UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
Form
_________________________________
(Mark One)
For the quarterly period ended
or
For the transition period from to .
Commission File No.
____________________________________
(Exact name of registrant as specified in its charter)
____________________________________
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each Class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
| Title of each Class | Trading Symbol | Name of each exchange on which registered |
| OTC |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
shares of common stock, par value $.001 per share, outstanding as of June 14, 2024.
ODYSSEY HEALTH, INC.
FORM 10-Q
For the Quarter Ended April 30, 2024
INDEX
| 2 |
PART I - FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Odyssey Health, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| As of | ||||||||
| April 30, | July 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Research and development rebate due from the Australian government | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Investments | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued wages | ||||||||
| Accrued interest | ||||||||
| Asset purchase liability | ||||||||
| Notes payable, officers and directors | ||||||||
| Notes payable, net of unamortized beneficial conversion feature, debt discount and
closing costs of $ | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued or outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of April 30, 2024 and July 31, 2024, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
Odyssey Health, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended April 30, | For the Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| In-process research and development expense | $ | $ | $ | $ | ||||||||||||
| Research and development expense | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of asset | ||||||||||||||||
| Loss on investment | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Deemed dividend | ( | ) | ||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Basic net income (loss) per share attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted net income (loss) per share attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Shares used for basic net income (loss) per share attributable to common stockholders | ||||||||||||||||
| Shares used for diluted net income (loss) per share attributable to common stockholders | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
Odyssey Health, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
| Common Stock |
| |||||||||||||||||||
| Shares | Dollars | Additional Paid-In Capital | Accumulated Deficit |
(Deficit) | ||||||||||||||||
| Balances, July 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Common stock issued in debt financing | ||||||||||||||||||||
| Common stock issued in equity financings | ||||||||||||||||||||
| Warrants exercised in connection with debt financing | ( | ) | ||||||||||||||||||
| Warrants issued in debt financing | – | |||||||||||||||||||
| Return of shares | ( | ) | ( | ) | ||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balances, October 31, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| RSUs issued | ( | ) | ||||||||||||||||||
| Common stock issued in debt financing | ||||||||||||||||||||
| Common stock issued in equity financings | ||||||||||||||||||||
| Deemed dividend | – | ( | ) | |||||||||||||||||
| Net income | – | |||||||||||||||||||
| Balances, January 31, 2024 | ( | ) | ||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Warrants exercised in connection with debt financing | ( | ) | ||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balances, April 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock |
| |||||||||||||||||||
| Shares | Dollars | Additional Paid-In Capital | Accumulated Deficit |
(Deficit) | ||||||||||||||||
| Balances, July 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Common stock issued in equity financings | ||||||||||||||||||||
| Return of reserved shares | ( | ) | ( | ) | ||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balances, October 31, 2022 | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Common stock issued in debt financing | ||||||||||||||||||||
| Warrants issued in debt financing | – | |||||||||||||||||||
| Common stock issued in equity financings | ||||||||||||||||||||
| Common stock issued in conversion of debt | ||||||||||||||||||||
| Common stock issued in option purchase agreement | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balances, January 31, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Common stock issued in equity financings | ||||||||||||||||||||
| Common stock issued in conversion of debt | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balances, April 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
Odyssey Health, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended April 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash flows used in operating activities: | ||||||||
| Amortization | ||||||||
| Stock-based compensation | ||||||||
| Gain on sale of asset | ( | ) | ||||||
| Loss on investment | ||||||||
| Financing costs paid with issuance of common stock | ||||||||
| Amortization of beneficial conversion feature, debt discount and closing costs | ||||||||
| In-process research and development | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses and other current assets | ( | ) | ||||||
| Decrease in research and development rebate due from Australian government | ||||||||
| Increase (decrease) in accounts payable | ( | ) | ||||||
| Increase in accrued wages | ||||||||
| Increase in accrued interest | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash proceeds from sale of assets | ||||||||
| Purchase of intellectual property | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from notes payable | ||||||||
| Principal payments made on notes payable | ( | ) | ( | ) | ||||
| Closing costs paid for notes payable | ( | ) | ||||||
| Proceeds from sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash information: | ||||||||
| Common stock issued to settle notes payable | $ | $ | ||||||
| Accrued interest paid with common stock | ||||||||
| Increase in fees related to extension of LGH debt maturity date recorded as additional principal | ||||||||
| Warrants issued in exchange for debt financing fees | ||||||||
| Shares issued for exercised warrants | ||||||||
| Shares returned to treasury | ||||||||
| Deemed dividend | ||||||||
| Original issue discount on debt | ||||||||
| Stock issued in exchange for closing costs | ||||||||
| Common stock issued in option purchase agreement | ||||||||
| Accounts payable assumed by Oragenics | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
Odyssey Health, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation, Nature of Operations and Going Concern
Basis of Presentation
The accompanying condensed consolidated financial information of Odyssey Health, Inc. and our wholly-owned subsidiary Odyssey Group International Australia, Pty Ltd, (“Odyssey”) is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated. However, such information reflects all adjustments, consisting only of normal recurring adjustments unless otherwise noted, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of July 31, 2023, is derived from our 2023 Annual Report on Form 10-K. The financial statements included herein should be read in conjunction with the financial statements and the notes thereto included in our 2023 Annual Report on Form 10-K filed with the SEC on October 30, 2023. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Significant Accounting Policies
Our significant accounting policies have been updated below during the nine months ended April 30, 2024, from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2023.
Investments
Our investments include the Series F preferred stock and common stock of Oragenics, Inc. that were acquired on December 28, 2023.
The common stock of Oragenics is valued quarterly based on the common stock price as reported by the NYSE American stock exchange and reduced by an implied discount calculated using the Black-Scholes pricing model, until the common stock held is no longer 144 restricted and freely tradeable, then they will be valued at the fair value of the stock. We adhere to Accounting Standards Codification (ASC) 820, "Fair Value Measurement," for the measurement and disclosure of fair value for this investment.
The Series F preferred stock is carried at cost and reviewed at least annually or more often is there are indications of impairment. Cost was determined utilizing the Black-Scholes pricing model inputs of (i) expected volatility of 79.4%, (ii) risk free interest rate of 5.6%, (ii) expected life of six months, and (iv) an implied discount rate of 25% for the known restrictions on the sale and conversion of the Series F preferred stock. This investment is carried at cost less any impairment, if applicable. We assess the recoverability of this investment periodically and recognize impairment losses in our Statements of Operations in accordance with ASC 321, "Investments - Equity Securities."
We intend to hold the investments until such time that we determine it is in our and our stockholders’ best interest to distribute the preferred shares to stockholders’, convert the preferred stock into common stock and distribute to stockholders, or sell the common stock.
Nature of Operations
Our corporate mission is to create or acquire distinct assets, intellectual property, and technologies with an emphasis on acquisition targets that have clinical utility and provide differentiation in the market. Our business model is to develop or acquire medical related products, engage third parties to develop and manufacture such products and then distribute the products through various distribution channels, including third parties. We have two different technologies in research and development stage; the CardioMap® heart monitoring and screening device, and the Save a Life choking rescue device.
On October 4, 2023, we entered into an Asset Sale Agreement (the “Agreement”) with Oragenics, Inc. (“Oragenics”). The closing of the Agreement was completed on December 28, 2023, Pursuant to the Agreement, we sold and assigned certain assets and certain liabilities related to the treatment of brain related illnesses and diseases (the “Assets”) to Oragenics in exchange for (i) $1,000,000 in cash; (ii) 8,000,000 shares of convertible Series F Preferred Stock; and (iii) the assumption by Oragenics of $325,672 of our accounts payable. See Note 4.
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 plan to license, improve and/or 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.
| 7 |
We are not currently selling or marketing any products, as our products require further development and Food and Drug Administration (“FDA”) clearance or approval to market our products in the United States. In addition, it would require additional European union or country specific clearance or approvals to sell internationally.
Going Concern
We did not recognize any revenues for the year
ended July 31, 2023, or the nine months ended April 30, 2024, and we had an accumulated deficit of $
The operating deficit indicates substantial doubt about our ability to continue as a going concern. 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 the additional financing on a timely basis, we may be required to further scale down or perhaps even cease operations.
The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
If we are unable to raise additional capital by June 14, 2025, we will adjust our business plan. Given our recurring losses, negative cash flow, and accumulated deficit, there is substantial doubt about our ability to continue as a going concern.
Note 2. New Accounting Pronouncement
ASU 2020-06
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners and improves the decision usefulness and relevance of the information provided to financial statement users. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We early adopted ASU 2020-06 for our fiscal year ending July 31, 2024. The adoption of ASU 2020-06 did not have any effect on our financial position, results of operations or cash flows except for the calculation of diluted earnings per share.
ASU 2023-07
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which enhances segment reporting under Topic 280 by expanding the breadth and frequency of segment disclosures. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company has one segment. The adoption of ASU 2023-07 did not have any effect on our financial position, results of operations or cash flows.
ASU 2023-09
In December 2023, the FASB issued ASU 2023-09, Income Taxes, which enhances the transparency of income tax disclosures by expanding annual disclosure requirements related to the rate reconciliation and income taxes paid. The amendments are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis. Retrospective application is permitted. We are currently evaluating this ASU to determine its impact on our disclosures.
| 8 |
Note 3. Intangible Assets
Intangible assets consisted of costs related to a patent for our concussion drug device combination.
Amortization expense was as follows:
| Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Amortization expense | $ | $ | $ | $ | ||||||||||||
All intangible assets were sold in the second quarter of fiscal 2024. See Note 4.
Note 4. Asset Sale Agreement with Oragenics, Inc.
On October 4, 2023, we entered into an Asset Sale Agreement (the “Agreement”) with Oragenics, which closed on December 28, 2023. Pursuant to the Agreement, we sold and assigned certain assets and certain liabilities related to the treatment of brain related illnesses and diseases (the “Assets”) to Oragenics in exchange for (i) $1,000,000 in cash; (ii) 8,000,000 shares of convertible Series F preferred stock; and (iii) the assumption of $325,672 of our accounts payable. The total value of consideration received was $16,400,687.
The 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 $
Prior to closing, we were required to obtain the
consent of Mast Hill Fund, L.P (“Mast Hill”) to consummate the closing of the Agreement. As part of the consent, we entered
into a pledge agreement with Mast Hill granting a security interest in
The remaining shares of convertible Series F preferred stock will convert upon Oragenics shareholder approval and upon certain listing and change in control criteria being achieved. In addition, at our option, we are allowed to convert additional shares of the Series F preferred stock as long as we do not own a total of more than 19.9% of the then outstanding Oragenics common stock.
| 9 |
Investment Valuation
The common stock of Oragenics is valued quarterly based on their common stock price as reported by the NYSE American stock exchange reduced by an implied discount calculated using the Black-Scholes pricing model.
The Series F preferred stock is carried at cost
and reviewed at least annually or more often is there are indications of impairment. Cost was determined utilizing the Black-Scholes pricing
model inputs of (i) expected volatility of
See also Note 5.
Note 5. Fair Value
The fair value of financial assets and liabilities are determined utilizing a three-level framework as follows:
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets, for substantially identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices within Level 1 for similar assets and liabilities. These include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. If the asset or liability has a specified or contractual term, the input must be observable for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs that are supported by little or no market activity, generally requiring a significant amount of judgment by management.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Further, although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the nine months ended April 30, 2024, or the year ended July 31, 2023.
The carrying values of cash, prepaid expenses, accounts payable and accrued wages approximate their fair value due to their short maturities.
No changes were made to our valuation techniques during the quarter ended April 30, 2024.
Our financial instruments that are carried at fair value consist of our common stock of Oragenics as follows:
| April 30, 2024 | ||||||||||||||||
| Equity-method investment | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Oragenics common stock | $ | $ | $ | $ | ||||||||||||
| 10 |
Valuation of Oragenics Common Stock
Our 511,308 shares of Oragenics common stock were valued at $0.91 per share based a discount to the closing stock price of Oragenics common stock which was $1.04 per share at April 30, 2024, as quoted on the NYSE American. The discount was determined using a Black-Scholes pricing model with the following assumptions:
| Expected stock price volatility | ||||
| Risk free interest rate | ||||
| Expected life | ||||
| Expected dividend yield | ||||
| Implied discount |
There were no financial instruments carried at fair value at April 30, 2023.
Contingent Liabilities
At April
30, 2024 and July 31, 2023, we had contingent consideration related to the acquisition of intellectual property, know-how and patents
for an anti-choking, life-saving medical device in fiscal 2019. According to the agreement, we will make a one-time cash payment totaling
$
We also had contingent consideration at April 30, 2024 and July 31, 2023, related to milestones in our Asset Purchase Agreement with Prevacus, Inc. The fair value of the contingent consideration is reviewed quarterly and determined based on the current status of the project (Level 3). Based on these reviews, the fair value of the contingent consideration was determined to be zero as of both April 30, 2024 and July 31, 2023, as it is not yet probable that any of the milestones will be met.
Note 6. Debt
LGH Investments, LLC
On December 30, 2023, we entered into Amendment No. 7 (the “Amendment”) to the Convertible Promissory Note (the “Note”) to the Securities Purchase Agreement dated April 5, 2021, with LGH Investments, LLC (“LGH”). Pursuant to the Amendment, the maturity date of the note was extended to June 30, 2024. As consideration, $60,000 was added to the principal amount outstanding. In addition, Section (3)(d)(ii) was redefined to allow us to prepay the Note at any time by providing LGH notice of our intent to prepay the outstanding amounts due under the Note. Once we provide notice of our intent to prepay, then LGH shall have the sole option to convert any amounts due under the Note for 30 days prior to us making payment. If LGH does not elect to make a conversion within the 30 days, we will tender the full amount in the prepayment notice by paying 110% of the total outstanding balance including all principal, defaults and interest to LGH within 5 calendar days. If LGH has previously provided a notice of conversion to us, we may not prepay any of the amount included in such notice. All other terms and conditions remain the same.
On August 28, 2023, we paid LGH $
Following this amendment and these payments, at
April 30, 2024, there was $
| 11 |
ClearThink Capital Partners, LLC
On December 20, 2023, ClearThink Capital Partners,
LLC (“ClearThink”) exercised their option to convert their convertible note payable of $
Accredited Investor Promissory Note
On February 13, 2024, we entered into a six-month
promissory note for $
Directors and Officers Promissory Notes
On December 21, 2021, and December 22, 2021, we entered into a total of five Promissory Notes (the “Promissory 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 $
On October 19, 2023, John Gandolfo, former director,
exercised his option to convert his convertible note of $
On November 1, 2023, we entered into four Promissory Note Amendments (the “Amendments”) to the Promissory Notes entered into December 21, 2021, and December 22, 2021, and as amended April 20, 2022, June 3, 2022, September 30, 2022, December 30, 2022, March 31, 2023, and June 30, 2023, with two directors and two officers. Pursuant to the Amendments, the maturity date of the Promissory Notes was extended to January 31, 2024. All other terms and conditions remain the same.
On January 31, 2024, we entered into four Promissory
Note Amendments (the “Amendments”) to the Promissory Notes entered into December 21, 2021, and December 22, 2021, and as amended
April 20, 2022, June 3, 2022, September 30, 2022, December 30, 2022, March 31, 2023, June 30, 2023, November 1, 2023, and January 31,
2024, with two directors and two officers. Pursuant to the Amendments, the maturity date of the Promissory Notes was extended to
At April 30, 2024 and
July 31, 2023, we had $
Mast Hill Fund L.P.
On December 13, 2022, we entered into a Securities
Purchase Agreement (the “SPA”) with Mast Hill Fund, L.P. Pursuant to the SPA, we sold Mast Hill (i) an $
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 $
| 12 |
On March 13, 2024, we entered into Amendment No.
2 to the Securities Purchase Agreement dated December 13, 2022, with Mast Hill. Pursuant to the Amendment, the $
On June 15, 2023, Mast Hill converted $
On August 7, 2023, Mast Hill converted their outstanding warrant exercisable for shares in a cashless exercise. The conversion resulted in the purchase of shares of our common stock at an exercise price of $0.075 per share. Following this conversion, no shares remained available pursuant to this warrant.
Due to the remaining 5,000,000 Mast Hill warrants
containing a down-round provision, which was triggered prior to July 31, 2023, we issued an additional warrants exercisable
at $
On September 13, 2023, we paid Mast Hill $
On October 6, 2023, we paid Mast Hill $
On October 9, 2023, Mast Hill converted $
On November 6, 2023, Mast Hill converted $
On November 29, 2023, Mast Hill converted $
On December 13, 2023, we paid Mast Hill $
On December 22, 2023, Mast Hill converted $
On January 18, 2024, Mast Hill converted $
On March 14, 2024, Mast Hill converted their outstanding
warrant for shares of our common stock in a cashless exercise, which resulted in the issuance of shares of our common
stock at an exercise price of $0.072 per share. Following this exercise, Mast Hill had warrants exercisable for
Following these repayments and conversions, at
April 30, 2024, there was $
| 13 |
Accredited Investors Note Purchase Agreement
On July 7, 2023, we received a $
On December 29, 2023, the two accredited investors
provided notice to convert their NPA. On January 26, 2024, we converted $
Notes Payable
The following notes payable were outstanding:
| April 30, 2024 | July 31, 2023 | |||||||
| Convertible note issued to LGH due June 30, 2024, with a set interest amount of $84,000 through July 7, 2023, then an interest rate of 8.0% per annum of outstanding principal and convertible at $0.12 per share | $ | $ | ||||||
| Promissory notes issued to officers and directors due July 31, 2024, with an interest rate of 8.0% per annum and convertible at $0.12 per share | ||||||||
| Accredited investor promissory note due August 11, 2024, with an interest rate of 10% per annum and convertible into Oragenics common stock held by us at $2.50 per share | ||||||||
| Note purchase agreement issued to two accredited investors due August 15, 2024, with an interest rate of 12% per annum | ||||||||
| ClearThink convertible promissory note due December 31, 2023, with a set interest amount of $20,000 and convertible at $0.20 per share | ||||||||
| Mast Hill convertible promissory note due December 13, 2024, with an interest rate of 10% per annum and convertible at $0.072 per share | ||||||||
| Unamortized debt discount and closing costs | ( | ) | ( | ) | ||||
| Unamortized beneficial conversion feature | ( | ) | ||||||
| $ | $ | |||||||
2021 Omnibus Stock Incentive Plan
At April 30, 2024, shares of our common stock were reserved for issuance pursuant to the 2021 Plan and shares remained available for future awards. In addition, as of April 30, 2024, awards covering a total of shares of our common stock have been granted outside the 2021 Plan.
| 14 |
Stock Options
Stock option activity during the nine months ended April 30, 2024 was as follows:
| Number of | Weighted Average | |||||||
| Options | Exercise Price | |||||||
| Options outstanding at July 31, 2023 | $ | |||||||
| Options granted | ||||||||
| Options expired or canceled | ( | ) | ||||||
| Options outstanding at April 30, 2024 | $ | |||||||
All options granted during fiscal 2024 were granted outside of the 2021 Plan.
Criteria used for determining the Black-Scholes value of options granted during the nine months ended April 30, 2024 were as follows:
| Expected stock price volatility | % – % | |||
| Risk free interest rate | % - % | |||
| Expected life of options (years) | - | |||
| Expected dividend yield |
Restricted Stock Units (“RSUs”)
RSU activity during the nine months ended April 30, 2024 was as follows:
| Number of | Weighted Average | |||||||
| RSUs | Exercise Price | |||||||
| RSUs outstanding at July 31, 2023 | $ | |||||||
| RSUs vested | ( | ) | ||||||
| RSUs outstanding at April 30, 2024 | $ | |||||||
Warrants
Warrant activity during the nine months ended April 30, 2024 was as follows:
Number of Warrants | Weighted Average Exercise Price | |||||||
| Warrants outstanding at July 31, 2023 | $ | |||||||
| Warrants issued | ||||||||
| Warrants exercised | ( | ) | ||||||
| Warrants canceled | ( | ) | ||||||
| Warrants outstanding at April 30, 2024 | $ | |||||||
During the year ended July 31, 2023, we issued warrants which contained a down-round provision. The provision was triggered, resulting in the issuance of an additional 12,444,445 warrants during the quarter ended January 31, 2024. See Note 6 for additional information.
| 15 |
Unrecognized Compensation Costs
At April 30, 2024, we had unrecognized stock-based compensation of $, which will be recognized over the weighted average remaining vesting period of years.
Note 8. Research and Development Rebate
We incurred expenses related to our Phase I clinical trial of our concussion drug device combination that are eligible for the Australian research and development rebate which were recorded as an offset to research and development expense as follows:
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development expense offset | $ | $ | $ | $ | ||||||||||||
Basic earnings (loss) per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the if converted method for convertible debt and convertible preferred stock. Dilutive potential common shares include outstanding stock options and other stock-based awards as well as convertible debt.
| Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) attributable to common stockholders used for basic earnings (loss) per share | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Add back convertible debt interest | ||||||||||||||||
| Add back convertible debt amortization | ||||||||||||||||
| Add back deemed dividend | ||||||||||||||||
| Net income (loss) attributable to common stockholders used for diluted earnings (loss) per share calculations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted average outstanding shares of common stock used for basic earnings (loss) per share | ||||||||||||||||
| Dilutive effect of convertible debt | ||||||||||||||||
| Dilutive effect of warrants | ||||||||||||||||
| Dilutive effect of stock options | ||||||||||||||||
| Common stock and common stock equivalents used for diluted earnings (loss) per share | ||||||||||||||||
| Earnings (Loss) Per Share | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| 16 |
The following anti-dilutive securities were excluded from the calculations of diluted net loss per share:
| Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Options to purchase common stock | ||||||||||||||||
| Shares issuable upon conversion of convertible notes and related accrued interest | ||||||||||||||||
| Warrants to purchase common stock | ||||||||||||||||
| Unvested restricted stock units | ||||||||||||||||
| Total potentially dilutive securities | ||||||||||||||||
Note 10. Common Stock
Lincoln Park
Lincoln Park Capital Fund, LLC (“LPC”)
purchased shares at an average price of $.098 per share for total proceeds to us of $
Mast Hill
On August 7, 2023, Mast Hill converted their outstanding warrant exercisable for shares in a cashless exercise, which resulted in the issuance of shares of our common stock at an exercise price of $0.075 per share. Following this conversion, no shares remained available pursuant to this warrant.
On March 14, 2024, Mast Hill converted their outstanding
warrant for shares of our common stock in a cashless exercise, which resulted in the issuance of shares of our common
stock at an exercise price of $0.072 per share. Following this exercise, Mast Hill had warrants exercisable for
During the first nine months of 2024, Mast Hill
converted a total of $
Return of Shares
On August 24, 2023, ClearThink voluntarily returned shares of our common stock following their inadvertent sale of shares of our common stock exceeding predetermined limits.
Convertible Notes Payable
On October 19, 2023, John Gandolfo, former director,
exercised his option to convert his convertible note of $
On December 29, 2023, ClearThink exercised their
option to convert their convertible note payable of $
| 17 |
Accredited Investors Note Purchase Agreement
On December 29, 2023, the accredited investors
provided notice to convert their notes. On January 26, 2024, we converted a total of $
11. Related Party Transactions
Due to Officers
The following amounts were due to officers for reimbursement of expenses and were included in accounts payable within the accompanying Condensed Consolidated Balance Sheets:
April 30, 2024 | July 31, 2023 | |||||||
| Joseph M. Redmond, CEO | $ | $ | ||||||
| Christine Farrell, CFO | ||||||||
| $ | $ | |||||||
The amount of unpaid salary and bonus due to our officers was included in accrued wages within the accompanying Condensed Consolidated Balance Sheets and was as follows:
April 30, 2024 | July 31, 2023 | |||||||
| Joseph M. Redmond, CEO | $ | $ | ||||||
| Christine Farrell, CFO | ||||||||
| $ | $ | |||||||
Promissory Notes
See Note 6 for a discussion of promissory notes payable to officers and directors.
Note 12. Commitments and Contingencies
We are a party to a lawsuit in Superior
Court, Kent County in the State of Rhode Island entitled Robert Hainey v. Vdex Diabetes Holdings, Inc. et. al, Case No.
KC-2023-0952. Robert Hainey, the plaintiff filed suit against defendants Vdex Diabetes Holdings Inc. and William McCullough. On
December 9, 2023, defendant Vdex Diabetes Holdings Inc. (“VDH”) filed a Third-Party Complaint against us alleging the
existence of an agreement between the VDH Chief Executive Officer, William McCullough and our Chief Executive Officer, Michael
Redmond, to pursue a merger of the two companies. VDH alleges as part of these negotiations VDH agreed to suspend all negotiations
with all other suitors in order to pursue the merger with us. VDH alleges that we, along with Hainey, represented that we would
provide capital as consideration for VDH’s undertaking and to continue its growth and expansion. VDH alleges Hainey provided
VDH with $20,000. VDH contends they relied upon Hainey’s and our representations to their detriment as they incurred
substantial expense exhausting all of the $
Note 13. Subsequent Events
Management has performed a review of all events and transactions occurring after April 30, 2024 through the date the accompanying unaudited interim condensed consolidated financial statements were available to be issued for items that would require adjustment to or disclosure in the accompanying unaudited interim condensed consolidated financial statements, noting no such events or transactions.
| 18 |
| 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, 2023 (“2023 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 develop and manufacture such products and then distribute the products through various distribution channels, including third parties. We have two different technologies in research and development stage ; the CardioMap® heart monitoring and screening device, and the Save a Life choking rescue device. To date, none of our product candidates have received regulatory clearance or approval for commercial sale.
On October 4, 2023, we entered into an Asset Agreement (the “Agreement”) with Oragenics, Inc. (“Oragenics”). Pursuant to the Agreement, we sold certain assets and certain liabilities related to a segment of our business focused on developing medical products that treat brain related illnesses and diseases (the “Assets”) to Oragenics. The closing was completed on December 28, 2023. See below and Note 4 of Notes to Condensed Consolidated Financial Statements for additional information.
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 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.
| 19 |
Recent Funding
LPC Purchase Agreement Draws
During the nine months ended April 30, 2024, LPC purchased a total of 600,000 shares of our common stock for total proceeds of $55,620 pursuant to the August 14, 2020, LPC Purchase Agreement. At December 31, 2023, the LPC Purchase Agreement expired.
Asset Agreement with Oragenics, Inc.
On October 4, 2023, we entered into an Asset Agreement with Oragenics, which closed on December 7, 2023. Pursuant to the Agreement, we sold the segment of our business and related assets focused on developing medical products that treat brain related illnesses and diseases (the “Assets”) to Oragenics in exchange for (i) $1,000,000 in cash; (ii) 8,000,000 shares of convertible Series F preferred stock; and (iii) the assumption of $325,672 of our accounts payable. The total value of consideration received was $16,400,687.
The in-process research and development 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 Agreement on October 4, 2023, and received the additional $500,000 on December 11, 2023, upon our stockholder approval for the sale of the Asset. Following the closing of the Agreement on December 28, 2023, we received 8,000,000 shares of Series F preferred stock. Upon receipt, 511,308 shares of the Series F preferred stock, which represented 19.9% of the then outstanding shares of Oragenics common stock, converted into 511,308 shares of Oragenics common stock.
At the closing, we were required to obtain the consent of Mast Hill to consummate the closing of the Asset Agreement. As part of the consent, we entered into a pledge agreement with Mast Hill granting a security interest in 154,545 of the total preferred shares, and collectively with all of the common shares or other securities into which the preferred shares are converted or exchanged into common shares, until the Mast Hill debt is paid.
The remaining shares of convertible Series F preferred stock will convert upon Oragenics shareholder approval and upon certain listing and change in control criteria being achieved. In addition, at our option, we are allowed to convert additional shares of the Series F preferred stock as long as we do not own a total of more than 19.9% of the then outstanding Oragenics common stock.
See Note 4 of Notes to Condensed Consolidated Financial Statements for additional information.
Promissory Note
On February 13, 2024, we entered into a six-month promissory note for $50,000, with Jonathan Lutz, an accredited investor, with an interest rate of 10% per annum and due August 11, 2024.
Accredited Investor Note Payable
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 additional $350,000 was received.
See Note 6 of Notes to Condensed Consolidated Financial Statements for additional information.
| 20 |
Going Concern
See Note 1 of Notes to Financial Statements.
Significant Accounting Policies and Use of Estimates
During the nine months ended April 30, 2024, 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, 2023, filed with the Securities and Exchange Commission on October 30, 2023.
Results of Operations
We do not currently sell or market any products and did not have any revenue in the three or nine month periods ended April 30, 2024 or 2023. 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 April 30, | $ | % | ||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| Research and development expense | $ | – | $ | 35,040 | $ | (35,040 | ) | -100% | ||||||||
| Stock-based compensation | 51,483 | 553,964 | (502,481 | ) | -91% | |||||||||||
| General and administrative expense | 320,888 | 505,606 | (184,718 | ) | -37% | |||||||||||
| Loss from operations | (372,371 | ) | (1,094,610 | ) | 722,239 | -66% | ||||||||||
| Loss on investment | (367,929 | ) | – | (367,929 | ) | -100% | ||||||||||
| Interest expense | (102,227 | ) | (189,415 | ) | 87,188 | -46% | ||||||||||
| Other income (expense), net | 186 | (77 | ) | 263 | 342% | |||||||||||
| Net loss | (842,341 | ) | (1,284,102 | ) | 441,761 | -34% | ||||||||||
| Deemed dividend | – | – | – | – | ||||||||||||
| Net loss attributable to common stockholders | $ | (842,341 | ) | $ | (1,284,102 | ) | $ | 441,761 | -34% | |||||||
| Basic net loss per share attributable to common stockholders | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | -59% | ||||||
| Diluted net loss per share attributable to common stockholders | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | -59% | ||||||
| 21 |
| Nine Months Ended April 30, | $ | % | ||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| In-process research and development expense | $ | – | $ | 170,000 | $ | (170,000 | ) | -100% | ||||||||
| Research and development expense | 65,766 | 393,144 | (327,378 | ) | -83% | |||||||||||
| Stock-based compensation | 1,051,671 | 1,993,631 | (941,960 | ) | -47% | |||||||||||
| General and administrative expense | 1,259,606 | 2,102,132 | (842,526 | ) | -40% | |||||||||||
| Loss from operations | (2,377,043 | ) | (4,658,907 | ) | 2,281,864 | -49% | ||||||||||
| Gain on sale of assets | 16,400,687 | – | 16,400,687 | 100% | ||||||||||||
| Loss on investment | (1,700,909 | ) | – | (1,700,909 | ) | 100% | ||||||||||
| Interest expense | (434,689 | ) | (454,907 | ) | 20,218 | -4% | ||||||||||
| Other income, net | 9,144 | 8,402 | 742 | 9% | ||||||||||||
| Net income (loss) | 11,897,190 | (5,105,412 | ) | 7,172,604 | 140% | |||||||||||
| Deemed dividend | (63,455 | ) | – | (63,455 | ) | -100% | ||||||||||
| Net income (loss) attributable to common shareholders | $ | 11,833,735 | $ | (5,105,412 | ) | $ | 16,939,147 | 332% | ||||||||
| Basic net income (loss) per share attributable to common stockholders | $ | 0.13 | $ | (0.06 | ) | $ | 0.19 | 301% | ||||||||
| Diluted net income (loss) per share attributable to common stockholders | $ | 0.11 | $ | (0.06 | ) | $ | 0.18 | 289% | ||||||||
In-Process Research and Development
In-process research and development in the nine-month period ended April 30, 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 a November 2022 Option Agreement.
Research and Development Expense
Our Research and development expense includes expenses related to our current projects, including, clinical research, design and manufacturing, formulation, regulatory and consultants.
The decreases in Research and development expense were due to the following:
| Three months ended | Nine months ended | |||||||
| April 30, 2024 compared to three months ended | April 30, 2024 compared to three months ended | |||||||
| April 30, 2023 | April 30, 2023 | |||||||
| Increase (decrease) in: | ||||||||
| Consultants | $ | (12,960 | ) | $ | 35,237 | |||
| Phase I clinical trial | (42,987 | ) | (658,857 | ) | ||||
| Australian research and development rebate | 20,907 | 290,592 | ||||||
| Phase II clinical trial | – | 10,000 | ||||||
| Regulatory | – | (4,350 | ) | |||||
| $ | (35,040 | ) | $ | (327,378 | ) | |||
The decreases in the Phase I clinical trial and the Australian research and development rebate in the nine months ended April 30, 2024, compared to the nine months ended April 30, 2023, were the result of the completion of the dosing of subject in the first quarter of fiscal 2023. No additional expenses are expected related to ONP-002 as a result of the sale of the asset to Oragenics.
| 22 |
Stock-Based Compensation
The decreases in Stock-based compensation for the three and nine months ended April 30, 2024, compared to the same periods of 2023 were due to fewer grants and unvested awards outstanding.
General and Administrative Expense
Our General and administrative expense includes salaries and related benefits for employees, business development and investor relations activities, legal and professional fees, and administrative costs related to maintaining compliance as a public company.
The changes in General and administrative expense were due to the following:
Three months ended April 30, 2024 compared to three months ended | Nine months ended April 30, 2024 compared to three months ended | |||||||
| April 30, 2023 | April 30, 2023 | |||||||
| Increase (decrease) in: | ||||||||
| Business development and investor relations | $ | (16,525 | ) | $ | (650,443 | ) | ||
| Consulting fees | (24,000 | ) | (71,000 | ) | ||||
| Insurance expense | (3,750 | ) | (8,125 | ) | ||||
| Legal and professional fees | (45,902 | ) | 9,958 | |||||
| Public Company Expense | (4,413 | ) | 25,620 | |||||
| Travel | (8,006 | ) | (21,630 | ) | ||||
| Wages | (59,249 | ) | (114,335 | ) | ||||
| Other | (22,873 | ) | (12,571 | ) | ||||
| $ | (184,718 | ) | $ | (842,526 | ) | |||
The decreases in the current fiscal year periods compared to the prior fiscal year were primarily a result of the decreases in business development activities due to limited resources and fewer employees.
Gain on Sale of Asset
The gain on sale of asset in the nine months ended April 30, 2024 relates to our sale of our 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 to Oragenics in December 2023.
Loss on Investment
Loss on investment in the three and nine months ended April 30, 2024 relates to the revaluation of the common stock of Oragenics held as an investment.
| 23 |
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 April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Weighted average debt outstanding | $ | 1,660,778 | $ | 2,263,933 | $ | 1,778,993 | $ | 1,937,564 | ||||||||
| Weighted average interest rate | 8.29% | 5.7% | 7.74% | 7.8% | ||||||||||||
The decrease in the weighted average debt outstanding for the three and nine months ended April 30, 2024, was due to the conversion of convertible debt agreements with Mast Hill, ClearThink and the two accredited investors.
Liquidity and Capital Resources
See Recent Funding above for a discussion of our recent debt and equity financings.
The following table sets forth the primary sources and uses of cash:
| Nine Months Ended April 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (1,151,509 | ) | $ | (1,354,850 | ) | ||
| Net cash provided by (used in) investing activities | 1,000,000 | (8,038 | ) | |||||
| Net cash provided by financing activities | 180,724 | 1,291,588 | ||||||
Historically, we have financed our operations primarily through debt financing, limited sales of our common stock and recently through the sale of our neurological assets to Oragenics as discussed in Note 4 of Notes to Condensed Consolidated Financial Statements. 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.
| 24 |
Debt
The following notes payable were outstanding:
| April 30, 2024 | July 31, 2023 | |||||||
| Convertible note issued to LGH due June 30, 2024, with a set interest amount of $84,000 through July 7, 2023, then an interest rate of 8.0% per annum of outstanding principal and convertible at $0.12 per share | $ | 1,035,000 | $ | 1,055,000 | ||||
| Promissory notes issued to officers and directors due July 31, 2024, with an interest rate of 8.0% per annum and convertible at $0.12 per share | 100,000 | 125,000 | ||||||
| Accredited investor promissory note due August 11, 2024, with an interest rate of 10% per annum and convertible into Oragenics common stock held by us at $2.50 per share | 50,000 | – | ||||||
| Note purchase agreement issued to two accredited investors due August 15, 2024, with an interest rate of 12% per annum | – | 150,000 | ||||||
| ClearThink convertible promissory note due December 31, 2023, with a set interest amount of $20,000 and convertible at $0.20 per share | – | 175,000 | ||||||
| Mast Hill convertible promissory note due December 13, 2024, with an interest rate of 10% per annum and convertible at $0.072 per share | 499,667 | 920,000 | ||||||
| 1,684,667 | 2,425,000 | |||||||
| Unamortized debt discount and closing costs | (84,123 | ) | (246,866 | ) | ||||
| Unamortized beneficial conversion feature | – | (33,474 | ) | |||||
| $ | 1,600,544 | $ | 2,144,660 | |||||
Australian Research and Development Rebate
In the first nine months of fiscal 2024, we incurred $43,092 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 $20,900, which was recorded as an offset to Research and development expense.
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 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are a smaller reporting company and are not required to provide information under this item.
| 25 |
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer and Chief Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of April 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, as a result of the material weaknesses in internal control over financial reporting that are described below, our disclosure controls and procedures were not effective.
As previously reported in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023, management identified the following material weaknesses in internal control over financial reporting:
Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.
We are committed to improving the internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts, which will mitigate the lack of segregation of duties until there are sufficient personnel, and (3) may consider appointing additional outside directors and audit committee members in the future.
In light of the material weakness described above, prior to the filing of this Form 10-Q for the period ended April 30, 2024, management determined that key quarterly controls were performed timely and also performed additional procedures, including validating the completeness and accuracy of the underlying data used to support the amounts reported in the quarterly financial statements. These control activities and additional procedures have allowed us to conclude that, notwithstanding the material weaknesses, the financial statements in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with United States GAAP.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
| Item 1A. | Risk Factors |
There have been no material changes during the six months ended April 30, 2024, to the risk factors discussed in our Annual Report on Form 10-K for the year ended July 31, 2023. If any of the identified risks actually occur, our business, financial condition and results of operations could suffer. The trading price of our common stock could decline and you may lose all or part of your investment in our common stock. The risks and uncertainties described in our Annual Report on Form 10-K for the year ended July 31, 2023, are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.
| Item 5. | Other Information |
During the quarter ended April 30, 2024, no director
or officer of the Company
| Item 6. | Exhibits |
The following exhibits are filed herewith and this list constitutes the exhibit index.
| Exhibit Number | Exhibit Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 1350 | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 1350 | |
| 101.INS | Inline XBRL Instances Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101). |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, as of June 14, 2024.
| ODYSSEY GROUP INTERNATIONAL, INC. | ||
| By: | /s/ Joseph Michael Redmond | |
| Joseph Michael Redmond | ||
| Chief Executive Officer, President and Director | ||
| (Principal Executive Officer) | ||
| By: | /s/ Christine M. Farrell | |
| Christine M. Farrell | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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