Odyssey Health, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K 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. You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements. 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. You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: · our limited operating history and no revenues, on which to evaluate our ability to achieve our business objective and projected cash needs and our expected future revenues, operations and expenditures; · our potential ability to obtain additional financing on favorable terms; · our public securities’ potential liquidity and trading; · the extent to which we acquire or invest in businesses, products, and technologies; the scope, progress, results and costs of our clinical trials of our drug candidates and medical devices; · our ability to successfully integrate our acquired products and technologies into our business, including the possibility that the expected benefits of the transactions will not be fully realized by us or may take longer to realize than expected; · the safety and efficacy of our product candidates; · the progress and timing of clinical trials; · the costs, timing, and outcome of regulatory review of our product candidates; · the timing of submissions to, and decisions made by the U.S. Food and Drug Administration (FDA) and other regulatory agencies, related to our product candidates to the satisfaction of the FDA and such other regulatory agencies; · our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property or regulatory exclusivity protection of our product candidates and the ability to operate our business without infringing the intellectual property rights of others; · the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing, and defending intellectual property-related claims; · the emergence of competing technologies and other adverse market developments; · the impact of COVID-19 pandemic; · changes in accounting standards; and · the other risks and uncertainties discussed herein and in our other filings with the SEC. 35 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 Private Placement On February 2, 2022, we entered into an agreement to raise money through a private investment in a public entity. We offered up to 14,285,714 Units (the “Units”) at $0.35 per Unit. Each Unit consisted of one share of our common stock and one-half of an accompanying warrant. Each full warrant is exercisable for one share of our common stock at $0.70 per share. To date, we issued a total of 4,058,372 Units for gross proceeds to us of $1,420,430. No additional sales will be made pursuant to this agreement. 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. It was contemplated, a royalty of one-half of one percent be paid to Erase PTSD Now in perpetuity. At this time there is no agreement in place and the parties may or may not enter into an agreement in the future. Promissory Notes In December 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 were originally due March 31, 2022. The due date of the notes was extended to December 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 fiscal 2022, LPC purchased a total of 1,595,601 shares of our common stock for total proceeds of $548,792 pursuant to the August 14, 2020, LPC Purchase Agreement. As of October 31, 2022, LPC had purchased a total of 4,882,518 shares of our common stock for total proceeds of $2,260,976 and remaining purchase availability was $7,989,024 and remaining shares available were 14,388,846. 36 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 had an original maturity date of 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. On March 31, 2022, the SPA was amended to extend the maturity date to March 1, 2023, and, as consideration, $25,000 was added to the principal for a total $275,000. The conversion rate of the note is $0.30 for a total of 983,333 shares of our common stock if converted in full, including interest. The agreement includes a leak out provision until the shares have been sold. On October 18, 2021, we entered into a Securities Purchase Agreement 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. See Notes 6 and 8 of Notes to Financial Statements for additional information. 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 timing of clinical trials. 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. Critical Accounting Policies and Estimates The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of operations and require management’s judgment. Our discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on experience and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. We believe the following accounting policies to be critical to the judgements and estimates used in the preparation of our consolidated financial statements. Reference is made to our significant accounting policies set forth in Note 2 of Notes to Financial Statements. Results of Operations We do not currently sell or market any products and we did not have any revenue for the years ended July 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. Fiscal Year Ended July 31, $ % 2022 2021 Change Change General and administrative expense $ 6,789,556 $ 4,788,119 2,001,437 42% Research and development 1,317,024 1,632,593 (315,569 ) -19% In-process research and development – 9,440,000 (9,440,000 ) -100% Loss from operations (8,106,580 ) (15,860,712 ) 7,754,132 -49% Interest expense (836,294 ) (1,072,383 ) 236,089 -22% Other income 498,743 50,000 448,743 NM Net loss $ (8,444,131 ) $ (16,883,095 ) $ 8,438,964 -50% Basic and diluted net loss per share $ (0.09 ) $ (0.18 ) $ 0.09 -50% NM – Not meaningful 37 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 change in General and administrative expense was due to the following: Fiscal Year Ended July 31, 2022 compared to Fiscal Year Ended July 31, 2021 Increase (decrease) in: Stock-based compensation $ 349,703 Business development and investor relations 1,292,046 Consulting fees (32,881 ) Financing fees 49,825 Insurance expense 58,395 Legal and professional fees (356,742 ) Wages 648,127 Other (7,036 ) $ 2,001,437 The increase in stock-based compensation was due to the grant of 500,000 RSUs to each of three directors and the grant of 5,595,000 stock options to officers, employees and consultants during fiscal 2022. The increase in Business development and investor relations was the result of 3,745,000 shares of common stock issued in exchange for services and the increase in wages was due to bonuses totaling $400,000 granted to our executive officers in fiscal 2022 and additional employees hired in the third quarter of fiscal 2021. 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. 38 The change in Research and development expense was due to the following: Fiscal Year Ended July 31, 2022 compared to Fiscal Year Ended July 31, 2021 Increase (decrease) in: Consultants $ 10,188 Drug development (38,155 ) Phase 1 clinical trial (766,949 ) Australian research and development rebates 630,684 Prototype phase (140,224 ) Regulatory (11,113 ) $ (315,569 ) The decreases in drug development and prototype phase are the result of completion of those phases of the development of PRV-002 and the decrease in the phase one clinical trial is due to the timing of the clinical trial. The increases in consultants, and the Australian research and development and goods and services tax (“GST”) rebates are a result of expenses incurred and amounts due related to the Phase 1 clinical trial for PRV-002. In-Process Research and Development In-process research and development in fiscal 2021 related to the Prevacus APA that closed on March 1, 2021. See Note 4 of Notes to Financial Statements for additional information. 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: Fiscal Year Ended July 31, 2022 2021 Weighted average debt outstanding $ 1,456,991 $ 562,572 Weighted average interest rate 7.57% 8.16% The increase in interest expense was due to LGH and Tysadco notes issued in April 2021 and October 2021, respectively, and the issuance of promissory notes in December 2021. Other Income, net Other income, net in fiscal 2022 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. Other income, net in fiscal 2021 represents the forgiveness of our SBA Paycheck Protection Program Loan. 39 Net Loss Net loss decreased in fiscal 2022 compared to fiscal 2021 due to the in-process research and development charge in fiscal 2021, the donation received in fiscal 2022 and research and development rebates received from the Australian government, partially offset by increased general and administrative expense and interest expense in fiscal 2022 as discussed above. Liquidity and Capital Resources The following table sets forth the primary sources and uses of cash: Fiscal Year Ended July 31, 2022 2021 Net cash used in operating activities $ (3,175,783 ) $ (3,423,111 ) Net cash used in investing activities (45,220 ) – Net cash provided by financing activities 2,736,953 3,916,743 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 fiscal 2022 was for a patent related to our PRV-002 drug device combination. Debt The following notes payable were outstanding: July 31, 2022 Convertible note issued to LGH due December 31, 2022 with a fixed interest rate of 8.0% over the term of the note (annual interest rate of 5.22%) and convertible at $0.20 per share $ 1,180,000 Promissory notes issued to officers and directors due December 31, 2022 with a fixed interest rate of 8.0% per annum (see Note 6) 125,000 Tysadco convertible promissory note payable due March 1, 2023 with a fixed interest rate of 8.0% over the term of the note (annual interest rate of 5.09%) and convertible at $0.30 per share 275,000 1,580,000 Unamortized debt discount, closing costs and beneficial conversion feature (48,063 ) $ 1,531,937 Inflation Inflation did not have a material impact on our business and results of operations during the periods being reported on. 40 Off Balance Sheet Arrangements We do not have any material off balance sheet arrangements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. As a Smaller Reporting Company, we are not required to provide information under this item.