Odyssey Health, Inc. - Quarter Report: 2023 January (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

Form 10-Q

_________________________________

(Mark One)

☒        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2023

or

☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to             .

Commission File No. 000-56196

____________________________________

Odyssey Health, Inc.

(Exact name of registrant as specified in its charter)

____________________________________

2300 West Sahara Avenue, Suite 800 - #4012, Las Vegas, NV 89102

(Address of principal executive offices, including zip code)

(702) 780-6559

(Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

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.    Yes  ☒    No  ☐

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).    Yes  ☒    No  ☐

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)

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  ☒

77,407,879 shares of common stock, par value $.001 per share, outstanding as of March 17, 2023

ODYSSEY HEALTH, INC.

FORM 10-Q

For the Quarter Ended January 31, 2023

INDEX

PART I - FINANCIAL INFORMATION

Odyssey Health, Inc.

Consolidated Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Odyssey Health, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Odyssey Health, Inc.

Consolidated Statements of Stockholders' Deficit

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Odyssey Health, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Odyssey Health, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1.       Basis of Presentation, Nature of Operations and Going Concern

Basis of Presentation

The accompanying financial information of Odyssey Health, Inc, formerly known as Odyssey Group International, Inc. (“Odyssey”) and our wholly-owned subsidiary Odyssey Group International Australia, Pty Ltd, 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, 2022 is derived from our 2022 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 2022 Annual Report on Form 10-K filed with the SEC on October 31, 2022. 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 not changed during the six months ended January 31, 2023, from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2022.

Nature of Operations

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.

We are not currently selling or marketing any products, as our products are in development and Food and Drug Administration ("FDA") clearance or approval to market our products will be required in order to sell in the United States.

Going Concern

We did not recognize any revenues for the year ended July 31, 2022, or the six months ended January 31, 2023, and we had an accumulated deficit of $57,999,262 as of January 31, 2023. For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations. Cash available at January 31, 2023, of $35,792 may not provide enough working capital to meet our current operating expenses through March 17, 2024.

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 March 17, 2024, we will adjust our business plan. Due to the unknown and volatile nature of the stock price and trading volume of our common stock, is it is difficult to predict the timing and amount of availability pursuant to our equity line of credit with Lincoln Park Capital Fund, LLC (“LPC”). 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 FASB issued 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 have not yet determined the impact of adopting this standard on our financial position, results of operations or cash flows.

Note 3.       Intangible Assets

Intangible assets consisted of costs related to a patent for our concussion drug device combination.

Amortization expense was as follows:

Future amortization of intangible assets is as follows:

Note 4.       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 six months ended January 31, 2023, or the year ended July 31, 2022.

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 January 31, 2023.

Contingent Liabilities

At January 31, 2023 and July 31, 2022, 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 $250,000 upon FDA clearance of the device. The fair value of the contingent consideration is reviewed quarterly and determined based on the current status of the project (Level 3). We determined the value was zero as of both January 31, 2023 and July 31, 2022, since it is not yet probable that we will file for FDA clearance.

We also had contingent consideration at January 31, 2023 and July 31, 2022 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 January 31, 2023 and July 31, 2022, as it is not yet probable that any of the milestones will be met.

Fixed-Rate Debt

We have fixed-rate debt that is reported on our accompanying consolidated balance sheets at carrying value less unamortized debt discount and closing costs. The fair value of our fixed rate debt was calculated using a discounted cash flow methodology with estimated current interest rates based on similar risk profile and duration (Level 2). The carrying value, excluding unamortized debt discount and debt issuance costs, and the fair value of our fixed-rate long-term debt were as follows:

Note 5.       Debt

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.

On December 30, 2022, this promissory note was amended 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. All other terms and conditions remain the same.

LGH Investments, LLC

On September 29, 2022, we entered into Amendment No. 3 to the Convertible Promissory Note to the Securities Purchase Agreement dated April 5, 2021, with LGH Investments, LLC (“LGH”). Pursuant to the Amendment No. 3, the maturity date of the note was extended to December 31, 2022. As consideration, $115,000 was added to the principal amount outstanding and is being amortized as interest expense over the remaining term of the Note. All other terms and conditions remain the same.

On November 10, 2022, LGH provided notice to convert $300,000 of their outstanding convertible note into 1,500,000 shares of our common stock at $0.20 per share.

On December 29, 2022, we entered into Amendment No. 4 to the Convertible Promissory Note to the Securities Purchase Agreement dated April 5, 2021, with LGH. Pursuant to the Amendment No. 4, the maturity date of the note was extended to March 31, 2023. As consideration, we paid $35,000 towards the principal amount outstanding and $50,000 was added to the principal amount outstanding. All other terms and conditions remain the same. Subsequent to Amendment No. 4 and the conversion, $1,010,000 remained outstanding on the convertible note.

Directors and Officers Promissory Note Amendments

On September 30, 2022, we entered into five Promissory Note Amendments, to the Promissory Notes entered into December 21, 2021 and December 22, 2021, and as amended April 20, 2022, and June 3, 2022, with three directors and two officers. Pursuant to the Amendments, the parties have agreed to extend the maturity date of the Promissory Notes to December 31, 2022. All other terms and conditions remain the same.

On December 30, 2022, the Promissory Notes were again amended to extend the maturity date to March 31, 2023. All other terms and conditions remain the same.

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.

Notes Payable

The following notes payable were outstanding:

Note 6.       Stock-Based Compensation

2021 Omnibus Stock Incentive Plan

At January 31, 2023, 20,000,000 shares of our common stock were reserved for issuance pursuant to the 2021 Plan and 1,005,000 shares remained available for future awards.

Stock Options

Stock option activity during the six months ended January 31, 2023 was as follows:

Criteria used for determining the Black-Scholes value of options granted during the six months ended January 31, 2023 were as follows:

Restricted Stock Units (“RSUs”)

RSU activity during the six months ended January 31, 2023 was as follows:

Warrants

Warrant activity during the six months ended January 31, 2023 was as follows:

Unrecognized Compensation Costs

At January 31, 2023, we had unrecognized stock-based compensation of $1,971,976, which will be recognized over the weighted average remaining vesting period of 0.9 years.

Note 7. 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:

Note 8.       Net Loss Per Share

Basic and diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Potentially dilutive common stock and common stock equivalents, including stock options, RSUs and warrants are excluded as they would be antidilutive.

The following anti-dilutive securities were excluded from the calculations of diluted net loss per share:

Note 9.       Common Stock

Reverse Split

At our annual stockholder meeting held on January 12, 2023, the stockholders approved the proposal that granted the Board discretionary authority to amend our Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of our common stock in a range of not less than two shares and not more than 200 shares at any time on or before December 31, 2023. As determined by our Board, such stock split could be effected at a time and choosing of the Board. The amendment did not change the number of authorized shares of common stock or preferred stock or the relative voting power of our stockholders. The number of authorized shares will not be reduced. The number of authorized but unissued shares of our common stock will materially increase and will be available for re-issuance. We reserve the right not to effect any reverse stock split if the Board does not deem it to be in the best interests of our stockholders and the Board's decision as to whether and when to effect the reverse stock split will be based on a number of factors, including prevailing market conditions, existing and expected trading prices for our common stock, actual or forecasted results of operations, and the likely effect of such results on the market price of our common stock.

Common Stock for Services

In September and October 2022, in connection with entering into consulting agreements, we issued consultants 1,800,000 restricted shares of our common stock valued at an average price of $0.22 per share for a total value of $388,800 which was included in general and administrative expense in the quarter ended October 31, 2022.

Returned Shares

In September and October 2022, two shareholders returned at total of 8,800,000 common stock shares valued at $8,800 to treasury and all rights, title and interest in the shares were relinquished.

Lincoln Park

LPC purchased 2,233,591 shares at an average price of $0.20 per share for total proceeds to us of $441,030 during the six months ended January 31, 2023, pursuant to the LPC Purchase Agreement. As of January 31, 2023, there was $7,788,704 of remaining purchase availability related to the LPC Purchase Agreement. See Note 11 for information regarding purchases subsequent to January 31, 2023.

Prevacus Option Agreement

On November 21, 2022, we entered into an Option to Purchase Intellectual Property Agreement (the “Option Agreement”) with Prevacus, Inc. Subject to the terms and conditions of the Option Agreement, Prevacus granted us the right to purchase 100% of the intellectual assets at any time within 180 days of the effective date. We have the option to purchase and acquire from Prevacus, free and clear of all encumbrances, 100% of Prevacus’ right, title, and interest in the worldwide and USPTO Patents to PRV-001 and one Enantiomer. If we choose to exercise the option on either of the assets, we will complete the purchase within 90 days of exercising the option. As consideration, we issued Prevacus 1,000,000 shares of our common stock at $0.17 per share for a total value of $170,000 which was expensed as In-process research and development expense in the quarter ended January 31, 2023. The Parties agree that the compensation Odyssey will pay to Prevacus for 100% of PRV-001 will be 2,000,000 shares of Odyssey Common Stock and the consideration for the enantiomer will be 1,000,000 shares of Odyssey Common Stock. The total purchase price will be net of any equity paid to purchase the Option.

Note 10.        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 consolidated balance sheets:

The amount of unpaid salary and bonus due to our officers was included in accrued wages within the accompanying consolidated balance sheets and was as follows:

Promissory Notes

In December 2021, we entered into a total of five 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 $125,000. These notes bear interest at 8% per annum and are due March 31, 2023.

Note 11.       Subsequent Events

Subsequent to January 31, 2023 and through March 17, 2023, we sold an additional 1,100,000 shares of our common stock to LPC for total proceeds of $115,270. As of March 17, 2023, LPC had purchased a total of 7,082,518 shares of our common stock for total proceeds of $2,576,566 and the remaining purchase availability was $7,673,433 and the remaining shares available were 12,188,846. Pursuant to our agreement with Mast Hill, we are required to notify Mast Hill of any draws on the LPC equity line of credit and at their request remit 30% of the proceeds. As of March 17, 2023, we have accrued $34,581.

On March 14, 2023, we entered into a Second Amendment to the Convertible Promissory Note (the “Second Amendment”) to the Securities Purchase Agreement dated August 29, 2021, with Tysadco. Pursuant to the Second Amendment, the parties agreed to extend the maturity date of the note to December 31, 2023. As consideration, the conversion price was amended to $0.20 per share from $0.30 per share and, upon execution, we converted $100,000 of the note into 500,000 shares of our Common Stock. Subsequent to this conversion, $175,000 remained outstanding on the note. In addition, Tysadco assigned this note to ClearThink Capital Partners LLC.

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, 2022 (“2022 Annual Report”) and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). We believe these risks and uncertainties could cause actual results or events to differ materially from the forward-looking statements that we make. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance or financial condition may vary materially and adversely from those anticipated, estimated or expected. Our forward-looking statements do not reflect the potential impact of future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We do not assume any obligation to update any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise, except as required by law. In the light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Overview

Our business model is to develop or acquire unique medical related products, engage third parties to manufacture such products and then distribute the products through various distribution channels, including third parties. We 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 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 effort as we move closer to regulatory approvals. 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

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.

LPC Purchase Agreement Draws

During the six months ended January 31, 2023, LPC purchased a total of 2,233,591 shares of our common stock for total proceeds of $441,030 pursuant to the August 14, 2020, LPC Purchase Agreement. Subsequent to January 31, 2023 and through March 17, 2023, we sold an additional 1,100,000 shares of our common stock to LPC for total proceeds of $115,270. As of March 17, 2023, LPC had purchased a total of 7,082,518 shares of our common stock for total proceeds of $2,576,566 and the remaining purchase availability was $7,673,433 and the remaining shares available were 12,188,846.

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. On December 30, 2022, this promissory note was amended to extend the maturity date to January 31, 2023. On January 31, 2023, the note was extended to June 30, 2023.

Going Concern

See Note 1 of Notes to Financial Statements.

Significant Accounting Policies and Use of Estimates

During the six months ended January 31, 2023, 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, 2022, which was filed with the Securities and Exchange Commission on October 31, 2022.

Results of Operations

We do not currently sell or market any products and we did not have any revenue in the three or six month periods ended January 31, 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.

In-Process Research and Development

In-process research and development in the three and six-month periods ended January 31, 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 9.

Research and Development Expense

Our Research and development expense includes expenses related to our current projects and include, clinical research, design and manufacturing, formulation, regulatory and consultants.

The decreases in Research and development expense were due to the following:

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 the three month ended January 31, 2023, as compared to the increase in the six months ended January 31, 2023, is the result of the completion of dosing patients the Phase I clinical trial of our concussion drug device trial in first quarter of fiscal 2023.

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 changes in General and administrative expense were due to the following: 

The increases in board and stock expense were due to the vesting of restricted stock units. The increases in business development and investor relations were a result of increased activities related to business development. The decreases in wages were due to the $400,000 bonus granted to our executive officers 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:

The increases in the weighted average debt outstanding were due to the addition of principal to both the LGH and Tysadco notes in exchange for extending the maturity date of the notes. In addition, we issued a $30,000 promissory note during the first quarter of fiscal 2023 and an $870,000 promissory note during the second quarter of fiscal 2023.

The decreases in the weighted average interest rates were due to the extension of maturity dates on the LGH and Tysadco notes that have flat interest rates.

Other Income, net

Other income, net in the three and six months ended January 31, 2022, included a donation in the amount of $500,000 in partnership with the Erase PTSD Now organization and the Glenn Greenberg and Linda Vester Foundation. Other income, net in all periods includes foreign exchange gains and losses related to invoices denominated and paid in foreign currencies.

Net Loss

Net loss decreased in the three months ended January 31, 2023, compared to the same period of the prior year due to decreased research and development expense, general and administrative expense and interest expense as discussed above. Net loss increased in the six months ended January 31, 2023, compared to the same period of the prior year due to increased general and administrative expense, partially offset by decreased research and development expense and interest expense as discussed above.

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:

To date, we have financed our operations primarily through debt financing and limited sales of our common stock. Our ability to continue to access capital could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If these conditions continue and we cannot raise funds through a public or private debt financing, or an equity offering, our ability to grow our business may be negatively affected. In such case, we may need to suspend the creation of new products until market conditions improve.

Debt

The following notes payable were outstanding:

Australian Research and Development Rebate

In the first six months of fiscal 2023, we incurred $658,962 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 $323,263, 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.

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.

We are a smaller reporting company and are not required to provide information under this item.

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 January 31, 2023. 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 January 31, 2023, 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, 2022 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 January 31, 2023, 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. 

PART II - OTHER INFORMATION

There have been no material changes during the six months ended January 31, 2023, to the risk factors discussed in our Annual Report on Form 10-K for the year ended July 31, 2022. 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, 2022 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.

The following exhibits are filed herewith and this list constitutes the exhibit index.

* Management or compensatory agreement.

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 March 17, 2023.