Item 7. Management’s Discussion and Analysis
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 lack of revenue, 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 for our drug candidates and medical devices;
·
our ability to successfully integrate our acquired products and technologies into our business, including the possibility that we won’t fully realize the expected benefits of the transactions will not be fully realized by us or may take longer to realize than expected;
·
our ability to successfully consummate our asset purchase agreement with Oragenics;
·
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 on 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;
·
changes in accounting standards; and
·
the other risks and uncertainties discussed herein and in our other filings with the SEC.
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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 plan to develop 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 have 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,
and undertake and engage in direct marketing efforts effort as we move closer to regulatory approvals. We will determine the most effective
distribution method for each unique product we include in our portfolio. We will engage third-party research and development firms that
specialize in creating products to assist us in developing our own products, and we will apply for trademarks and patents once we have
developed proprietary products.
Recent Funding
Mast Hill Fund L.P.
On December 13, 2022, we entered into a Securities
Purchase Agreement (the “SPA”) with Mast Hill Fund, L.P. (“Mast Hill”). Pursuant to the SPA, we sold Mast Hill
(i) an $870,000 face value, one-year, 10% per annum Promissory Note convertible into shares of our common stock at $0.12 per share, (ii)
a five-year share purchase warrant entitling Mast Hill to acquire 2,000,000 shares of our common stock at $0.20 per share (the “Warrant”),
and (iii) a five-year warrant for 4,000,000 shares of our common stock at $0.20 per share issuable in the event of default. Net proceeds
after original discount, fees and expenses, was $723,868.
On June 13, 2023, we entered into Amendment No.
1 to the SPA dated December 13, 2022. Pursuant to the Amendment, we (i) increased the principal balance by $50,000 to a total of $920,000
to be amortized over the life of the note, (ii) issued a five-year common stock purchase warrant to Mast Hill Fund L.P. for the purchase
of 1,000,000 shares of our common stock at $0.20 per share with a fair value of $28,448, (iii) extended the maturity dated to June 13,
2024, (iv) extended the amortization payments, and (v) changed the terms of the repayment from proceeds from other sources.
LPC Purchase Agreement Draws
During fiscal 2023, LPC purchased a total of 3,633,591
shares of our common stock for total proceeds of $580,220 pursuant to the August 14, 2020, LPC Purchase Agreement. Subsequent to July
31, 2023 and through October 30, 2023, LPC purchased an additional 500,000 shares of our common stock to LPC for total proceeds of $45,820.
As of October 30, 2023, LPC had purchased a total of 7,882,518 shares of our common stock for total proceeds of $2,646,306 and the remaining
purchase availability was $7,603,694 and the remaining shares available were 11,388,846.
Promissory Note
On September 21, 2022, we entered into a promissory
note for $30,000 with a consultant for investor relations services with an interest rate of 8% per annum and a due date of December 31,
2022. The promissory note was amended on December 30, 2022, to extend the maturity date to January 31, 2023. On January 31, 2023, the
note was extended to June 30, 2023. As consideration, the consultant was granted a five-year stock option for 50,000 shares of common
stock at $0.17 per share. On June 9, 2023, we entered into Amendment No. 2 to this promissory note pursuant to which we converted the
loan into 300,000 shares of our common stock with a value of $36,000.
Note Purchase Agreement
On July 7, 2023, we received a $150,000 advance
from an accredited investor related to a $500,000 Note Purchase Agreement (the “NPA”) entered into with two accredited investors
on August 15, 2023, at which time the remaining $350,000 of the $500,000 was received.
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Asset Purchase Agreement with Oragenics,
Inc.
On October 4, 2023, we entered into an Asset Purchase
Agreement (the “Purchase Agreement”) with Oragenics, Inc. (“Oragenics” the “Purchaser”). Pursuant
to the Purchase Agreement, we have agreed to sell and assign, certain assets and certain liabilities related to a segment of Odyssey’s business
focused on developing medical products that treat brain related illnesses and diseases (the “Purchased Assets”) to Oragenics
in exchange for (i) $1,000,000 in cash and 8,000,000 shares of convertible Series F Preferred Stock (“Series F Preferred Stock”),
on and subject to the terms and conditions set forth therein (such transaction, the “Odyssey Asset Purchase”). The Purchased
Assets include drug candidates for treating mild traumatic brain injury (mTBI), also known as concussion, and for treating Niemann Pick
Disease Type C (NPC), as well as our proprietary powder formulation and its nasal delivery device.
We received $500,000 upon the execution of the
Purchase Agreement on October 4, 2023 and will receive the additional $500,000 upon the earlier of (a) the closing of the Purchase Agreement
(the “Closing”), (b) within three (3) business days after the date that the Company has obtained the its stockholders’
approval approving the Odyssey Asset Purchase and (c) immediately upon the Purchasers’ wrongful termination of the Purchase Agreement
in breach of the Purchase Agreement.
The closing of the Asset Purchase is expected
to be at the end of the fourth calendar quarter of 2023.
See Notes 6 and 13 of Notes to Consolidated Financial
Statements for additional information.
Going Concern
See Note 1 of Notes to Financial Statements.
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.
Reference is made to our significant accounting
policies set forth in Note 2 of Notes to Consolidated 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, 2023 or 2022. 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.
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Fiscal Year Ended July 31,
$
%
2023
2022
Change
Change
In-process research and development
$ 170,000
$ –
$ 170,000
100%
Research and development
201,329
1,317,024
(1,115,695 )
-85%
Stock-based compensation
2,820,311
3,870,465
(1,050,154 )
-27%
General and administrative
2,122,375
2,919,091
(796,716 )
-27%
Loss from operations
(5,314,015 )
(8,106,580 )
(2,792,565 )
-34%
Interest expense
(614,083 )
(836,294 )
222,211
-27%
Other income, net
8,677
498,743
(490,066 )
-98%
Net loss
$ (5,919,421 )
$ (8,444,131 )
$ (2,524,710 )
-30%
Basic and diluted net loss per share
$ (0.07 )
$ (0.09 )
$ 0.02
-25%
In-Process Research and Development
In-process research and development in fiscal
2023 relates to the value of the 1,000,000 shares of our common stock with a value of $0.17 per share issued to Prevacus in connection
with the November 2022 Option Agreement. See Note 2.
Research and Development
Research and development relates to our current
projects and includes expenses for clinical research, design and manufacturing, formulation, regulatory and consultants.
The change in Research and development was due
to the following:
Fiscal Year Ended July 31, 2023 compared to
Fiscal Year Ended July 31, 2022
Increase (decrease) in:
Consultants
$ (125,998 )
Drug development
(524,876 )
Phase 1 clinical trial
566,142 )
Australian research and development rebate
338,480
Prototype phase
(225,059 )
Regulatory
(12,100 )
$ (1,115,695 )
The decreases in drug development, consultants
and prototype phase were the result of the completion of the development of the concussion drug in the fourth quarter of fiscal 2022.
The decrease in Phase I clinical trial costs were the result of the completion of dosing patients in the Phase I clinical trial of our
concussion drug device trial in first quarter of fiscal 2023.
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General and Administrative
General and administrative includes expenses related
to 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 was due
to the following:
Fiscal Year Ended July 31, 2023 compared to
Fiscal Year Ended July 31, 2022
Increase (decrease) in:
Stock-based compensation
$ 297,627
Business development and investor relations
(1,598,381 )
Consulting fees
21,487
Financing fees
(209,793 )
Insurance expense
8,395
Legal and professional fees
(10,004 )
Wages
(355,191 )
Other
(1,010 )
$ (1,846,870 )
The increase in stock-based compensation was
due to the vesting of restricted stock units and the granting of stock options in fiscal 2023. The decrease in business development
and investor relations was a result of decreased activities related to business development. The decrease in wages was due to the
$400,000 bonus granted to our executive officers in January 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:
Fiscal Year Ended July 31,
2023
2022
Weighted average debt outstanding
$ 2,003,425
$ 1,456,991
Weighted average interest rate
7.10%
7.57%
The increase in weighted average debt outstanding
was due to the issuance of an $870,000 promissory note during the second quarter of fiscal 2023 and a $150,000 deposit received on a note
purchase agreement during the fourth quarter of fiscal 2023. In addition, the increase to the weighted average debt outstanding is due
to the addition of principal to the LGH, ClearThink and Mast Hill notes in exchange for extending the maturity dates on the notes.
The weighted average interest rate decreased due
to the extension of maturity dates on the LGH and ClearThink notes that have set dollar amounts of interest.
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Other Income, net
Other income, net in fiscal 2022 included a $500,000
donation in partnership with the Erase PTSD Now organization and the Glenn Greenberg and Linda Vester
Foundation. Other income, net in both periods included foreign exchange gains and losses related to invoices denominated and paid
in foreign currencies.
Net Loss
Net loss decreased in fiscal 2023 compared to
fiscal 2022 due to decreased research and development, general and administrative and interest expense as discussed above.
Liquidity and Capital Resources
The following table sets forth the primary sources
and uses of cash:
Fiscal Year Ended July 31,
2023
2022
Net cash used in operating activities
$ (1,474,696 )
$ (3,175,783 )
Net cash used in investing activities
(10,061 )
(45,220 )
Net cash provided by financing activities
1,449,088
2,736,953
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 research and development activities until market conditions improve.
Cash used in investing activities was for a patent
related to our ONP-002 drug device combination.
Debt
The following notes payable were outstanding:
July 31,
July 31,
2023
2022
Convertible note issued to LGH due December 31, 2023, with a set interest amount of $84,000 through July 6, 2023, then an interest rate of 8.0% per annum of the then outstanding principal of $1,055,000 and convertible at $0.12 per share
$ 1,055,000
$ 1,180,000
Promissory notes issued to officers and directors due October 31, 2023, with an interest rate of 8.0% per annum (see Note 10)
125,000
125,000
Note purchase agreement issued to an accredited investor due August 15, 2024, with an interest rate of 12% per annum
150,000
–
ClearThink convertible promissory note payable due December 31, 2023, with a set interest amount of $20,000 and convertible at $0.20 per share
175,000
275,000
Mast Hill convertible promissory note due June 13, 2024, with an interest rate of 10% per annum and convertible at $0.12 per share
920,000
–
2,425,000
1,580,000
Unamortized beneficial conversion feature, debt discount and closing costs
(280,340 )
(48,063 )
$ 2,144,660
$ 1,531,937
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Research and Development Rebate due from
Australian Government
In fiscal 2023, we incurred $495,414 of expenses
related to our Phase I clinical trial of our concussion drug device combination that are eligible for the Australian research and development
rebate for a rebate due of $261,238, which was recorded as an offset to Research and development expense.
On November 18, 2022, we received a research and
development rebate from the government of Australia in the amount of $313,709 for clinical work performed in Australia related to our
Phase I human clinical trial during the fiscal year ended July 31, 2022.
On December 8, 2022, we received a goods and service
tax refund, which was accrued as part of our research and development rebate due from the Australian government, in the amount of $82,705
related to our Phase I human clinical trial during July, August and September 2022.
On February 10, 2023, we received a goods and
service tax refund, which was accrued as part of our research and development rebate due from the Australian government, in the amount
of $9,231 related to our Phase I human clinical trial during October, November and December 2022.
On July 3, 2023, we received a goods and service
tax refund, which was accrued as part of our research and development rebate due from the Australian government, in the amount of $3,908,
related to our Phase I human clinical trial during January, February and March 2023.
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.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
As a Smaller Reporting Company, we are not required
to provide information under this item.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.