Notes to Financial Statements
(Unaudited)
The accompanying financial information of Odyssey Group
International, Inc. as of and for the period ended January 31, 2020, has been prepared pursuant to the rules and regulations
of the United States Securities and Exchange Commission (“SEC”) applicable to interim financial information and is
unaudited. Accordingly, certain information normally included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) has been condensed and/or omitted. The results
for the interim period are not necessarily indicative of the results to be expected for the full year. In the opinion of management,
the accompanying unaudited interim financial statements contain all necessary adjustments, consisting only of those of a recurring
nature, and disclosures to present fairly our financial position and the results of our operations and cash flows for the periods
presented. These unaudited interim financial statements should be read in conjunction with the financial statements and the related
notes thereto included in our Form 10-K for the year ended July 31, 2019, filed with the SEC on October 23,2019,
as amended by the filing of Form 10K/A filed with the Securities and Exchange Commission on November 13, 2020.
1. Nature of Operations
The corporate mission is to create or acquire distinct assets,
intellectual property, and technologies with an emphasis on acquisition targets that have clinical utility and will generate positive
cash flow. Our business model is to develop or acquire medical related products, engage third parties to manufacture such products
and then distribute the products through various distribution channels, including third parties. The Company has made significant
investments in three different life saving technologies; the CardioMap® heart monitoring and screening device, the Save a Life
choking rescue device and a unique neurosteroid drug compound intended to treat rare brain disorders. 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.
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.
2. Restatement for Correction of an Error
The Company has determined that the research and developments
costs previously capitalized in the intangible assets should be recognized as research and development expenses to be in compliance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 730
Research and Development (ASC 730-10-25-2(c)). Pursuant to ASC 730-10-25-2(c), intangibles purchased from others for use in particular
research and development projects and that have no alternative future use, in research and development or otherwise, represent
costs of research and development as acquired, and therefore are expensed when incurred. In the Affected Reports the Company recorded
such development cost as intangible assets.
During the year ended July 31, 2019, the Company acquired and
capitalized the following intangible assets. The Company acquired the patent related to the exclusive license and distribution
rights of the CardioMap®, which is intended to be an advanced technology for early non-invasive testing for heart disease.
The license to the patent and product distribution rights were being amortized over the life of the underlying patent. The acquisition
cost was $18.75 million. The Company acquired the patents for an anti-choking, life-saving medical device from Dr. James De Luca,
inventor, and Murdock Capital Partners. The asset was valued at $675,400. The Company acquired an interest in the patented chemical
compound for a neurosteroid as part of an agreement with Prevacus, Inc. The acquisition cost of $3.73 million was being amortized
over the life of the patent. The intellectual property, know-how and patents were being amortized over the life of the patents.
The adjustments required to correct the foregoing treatment
of such costs for the three and six months ended January 31, 2020 resulted in a non-cash increase in research & development
expense and a decrease of intangible assets of $22,032,061, a decrease in contingent liability of $144,000. For the three and six
months ended January 31, 2020 and 2019, general and administrative expense decreased $546,845 and $1,092,510, respectively, due
to the reduction in amortization expense related to the intangible assets.
In addition to the restatement of the financial statements,
certain information within the following notes to the financial statements have been restated to reflect the correction of a misstatement
discussed above as well as to add disclosure language as appropriate:
Note 3. Summary of Significant Accounting
Policies
Note 5. Intangible Assets
Note 10. Income Taxes
Note 11. Going Concern
Note 12. Related Party Transactions
The financial statement misstatements reflected in the table
below did not impact cash flows from operations, investing, or financing activities in the Company’s statements
of cash flows for any period previously presented.
Comparison of restated financial statements to financial
statements as previously reported
The following tables compare the Company’s previously
issued Balance Sheet, Statement of Operations, Statements of Stockholders’ Equity (Deficiency), and Statement of Cash Flows
as of January 31, 2020 and for the three months and six months then ended to the corresponding restated financial statements for
that period end.
Odyssey Group International, Inc.
Balance Sheets
(Unaudited)
|
|
As of January 31, 2020
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,759
|
|
|
$
|
–
|
|
|
$
|
2,759
|
|
Prepaid expenses
|
|
|
295,129
|
|
|
|
–
|
|
|
|
295,129
|
|
Total current assets
|
|
|
297,888
|
|
|
|
–
|
|
|
|
297,888
|
|
Property and equipment, net
|
|
|
1,241
|
|
|
|
–
|
|
|
|
1,241
|
|
Intangible assets, net
|
|
|
22,042,061
|
|
|
|
(22,032,061
|
)
|
|
|
10,000
|
|
Total assets
|
|
$
|
22,341,190
|
|
|
$
|
(22,032,061
|
)
|
|
$
|
309,129
|
|
Liabilities and Stockholders' Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
30,128
|
|
|
$
|
–
|
|
|
$
|
30,128
|
|
Accrued wages
|
|
|
310,134
|
|
|
|
–
|
|
|
|
310,134
|
|
Contingent liability
|
|
|
144,000
|
|
|
|
(144,000
|
)
|
|
|
–
|
|
Notes payable, including accrued interest
|
|
|
994,566
|
|
|
|
–
|
|
|
|
994,566
|
|
Total liabilities
|
|
|
1,478,828
|
|
|
|
(144,000
|
)
|
|
|
1,334,828
|
|
Stockholders' equity (deficiency):
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Preferred stock, $.001 par value; 100,000,000 shares authorized, no shares issued or outstanding
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Common stock, $.001 par value; 500,000,000 shares authorized with 87,190,400 and 86,990,400 issued and outstanding
|
|
|
87,190
|
|
|
|
–
|
|
|
|
87,190
|
|
Additional paid-in capital
|
|
|
25,406,541
|
|
|
|
–
|
|
|
|
25,406,541
|
|
Deficit
|
|
|
(4,631,369
|
)
|
|
|
(21,888,061
|
)
|
|
|
(26,519,430
|
)
|
Total stockholders’ equity (deficiency)
|
|
|
20,862,362
|
|
|
|
(21,888,061
|
)
|
|
|
(1,025,699
|
)
|
Total liabilities and stockholders’ equity (deficiency)
|
|
$
|
22,341,190
|
|
|
$
|
(22,032,061
|
)
|
|
$
|
309,129
|
|
Odyssey Group International, Inc.
Statements of Operations
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
January
31, 2020
|
|
|
January 31,
2020
|
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expense
|
|
|
1,045,419
|
|
|
|
(545,665
|
)
|
|
|
499,754
|
|
|
|
2,914,985
|
|
|
|
(1,092,510
|
)
|
|
|
1,822,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,045,419
|
)
|
|
|
545,665
|
|
|
|
(499,754
|
)
|
|
|
(2,914,985
|
)
|
|
|
1,092,510
|
|
|
|
(1,822,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(101,191
|
)
|
|
|
–
|
|
|
|
(101,191
|
)
|
|
|
(195,082
|
)
|
|
|
–
|
|
|
|
(195,082
|
)
|
Net loss
|
|
$
|
(1,146,610
|
)
|
|
$
|
545,665
|
|
|
$
|
(600,945
|
)
|
|
$
|
(3,110,067
|
)
|
|
$
|
1,092,510
|
|
|
$
|
(2,017,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share:
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares
|
|
|
87,123,009
|
|
|
|
87,123,009
|
|
|
|
87,123,009
|
|
|
|
87,167,772
|
|
|
|
87,167,772
|
|
|
|
87,167,772
|
|
Odyssey Group International, Inc.
Statements of Stockholders’ Equity
(Deficiency)
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
January
31,
|
|
|
January
31,
|
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
25,041,856
|
|
|
$
|
–
|
|
|
$
|
25,041,856
|
|
|
$
|
23,908,114
|
|
|
$
|
–
|
|
|
$
|
23,908,114
|
|
Common stock issued for services
|
|
|
451,875
|
|
|
|
–
|
|
|
|
451,875
|
|
|
|
1,500,187
|
|
|
|
–
|
|
|
|
1,500,187
|
|
Warrants and beneficial
conversion feature issued in connection with convertible notes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
85,430
|
|
|
|
–
|
|
|
|
85,430
|
|
Note payable converted to common stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Common stock issued for compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Balance, end of period
|
|
|
25,493,731
|
|
|
|
–
|
|
|
|
25,493,731
|
|
|
|
25,493,731
|
|
|
|
–
|
|
|
|
25,493,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
(3,484,759
|
)
|
|
|
(22,433,726
|
)
|
|
|
(25,918,485
|
)
|
|
|
(1,521,302
|
)
|
|
|
(22,980,571
|
)
|
|
|
(24,501,873
|
)
|
Net loss
|
|
|
(1,146,610
|
)
|
|
|
545,665
|
|
|
|
(600,945
|
)
|
|
|
(3,110,067
|
)
|
|
|
1,092,510
|
|
|
|
(2,017,557
|
)
|
Balance, end of period
|
|
|
(4,631,369
|
)
|
|
|
(21,888,061
|
)
|
|
|
(26,519,430
|
)
|
|
|
(4,631,369
|
)
|
|
|
(21,888,061
|
)
|
|
|
(26,519,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’
equity (deficiency)
|
|
$
|
20,862,362
|
|
|
$
|
(21,888,061
|
)
|
|
$
|
(1,025,699
|
)
|
|
$
|
20,862,362
|
|
|
$
|
(21,888,061
|
)
|
|
$
|
(1,025,699
|
)
|
Odyssey Group International, Inc.
Statement of Cash Flows
(Unaudited)
|
|
Six Months Ended
|
|
|
|
January 31, 2020
|
|
|
|
As Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,110,067
|
)
|
|
$
|
1,092,510
|
|
|
$
|
(2,017,557
|
)
|
Adjustments to reconcile to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,097,786
|
|
|
|
(1,092,510
|
)
|
|
|
5,276
|
|
Amortization of beneficial conversion feature related to convertible notes
|
|
|
138,422
|
|
|
|
–
|
|
|
|
138,422
|
|
Stock based payment expense for consulting and compensation
|
|
|
1,500,187
|
|
|
|
–
|
|
|
|
1,500,187
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in other current assets
|
|
|
7,704
|
|
|
|
–
|
|
|
|
7,704
|
|
(Decrease)/increase in accounts payable
|
|
|
(17,615
|
)
|
|
|
–
|
|
|
|
(17,615
|
)
|
Increase in accrued wages
|
|
|
12,587
|
|
|
|
–
|
|
|
|
12,587
|
|
Increase in consulting fees charged to notes payable
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Increase in accrued interest
|
|
|
56,660
|
|
|
|
–
|
|
|
|
56,660
|
|
Net cash used in operating activities
|
|
|
(314,336
|
)
|
|
|
–
|
|
|
|
(314,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
150,000
|
|
|
|
–
|
|
|
|
150,000
|
|
Net cash provided by financing activities
|
|
|
150,000
|
|
|
|
–
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(164,336
|
)
|
|
|
–
|
|
|
|
(164,336
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
167,095
|
|
|
|
–
|
|
|
|
167,095
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,759
|
|
|
$
|
–
|
|
|
$
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature related to convertible notes
|
|
$
|
85,430
|
|
|
|
–
|
|
|
$
|
85,430
|
|
3. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with
GAAP generally requires management to make estimates and assumptions that affect amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Basis of accounting
The Company has not elected to adopt the option available under
GAAP to measure any of its eligible financial instruments or other items at fair value. Accordingly, the Company measures all
of its assets and liabilities on the historical cost basis of accounting unless otherwise required by GAAP.
Accounts receivable
Accounts receivable are carried at their estimated collectible
value, net of an appropriate allowance for doubtful accounts, which is adjusted as necessary based primarily on management's evaluation
of customers' past credit history and known or estimated current financial condition, the Company's relationship with the customer,
current economic conditions, the historical results of, and recent trends in, the Company's collection efforts. The Company manages
credit risk by evaluating the credit worthiness of significant customers prior to extending credit and thereafter. Accordingly,
accounts receivable and the related allowance are evaluated periodically for collectability.
Property and equipment, net
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets. For each the six months ended
January 31, 2020, and 2019, the Company recognized depreciation expense of $276.
Beneficial Conversion Feature of convertible notes payable
The Beneficial Conversion Feature ("BCF") of a convertible
note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion
that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note
when issued and also records the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion
features that are contingent upon the occurrence of a future event are recorded upon the occurrence of the event.
The BCF of a convertible note is measured by allocating a portion
of the note's proceeds to the warrants, if applicable, and as a reduction of the carrying amount of the convertible note equal
to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The value of the proceeds
received from a convertible note is then allocated between the conversion features and warrants on an allocated fair value basis.
The allocated fair value is recorded in the financial statements as a debt discount (premium) from the face amount of the note
and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner)
and is charged to interest expense.
Net loss per share
Basic net loss per share is calculated by dividing the net
loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents.
No fully diluted loss per share is presented, because it would be anti-dilutive.
Revenue recognition
The Company recognizes revenue when control is transferred
to the customer. For products sold through direct sales representatives, control is transferred upon shipment or upon delivery,
based on the contract terms and legal requirements. Payment terms vary depending on the country of sale, type of customer, and
type of product. If a contract contains more than one performance obligation, the transaction price is allocated to each performance
obligation based on relative standalone selling price. Shipping and handling is treated as a fulfillment activity rather than
a promised service, and therefore, is not considered a performance obligation. Taxes assessed by a governmental authority that
are both imposed on, and concurrent with, a specific revenue producing transaction and collected by the Company from customers
(for example, sales, use, value added, and some excise taxes) are not included in revenue. For contracts that have an original
duration of one year or less, the Company uses the practical expedient applicable to such contracts and does not adjust the transaction
price for the time value of money. We are not currently selling or marketing any products, as our products are in late stage development
and FDA clearance to market our products will be required in order to sell in the United States.
Research and development expense
Research and development costs are expensed in the period
when incurred. For each the six months ended April 30, 2020, and 2019, the Company recognized research and development expense
of $10,000 and zero, respectively.
Income taxes
Income taxes are accounted for based upon an asset and liability
approach. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability
and its reported amount in the financial statements. Deferred tax amounts are determined using the tax rates expected to be in
effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit
is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities
during the period.
Accounting guidance requires the recognition of a financial
statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the
position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with
the relevant tax authority. The Company believes its income tax filing positions and deductions will be sustained upon examination
and accordingly, no reserves, or related accruals for interest and penalties have been recorded at January 31, 2020 and 2019. The
Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements
within income tax expense.
On December 22, 2017, the President of the United States signed
and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after
January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various
provisions that are expected to impact the Company. The Tax Reform Law reduces the federal corporate tax rate from 34% to 21% effective
January 1, 2018. The Company analyzed the provisions of the Tax Reform Law to assess the impact on the Company’s financial
statements and determined it had no material impact.
4. Impact of New Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting
Standards Board (“FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s Accounting
Standards Codification. The Company considers the applicability and impact of all ASUs.
The FASB issued ASU 2017-11, Earnings Per Share (Topic
260) effective for annual reporting periods beginning after December 15, 2018. The amendments update the change in the classification
analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether
certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes
equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify
existing disclosure requirements for equity-classified instruments. This new guidance is effective for interim and annual reporting
periods beginning after December 15, 2018 and interim periods, with early adoption permitted. The Company adopted the standard
as of August 1, 2019, which did not have a material impact on the Company’s financial statements and disclosures.
The FASB issued ASU 2017-09, Compensation-Stock Compensation
(Topic 718): Scope of Modification Accounting, effective for annual reporting periods beginning after December 15, 2017 adopting
this standard on its financial statements. The ASU amends the scope of modification accounting for share-based payment
arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity
would be required to apply modification accounting. The new guidance will allow companies to make certain changes to awards without
accounting for them as modifications. It does not change the accounting for modifications. The new guidance will be applied prospectively
to awards modified on or after the adoption date. This new guidance is effective for interim and annual reporting periods beginning
after December 15, 2018. The Company adopted the standard as of August 1, 2019, which did not have a material impact on the Company’s
financial statements and disclosures.
The FASB issued ASU 2016-02, Leases (Topic 842),
which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities
on the balance sheet and disclosing key information about leasing arrangements. The guidance requires lessees and lessors to recognize
and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02
is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with
early adoption permitted. The Company adopted the standard as of August 1, 2019, which did not have a material impact on the Company’s
financial statements and disclosures.
5. Intangible Assets
FASB ASC 820, Fair Value Measurements and Disclosures,
establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under FASB ASC 820 are described 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 assets or liabilities fair value measurement level within the fair value hierarchy is based on the lowest level.
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
the Company believes its 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.
6. Notes Payable
The Company has a note payable that is subject to conversion
upon an equity financing in the Company. As of January 31, 2020, the note has a balance of $783,783, and bears interest at 12.5%
per annum. Because the conversion feature does not meet the criteria for characterization as a beneficial conversion feature, no
portion of the proceeds from the issuance of the note was accounted for as attributable to the conversion feature. This note was
amended on February 1, 2018, where the debt holder agreed to convert portions of its loan pari passu with any new investment raise
of $500,000 or more. The Company issued the debt holder a common stock warrant for 4 million shares at $0.25 per share which expired
on July 15, 2018.
As of January 31, 2020, the Company has four additional convertible
debt notes outstanding with a balance of $210,783. The notes bear interest at 7.0% annually and the entire outstanding principal
amount, together with accrued interest shall become due and payable on the date that is one (1) year from the date of issuance,
unless before such date, is converted into shares of capital stock of the Company. At the option of the holder, the principal
amount of the notes and any accrued interest may be converted into shares of common stock at a conversion price of $1.00 per share
or at a 10% discount to the closing price on the day of conversion, but not lower than $0.50 per share. At maturity, and subject
to a trickle out agreement, the Company shall have the right to either pay off the loan and any interest accrued or convert the
loan amount and any interest into shares of common stock. The debt holders were issued a common stock warrant equal to 10% of
the note with a price of $1.50 per share and a term for one year from the investment date. Because the conversion feature met
the criteria for characterization as a beneficial conversion feature, a portion of the proceeds, including warrants, of which
$151,491 from the issuance of the notes are accounted for as attributable to the conversion feature.
7. Fair Value Measurements
The carrying values of cash, the note receivable, and notes
payable approximate their estimated fair values because of the short-term nature of these instruments.
8. Common Stock
On January 9, 2019, Vivakor, Inc. (“Vivakor”) gave
written notice to the Company effecting a conversion of $25,314 of convertible debt into 2,531,400 shares of Common Stock of the
Company, issued to Vivakor pursuant to the Master Revolving Note, dated as of January 4, 2017, and amended as of February 1, 2018,
by and between the Company and Vivakor.
On April 17, 2019, the Company entered into an agreement for
consulting services to be provided through April 2020. The Company granted the consultant 100,000 shares of the Company’s
common stock.
On May 22, 2019, the Company entered into employment agreements
for two part-time employees. The Company granted the employees 10,000 shares each of the Company’s common stock.
On March 22, 2019, April 17, 2019, June 1, 2019, and July 26,
2019, the Company entered into agreements for consulting services for the next 12 months. The Company granted the consultants
a total of 305,000 shares of the Company’s common stock.
On June 27, 2019, Odyssey entered into a Definitive Agreement
with Prevacus to form a Joint Venture relating to the development of a neurosteroid for treating two orphan disorders, ALS and
Niemann Picks disease. Prevacus will contribute to the JV, the chemical compound and Odyssey will be responsible for funding the
JV through Phase One clinical trials. The JV company will own the patents. Each party will own the JV company equally. In addition
to the JV, the two companies have entered into a share exchange agreement whereby Prevacus will receive three million shares of
Odyssey common stock and Odyssey will receive one million shares of Prevacus stock. The chemical compound for the neurosteroid
being developed has issued patents, and as consideration for the patented compound, Odyssey issued Prevacus two million shares
of its common stock. As part of the Agreement, Dr. Jacob Vanlandingham Ph.D., CEO of Prevacus, was issued one million shares of
the Company’s common stock. The Company allocated 984,000 shares to the acquisition of the patent and 16,000 shares were
allocated to Dr. Vanlandingham as a Director of the Company.
On June 27, 2019, Odyssey entered into a Definitive Agreement
with Dr. James De Luca, inventor and Murdock Capital Partners, advisors to De Luca, to acquire the intellectual property, know-how
and patents for a life-saving medical device currently in development. The Company acquired intellectual property rights, namely,
United States Letters Patent No. 7,559,921, entitled “Device for Removing a Lodged Mass” which issued on July 14,
2009 and which was reissued on June 2, 2015 and received U.S. Reissue Patent No. Re 45,535 and United States Patent Number 8,454,624
also entitled “Device for Removing a Lodged Mass” which was issued on June 4, 2013. As consideration for the patent
and intellectual property, the Company granted stock options totaling 600,000 shares of the Company’s stock, vesting on
certain milestones. The options will be split between De Luca and MCP. The Company also granted De Luca, 20,000 common shares.
A onetime cash payment totaling $250,000 will be paid to De Luca and MCP upon FDA clearance of the product. The payment is recorded
as a contingent liability and, based upon an independent valuation of the patents, at January 31, 2020, the payment has a fair
market value of $144,000.
On December, 1, 2019, the Company entered into a corporate
development, investor relations and advisory agreement. The agreement is for twelve (12) months commencing on December 1, 2019
and provides for a monthly cash fee, provided the Company has sufficient funds to pay. Fees accrue until the Company has $250,000,
and then all accrued and earned compensation up to $30,000 will be paid. Upon mutual agreement, the accrued cash fee may be converted
into equity at an agreed upon price per share. In addition, the Company will issue 200,000 shares of common stock, 50,000 shares
vesting quarterly, beginning December 1, 2019.
9. Stock Based Compensation
We have not adopted any equity compensation plans. We have entered
into an individual compensation plan for Mr. Redmond, for which Mr. Redmond has been granted stock options of 15 million shares
at $0.25 per share. The options vest upon achieving the following milestones: 5 million options vest upon each milestone, when
the Company obtains revenue of $5 million, $10 million and $15 million. Mr. Redmond cannot sell any of the above stock options
for two years from the effective date of the employment agreement or until the Company reaches $10 million in annual revenue, whichever
occurs first. The stock option vesting accelerates and becomes immediately exercisable upon the sale, merger or any transaction
resulting in the majority (more than 50%) of the Company stock being obtained. The Company has not recorded any expense, as we
have not determined that it is probable that the milestones will be achieved.
On August 15, 2019, the Company amended its agreement with its
financial consultant to included monthly payments of $5,000 and 200,000 stock options to be granted stock in accordance with the
mutual agreement of the Board’s compensation committee. As of January 31, 2020, the stock options have not been issued.
On August 20, 2019, the Company entered into a consulting agreement
for research and development associated with the CardioMap®. The consultant will receive monthly payments of $5,000 and 2.0
million stock options, vesting upon certain milestone achievements. As of January 31, 2020, the stock options have not been issued.
On August 28, 2019, Mr. Jeff Conroy joined the Board of Odyssey
as an independent director. On September 20, 2019, Mr. Jerry Casey joined the Board of Odyssey as an independent director. On October
23, 2019, Mr. John Gandolfo joined the Board of Odyssey as an independent director and has been elected chair of the audit committee.
All Directors are compensated with stock in accordance with the mutual agreement of the Board’s compensation committee. As
of January 31, 2020, the Company recognized $1,235,187 in board compensation expense.
10. Income Taxes
We file income tax returns in the U.S. federal
jurisdiction and the various states in which we operate. The Company registered with the Franchise Tax Board in the State of
California in tax year 2020, but was not required to file a tax return for tax year 2019. The Company’s tax returns
are currently not under examination for any year. The Company’s deferred tax assets consist of federal net operating
loss carryforwards that expire through the year 2035. The deferred tax assets are net of a 100% valuation allowance as it is
more likely than not at this time that the deferred tax assets will not be realized within the carryforward period due to
substantial uncertainty as to the Company’s ability to continue as a going concern (Note 11).
The following table reconciles the U.S.
federal statutory rate to the Company’s effective tax rate:
|
|
Three months ended January 31,
|
|
|
Six months ended January 31,
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
US federal statutory rates
|
|
|
21%
|
|
|
|
21%
|
|
|
|
21%
|
|
|
|
21%
|
|
Valuation allowance
|
|
|
(21%
|
)
|
|
|
(21%
|
)
|
|
|
(21%
|
)
|
|
|
(21%
|
)
|
Effective tax rate
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
The Company’s tax provision (benefit) was as follows:
|
|
January 31, 2020
|
|
|
July 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Current deferred
|
|
$
|
(88,900
|
)
|
|
$
|
(246,200
|
)
|
Increase in valuation allowance
|
|
|
88,900
|
|
|
|
246,200
|
|
Total
|
|
$
|
–
|
|
|
$
|
–
|
|
The Company’s net deferred tax asset as of January 31,
2020 and July 31, 2019 is as follows:
|
|
January 31, 2020
|
|
|
July 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Deferred tax asset
|
|
$
|
(335,100
|
)
|
|
$
|
(246,200
|
)
|
Valuation allowance
|
|
|
335,100
|
|
|
|
246,200
|
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
As of January 31, 2020, the Company had $1,244,703 of federal
net operating loss carry forwards. These carry forwards, if not used, will begin to expire in 2035. Current or future ownership
changes, including issuances of common stock under the terms of the Company’s convertible notes payable may severely limit
the future realization of these net operating losses.
The Company provides for a valuation allowance when it is more
likely than not that they will not realize a portion of the deferred tax assets. The Company has established a valuation allowance
against their net deferred tax asset due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions
to utilize the assets. Therefore, they have not reflected any benefit of such deferred tax assets in the accompanying financial
statements. The Company’s net deferred tax asset and valuation allowance increased by $88,900 for the six months ended January
31, 2020, related to the current year activity.
The Company has reviewed all income tax positions taken or that
are expected to be taken for all open years and determined that their income tax positions are appropriately stated and supported
for all open years. The Company is subject to U.S. federal income tax examinations by tax authorities for years after 2019 due
to unexpired net operating loss carryforwards originating in and subsequent to that year. The Company may be subject to income
tax examinations for the various taxing authorities which vary by jurisdiction.
The Company’s policy is to record interest and penalties
associated with unrecognized tax benefits as additional income taxes in the statements of operations. As of January
31, 2020, there were no unrecognized tax benefits, or any tax related interest or penalties.
The Company does not have any examinations ongoing. Tax returns
for the years 2014 onwards are subject to federal, state or local examinations.
11. Going Concern
We have a deficit of $26,519,430 as of January 31, 2020. For
the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as our management
executes our current business plan. The cash available at January 31, 2020, of $2,759, may not provide enough working capital to
meet our current operating expenses through March 12, 2021, as we continue to accrue overhead expenses. We will need to raise additional
capital through a debt financing or equity offering to meet our operating and capital needs. There can be no assurance, however,
that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all.
If we are unable to raise additional capital by March 12, 2021,
we will adjust our current business plan. Due to our lack of additional committed capital, recurring losses, negative cash flow
and accumulated deficit, there is substantial doubt about the Company’s ability to continue as a going concern.
12. Related Party Transactions
The Company has a common officer with Green Energy Alternatives,
Inc. As of July 31, 2019, and 2018, Green Energy Alternatives, Inc. held 5.3 million shares of the Company’s common stock.
Due to officers
During the three months ended January 31, 2020, officers of
the Company incurred $5,000 in accrued expenses and the amount is included in accounts payable at January 31, 2020.
Accounts Payable
|
|
Six months ended
|
|
|
Year Ended
|
|
|
|
January 31, 2020
|
|
|
July 31, 2019
|
|
Joseph M. Redmond, CEO
|
|
$
|
1,500
|
|
|
$
|
30,060
|
|
Christine Farrell, Controller
|
|
|
20,000
|
|
|
|
–
|
|
Total
|
|
$
|
21,500
|
|
|
$
|
30,060
|
|
Accrued Compensation
|
|
Total
|
|
Balance 7/31/2018
|
|
$
|
80,000
|
|
2019 Salary
|
|
|
120,000
|
|
Payments
|
|
|
(18,462
|
)
|
Balance 7/31/2019
|
|
$
|
181,538
|
|
Salary
|
|
|
27,692
|
|
Payments
|
|
|
(55,385
|
)
|
Balance 10/31/2019
|
|
$
|
153,846
|
|
Salary
|
|
|
32,308
|
|
Payments
|
|
|
(27,692
|
)
|
Balance 01/31/2020
|
|
$
|
158,461
|
|
It has been determined that Dr. Vanlandingham is considered
a related party due to his affiliation with Prevacus, Inc. as its president and his position on the Board of Directors, as a result
of the agreement that was entered into in June 2019. At the time of the agreement and appointment to the Board, he was not a considered
a related party. The Company allocated 984,000 shares to the acquisition of the patent and 16,000 shares were allocated to Dr.
Vanlandingham as a Director of the Company. His affiliation has been disclosed in filings but not as a related party transaction.
13. Subsequent Events
We have evaluated subsequent events and, except for the transactions
described below, there were no other events relative to the financial statements that require additional disclosure.
On February 5, 2020, the Company entered into a consulting agreement
with the appointment of Mike Contarino as head of Product Development. Mr. Contarino will receive monthly payments of $2,500 and
50,000 restricted stock units vesting over time.
On February 19, 2020, the Company and Prevacus, Inc. amended
the Master Agreement for a Joint Venture and Intellectual Property Purchase Agreement, dated June 26, 2019, to extend the timing
of the formation of the Joint Venture to April 19, 2020.
On February 19, 2020, February 26, 2020, March 2, 2020 and March
3, 2020, the Company entered into five convertible note payables for a total of $150,000. The notes bear interest at 7.0% annually
and mature automatically. The entire outstanding principal amount, together with accrued interest shall become due and payable
on the date that is one (1) year from the date of issuance, unless converted into shares of capital stock of the Company at one
dollar ($1.00) per share or at a 10% discount to the market price on the date of conversion, but not less than eighty cents ($0.80)
per share. Warrants equal to 10% of the shares purchased were issued to the note holders. The price of the warrant is $1.50 per
share and the term is for one year from the investment date.
On February 28, 2020, the Company entered
into an agreement with Majic LLC, which specializes in Systems Engineering of medical devices integrating software, hardware, regulatory
and manufacturing to ensure consistent quality in high volume production. Majic will implement its Systems Engineering approach
to assist Odyssey on both CardioMap and Save a Life choking rescue device, to ensure the products are integrated properly and address
all regulatory requirements. The agreement calls for fees to be paid on a time and material basis.
Item 2.
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This 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. We have included important risks and uncertainties
in the cautionary statements included in this report, particularly the section titled “Risk Factors” incorporated by
reference herein. 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
We have a deficit of $26,519,430
as of January 31, 2020. For the foreseeable future, we expect to experience continuing operating losses and negative
cash flows from operations as our management executes our current business plan. The cash of $2,759 available at January 31, 2020,
may not provide enough working capital to meet our current operating expenses through March 12, 2021, as we continue to accrue
overhead expenses. We will need to raise additional capital through a debt financing or equity offering to meet our operating
and capital needs. There can be no assurance, however, that we will be successful in our fundraising efforts or that additional
funds will be available on acceptable terms, if at all.
If we are
unable to raise additional capital by March 12, 2021, we will adjust our current business plan. Due to our lack of additional committed
capital, recurring losses, negative cash flow and accumulated deficit, there is substantial doubt about the Company’s
ability to continue as a going concern.
Restatement for Correction of an Error
The Company has determined that the research
and developments costs previously capitalized in the intangible assets should be recognized as research and development expenses
to be in compliance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 730 Research and Development (ASC 730-10-25-2(c)). Pursuant to ASC 730-10-25-2(c), intangibles purchased from others for
use in particular research and development projects and that have no alternative future use, in research and development or otherwise,
represent costs of research and development as acquired, and therefore are expensed when incurred. In the Affected Reports the
Company recorded such development cost as intangible assets.
During the year ended July 31, 2019, the
Company acquired and capitalized the following intangible assets. The Company acquired the patent related to the exclusive license
and distribution rights of the CardioMap®, which is intended to be an advanced technology for early non-invasive testing for
heart disease. The license to the patent and product distribution rights were being amortized over the life of the underlying patent.
The acquisition cost was $18.75 million. The Company acquired the patents for an anti-choking, life-saving medical device from
Dr. James De Luca, inventor, and Murdock Capital Partners. The asset was valued at $675,400. The Company acquired an interest in
the patented chemical compound for a neurosteroid as part of an agreement with Prevacus, Inc. The acquisition cost of $3.73 million
was being amortized over the life of the patent.
The adjustments required to correct the
foregoing treatment of such costs for the three and six months ended January 31, 2020 resulted in a non-cash increase in research
& development expense and a decrease of intangible assets of $22,032,061, a decrease in contingent liability of $144,000. For
the three and six months ended January 31, 2020 and 2019, general and administrative expense decreased $546,845 and $1,092,510,
respectively, due to the reduction in amortization expense related to the intangible assets.
In addition to the restatement of the
financial statements, certain information within the following notes to the financial statements have been restated to reflect
the correction of a misstatement discussed above as well as to add disclosure language as appropriate:
Note 3. Summary of Significant Accounting
Policies
Note 5. Intangible Assets
Note 10. Income Taxes
Note 11. Going Concern
Note 12. Related Party Transactions
The financial statement misstatements reflected in the table
below did not impact cash flows from operations, investing, or financing activities in the Company’s statements of cash flows
for any period previously presented.
Going Concern
Substantial doubt exists as to our ability
to continue as a going concern based on the fact that we do not have adequate working capital to finance our day-to-day operations.
The Company has not realized any revenues for the quarters ended January 31, 2020 and 2019. The Company has an operating deficit
of $26,519,430 as of January 31, 2020. The operating deficit indicates substantial uncertainty
about the Company’s ability to continue as a going concern. Management’s plans include engaging in further research
and development and raising additional capital in the short term to fund such activities through sales of its common stock. Management’s
ability to implement its plans and continue as a going concern may be dependent upon raising additional capital. 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 the operation of our business. The issuance of additional equity securities by us could result in a significant dilution
in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from
the outcome of this uncertainty.
Critical Accounting Policies and Estimates
There are no critical accounting policies
or estimates reflected in the accompanying financial statements. Reference is made to the Company’s significant (but not
critical) accounting policies set forth in Note 2 to the accompanying financial statements.
Results of Operations
The Company does not currently sell or market
any products. The Company 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.
For the six months ended January 31, 2020
and 2019, the Company did not have sales. We are not currently selling or marketing any products, as our products are in late stage
development and FDA clearance or approval to market our products will be required in order to sell in the United States.
Costs of Goods Sold
Our cost of goods sold consists primarily
of the amounts paid to a third-party manufacturer for the products we purchase for resale.
The Company did not have sales for the six
months ended January 31, 2020 and 2019, and accordingly, there were no cost of goods sold for the respective periods.
Gross Profit and Gross Margin
For the six months ended January 31, 2020
and 2019, the Company had no gross profit or gross margin.
Operating Expenses
Our operating expenses consist primarily
of general and administrative expenses, which include salaries, stock-based compensation expense and legal and professional fees
associated with the costs for services or employees in finance, accounting, sales, administrative activities and the formation
and compliance of a public company.
Overall operating expenses increased
$409,991 or 456.8% and $1,680,308 or 1,181.9%, respectively, in the three and six-month periods
ended January 31, 2020 compared to the same periods of 2019. The increase in the three
and six-months ended was primarily due to $192,911 or 1,978.6% and $325,018 or 1,566.4%, respectively, increase in legal
and professional fees, $184,375 or 100% and $1,235,187 or 100%, respectively, increase board stock expense.
Interest expense
Interest expense was $101,191 and $16,709
for the three months ended January 31, 2020 and 2019, and $195,082 and $33,801 for the six-months ended January 31, 2020 and 2019.
The increase in interest expense for the three and six-month periods ended January 31, 2020, is attributed to the increased balance
of notes payable due and the amortization of debt discounts.
Net Loss
Net loss increased $494,473
or 464.4% and $1,841,589 or 1,046.6%, respectively, in the three and six-month periods ended January 31, 2020 compared to the
same periods of 2019, primarily as a result of the increased in operating and interest expense.
Cash Flows
The following table sets forth the primary
sources and uses of cash and cash equivalents for the quarters ended January 31, 2020 and 2019 as presented below:
|
|
Six Months Ended
|
|
|
|
January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(314,336
|
)
|
|
$
|
(18,761
|
)
|
Net cash provided by financing activities
|
|
$
|
150,000
|
|
|
$
|
19,000
|
|
Liquidity and Capital Resources
To date we have financed our operations
primarily through debt financing and limited sales of our common stock. In 2018 and 2019, we increased our borrowings on notes
payable to fund operations. As of January 31, 2020, and July 31, 2019, the notes have a balance of $994,566 and $784,913, respectively.
As of January 31, 2020, we had cash of $2,759. We do not believe that such cash is sufficient to sustain operations through the
next 12 months. Therefore, we anticipate that we will need to raise additional capital through debt or equity financings.
The Company has a note payable that is subject
to conversion upon an equity financing in the Company. As of January 31, 2020, the note has a balance of $783,783, and bears interest
at 12.5% per annum. Because the conversion feature does not meet the criteria for characterization as a beneficial conversion feature,
no portion of the proceeds from the issuance of the note was accounted for as attributable to the conversion feature. This note
was amended on February 1, 2018, where the debt holder agreed to convert portions of its loan pari passu with any new investment
raise of $500,000 or more. The Company issued the debt holder a common stock warrant for 4 million shares at $0.25 per share which
expired on July 15, 2018.
As of January 31, 2020, the Company has
four additional convertible debt notes outstanding with a balance of $210,783. The notes bear interest at 7.0% annually and the
entire outstanding principal amount, together with accrued interest shall become due and payable on the date that is one (1) year
from the date of issuance, unless before such date, is converted into shares of capital stock of the Company. At the option of
the holder, the principal amount of the notes and any accrued interest may be converted into shares of common stock at a conversion
price of $1.00 per share or at a 10% discount to the closing price on the day of conversion, but not lower than $0.50 per share.
At maturity, and subject to a trickle out agreement, the Company shall have the right to either pay off the loan and any interest
accrued or convert the loan amount and any interest into shares of common stock. The debt holders were issued a common stock warrant
equal to 10% of the note with a price of $1.50 per share and a term for one year from the investment date. Because the conversion
feature met the criteria for characterization as a beneficial conversion feature, a portion of the proceeds, including warrants,
of which $151,491 from the issuance of the notes are accounted for as attributable to the conversion feature.
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, our Company may need to suspend the creation of new products until market conditions
improve.
Inflation
Inflation generally will cause suppliers
to increase their rates. In connection with such rate increases, we may or may not be able to increase our pricing to consumers.
Inflation could cause both our investment and cost of goods sold to increase, thereby lowering our return on investment and depressing
our gross margins.
Off Balance Sheet Arrangements
Our company has no material off balance
sheet arrangements.