Zeo ScientifiX, Inc 10-Q for FY2024 Q1
Zeo ScientifiX, Inc. (ZEOX)
About this 10-Q
Zeo ScientifiX, Inc filed this 10-Q on September 14, 2023, covering the quarter ended July 31, 2023 (FY2024 Q1).
Headline figures
Quarter ended July 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.22M
- down 28.7% from $1.71M a year earlier
- Net loss
- $1.62M
- compared with a net loss of $2.73M a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 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 Incorporation or Organization) |
(I.R.S. Employer 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 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 13, 2023.
ORGANICELL REGENERATIVE MEDICINE, INC.
TABLE OF CONTENTS
i
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
Organicell Regenerative Medicine, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
| July 31, 2023 |
October 31, 2022 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for bad debts | ||||||||
| Receivables from related parties | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Inventories | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Equity in non-marketable securities of affiliated entity | ||||||||
| Other assets – right of use | ||||||||
| Security deposits | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Advances payable | ||||||||
| Finance lease obligations | ||||||||
| Operating lease obligations | ||||||||
| Promissory note, net of debt discount | ||||||||
| Commitment Fee Shortfall Obligation | ||||||||
| Commitment to repurchase shares in connection with settlement of litigation | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long term finance lease obligations | ||||||||
| Long term operating lease obligations | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shares Subject To Possible Redemption | ||||||||
| Series C Preferred Stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Stockholders’ (Deficit) Equity | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ (Deficit) Equity | ( |
) | ||||||
| TOTAL LIABILITIES, SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Organicell Regenerative Medicine, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three
Months Ended July 31, |
Nine
Months Ended July 31, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues
(includes sales to related parties of approximately $ |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Change in Commitment Fee Shortfall Obligation | ( |
) | ( |
) | ||||||||||||
| Gain from write-off of liabilities attributable to discontinued operations | ||||||||||||||||
| 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.
CONDENSED
CONSOLIDATED CHANGES TO STOCKHOLDERS’ EQUITY (DEFICIT)
For the Three Months And Nine Months Ended July 31, 2023 and 2022
(Unaudited)
Three Months Ended July 31,
| Common Stock | Additional Paid-In |
Accumulated | Stockholders’ Equity |
|||||||||||||||||
| Shares | Par Value | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance May 1, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Return of former executive’s shares and warrants | ( |
) | ( |
) | ||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance July 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Balance May 1, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Capital contributed by former executive | - | |||||||||||||||||||
| Issuance of Common stock as commitment fee for SPA 22 Note | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance July 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
Nine Months Ended July 31,
| Common Stock | Additional Paid-In |
Accumulated | Stockholders’ Equity |
|||||||||||||||||
| Shares | Par Value | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance October 31, 2022 | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Sale of common stock | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Issuance of Common stock and Warrants as commitment fee for SPA 23 Note | ||||||||||||||||||||
| Stock issued in satisfaction of Commitment Fee Shortfall Obligation | ||||||||||||||||||||
| Cancellation of shares repurchased in connection with litigation | ( |
) | ( |
) | ||||||||||||||||
| Return of former executive’s shares and warrants | ( |
) | ( |
) | ||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance July 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Balance October 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Sale of common stock | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Capital contributed by former executive | - | |||||||||||||||||||
| Issuance of Common stock as commitment fee for SPA 22 Note | ||||||||||||||||||||
| Stock issued in settlement of litigation | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance July 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Organicell Regenerative Medicine, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended July 31, |
||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of OID and commitment fee discount – Promissory notes | ||||||||
| Change in Commitment Fee Shortfall Obligation | ||||||||
| Gain from write-off of liabilities attributable to discontinued operations | ( |
) | ||||||
| Write-off of fixed assets | ||||||||
| Write-off of inventory | ||||||||
| Stock-based compensation | ||||||||
| Reserve for receivables from related party and other receivable | ||||||||
| Stock issued in settlement of litigation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Other receivables | ( |
) | ||||||
| Prepaid expenses | ( |
) | ||||||
| Inventories | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued liabilities to management | ||||||||
| Security deposits | ( |
) | ||||||
| Deferred revenue | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of fixed assets | ( |
) | ( |
) | ||||
| Investment in non-marketable equity securities | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of Promissory Note | ||||||||
| Advances for future stock purchases | ||||||||
| Capital contributed by former executive | ||||||||
| Payments on finance lease | ( |
) | ( |
) | ||||
| Repayments of notes payable | ( |
) | ( |
) | ||||
| Shares repurchased in connection with litigation | ( |
) | ||||||
| Proceeds from sale of common stock | ||||||||
| Net cash (used in) provided by financing activities | ( |
) | ||||||
| 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: | ||||||||
| OID discount on proceeds received from promissory notes | $ | $ | ||||||
| Stock purchased from payments due on accounts payable | $ | $ | ||||||
| Common stock and warrants issued as commitment fee for promissory notes | $ | $ | ||||||
| Common stock issued in satisfaction of Commitment Fee Shortfall Obligation | $ | $ | ||||||
| Commitment Fee Shortfall Obligation | $ | $ | ||||||
| Promissory note issued for past due Professional Fees | $ | $ | ||||||
| Purchase of fixed assets | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organicell Regenerative Medicine, Inc. (“Organicell” or the “Company”) was incorporated on August 9, 2011 in the State of Nevada under the name Bespoke Tricycles Inc. (changed to Biotech Products Services and Research, Inc. during September 2015). The Company is a clinical-stage biopharmaceutical company principally focusing on the development of innovative biological therapeutics for the treatment of degenerative diseases and regenerative medicine. The Company’s proprietary products are derived from perinatal sources and manufactured to retain the naturally occurring extracellular vesicles, hyaluronic acid, and proteins 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”).
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”) and during November 2021 the Name Change was effectuated in the marketplace by the Financial Industry Regulatory Agency.
For the nine months ended July 31, 2023, the Company principally operated through General Surgical of Florida, Inc., a Florida corporation and wholly owned subsidiary, which was formed to sell the Company’s therapeutic products to Providers.
The Company’s leading product, Zofin™ (also known as Organicell™ 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.
The Company recently launched a service platform for its first autologous product called Patient Pure X™ (PPX™). PPX™ is a non-manipulated biologic containing the nanoparticle fraction from a patient’s own peripheral blood. To date, revenues from PPX™ continue to be immaterial.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, the condensed unaudited consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of July 31 2023, the results of its operations for the three and nine months ended July 31, 2023 and 2022 and the cash flows for the nine months ended July 31, 2023 and 2022.
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, 2022 filed with the Securities and Exchange Commission.
Concentrations of Risk
Credit Risk
The
balance sheet items that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents and accounts
receivable. Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $
5
Major Customer
During
the nine months ended July 31, 2023, the Company sold products and services totaling approximately $
During
the nine months ended July 31, 2022, the Company sold products and services totaling approximately $
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.
Those estimates and assumptions include estimates for credit loss reserves for accounts receivable, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in valuing warrant liabilities, and assumptions used in the determination of the Company’s liquidity.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at net realizable 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 nine months ended July 31, 2023 and 2022, the Company did
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, 2023 and October 31, 2022, 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 3 to 15 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
6
Non-marketable Securities
Non-marketable securities consist of equity investments in privately-held companies, which are classified as other assets on the consolidated balance sheets. These non-marketable equity securities do not have readily determinable fair values. Under the measurement alternative election, the Company accounts for these non-marketable securities at cost and adjusted for observable price changes in orderly transactions for the identical or similar investments of the same issuer or upon impairment and are not eligible for the net-asset-value practical expedient from fair value measurement. The measurement alternative election is reassessed each reporting period to determine whether the non-marketable securities continue to be eligible for this election.
The Company periodically evaluates its non-marketable securities for impairment when events and circumstances indicate that the carrying amount of the investment may not be recovered. Impairment indicators may include, but are not limited to, a significant deterioration in earnings performance, credit rating, asset quality or business outlook or a significant adverse change in the regulatory, economic, or technological environment.
Under current U.S. GAAP, equity investments without readily determinable fair values are reported at cost minus impairment. However, impairment losses are recognized only if they are considered other-than- temporary.
Leasehold Improvements
Leasehold
improvements in excess of $
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 except in those instances when the customer has made prior arrangements with the Company to store the product purchased by the customer at the Company’s facilities that is to be delivered at a later date to be designated by the customer.
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 fully vested 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 fully vested shares outstanding during the year. 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, 2023, the Company had common shares issuable ( common shares vested as of July 31, 2023) upon the exercise
of warrants that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the nine
months ended July 31, 2023. At July 31, 2022, 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
7
Stock-Based Compensation
The Company periodically issues stock options and stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.
The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
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 files 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, 2023 and 2022 the Company incurred operating losses, and therefore, there was not any income tax expense amount recorded during those periods. 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, 2023 and 2022.
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.
8
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 13, 2023. 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.
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, 2023 and October 31, 2022 that qualify as derivatives.
9
Operating Lease Obligations
Under the provisions of Accounting Standards Update (ASU) No. 2016-02 (Topic 842) (“ASC 842”), the Company recognizes 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 $
Subsequent Events
The Company has evaluated subsequent events that occurred after July 31, 2023 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 net losses of $
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 adverse public health developments associated with the ongoing COVID-19 pandemic combined with the downturn in the overall United States and global economies have adversely affected the demand for our products and services by our customers and from patients of our customers 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; and/or (b) 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.
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.
10
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 (a) 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; (b) 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; (c) obligations to the Company’s creditors are not accelerated; (d) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations; (e) 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 (f) 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 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.
If revenues do not increase and stabilize, 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. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s October 31, 2022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. As of July 31, 2023, 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 – INVENTORIES
| Schedule of inventories | ||||||||
| July 31, 2023 |
October 31, 2022 |
|||||||
| Raw materials and supplies | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 5 – PROPERTY AND EQUIPMENT
| Schedule of property and equipment | ||||||||
| July 31, 2023 |
October 31, 2022 |
|||||||
| Computer equipment | $ | $ | ||||||
| Finance lease equipment | ||||||||
| Manufacturing equipment | ||||||||
| Leasehold improvements | ||||||||
| Less: accumulated depreciation and amortization | ( |
) | ( |
) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense totaled $
11
As
described in Note 7, during the year ended October 31, 2021, the Company began the build-out of additional laboratory processing, product
distribution and administrative office capacity at its Basalt Lab (as defined in Note 7). The Basalt Lab Lease location became operational
during May 2022 and amortization of these costs began during May 2022. Amortization expense totaled $
During
the three months ended July 31, 2023, the Company wrote off certain computer and manufacturing equipment with a cost basis of $
NOTE 6 – EQUITY IN NON-MARKETABLE SECURITIES OF AFFILATED ENTITY
| Schedule of marketable securities | ||||||||
| July 31, 2023 |
October 31, 2022 |
|||||||
| Equity in non-marketable securities | $ | |||||||
During
the nine months ended July 31, 2023, the Company invested $
At
July 31, 2023 and October 31, 2022, the carrying value of the Company’s investments in equity securities without readily determinable
fair values totaled $
Both Greyt Ventures, LLC and Skycrest Holdings, LLC, principal shareholders of the Company, each own a 20% interest in the Formulator. In addition, Mr. Robert Smoley, a consultant and advisor to the Company is also the Chief Operating Officer of the Formulator.
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 $
During
October 2021, the Company entered into a second lease agreement in the amount of $
As
of July 31, 2023, finance lease obligations were $
As
described in Note 16, on August 7, 2023, certain equipment under the second lease agreement were assigned to the Purchaser resulting
in the reduction of the Company’s remaining obligations under the second lease agreement from $
12
Short Term Lease Obligations:
On
August 30, 2022, the Company entered into a one-year lease agreement (“LA Office Lease”) for office space in Los Angeles,
California commencing September 1, 2022 and ending August 31, 2023. The Company was required to make a one-time prepayment
of the annual rent in the amount of $
Effective
July 1, 2022, the Company entered into a six-month lease agreement for an approximately 450 square foot laboratory and additional administrative
office space effective July 1, 2022 (“New Miami Lab Lease”). Monthly lease payments are approximately $
Effective
October 10, 2022, the Company relocated its Miami laboratory to a 1,156 square foot administrative and laboratory facility at the
Nova Southeastern University Center for Collaborative Research in Davie, Florida. This space is occupied pursuant to one year license
agreement (“University Lease”) for an annual base license fee of $
Operating Lease:
During
March 2021, the Company entered into a lease agreement (“Basalt Lab Lease”) for an approximately 2,452 square foot
commercial space located in Basalt, Colorado (the “Basalt Lab”). 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 (“First Renewal Option”). Rental
expense is $
In
connection with the execution of the Basalt Lab Lease, the Company recorded a ROU asset and corresponding operating lease obligation
of $
Lease
amortization expense for the three months ended July 31, 2023 and 2022 was $
As
of July 31, 2023, the remaining operating lease obligation was $
As described in Note 16, on August 7, 2023, the Basalt Lab was sold and the Basalt Lab Lease was assigned to Purchaser.
NOTE 8 – RELATED PARTY TRANSACTIONS
For
the three months and nine months ended July 31, 2023, the Company sold a total of approximately $
13
For
the three months and nine months ended July 31, 2022, the Company sold a total of approximately $
During
the nine months ended July 31, 2023, the Company invested $
At July 31, 2023 and October 31, 2022, advances
payable from an affiliate of a former executive were $
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| Schedule of account payable and accrued expenses | ||||||||
| July 31, 2023 |
October 31, 2022 |
|||||||
| Accrued payroll related liabilities | $ | $ | ||||||
| Lab equipment and supplies payables | ||||||||
| Clinical trial payables | ||||||||
| Legal fees payables | ||||||||
| Other professional fees payables | ||||||||
| Accrued IRS penalty (Note 11) | ||||||||
| Accrued commissions payable | ||||||||
| Construction payables | ||||||||
| Other payables and accrued expenses | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
NOTE 10 – NOTES PAYABLE
| Schedule of notes payable | ||||||||
| July 31, 2023 |
October 31, 2022 |
|||||||
| SPA 22 | $ | $ | ||||||
| SPA 23 | ||||||||
| Unamortized discount | ( |
) | ( |
) | ||||
| Total Notes Payable | $ | $ | ||||||
Promissory Note – SPA 22
On
January 11, 2022, the Company entered into a Securities Purchase Agreement (“SPA 22”) with AJB Capital Investments,
LLC (“Purchaser”) pursuant to which we sold a promissory note in the principal amount of $
Pursuant
to the terms of the SPA 22, the Company paid a commitment fee to the Purchaser in the amount of $
14
In
the event that by the earlier of the first anniversary of repayment of the Promissory Note by the Company or the date that the Purchaser
has sold all of the Commitment Fee Shares (“True-Up Date”), the Purchaser has not generated the amount of $
Upon
the closing, the Company recorded a discount of the Promissory Note in the amount of $
For
the nine months ended July 31, 2023 and 2022, $
At
February 10, 2023, the date that the Company received notice to repay the Commitment Fee Shortfall Obligation (see below) and July 31,
2022, the fair value of the Commitment Fee Shares was approximately $
On
February 10, 2023, the Company received a notice from the Purchaser that it had sold all of the Commitment Fee Shares and that the Commitment
Fee Shortfall Obligation of $
The
total Commitment Fee Shortfall Obligation at July 31, 2023 and October 31, 2022 was $
Promissory Note – SPA 23
On
March 6, 2023, the Company entered into another Securities Purchase Agreement (“SPA 23”) with the Purchaser, pursuant to
which we sold a promissory note in the principal amount of $
Pursuant to the terms of the SPA 23, the Company paid a commitment fee to the Purchaser (“Commitment Fee”) in the form of shares of the Company’s common stock (“Commitment Fee Shares”) and issued the Purchaser a Warrant exercisable for a five-year period to purchase up to shares of our common stock at a price of $ per share (“Warrant Shares”).
Upon
the closing, the Company recorded a discount of the Promissory Note in the amount of $
The
discount is being amortized over the term of Note. For the three months and nine months ended July 31, 2023, $
Pursuant to the terms of the SPA 23, the Company granted certain piggyback registration rights under the Securities Act of 1933, as amended with respect to the Conversion Shares, the Warrant Shares and the Commitment Fee Shares.
15
NOTE 11 – 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 12 – CAPITAL STOCK
Common Stock
Issuances of Common Stock – Stock-Based Compensation:
On December 1, 2022, the Company granted shares of common stock to an employee as provided for in the employment agreement valued at $ per share, the closing price of the common stock of the Company on the grant date. 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, 2023.
On December 29, 2022, the Company agreed to issue shares of common stock to a service provider in exchange for the provider providing discounts of 10% on all services provided retroactive to August 2022. The common stock granted was valued at $ based on the closing price of the common stock of the Company on the date of the agreement of $ per share. 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, 2023.
As
of October 31, 2022, the Company had issued shares of its common stock for services with an original fair value of $
16
Equity Line of Credit Commitment:
During
November 2021, the Company entered into an term sheet agreement with Tysadco Partners LLC, a Delaware limited company (“Tysadco”)
whereby Tysadco agreed to provide the Company with a $
On September 1, 2022, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Tysadco and a Registration Rights Agreement (the “Registration Rights Agreement”) with Tysadco.
Pursuant to the Purchase Agreement, Tysadco committed to purchase, subject to certain restrictions and conditions, up to $10,000,000 worth of the Company’s common stock (the “Commitment”), over a period of 24 months from the effectiveness of the registration statement registering the resale of shares purchased by Tysadco pursuant to the Purchase Agreement (the “Registration Statement”). Pursuant to the terms of the Registration Rights Agreement, the Company was obligated to use its commercially reasonable efforts to file a registration statement with the Securities and Exchange Commission within thirty (30) days after the date of such agreement, to register the resale by Tysadco of the shares of common stock issuable under the Purchase Agreement. On September 2, 2022, the Company filed the required registration statement and on October 24, 2022, the Registration Statement was declared effective.
The Purchase Agreement provides that at any time after the effective date of the Registration Statement, from time to time on any business day selected by the Company (the “Purchase Date”), the Company shall have the right, but not the obligation, to direct Tysadco to buy the lesser of $1,000,000 in common stock per sale or 500% of the daily average share value traded for the 10 days prior to the closing request date, at a purchase price of 80% of the of the two lowest individual daily VWAPs during the ten (10) trading days preceding the draw down or put notice (“Valuation Period”), with a minimum request of $25,000 (“Request”). The payment for the shares covered by each request notice will occur on the business day immediately following the Valuation Period.
In addition, Tysadco will not be obligated to purchase shares if Tysadco’s total number of shares beneficially held at that time would exceed 9.99% of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-1(j) of the Securities Exchange Act of 1934, as amended. In addition, the Company is not permitted to draw on the Purchase Agreement unless the Registration Statement covering the resale of the shares is effective.
The Purchase Agreement also contains customary representations and warranties of each of the parties. The assertions embodied in those representations and warranties were made for purposes of the Purchase Agreement and are subject to qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Purchase Agreement. The Purchase Agreement further provides that the Company and Tysadco are each entitled to customary indemnification from the other for, among other things, any losses or liabilities they may suffer as a result of any breach by the other party of any provisions of the Purchase Agreement or Registration Rights Agreement. The Company has the unconditional right, at any time, for any reason and without any payment or liability, to terminate the Purchase Agreement.
Pursuant to the Purchase Agreement, on December 2, 2022, the Company submitted a put request to Tysadco to purchase 4,456,326 registered shares at a purchase price of $0.02244, for a total of $100,000 (“Put Request”). On December 5, 2022, Tysadco funded the Put Request and the Company issued 4,456,326 shares to Tysadco. The proceeds from the share sale are being used for working capital and general corporate purposes.
Shares Repurchased – Settlement of Litigation:
As
described in Note 14, effective October 13, 2022, the Company settled a lawsuit by agreeing to repurchase
17
Shares Issued – SPA 23:
As
described in Note 10, in connection with the issuance of the Note on March 6, 2023, the Company issued the Purchaser’s commitment shares of the Company’s common
stock valued at $
NOTE 13 – WARRANTS
A summary of warrant activity for the nine months ended July 31, 2023 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, 2022 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | $ | - | $ | |||||||||||||
| Expired/Forfeited | ( |
) | $ | $ | ||||||||||||
| Outstanding at July 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at July 31, 2023 | $ | $ | ||||||||||||||
As
described in Note 10, in connection with the issuance of the Note on March 6, 2023, the Company issued the Purchaser’s
commitment Warrant Shares exercisable for a five-year period at a price of $ per share. The Company valued the warrants on the dates
of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate
, (2) term of years, (3) expected stock volatility of , and (4) expected dividend rate of . All of the warrants vested immediately.
The grant date fair value of the warrants issued was $
As
described in Note 14, effective June 1, 2023, the Company issued Dr. Leider a warrant to purchase an aggregate of shares of
common stock in connection with Dr. Leider’s employment agreement. The warrant is exercisable for $ per share (the closing
price of the Company’s common stock on the date of grant), until the fifth anniversary date of the date of issuance. The Company
valued the warrants on the dates of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:
(1) risk free interest rate , (2) term of years, (3) expected stock volatility of , and (4) expected dividend rate of . The
warrant vests in equal quarterly installments over a three-year period. The grant date fair value of the warrants issued was $
18
As
described in Note 14, effective June 1, 2023, the Company issued Dr. Golub a warrant to purchase an aggregate of shares of
common stock in connection with Dr. Golub’s employment agreement. The warrant is exercisable for $ per share (the closing
price of the Company’s common stock on the date of grant), until the fifth anniversary date of the date of issuance. The Company
valued the warrants on the dates of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:
(1) risk free interest rate , (2) term of years, (3) expected stock volatility of , and (4) expected dividend rate of . The
warrant vests in equal quarterly installments over a one-year period. The grant date fair value of the warrants issued was $
As
described in Note 14, effective July 12, 2023, the Company issued Ms. Swartz a warrant to purchase an aggregate of shares
of common stock in connection with Ms. Swartz’s employment agreement. The warrant is exercisable for $ per share (the closing
price of the Company’s common stock on the date of grant), until the fifth anniversary date of the date of issuance. The Company
valued the warrants on the dates of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:
(1) risk free interest rate , (2) term of years, (3) expected stock volatility of , and (4) expected dividend rate of . The
warrant vests over a three-year period. The grant date fair value of the warrants issued was $
As
of October 31, 2022, the Company had issued warrants to purchase shares of its common stock for services with a fair
value of $
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
The
Company is party to executive employment agreements with each of Ian T. Bothwell (our Chief Financial Officer), Dr. Maria Ines Mitrani
(our former Chief Science Officer) (see below) and Albert Mitrani, our former Executive Vice President of Sales) (see below), originally
executed in April 2018 and subsequently amended (the “Executive Employment Agreements”). As amended, the Executive
Employment Agreements provide for a term expiring on December 31, 2025 and a base annual salary of $
Pursuant to the terms of the SPA, the Executive Employment Agreements were further amended on August 19, 2022 and February 9, 2023 as follows:
| 1. | Each
of Albert Mitrani, Dr. Maria Ines Mitrani and Ian Bothwell amended their respective employment agreements providing for (a) setting
their respective base salaries at $ |
In
the February 9, 2023 amendment, each of Albert Mitrani, Dr. Maria Ines Mitrani and Ian Bothwell agreed to a reduction in each executive’s
annual salary to $
19
| 2. | Albert
Mitrani and Dr. Maria Ines Mitrani each waived all accrued but unpaid compensation outstanding as of July 31, 2022. The Company,
Albert Mitrani and Dr. Maria Ines Mitrani also agreed to terminate the leases with Mariluna LLC for use of Albert Mitrani’s
and Mari Mitrani’s Miami, FL and Aspen, Colorado homes, retroactive to July 13, 2022. The Company wrote off the related ROU
asset and lease liability as of the Closing Date. The balance of unpaid and accrued compensation that was forgiven by Albert Mitrani
and Dr. Maria Ines Mitrani totaling $ |
| 3. | Ian
Bothwell waived all unpaid and accrued compensation outstanding as of July 31, 2022, in exchange for ten-year warrants to purchase
|
| 4. | Each of Albert Mitrani, Dr. Maria Ines Mitrani, Ian Bothwell and all other recipients agreed to terminate all awards granted but not yet issued under the Company’s Management and Consultant Performance Plan. |
| 5. | Each of Albert Mitrani, Dr. Maria Ines Mitrani and Ian Bothwell agreed to modify severance compensation provisions to be paid upon termination to only occur upon a termination without cause in an amount equal to one month’s base salary for each year of service. |
In
connection with the February 9, 2023 amendment to the Executive Employment Agreements, Mr. Bothwell and Mr. Mitrani also agreed to repay
approximately $
On April 28, 2023, the Company terminated Dr. Maria Ines Mitrani as its Chief Scientific Officer and contemporaneously terminated her employment agreement with the Company.
On May 12, 2023, the Company terminated Albert Mitrani as its Executive Vice President of Sales and contemporaneously terminated his employment agreement with the Company.
As
of July 31, 2023, the Company reserved the remaining amounts due of $
As
of July 31, 2023 and October 31, 2022, the total amounts due from related parties were $
Resignation Of Matthew Sinnreich
On July 21, 2022 (“Effective Date”), Matthew Sinnreich was appointed by the Board of Directors to the position of Chief Operating Officer and Acting Chief Executive Officer.
On the Effective Date, Organicell and Mr. Sinnreich entered into a term sheet (the “Term Sheet”) setting forth in principle the terms of Mr. Sinnreich’s employment agreement with and compensation by the Company. The Term Sheet was subject to the negotiation and execution of a definitive employment agreement embodying the provisions of the Term Sheet, as well as customary terms and conditions for an executive employment agreement (the “Employment Agreement”). The parties agreed to use their respective commercial best efforts to negotiate and execute the Employment Agreement.
In
connection with the Term Sheet, as an inducement for Mr. Sinnreich to join the Company, Mr. Sinnreich was issued shares of
restricted common stock (“Inducement Shares”) and ten-year warrants to purchase
20
During
the first year of the Initial Term, Mr. Sinnreich was to be compensated by the issuance of shares of Organicell’s common
stock, which were to vest in equal monthly installments of 2,000,000 shares each (“Salary Shares”). During the second year
of the Initial Term, Mr. Sinnreich was to be entitled to receive a base salary of $
On September 13, 2022, Mr. Sinnreich assumed the position of President and Acting Chief Executive Officer. He subsequently resigned from the Company on November 22, 2022. During the period November 1, 2022 through November 22, 2022 and as of November 22, 2022, a total of and of the Salary Shares were vested, respectively.
In
July 2023, Mr. Sinnreich paid the Company $
Chief Executive Officer, Chief Science Officer and Chief Products Officer
On June 6, 2023, our board of directors appointed Harry Leider, M.D., M.B.A., as Chief Executive Officer and a member of the board of directors and Howard J. Golub, M.D., as Executive Vice President and Chief Science Officer. Ian T. Bothwell, who has served as Interim Chief Executive Officer since November 2022, in addition to his position as Chief Financial Officer will continue in his Chief Financial Officer role. On July 12, 2023, our board of directors appointed Jill Swartz, as Chief Products Officer.
Dr.
Leider’s employment agreement provides for a base salary of $
Dr. Leider shall also be entitled to earn a commission of ten percent (10%) of the net profit (sales less cost of goods sold) generated by the sale of any of the Company’s biologic products sold directly by him solely from sources generated by him alone.
Dr. Leider’s employment with the Company is “At Will” meaning that his employment with the Company and his employment agreement may be terminated by the Company at any time, for any reason or for no reason at all and with or without “Cause” (as defined in the Agreement). Notwithstanding the foregoing, in the event the Company terminates Dr. Leider’s employment without Cause or Dr. Leider terminates his employment with the Company for “Good Reason” (as defined in the Agreement), Dr. Leider will be entitled to receive an amount equal to one year’s salary as severance, less the value of the Leider Option as vested on the date of termination, as calculated by subtracting the market price for the shares underlying the option as of the date of termination, less the exercise price for such shares, provided further, that the combined amount of the severance payment and market value of the Leider Option shall not be less than $200,000. In such circumstance he will also be entitled to receive a pro-rated share of any bonus earned for the year in which the termination takes place.
Dr.
Golub’s employment agreement provides for a base salary of $
Dr. Golub is also granted an option under the Incentive Plan to purchase shares of our common stock at a price of $ per share (fair market value on the date of grant) (“Golub Option”). The Golub Option vests in equal quarterly installments over a one-year period, contingent upon Dr. Golub’s continued employment with the Company and expires five (5) years from the date of grant.
21
Dr. Golub’s employment with the Company is “At Will” meaning that his employment with the Company and his employment agreement may be terminated by the Company at any time, for any reason or for no reason at all and with or without “Cause” (as defined in the Agreement). Notwithstanding the foregoing, in the event the Company terminates Dr. Golub’s employment without Cause or Dr. Golub terminates his employment with the Company for “Good Reason” (as defined in the Agreement), Dr. Golub will be entitled to receive an amount equal to one year’s base salary as severance. He will also be entitled to receive a pro-rated share of any bonus earned for the year in which the termination takes place.
Ms.
Swartz’s employment agreement provides for a base salary of $
Ms. Swartz’s employment with the Company is “At Will” meaning that her employment with the Company and her employment agreement may be terminated by the Company at any time, for any reason or for no reason at all and with or without “Cause” (as defined in the Agreement). Notwithstanding the foregoing, in the event the Company terminates Ms. Swartz’s employment without Cause or Ms. Swartz terminates her employment with the Company for “Good Reason” (as defined in the Agreement), Ms. Swartz will be entitled to receive an amount equal to one year’s base salary as severance.
All the above employment agreements contain customary confidentiality, non-competition and non-solicitation covenants.
Consultant Agreements
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 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.
New CRO Agreements
During August 2021, October 2021, and December 2021, the Company entered into agreements with a new CRO to provide ongoing clinical research and related services in connection with two of the Company’s approved clinical research trials (“New CRO Agreements”). On August 23, 2022 the New CRO Agreements were amended. In connection with the New CRO Agreements, the Company is obligated to make aggregate payments to the CRO of approximately $1,443,000 plus estimated aggregate pass-through costs and other third-party direct costs of approximately $495,000 (“Pass-Through Costs”) as well as site and patient related costs. The Company is obligated to make the CRO payments based on the actual costs incurred over the term of the clinical trial beginning on the commencement of the work by the CRO in connection with the applicable clinical trial and the payments for the pass-through costs and other third-party direct costs as well as site and patient related costs are paid in accordance with completion of agreed upon milestones.
As of July 31, 2023, the Company has been billed a total of approximately $1,430,900 in connection with the Proxima Agreements, Pass-Through Costs and Site related costs, respectively, of which approximately $653,300 was outstanding as of July 31, 2023.
22
Legal Matters
SEC Matter
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 is fully cooperating 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.
Daniel Pepock and Tracy Yourke
The Company terminated the employment agreements with the Sales Executives Daniel Pepock (“Pepock”) and Tracy Yourke (“Yourke”) effective June 30, 2022.
On June 6, 2022, Pepock filed a Complaint against Organicell Regenerative Medicine, Inc. (“Organicell”) in the Court of Common Pleas of Westmoreland County, Pennsylvania. Organicell removed the case to the United States District Court for the Western District of Pennsylvania, and on July 15, 2022 Mr. Pepock filed an Amended Complaint asserting two counts.
On June 27, 2022, Ms. Yourke filed a complaint against Organicell in the State of Michigan, 6th Judicial Circuit, County of Oakland. Organicell removed the case to the United States District Court for the Eastern District of Michigan, Southern Division, and on August 10, 2022 Ms. Yourke filed an Amended Complaint asserting three counts.
As of July 31, 2022, all past due wages to Pepock and Yourke were paid.
Mr. Pepock’s action against Organicell was designated for placement into the United States District Court’s Alternative Dispute Resolution program and the Parties agreed to mediate. On August 22, 2022, Mr. Pepock, Ms. Yourke and Organicell agreed to a material settlement term sheet (“Settlement”) which provided for the resolution and full settlement and release of all claims among the parties and for the Company to buy back all of the shares of common stock of the Company issued to and owned by Mr. Pepock and Ms. Yourke at the time of the Settlement (represented by Mr. Pepock and Ms. Yourke to be in excess of 24,800,000 shares) in exchange for a payment by the Company of $500,000 (“Purchase Price”). In addition, the Company agreed to release Mr. Pepock and Ms. Yourke from their non-compete restrictions upon transfer of the shares to the Company. The Settlement relates to disputed claims and nothing therein shall be construed as an admission of liability or wrongdoing by the Company or any other party.
Effective October 13, 2022, the parties executed a Confidential Settlement Agreement and Mutual General Release memorializing the terms of the Settlement. Under the terms of the Settlement, the Company agreed to repurchase 24,800,001 shares of common stock for $500,000.
The shares repurchased were transferred to the Company on February 2. 2023. The shares repurchased were redeposited back into the Company’s treasury of authorized and unissued shares on February 3, 2023. As a result of the above, the matter has been fully settled and Mr. Pepock and Ms. Yourke were released from their non-compete restrictions.
Albert Mitrani and Dr. Maria Ines Mitrani
On June 7, 2023, Organicell filed a four-count complaint with the Seventeenth Judicial Circuit in and for Broward County, Florida against Albert Mitrani and Dr. Maria Ines Mitrani, co-founders of the Company. Albert Mitrani was a former director and executive officer of the Company (most recently serving as Chief Executive Officer from September 2019 to July 2022 and as Executive Vice President of Sales from July 2022 until his termination in May 2023) and Dr. Mitrani is a former director and former executive officer of the Company (serving as Chief Science Officer from November 2016 until her termination in April 2023). The complaint alleges (i) breach of contract; (ii) breach of fiduciary duty; and (iii) tortious interference with business relationships; and seeks injunctive relief, in connection with, inter alia, non-solicitation and non-competition violations, misappropriation of Organicell materials and proprietary information resulting in unjust enrichment, causing detriment to business relationships and goodwill towards customers and physicians, self-dealing and misconduct afoul to Organicell’s business interests as members of Organicell’s board of directors, executive officers and minority equity interest holders—all causing irreparable harm to Organicell. The complaint seeks injunctive relief, in addition to both compensatory and punitive damages.
Other
In addition to the foregoing, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business.
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NOTE 15 – SEGMENT INFORMATION
The Company has only one operating segment.
NOTE 16 – SUBSEQUENT EVENTS
Sale Of Basalt Lab Assets
Effective,
August 7, 2023, the Company sold the Basalt Lab to a non-affiliated third-party purchaser (“Purchaser”). The transaction
included the assignment of the Basalt Lab Lease (as defined in Note 7) and the lease for certain laboratory equipment and the sale of
all leasehold improvements associated with the Basalt Lab and inventory. The purchase price paid by Purchaser was $
Private Offering
During
August 2023, the Company sold 2.9 Units (“Units”) to 4 investors in a private offering at a purchase price of $
Interest on the Notes is payable annually and together with the principal amount on the Maturity Date.
The Notes may be prepaid by the Company, in whole, but not in part, at any time prior to the Maturity Date, subject to payment of a premium of 10%, provided that the Company gives the holders fifteen (15) business notice prior to prepayment, during which period, Investors may elect to convert the Notes and accrued but unpaid interest thereon into Shares at a conversion price equal to 80% of the average of the daily VWAP of the Shares (as defined in the Note) for twenty consecutive (20) trading days ending on the date the Company gives the holders of the Notes notice of prepayment.
Holders
of the Notes will have the right, at any time during the period commencing on April 1, 2024 and ending on the earliest to occur of the
Maturity Date, the date of a Prepayment or the date of an automatic conversion, to convert the Note in whole, but not in part, and accrued
interest thereon into Shares at a conversion price equal to 80% of the average of the daily VWAP of the Shares (as defined in the Note)
for twenty consecutive (
In addition, the Notes and accrued but unpaid interest thereon will automatically convert into Shares in the event that prior to the Maturity Date, the Company consummates a “Qualified Financing” or a “Qualified Sale” (as defined in the Note) at a conversion price equal to 80% of the offering price of Shares sold in the Qualified Financing or 80% of the purchase price per Share to be received by stockholders following consummation of a Qualified Sale.
The securities were offered and sold in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the exemptions from registration afforded by Rule 506(b) of Regulation D under the Securities Act.
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| 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 (this “Report”) refer to Organicell Regenerative Medicine, Inc., a Nevada corporation, and its subsidiaries.
Cautionary Note Regarding Forward- Looking Statements
The statements contained in this Report 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 (the “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 Report 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 Report 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 Report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.
Business Overview
We are a clinical-stage biopharmaceutical company principally focusing on the development of innovative biological therapeutics for the treatment of degenerative diseases and regenerative medicine. The Company’s proprietary products are derived from perinatal sources and manufactured to retain the naturally occurring extracellular vesicles, hyaluronic acid, and proteins 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”).
Organicell operates an extracellular vesicle processing laboratory in Davie, 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 customers.
The Company’s leading product, Zofin™ (also known as Organicell™ 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.
To date, the Company has obtained certain Investigational New Drug (“IND”), and 18 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 its already approved 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. The ability of the Company to succeed in these efforts is subject to among other things, the Company having sufficient available working capital to fund the substantial costs of completing clinical trials, which the Company currently does not have, and ultimately, obtaining approval from the FDA.
Current FDA guidance requires 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”).
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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 launched a service platform for its first autologous product called Patient Pure X™ (PPX™). PPX™ is a non-manipulated biologic containing the nanoparticle fraction from a patient’s own peripheral blood. To date, revenues from PPX™ continue to be immaterial.
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 Report.
Results of Operations
Three months ended July 31, 2023 as compared to three months ended July 31, 2022
Revenues. Our revenues for the three months ended July 31, 2023 were $1,220,674, compared to revenues of $1,713,214 for the three months ended July 31, 2022. The decrease in revenues during the three months ended July 31, 2023 of $492,540 or 28.7%, was primarily the result of a decrease of approximately 13.2% (approximately $177,300) in the overall unit sales of its products during the three months ended July 31, 2023 compared with the three months ended July 31, 2022, a decrease of approximately 20.7% (approximately $350,600) in the average sales prices for the products sold during the three months ended July 31, 2023 compared with the average sales prices realized on products sold during the three months ended July 31, 2023, partially offset from an increase of approximately $35,300 of new revenues associated with its recently launched PPX™ service platform during the three months ended July 31, 2023 compared with the three months ended July 31, 2022. The decrease in the average sales prices realized on products sold during the three months ended July 31, 2023 compared with the three months ended July 31, 2022, was due to the reduction in overall unit sales of higher priced medical grade products as compared to the Company’s aesthetic product offerings. The percentage of overall unit sales among the Company’s medical grade products and the Company’s aesthetic product offerings fell from 68.3% and 31.7%, respectively for the three months ended July 31, 2022 to 43.8% and 56.2%, respectively, during the three months ended July 31, 2023.
Cost of Revenues. Our cost of revenues for the three months ended July 31, 2023 were $162,331, compared with cost of revenues of $208,749 for the three months ended July 31, 2022. The decrease in the cost of revenues during the three months ended July 31, 2023 of $46,418 or 22.2%, compared with the three months ended July 31, 2022, was due to a decrease in the amount of units sold of 13.2% (approximately $20,500) during the three months ended July 31, 2023, compared with the three months ended July 31, 2022 and a decrease in the cost of units sold of 25.8% (approximately ($53,900) during the three months ended July 31, 2023, partially offset from an increase in the cost of units sold of approximately $27,900 associated with its recently launched PPX™ service platform during the three months ended July 31, 2023 as compared to the three months ended July 31, 2022. The decrease in the cost of units sold was primarily the result of the Company’s decrease in sales of its medical grade product offerings partially offset from the increases in costs associated with its recently launched PPX™ service platform during the three months ended July 31, 2023 as compared to the three months ended July 31, 2022.
Gross Profit. Our gross profit for the three months ended July 31, 2023 was $1,058,343 (86.7% of revenues), compared with gross profit of $1,504,465 (87.8% of revenues) for the three months ended July 31, 2022. The decrease in gross profit during the three months ended July 31, 2023 of $446,122 was the result of decreases in the average sales prices for the products sold during the three months ended July 31, 2023 and decreases in overall unit sales of its products during the three months ended July 31, 2023 compared to the three months ended July 31, 2022.
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General and Administrative Expenses. General and administrative expenses for the three months ended July 31, 2023 were $2,504,723, compared with $4,266,895 for the three months ended July 31, 2022, a decrease of $1,762,172 or 41.3%. The decrease in the general and administrative expenses for the three months ended July 31, 2023 compared with the three months ended July 31, 2022, was primarily the result of decreased payroll and consulting fees of approximately $586,000, decreases in commissions from sales of the Company’s products and travel and entertainment costs of approximately $326,900, and decreases in stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $1,287,100, partially offset by increases in office related expenses of approximately $99,000, increased professional fees of approximately $177,400, increased research and development costs of approximately $223,000, and increases in insurance costs of approximately $27,500. The reduction in payroll and consulting fees was primarily the result of the Executives’ agreement to a reduction in salary and other compensation in connection with the Restructuring and reductions in fees paid to consultants during the three months ended July 31, 2023 compared to 2022. The decreases in commissions from sales of the Company’s products and travel and entertainment costs was principally the result of lower unit sales and overall revenues from the sale of the Company’s products during the three months ended July 31, 2023 compared with the three months ended July 31, 2022. The decrease in stock-based compensation costs during the three months ended July 31, 2023 compared with the three months ended July 31, 2022 was principally the result of the amortization of costs from warrants issued as stock-based compensation to consultants in connection with the Restructuring in August 2022, stock issued as payment for services, and warrants issued to outside directors.
Other Expense (income). Other expense, net, for the three months ended July 31, 2023 was $171,369, compared with other income, net, of ($34,973) for the three months ended July 31, 2022. The increase in other expense, net, of $206,342 during the three months ended July 31, 2023 compared to the three months ended July 31, 2022, was principally the result of the reduction in the gain from the write-off of liabilities attributable to discontinued operations of $125,851, the decrease in reductions of the Commitment Fee Shortfall Obligations of approximately $43,000 under our Securities Purchase Agreement (“SPA 22”) with AJB Capital Investments, LLC (“AJB”) and increased interest costs of approximately $37,800 in connection with insurance, equipment and credit card financings during the three months ended July 31, 2023 compared with the three months ended July 31, 2022.
Nine months ended July 31, 2023 as compared to nine months ended July 31, 2022
Revenues. Our revenues for the nine months ended July 31, 2023 were $3,136,394, compared to revenues of $5,047,534 for the nine months ended July 31, 2022. The decrease in revenues during the nine months ended July 31, 2023 of $1,911,140 or 37.9%, was primarily the result of a decrease of approximately 21.0% (approximately $811,100) in the overall unit sales of its products during the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022, a decrease of approximately 21.9% (approximately $1,085,900) in the average sales prices for the products sold during the nine months ended July 31, 2023 compared with the average sales prices realized on products sold during the nine months ended July 31, 2022, and a decrease of approximately $14,200 of new revenues associated with its recently launched PPX™ service platform during the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022. The decrease in the average sales prices realized on products sold during the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022, was due to the reduction in overall unit sales of medical grade and aesthetic product offerings. The percentage of overall unit sales among the Company’s medical grade products and the Company’s aesthetic product offerings fell from 70.8% and 29.2%, respectively for the nine months ended July 31, 2022 to 44.9% and 55.1%, respectively, during the nine months ended July 31, 2023.
Cost of Revenues. Our cost of revenues for the nine months ended July 31, 2023 were $374,720, compared with cost of revenues of $484,287 for the nine months ended July 31, 2022. The decrease in the cost of revenues during the nine months ended July 31, 2023 of $109,657 or 22.6%, compared with the nine months ended July 31, 2022, was due to a decrease in the amount of units sold of 21.0% (approximately $88,000) during the nine months ended July 31, 2023, compared with the nine months ended July 31, 2022 and from a decrease in the cost of units sold of 13.4% (approximately ($65,100) during the nine months ended July 31, 2023, compared to costs of units sold during the nine months ended July 31, 2022, partially offset from an increase in the costs associated with its recently launched PPX™ service platform of approximately $43,600 during the nine months ended July 31, 2023. The decrease in the cost of units sold was primarily the result of the Company’s decrease in sales of its medical grade product offerings partially offset from the increases in costs associated with its recently launched PPX™ service platform during the nine months ended July 31, 2023 as compared to the nine months ended July 31, 2022.
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Gross Profit. Our gross profit for the nine months ended July 31, 2023 was $2,761,674 (88.0% of revenues), compared with gross profit of $4,563,247 (90.4% of revenues) for the nine months ended July 31, 2022. The decrease in gross profit during the nine months ended July 31, 2023 of $1,801,573 was the result of decreases in the average sales prices for the products sold during the nine months ended July 31, 2023 and decreases in overall unit sales of its products during the nine months ended July 31, 2023 compared to the nine months ended July 31, 2022.
General and Administrative Expenses. General and administrative expenses for the nine months ended July 31, 2023 were $8,297,058, compared with $10,225,371 for the nine months ended July 31, 2022, a decrease of $1,928,313 or 18.9%. The decrease in the general and administrative expenses for the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022, was primarily the result of decreased payroll and consulting fees of approximately $1,471,600, decreases in commissions from sales of the Company’s products and travel and entertainment costs of approximately $1,119,500, decreases in stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $401,000 and reduced office related expenses of approximately $105,900, partially offset by increased professional fees of approximately $278,000, increased research and development costs of approximately $272,700, increases in insurance costs of approximately $205,700, increased investor relations costs of approximately $124,600, increased laboratory related costs of approximately $180,600, increased write-offs of fixed assets of approximately $33,300 and increased reserves against receivables from related parties of approximately $120,600. The reduction in payroll and consulting fees was primarily the result of the Executives’ agreement to a reduction in salary and other compensation in connection with the Restructuring and reductions in fees paid to consultants during the nine months ended July 31, 2023 compared to 2022. The decreases in commissions on from sales of the Company’s products and travel and entertainment costs was principally the result of lower unit sales and overall revenues from the sale of the Company’s products during the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022. The decrease in stock-based compensation costs during the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022 was principally the result of reduced amortization of costs from warrants issued as stock-based compensation to consultants in connection with the Restructuring in August 2022, stock issued as payment for services, and warrants issued to outside directors.
Other Expense (income). Other expense, net, for the nine months ended July 31, 2023 was $360,319, compared with other expense, net, of ($215,112) for the nine months ended July 31, 2022. The increase in other expense, net of $145,207 during the nine months ended July 31, 2023 compared to the nine months ended July 31, 2022, was principally the result of the reduction in the gain from the write-off of liabilities attributable to discontinued operations of $125,851 and increased interest costs of approximately $18,200 in connection with insurance, equipment and credit card financings during the nine months ended July 31, 2023 compared with the nine months ended July 31, 2022.
Liquidity and Capital Resources
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, |
||||||||
| 2023 | 2022 | |||||||
| Cash, beginning of year | $ | 3,753,097 | $ | 108,570 | ||||
| Net cash used in operating activities | (2,417,728 | ) | (1,408,243 | ) | ||||
| Net cash used in investing activities | (119,655 | ) | (516,519 | ) | ||||
| Net cash (used in) provided by financing activities | (582,133 | ) | 1,890,857 | |||||
| Cash, end of period | $ | 633,581 | $ | 74,665 | ||||
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During the nine months ended July 31, 2023, the Company used cash in operating activities of $2,417,728, compared to $1,408,243 for the nine months ended July 31, 2022, an increase in cash used of $1,009,485. The increase in cash used in operating activities was due to the decrease in revenues and gross profit, payment of past due accounts payable and accrued expenses, the decrease in accrued liabilities to management and the increase in inventory balances during the nine months ended July 31, 2023 as compared to the nine months ended July 31, 2022.
During the nine months ended July 31, 2023, the Company had cash used in investing activities of $119,655, compared to cash used in investing activities of $516,519 for the nine months ended July 31, 2022, a decrease in cash used of $396,864. The decrease in cash used in investing activities was primarily due to the reduction in payments made for leasehold improvements and laboratory equipment associated with the new lab facility in Basalt, CO of approximately $496,900, partially offset from the increase in investments from non-marketable securities of $100,000 during the nine months ended July 31, 2023 as compared to the nine months ended July 31, 2022.
During the nine months ended July 31, 2023, the Company had cash used in financing activities of $582,133 compared to cash provided by financing activities of $1,890,857 for the nine months ended July 31, 2022. The decrease in cash provided by financing activities of $2,472,990 was due to decreases in proceeds of approximately $35,600 from the issuance of Notes to AJB, increases in repayment of notes payable of approximately $367,100, increases in payments on finance leases of approximately $70,300, increases in the shares repurchased in connection with litigation of $500,000, the reduction of advances for future stock purchases of $700,000 and the reduction in the sale of equity securities of approximately $550,000 during the nine months ended July 31, 2023 as compared to the nine months ended July 31, 2022.
Capital Resources
The Company has historically 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.
Put Request
Pursuant to the Purchase Agreement entered into with Tysadco Partners LLC, on December 2, 2022, the Company submitted a put request to Tysadco to purchase 4,456,326 registered shares at a purchase price (as calculated pursuant to the Purchase Agreement) of $0.02244, for a total of $100,000 (“Put Request”). On December 5, 2022, Tysadco funded the Put Request and the Company issued 4,456,326 shares to Tysadco. The proceeds from the share sale are being used for working capital and general corporate purposes.
SPA 23
On March 6, 2023, the Company entered into a Securities Purchase Agreement (“SPA 23”) with AJB Capital, pursuant to which we sold a Promissory Note in the principal amount of $530,000 (“$530,000 Note”) to AJB in a private transaction for a purchase price of $519,400 (giving effect to original issue discount of $10,600). In connection with the sale of the $530,000 Note, the Company also paid AJB Capital’s legal fees and due diligence costs of $15,000, resulting in net proceeds to the Company of $504,400, which will be used for working capital and other general corporate purposes.
The Note bears interest at the rate of 12% per annum. The Note matured on September 6, 2023 and was paid in full.
Private Offering
During August 2023, the Company sold 2.9 Units (“Units”) to 4 investors in a private offering at a purchase price of $250,000 per Unit for an aggregate purchase price of $725,000. Each Unit consists of (a) a $250,000 in principal amount 8% Convertible Promissory Note due September 30, 2026 (the “Note”); and (b) 1,562,500 common stock purchase warrants (the “Warrants”), each entitling the holder to purchase one share of common stock, $0.001 par value (“Shares”) at an exercise price of $0.10 for a period of five years from the date of issuance.
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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 net losses of $5,895,703 for the nine months ended July 31, 2023 and used $2,417,728 of cash from operating activities during that period. In addition, the Company had an accumulated deficit and a stockholders’ deficit of $56,417,009 and $1,021,210, respectively, at July 31, 2023. The Company had a working capital deficit of $2,237,827 at July 31, 2023.
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 adverse public health developments associated with the ongoing COVID-19 pandemic combined with the downturn in the overall United States and global economies have adversely affected the demand for our products and services by our customers and from patients of our customers 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; and/or (b) 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.
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 (a) 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; (b) 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; (c) obligations to the Company’s creditors are not accelerated; (d) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations; (e) 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 (f) 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 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.
If revenues do not increase and stabilize, 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. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s October 31, 2022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. As of July 31, 2023, 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.
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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 July 31, 2023 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, 2022, “Summary of Significant Accounting Policies”.
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 Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported in accordance with the rules of the Securities and Exchange Commission (“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 (our principal executive officer) and our Chief Financial Officer (our 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, 2023, 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 Chief Executive Officer and Chief 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, 2022, 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, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Part II – OTHER INFORMATION
Item 1. |
Legal Proceedings. |
In addition to matters which have been resolved as we reported in previous filings under the Exchange Act, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business.
| 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 |
None.
| Item 3. | Defaults upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information. |
None.
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| Item 6. | Exhibits. |
| Exhibit No: | Description: | |
| 31.1* | Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer (filed herewith) | |
| 31.2* | Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer (filed herewith) | |
| 32.1* | Section 1350 Certification of Chief Executive Officer (filed herewith) | |
| 32.2* | Section 1350 Certification of Chief Financial Officer (filed herewith) | |
| 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. |
33
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/ HARRY LEIDER | |
| Harry Leider | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| September 14, 2023 | ||
By: |
/s/ IAN T. BOTHWELL | |
| Ian T. Bothwell | ||
| Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
| September 14, 2023 | ||
34
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SS 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Harry Leider, as the Chief Executive Officer (principal executive officer) of Organicell Regenerative Medicine, Inc., a Nevada corporation (the “Registrant”), certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended July 31, 2023 of the Registrant; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reports to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 14, 2023 | /s/ Harry Leider |
| Harry Leider | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SS 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ian T. Bothwell, as the Chief Financial Officer (principal financial and accounting officer) of Organicell Regenerative Medicine, Inc., a Nevada corporation (the “Registrant”) certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended July 31, 2023 of the Registrant; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reports to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 14, 2023 | /s/ Ian T. Bothwell |
| Ian T. Bothwell | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Organicell Regenerative Medicine, Inc. on Form 10-Q for the quarter ended July 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Harry Leider, Chief Executive Officer (principal executive officer) of Organicell Regenerative Medicine, Inc., a Nevada corporation (the “Company”), hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Organicell Regenerative Medicine, Inc.
| Date: September 14, 2023 | /s/ Harry Leider |
| Harry Leider | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Organicell Regenerative Medicine, Inc. on Form 10-Q for the quarter ended July 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Ian T. Bothwell, Chief Financial Officer (principal financial and accounting officer) of Organicell Regenerative Medicine, Inc., a Nevada corporation (the “Company”), hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Organicell Regenerative Medicine, Inc.
| Date: September 14, 2023 | /s/ Ian T. Bothwell |
| Ian T. Bothwell | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |