|AIGT||Amerinst Insurance Group||0|
|SLDV||Security Land & Development||0|
|ELECU||Electrum Special Acquisition||0|
|Part I Financial Information|
|Item 1. Financial Statements|
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations|
|Item 3. Quantitative and Qualitative Disclosures About Market Risk.|
|Item 4. Controls and Procedures|
|Part II Other Information|
|Item 1. Legal Proceedings|
|Item 1A. Risk Factors|
|Item 2. Recent Sales of Unregistered Securities|
|Item 3. Default on Senior Securities|
|Item 4. Mine Safety Disclosures|
|Item 5. Other Information|
|Item 6. Exhibits|
|Balance Sheet||Income Statement||Cash Flow|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2019
¨ 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. 333-200785
Odyssey Group International, Inc.
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of
Incorporation or Organization)
2372 Morse Avenue
Irvine, CA 92614
(Address and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
|Title of each Class||Trading Symbol||Name of each exchange on which registered|
|Common Stock ($0.001 par value)||ODYY||OTC|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
|Large accelerated filer o||Accelerated filer o|
|Non-accelerated filer o||Smaller reporting company x|
|Emerging growth company o|
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
68,745,400 shares of common stock, par value $.001 per share, outstanding as of June 7, 2019.
ODYSSEY GROUP INTERNATIONAL, INC.
For the Quarter Ended April 30, 2019
|PART I. FINANCIAL INFORMATION|
|Item 1||Financial Statements||3|
|Statements of Operations||4|
|Statements of Stockholders’ Equity (Deficiency)||5|
|Statements of Cash Flows||6|
|Notes to Financial Statements||7|
|Item 2||Management’s Discussion and Analysis of Financial Condition and Results of Operations||11|
|Item 3||Quantitative and Qualitative Disclosures About Market Risk||13|
|Item 4||Controls and Procedures||14|
|PART II. OTHER INFORMATION|
|Item 1||Legal Proceedings||15|
|Item 1A||Risk Factors||15|
|Item 2||Unregistered Sales of Equity Securities and Use of Proceeds||24|
|Item 3||Defaults Upon Senior Securities||24|
|Item 4||Mine Safety Disclosures||24|
|Item 5||Other Information||24|
|Item 1.||Financial Statements|
Odyssey Group International, Inc.
|April 30, 2019||July 31, 2018|
|Property and equipment, net||1,655||2,069|
|Product distribution rights||17,500||25,000|
|Liabilities and Stockholders' Equity|
|Note payable, including accrued interest||714,512||631,645|
|Stockholders' equity (deficiency):|
|Preferred stock, $.001 par value; 100,000 shares authorized, no shares issued or outstanding||–||–|
|Common stock, $.001 par value; 500,000,000 shares authorized with 68,745,400 and 61,414,000 issued and outstanding||68,745||61,414|
|Additional paid-in capital||263,069||192,086|
|Total Stockholders’ Equity (deficiency)||(979,800||)||(819,377||)|
|Total Liabilities and Equity||$||25,483||$||27,459|
The accompanying notes are an integral part of these financial statements
Odyssey Group International, Inc.
Three Months Ended
Nine Months Ended
|Costs of goods sold||–||–||–||–|
|General and administrative expense||45,189||57,399||187,356||207,209|
|Loss from operations||(45,189||)||(57,399||)||(187,356||)||(338,656||)|
|Basic net loss per share:||$||(0.00||)||$||(0.00||)||$||(0.00||)||$||(0.00||)|
|Weighted average number of shares||68,660,007||119,839,600||64,858,269||117,000,772|
The accompanying notes are an integral part of these financial statements
Odyssey Group International, Inc.
|Three Months Ended||Nine Months Ended|
|April 30,||April 30,|
|Common stock and paid-in capital|
|Balance, beginning of period||$||325,814||$||219,900||$||253,500||$||169,900|
|Common stock issued for consulting services||6,000||–||6,000||50,000|
|Note payable converted to common stock||–||–||25,314||–|
|Common stock issued for compensation||–||–||47,000||–|
|Balance, end of period||331,814||219,900||331,814||219,900|
|Balance, beginning of period||(1,248,845||)||(900,412||)||(1,072,877||)||(589,762||)|
|Balance, end of period||(1,311,614||)||(973,979||)||(1,311,614||)||(973,978||)|
|Total stockholders’ equity (deficiency)||$||(979,800||)||$||(754,079||)||$||(979,800||)||$||(754,078||)|
The accompanying notes are an integral part of these financial statements
Odyssey Group International, Inc.
|Nine Months Ended|
|Adjustments to reconcile to net cash used in operating activities:|
|Depreciation and amortization expense||7,914||7,913|
|Stock based compensation expense||47,000||–|
|Change in operating assets and liabilities:|
|Consulting fees charged to note payable||8,750||–|
|Net cash used in operating activities||(48,112||)||(96,034||)|
|Proceeds from note payable||48,050||88,750|
|Net cash provided by financing activities||48,050||88,750|
|Net change in cash||(62||)||(7,284||)|
|Cash, beginning of period||390||13,426|
|Cash, end of period||$||328||$||6,142|
|Accounts payable converted to note payable||–||36,500|
|Common stock issued for consulting services||6,000||50,000|
|Note payable converted to common stock||25,314||–|
The accompanying notes are an integral part of these financial statements
Odyssey Group International, Inc.
The accompanying financial information of Odyssey Group International, Inc. as of and for the period ended April 30, 2019, 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, 2018, filed with the SEC on December 12, 2018.
1. Nature of Operations
The Company owns technology and the marketing and distribution rights to CardioMap®. CardioMap® is an advanced technology for early non-invasive testing for heart disease. CardioMap® measures disease or stress levels, along with current heart conditions as a 3D image supplementing the line drawing electrocardiogram (ECG), but with device sensitivity that surpasses standard ECG analyzers by 7 to 50 times. It is highly portable and provides a rapid analysis in 30 or 60 seconds. The device is connected through the Internet to the central server that converts the electric conductivity of the cardiac tissue into a three-dimensional, color-coded and easy-to-interpret visual portrait. The CardioMap® is in advanced stages of development and is not yet approved by the U.S. Food and Drug Administration (the “FDA”). We are not currently selling or marketing any products, as our product is in late stage development and FDA clearance to market the product will be required in order to sell in the United States.
2. 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 are carried at original invoice amount less an estimated allowance for doubtful accounts, if deemed necessary by management. An allowance for doubtful accounts is based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled accounts and by using historical experience applied to an aging of accounts.
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 the nine months ended April 30, 2019 and 2018 the Company recognized depreciation expense of $414.
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.
The Company sells its products through direct sales representatives. 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 product is in late stage development and FDA clearance to market the product will be required in order to sell in the United States.
3. 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 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 will adopt the standard as of August 1, 2019 and does not expect the adoption to have a material impact on the Company’s financial statements and disclosures.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is a comprehensive new revenue recognition standard that supersedes virtually all existing revenue guidance, including industry-specific guidance. Under the new standard, revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. The standard creates a five-step model that generally requires companies to use more judgment and make more estimates than under the previous guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer. The Company adopted this standard effective August 1, 2017, without material impact to the financial statements and related notes.
The Company purchased distribution rights to sell and distribute a new technology, CardioMap®, which is an advanced technology for early non-invasive testing for heart disease. The product distribution rights are amortized over the life of the distribution contract. For the nine months ended April 30, 2019 and 2018 the Company recognized amortization expense of $7,500.
5. Notes Payable
As of April 30, 2019, the Company has a note payable that is subject to periodic payments that come due based on sales. The note fully matures in January 2020, bears interest at 12.5% annually, and the remaining unpaid balance is convertible upon maturity at the holder’s option into shares of common stock at a conversion price fixed at $0.01 per share. As of April 30, 2019, the note has a balance of $714,512 and may be converted into 71,451,200 shares of common stock upon maturity. 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. Until such event, the note carries its original terms and features. Furthermore, the debt holder was issued a common stock warrant for 4,000,000 shares at $0.25 per share as consideration to the debt holder to agree to begin to convert portions of its loan to common stock pari passu with a new offering raise of investment at a minimum of $500,000. As of April 30, 2019, these warrants expired.
6. Fair Value Measurements
The carrying values of cash and notes payable approximate their estimated fair values because of the short-term nature of these instruments.
7. Common Stock
For the year ended July 31, 2018, the Company’s Board approved the return of 60,000,000 shares from the founding common stockholders.
On December 11, 2018, the Company amended the employment agreement of J. Michael Redmond to further document and incorporate the transition of the control of the Green Energy Alternatives stock. In the amendment, the Company still agrees to issue Mr. Redmond a total of 10,000,000 shares of the Company’s common stock. At least 4,700,000 stock grants were granted to Mr. Redmond from the Company, and 5,300,000 shares have been assigned to Mr. Redmond through control of Green Energy Alternatives, LLC. The Company recognized $47,000 of compensation expense related to the 4,700,000 shares granted, with an estimated fair value of $0.01 per share, for the nine-months ended April 30, 2019.
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.
8. 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 15,000,000 shares at $0.25 per share. The options vest upon achieving the following milestones: 5,000,000 options vest upon each milestone, when the Company obtains revenue of $5,000,000, $10,000,000 and $15,000,000. 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 $10,000,000 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.
9. Income Taxes
As of April 30, 2019, and July 31, 2018, the Company had net deferred tax assets of $349,884 and $309,859 consisting of net operating loss carryforwards that expire in 2035 net of an effective offsetting valuation allowance of 100%. Our effective tax rate for 2018 and 2019 is 21%. The Company has established the valuation allowance because due to substantial uncertainty as to the Company’s ability to continue as a going concern (Note 10), it is more likely than not at this time that the deferred tax assets will not be realized within the carryforward period.
10. Going Concern
We have a deficit of $1,311,614 as of April 30, 2019. 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 April 30, 2019 may not provide enough working capital to meet our current operating expenses through June 7, 2020, 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 October 31, 2019, 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.
11. Related Party Transactions
The Company has a common officer with Green Energy Alternatives, Inc. As of April 30, 2019, and July 31, 2018, Green Energy Alternatives, Inc. held 5,300,000 shares of the Company’s common stock.
12. Subsequent Events
We have evaluated subsequent events and, except for the transaction described below, there were no other events relative to the financial statements that require additional disclosure.
Pursuant to the License Transfer Agreement that the Company entered into with Electromedica, LLC (“Electromedica”) on February 8, 2019, Electromedica was to receive fifteen million shares of the Company’s common stock. To date the Company has not funded the shares, as the terms of the agreement being mutually renegotiated.
On May 28, 2019, the Company entered into a Binding Letter of Intent (“LOI”) with 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 will acquire the USPTO Patent Number RE45, 535 E issued on June 2, 2015 and Patent Number 8,454,624 B2 issued June 4, 2013. Both patents are related to a Choking Rescue Device. As consideration for the patent and intellectual property, the Company will grant stock options totaling 600,000 shares of the Company’s stock and vesting on certain milestones. The Company will also pay a royalty on sales of each device sold once approved for commercial sale by all regulatory bodies. The definitive agreement is expected to be executed prior to June 30, 2019. The LOI will expire on June 30, 2019, unless the parties agree to extend.
On June 4, 2019, the Company entered into a LOI with Prevacus, Inc. (“Prevacus”), a biotechnology company, to form a Joint Venture (“JV”) relating to the development of a neurosteroid for treating orphan disorders, Amyotrophic Lateral Sclerosis (“ALS”) and Nieman Picks disease. Prevacus will contribute to the JV, the chemical compound and the Company will be responsible for funding the JV through Phase One clinical trials. In addition to the Joint Venture, the two companies will enter 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 has issued patents, and as consideration for the patented compound, Odyssey will issue Prevacus two million shares of its common stock. The definitive agreements with other customary terms and conditions, are expected to be executed prior to July 31, 2019. The LOI will expire on July 31, 2019, unless the parties agree to extend.
|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.
The Company owns technology and the marketing and distribution rights to CardioMap®. CardioMap® is an advanced technology for early non-invasive testing for heart disease. CardioMap® measures disease or stress levels, along with current heart conditions as a 3D image supplementing the line drawing electrocardiogram (ECG), but with device sensitivity that surpasses standard ECG analyzers by 7 to 50 times. It is highly portable and provides a rapid analysis in 30 or 60 seconds. The device is connected through the Internet to the central server that converts the electric conductivity of the cardiac tissue into a three-dimensional, color-coded and easy-to-interpret visual portrait. The CardioMap® is in advanced stages of development and is not yet approved by the U.S. the FDA. We are not currently selling or marketing any products, as our product is in late stage development and FDA clearance to market the product will be required in order to sell in the United States.
The Company has no revenue generating products at this time and has not realized any revenues for the three and nine-months ended April 30, 2019 and 2018. As of April 30, 2019, we have an operating deficit of $1,311,614. See Note 1 to the accompanying financial statements for a full description.
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
For the three and nine-month periods ended April 30, 2019 and April 30, 2018, the Company did not have sales of product. We are not currently selling or marketing any products, as our product is in late stage development and FDA clearance to market the product will be required in order to sell in the United States. CardioMap® is an advanced technology for early non-invasive testing for heart disease, and the Company will commence actively marketing this product after the product has been FDA approved, however, there can be no assurance that we will be successful in obtaining FDA approvals for this product.
Costs of Goods Sold
Our cost of goods sold consists primarily of the amounts paid to a third-party manufacturer for the product we purchased for resale.
The Company did not have sales for the three and nine-month periods ended April 30, 2019 and 2018, and accordingly, there were no cost of goods sold for the respective periods.
Gross Profit and Gross Margin
For the three and nine-month periods ended April 30, 2019 and 2018 the Company had no gross profit or gross margin.
Our operating expenses consist primarily of general and administrative expenses, which include salaries 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 decreased $12,209 or 21.3% and $151,300 or 44.7%, respectively, in the three and nine-month periods ended April 30, 2019 compared to the same periods of 2018. The decrease in the three and nine-month periods ended April 30, 2019 compared to the same periods of 2018, was primarily due to $16,500 or 73.3% and $99,252 or 78.8%, respectively, decrease in legal and professional fees, offset in the nine-month period ended April 30, 2018, by an increase of $82,500 or 151.4% in payroll expense offset by the one-time expense of $131,447 or 100% for the impairment allowance against a loan receivable related to the Company’s interest in the venture being purchased as of January 31, 2018.
Interest expense was $17,580 and $16,168 for the three months ended April 30, 2019 and 2018, and $51,381 and $45,560 for the nine-months ended April 30, 2019 and 2018. The increase in interest expense is attributed to the increased balance of notes payable due.
Net loss decreased $10,798 or 14.7% and $145,480 or 37.9%, respectively, in the three and nine-month periods ended April 30, 2019 compared to the same periods of 2018. The decrease in the nine-month period ended April, 30, 2019 was primarily due to the one-time expense of $131,447 for the impairment allowance against a loan in January 31, 2018.
The following table sets forth the primary sources and uses of cash for the nine months ended April 30, 2019 and 2018, as presented below:
Nine Months Ended
|Net cash used in operating activities||$||(48,112||)||$||(96,034||)|
|Net cash provided by financing activities||$||48,050||$||88,750|
Liquidity and Capital Resources
To date we have financed our operations primarily through debt financing and limited sales of our common stock. During fiscal year 2015, we paid down our note payable by $221,667. During 2016, we borrowed on the note payable to purchase distribution rights to CardioMap® and fund professional services. During 2017, we borrowed on the note payable to fund the startup of the automotive joint venture. In 2018 and 2019, we further borrowed note payable to fund operations. As of April 30, 2019, and July 31, 2018, the note has a balance of $714,512 and $631,645. As of April 30, 2019, we had cash of $328. 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.
On January 4, 2017, we entered into a “Master Revolving Note” (the “Note”) to Vivakor, Inc. (“Vivakor”), for the principal plus simple interest of 12.5% per annum. The Note entitles Vivakor to a payment of 2% of all gross sales until repayment or conversion (until the total sum of all payments made to the Holder equals two times the original principal amount of the Note). The Note was secured by a pledge of our equipment, general intangibles and intellectual property. The Note may be converted into shares of the Company at $0.01 per share. 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. Until such event, the note carries its original terms and features. On February 1, 2018, the debt holder gave notice to convert $15,000 into 1,500,000 shares of Common Stock. On January 9, 2019, 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. As of April 30, 2019, the note has a balance of $714,512.
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.
Off Balance Sheet Arrangements
Our company has no material off balance sheet arrangements.
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk.|
We are a smaller reporting company and are not required to provide information under this item.
|Item 4.||Controls and Procedures|
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on that evaluation and considering the material weakness in internal control over financial reporting reported in Item 9A of the Annual Report on Form 10-K for the year ended July 31, 2018, the Company’s principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures were not effective as of April 30, 2019.
As previously reported in our Annual Report on Form 10-K for the fiscal year ended July 31, 2018 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.
Lack of Audit Committee: We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.
In light of the material weakness described above, as of April 30, 2019, prior to the filing of this Form 10-Q for the period ended April 30, 2019, 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.
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 the Company 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.
Except as described above, there have been no changes in our internal control over financial reporting that occurred during the three months ended April 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|Item 1.||Legal Proceedings|
Our company is not a party to any legal proceeding.
|Item 1A.||Risk Factors|
An investment in our common stock is highly speculative, involves a high degree of risk and should be made only by investors who can afford a complete loss. You should carefully consider the following risk factors, together with the other information in this report, including our financial statements and the related notes, before you decide to buy our common stock. If any of the following risks actually occurs, then our business, financial condition or results of operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended July 31, 2018, which factors could materially affect our business, financial condition, liquidity or future results. There have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended July 31, 2018, as so updated. The risks described in our reports on Forms 10-K and 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, future results or prospects.
Risks Relating to our Business
We are at an emerging operational stage, and our success is subject to the substantial risks inherent in the operation of an emerging business venture.
The execution of our business strategy is in an emerging stage. Our business and operations should be considered to be in an emerging stage and subject to all of the risks inherent in the operation of an emerging business venture. Our intended business and operations may not prove to be successful in the future, if at all. Any future success that we might enjoy will depend on many factors, several of which may be beyond our control, or which cannot be predicted at this time, and which could have a material adverse effect on our financial condition, business prospects and operations and the value of an investment in our company.
We have no significant operating history, which, together with several other factors set forth below, creates substantial uncertainty about future results and our ability to continue as a going concern.
Our company was formed in March 2014, and we do not have a significant operating history. This lack of operating history makes the prediction of future operating results difficult if not impossible. Our proposed operations are subject to all business risks associated with new enterprises. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the growth of an early stage business. There is a substantial risk of failure associated with any new business strategy as a result of problems encountered in connection with the commencement of new operations. Such problems include but are not limited to the entry of new competition, challenges to intellectual property and patent rights and unknown or unexpected additional costs and expenses that may exceed estimates.
To succeed, we must do most, if not all, of the following:
|·||raise corporate equity to support our operating costs and to have sufficient funds to develop, market and sell our products;|
|·||secure patent rights and locate strategic licensing and commercialization partners;|
|·||obtain proper regulatory clearances domestically and abroad;|
|·||attract, integrate, retain and motivate qualified management and sales personnel;|
|·||successfully execute our business strategies;|
|·||respond appropriately and timely to competitive developments; and|
|·||develop, enhance, promote and carefully manage our corporate identity.|
Our business will suffer if we are unable to accomplish these and other important business objectives. We are uncertain as to when, or whether, we will fully implement our contemplated business plan and strategy or become profitable. See Note 10 of the Notes to the Financial Statements for further detail.
We may have difficulty raising additional capital, which could deprive us of the resources necessary to implement our business plan, which would adversely affect our business, results of operation and financial condition.
We expect to continue devoting significant capital resources to fund research and development and marketing. In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of assets, public or private debt or equity financing, collaborative relationships or other arrangements. If our operations expand faster or at a higher rate than currently anticipated, we may require additional capital sooner than we expect. We also may need to raise additional funds sooner to fund more rapid expansion or the development or enhancement of athletic enhancement products, services, capabilities and systems. We are unable to provide any assurance or guarantee that additional capital will be available when needed by our company or that such capital will be available under terms acceptable to our company or on a timely basis.
Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive products by others. Because our common stock is not listed on a major stock market, many investors may not be willing or allowed to purchase it or may demand steep discounts. If additional funds are raised through the issuance of equity, convertible debt or similar securities of our company, the percentage of ownership of our company by our company’s stockholders will be reduced, our company’s stockholders may experience additional dilution upon conversion, and such securities may have rights or preferences senior to those of our common stock. The preferential rights granted to the providers of such additional financing may include preferential rights to payments of dividends, super voting rights, a liquidation preference, protective provisions preventing certain corporate actions without the consent of the fund providers, or a combination thereof. We are unable to provide any assurance that additional financing will be available on terms favorable to us or at all.
The capital requirements necessary to implement our business plan initiatives could pose additional risks to our business and stockholders.
We require additional debt or equity financing to implement our business plan and marketing strategy. Since the terms and availability of such financing depend to a large degree on general economic conditions and third parties over which we have no control, we can give no assurance that we will obtain the needed financing or that we will obtain such financing on attractive terms. In addition, our ability to obtain financing depends on a number of other factors, many of which also are beyond our control, such as interest rates and national and local economic conditions. If the cost of obtaining needed financing is too high or the terms of such financing otherwise are unacceptable in relation to the strategic opportunity we are presented with, then we may decide to forego that opportunity. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures. Additional equity financing could result in dilution to our stockholders.
Failure to implement our business strategy could adversely affect our operations.
Our financial position, liquidity and results of operations depend on our management’s ability to execute our business strategy. Key factors involved in the execution of our business strategy include:
|·||achieving the desired cost of goods on inventory;|
|·||the use of sophisticated risk management techniques and quality control testing;|
|·||continued investment in technology to support operating efficiency; and|
|·||continued access to significant funding and liquidity sources.|
Our failure or inability to execute any element of our business strategy could materially adversely affect our financial position, liquidity and results of operations.
Our failure to defend ourselves against infringement litigation, if any, could harm our business.
We could be subject to potential infringement actions. Our company’s business is “trademark intensive,” requiring us to constantly search for brands and marks that are not already used by competitors. Claims for infringement, with or without merit and whether based on allegations that our company’s technology or its intellectual property claims infringe on the rights of others, could subject us to costly litigation and the diversion of financial and human resources, regardless of the ultimate resolution of the claims. If such claims are successful, we could be required to modify our products or services, create additional new trademarks, pay financial damages or attempt to negotiate licensing arrangements with third parties.
Our products are subject to substantial federal and state regulations.
Our research and development activities and the manufacturing and marketing of our products may be subject to the laws, regulations and guidelines and, in some cases, regulatory approvals of governmental authorities in the United States and other countries in which our products are or will be marketed. Specifically, in the United States, the FDA regulates, among other areas, new drug, device and cosmetic product approvals, over-the-counter drugs and clinical trials of new products and services to establish the proper labeling, safety and efficacy of these products and services and the accuracy of certain marketing claims.
The Federal Trade Commission (the “FTC”), which in the United States exercises jurisdiction over the advertising of consumer products, has in the past several years instituted enforcement actions against several pharmaceutical, cosmetic and dietary supplement companies and others for false and misleading advertising of products to consumers. Enforcement actions often have resulted in consent decrees and monetary payments by the companies involved. Although we make every reasonable effort to ensure that ample foundation exists for our marketing claims, we cannot be certain that the FTC will not question our advertising or other activities in the future. In addition, we cannot predict whether new legislation or regulations governing our activities will be enacted by legislative bodies or promulgated by agencies further regulating or restricting our activities or what the effect of any such legislation or regulations would be on our business. Although we have retained counsel to advise and assist us on issues of compliance, it is possible that regulatory changes could occur that could detrimentally affect our ability to market and sell our products. In addition, regulatory changes could affect our advertising in a manner that could negatively affect earnings. Also, the FTC from time-to-time revises its Guides Concerning the Use of Endorsements and Testimonials in Advertising, or Guides. Although the Guides are not binding, they explain how the FTC interprets Section 5 of the FTC Act’s prohibition on unfair or deceptive acts or practices. Consequently, the FTC could bring a Section 5 enforcement action based on practices that are inconsistent with the Guides. Under the current Guides, advertisements that feature a consumer and convey his or her atypical experience with a product or service are required to clearly disclose the results that consumers can generally expect. The revised Guides also add new examples to illustrate the long-standing principle that “material connections” between advertisers and endorsers (such as payments or free products), connections that consumers might not expect, must be disclosed. We have revised our marketing materials to be compliant with the revised Guides. However, it is possible that our use of testimonials in the advertising and promotion of our products will be significantly impacted, which might negatively impact our sales.
Our products will be subject to clinical trials and FDA approval.
Our products may demonstrate health, safety or effectiveness concerns that may ultimately damage the commercialization of our products. If these concerns are severe to the extent that it may not be worthwhile to pursue any one or all of the products commercially, our business would be severely harmed. Because these types of products will not be FDA approved, the reception of our products by the general public is unknown. There is no certainty that the FDA will approve our products.
We may experience product recalls, which could reduce our sales and margin and adversely affect our results of operations.
We may be subject to product recalls, withdrawals or seizures if any of the products we formulate, manufacture or sell are believed to cause injury or illness or if we are alleged to have violated governmental regulations in the manufacturing, labeling, promotion, sale or distribution of such products. Any recall, withdrawal or seizure of any of the products we formulate, manufacture or sell would require significant management attention, would likely result in substantial and unexpected expenditures and could materially and adversely affect our business, financial condition or results of operations. Furthermore, a recall, withdrawal or seizure of any of our products could materially and adversely affect consumer confidence in our brands and decrease demand for our products and negatively impact our business.
Our operations could be harmed if we are found not to be in compliance with Good Manufacturing Practices.
In the United States, FDA regulations on Good Manufacturing Practices and Adverse Event Reporting requirements for the medical industry require us and our vendors to maintain good manufacturing processes, including stringent vendor qualifications, manufacturing controls and record keeping. We also are required to report serious adverse events associated with consumer use of our products. Our operations could be harmed if regulatory authorities make determinations that we, or our vendors, are not in compliance with these regulations or public reporting of adverse events harms our reputation for quality and safety. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain products. In addition, compliance with these regulations has increased and may further increase the cost of manufacturing certain of our products as we work with our vendors to assure that they are qualified and in compliance.
The loss of or nonperformance of suppliers or shortages in ingredients could harm our business.
We do not expect to manufacture many of our products and will engage third party contractors to provide manufacturing services. If our contractors do not operate in accordance with regulatory requirements and quality standards, then our business will suffer.
We acquire ingredients and products from third party suppliers and manufacturers. A loss of any of these suppliers and any difficulty in finding or transitioning to alternative suppliers could harm our business. We obtain some of our products from sole suppliers that own or control the product formulations, ingredients or other intellectual property rights associated with such products. If we experience supply shortages or regulatory impediments with respect to the raw materials and ingredients we use in our products, we may need to seek alternative supplies or suppliers and may experience difficulties in finding ingredients that are comparable in quality and price. If we are unable to respond successfully to such issues, our business could be harmed.
Production difficulties, quality control problems and inaccurate forecasting could harm our business.
Production difficulties and quality control problems and our reliance on third party suppliers to deliver quality products in a timely manner could harm our business. We may experience production difficulties with respect to our products, including the import or export of ingredients and delivery of products that do not meet our specifications and quality control standards. These quality problems could in the future result in stock outages or shortages in our markets with respect to such products, harming our sales and creating inventory write-offs for unusable products.
If our copyrights, patents and trade secrets are not adequate to provide us with a competitive advantage or to prevent competitors from replicating our products, or if we infringe the intellectual property rights of others, then our financial condition and operating results would be harmed.
Our future success and ability to compete depend on our ability to timely produce innovative products and product enhancements that motivate our customers, which we attempt to protect under a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions. We do not currently have any federally registered trademarks and rely exclusively on copyright and trade secrets to protect our products. Our products are not patented domestically or abroad, and the legal protections afforded by common law and contractual proprietary rights in our products provide only limited protection and may be time-consuming and expensive to enforce and/or maintain. Further, we are unable to prevent third parties from independently developing products that are competitive with, equivalent to and/or superior to our products.
Additionally, third parties may claim that products or marks that we have independently developed infringe on their intellectual property rights, and there can be no assurance that one or more of our products or marks will not be found to infringe on third party intellectual property rights in the future.
Unfavorable publicity or consumer perception of our products, the ingredients they contain, and similar products distributed by other companies, could cause fluctuations in our operating results and could have a material adverse effect on our reputation, the demand for our products and our ability to generate revenues and the market price of our common stock.
We depend substantially on consumer perception of the safety and quality of our products and the ingredients they contain, as well as similar products distributed by other companies. Consumer perception of products and the ingredients they contain can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products or the ingredients they contain and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that questions earlier research or publicity could have a material adverse effect on our ability to generate revenues. As such, period-to-period comparisons of our results should not be relied on as a measure of our future performance. Adverse publicity in the form of published scientific research or otherwise, whether or not accurate, that associates consumption of our products or the ingredients they contain or other similar products distributed by other companies with illness or other adverse effects, that questions the benefits of our or similar products or that claims that such products are ineffective could have a material adverse effect on our reputation, the demand for our products, and our ability to generate revenues.
Our success depends on our ability to maintain and expand our operational and maintenance capabilities.
Our small number of employees and limited experience limits our in-house capabilities. If we are unable to hire and train qualified employees, we may not be able to efficiently sell our athletic enhancement products. Failure to operate efficiently may result in losses and ultimately the failure of our business and the loss of our stockholders’ entire investment in our company.
We anticipate significant growth in our business, and any inability to manage such growth could harm our business.
Our success will depend, in part, on our ability to manage effectively our growth and expansion. We plan to expand our business significantly. Any growth in or expansion of our business is likely to continue to place a significant strain on our management and administrative resources, infrastructure and systems. In order to succeed, we will need to continue to implement management information systems and improve our operating, administrative, financial and accounting systems and controls. We also will need to train new employees and maintain close coordination among our executive, accounting, finance and operations organizations. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. Our inability or failure to manage our growth and expansion effectively could harm substantially our business and adversely affect our operating results and financial condition.
If our business is unsuccessful, our stockholders may lose their entire investment.
Although our stockholders will not be bound by or be personally liable for our expenses, liabilities or obligations beyond their total original investments in our common stock, if we suffer a deficiency in funds with which to satisfy our obligations, our stockholders as a whole may lose their entire investment in our company.
We may be unable to compete successfully against existing and future competitors, which could harm our margins and our business.
Our target industries are intensely competitive. We face competition from a large number of existing companies who have significantly greater financial, technical, manufacturing, marketing and distribution resources as well as greater experience than we have.
We can provide no assurance that we will be able to compete successfully against current or potential competitors. Many of our current and potential competitors have longer operating histories, better brand recognition and significantly greater financial, technical and marketing resources than we do. Many of these competitors may have well-established relationships with manufacturers and other key strategic partners and can devote substantially more resources to such relationships. As a result, they may be able to secure equipment, technology, products and systems, among other things that we may need, from vendors on more favorable terms, fulfill customer orders or requests more efficiently and adopt more aggressive pricing policies than we can. They also may be able to secure a broader range of technologies, products and systems from or develop close relationships with primary vendors. Some competitors may price their products, services, capabilities and systems below cost in an attempt to gain market share.
Increased competition may result in price reductions, reduced gross margin and loss of market share, any of which could harm our business and adversely affect our operating results and financial condition. We may not be able to compete successfully and respond to competitive pressures. Our inability to compete effectively with current or future competitors could harm our business and have a material adverse effect on our results of operations and financial condition.
Our inability to retain and properly insure against the loss of the services of our executive officers and other key personnel may harm our business and impede the implementation of our business strategy.
Our future success depends significantly on the skills and efforts of Joseph Michael Redmond and possibly other key personnel. The loss of the services of any of these individuals could harm our business and operations. In addition, we have not obtained key person life insurance on any of our key employees. If any of our executive officers or key employees left or was seriously injured and unable to work and we were unable to find a qualified replacement and/or to obtain adequate compensation for such loss, we may be unable to manage our business, which could harm our operating results and financial condition.
Our inability to attract, train and retain additional qualified personnel may harm our business and impede the implementation of our business strategy.
Once our business begins to grow, we will need to attract, integrate, motivate and retain a significant number of additional administrative and sales personnel. Competition for these individuals in our industry and geographic region is intense, and we may be unable to attract, assimilate or retain such highly qualified personnel in the future. Our business cannot continue to grow if we are unable to attract such qualified personnel. Our failure to attract and retain highly trained personnel that are essential to our business may limit our growth rate, which would harm our business and impede the implementation of our business strategy.
We may indemnify our directors and officers against liability to us and our stockholders, and such indemnification could increase our operating costs.
Our bylaws allow us to indemnify our directors and officers against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or control persons, we have been advised by the SEC that such indemnification is against public policy and is therefore unenforceable.
Since our directors and officers are aware that they may be indemnified for carrying out the duties of their offices, they may be less motivated to meet the standards required by law to properly carry out such duties, which could increase our operating costs. Further, if our directors and officers file a claim against us for indemnification, the associated expenses also could increase our operating costs.
There are substantial inherent risks in attempting to commercialize newly developed products, and, as a result, we may not be able to successfully develop new products.
Our company plans to conduct research and development of products in the health and wellness field. However, commercial feasibility and acceptance of such product candidates are unknown. Scientific research and development requires significant amounts of capital and takes an extremely long time to reach commercial viability, if at all. During the research and development process, we may experience technological barriers that we may be unable to overcome. Because of these uncertainties, it is possible that some of our future product candidates never will be successfully developed. If we are unable to successfully develop new products, we may be unable to generate new revenue sources or build a sustainable or profitable business.
We will need to achieve commercial acceptance of our products to generate revenues and achieve profitability.
Superior competitive products may be introduced, or customer needs may change, which would diminish or extinguish the uses for our products. We cannot predict when significant commercial market acceptance for our products will develop, if at all, and we cannot reliably estimate the projected size of any such potential market. If markets fail to accept our products, then we may not be able to generate revenues from them. Our revenue growth and achievement of profitability will depend substantially on our ability to introduce new products accepted by customers. If we are unable to cost-effectively achieve acceptance of our products by customers, or if our products do not achieve wide market acceptance, then our business will be materially and adversely affected.
We expect to rely on third parties for the worldwide marketing and distribution of our product candidates, who may not be successful in selling our products.
We currently do not have adequate resources to market and distribute any of our products worldwide and expect to engage third party marketing and distribution companies to perform these tasks. While we believe that distribution partners will be available, we cannot assure you that the distribution partners, if any, will succeed in marketing our products on a global basis. We may not be able to maintain satisfactory arrangements with our marketing and distribution partners, who may not devote adequate resources to selling our products. If this happens, we may not be able to successfully market our products, which would decrease or eliminate our ability to generate revenues.
Our products may be displaced by superior products developed by third parties.
The medical industry is constantly undergoing rapid and significant change. Third parties may succeed in developing or marketing products that are more effective than those developed or marketed by us or that would make our products obsolete or non-competitive. Additionally, researchers could develop new procedures and medications that replace or reduce the use of our products. Accordingly, our success will depend, in part, on our ability to respond quickly to medical and technological changes through the development and introduction of new products. We may not have the resources to do this. If our products become obsolete and our efforts to develop new products do not result in commercially successful products, then our sales and revenues will decline.
We may incur material product liability claims, which could increase our costs and harm our financial condition and operating results.
Our product will consist of a device to diagnose heart ailments. Our products could malfunction. As a marketer of a medical device used on the human body, we may be subjected to various product liability claims, including that the products contain defective parts, the products include inadequate instructions as to their uses or the products include inadequate warnings concerning side effects and interactions with other substances. It is possible that widespread product liability claims could increase our costs and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, thereby requiring us to pay substantial monetary damages and adversely affecting our business.
Risks Relating to an Investment in our Company
Our common stock is not listed on any major exchange, and stockholders may not be able to resell their shares.
Currently our shares of common stock are listed on the Over the Counter (OTC) exchange. A public market for our shares of common stock may never develop. There can be no assurance that purchasers of our shares of common stock will be able to resell their shares at their original purchase price, if at all.
Our common stock is traded over the counter, which could deprive stockholders of the full value of their shares.
Our Common Stock is currently traded over the counter on the OTC Electronic Bulletin Board, and as a result our common stock is expected to have fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market. These factors may result in higher price volatility and less market liquidity for our common stock.
The sale of shares of our common stock could cause the price of our common stock to decline.
Depending on market liquidity at the time, a sale of shares covered by such registration statement at any given time could cause the trading price of our common stock to decline. The sale of a substantial number of shares of our common stock under such registration statement, or the anticipation of such a sale, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we otherwise might desire to affect such sales.
A low market price would severely limit the potential market for our common stock.
Our common stock may trade at a price below $5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers. These rules generally apply to any non-NASDAQ equity security that has a market price share of less than $5.00 per share, subject to certain exceptions (a “penny stock”). Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed on broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.
If applicable, Financial Industry Regulatory Authority (FINRA) sales practice requirements could limit a stockholder’s ability to buy and sell our stock.
In addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA rules (which would apply to our common stock in the event that our common stock ultimately becomes traded over the counter via the OTC Electronic Bulletin Board) require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Under these FINRA rules, before recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. If these FINRA rules were to apply to our common stock, such application would make it more difficult for broker-dealers to recommend that their customers buy our common stock, which could limit the ability to buy and sell our common stock and have an adverse effect on the market value for our shares of common stock.
An investor’s ability to trade our common stock may be limited by trading volume.
A consistently active trading market for our common stock may not occur on a national stock exchange or an automated quotation system. A limited trading volume may prevent our stockholders from selling shares at such times or in such amounts as they otherwise may desire.
Our company has a concentration of stock ownership and control, which may have the effect of delaying, preventing or deterring a change of control.
Our common stock ownership is highly concentrated. Through ownership of shares of our common stock, four stockholders collectively own beneficially more than 87% of our total outstanding shares of common stock. As a result of this concentrated ownership of our common stock, our four stockholders will be able to exert significant control over all matters requiring stockholder approval, including the election of directors and approval of mergers and other significant corporate transactions. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company. It also could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company, and it may affect the market price of our common stock.
We have not voluntarily implemented various corporate governance measures, in the absence of which, stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While our board of directors has adopted a Code of Ethics and an Audit Committee Charter, we have not yet adopted any of the other corporate governance measures, and, since our securities are not currently listed on a national securities exchange or NASDAQ, we are not currently required to do so. In the event that our common stock becomes listed, we will be required to adopt these other corporate governance measures, and we intend to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Our Articles of Incorporation provide that certain proceedings may only be instituted in the District Courts of Nevada, which may prevent or delay such proceedings and will increase the costs to enforce shareholder rights.
Our Articles of Incorporation provide that the following actions and proceedings may only be brought in the courts located in the State of Nevada: (i) derivative actions brought on behalf of the company, (ii) any action asserting breach of fiduciary duty by the directors or officers, (iii) any action brought under the Business Associations, Securities and Commodities statutes of the State of Nevada, and (iv) actions asserting a claim under the internal affairs doctrine. No court has determined that such provisions are enforceable in Nevada, and we may be forced to defend proceedings brought in other states if such provision is ruled unenforceable. If enforceable, claims covered by this provision may be maintained in the courts of the State of Nevada only if such courts have personal jurisdiction over the defendants. If the State of Nevada does not have personal jurisdiction over any named defendant, this provision may have the effect of preventing the prosecution of any claim. Additionally, because shareholders may initiate such actions only in the State of Nevada, shareholders will be required to incur additional costs and expense such as engaging legal counsel authorized to practice in Nevada. Moreover, the laws of the State of Nevada may be more favorable to us or our management than the laws of the state in which any shareholder resides.
Because we will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never paid dividends on our common stock, and we do not intend to do so in the foreseeable future. We intend to retain any future earnings to finance our growth. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock.
|Item 2.||Recent Sales of Unregistered Securities|
Recent Sales of Unregistered Securities
Issuer Purchases of Equity Securities
|Item 3.||Default on Senior Securities|
|Item 4.||Mine Safety Disclosures|
|Item 5.||Other Information|
|Exhibit Number||Exhibit Description|
|31.1*||Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer|
|31.2*||Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer|
|32*||Section 1350 Certification of Chief Executive Officer|
|101.INS*||XBRL Instances Document|
|101.SCH*||XBRL Taxonomy Extension Schema Document|
|101.CAL*||XBRL Taxonomy Extension Calculation Linkbase Document|
|101.DEF*||XBRL Taxonomy Extension Definition Linkbase Document|
|101.LAB*||XBRL Taxonomy Extension Label Linkbase Document|
|101.PRE*||XBRL Taxonomy Extension Presentation Linkbase Document|
* Filed herewith.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, as of June 7, 2019.
|ODYSSEY GROUP INTERNATIONAL, INC.|
|By:||/s/ Joseph Michael Redmond|
|Joseph Michael Redmond|
|Chief Executive Officer, President and Director|
|(Principal Executive Officer)|
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|/s/ Joseph Michael Redmond||Chief Executive Officer, President, Director||June 7, 2019|
|Joseph Michael Redmond||(Principal Executive Officer)|