Zeo ScientifiX, Inc 10-Q for FY2022 Q1
Zeo ScientifiX, Inc. (ZEOX)
About this 10-Q
Zeo ScientifiX, Inc filed this 10-Q on September 14, 2021, covering the quarter ended July 31, 2021 (FY2022 Q1).
Headline figures
Quarter ended July 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.37M
- up 78.3% from $767.33K a year earlier
- Net loss
- $1.41M
- compared with a net loss of $5.26M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For
the quarterly period ended
OR
For the transition period from ________________to ________________
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant's
Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post
such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☒ | Smaller reporting company | |
|
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
There were shares of common stock, $0.001 par value, of the Registrant issued and outstanding as of September 14, 2021.
ORGANICELL REGENERATIVE MEDICINE, INC.
TABLE OF CONTENTS
| i |
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
Organicell Regenerative Medicine, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| July 31, | October 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for bad debts | ||||||||
| Stock subscription receivable | - | |||||||
| Prepaid expenses | ||||||||
| Inventories | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets – right of use | ||||||||
| Security deposits | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued liabilities to management | ||||||||
| Notes payable | ||||||||
| Advances from affiliate | ||||||||
| Finance lease obligations | ||||||||
| Operating lease obligations | ||||||||
| Convertible debentures | ||||||||
| Liabilities attributable to discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Long term finance lease obligations | ||||||||
| Long term operating lease obligations | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
Organicell Regenerative Medicine, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other | ||||||||||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
Organicell Regenerative Medicine, Inc.
CONSOLIDATED CHANGES TO STOCKHOLDERS’ DEFICIT
For the Three Months And Nine Months Ended July 31, 2021 and 2020
(Unaudited)
Three Months Ended July 31,
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid In | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Deficit | ||||||||||||||||
| Balance May 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Sale of common stock | - | |||||||||||||||||||
| Exchange of accounts payable for stock | - | |||||||||||||||||||
| Stock issued for future services | - | |||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance July 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance May 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Sale of common stock | - | |||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance July 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| 3 |
Nine Months Ended July 31,
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid In | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Deficit | ||||||||||||||||
| Balance October 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Sale of common stock | - | |||||||||||||||||||
| Exchange of accounts payable for stock | - | |||||||||||||||||||
| Stock issued for future services | - | |||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance July 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance October 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Sale of common stock | - | |||||||||||||||||||
| Conversion of debt and accrued interest | - | |||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance July 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Organicell Regenerative Medicine, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended July 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Interest expense on conversion of Funding Facility | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net of allowance for bad debts | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Accrued liabilities to management | ||||||||
| Security deposits | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of notes payable | ||||||||
| Payments on finance lease | ( | ) | ( | ) | ||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Proceeds from sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING TRANSACTIONS: | ||||||||
| Exchange of accounts payable for common stock | $ | $ | ||||||
| Stock issued for future services | $ | $ | ||||||
| Stock subscription receivable | $ | $ | ||||||
| Operating lease – right of use assets | $ | $ | ||||||
| Conversion of debt and accrued interest into common stock | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organicell Regenerative Medicine, Inc. f/k/a Biotech Products Services and Research, Inc. (“Organicell” or the “Company”) was incorporated on August 9, 2011 in the State of Nevada. The Company is a clinical-stage biopharmaceutical company principally focusing on the development of innovative biological therapeutics for the treatment of degenerative diseases and to provide other related services. Our proprietary products are derived from perinatal sources and are principally used in the health care industry administered through doctors and clinics (collectively, “Providers”).
On May 21, 2018, the Company filed a Certificate of Amendment with the Secretary of State of Nevada to change the Company’s name from Biotech Products Services and Research, Inc. to Organicell Regenerative Medicine, Inc., effective June 20, 2018 (the “Name Change”). The Name Change has not yet been effectuated in the marketplace by the Financial Industry Regulatory Agency (“FINRA”).
For the nine months ended July 31, 2021, the Company principally operated through General Surgical of Florida, Inc., a Florida corporation and wholly owned subsidiary, with a business purpose to sell therapeutic products to Providers. During November 2020, the Company formed Livin Again Inc. (“Livin”), a wholly owned subsidiary of the Company for the purpose of among other things, providing independent education, advertising and marketing services, to Providers of medical and other healthcare, anti-aging and regenerative services (“Regenerative Services”) including FDA-approved IV vitamin and mineral liquid infusions. As of July 31, 2021, Livin did not have any significant activity.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities Exchange Commission, although we believe that the disclosures made are adequate to make the information not misleading. These unaudited consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended October 31, 2020 filed with the Securities and Exchange Commission.
Concentrations of Credit Risk
The
balance sheet items that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents. Balances in
accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
| 6 |
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to pay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions.
The
policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net
60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible
receivables is made. For the three months and nine months ended July 31, 2021 and 2020, the Company did
Stock Subscriptions Receivable
Stock subscriptions receivable for equity investments in the Company are classified as current assets once a fully executed stock subscription agreement is received and provided that the receivable is collected prior to the issuance of the financial statements. In the event that the Company receives a fully executed stock subscription agreement but the receivable is not collected prior to the issuance of the financial statements, the receivable is classified as a direct reduction to stockholders' equity.
Inventory
Inventory is stated at the lower of cost or net realizable value using the average cost method. The Company provides reserves for potential excess, dated or obsolete inventories based on an analysis of forecasted demand compared to quantities on hand and any firm purchase orders, as well as product shelf life. At July 31, 2021, the Company determined that there were not any reserves required in connection with our inventory.
Property and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful
lives of the related assets. The estimated useful lives of property and equipment range from
Construction in Progress
The cost of all projects under construction for new laboratory facilities and other improvements that are in progress (under way) at a particular point in time and have not yet been placed into service are reported as construction in progress until such time as the project is complete.
Revenue Recognition
The Company follows the guidance of FASB Accounting Standards Update (“ASU”) Topic 606 “Revenue from Contracts with Customers” which requires the Company to recognize revenue in amounts that reflect the prorata completion of the performance obligations of the Company required under the contracts.
The Company recognizes revenue only when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to receive in exchange for the good or service. Our performance obligations are satisfied, and control is transferred at a point-in-time, which is typically when the transfer and title to the product sold has taken place and there is evidence of our customer’s satisfactory acceptance of the product shipment or delivery.
| 7 |
Basic income (loss) per common share is calculated by dividing the Company's net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the Company's net income available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity instruments.
At July 31, 2021, the Company had common shares issuable upon the exercise of warrants and unpaid Original Base Salary and Incremental Salary that could be convertible into approximately 33,570,000 common shares that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months and nine months ended July 31, 2021. At July 31, 2020, the Company had common shares issuable upon the exercise of warrants and unpaid Original Base Salary and Incremental Salary that could be convertible into approximately 32,450,000 common shares that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months and nine months ended July 31, 2020.
All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based upon the estimated fair value of the option or warrant.
Research and Development Costs
Research
and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. These
costs are expensed as incurred. Our research and development expenses were approximately $
Income Taxes
The Company is required to file a consolidated tax return that includes all of its subsidiaries.
Provisions for income taxes are based on taxes payable or refundable for the current year taxable income for federal and state income tax reporting purposes and deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carryforwards. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of the operations in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with FASB Topic 740 – Income Taxes. This pronouncement prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
For the three months and nine months ended July 31, 2021 and 2020 the Company incurred operating losses, and therefore, there was not any income tax expense amount recorded during that period. There is a full valuation allowance established for the tax benefit associated with the net losses for the three months and nine months ended July 31, 2021 and 2020.
| 8 |
Valuation of Derivatives
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
Sequencing
The Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.
The Company currently has authorized shares of common stock of which shares are issued and outstanding as of September 14, 2021. The Company expects that it will continue to issue common stock in the future in connection with debt and/or equity financings, transactions with third parties, performance incentives and as compensation to its employees. Currently the amount of authorized shares is sufficient to provide for the additional shares that the Company may be contingently obligated to issue under existing arrangements.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made.
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities and convertible debt. The estimated fair value of cash, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.
The Company follows the provisions of ASC 820 with respect to its financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
Level one — Quoted market prices in active markets for identical assets or liabilities;
Level two — Inputs other than level one inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level three — Unobservable inputs that are supported by little or no market activity and developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
| 9 |
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
The Company did not have any convertible instruments outstanding at July 31, 2021 and October 31, 2020 that qualify as derivatives.
Operating and Finance Lease Obligations
Effective November 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02 (Topic 842) (“ASC 842”), that requires organizations that lease assets to recognize assets and liabilities on the balance sheet and provide updated disclosures related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. The Company adopted the new standard using a modified retrospective approach. The modified retrospective approach included a number of optional practical expedients on leases that commenced before the effective date of ASC 842, including continuing to account for leases that commenced before the effective date in accordance with previous guidance, unless the lease is modified.
Under the provisions of ASC 842, the Company is required to recognize a right of use (“ROU”) asset and corresponding lease liability for all operating leases upon commencement of the lease. The Company’s policy is to treat operating leases that have a term of one year or less at lease commencement date and do not include a purchase option that is reasonably certain of exercise, consistent with the lease recognition approach as previously outlined under ASC 840. In addition, month to month leases which do not involve additional financial commitments on the part of the Company are also treated consistent with the lease recognition approach as previously outlined under ASC 840. The Company has established a capitalization threshold of $15,000 in determining whether any future operating leases will be capitalized.
Subsequent Events
The Company has evaluated subsequent events that occurred after July 31, 2021 through the financial statement issuance date for subsequent event disclosure consideration.
NOTE 3 – GOING CONCERN
The
unaudited accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going concern. The Company has had limited revenues since its inception. The Company
incurred operating losses of $
New United States Food and Drug Administration (“FDA”) regulations which were announced in November 2017 and which became effective beginning in May 2021 (postponed from November 2020 due to the COVID -19 pandemic) require that the sale of products that fall under Section 351 of the Public Health Services Act pertaining to marketing traditional biologics and human cells, tissues and cellular and tissue based products (“HCT/Ps”) can only be sold pursuant to an approved biologics license application (“BLA”). The Company has not obtained any opinion or ruling regarding the Company’s operations and whether the processing, sales and distribution of the products it currently produces would be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s.
In addition to the above, the outbreak of the novel coronavirus (“COVID-19”) during March 2020 and the resulting adverse public health developments and economic effects to the United States business environments have adversely affected the demand for our products and services by our customers and from patients of our customers as a result of quarantines, facility closures and social distancing measures put into effect in connection with the COVID-19 outbreak and which currently still continue to have a negative impact to our business and the economy.
As a result of the above, the Company’s efforts to establish a stabilized source of sufficient revenues to cover operating costs has yet to be achieved and ultimately may prove to be unsuccessful unless (a) the Company’s ability to process, sell and distribute the products currently being produced or developed in the future are not restricted, (b) the United States economy resumes to pre-COVID-19 conditions and/or (c) additional sources of working capital through operations or debt and/or equity financings are realized. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| 10 |
Management anticipates that the Company will remain dependent, for the near future, on additional investment capital to fund ongoing operating expenses and research and development costs related to development of new products and to perform required clinical studies in connection with the sale of its products. The Company does not have any assets to pledge for the purpose of borrowing additional capital. In addition, the Company relies on its ability to produce and sell products it manufactures that are subject to changing technology and regulations that it currently sells and distributes to its customers. The Company’s current market capitalization, common stock liquidity and available authorized shares may hinder its ability to raise equity proceeds. The Company anticipates that future sources of funding, if any, will therefore be costly and dilutive, if available at all.
In view of the matters described in the preceding paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that (1) the Company is able to continue to produce products or obtain products under supply arrangements which are in compliance with current and future regulatory guidelines, (2) the effects of the COVID-19 crisis resume to pre-COVID-19 market conditions, (3) the Company will be able to establish a stabilized source of revenues, including efforts to expand sales internationally and the development of new product offerings and/or designations of products, (4) obligations to the Company’s creditors are not accelerated, (5) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations, (6) the Company is able to continue its research and development activities, particularly in regards to remaining compliant with the FDA and ongoing safety and efficacy of its products, and/or (7) the Company obtains additional working capital to meet its contractual commitments and maintain the current level of Company operations through debt or equity sources.
There is no assurance as to when the adverse impact to the United States and worldwide economies resulting from the COVID-19 outbreak will be eliminated, if at all, and whether any new or recurring pandemic outbreaks will occur again in the future causing similar or worse devastating impact to the United States and worldwide economies and our business. In addition, there is no assurance that the products we currently produce will not be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s and/or the Company will be able to complete its revenue growth strategy. There is no assurance that the Company’s research and development activities will be successful or that the Company will be able to timely fund the required costs of those activities. Without sufficient cash reserves, the Company’s ability to pursue growth objectives will be adversely impacted. Furthermore, despite significant effort since July 2015, the Company has thus far been unsuccessful in achieving a stabilized source of revenues. As described above, the COVID-19 crisis has significantly impaired the Company and the overall Unites States and World economies.
If revenues do not increase and stabilize, if the COVID-19 crisis is not satisfactorily managed and/or resolved, if the Company’s ability to process, sell and/or distribute the products currently being produced or developed in the future are restricted, and/or if additional funds cannot otherwise be raised, the Company might be required to seek other alternatives which could include the sale of assets, closure of operations and/or protection under the U.S. bankruptcy laws. As of July 31, 2021, based on the factors described above, the Company concluded that there was substantial doubt about its ability to continue to operate as a going concern for the 12 months following the issuance of these financial statements.
NOTE 4 – STOCK SUBSCIPTION RECEIVABLES
On
July 28, 2021, an investor had entered into a stock purchase agreement with the Company to purchase common stock of the Company for a
total purchase price of $
| 11 |
NOTE 5 – INVENTORIES
| Schedule of Inventories | ||||||||
| July 31, 2021 | October 31, 2020 | |||||||
| Raw materials and supplies | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
| Schedule of Property and Equipment | ||||||||
| July 31, 2021 | October 31, 2020 | |||||||
| Computer equipment | $ | $ | ||||||
| Finance lease equipment | ||||||||
| Manufacturing equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Construction in progress: | ||||||||
| Leasehold improvements | ||||||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense totaled $
As
described in Note 7, during the nine months ended July 31, 2021, the Company began the build-out of additional laboratory processing,
product distribution and administrative office capacity at its Basalt Lab Lease location. The total costs incurred as of July 31, 2021
was $
NOTE 7 – LEASE OBLIGATIONS
Finance Lease Obligations:
During
March 2019, the Company entered into a lease agreement for certain lab equipment in the amount of $
| 12 |
Operating Lease Obligations:
Administrative Office
The
Company’s corporate administrative offices are leased from MariLuna, LLC, a Florida limited liability company which is owned by
Dr. Mitrani. During July 2020, the Company entered into an extension of the operating lease agreement. The lease term is for an additional
36 months beginning July 1, 2020 and expiring June 30, 2023, with a monthly rental rate of $
Lease
amortization expense for the three months ended July 31, 2021 and 2020 was $
Beginning
October 1, 2020, the Company entered into a second lease agreement with Mariluna LLC for office space located in Aspen, CO. The lease
expires on
Laboratory Facilities:
In
connection with the Company’s decision to again operate a placental tissue bank processing laboratory in Miami, Florida, during
February 2019, the Company entered into a renewable month to month lease agreement (“Miami Lab Lease”) for an approximately
450 square foot laboratory and a 100 square foot administrative office facility. Monthly lease payments are approximately $
During
March 2021, the Company entered into a lease agreement for an approximately 2,452 square foot commercial space located in Basalt, Colorado
(the “Basalt Lab Lease”). The Company intends to build additional laboratory processing, product distribution and administrative
office capacity from this location. The term of the Basalt Lab Lease is for three years and may be renewed for an additional (3) three-year
term provided the Company is not in default. Rental expense is $
NOTE 8 – RELATED PARTY TRANSACTIONS
On February 26, 2020, April 25, 2020 and June 29, 2020, Mr. Mitrani’s, Dr. Mitrani’s and Mr. Bothwell’s employment agreements were amended. See Note 13 for a more detailed description of the executive employment agreements and the respective amendments referred to above.
During April 2020, June 2020, August 2020, September 2020, February 2021 and April 2021, each of the current executives of the Company, Albert Mitrani, Dr. Mari Mitrani, Ian Bothwell and Dr. George Shapiro (“Current Executives”) were granted rights under the Management and Consultant Performance Plan (“MCPP”) to receive common stock of the Company based on the achievement of certain defined milestones. In addition, during June 2020, each of the current non-executive members of the Board were granted rights under the MCPP to receive common stock of the Company based on the achievement of certain defined milestones (see Note 11).
The
Company’s corporate administrative offices are leased from MariLuna, LLC, a Florida limited liability company which is owned by
Dr. Mitrani. During July 2020, the term of the lease has been extended through June 2023. Beginning July 2020, the monthly rent increased
from $2,900 to $
| 13 |
Beginning
October 1, 2020, the Company entered into a second lease agreement with Mariluna LLC for office space located in Aspen, CO. The lease
expires on September 30, 2021 and does not provide for any renewal terms. Under the terms of the lease. The Company is required to make
monthly rental payments of $
In
connection with Mr. Bothwell’s executive employment agreements, the Company agreed to reimburse Rover Advanced Technologies, LLC,
a company owned and controlled by Mr. Bothwell for office rent and other direct expenses (phone, internet, copier and direct administrative
fees, etc.) totaling $
For
the three months and nine months ended July 31, 2021, the Company sold a total of approximately $
On
February 26, 2020, the Company agreed to enter into a consulting agreement with Dr. George Shapiro, the Company’s Chief Medical
Officer (“CMO”) to provide ongoing services to the Company. The CMO will receive compensation of $ annually, commencing
March 1, 2020. The term of the consulting agreement is one year, with automatic renewals for annual periods thereafter unless prior written
notice is provided by either party of the desire to terminate. During February 2021, the consulting arrangement was amended whereby the
CMO’s accrued and unpaid consulting fees of $82,250 through February 2021 were fully satisfied through the issuance of
shares of newly issued common stock of the Company. Furthermore, until the CMO becomes a full-time employee of the Company and provided
the CMO continues to serve in his current position, the CMO shall receive compensation equal to $27,000 per quarter beginning May 1,
2021, payable in cash or in stock (based on the average monthly trading price of the common stock during the applicable quarter) at the
option of the Company. At July 31, 2021, consulting fees owed to the CMO were $
At
July 31, 2021, salary amounts owed to Albert Mitrani, Dr. Mari Mitrani and Ian Bothwell were $
Effective
December 21, 2020, the Company granted a bonus of $
On
February 22, 2021, the Company sold shares of common stock to Republic Asset Holdings LLC., a Company controlled by Michael
Carbonara, a director of the Company, at $ per share for an aggregate purchase price of $
NOTE 9 – NOTES PAYABLE
On
June 20, 2018, the Company issued a total of $
| 14 |
During
October 2018, the Company issued a total of $
Credit Facility
On
September 19, 2019, the Company’s wholly owned subsidiary, General Surgical Florida, received $
NOTE 10 – IRS PENALTIES
The
Company’s income tax returns for the periods since inception through the tax year ended October 31, 2015 were not filed with the
Internal Revenue Service (“IRS”) until August 2017 (“Delinquent Filed Returns”). The Company’s income tax
returns for the tax year ended October 31, 2016 were filed with the IRS during December 2017. In connection with the Delinquent Filed
Returns, during the period September 2017 through October 2017, the Company received notices that it was being assessed approximately
$
NOTE 11 – CAPITAL STOCK
Preferred Stock
The Company is authorized to issue shares of $ par value preferred stock in one or more designated series, each of which shall be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. The Company’s board of directors is authorized, without stockholders’ approval, within any limitations prescribed by law and the Company’s Articles of Incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock.
Issued Shares
As of July 31, 2021, there were designations of Preferred Stock authorized or outstanding.
| 15 |
Common Stock
On
December 21, 2020 and January 4, 2021, pursuant to the Nevada Revised Statutes and the Bylaws of the Company, the Board of Directors
of the Company and the stockholders having the
Issuances of Common Stock - Sales:
During
November 2020, the Company sold shares of common stock to an “accredited investor”, at $ per share, for an aggregate
purchase price of $
During
February 2021, the Company sold an aggregate of shares of common stock to five “accredited investors”, at prices
ranging from $0.05 per share to $ per share for an aggregate purchase price of $
On
February 22, 2021, the Company sold shares of common stock to Republic Asset Holdings LLC., a Company controlled by Michael
Carbonara, a director of the Company, at $ per share for an aggregate purchase price of $
During
April 2021, the Company sold an aggregate of shares of common stock to seven “accredited investors” at prices
ranging from $ per share to $ per share for an aggregate purchase price of $
During
May 2021, the Company sold an aggregate of shares of common stock to eight “accredited investors” at prices ranging
from $ per share to $ per share for an aggregate purchase price of $
During
the period June 2021 through July 2021, the Company sold an aggregate of shares of common stock to four “accredited
investors” at prices ranging from $ per share to $ per share for an aggregate purchase price of $
During
August 2021, the Company sold an aggregate of shares of common stock to one “accredited investor” at $ per
share for an aggregate purchase price of $
Issuances of Common Stock – Stock Compensation:
During
November 2020, the Company entered into an additional consulting agreement with a third party to provide consulting services in connection
with the development of international research and development, sales and distribution and financing opportunities for a period of six
months. As consideration for agreeing to provide the consulting services to the Company, the Company issued the consultant
shares of fully vested unregistered common stock valued at $ per share, the closing price of the common stock of the Company on
the effective date of the agreement. The Company recorded $ of stock-based compensation expense during the nine months ended July
31, 2021. On August 9, 2021, the Company and the third party entered into another consulting agreement with substantially the same terms
and condition as provided for in the original agreement. The
| 16 |
During November 2020, in consideration for agreeing to provide medical consulting and advisory services to the Company, the Board approved the issuance to one individual an aggregate of shares of unregistered common stock valued at $ per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded $ of stock-based compensation expense based on the grant date fair value of these shares during the nine months ended July 31, 2021.
During December 2020, the Board approved the bonus of shares of newly issued common stock to executive management (consisting of Mr. Mitrani, Dr. Mitrani and Mr. Bothwell) totaling shares; non-executive Board members (consisting of Mr. Carbonara and Dr. Meglin) totaling shares; administrative staff totaling ; and to several medical advisors totaling shares valued at $ per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded a total of $ of stock-based compensation expense based on the grant date fair value of these shares during the nine months ended July 31, 2021.
During April 2021, the Board approved the bonus of shares of newly issued common stock to an employee valued at $ per share, the closing price of the common stock of the Company on the grant date. The Company recorded a total of $ of stock-based compensation expense based on the grant date fair value of these shares during the nine months ended July 31, 2021.
During December 2020, January 2021 and February 2021, the Company issued , and shares of unregistered common stock, respectively, valued at prices ranging from $0.035 to $0.17 per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded a total of $ of stock-based compensation expense during the nine months ended July 31, 2021 based on the grant date fair value of these shares.
During February 2021, the Company entered into a consulting agreement with a third party to provide consulting services for a one-year period. As consideration for agreeing to provide consulting services to the Company, the Company agreed to issue the consultant shares of unregistered common stock upon completion of the three-month anniversary of the agreement. In addition, the Company has agreed to provide an additional 250,000 shares of newly issued common stock for each celebrity and/or athlete which the consultant arranges to provide marketing services to the Company and that is responsible for bringing a minimum of $75,000 of monthly revenues in connection with sales of the Company’s products, up to a maximum of 1,500,000 shares. The shares issued were valued at $0.095 per share, the closing price of the common stock of the Company on the effective date of the agreement, totaling $47,500. The Company will amortize the costs associated with the issuance over the term of the agreement. The Company amortized $ of stock-based compensation expense during the nine months ended July 31, 2021.
As
described in Note 13, in connection with the execution of the Amendment, the Company issued to the Consultants shares of unregistered
common stock (“Shares”) valued at $ per share, the closing price of the common stock of the Company on the grant date.
The Company will amortize the costs associated with the issuance of $
During April 2021, the Company entered into a consulting agreement with a third party to provide investor relation services. The term of the agreement is month to month and may be terminated with or without cause. As consideration for agreeing to provide the consulting services to the Company, the Company has agreed to pay the consultants a minimum of $15,000 per month and to issue shares of restricted common stock which vested fully on May 21, 2021 (valued at $ per share, the closing price of the common stock of the Company on the grant date). The Company recorded a total of $ of stock-based compensation expense during the nine months ended July 31, 2021.
During March 2021, April 2021 and May 2021, the Company granted a total of of common stock to various consultants valued at prices ranging from $ per share to $ per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded $ of stock-based compensation expense based on the grant date fair value of these shares during the nine months ended July 31, 2021.
| 17 |
On June 4, 2021, the Company and an employee agreed to amendment of the employee’s employment agreement. Under the terms of the amendment, the employee agreed to extend the term of the agreement through December 31, 2022 and the Company agreed to grant the employee shares of common stock of the Company to vest upon execution of the amendment (valued at $ per share, the closing price of the common stock of the Company on the grant date). In addition, the employee is eligible to receive up to an aggregate of 3,000,000 additional shares of common stock based on achievement of certain milestones. The total value of the stock granted in connection with the amendment of $ will be amortized beginning June 4, 2021 over the remaining term of the agreement. The Company recorded $ of stock-based compensation expense based on the grant date fair value of these shares during the nine months ended July 31, 2021.
During June 2021, the Company granted a total of of common stock to various consultants and service providers valued at prices ranging from $ per share to $ per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded $ of stock-based compensation expense based on the grant date fair value of these shares during the nine months ended July 31, 2021.
On
June 10, 2021, the Company agreed to issue shares of common stock to a service provider as a prepayment for future services to
be provided to the Company valued at $
Issuances of Common Stock – Exchange of balances due on accounts payable for stock:
During
February 2021, the consulting arrangement was amended whereby the CMO’s accrued and unpaid consulting fees of $
During
May 2021, the Company and two employees agreed to exchange $
Management and Consultants Performance Stock Plan
On April 25, 2020, the Company approved the adoption of the Management and Consultants Performance Stock Plan (“MCPP”) providing for the grant to current senior executive members of management and third-party consultants of an aggregate of approximately shares of common stock of the Company (“Shares”) based on the achievement of certain defined operational performance milestones (“Milestones”).
On June 29, 2020, the Board amended the MCPP, providing for the additional grant of common stock of the Company to the current senior executive members of management and the current non-executive members of the Board based on the Company completing any transaction occurring while employed and/or serving as a member of the Board, respectively, that results in a change in control of the Company or any sale of substantially all the assets of the Company (“Transaction”) which upon after giving effect to such issuance of shares below, corresponds to a minimum pre-Transaction fully diluted price per share of the Company’s common stock in the amounts indicated below.
| Schedule of minimum pre-Transaction price per share | ||||||||||
| Pre-Transaction Price Per Share Valuation (a) | Executive Bonus Shares Issued (b) | Non-executive Board Bonus Shares Issued (c) | ||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| (a) | proforma for issuance of all shares to be issued pursuant to the MCPP and other in the money contingent share issuances |
| 18 |
| (b) | per each executive consisting of Albert Mitrani, Dr. Mari Mitrani, Ian Bothwell, and Dr. George Shapiro |
| (c) | per each non-executive Board member consisting of Dr. Allen Meglin and Michael Carbonara |
On August 14, 2020, the Board amended the MCPP, providing for the additional grant of common stock of the Company to each Dr. Maria I. Mitrani and Ian Bothwell based on the Company obtaining aggregate gross fundings (grants for research and development and clinical trials, purchase contracts for Company products, debt and/or equity financings) or other financial awards during the term of employment with the Company based on the amounts indicated below:
| Schedule of debt and/or equity financings | ||||||||||
| Aggregate Funding Amount | Shares | |||||||||
| From | To | |||||||||
| $ | $ | |||||||||
| $ | $ | |||||||||
| $ | $ | |||||||||
On September 23, 2020, the Board amended the MCPP, providing for the grant of common stock of the Company of million, million and million shares of common stock of the Company, respectively, to each Albert Mitrani, Dr. Maria I. Mitrani and Ian Bothwell upon such time that the Company’s common stock trades above $ per share, $ per share and $ per share, respectively, for 30 consecutive trading days subsequent to March 31, 2021 and provided such milestone occurs during the term of employment with the Company.
In addition, each of the current executives were entitled to receive an additional 7 million shares, which when combined with all previous IND and/or eIND’s Milestones previously issued under the MCPP of 43 million shares, represents the total of all incentive shares to be issued to each executive in connection with the combined thirteen IND’s and/or eIND’s Milestones achieved through September 23, 2020. In the future, each of the current executives shall be entitled to receive 5 million shares as a performance incentive for each IND and/or “Expanded Access” approval (and excluding all eIND’s) received by the Company that involve more than 15 patients and provided such milestone occurs during the term of employment with the Company.
On February 10, 2021, the Board amended the MCPP, providing for the grant of common stock of the Company of 5 million shares for each Phase II clinical trial completed, 5 million shares for each Phase III clinical trial approved and initiated (deemed to be upon the time the first patient is enrolled) and 10.0 million shares for each Phase III clinical trial fully enrolled. In addition, the CMO’s portion of a designated grant for an achievement of any applicable Milestone subsequent to September 23, 2020 was reduced to 30% until the time that the CMO becomes a full-time employee of the Company.
| 19 |
Pursuant to the MCPP, a total of shares have been issued and as described above, additional shares are authorized to be issued under the MCPP subject to the achievement of the defined contingent performance based milestones described above and provided the milestones are achieved while the individual is employed and/or serving as a member of the Board:
| Schedule of management and consultants performance stock plan | ||||
| MCPP | ||||
| Shares | ||||
| Name | Awarded | |||
| Albert Mitrani | ||||
| Ian Bothwell | ||||
| Dr. Maria I. Mitrani | ||||
| Dr. George Shapiro | ||||
| Consultants | ||||
| Total | ||||
The Company will record stock-based compensation expense in connection with any MCPP Shares that are actually awarded based on the fair value as of the initial grant date that the respective milestone for the MCPP Shares were approved. For the MCPP Shares approved on April 25, 2020, June 29, 2020, August 14, 2020, September 23, 2020, and February 10, 2021, the closing price of the common stock of the Company was $0.027, $0.056, $0.128, $0.28 and 0.108, respectively.
In connection with the MCPP Shares that have been awarded to date, all such shares were issued in connection with the MCPP Shares approved on April 25, 2020 and accordingly were valued $0.027 per share, the closing price of the common stock of the Company on the date that those respective MCPP Shares were approved.
During the three months and nine months ended July 31, 2021, a total of and shares, respectively, were issued in connection with certain Milestones achieved. The Company recorded a total of $ and $ of stock-based compensation expense during the nine months ended July 31, 2021 and 2020, respectively, based on the fair value of the actual MCPP Shares awarded during each of those respective periods.
NOTE 12 – WARRANTS
A summary of warrant activity for the nine months ended July 31, 2021 and 2020 are presented below.
| Summary of Warrant Activity | ||||||||||||||||
| Number of Shares | Weighted- average Exercise Price | Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at October 31, 2020 | $ | $ | ||||||||||||||
| Granted | $ | – | $ | |||||||||||||
| Exercised | $ | – | $ | |||||||||||||
| Expired/Forfeited | $ | – | $ | |||||||||||||
| Outstanding and exercisable at July 31, 2021 | $ | $ | ||||||||||||||
| Number of Shares | Weighted- average Exercise Price | Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at October 31, 2019 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | $ | - | $ | |||||||||||||
| Expired/Forfeited | ( | ) | $ | - | $ | |||||||||||
| Outstanding and exercisable at July 31, 2020 | $ | $ | ||||||||||||||
NOTE 13 – COMMITMENTS AND CONTINGENCIES
The description of Mr. Mitrani’s, Dr. Mitrani’s and Mr. Bothwell’s executive employment agreements executed in April 2018 (collectively referred to as the April 2018 Executive Employment Agreements) are summarized below:
| 20 |
April 2018 Executive Employment Agreements
General
Pursuant
to Albert Mitrani’s April 2018 Executive Employment Agreement, Mr. Mitrani serves as the Company’s President and Chief Operating
Officer. Mr. Mitrani’s base annual salary is $
Pursuant
to Ian Bothwell’s April 2018 Executive Employment Agreement, Mr. Bothwell continues to serve as the Company’s Chief Financial
Officer. Mr. Bothwell’s base annual salary is $
Pursuant
to Dr. Maria I. Mitrani’s April 2018 Executive Employment Agreement, Dr. Mitrani continues to serve as the Company’s Chief
Science Officer. Dr. Mitrani’s base annual salary is $
Term
The term of each of the April 2018 Executive Employment Agreements commences as of the Effective Date and continues until December 31, 2020 (Mr. Bothwell) or December 31, 2023 (Mr. Mitrani and Dr. Mitrani) (“Initial Term”), unless terminated earlier pursuant to the terms of the April 2018 Executive Employment Agreement; provided that on such expiration of the Initial Term, and each annual anniversary thereafter (such date and each annual anniversary thereof, a “Renewal Date”), the agreement shall be deemed to be automatically extended, upon the same terms and conditions, for successive periods of one year, unless either party provides written notice of its intention not to extend the term of the April 2018 Executive Employment Agreement at least 90 days’ prior to the applicable renewal Date. The period during which the Executive is employed by the Company hereunder is hereinafter referred to as the “Employment Term.”
Unpaid Advances
The Company was required to repay the unpaid advances subsequent to December 31, 2017, and the unreimbursed expenses incurred subsequent to December 31, 2017, on May 15, 2018. Such payments were not made as required.
Fringe Benefits and Perquisites
During the Employment Term, each Executive shall be entitled to fringe benefits and perquisites consistent with the practices of the Company, and to the extent the Company provides similar benefits or perquisites (or both) to similarly situated executives of the Company.
Termination
The Company may terminate the April 2018 Executive Employment Agreement at any time for good cause, as defined in the April 2018 Executive Employment Agreement, including, the Executive’s death, disability, Executive’s willful and intentional failure or refusal to follow reasonable instructions of the Company’s Board of Directors, reasonable and material policies, standards and regulations of the Company’s Board of Directors or management.
| 21 |
Amendments To The April 2018 Executive Employment Agreements
February 26, 2020 Amendment
| 1. | On February 26, 2020, the Company agreed to modify the employment agreement of Mr. Ian T. Bothwell, the Company’s Chief Financial Officer to provide Mr. Bothwell with: |
| a) | an extension to his employment agreement dated April 13, 2018 from December 2020 to December 2023 consistent with other executives of the Company; and |
| b) | and
a one-time bonus in the form of a fully vested cashless warrant to purchase |
| 2. | On
February 26, 2020, pursuant to the respective employment agreements with each of the Company’s
executive officers, the Board granted each of Mr. Albert Mitrani, Dr. Maria Mitrani and Mr.
Ian Bothwell a cash bonus of $ |
April 25, 2020 Amendment
On April 25, 2020, the Company agreed to amend and revise the each of Albert Mitrani, Ian Bothwell and Dr. Maria I. Mitrani, (individually each of A. Mitrani, Bothwell and Dr. Mitrani are referred to as an “Executive” and collectively the “Executives”) April 2018 Executive Employment Agreements. The primary amended terms associated with the agreements for each Executive were substantially similar and consisted of the following:
| Term: | An extension to the term of the employment agreements dated April 13, 2018 from December 31, 2023 to December 31, 2025. |
| Base Salary: |
Beginning December 1, 2020, at the sole option of the Executive, all unpaid Incremental Salary for periods after January 1, 2020 may be converted by the Executive into common stock at a conversion rate equal to the average trading price during the month in which the accrued salary pertains. For any unpaid Incremental Salary that existed prior to January 1, 2020, the amounts may be converted at a conversion price using the closing trading price of the stock on the last trading day in December 2019.
Until such time as the Executive elects to convert, the accrued and unpaid salary, including Original Base Salary and Incremental Salary shall remain an obligation of the Company.
| 22 |
Severance Provisions:
| 1. | Company termination without cause, Executive for good reason: |
| a) | All existing accrued obligations existing at time of termination shall be paid to Executive. |
| b) | Any unvested equity grants in favor of Executive shall immediately become fully vested and any pending grants pursuant to the MCPP eligible to be issued to Executive shall be granted to Executive, regardless of whether the associated milestone were achieved prior to termination, |
| c) | Executive shall be entitled to a cash payment equal to his unpaid base salary for the remaining term in effect at time of the time of the termination or an amount equal to four times (4x's) the base salary in effect at the time of termination, whichever is greater, |
| d) | Executive shall be entitled to a cash payment equal to his 200% of the prior year’s cash or stock bonus (excluding any stock grants received pursuant to the MCPP). |
| 2. | Change In Control: In the event of a Change in Control and the Executive’s employment agreement is not extended for period of five years from the date of the Change in Control with all other terms and conditions of the agreement remaining the same, then the Executive may terminate the agreement for good reason and all respective severance terms as provided for a termination by Executive for good reason described in clause 1 above shall be provided to Executive. |
| 3. | Executive termination due to disability, death, or non-renewal by Company: |
| a) | All existing accrued obligations existing at time of termination shall be paid to Executive. |
| b) | Any unvested equity grants in favor of Executive shall immediately become fully vested and any pending grants pursuant to the MCPP eligible to be issued to Executive shall be granted to Executive, regardless of whether the associated milestone were achieved prior to termination. |
| c) | Executive shall be entitled to a cash payment equal to 299% of Executive’s base salary in effect at the time of termination, plus a gross up amount to cover Executive’s tax liability associated with such payment. |
| d) | 200% of the prior year’s cash or stock bonus (excluding MCPP performance stock grants). |
June 29, 2020 Amendment
On June 29, 2020, the board of directors of the Company (“Board”) agreed to further amend and revise the April 2018 Executive Employment Agreements for each of Executives. The primary amended terms associated with the agreements for each Executive were substantially similar and consisted of the following:
| Base Salary: | An increase in the Executives annual base annual salary upon such time that the Company achieves monthly revenues in the amounts provided below, provided such monthly revenue increase occurs for four consecutive months. Upon the achievement of the defined salary milestone, the salary adjustment will be retroactive to the first month in which the salary threshold was met. Any adjustment pursuant to this provision shall not be reduced for any future reduction in revenues that may occur. |
| Schedule of adjustment revenues | ||||||
| Monthly Revenues (in millions) | Base Salary Increase | |||||
| $ | $ | |||||
| $ | $ | |||||
| $ | $ | |||||
| $ | $ | |||||
| $ | $ | |||||
Sales Executives
On
January 6, 2020, the Company entered into employment agreements with two individuals (“Sales Executives”), each to serve
as a Vice President – Global Sales and Marketing. The terms of each Sales Executive employment agreement are identical (“VP
Agreements”). The initial term of the VP agreements are for three years and provide for automatic annual renewals thereafter, unless
either party provides 90-day written notice prior to expiration of the then current term. The VP Agreements may also be terminated by
the Company beginning June 30, 2020 in the event the Sales Executive fails to meet certain defined minimum revenue growth milestones.
The Sales Executives will receive compensation in the form of monthly salary of $
| 23 |
The VP Agreements also provide the Sales Executives with the right for each to receive an additional shares of common stock at the end of each quarterly anniversary of the VP Agreements throughout the Initial Term (maximum 9,000,000 shares) (“Performance Shares”), provided that the VP Agreements remain in effect during the applicable quarterly period. The vesting of the Performance Shares may also be accelerated based on achievement of certain revenue milestones. During the three months ended July 31, 2021, a total of of Performance shares vested in connection with the VP Agreements resulting in stock-based compensation expense of $. During the nine months ended July 31, 2021, a total of of Performance shares vested in connection with the VP Agreements resulting in stock-based compensation expense of $ (valued at $0.035 per share, the closing price of the common stock of the Company on the date of the grant).
Consultant Agreements
Effective
March 30, 2020 (the “Effective Date”), the Company entered into a consulting agreement (“Agreement”) with Assure
Immune L.L.C. (the “Consultant”) for an initial term of one year (the “Initial Term”) with automatic renewals
for two (2) additional annual periods (each a “Renewal Term,” and together with the “Initial Term,” the “Term”),
unless written notice is provided by either party at least 45 days prior to the applicable termination date. Neither party provided written
notice within the specified deadlines to terminate upon expiration of the Initial Term and as a result the Term has been extended to
March 30, 2022. Under the Agreement, the Consultant will provide the Company during the Term with expertise, experience, advice and direction
associated with the critical functional executive level roles of the Company as it relates to the oversight and management of the Company’s
regulatory, research and development and laboratory operations, consistent with the Company’s corporate mission and strategies
and subject to the resource limitations of the Company. In connection with the Agreement, the Consultants will receive monthly fees of
$
Effective
March 29, 2021, the Company and the Consultant entered into an amendment to the Agreement (“Amendment”). Under the terms
of the Amendment, the initial term of the Agreement was extended for an additional 2 years and the terms for eligibility of the Consultants
to receive future grants of stock above those stock issuances granted as of the date of the Amendment based on achievement of certain
future milestones previously provided for in the Agreement were eliminated. In addition, the Amendment provided additional terms in connection
with termination of the Agreement. Under the terms of the Amendment, the Consultant received an additional shares of common
stock that vest 50% upon execution of the Amendment and 50% on the sooner of (1) December 31, 2021 or (2) upon the approval of both of
the Company’s IND’s to be submitted for Osteoarthritis and COVID 19 “Long Hauler”. The shares issued in connection
with the Amendment were valued at $ per share, the closing price of the common stock of the Company on the grant date, totaling
$
| 24 |
During
October 2020, the Company entered into a consulting agreement with a third party to provide consulting services in connection with the
development of international research and development, sales and distribution and investment opportunities. As consideration for agreeing
to provide the consulting services to the Company, the Company has agreed to pay the consultants a minimum of $
Preparation of IRB, Pre-IND, IND Protocols for Clinical Applications and Clinical Trial Initiation and Monitoring:
In connection with the Company’s ongoing research and development efforts and the Company’s efforts to meet compliance with current and anticipated United States Food and Drug Administration (“FDA”) regulations expected to be enforced beginning in May 2021 pertaining to marketing traditional biologics and human cells, tissues and cellular and tissue based products that fall under Section 351 of the Public Health Services Act (“HCT/Ps”), the Company has applied for and received Investigation New Drug (“IND”) approval from the FDA to commence clinical trials in connection with the use of the Company’s products and related treatment protocols for specific indications. The ability to successfully complete the above efforts will be dependent on the actual outcomes in connection with the use of the Company’s products and related treatment protocols for each clinical trial, the Company’s ability to timely enroll patients and fund the required payments and complete the applicable clinical trials, which is subject to available working capital generated from operations, financing arrangements with the third-party vendors involved in the studies and/or from additional debt and/or equity financings as well as the ultimate approval from the FDA.
CRO Agreement 1 and CRO Agreement 2
During
November 2020, the Company entered into an agreement with a third-party contract research organization (“CRO”) to provide
ongoing clinical research services, clinical research professionals and contract clinical, technical and other related services in connection
with a planned future clinical trial (“CRO Agreement 1”). In connection with the CRO Agreement 1, the Company was obligated
to make payments of approximately $
During
January 2021, the Company entered into an additional agreement with the CRO to provide ongoing clinical research services, clinical research
professionals and contract clinical, technical and other related services in connection with a planned future clinical trial (“CRO
Agreement 2”). In connection with the CRO Agreement 2, the Company was obligated to payments of approximately $
During
February 2021, the Company provided notice to the CRO that it was terminating the engagement of the CRO in connection with the two above-described
projects as a result of the significant increases in projected trial costs over the originally contracted amounts. For the nine months
ended July 31, 2021, the Company has recorded approximately $
On
July 29, 2021, the parties reached a settlement agreement and general release in connection with termination of both of the agreements
whereby the Company paid $25,000 on August 2, 2021 and $25,000 on August 26, 2021 and is obligated to pay $25,000 on or before September
26, 2021 and $25,000 on or before October 26, 2021. Upon completion of all the required payments, the Company will be fully released
from paying the remaining unpaid invoiced amounts of $
| 25 |
CRO Agreement 3
During
August 2021, the Company entered into an agreement with another CRO to provide ongoing clinical research services, clinical research
professionals and contract clinical, technical and other related services in connection with a planned future clinical trial (“CRO
Agreement 3”). In connection with the CRO Agreement 3, the Company is obligated to make payments of approximately $
Contingent Convertible Obligations Into Equity Securities
Obligations Due Under Executive Employment Agreements
Beginning July 1, 2020, at the sole option of the Executive, any portion of unpaid Original Base Salary for periods after January 1, 2020, including unpaid bonus salary, may be converted by Executive into common stock at a conversion rate equal to the average trading price during the month in which the accrued salary pertains. For any unpaid Original Base Salary that existed prior to January 1, 2020, including unpaid bonus salary, the amounts may be converted at a conversion price using the closing trading price of the stock on the last trading day in December 2019.
Beginning December 1, 2020, at the sole option of the Executive, all unpaid Incremental Salary for periods after January 1, 2020 may be converted by the Executive into common stock at a conversion rate equal to the average trading price during the month in which the accrued salary pertains. For any unpaid Incremental Salary that existed prior to January 1, 2020, the amounts may be converted at a conversion price using the closing trading price of the stock on the last trading day in December 2019.
None of the Executives have yet to elect to convert any portion of their unpaid Original Base Salary.
As
of July 31, 2021, there was approximately $
Legal Matters
On June 17, 2021, Organicell received a subpoena dated June 14, 2021, from the Atlanta Regional Office of the SEC requiring the production of certain documents and communications in connection with the treatment and results of various COVID-19 patients, as discussed in the Company’s Current Reports on Form 8-K filed with the SEC during the period from May 27, 2020 through May 11, 2021. The Company intends to fully cooperate with the SEC’s investigation and believes that it will be able to provide all of the information requested by the SEC. The Company can make no assurances as to the time or resources that will need to be devoted to this investigation or its final outcome, or the impact, if any, of this investigation or any proceedings on the Company’s current business, financial condition, results of operations, cash flows, or the Company’s future operations.
On August 17, 2021, the Company was served with a summons and complaint by LAE International Consulting, LLC, in the case styled LAE International Consulting, LLC v. Organicell Regenerative Medicine, Inc. et al., Case No. 2021-018461-CA-01 (In the Circuit Court of the 11th Judicial Circuit in and for Miami Dade County, Florida) (“Lawsuit”). Albert Mitrani, Mari Mitrani and Ian Bothwell are also named as defendants in the Lawsuit, but to date have not been served. In the Lawsuit, LAE alleges breach of contract, unjust enrichment, violation of Florida’s Unfair and Trade Practices Act, breach of obligation of good faith and fair dealing, negligent misrepresentation and fraud in connection with a prior consulting agreement entered into between the Company and LAE. In the Lawsuit, Plaintiff is seeking judgment for damages, injunctive relief, together with interest, costs, attorneys’ fees and other such relief as may be shown. The Company denies any wrongdoing and responsibility in connection with the Lawsuit. The Lawsuit is in its infancy as a majority of the defendants have not been served with a copy of the complaint. The Company believes that it has strong defenses to the Lawsuit. The Company believes that any liability, if any, ultimately resulting from this lawsuit should not materially affect its consolidated financial results.
NOTE 14 – SEGMENT INFORMATION
The
Company has only one
| 26 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Unless stated otherwise, the words “we,” “us,” “our,” the “Company” or “Organicell” in this Quarterly Report on Form 10-Q refer to Organicell Regenerative Medicine, Inc., a Nevada corporation, and its subsidiaries.
Cautionary Note Regarding Forward- Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “may,” “could,” “should,” “expect,” “plan,” “project,” “strategy,” “forecast,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” or similar expressions help identify forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and management cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will in fact occur. The Company’s actual results may differ materially from those anticipated, estimated, projected or expected by management.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.
Overview
We are a clinical-stage biopharmaceutical company principally focusing on the development of innovative biological therapeutics for the treatment of degenerative diseases and to provide other related services. Our proprietary products are derived from perinatal sources and manufactured to retain the naturally occurring microRNAs, without the addition or combination of any other substance or diluent (“RAAM Products”). Our RAAM Products and related services are principally used in the health care industry administered through doctors and clinics (“Providers”).
Since May 2019, Organicell has operated a placental tissue bank processing laboratory in Miami, Florida for the purpose of performing research and development and the manufacturing and processing of the anti-aging and cellular therapy derived products that we sell and distribute to our to its customers.
The Company’s leading product, Zofin™ (also known as OrganicellTM Flow), is an acellular, biologic therapeutic derived from perinatal sources and is manufactured to retain naturally occurring microRNAs, without the addition or combination of any other substance or diluent. This product contains over 300 growth factors, cytokines, chemokines, and 102 unique microRNAs as well as other exosomes/nanoparticles derived from perinatal tissues. Zofin™ is currently being tested in an U.S. Food and Drug Administration (“FDA”) authorized phase I/II randomized, double blinded, placebo trial to evaluate the safety and potential efficacy of intravenous infusion of Zofin™ for the treatment of moderate to severe SARS related to COVID-19 infection.
To date, the Company has obtained certain Investigation New Drug (“IND”), and emergency IND (“eIND”) approvals from the FDA, including applicable Institutional Review Board (“IRB”) approvals which authorized the Company to commence clinical trials or treatments in connection with the use of Zofin™ and related treatment protocols. The Company is pursuing efforts to complete ongoing clinical studies as well as obtaining approval to commence additional studies for other specific indications it has identified that the use of its products will provide more favorable and desired health related benefits for patients seeking alternative treatment options than are currently available.
| 27 |
New FDA guidance which was announced in November 2017 and which became effective in May 2021 (postponed from November 2020 due to the COVID -19 pandemic) require that the sale of products that fall under Section 351 of the Public Health Services Act pertaining to marketing traditional biologics and human cells, tissues and cellular and tissue based products (“HCT/Ps”) can only be sold pursuant to an approved biologics license application (“BLA”).
We have not obtained any opinion or ruling regarding the Company’s operations and whether the processing, sales and distribution of the products we currently produce would be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s. However, we do not believe that our products fall within these guidelines and intend to vigorously defend against any adverse interpretation by the FDA on the classification of our products that may be deemed as falling under this defined regulation, if any. Notwithstanding the foregoing, we are undertaking efforts on an ongoing basis to mitigate any potential risks associated with an adverse ruling by the FDA and the subsequent limitations on our ability to continue to generate revenues from the sale of our products in the United States until the Company obtains the required licenses. The efforts include continuing with clinical trials, expanding sales internationally and developing new product offerings and/or designations of products that would not fall under these regulations.
The Company recently formed Livin’ Again Inc., a wholly owned subsidiary (“Livin”), for the purpose of among other things, providing independent education, advertising and marketing services, to Providers that provide medical and other healthcare, anti-aging and regenerative services. including FDA-approved IV vitamin and mineral liquid infusions. The Company intends to initially market such services by coordinating turnkey opportunities for Providers to provide IV Drip Therapies at select properties and locations. As of July 31, 2021, Livin did not have any significant activity.
COVID-19 impact on Economy and Business Environment
The current outbreak of the novel coronavirus (“COVID-19”) and resulting impact to the United States economic environments began to take hold during March 2020. The adverse public health developments and economic effects of the COVID-19 outbreak in the United States, have adversely affected the demand for our products and services by our customers and from patients of our customers as a result of quarantines, facility closures and social distancing measures put into effect in connection with the COVID-19 outbreak and which currently still continue to have a negative impact to our business and the economy. These restrictions have adversely affected the Company’s sales, results of operations and financial condition. In response to the COVID-19 outbreak, the Company (a) has accelerated its research and development activities; (b) is seeking to raise additional debt and/or equity financing to support working capital requirements; and (c) continues to take steps to stabilize and increase revenues from the sale of its products.
There is no assurance as to when the adverse impact to the United States and worldwide economies resulting from the COVID-19 outbreak will be eliminated, if at all, and whether any new or recurring pandemic outbreaks will occur again in the future causing a similar or worse devastating impact to the United States and worldwide economies or our business.
The following discussion of the Company's results of operations and liquidity and capital resources should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing in Item 1. of this Quarterly Report on Form 10-Q.
| 28 |
Results of Operations
Three months ended July 31, 2021 compared to three months ended July 31, 2020
Revenues
Our revenues for the three months ended July 31, 2021 were $1,367,895, compared to revenues of $767,333 for the three months ended July 31, 2020. The increase in revenues during the three months ended July 31, 2021 of $600,562 (78.3%) was primarily the result of the Company being able to realize an increase of approximately 103.1% (approximately $694,500) in unit sales of its products during the three months ended July 31, 2021 compared with the three months ended July 31, 2020, partially offset from a decrease of approximately 12.2% (approximately $93,940) in the average sales prices for the products sold during the three months ended July 31, 2021 compared with the average sales prices realized on products sold during the three months ended July 31, 2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness, the introduction of new and more advanced product offerings and increased research and development efforts which provided customers with greater comfort in the Company’s products and ability to better address potential market uncertainty regarding anticipated FDA regulations. The decrease in the average sales prices realized on products sold during the three months ended July 31, 2021 compared with the three months ended July 31, 2020 was due to volume pricing discounts for large orders of the Company’s medical grade product offerings and the increase in the sales of the Company’s aesthetic product offerings which are sold at lower prices than the Company’s medical grade product offerings.
Cost of Revenues
Our cost of revenues for the three months ended July 31, 2021 were $136,044, compared with cost of revenues of $100,907 for the three months ended July 31, 2020. The increase in the cost of revenues during the three months ended July 31, 2021 of $35,137 (34.8%) compared with the three months ended July 31, 2020 was due to an increase in the amount of units sold of 103.1% (approximately $69,070) during the three months ended July 31, 2021 compared with the three months ended July 31, 2020, partially offset from the reduction in the cost of units sold of 33.6% (approximately $33,930) during the three months ended July 31, 2021 compared to costs of units sold during the three months ended July 31, 2020, which as described above was primarily the result of the Company’s increase in the sales of the Company’s aesthetic product offerings during the three months ended July 31, 2021 compared to the three months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings.
Gross Profit
Our gross profit for the three months ended July 31, 2021 was $1,231,851 (90.0% of revenues), compared with gross profit of $666,426 (86.9% of revenues) for the three months ended July 31, 2020. The increase in gross profit during the three months ended July 31, 2021 was the result of higher amount of units sold and lower cost of units sold during the three months ended July 31, 2021 compared to the three months ended July 31, 2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness and the introduction of new and more advanced product offerings. The lower cost of units sold was due to the Company’s increase in the sales of the Company’s aesthetic product offerings during the three months ended July 31, 2021 compared to the three months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings.
General and Administrative Expenses
General and administrative expenses for the three months ended July 31, 2021 were $2,624,808, compared with $5,913,107 for the three months ended July 31, 2020, a decrease of $3,288,299. The decrease in the general and administrative expenses for the three months ended July 31, 2021 compared with the three months ended July 31, 2020 was primarily the result of reduced stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $4,180,000, partially offset from increased research and development costs of approximately $203,000, increased commissions due from sales of the Company’s products of approximately $275,000, increased payroll and consulting costs of approximately $178,000 and approximately $163,000 of increased professional fees. The increase in research and development costs, payroll and consulting costs and professional fees was the result of the Company’s expansion of its research and development activities primarily relating to the filing and approval of IND applications and the performance of clinical trials and public company compliance related costs.
Other Income (Expense)
Other expense, net, for the three months ended July 31, 2021 was $15,951, compared with other expense, net, of $12,079 for the three months ended July 31, 2020. The net increase in other expense, net, of $3,872 was principally the result of increased interest costs of approximately $7,094, partially offset from reduced income associated with settlements of amounts due for accounts payable.
| 29 |
Nine months ended July 31, 2021 compared to nine months ended July 31, 2020
Revenues
Our revenues for the nine months ended July 31, 2021 were $3,931,411, compared to revenues of $2,072,511 for the nine months ended July 31, 2020. The increase in revenues during the nine months ended July 31, 2021 of $1,858,900 (89.7%) was primarily the result of the Company being able to realize an increase of approximately 116.6% (approximately $2,116,060) in unit sales of its products during the nine months ended July 31, 2021 compared with the nine months ended July 31, 2020, partially offset from a decrease of approximately 12.4% (approximately $257,160) in the average sales prices for the products sold during the nine months ended July 31, 2021 compared with the average sales prices realized on products sold during the nine months ended July 31, 2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness, the introduction of new and more advanced product offerings and increased research and development efforts which provided customers with greater comfort in the Company’s products and ability to better address potential market uncertainty regarding anticipated FDA regulations. The decrease in the average sales prices realized on products sold during the three months ended July 31, 2021 compared with the three months ended July 31, 2020 was due to volume pricing discounts for large orders of the Company’s medical grade product offerings and the increase in the sales of the Company’s aesthetic product offerings which are sold at lower prices than the Company’s medical grade product offerings.
Cost of Revenues
Our cost of revenues for the nine months ended July 31, 2021 were $440,536, compared with cost of revenues of $297,905 for the nine months ended July 31, 2020. The increase in the cost of revenues during the nine months ended July 31, 2021 of $142,631 (47.9%) compared with the nine months ended July 31, 2020 was due to an increase in the amount of units sold of 116.6% (approximately $237,120) during the nine months ended July 31, 2021 compared with the nine months ended July 31, 2020, partially offset from the reduction in the cost of units sold of 31.7% (approximately ($94,490) during the nine months ended July 31, 2021 compared to costs of units sold during the nine months ended July 31, 2020, which as described above was primarily the result of the Company’s increase in the sales of the Company’s aesthetic product offerings during the nine months ended July 31, 2021 compared to the nine months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings.
Gross Profit
Our gross profit for the nine months ended July 31, 2021 was $3,490,875 (88.8% of revenues), compared with gross profit of $1,774,606 (85.6% of revenues) for the nine months ended July 31, 2020. The increase in gross profit during the nine months ended July 31, 2021 was the result of higher amount of units sold and lower cost of units sold during the nine months ended July 31, 2021 compared to the nine months ended July 31, 2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness and the introduction of new and more advanced product offerings. The lower cost of units sold was due to the Company’s increase in the sales of the Company’s aesthetic product offerings during the nine months ended July 31, 2021 compared to the nine months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings.
| 30 |
General and Administrative Expenses
General and administrative expenses for the nine months ended July 31, 2021 were $15,282,596, compared with $9,065,950 for the nine months ended July 31, 2020, an increase of $6,216,646. The increase in the general and administrative expenses for the nine months ended July 31, 2021 compared with the nine months ended July 31, 2020 was primarily the result of increased stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $2,877,000, increased research and development costs of approximately $994,000, increased commissions due from sales of the Company’s products of approximately $699,000, increased payroll and consulting costs of approximately $1,029,000, increased professional fees of approximately $270,000, increased office related costs of approximately $116,000 and approximately $214,000 of increased laboratory related expenses. The increase in research and development costs, payroll and consulting costs, professional fees and laboratory related expenses was the result of the Company’s expansion of its research and development activities primarily relating to the filing and approval of IND applications and the performance of clinical trials and public company compliance related costs.
Other Income (Expense)
Other expense, net, for the nine months ended July 31, 2021 was $6,687, compared with other (expense), net, of ($126,820) for the nine months ended July 31, 2020. The net decrease in other expense, net, of $120,133 was principally the result of reduced interest costs of approximately $94,000 recorded in connection with the amount of the discount to the fair value of common stock associated with the conversion of a funding facility into equity and the reduction in interest expense associated with such funding facility of approximately $25,000 during the nine months ended July 31, 2020.
Liquidity and Capital Resources
During the fiscal nine months ended July 31, 2021 and through the date of this Quarterly Report on Form 10-Q, the Company has relied on the sale of debt or equity securities, the restructuring of debt obligations and/or the issuance and/or exchange of equity securities to meet the shortfall in cash to fund its operations.
| 1. | During November 2020, the Company sold 800,000 shares of common stock to an “accredited investor” at $0.05 per share, for an aggregate purchase price of $40,000. The proceeds were used for working capital. |
| 2. | During February 2021, the Company sold an aggregate of 12,340,910 shares of common stock to five “accredited investors” at prices ranging from $0.05 per share to $0.06 per share for an aggregate purchase price of $665,000. The proceeds were used for working capital. |
| 3. | On February 22, 2021, the Company sold 1,818,181 shares of common stock to Republic Asset Holdings LLC., a Company controlled by Michael Carbonara, a director of the Company, at $0.055 per share for an aggregate purchase price of $100,000. The proceeds were used for working capital. |
| 4. | During April 2021, the Company sold an aggregate of 13,677,821 shares of common stock to seven “accredited investors” at prices ranging from $0.03 per share to $0.25 per share for an aggregate purchase price of $535,000. The proceeds were used for working capital. |
| 5. | During May 2021, the Company sold an aggregate of 2,087,822 shares of common stock to eight “accredited investors” at $0.13 per share for an aggregate purchase price of $286,250. The proceeds were used for working capital. |
| 6. | During the period June 2021 through July 2021, the Company sold an aggregate of 11,541,500 shares of common stock to four “accredited investors” at prices ranging from $0.05 per share to $0.13 per share for an aggregate purchase price of $631,020. The proceeds were used for working capital. |
| 7. | During August 2021, the Company sold an aggregate of 3,000,000 shares of common stock to one “accredited investor” at $0.05 per share for an aggregate purchase price of $150,000. The proceeds were used for working capital. |
The Company issued the foregoing securities pursuant to the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
| 31 |
Cash and Cash Equivalents
The following table summarizes the sources and uses of cash for the periods stated. The Company held no cash equivalents for any of the periods presented.
| For the Nine Months Ended July 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash, beginning of year | $ | 590,797 | $ | 132,557 | ||||
| Net cash used in operating activities | (2,120,925 | ) | (973,592 | ) | ||||
| Net cash used in investing activities | (224,809 | ) | (138,694 | ) | ||||
| Net cash provided by financing activities | 1,784,844 | 1,296,674 | ||||||
| Cash, end of period | $ | 29,207 | $ | 319,945 | ||||
During the nine months ended July 31, 2021, the Company used cash in operating activities of $2,120,925, compared to $973,592 for the nine months ended July 31, 2020, an increase in cash used of $1,147,333. The increase in cash used in operating activities was due to the increase in the general and administrative expenses during the nine months ended July 31, 2021 after adjusting for non-cash charges (mostly related to stock-based compensation), resulting from increased payroll and consulting costs and laboratory related expenses in connection with the Company’s expansion of its research and development activities during the nine months ended July 31, 2021, partially offset from the increase in revenues and gross profit during the nine months ended July 31, 2021.
During the nine months ended July 31, 2021, the Company had cash used in investing activities of $224,809, compared to cash used in investing activities of $138,694 for the nine months ended July 31, 2020. The increase in cash used in investing activities of $86,115 was due primarily due the Company’s construction of the new lab facility in Basalt, CO partially offset from lower capital expenditures for the acquisition of additional fixed assets required in connection with the Company’s laboratory operations during the nine months ended July 31, 2021 as compared to the nine months ended July 31, 2020.
During the nine months ended July 31, 2021, the Company had cash provided by financing activities of $1,784,844 compared to cash provided by financing activities of $1,296,674 for the nine months ended July 31, 2020. The increase in cash provided by financing activities was due to increases in proceeds from the sale of equity securities and convertible notes of approximately $431,000, decreases in repayments of outstanding debt obligations of approximately $48,000 and reduced payments on finance leases of approximately $9,000.
Going Concern Consideration
The unaudited accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has had limited revenues since its inception. The Company incurred operating losses of $11,791,721 for the nine months ended July 31, 2021. In addition, the Company had an accumulated deficit of $40,666,597 at July 31, 2021. The Company had a negative working capital position of $3,095,005 at July 31, 2021.
New United States Food and Drug Administration (“FDA”) regulations which were announced in November 2017 and which became effective beginning in May 2021 (postponed from November 2020 due to the COVID -19 pandemic) require that the sale of products that fall under Section 351 of the Public Health Services Act pertaining to marketing traditional biologics and human cells, tissues and cellular and tissue based products (“HCT/Ps”) can only be sold pursuant to an approved biologics license application (“BLA”). The Company has not obtained any opinion or ruling regarding the Company’s operations and whether the processing, sales and distribution of the products it currently produces would be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s.
In addition to the above, the outbreak of the novel coronavirus (“COVID-19”) during March 2020 and the resulting adverse public health developments and economic effects to the United States business environments have adversely affected the demand for our products and services by our customers and from patients of our customers as a result of quarantines, facility closures and social distancing measures put into effect in connection with the COVID-19 outbreak and which currently still continue to have a negative impact to our business and the economy.
As a result of the above, the Company’s efforts to establish a stabilized source of sufficient revenues to cover operating costs has yet to be achieved and ultimately may prove to be unsuccessful unless (a) the Company’s ability to process, sell and distribute the products currently being produced or developed in the future are not restricted, (b) the United States economy resumes to pre-COVID-19 conditions and/or (c) additional sources of working capital through operations or debt and/or equity financings are realized. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| 32 |
Management anticipates that the Company will remain dependent, for the near future, on additional investment capital to fund ongoing operating expenses and research and development costs related to development of new products and to perform required clinical studies in connection with the sale of its products. The Company does not have any assets to pledge for the purpose of borrowing additional capital. In addition, the Company relies on its ability to produce and sell products it manufactures that are subject to changing technology and regulations that it currently sells and distributes to its customers. The Company’s current market capitalization, common stock liquidity and available authorized shares may hinder its ability to raise equity proceeds. The Company anticipates that future sources of funding, if any, will therefore be costly and dilutive, if available at all.
In view of the matters described in the preceding paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that (1) the Company is able to continue to produce products or obtain products under supply arrangements which are in compliance with current and future regulatory guidelines, (2) the effects of the COVID-19 crisis resume to pre-COVID-19 market conditions, (3) the Company will be able to establish a stabilized source of revenues, including efforts to expand sales internationally and the development of new product offerings and/or designations of products, (4) obligations to the Company’s creditors are not accelerated, (5) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations, (6) the Company is able to continue its research and development activities, particularly in regards to remaining compliant with the FDA and ongoing safety and efficacy of its products, and/or (7) the Company obtains additional working capital to meet its contractual commitments and maintain the current level of Company operations through debt or equity sources.
There is no assurance as to when the adverse impact to the United States and worldwide economies resulting from the COVID-19 outbreak will be eliminated, if at all, and whether any new or recurring pandemic outbreaks will occur again in the future causing similar or worse devastating impact to the United States and worldwide economies and our business. In addition, there is no assurance that the products we currently produce will not be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s and/or the Company will be able to complete its revenue growth strategy. There is no assurance that the Company’s research and development activities will be successful or that the Company will be able to timely fund the required costs of those activities. Without sufficient cash reserves, the Company’s ability to pursue growth objectives will be adversely impacted. Furthermore, despite significant effort since July 2015, the Company has thus far been unsuccessful in achieving a stabilized source of revenues. As described above, the COVID-19 crisis has significantly impaired the Company and the overall Unites States and World economies.
If revenues do not increase and stabilize, if the COVID-19 crisis is not satisfactorily managed and/or resolved, if the Company’s ability to process, sell and/or distribute the products currently being produced or developed in the future are restricted, and/or if additional funds cannot otherwise be raised, the Company might be required to seek other alternatives which could include the sale of assets, closure of operations and/or protection under the U.S. bankruptcy laws. As of July 31, 2021, based on the factors described above, the Company concluded that there was substantial doubt about its ability to continue to operate as a going concern for the 12 months following the issuance of these financial statements.
Off-Balance Sheet Arrangements
Our liquidity is not dependent on the use of off-balance sheet financing arrangements (as that term is defined in Item 303(a) (4) (ii) of Regulation S-K) and as of October 31, 2020 and through the date of this report, we had no such arrangements.
Recently Issued Financial Accounting Standards
There were no recently issued financial accounting standards that would have an impact on the Company’s financial statements.
Critical Accounting Policies
Our unaudited consolidated financial statements reflect the selection and application of accounting policies which require us to make significant estimates and judgments. See Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, “Summary of Significant Accounting Policies”.
| 33 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this Quarterly Report, is recorded, processed, summarized and reported in accordance with the rules of the Securities and Exchange Commission (the “SEC”). Disclosure controls are also designed with the objective of ensuring that such information is accumulated appropriately and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosures.
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer) evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of July 31, 2021, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. See the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020, for a description of the Company’s material weaknesses in internal control over financial reporting.
Changes in Internal Controls over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended July 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 34 |
Part II – OTHER INFORMATION
Item 1. Legal Proceedings.
In addition to matters previously reported in the Company’s periodic reports filed with the SEC under the Exchange Act, on August 17, 2021, the Company was served with a summons and complaint by LAE International Consulting, LLC, in the case styled LAE International Consulting, LLC v. Organicell Regenerative Medicine, Inc. et al., Case No. 2021-018461-CA-01 (In the Circuit Court of the 11th Judicial Circuit in and for Miami Dade County, Florida) (“Lawsuit”). Albert Mitrani, Mari Mitrani and Ian Bothwell are also named as defendants in the Lawsuit, but to date have not been served. In the Lawsuit, LAE alleges breach of contract, unjust enrichment, violation of Florida’s Unfair and Trade Practices Act, breach of obligation of good faith and fair dealing, negligent misrepresentation and fraud in connection with a prior consulting agreement entered into between the Company and LAE. In the Lawsuit, Plaintiff is seeking judgment for damages, injunctive relief, together with interest, costs, attorneys’ fees and other such relief as may be shown. The Company denies any wrongdoing and responsibility in connection with the Lawsuit. The Lawsuit is in its infancy as a majority of the defendants have not been served with a copy of the complaint. The Company believes that it has strong defenses to the Lawsuit. The Company believes that any liability, if any, ultimately resulting from this lawsuit should not materially affect its consolidated financial results.
Item 1A. Risk Factors.
As a “smaller reporting company” we are not required to disclose information under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We issued the following securities during the three months ended July 31, 2021 and through the date of this Quarterly Report on Form 10-Q:
| 1. | During May 2021, the Company sold an aggregate of 2,087,822 shares of common stock to eight “accredited investors” at $0.13 per share for an aggregate purchase price of $286,250. The proceeds were used for working capital. |
| 2. | During the period June 2021 through July 2021, the Company sold an aggregate of 11,541,500 shares of common stock to four “accredited investors” at prices ranging from $0.05 per share to $0.13 per share for an aggregate purchase price of $631,020. The proceeds were used for working capital. |
| 3. | During August 2021, the Company sold an aggregate of 3,000,000 shares of common stock to one “accredited investor” at $0.05 per share for an aggregate purchase price of $150,000. The proceeds were used for working capital. |
None of the above issuances involved any underwriters, underwriting discounts or commissions, or any public offering and we believe were exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) and Regulation D promulgated thereunder due to the fact that there was no solicitation or advertising and the did not involve a public offering of securities.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
| Exhibit No: | Description: | |
| 31.1* | Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer | |
| 31.2* | Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial and Accounting Officer | |
| 32.1* | Section 1350 Certification of Principal Executive Officer | |
| 32.2* | Section 1350 Certification of Principal Financial and Accounting Officer | |
| 101.INS ** | XBRL Instance Document | |
| 101.SCH** | XBRL Taxonomy Extension Schema Document | |
| 101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB** | XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Filed herewith. |
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections. |
| 35 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ORGANICELL REGENERATIVE MEDICINE, INC. | ||
| By: | /s/ ALBERT MITRANI | |
| Albert Mitrani | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| September 14, 2021 | ||
By: |
/s/ IAN T. BOTHWELL | |
| Ian T. Bothwell | ||
| Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
| September 14, 2021 | ||
| 36 |