The accompanying notes are an
integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF
BUSINESS
Organicell Regenerative Medicine, Inc. f/k/a Biotech
Products Services and Research, Inc. (“Organicell” or the “Company”) was incorporated on August 9, 2011 in the
State of Nevada. The Company is a clinical-stage biopharmaceutical company principally focusing on the development of innovative biological
therapeutics for the treatment of degenerative diseases and to provide other related services. Our proprietary products are derived from
perinatal sources and are principally used in the health care industry administered through doctors and clinics (collectively, “Providers”).
On May 21, 2018, the Company filed a Certificate
of Amendment with the Secretary of State of Nevada to change the Company’s name from Biotech Products Services and Research, Inc.
to Organicell Regenerative Medicine, Inc., effective June 20, 2018 (the “Name Change”) and during November 2021 the Name
Change was effectuated in the marketplace by the Financial Industry Regulatory Agency.
For the three months ended January 31, 2022, 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.
In June 2021, the Company announced that it was launching
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. The Company began to accept minimal orders
for this service since October 2021.
In November 2020, the Company formed Livin’
Again Inc., a wholly owned subsidiary, for the purpose of among other things, providing independent education, advertising and marketing
services, to Providers that provide medical and other healthcare, anti-aging and regenerative services. including FDA-approved IV vitamin
and mineral liquid infusions (“IV Drip Therapies”). To date, there has been no significant activity and the Company has no
timetable, if any, as to when IV Drip Therapies revenues will commence.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The unaudited consolidated financial statements include
the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States
of America have been omitted pursuant to the rules and regulations of the Securities Exchange Commission, although we believe that the
disclosures made are adequate to make the information not misleading. These unaudited consolidated financial statements should be read
in conjunction with our Annual Report on Form 10-K for the year ended October 31, 2021 filed with the Securities and Exchange Commission.
Concentrations of Credit Risk
The balance sheet items that potentially subject
us to concentrations of credit risk are primarily cash and cash equivalents. Balances in accounts are insured up to Federal Deposit Insurance
Corporation (“FDIC”) limits of $250,000 per institution. At January 31, 2022, the Company did not hold cash balances in any
financial institution in excess of FDIC insurance coverage limits.
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.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 three months ended
January 31, 2022 and 2021, the Company did not record any bad debt expense.
Stock Subscriptions Receivable
Stock subscriptions receivable for equity investments
in the Company are classified as current assets once a fully executed stock subscription agreement is received and provided that the
receivable is collected prior to the issuance of the financial statements. In the event that the Company receives a fully executed stock
subscription agreement but the receivable is not collected prior to the issuance of the financial statements, the receivable is classified
as a direct reduction to stockholders’ equity. At January 31, 2022 and October 31, 2021, there were no stock subscriptions receivable
outstanding.
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 January 31, 2022
and October 31, 2021, the Company determined that there were not any reserves required in connection with our inventory.
Property and Equipment
Property and equipment are stated at cost. Depreciation
and amortization are provided using the straight-line method over the estimated useful lives of the related assets. The estimated useful
lives of property and equipment range from 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.
Construction
in Progress
The cost of
all projects under construction for new laboratory facilities and other improvements that are in progress (under way) at a particular
point in time and have not yet been placed into service are reported as construction in progress until such time as the project is complete.
Revenue Recognition
The Company follows the guidance of FASB Accounting
Standards Update (“ASU”) Topic 606 “Revenue from Contracts with Customers” which requires the Company to recognize
revenue in amounts that reflect the prorata completion of the performance obligations of the Company required under the contracts.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Net Income (Loss) Per Common Share
Basic income (loss) per common share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders
by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding
is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity instruments.
At January 31, 2022, the Company had 9,500,000 common
shares issuable upon the exercise of warrants and unpaid Original Base Salary and Incremental Salary that could be convertible into approximately
39,836,000 common shares that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive
for the three months ended January 31, 2022. At January 31, 2021, the Company had 9,500,000 common shares issuable upon the exercise
of warrants and unpaid Original Base Salary and Incremental Salary that could be convertible into approximately 34,143,000 common shares
that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months ended
January 31, 2021.
Stock-Based Compensation
All stock-based payments are recognized in the financial statements based
on their fair values.
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 $276,300 and $661,900 for the three months ended January 31, 2022 and 2021, respectively.
The research and development costs primarily relate to the filing and approval of IND applications and the performance of clinical trials.
Income Taxes
The Company is required to file a consolidated tax return that includes
all of its subsidiaries.
Provisions for income taxes are based on taxes payable
or refundable for the current year taxable income for federal and state income tax reporting purposes and deferred income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and
operating loss carryforwards. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred
tax liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the results of the operations in the period that includes the enactment date. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred
tax assets will not be realized.
The Company accounts for uncertain tax positions
in accordance with FASB Topic 740 – Income Taxes. This pronouncement prescribes a recognition threshold and measurement process
for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. The interpretation also
provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim period, disclosure and
transition.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended January 31, 2022 and 2021
the Company incurred operating losses, and therefore, there was not any income tax expense amount recorded during that period. There
is a full valuation allowance established for the tax benefit associated with the net losses for the three months ended January 31, 2022
and 2021.
Valuation of Derivatives
The Company evaluates its convertible instruments,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is
that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the
fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense).
Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair
value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under
ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
Sequencing
The Company has adopted a sequencing policy whereby,
in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s
inability to demonstrate it has sufficient authorized shares, shares will be allocated on the basis of the earliest issuance date of
potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.
The Company currently has 2,500,000,000 authorized
shares of common stock of which 1,157,637,928 shares are issued and outstanding as of March 16, 2022. 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.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 January 31, 2022 and October 31, 2021 that qualify as derivatives.
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 applies the modified retrospective approach which
includes a number of optional practical expedients on leases that commenced before the effective date of ASC 842, including continuing
to account for leases that commenced before the effective date in accordance with previous guidance, unless the lease is modified and
the inclusion of amounts pertaining to the maintenance portion of the leased assets.
The Company’s policy is to treat operating
leases that have a term of one year or less at lease commencement date and do not include a purchase option that is reasonably certain
of exercise, consistent with the lease recognition approach as previously outlined under ASC 840. In addition, month to month leases
which do not involve additional financial commitments on the part of the Company are also treated consistent with the lease recognition
approach as previously outlined under ASC 840. The Company has established a capitalization threshold of $15,000 in determining whether
any future operating leases will be capitalized.
Subsequent Events
The Company has evaluated subsequent events that
occurred after January 31, 2022 through the financial statement issuance date for subsequent event disclosure consideration.
NOTE 3 – GOING CONCERN
The unaudited accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company
as a going concern. The Company has had limited revenues since its inception. The Company incurred operating losses of $1,641,432 for
the three months ended January 31, 2022. In addition, the Company had an accumulated deficit of $43,318,485 at January 31, 2022. The
Company had a negative working capital position of $4,400,806 at January 31, 2022.
New United States Food and Drug Administration (“FDA”)
regulations which were announced in November 2017 and which became effective beginning in May 2021 (postponed from November 2020 due
to the COVID-19 pandemic) require that the sale of products that fall under Section 351 of the Public Health Services Act pertaining
to marketing traditional biologics and human cells, tissues and cellular and tissue based products (“HCT/Ps”) can only be
sold pursuant to an approved biologics license application (“BLA”). The Company has not obtained any opinion or ruling regarding
the Company’s operations and whether the processing, sales and distribution of the products it currently produces would be subject
to the FDA’s previously announced intended enforcement policies regarding HCT/P’s.
In addition to the above, the adverse public health
developments and economic effects of the ongoing COVID-19 pandemic in the United States have adversely affected the demand for our products
and services by our customers and from patients of our customers as a result of quarantines, facility closures and social distancing
measures put into effect in connection with the COVID-19 outbreak and which currently still continue to have a negative impact to our
business and the economy.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As a result of the above, the Company’s efforts
to establish a stabilized source of sufficient revenues to cover operating costs has yet to be achieved and ultimately may prove to be
unsuccessful unless (a) the Company’s ability to process, sell and distribute the products currently being produced or developed
in the future are not restricted, (b) the United States economy resumes to pre-COVID-19 conditions and/or (c) additional sources of working
capital through operations or debt and/or equity financings are realized. These financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Management anticipates that the Company will remain
dependent, for the near future, on additional investment capital to fund ongoing operating expenses and research and development costs
related to development of new products and to perform required clinical studies in connection with the sale of its products. The Company
does not have any assets to pledge for the purpose of borrowing additional capital. In addition, the Company relies on its ability to
produce and sell products it manufactures that are subject to changing technology and regulations that it currently sells and distributes
to its customers. The Company’s current market capitalization, common stock liquidity and available authorized shares may hinder
its ability to raise equity proceeds. The Company anticipates that future sources of funding, if any, will therefore be costly and dilutive,
if available at all.
In view of the matters described in the preceding
paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that (1) the Company
is able to continue to produce products or obtain products under supply arrangements which are in compliance with current and future
regulatory guidelines, (2) the effects of the COVID-19 crisis resume to pre-COVID-19 market conditions, (3) the Company will be able
to establish a stabilized source of revenues, including efforts to expand sales internationally and the development of new product offerings
and/or designations of products, (4) obligations to the Company’s creditors are not accelerated, (5) the Company’s operating
expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations, (6) the Company
is able to continue its research and development activities, particularly in regards to remaining compliant with the FDA and ongoing
safety and efficacy of its products, and/or (7) the Company obtains additional working capital to meet its contractual commitments and
maintain the current level of Company operations through debt or equity sources.
There is no assurance as to when the adverse impact
to the United States and worldwide economies resulting from the COVID-19 outbreak will be eliminated, if at all, and whether any new
or recurring pandemic outbreaks will occur again in the future causing similar or worse devastating impact to the United States and worldwide
economies and our business. In addition, there is no assurance that the products we currently produce will not be subject to the FDA’s
previously announced intended enforcement policies regarding HCT/P’s and/or the Company will be able to complete its revenue growth
strategy. There is no assurance that the Company’s research and development activities will be successful or that the Company will
be able to timely fund the required costs of those activities. Without sufficient cash reserves, the Company’s ability to pursue
growth objectives will be adversely impacted. Furthermore, despite significant effort since July 2015, the Company has thus far been
unsuccessful in achieving a stabilized source of revenues. As described above, the COVID-19 crisis has significantly impaired the Company
and the overall United States and World economies.
If revenues do not increase and stabilize, if the
COVID-19 crisis is not satisfactorily managed and/or resolved, if the Company’s ability to process, sell and/or distribute the
products currently being produced or developed in the future are restricted, and/or if additional funds cannot otherwise be raised, the
Company might be required to seek other alternatives which could include the sale of assets, closure of operations and/or protection
under the U.S. bankruptcy laws. As of January 31, 2022, 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 |
|
|
|
|
|
|
|
|
|
|
January
31, 2022 |
|
|
October
31, 2021 |
|
Raw
materials and supplies |
|
$ |
65,946 |
|
|
$ |
92,601 |
|
Finished
goods |
|
|
90,429 |
|
|
|
142,226 |
|
|
|
|
|
|
|
|
|
|
Total
inventories |
|
$ |
156,375 |
|
|
$ |
234,827 |
|
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - PROPERTY AND EQUIPMENT
Schedule of Property and Equipment |
|
|
|
|
|
|
|
|
|
|
January
31, 2022 |
|
|
October
31, 2021 |
|
Computer
equipment |
|
$ |
13,541 |
|
|
$ |
10,684 |
|
Finance
lease equipment |
|
|
544,378 |
|
|
|
544,378 |
|
Manufacturing
equipment |
|
|
309,299 |
|
|
|
258,791 |
|
|
|
|
867,218 |
|
|
|
813,853 |
|
Less:
accumulated depreciation |
|
|
(121,316 |
) |
|
|
(107,146 |
) |
|
|
|
745,902 |
|
|
|
706,707 |
|
Construction
in progress: |
|
|
|
|
|
|
|
|
Leasehold
improvements |
|
|
508,478 |
|
|
|
406,709 |
|
|
|
|
|
|
|
|
|
|
Total
property and equipment, net |
|
$ |
1,254,380 |
|
|
$ |
1,113,416 |
|
Depreciation expense totaled $14,170 and $12,192
for the three months ended January 31, 2022 and 2021, respectively.
As described in Note 6, 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 Lease location. The total costs incurred as of January 31, 2022 were $508,478 and are reflected as construction in
progress. Amortization of these costs will begin once the build-out is complete and the facility becomes operational.
NOTE 6 – LEASE OBLIGATIONS
Finance Lease Obligations:
During March 2019, the Company entered into a lease
agreement for certain lab equipment in the amount of $239,595. Under the terms of the lease agreement, the Company is required to make
60 equal monthly payments of $4,513 plus applicable sales taxes. Under the Lease Agreement, the Company has the right to acquire all
of the leased equipment for $1.00. As a result, the lease agreement is being accounted for as a finance lease obligation. The annual
interest rate charged in connection with the lease is 4.5%. The leased equipment are being depreciated over their estimated useful lives
of 15 years.
During October 2021, the Company entered into a second
lease agreement in the amount of $304,873 for certain lab equipment that is being installed at the Basalt lab location. Under the terms
of the lease agreement, the Company is required to make 60 equal monthly payments of $5,478 plus applicable sales taxes. Under the Lease
Agreement, the Company has the right to acquire all of the leased equipment for $1.00. As a result, the lease agreement is being accounted
for as a finance lease obligation. The annual interest rate charged in connection with the lease is 3.0%. Lease payments and depreciation
of the leased equipment has not commenced pending completion of the Basalt lab buildout (see below) and the facility becomes operational.
The leased equipment will be depreciated over their estimated useful lives of 15 years.
Operating Lease Obligations:
Administrative Office
The Company’s corporate administrative offices
are leased from MariLuna, LLC, a Florida limited liability company which is owned by Dr. Mitrani. During July 2020, the Company entered
into an extension of the operating lease agreement. The lease term is for an additional 36 months beginning July 1, 2020 and expiring
June 30, 2023, with a monthly rental rate of $3,500. On July 1, 2020, in connection with the adoption of ASC 842, the Company recorded
a ROU asset and corresponding operating lease obligation of $117,659 (present value of the associated leased payments based on an assumed
borrowing rate of 4.5%).
Lease amortization expense for the three months ended
January 31, 2022 and 2021 was $9,779 and $9,350, respectively.
Beginning October 1, 2020, the Company entered into
a second lease agreement with Mariluna LLC for office space located in Aspen, CO. The initial term of the lease was for one year, expiring
on September 30, 2021 and the lease has been subsequently extended on a month to month basis. Under the terms of the lease, the Company
is required to make monthly rental payments of $6,500 and was required to provide a security deposit of $11,000 upon execution of the
lease agreement.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Laboratory Facilities:
In connection with the Company’s decision to
again operate a placental tissue bank processing laboratory in Miami, Florida, during February 2019, the Company entered into a renewable
month to month lease agreement (“Miami Lab Lease”) for an approximately 450 square foot laboratory and a 100 square foot
administrative office facility. Monthly lease payments are approximately $5,200 plus administrative fees and taxes. In connection with
the Miami Lab Lease, the Company was required to post a security deposit of $6,332. From November 2020 through May 31, 2021, the Company
entered into an additional month to month lease agreement in the same facility as the Miami Lab Lease for an additional 390 square foot
laboratory. Monthly lease payments were approximately $4,400 plus administrative fees and taxes.
During March 2021, the Company entered into a lease
agreement for an approximately 2,452 square foot commercial space located in Basalt, Colorado (the “Basalt Lab Lease”). The
Company intends to build additional laboratory processing, product distribution and administrative office capacity from this location.
The term of the Basalt Lab Lease is for three years and may be renewed for an additional (3) three-year term provided the Company is
not in default. Rental expense is $6,800 per month and provides for annual increases of 3% or the Denver Aurora Metropolitan CPI index,
whichever is greater. In connection with the Basalt Lab Lease, the Company was required to post a security deposit of $13,600. The Company
is currently constructing the laboratory and office build-out at an estimated cost of $600,000. The Company expects the construction
to be completed during the quarter ended April 30, 2022. The Company has recorded a ROU asset and corresponding operating lease obligation
of $235,313 (present value of the associated leased payments based on an assumed borrowing rate of 4.5%).
Lease amortization expense for the three months ended
January 31, 2022 was $18,361.
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company’s corporate administrative offices
are leased from MariLuna, LLC, a Florida limited liability company which is owned by Dr. Mitrani. The term of the lease expires in June
2023. Monthly rent is $3,500. The Company paid a security deposit of $5,000. Total rent expense for the three months ended January 31,
2022 and 2021 was $10,500.
Beginning October 1, 2020, the Company entered into
a second lease agreement with Mariluna LLC for office space located in Aspen, CO. The initial term of the lease was for one year, expiring
on September 30, 2021 and the lease has been subsequently extended on a month to month basis. Under the terms of the lease, the Company
is required to make monthly rental payments of $6,500 and was required to provide a security deposit of $11,000 upon execution of the
lease agreement. Total rent expense for the three months ended January 31, 2022 and 2021 was $19,500.
In connection with Mr. Bothwell’s executive
employment agreements, the Company agreed to reimburse Rover Advanced Technologies, LLC, a company owned and controlled by Mr. Bothwell
for office rent and other direct expenses (phone, internet, copier and direct administrative fees, etc.) totaling $9,834 and $8,270 for
the three months ended January 31, 2022 and 2021, respectively.
For the three months ended January 31, 2022, the
Company sold a total of approximately $79,700 of products to a management services organization (“MSO”) that provides administrative
services and contracts for medical supplies for several medical practices, including $22,740 of products purchased from the Company that
were attributable to the medical practice owned by Dr. George Shapiro. Dr. Shapiro also has an indirect economic interest in the parent
company that owns the MSO. For the three months ended January 31, 2022, the total amount of sales of products to customers related to
Mr. Michael Carbonara totaled $8,160.
At January 31, 2022, salary amounts owed to Albert
Mitrani, Dr. Mari Mitrani and Ian Bothwell were $321,293, $408,455 and $919,428, respectively and consulting fees owed to Dr. George
Shapiro were $81,000.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - NOTES PAYABLE
Notes Payable
Debentures
On June 20, 2018, the Company issued a total of $150,000
of convertible 6% debentures (“150,000 Debentures”) to an accredited investor. The principal amount of the $150,000 Debentures,
plus accrued and unpaid interest through June 30, 2019 were payable on the 10th business day subsequent to June 30, 2019,
unless the payment of the $150,000 Debentures were prepaid at the sole option of the Company, were converted as provided for under the
terms of the $150,000 Debentures, and/or accelerated due to an event of default in accordance with the terms of the $150,000 Debentures.
Interest on the $150,000 Debentures for each calendar quarter ended beginning with the quarter ended June 30, 2018 is payable on the
10th business day following the immediately prior calendar quarter. The $150,000 Debentures were not repaid as required. At
January 31, 2022, the principal balance of the $150,000 Debentures outstanding was $139,000 and accrued and unpaid interest was $695.
Unsecured Promissory Note For Professional Fees Owed
On January 24, 2022, the Company reached an agreement
with a professional firm in connection with unpaid legal services owing as of December 31, 2021 in the amount of $278,340 (“Unpaid
Professional Fees”). In connection with the agreement, the Company issued the professional firm a promissory note in the amount
of $256,000 of which the Company was required to make a cash payment of $166,000 by January 25, 2022 and twelve monthly payments of $7,500
beginning February 28, 2022. If the Company makes all payments as required under the promissory note, then the Company will receive a
discount of $22,340, representing the remaining balance of the Professional Fees outstanding from the December 31, 2021 balances after
all payments of the promissory note are applied. As of March 16, 2022, the Company has made all required payments due in connection with
the promissory note.
Unsecured Promissory Note
On February 5, 2019, the Company entered into an
unsecured loan agreement with a third party with a principal balance of $25,000. The outstanding principal was due March 8, 2019. The
loan was not repaid on the maturity date as required. The third party subsequently agreed to apply amounts due for invoices due
from third party for future purchases of the Company products to the extent of the outstanding balances owed by the Company in connection
with the loan (interest and principal). As of January 31, 2022 and October 31, 2021, the remaining amount due under this arrangement
was approximately $4,392.
Promissory Note - SPA
On January 11, 2022, the Company entered into a Securities
Purchase Agreement (“SPA”) with AJB Capital Investments, LLC (“Purchaser”) pursuant to which we sold a promissory
note in the principal amount of $600,000 (“Promissory Note”) to the Purchaser in a private transaction for a purchase price
of $540,000 (giving effect to original issue discount of $60,000). In connection with the sale of the Promissory Note, the Company also
paid the Purchaser’s legal fees and due diligence costs of $12,500 and brokerage fees of $9,000 to J.H. Darbie & Co., a registered
broker-dealer which were expensed during the three months ended January 31, 2022. After payment of the legal fees and brokerage fees,
the net proceeds to the Company were $518,500, which will be used for working capital and other general corporate purposes.
The Promissory Note matures on July 11, 2022, subject
to extension at the option of the Company for up to an additional six month period, bears interest at the a rate of 10% per annum for
the first six months, payable monthly, and 12% per annum thereafter, payable monthly, if extended, and only following an event of default
(as defined in the Note), is convertible into shares of the Company’s common stock at a conversion price equal to the lower of
the “VWAP” (as hereinafter defined) of the common stock during (i) the twenty (20) trading day period preceding the issuance
date of the Note; or (ii) the twenty (20) trading day period preceding the date of conversion of the Promissory Note. As used in the
Promissory Note, “VWAP” means, for any date, the price of our common stock as determined by the first of the following clauses
that applies: (i) if the common stock is then listed or quoted on one or more established stock exchanges or national market systems,
the daily volume weighted average price of the common stock for such date on the trading market on which the common stock is then listed
or quoted as reported by Bloomberg L.P.; or (ii) if the common stock is regularly quoted on an automated quotation system (including
applicable tiers of the over-the-counter market maintained by OTC Market Group, Inc.) or by a recognized securities dealer, the volume
weighted average price of the common stock for such date on the applicable OTC Markets Group, Inc. tier or as quoted by such securities
dealer. In accordance with the terms of the SPA, as of January 11, 2022, the Company has reserved 36,923,080 shares of its authorized
but unissued common stock for issuance in the event the Purchaser exercises its right to convert the Promissory Note following an event
of default.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Promissory
Note may be prepaid by the Company at any time without penalty. The Promissory Note also
contains covenants, events of defaults, penalties, default interest and other terms and conditions customary in transactions of this
nature.
Pursuant to the terms of the SPA, the Company paid
a commitment fee to the Purchaser in the amount of $123,000 (“Initial Commitment Fee”) in the form of 3,076,921 shares of
the Company’s common stock (the “Initial Commitment Fee Shares”) valued at $0.04 the closing price of the common stock
of the Company on the closing date. In addition, if the Company exercises the option to extend the maturity date of the Promissory Note,
the Company will pay an additional commitment fee to the Purchaser in the amount of $61,546 in the form of an additional 1,538,462 shares
of its common stock (“Additional Commitment Fee Shares,” and together with the Initial Commitment Fee Shares, collectively,
“Commitment Fee Shares”) valued at $0.04 the closing price of the common stock of the Company on the closing date.
In the event that by the first anniversary of repayment
of the Promissory Note by the Company, the Purchaser has not generated the amount of $200,000 from public sales of the Commitment Fee
Shares, and $100,000 from public sales of the Additional Commitment Fee Shares, if applicable, the Company shall either pay the amount
of any such shortfall either (i) by issuing additional shares of our common stock at a price equal to the VWAP for the common stock during
the five (5) trading day period prior to such anniversary date; or (ii) in cash, in which case, the Company shall repurchase any unsold
Commitment Fee Shares then held by the Purchaser for such shortfall amount (“Commitment Fee Shortfall Obligation”) .
The offer and sale of the Promissory Note to the
Purchaser was made in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities
Act”), in reliance on exemptions afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated
thereunder.
Upon the closing, the Company recorded a discount
of the Promissory Note in the amount of $260,000, consisting of the original issue discount of $60,000, the fair value of the Initial
Commitment Fee Shares of $123,000 and the Commitment Fee Shortfall Obligation of $77,000. These costs will be amortized over the initial
term of the Promissory Note. For the three months ended January 31, 2022, $31,778 of the total discounts recorded in connection with
the issuance of the Promissory Note have been amortized. At January 31, 2022, the fair value of the Commitment Fee Shares was approximately
$111,000 (valued at $0.036 the closing price of the common stock of the Company on January 31, 2022). As a result, the Company recorded
an additional Commitment Fee Shortfall Obligation in the amount of $12,000. The total Commitment Fee Shortfall Obligation at January
31, 2022 was $89,000.
NOTE 9 - 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 $90,000 of penalties, plus interest (“IRS Penalties”),
in connection with the late filing of certain information returns that were included as part of the Delinquent Filed Returns. In connection
with the notices, the IRS indicated its intent to levy property of the Company if the IRS penalties were not paid as required. During
January 2018, the Company requested from the IRS an abatement of the IRS penalties based on reasonable cause. During April 2018, the
IRS notified the Company that the IRS penalties for the tax year ended 2011 of $20,000, plus interest, were abated and the request for
abatement for the IRS penalties for the tax years ended 2012 – 2015 were denied. The Company is currently appealing the initial
determination by the IRS to exclude the IRS penalties for the tax years 2012-2015 in its consideration of abatement and filed a “Request
for Collection Due Process Equivalent Hearing” (“Request”) in September 2021. During the period that the Request is
being reviewed and processed by the IRS, the IRS has agreed to put a hold on taking any levy action against the Company for the remaining
amounts of the IRS Penalties that are still outstanding. In connection with the notices, the Company has accrued $83,684 and $83,684
of accrued tax penalties and interest on the balance sheet as of January 31, 2022 and October 31, 2021, respectively.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – CAPITAL STOCK
Preferred Stock
The Company is authorized to issue 10,000,000 shares
of $0.001 par value preferred stock in one or more designated series, each of which shall be so designated as to distinguish the shares
of each series of preferred stock from the shares of all other series and classes. The Company’s board of directors is authorized,
without stockholders’ approval, within any limitations prescribed by law and the Company’s Articles of Incorporation, to
fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred
stock.
Issued Shares
As of January 31, 2022, there were no designations
of Preferred Stock authorized or outstanding.
Common Stock
Issuances of Common Stock - Sales:
In November 2021, the Company sold an aggregate of
8,000,000 shares of common stock to one “accredited investor” at $0.05 per share for an aggregate purchase price of $400,000.
The proceeds were used for working capital.
In January 2022, the Company sold an aggregate of
666,667 shares of common stock to one “accredited investor” at $0.03 per share for an aggregate purchase price of $20,000.
The purchase price was paid through an offset of an outstanding balance owed by the Company to the investor at the time of the sale of
$20,000.
In February 2022, the Company sold an aggregate of
8,333,333 shares of common stock to one “accredited investor” at $0.03 per share for an aggregate purchase price of $250,000.
The proceeds were used for working capital.
Issuances of Common Stock – Stock-Based
Compensation:
On December 27, 2021, the Company and an employee
agreed to an amendment of the employee’s employment agreement. Under the terms of the amendment, the employee agreed to extend
the term of the agreement through December 31, 2024 and the Company agreed to increase the employee’s annual salary from $180,000
per year to $210,000 per year effective January 1, 2022. In connection with the amendment, the Company agreed to grant the employee 1,000,000
shares of common stock of the Company to vest quarterly over the remaining term of the agreement (valued at $.029 per share, the closing
price of the common stock of the Company on the grant date). The total value of the stock granted in connection with the amendment was
$29,000 which will be amortized over the remaining term of the agreement. The Company recorded $1,208 of stock-based compensation during
the three months ended January 31, 2022.
In connection with the VP Agreements, during the
three months ended January 31, 2022, the Company issued each of the Sales Executive an additional 450,000 Performance Shares (total 900,000
shares) valued at $0.035 per share, the closing price of the common stock of the Company on the grant date. The Company will amortize
the value of the stock-based compensation of $31,500 over the remaining term of the VP Agreements. The Company has recorded a total of
$2,625 of stock-based compensation expense during the three months ended January 31, 2022 in connection with these shares.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity Line of Credit Commitment:
During November 2021, the Company entered into an
agreement with an investor whereby the investor has agreed to provide the Company with a $10,000,000 equity line of credit facility (“ELOC”),
subject to many conditions including the Company determining to proceed with the ELOC, approval and execution of definitive agreements
for the ELOC and the Company subsequently filing a registration statement covering the underlying shares to be sold under the ELOC. The
Company is not obligated to proceed with the ELOC or file a registration statement for the ELOC. In connection with the above, the investor
agreed to purchase 7,000,000 restricted common shares of the Company priced at $0.05 per share ($350,000) upon such time that the Company
initially files the registration statement for the ELOC. In connection with the above, the Company agreed to pay a commitment fee to
the investor in the amount of 3,000,000 shares of common stock of the Company fully vested (valued at $0.067 per share, the closing price
of the common stock of the Company on the date of the agreement). The Company recorded $201,000 of stock-based compensation expense based
on the grant date fair value of these shares during the three months ended January 31, 2022.
Shares Issued - Promissory Note
As described in Note 8, in connection with the issuance
of the Promissory Note on January 11, 2022, the Company issued the Purchaser’s 3,076,923 commitment shares valued at $123,000.
Management and Consultants Performance Stock Plan
On April 25, 2020, the Company approved the adoption
of the Management and Consultants Performance Stock Plan (“MCPP”) providing for the grant to current senior executive members
of management and third-party consultants shares of common stock of the Company (“Shares”) based on the achievement of certain
defined operational performance milestones (“Milestones”).
On June 29, 2020, the Board amended the MCPP, providing
for the additional grant of common stock of the Company to the current senior executive members of management and the current non-executive
members of the Board based on the Company completing any transaction occurring while employed and/or serving as a member of the Board,
respectively, that results in a change in control of the Company or any sale of substantially all the assets of the Company (“Transaction”)
which upon after giving effect to such issuance of shares below, corresponds to a minimum pre-Transaction fully diluted price per share
of the Company’s common stock in the amounts indicated below.
Schedule of minimum pre-transaction price per share |
|
|
|
|
|
|
|
Pre-Transaction
Price Per Share Valuation (a) |
|
|
Executive
Bonus Shares Issued (b) |
|
|
Non-executive
Board Bonus Shares Issued (c) |
|
$ |
0.22 |
|
|
|
40,000,000 |
|
|
|
2,000,000 |
|
$ |
0.34 |
|
|
|
60,000,000 |
|
|
|
3,000,000 |
|
$ |
0.45 |
|
|
|
80,000,000 |
|
|
|
4,000,000 |
|
$ |
0.54 |
|
|
|
100,000,000 |
|
|
|
5,000,000 |
|
(a) |
proforma
for issuance of all shares to be issued pursuant to the MCPP and other in the money contingent share issuances |
(b) |
per
each executive consisting of Albert Mitrani, Dr. Mari Mitrani, Ian Bothwell, and Dr. George Shapiro |
(c) |
per
each non-executive Board member consisting of Dr. Allen Meglin and
Michael Carbonara |
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On August 14, 2020, the Board amended the MCPP, providing
for the additional grant of common stock of the Company to each Dr. Maria I. Mitrani and Ian Bothwell based on the Company obtaining
aggregate gross fundings (grants for research and development and clinical trials, purchase contracts for Company products, debt and/or
equity financings) or other financial awards during the term of employment with the Company based on the amounts indicated below:
Schedule of debt and/or equity financings |
|
|
|
|
|
|
|
Aggregate
Funding Amount |
|
|
Shares |
|
From |
|
|
To |
|
|
|
|
$ |
2,500,000 |
|
|
$ |
5,000,000 |
|
|
|
5,000,000 |
|
$ |
5,000,001 |
|
|
$ |
10,000,000 |
|
|
|
10,000,000 |
|
$ |
10,000,001 |
|
|
$ |
30,000,000 |
|
|
|
30,000,000 |
|
On September 23, 2020, the Board amended the MCPP,
providing for the grant of common stock of the Company of 15.0 million, 7.5 million and 15.0 million shares of common stock of the Company,
respectively, to each Albert Mitrani, Dr. Maria I. Mitrani and Ian Bothwell upon such time that the Company’s common stock trades
above $0.25 per share, $0.50 per share and $0.75 per share, respectively, for 30 consecutive trading days subsequent to March 31, 2021
and provided such milestone occurs during the term of employment with the Company.
In addition, each of the current executives were
entitled to receive an additional 7 million shares, which when combined with all previous IND and/or eIND’s Milestones previously
issued under the MCPP of 43 million shares, represents the total of all incentive shares to be issued to each executive in connection
with the combined thirteen IND’s and/or eIND’s Milestones achieved through September 23, 2020. In the future, each of the
current executives shall be entitled to receive 5 million shares as a performance incentive for each IND and/or “Expanded Access”
approval (and excluding all eIND’s) received by the Company that involve more than 15 patients and provided such milestone occurs
during the term of employment with the Company.
On February 10, 2021, the Board amended the MCPP,
providing for the grant of common stock of the Company of 5 million shares for each Phase II clinical trial completed, 5 million shares
for each Phase III clinical trial approved and initiated (deemed to be upon the time the first patient is enrolled) and 10.0 million
shares for each Phase III clinical trial fully enrolled. In addition, the CMO’s portion of a designated grant for an achievement
of any applicable Milestone subsequent to September 23, 2020 was reduced to 30% until the time that the CMO becomes a full-time employee
of the Company.
Pursuant to the MCPP, a total of 342,500,000 shares
have been issued and as described above, additional shares are authorized to be issued under the MCPP subject to the achievement of the
defined contingent performance based milestones described above and provided the milestones are achieved while the individual is employed
and/or serving as a member of the Board:
Schedule of management and consultants performance stock plan | |
| | | |
| | |
Name | |
MCPP Shares
Issued | | |
MCPP Remaining
Shares
Authorized | |
Albert Mitrani | |
| 80,000,000 | | |
| 137,500,000 | |
Ian Bothwell | |
| 80,000,000 | | |
| 167,500,000 | |
Dr. Maria Mitrani | |
| 80,000,000 | | |
| 167,500,000 | |
Dr. George Shapiro | |
| 69,500,000 | | |
| 100,000,000 | |
Dr. Allen Meglin | |
| - | | |
| 5,000,000 | |
Michael Carbonara | |
| - | | |
| 5,000,000 | |
Consultants | |
| 33,000,000 | | |
| - | |
Total | |
| 342,500,000 | | |
| 582,500,000 | |
The Company will record stock-based compensation
expense in connection with any MCPP Shares that are actually awarded based on the fair value as of the initial grant date that the respective
milestone for the MCPP Shares were approved. In connection with the MCPP Shares that have been awarded to date, all such shares were
issued in connection with the MCPP Shares approved on April 25, 2020 and accordingly were valued $0.027 per share, the closing price
of the common stock of the Company on the date that those respective MCPP Shares were approved.
Upon completion of the Share Exchange on October
29, 2021, the MCPP (but not Awards of unexchanged shares of our common stock) was terminated.
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unvested Equity Instruments:
A summary of unvested equity instruments outstanding
for the three months ended January 31, 2022 and 2021 are presented below:
Schedule of Nonvested Share Activity | | |
| | | |
| | |
| | |
Number of Nonvested Shares | | |
Weighted- Average Grant Date
Fair Value | |
Outstanding
at October 31, 2021 | | |
| 83,844,445 | | |
$ | 0.062 | |
Non-Vested
Shares Granted | | |
| 1,900,000 | | |
$ | 0.343 | |
Vested | | |
| (166,667 | ) | |
$ | 0.029 | |
Expired/Forfeited | | |
| - | | |
$ | - | |
Outstanding
at January 31, 2022 | | |
| 85,577,778 | | |
$ | 0.061 | |
| | |
Number of Nonvested Shares | | |
Weighted- Average Grant Date
Fair Value | |
Outstanding
at October 31, 2020 | | |
| 1,111,111 | | |
$ | 0.029 | |
Non-Vested
Shares Granted | | |
| - | | |
$ | - | |
Vested | | |
| (166,666 | ) | |
$ | 0.029 | |
Expired/Forfeited | | |
| - | | |
$ | - | |
Outstanding
at January 31, 2021 | | |
| 944,445 | | |
$ | 0.029 | |
NOTE 11 – WARRANTS
A summary of warrant activity for the three months ended January 31, 2022
and 2021 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, 2021 | |
| 9,500,000 | | |
$ | 0.03 | | |
| 6.90 | | |
$ | 289,500 | |
Granted | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Exercised | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Expired/Forfeited | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Outstanding and exercisable at January 31,
2022 | |
| 9,500,000 | | |
$ | 0.03 | | |
| 6.65 | | |
$ | 62,250 | |
| |
Number of Shares | | |
Weighted-average
Exercise Price | | |
Remaining Contractual Term
(years) | | |
Aggregate Intrinsic Value | |
Outstanding at October 31, 2020 | |
| 9,500,000 | | |
$ | 0.03 | | |
| 7.90 | | |
$ | 1,268,000 | |
Granted | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Exercised | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Expired/Forfeited | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Outstanding and exercisable at January 31, 2021 | |
| 9,500,000 | | |
$ | 0.03 | | |
| 7.65 | | |
$ | 546,000 | |
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Preparation of IRB, Pre-IND, IND Protocols for
Clinical Applications and Clinical Trial Initiation and Monitoring:
In connection with the Company’s ongoing research
and development efforts and the Company’s efforts to meet compliance with current and anticipated United States Food and Drug Administration
(“FDA”) regulations expected to be enforced beginning in May 2021 pertaining to marketing traditional biologics and human
cells, tissues and cellular and tissue based products that fall under Section 351 of the Public Health Services Act (“HCT/Ps”),
the Company has applied for and received Investigation New Drug (“IND”) approval from the FDA to commence clinical trials
in connection with the use of the Company’s products and related treatment protocols for specific indications. The ability to successfully
complete the above efforts will be dependent on the actual outcomes in connection with the use of the Company’s products and related
treatment protocols for each clinical trial, the Company’s ability to timely enroll patients and fund the required payments and
complete the applicable clinical trials, which is subject to available working capital generated from operations, financing arrangements
with the third-party vendors involved in the studies and/or from additional debt and/or equity financings as well as the ultimate approval
from the FDA.
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 three
of the Company’s approved clinical research trials (“New CRO Agreements”). In connection with the New CRO Agreements,
the Company is obligated to make aggregate payments to the CRO of approximately $1,700,000 plus estimated aggregate pass-through costs
and other third-party direct costs of approximately $565,000 as well as site and patient related costs. The Company is obligated to make
the CRO payments in equal monthly installments 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 January 31, 2022, the Company
has been billed a total of approximately $208,000 in connection with the New CRO Agreements of which approximately $133,000 is outstanding
as of January 31, 2022.
Contingent Convertible Obligations Into Equity Securities
Obligations Due Under Executive Employment Agreements
Beginning July 1, 2020, at the sole option of the
Executive, any portion of unpaid Original Base Salary for periods after January 1, 2020, including unpaid bonus salary, may be converted
by Executive into common stock at a conversion rate equal to the average trading price during the month in which the accrued salary pertains.
For any unpaid Original Base Salary that existed prior to January 1, 2020, including unpaid bonus salary, the amounts may be converted
at a conversion price using the closing trading price of the stock on the last trading day in December 2019.
Beginning December 1, 2020, at the sole option of
the Executive, all unpaid Incremental Salary for periods after January 1, 2020 may be converted by the Executive into common stock at
a conversion rate equal to the average trading price during the month in which the accrued salary pertains. For any unpaid Incremental
Salary that existed prior to January 1, 2020, the amounts may be converted at a conversion price using the closing trading price of the
stock on the last trading day in December 2019.
None of the Executives have yet to elect to convert
any portion of their unpaid Original Base Salary.
As of January 31, 2022, there was approximately $721,000
of unpaid Original Base Salary and Incremental Salary related to the period prior to December 31, 2019 and approximately $928,000 of
unpaid Original Base Salary and Incremental Salary related to the period January 1, 2020 through January 31, 2022, that could be converted
in the future into approximately 39,836,000 shares of common stock (weighted average conversion price of $0.041 per share).
ORGANICELL REGENERATIVE MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Legal Matters
On June 17, 2021, Organicell received a subpoena
dated June 14, 2021, from the Atlanta Regional Office of the SEC requiring the production of certain documents and communications in
connection with the treatment and results of various COVID-19 patients, as discussed in the Company’s Current Reports on Form 8-K
filed with the SEC during the period from May 27, 2020 through May 11, 2021. The Company 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.
On August 17, 2021, the Company was served
with a summons and complaint by LAE International Consulting, LLC (“LAE”), in the case styled LAE International Consulting,
LLC v. Organicell Regenerative Medicine, Inc. et al., Case No. 2021-018461-CA-01 (In the Circuit Court of the 11th Judicial Circuit
in and for Miami Dade County, Florida) (the “Lawsuit”). Albert Mitrani, Mari Mitrani and Ian Bothwell (the
“Individual Defendants”) are also named as defendants in the Lawsuit. In the Lawsuit, LAE alleges breach of contract, unjust
enrichment, violation of Florida’s Unfair and Deceptive Trade Practices Act, breach of obligation of good faith and fair dealing,
negligent misrepresentation and fraudulent misrepresentation in connection with a prior consulting agreement entered into between the
Company and LAE. Prior to institution of the Lawsuit, the Company terminated the consulting agreement. In the Lawsuit, LAE
is seeking judgment for compensatory damages, interest, costs, and attorneys’ fees. The Company denies any wrongdoing
and responsibility in connection with the Lawsuit, and believes it has strong defenses to the Lawsuit. Although the Lawsuit is in its
early stages, the Company and the Individual Defendants have filed motions to dismiss due to, among other things, (a) that the consulting
agreement expressly negates LAE’s claims; (b) there was, in fact, no breach of contract by the Company; (c) LAE provides no grounds,
and cannot provide any grounds, for its barebones claims that the Company and Individual Defendants induced LAE into a contract that
they did not intend to perform; (d) many of the claims against the Individual Defendants do not exist as a matter of law; and (e) technical
deficiencies in the complaint itself. The Company is awaiting a ruling on the motion, and the hearing for the Individual Defendants’
motion to dismiss has been scheduled for March 2022.
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.
NOTE 13 - SEGMENT INFORMATION
The Company has only one operating segment.