NOTE O — REDEEMABLE PREFERRED STOCK

On October 6, 2010, we designated 24 shares of our authorized preferred stock as Series G 8% Convertible Preferred Stock, par value $0.0001 per share (the "Series G Preferred"). On October 12, 2010, we issued 24 shares of Series G Preferred for cash and in settlement of debt, as further discussed below. During April 2011, certain holders redeemed 3 shares of Series G Preferred for cash under the terms and conditions of the Series G Preferred Certificate of Designation. Significant terms and conditions of the Series G Preferred, as modified on April 14, 2011 (as discussed later in this NOTE), are as follows:

Dividends. The holders of the Series G Preferred will generally be entitled to receive cash dividends at a rate of $20,000 per share per year (or 8%), payable semi-annually on April 1 and October 1 of each year, commencing April 1, 2011. The dividends are cumulative and accrue, whether or not earned or declared, from and after the date of issue.

Liquidation Preference. In the event of any liquidation, dissolution, or winding up of Odyssey's affairs, each holder of the Series G Preferred then outstanding will be entitled to receive, before any payment or distribution will be made on Odyssey's common stock or any capital stock of Odyssey ranking junior to the Series G Preferred as to the payment of dividends or the distribution of assets, an amount per share of Series G Preferred equal to the sum of (a) $250,000 plus (b) any accrued but unpaid dividends.

Voting Rights. The holders of Series G Preferred are entitled to one vote for each share of common stock into which the Series G Preferred is convertible and are entitled to notice of meetings of stockholders. The holders of Series G Preferred will also be entitled to vote as a separate class with respect to certain matters. However, no holder may exercise its voting rights if doing so would result in the holder beneficially owning in excess of 9.9% of the outstanding common stock, unless waived by the holder.

Conversion Rights. At any time on or after April 15, 2012, any holder of shares of Series G Preferred may convert any or all of the shares into shares of common stock. Each share of Series G preferred will be convertible into the number of shares determined by dividing $250,000 by $1.785714, which we refer to as the conversion price. The number of shares of common stock issuable upon conversion of the Series G Preferred is subject to adjustment in certain events, as discussed in the next paragraph.

Adjustments to Conversion Rights. If Odyssey pays a dividend or makes a distribution on its common stock in shares of common stock, subdivides its outstanding common stock into a greater number of shares, or combines its outstanding common stock into a smaller number of shares, or if there is a reorganization, or a merger or consolidation of Odyssey with or into any other entity which results in a conversion, exchange, or cancellation of the common stock, or a sale of all or substantially all of Odyssey's assets, then the conversion rights described above will be adjusted appropriately so that each holder of Series G Preferred will receive the securities or other consideration the holder would have received if the holder's Series G Preferred had been converted before the happening of the event. The conversion price in effect from time to time is also subject to downward adjustment if we issue or sell shares of common stock for a purchase price less than the conversion price or if we issue or sell shares convertible into or exercisable for shares of common stock with a conversion price or exercise price less than the conversion price for the Series G Preferred.

Limitations Upon Conversion Rights. No holder may convert shares of Series G Preferred if such conversion would result in the holder beneficially owning in excess of 9.9% of the outstanding common stock, unless waived by the holder. In addition, we will not issue any shares of common stock upon conversion of shares of Series G Preferred if the issuance of such shares of common stock would exceed the aggregate number of shares of common stock that we may issue upon conversion of all outstanding shares of Series G Preferred and the outstanding warrants offered hereby without breaching our obligations under the listing rules of the NASDAQ Stock Market relating to stockholder approval of certain issuances of securities.

Redemption. Odyssey has the option to redeem the Series G Preferred, in whole or in part, at any time after June 15, 2011 at a redemption price of 100% of the liquidation value. Commencing after October 1, 2011, the redemption price increases 1.0% each month without cap. Each holder will have the option to require Odyssey to redeem the Series G Preferred, in whole or in part, at any time after June 15, 2012, at a redemption price equal to the original value plus the aforementioned incremental 1% and accrued dividends. There is no sinking fund requirement for redemption of the Series G preferred stock.

On October 11, 2010, we issued (i) 20 shares of Series G Preferred, plus warrants to purchase 1,530,000 shares of our common stock for cash of $5,050,000 and (ii) 4 shares of Series G Preferred, plus warrants to purchase 270,000 shares of our common stock to settle certain promissory notes with a carrying value of $928,482. Over a period from April 4, 2011 to April 8, 2011, investors redeemed 3 shares of Series G Preferred for cash of $757,500. On April 14, 2011, we modified the conversion and redemption dates noted above for consideration of warrants to purchase 525,000 shares of our common stock that are exercisable for a three year period at $2.75 per share.

We accounted for the Series G Preferred and warrants issued for cash as a financing transaction, wherein the net proceeds that we received were allocated to the financial instruments issued. We have accounted for the Series G Preferred and warrants issued in settlement of the promissory notes as an exchange, wherein we have recorded the financial instruments issued at their fair values and extinguished the promissory notes resulting in an extinguishment loss.

The following table summarizes the allocation for each of these transactions on October 11, 2010:


	Financing		Exchange			Total
Redeemable preferred stock (1)	$	2,747,476	$	888,997		$	3,636,473
Compound embedded derivatives (2)		1,389,114		261,318			1,650,432
Warrant derivatives (2)		913,410		161,190			1,074,600
Extinguishment loss		—		(383,023	)		(383,023	)

	$	5,050,000	$	928,482		$	5,978,482

(1)

The fair value of the redeemable preferred stock was estimated based upon its forward cash flow value, at a credit-risk adjusted market interest rate, as enhanced by the fair value of the conversion feature. Credit-risk adjusted rates used to discount the cash flow component ranged from 3.98% to 4.89% over our estimated period to redemption, which is October 2013. The fair value of the conversion feature is reflected in the compound embedded derivative line of the table.

(2)	See NOTE M for information related to the valuation of these financial instruments September 30, 2011 and December 31, 2010.

Prior to making the above accounting allocation, we evaluated the Series G Preferred and the warrants for proper classification under ASC 480 and ASC 815.

Series G Preferred:

ASC 480 generally requires liability classification for financial instruments that are certain to be redeemed, represent obligations to purchase shares of stock or represent obligations to issue a variable number of common shares. We concluded that the Series G Preferred was not within the scope of ASC 480 because none of the three conditions for liability classification was present.

ASC 815 generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. However, in order to perform this analysis we were first required to evaluate the economic risks and characteristics of the Series G Preferred in its entirety as being either akin to equity or akin to debt. Our evaluation concluded that the Series G was more akin to a debt-like contract largely due to the fact that the financial instrument is mandatorily redeemable for cash at the option of the holder and has a return in the form of a dividend that operates similarly with an interest rate on debt. Other features of the Series G Preferred that operate like equity, such as the conversion option and voting feature, did not afford sufficient evidence, in our view, to offset the weight of the primary debt-like features; that is, the redemption feature and the dividend feature. Accordingly, based upon this conclusion the clear and close relationship of embedded derivative features was made relative to a debt-like contract.

The material embedded derivative features consisted of the conversion option and related down-round anti-dilution protection, the Company's redemption privilege, and the holder's redemption privilege. The conversion option and related anti-dilution protection, bearing risks of equity, were not clearly and closely related to the debt-like Series G Preferred and required bifurcation. The redemption features, although generally bearing risks of debt, such as credit and interest risk, were not clearly and closely related to the Series G Preferred because the Series G Preferred was deemed to be issued at a substantial discount and there are scenarios, however improbable or remote, that the redemption features as designed could double the investor's initial rate of return. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

Redeemable preferred stock represents preferred stock that is either redeemable for cash on a specific date or contingently redeemable for cash for events that are not within the control of management. Redeemable preferred stock is required to be classified outside of stockholders' equity (in the mezzanine section). Because the Series G Preferred is redeemable at the holder's option, we are required to record the residual from our allocation to the mezzanine section. This amount is further subject to accretion to the redemption value over the term to the earliest redemption date using the effective method. Accretion for the three- and nine-months ended September 30, 2011 amounted to $-0- and $1,789,403, respectively.

Cumulative dividends on the Series G Preferred Stock for the three- and nine-months ended September 30, 2011 amounted to $105,000 and $343,479, respectively. Dividends are recorded when they are declared. Accordingly, we do not have any cumulative dividends that have not been declared as of September 30, 2011.

Redemption:

In April 2011, we redeemed 3 shares from certain shareholders of the Series G Preferred for cash of $757,500 under the terms and conditions of the Series G Preferred Certificate of Designation. The carrying value of these shares of Series G Preferred amounted to $558,926 on the redemption dates. We have recorded the difference between the redemption values paid and the carrying values amounting to $198,574 as a deemed dividend in paid-in capital. See NOTE M for our accounting for the associated compound embedded derivative that had been bifurcated and classified in liabilities.

During October 2011, we redeemed 20 shares of the Series G Preferred for cash of $5,000,000 plus accumulated dividends. The carrying value of these shares of Series G preferred was $5,000,000. We are currently reviewing the required accounting treatment for the attached compound embedded derivative that was bifurcated and classified as a liability since inception.

Modification:

On April 14, 2011, we entered into separate agreements with two holders of Odyssey's Series G Preferred. The two holders are accredited investors and hold, in aggregate, shares representing $5,250,000 of the original $6,000,000 issued on October 12, 2010. As we disclosed above, the original Certificate of Designation relating to the Series G Preferred Stock included (a) an option for the holders thereof to convert their shares of Series G Preferred Stock into shares of common stock that became exercisable on April 15, 2011, and (b) an option for the holders to redeem the shares of Series G Preferred Stock at any time after December 15, 2011, with the redemption price increasing by 1% every month beginning April 1, 2011. In consideration of the issuance of warrants to purchase an additional 525,000 shares of common stock at an exercise price of $2.75 per share, the holders agreed to extend by six months the dates upon which the conversion option and the redemption option become exercisable and date upon which the redemption price begins to increase by 1% per month.

We accounted for the modification of the Series G Preferred as an extinguishment based upon the significance of the modification and the significance of the warrant consideration, which had a fair value of $906,150 on the modification date. In applying extinguishment accounting, the modified preferred shares are assumed to replace the existing preferred shares at redemption value with a charge to common stockholders' equity. The difference of $1,362,443, plus the fair value of the warrant consideration, or $2,268,593 was charged to paid-in capital in the absence of accumulated earnings.

Warrants:

The warrants issued in the financing and exchange transactions have terms of three years and exercise prices of $2.50. The warrants issued in the April 14, 2011 modification transaction have terms of three years and exercise prices of $2.75. The contractual exercise prices are subject to adjustment for both traditional recapitalization events and sales of common stock or other common stock linked contracts below the contractual exercise price. The latter is referred to as down-round anti-dilution protections. The warrants did not fall within the scope of ASC 480 under any of the three conditions referred to above. However, the warrants required derivative liability accounting because certain down-round anti-dilution protections are terms that are not consistent with the definition for financial instruments indexed to a company's own stock.