding, as well as the amortization of unamortized debt issuance costs and debt closing costs. Certain information regarding debt outstanding was as follows: Three Months Ended January 31, Six Months Ended January 31, 2022 2021 2022 2021 Weighted average debt outstanding $ 1,354,619 $ 703,207 $ 1,315,217 $ 861,876 Weighted average interest rate 7.9% 8.9% 8.1% 8.9% The increases in interest expense for the three and six-month periods ended January 31, 2022 compared to the same periods of 2021 were due to LGH and Tysadco investments in April 2021 and October 2021, respectively, and the issuance of promissory notes in December 2021. Other Income, net Other income, net includes a donation in the amount of $500,000 in partnership with the Erase PTSD Now organization and the Glenn Greenberg and Linda Vester Foundation and foreign exchange gains and losses related to invoices denominated and paid in foreign currencies. 19 Net Loss Net loss increased in the three and six months ended January 31, 2022, compared to the same periods of the prior year due to increased research and development expense, general and administrative expense and interest expense as discussed above. Liquidity and Capital Resources The following table sets forth the primary sources and uses of cash: Six Months Ended January 31, 2022 2021 Net cash used in operating activities $ (1,584,793 ) $ (614,406 ) Net cash used in investing activities (45,220 ) – Net cash provided by financing activities 1,204,766 614,526 To date, we have financed our operations primarily through debt financing and 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. Cash used in investing activities in the first six months of fiscal 2022 were primarily for a patent related to our PRV-002 drug device combination. Debt The following notes payable were outstanding: January 31, 2022 Note issued to Labrys due August 14, 2021 with an interest rate of 12% $ – Convertible note issued to LGH due February 5, 2022 with an interest rate of 8.0% and convertible at $1.00 per share (1) 1,050,000 Promissory notes issued to officers and directors due March 31, 2022 with an interest rate of 8.0% 125,000 Tysadco convertible promissory note payable due March 1, 2022 with an interest rate of 8.0% and convertible at $0.30 per share (2) 250,000 Unamortized debt discount and closing costs (11,686 ) $ 1,413,314 (1) Effective February 1, 2022, the maturity date of this note was extended to May 31, 2022 and $200,000 was added to the principal. See Note 13 of Notes to Financial Statements for additional information. (2) As of March 15, 2022, the loan has not been repaid or converted. 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. 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company and are not required to provide information under this item.