The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the provision of other related services. 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. Our proprietary products 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 years ended October 31, 2022 and 2021, 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 OrganicellTM Flow), is an acellular, biologic therapeutic derived from perinatal sources and is manufactured to retain naturally occurring microRNAs, without the addition or combination of any other substance or diluent.
In June 2021, the Company announced that it was launching a service platform for its first autologous product called Patient Pure XTM (PPXTM). PPXTM 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 in October 2021 and to date revenues from PPXTM continue to be immaterial.
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. Due to limited activity, as of October 31, 2022, the Company has abandoned any future plans to operate these services.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 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.
Reclassifications
Certain comparative figures have been reclassified
to conform to the current year financial statement presentation. These reclassifications had no
effect on the reported results of operations. An adjustment has been made to the Consolidated Statements of Cash Flows for the year ended
October 31, 2021 to reclassify certain payments for the purchase of fixed assets.
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 $250,000 per institution. At October 31, 2022, the Company held $3,731,290 of cash balances in one financial institution in excess of FDIC insurance coverage limits.
Major Customer
During the fiscal year ended October 31, 2022, the Company sold a total of approximately $2,124,000 (32.7%) to a large distributor and the distributors customers, approximately $1,413,700 (21.8%) to customers of another distributor and $702,100 (10.8%) of product to a management services organization (MSO) that provides administrative services and contracts for medical supplies for several medical practices.
During the fiscal year ended October 31, 2021, the Company sold a total of approximately $2,140,000 (37.6%) to a large distributor and the distributors customers, approximately $709,000 (12.5%) to customers of another distributor and $881,600 (15.7%) of product to a management services organization (MSO) that provides administrative services and contracts for medical supplies for several medical practices.
The Company’s sales agreements are non-exclusive and the Company does not believe it has any exposure based on the customers of its products.
Major Supplier
During the fiscal year ended October 31, 2022, the Company purchased the tissue raw material used in manufacturing of its products from two suppliers, of which each accounted for approximately $145,000 and $130,000 or 53.0% and 47.0%, respectively, of the total amount of tissue raw material purchased during that period.
During the fiscal year ended October 31, 2021, the Company purchased the tissue raw material used in manufacturing of its products from two suppliers, of which each accounted for approximately $148,600 and $131,600 or 53.0% and 47.0%, respectively, of the total amount of tissue raw material purchased during that period.
The Company’s supply agreements are non-exclusive and the Company does not believe it has any exposure based on the availability of raw materials and/or products from other suppliers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
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 year ended October 31, 2022 and 2021, the Company recorded bad debt expense of $27,500 and $0, respectively.
Inventory
Inventory
is stated at the lower of cost or net realizable value using the average cost method. The Company provides a reserve 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 October 31, 2022, the Company wrote off $37,455 in connection with inventory that the
Company determined was no longer saleable due to its expired shelf life.
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.
Leasehold Improvements
Leasehold improvements in excess of $1,000 that are made in connection with leases having a term of more than 12 months are capitalized by the Company and amortized over the shorter of the useful life of the asset or the remaining lease periods and renewals that are deemed to be reasonably certain at the date the leasehold improvements are purchased. Costs associated with leasehold improvements that do not exceed $1,000 are expensed as incurred.
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.
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 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 October 31, 2022, the Company had 388,048,326 common shares issuable 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 year ended October 31, 2022. At October 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 35,684,900 common shares that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the year ended October 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 $791,326 and $1,120,067 for the years ended October 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 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 years ended October 31, 2022 and 2021 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 years ended October 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 1,463,957,717 shares are issued and outstanding as of February 3, 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 October 31, 2022 and October 31, 2021 that contain 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 October 31, 2022 through the financial statement issuance date for subsequent event disclosure or recording.
NOTE 3 – GOING CONCERN
The 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 $8,896,557 for the year ended October 31, 2022. In addition, the Company had an accumulated deficit of $50,521,306 at October 31, 2022. The Company had a working capital position of $303,085 at October 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 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; (b) the United States economy returns 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 (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 United States economy returns to pre-COVID-19 market conditions; (c) 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; (d) obligations to the Company’s creditors are not accelerated; (e) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations; (f) 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 (g) 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. As of October 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 – RESTRUCTURING
Effective July 13, 2022, the Company entered into (a) a binding letter of intent with Skycrest Holdings, LLC (“Skycrest”) and Greyt Ventures LLC (“Greyt,” and together with Skycrest, the “Skycrest/Greyt Group”) to invest $2,000,000 in the Company through the purchase of 100,000,000 shares of the Company’s common stock (“Shares”) at a price of $0.02 per Share; and (b) effective July 16, 2022, a second binding letter of intent with Beyond 100 FZE, a Dubai company (“Beyond 100,” and together with the Skycrest/Greyt Group, the “Investors”) to invest $2,000,000 in the Company through the purchase of 100,000,000 Shares at a price of $0.02 per Share.
Pursuant to the binding letters of intent (the “LOIs”), the Company agreed to (a) make certain corporate governance changes as more fully described therein, including allowing the Investors to appoint new independent directors who will comprise a majority of the members of the Board; (b) enter into 36-month consulting agreements with each of Skycrest and Greyt (each, a “Consulting Agreement,” and collectively, the “Consulting Agreements”), pursuant to which (i) Skycrest and Greyt will provide certain advisory services to the Company as more fully set forth in the LOIs; and (ii) Skycrest and Greyt shall each be compensated for their services by the Company issuing to each of them ten year-warrants to purchase 150,000,000 Shares at an exercise price of $0.02 per Share (the “Warrants”), which Warrants will be exercisable on a “cashless” basis; (c) implement certain changes in management, including Albert Mitrani stepping down as Chief Executive Officer; and (d) make modifications to management compensation, all as more fully set forth in the LOIs.
Contemporaneously with entering into the respective LOIs, the Skycrest/Greyt Group and Beyond 100 each advanced Organicell $400,000 and $300,000, respectively (a total of $700,000) as good faith deposits against the $2,000,000 (a total of $4,000,000) purchase price for the Shares.
On August 19, 2022 (“Closing”), the Company entered into stock purchase agreements (each, an “SPA” and collectively, the “SPAs”) with Skycrest Holdings, LLC (“Skycrest”), Greyt Ventures LLC (“Greyt”), Beyond 100 FZE (“Beyond 100”) and Smart Co. Holding Pte. Ltd. (“Smart Co,” and together with Skycrest, Greyt and Beyond 100, individually, an “Investor” and collectively, the “Investors”).
Pursuant to the SPAs, the Company issued each Investor 50,000,000 shares of the Company’s common stock (“Shares”) at a price of $0.02 per Share ($1,000,000). In addition, under the SPAs with Skycrest and Greyt, the Company issued each of them 50 shares of newly designated Series C Non-Convertible Preferred Stock (the “Series C Preferred Shares”). The Series C Preferred Shares vote together with Shares of our common stock as a single class on all matters presented to a vote of stockholders, except as required by law and entitle Skycrest and Greyt to each exercise 25.5% of the total voting power of the Company.
The SPAs with Skycrest and Greyt, also grant them the right, acting jointly, to designate a majority of the nominees to be elected to the Company’s board of directors at each annual meeting of the Company’s stockholders (the “Designation Right”). The Designation Right expires at such time as the Series C Preferred Shares are no longer outstanding.
As a result of the issuance to Skycrest and Grey of the Series C Preferred Stock and the granting to them of the Designation Right, a “Change in Control” of the Company is deemed to have occurred.
The SPA with Beyond 100 grants that Investor a right of first refusal for a period of 18 months from Closing with respect to any bona fide offer, or proposal received by the Company from or agreement in principal reached by the Company with a third party to enter into an exclusive arrangement providing for manufacturing, distributing, licensing, and commercializing any of its existing and/or future products and services to be manufactured, licensed and/or distributed by the Company or any of its subsidiaries in India.
The SPAs also accord the Investors registration rights under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company has agreed to file a registration statement under the Securities Act with the Securities and Exchange Commission (the “SEC”) within 180 days of Closing and use its commercially reasonable efforts to cause such registration statement to be declared effective by the SEC within 60 days thereafter. The registration statement will cover the resale of the Shares pursuant to the SPAs, and in the case of Skycrest and Greyt, the Shares issued or issuable upon exercise of the Consulting Warrants. The SPAs also provide the Investors “piggy-back” registration rights with respect to their respective Shares.
Consulting Agreements
At Closing, the Company also entered into 36-month consulting agreements with each of Skycrest and Greyt (each, a “Consulting Agreement,” and collectively, the “Consulting Agreements”), pursuant to which (a) Skycrest and Greyt will provide certain advisory services to the Company as more fully set forth therein; and (b) Skycrest and Greyt are being compensated for their services by the Company issuing to each of them at closing ten (10) year-warrants to purchase 150,000,000 Shares at an exercise price of $0.02 per Share (the “Consulting Agreement Warrants”), which Warrants are exercisable on a “cashless” basis (see Note 13).
NOTE 5 – INVENTORIES
Schedule of inventories |
|
|
|
|
|
|
|
|
|
|
October 31, 2022 |
|
|
October 31, 2021 |
|
Raw materials and supplies |
|
$ |
85,096 |
|
|
$ |
92,601 |
|
Finished goods |
|
|
163,414 |
|
|
|
142,226 |
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
248,510 |
|
|
$ |
234,827 |
|
NOTE 6 – PROPERTY AND EQUIPMENT
Schedule of property and equipment |
|
|
|
|
|
|
|
|
|
|
October 31, 2022 |
|
|
October 31, 2021 |
|
Computer equipment |
|
$ |
26,881 |
|
|
$ |
10,684 |
|
Finance lease equipment |
|
|
544,378 |
|
|
|
544,378 |
|
Manufacturing equipment |
|
|
625,979 |
|
|
|
258,791 |
|
Leasehold improvements |
|
|
925,932 |
|
|
|
- |
|
|
|
|
2,123,170 |
|
|
|
813,853 |
|
Less: accumulated depreciation and amortization |
|
|
(439,654 |
) |
|
|
(107,146 |
) |
|
|
|
1,683,516 |
|
|
|
706,707 |
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
- |
|
|
|
406,709 |
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
1,683,516 |
|
|
$ |
1,113,416 |
|
Depreciation expense totaled $82,036 and $52,702 for the years ended October 31, 2022 and 2021, respectively.
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 Lease location. The Basalt Lab Lease location became operational during May 2022 and amortization of these costs began during May 2022. Amortization expense totaled $250,472 for the year ended October 31, 2022.
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 $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 began during May 2022, the date that the Basalt lab buildout was completed (see below) and the facility became operational. The leased equipment are being depreciated over their estimated useful lives of 15 years.
The weighted average remaining term of the Company’s Finance Leases as of October 31, 2022 was 35.8 months. The minimum lease payments pursuant to the Finance Leases are as follows:
Schedule
of minimum lease payment to finance lease |
|
|
|
|
|
|
Minimum |
|
Year Ended October 31, |
|
Rent |
|
2023 |
|
$ |
139,868 |
|
2024 |
|
|
83,783 |
|
2025 |
|
|
65,731 |
|
2026 |
|
|
65,731 |
|
2027 |
|
|
32,864 |
|
Thereafter |
|
|
- |
|
Total undiscounted finance lease payments |
|
|
387,977 |
|
Less: imputed interest |
|
|
(23,889 |
) |
Present value of finance lease liabilities |
|
$ |
364,088 |
|
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%).
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.
In connection with the Closing, both of the lease agreements with Mariluna LLC were terminated as of July 31, 2022 and the remaining ROU asset was written off and the security deposit was forfeited (see Note 13).
Lease amortization expense for the year ended October 31, 2022 and 2021 was $29,670 and $38,037, respectively.
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 $160,000 and provide a security deposit of $10,000 upon execution of the lease agreement. The lease is non-renewable.
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 space. 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. The Company also has entered into additional month to month lease agreements in the same facility as the Miami Lab Lease for additional administrative office space. Monthly lease payments are approximately $8,000 plus administrative fees and taxes. During June 2022, the Company entered into a six-month lease agreement with the new owners of the Miami Lab Lease facilities effective July 1, 2022 (“New Miami Lab Lease”). Monthly lease payments are approximately $9,500 per month plus administrative fees and taxes. The New Miami Lab Lease was not renewed and expired on December 31, 2022.
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 $20,230.
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 (“First Renewal Option”). 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 completed the construction of the initial laboratory and office build-out at a cost of $925,932. The Basalt Lab Lease location became operational during May 2022.
In connection with the execution of the Basalt Lab Lease, the Company 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 years ended October 31, 2022 and 2021 was $76,351
and $47,967,
respectively.
The weighted average remaining term of the Company’s operating leases as of October 31, 2022 was 11.9 months. The minimum lease payments pursuant to the Basalt Lab Lease, the University Lease, and the LA Office Lease are as follows:
Schedule
of minimum lease payment to finance lease |
|
|
|
|
|
|
|
|
|
|
Minimum |
|
Year Ended October 31, |
|
Rent |
|
2023 |
|
$ |
237,606 |
|
2024 |
|
|
28,857 |
|
Thereafter |
|
|
- |
|
Total undiscounted operating lease payments |
|
|
266,463 |
|
Less: imputed interest |
|
|
(3,590 |
) |
Present value of operating lease liabilities |
|
$ |
262,873 |
|
NOTE 8 – RELATED PARTY TRANSACTIONS
On October 29, 2021, the Company entered into an Exchange Agreement (see Note 12) with the current executive officers of the Company (as well as other non-related party shareholders) whereby the executive officers of the Company exchanged an aggregate of 50,000,000 shares previously issued to them under consulting and employment agreements and/or pursuant to the MCPP for newly issued shares pursuant to the 2021 Plan (on a 1:1 basis).
The Company’s corporate administrative offices were previously leased from MariLuna, LLC, a Florida limited liability company which is owned by Dr. Mitrani under a lease agreement that expires June 30, 2023. The Company paid a security deposit of $5,000. Monthly rent was $3,500. In connection with the Closing, the lease agreement was terminated effective July 31, 2022 and the deposit was forfeited by the Company (see Note 14). Total rent expense for the year ended October 31, 2022 and 2021 was $31,500 and $42,000, 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 was subsequently extended on a month to month basis. Under the terms of the lease, the Company was 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 years ended October 31, 2022 and 2021 was $58,500 and $78,000, respectively. In connection with the Closing, the lease agreements was terminated effective July 31, 2012 and the deposit was forfeited by the Company (see Note 14).
In connection with Mr. Bothwell’s executive employment agreements, the Company agreed to reimburse Rover Advanced Technologies, LLC (“Rover”), a company owned and controlled by Mr. Bothwell for office rent and other direct expenses (phone, internet, copier and direct administrative fees, etc.) totaling $36,352 and $31,192 for the years ended October 31, 2022 and 2021, respectively. In connection with the Closing, beginning November 2022, the Company will no longer reimburse for office expenses and other direct expenses of Rover (see Note 14).
For the year ended October 31, 2022, the Company sold a total of approximately $702,100 of product to a management services organization (“MSO”) that provides administrative services and contracts for medical supplies for several medical practices, including $207,072 of products purchased from the Company that were attributable to the medical practice owned by Dr. George Shapiro the Company’s Chief Medical Officer and a member of the board of directors. Dr. Shapiro also has an indirect economic interest in the parent company that owns the MSO. For the year ended October 31, 2021, the total amount of sales of products to the medical practice owned by Dr. Allen Meglin, a member of the board of directors until August 2022 and to customers related to Mr. Michael Carbonara, a member of the board of directors until August 2022 totaled $20,820 and $101,715, respectively.
For the year ended October 31, 2021, the Company sold a total of approximately $881,600 of product to a management services organization (“MSO”) that provides administrative services and contracts for medical supplies for several medical practices, including $211,505 of products purchased from the Company that were attributable to the medical practice owned by Dr. George Shapiro the Company’s Chief Medical Officer and a member of the board of directors. Dr. Shapiro also has an indirect economic interest in the parent company that owns the MSO. For the year ended October 31, 2021, the total amount of sales of products to the medical practice owned by Dr. Allen Meglin, a member of the board of directors until August 2022 and to customers related to Mr. Michael Carbonara, a member of the board of directors until August 2022 totaled $13,820 and $32,655, respectively.
On February 26, 2020, the Company agreed to enter into a consulting agreement with the CMO to provide ongoing services to the Company. The CMO was entitled to receive compensation of $82,250 annually, commencing March 1, 2020. The term of the consulting agreement is one year, with automatic renewals for annual periods thereafter unless prior written notice is provided by either party of the desire to terminate. During February 2021, the consulting arrangement was amended whereby the CMO’s accrued and unpaid consulting fees of $82,250 through February 2021 were fully satisfied through the issuance of 500,000 shares of newly issued common stock of the Company. Furthermore, until the CMO becomes a full-time employee of the Company and provided the CMO continues to serve in his current position, the CMO shall receive compensation equal to $27,000 per quarter beginning May 1, 2021, payable in cash or in stock (based on the average monthly trading price of the common stock during the applicable quarter) at the option of the Company.
Effective December 21, 2020, the Company granted a bonus of $50,000 and 15,000,000 shares of common stock of the Company each to Mr. Mitrani, Dr. Mitrani and Mr. Bothwell and 1,000,000 shares of common stock of the Company each to Mr. Carbonara and Dr. Allen Meglin (see Note 12).
From time to time, Mr. Bothwell and/or his respective affiliates have advanced funds to the Company to pay for certain expenses of the Company. As of October 31, 2022 and 2021, $0 and $6,253, respectively, is owed to Mr. Bothwell and/or his respective affiliates.
At October 31, 2021, salary amounts owed to Albert Mitrani, Dr. Mari Mitrani and Ian Bothwell were $275,924, $362,455 and $843,478, respectively and consulting fees owed to Dr. George Shapiro were $54,000. At Closing, the Company and each of Albert Mitrani and Dr. Mari Mitrani agreed to forego unpaid salary amounts as of the date of the Closing in the amount of $430,200 and $563,455 (reduced for $22,500 of security deposits that were retained by Mariluna LLC upon termination of leases), respectively. At Closing, Ian Bothwell waived all unpaid and accrued compensation in the amount of $1,043,478, in exchange for ten-year warrants to purchase 30,000,000 Shares at an exercise price of $0.02 per share, exercisable on a “cashless basis” and a cash payment of $50,000 at Closing. At Closing, Dr. George Shapiro terminated his consulting arrangement with the Company and waived all unpaid consulting fee obligations in the amount of $139,500 in exchange for ten-year warrants to purchase 3,150,000 Shares at an exercise price of $0.02 per share, exercisable on a “cashless basis.”
During June 2022, Albert Mitrani made a capital contribution of $250,000 to the Company. The proceeds were used for working capital.
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Schedule of account payable and accrued expenses |
|
|
|
|
|
|
|
|
|
|
October 31, 2022 |
|
|
October 31, 2021 |
|
Accrued payroll related liabilities |
|
$ |
666,780 |
|
|
$ |
504,979 |
|
Lab equipment and supplies payables |
|
|
477,255 |
|
|
|
117,606 |
|
Clinical trial payables |
|
|
312,711 |
|
|
|
26,325 |
|
Legal fees payables |
|
|
328,121 |
|
|
|
214,725 |
|
Other professional fees payables |
|
|
90,993 |
|
|
|
259,442 |
|
Accrued IRS penalty |
|
|
83,684 |
|
|
|
83,684 |
|
Accrued commissions payable |
|
|
39,675 |
|
|
|
119,439 |
|
Construction payables |
|
|
5,474 |
|
|
|
238,347 |
|
Other payables and accrued expenses |
|
|
373,838 |
|
|
|
308,475 |
|
Accounts Payable and Accrued Expenses |
|
$ |
2,378,531 |
|
|
$ |
1,873,022 |
|
NOTE 10 – 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 (“Lender”). 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.
On August 20, 2022, the Lender and the Company entered into a settlement and general release agreement whereby the Company agreed to make a lump sum payment of $87,500 in full satisfaction of all obligations of Company to Lender pursuant to the terms of the $150,000 Debentures and Lender’s release of any claims existing under the $150,000 Debentures or any other agreement, understanding, or otherwise related to the Lender’s involvement with the Company and their affiliates and representatives. The Company recorded a gain on settlement of $35,041 during the year ended October 31, 2022 and is included in other income(expense) on the accompanying statements of operations.
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. On August 25, 2022, the Company had paid off the entire remaining amount due under the promissory note. In accordance with the terms of the promissory note, the Company received a discount of $22,340 from the original balance of the Unpaid Professional Fees.
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 October 31, 2022 and October 31, 2021, the remaining amount due under this arrangement was $0 and $4,392, respectively.
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 year ended October 31, 2022. After payment of the legal fees and brokerage fees, the net proceeds to the Company were $518,500, which were used for working capital and other general corporate purposes.
The Promissory Note matured on July 11, 2022, subject to extension at the option of the Company for up to an additional six month period (“Extension”), bears interest at a rate of 10% per annum for the first six months, payable monthly, and 12% per annum thereafter, payable monthly, if extended. On July 11, 2022, the Company exercised its option to extend the Promissory Note an additional six months until January 11, 2023.
Under the terms of the Promissory Note, only following an event of default (as defined in the Promissory 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 October 31, 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.
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 3,076,923 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, in connection with the Extension, the Company paid an additional commitment fee to the Purchaser in the amount of $33,231 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 $0.0216, the closing price of the common stock of the Company on the Extension 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 $300,000 from public sales of the Commitment Fee Shares, 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 were fully amortized over the initial term of the Promissory Note. In connection with the Extension, the Company recorded a discount of the Promissory Note in the amount of $100,000, consisting of the fair value of the Additional Commitment Fee Shares of $33,231 and the Additional Commitment Fee Shortfall Obligation of $66,769. These costs are being amortized over the term of the Extension.
For the year ended October 31, 2022, $323,111 of the total discounts recorded in connection with the issuance of the Promissory Note have been amortized.
At October 31, 2022, the fair value of the Commitment Fee Shares was approximately $125,538 (valued at $0.0272 the closing price of the common stock of the Company on October 31, 2022). As a result, the Company has recorded an increase in the Commitment Fee Shortfall Obligation in the amount of $30,692 for the year ended October 31, 2022. The total Commitment Fee Shortfall Obligation at October 31, 2022 was $174,462.
On January 12, 2023, the Promissory Note was paid in full.
Credit Facility
On September 19, 2019, the Company’s wholly owned subsidiary, General Surgical Florida, received $100,000 in connection with an unsecured line of credit (“Credit Facility”). The Credit Facility was fully repaid on November 2, 2020. Under the terms of the Credit Facility, the Company was required to make weekly payments averaging approximately $2,541 (payments totaling $132,160). The effective annual interest rate was approximately 45.67%. Proceeds received from the Credit Facility were used for working capital purposes. Mr. Iglesias, who at the time was the Company’s Chief Executive Officer, provided a personal guaranty in connection with amounts required to paid under the Credit Facility.
NOTE 11 – INCOME TAXES
The Company files a consolidated federal income tax return that includes all of its subsidiaries. For the years ended October 31, 2022 and 2021, the Company incurred operating losses, and therefore, there was not any current income tax expense amount recorded during those periods.
The consolidated provision for income taxes for October 31, 2022 and 2021 consists of the following:
Schedule of provision for income tax |
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, |
|
|
Year Ended October 31, |
|
|
|
2022 |
|
|
2021 |
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
- |
|
|
$ |
- |
|
State |
|
|
- |
|
|
|
- |
|
Current Income Tax Expense (Benefit) |
|
$ |
- |
|
|
$ |
- |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
4,405,121 |
|
|
$ |
(2,651,809 |
) |
State |
|
|
1,079,723 |
|
|
|
(563,409 |
) |
Deferred Income Tax Expense (Benefit) |
|
|
5,484,844 |
|
|
|
(3,215,218 |
) |
Change in Valuation Allowance |
|
|
(5,484,844 |
) |
|
|
3,215,218 |
|
Income tax provision |
|
$ |
- |
|
|
$ |
- |
|
Effective tax rates differ from the federal statutory rate of 21% for 2022 and 2021 applied to income before income taxes. A reconciliation of the U.S. federal statutory tax amount to the Company’s effective tax amount is as follows:
Schedule of effective income tax rate |
|
|
|
|
|
|
|
|
|
|
October 31, 2022 |
|
|
October 31, 2021 |
|
Tax at federal statutory rate |
|
$ |
(1,868,277 |
) |
|
$ |
(2,678,878 |
) |
State taxes, net of federal benefit |
|
|
(386,555 |
) |
|
|
(554,273 |
) |
Permanent differences |
|
|
400,100 |
|
|
|
27,070 |
|
Stock-based compensation |
|
|
6,609,802 |
|
|
|
- |
|
Executive Forgiveness of employment obligations In connection with Restructuring |
|
|
480,109 |
|
|
|
- |
|
Other |
|
|
249,665 |
|
|
|
(9,137 |
) |
Total income tax expense (benefit) |
|
|
5,484,844 |
|
|
|
(3,215,218 |
) |
Change in valuation allowance |
|
|
(5,484,844 |
) |
|
|
3,215,218 |
|
Income tax provision |
|
$ |
- |
|
|
$ |
- |
|
The
Company had a federal net operating loss carryover of $14,297,151
as of October 31, 2022, of which 80% is available to offset future taxable income indefinitely. The Company had state net
operating loss carryovers of $9,126,151
of which $6,554,845, carryover indefinitely and the balance expires in varying amounts through 2041.
The tax effects of temporary differences and carry-forwards that give rise to deferred tax assets and liabilities for the Company were as follows:
Schedule of deferred tax assets and liabilities |
|
|
|
|
|
|
|
|
|
|
October 31, 2022 |
|
|
October 31, 2021 |
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Stock based compensation |
|
$ |
798,239 |
|
|
$ |
7,281,332 |
|
Accrued compensation |
|
|
- |
|
|
|
480,109 |
|
Net operating loss carryforward-Federal |
|
|
3,002,402 |
|
|
|
1,512,039 |
|
Net operating loss carryforward-State |
|
|
396,530 |
|
|
|
282,780 |
|
Other |
|
|
1,477 |
|
|
|
177 |
|
Total deferred tax assets: |
|
|
4,198,648 |
|
|
|
9,556,437 |
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
302,447 |
|
|
|
175,392 |
|
Total deferred tax liabilities: |
|
|
302,447 |
|
|
|
175,392 |
|
|
|
|
|
|
|
|
|
|
Valuation Allowance |
|
|
(3,896,201 |
) |
|
|
(9,381,045 |
) |
Net deferred tax assets |
|
$ |
- |
|
|
$ |
- |
|
FASB ASC 740 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. At October 31, 2022 and October 31, 2021, the net deferred tax asset was offset by a full valuation allowance.
Pursuant to Code Sec. 382 of the Internal Revenue Code (“the Code”), the utilization of net operating loss carryforwards may be limited as a result of a cumulative change in stock ownership of more than 50% over a three-year period. The Company may be subject to such limitation.
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. A hearing was held on June 28, 2022 and the Company is awaiting the IRS’ determination. 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 October 31, 2022 and October 31, 2021, respectively.
NOTE 12 – 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.
On August 17, 2022, the Company filed a Certificate of Designation for a newly created Series C Non-Convertible Preferred Stock consisting of 100 shares, $0.001 par value, of authorized but unissued preferred stock of the Company (“Series C Preferred Shares”).
The Series C Preferred Shares vote together with shares of our common stock as a single class on all matters presented to a vote of stockholders, except as required by law. The Series C Preferred Shares are not convertible into common stock, do not have any dividend rights and do have a nominal liquidation preference. The Series C Preferred Shares also have certain protective provisions, such as requiring the vote of a majority of Series C Preferred Shares to change or amend their rights, powers, privileges, limitations and restrictions.
Issued Shares
In connection with the Closing (see Note 4), on August 19, 2022, the Company issued each of Skycrest and Greyt, 50 shares of the Series C Preferred Shares. The Series C Preferred Shares are automatically redeemed by the Company for nominal consideration at such time as the holder owns less than 50% of the Shares purchased pursuant to its SPA and Shares issued or issuable upon exercise of the Consulting Warrants or in the event the holder transfers or seeks to transfer the Series C Preferred Shares, other than by the laws of descent and distribution.
Common Stock
On December 21, 2020 and January 4, 2021, pursuant to the Nevada Revised Statutes and the Bylaws of the Company, the Board of Directors of the Company and the stockholders having the voting equivalency of 53.55% of the outstanding capital stock, respectively, approved the filing of an amendment to the Articles of Incorporation of the Company to increase the authorized amount of common stock from 1,500,000,000 to 2,500,000,000, without changing the par value of the common stock or authorized number and par value of “blank check” Preferred Stock. On January 19, 2021, the Company filed a Definitive 14C with the SEC regarding the corporate action. On February 9, 2021, the Company filed the Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effectuate the corporate action on February 9, 2021.
Issuances of Common Stock - Sales:
During November 2020, the Company sold 800,000 shares of common stock to an “accredited investor”, at $0.05 per share, for an aggregate purchase price of $40,000. The proceeds were used for working capital.
During February 2021, the Company sold an aggregate of 12,340,910 shares of common stock to five “accredited investors”, at prices ranging from $0.05 per share to $0.06 per share for an aggregate purchase price of $665,000. The proceeds were used for working capital.
On February 22, 2021, the Company sold 1,818,181 shares of common stock to Republic Asset Holdings LLC., a Company controlled by Michael Carbonara, a director of the Company, at $0.055 per share for an aggregate purchase price of $100,000. The proceeds were used for working capital. The sales price was at a discount to the trading price of $0.086 as of the effective date of the transaction, resulting in additional stock-based compensation expense of $56,364, which has been recorded during the year ended October 31, 2021.
During April 2021, the Company sold an aggregate of 13,677,821 shares of common stock to seven “accredited investors” at prices ranging from $0.03 per share to $0.25 per share for an aggregate purchase price of $535,000. The proceeds were used for working capital.
During May 2021, the Company sold an aggregate of 2,087,822 shares of common stock to eight “accredited investors” at prices ranging from $0.13 per share to $0.15 per share for an aggregate purchase price of $286,250. The proceeds were used for working capital.
During the period June 2021 through July 2021, the Company sold an aggregate of 11,541,500 shares of common stock to four “accredited investors” at prices ranging from $0.05 per share to $0.13 per share for an aggregate purchase price of $631,020. The proceeds were used for working capital.
During August 2021, the Company sold an aggregate of 3,000,000 shares of common stock to one “accredited investor” at $0.05 per share for an aggregate purchase price of $150,000. The proceeds were used for working capital.
During October 2021, the Company sold an aggregate of 7,500,000 shares of common stock to four “accredited investors” at $0.04 per share for an aggregate purchase price of $300,000. The proceeds were used for working capital.
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.
During August 2022, in connection with the Closing, the Company sold an aggregate of 200,000,000 shares of common stock to several “accredited investors” at $0.02 per share for an aggregate purchase price of $4,000,000. The proceeds are being used for working capital.
During August 2022 and September 2022, the Company sold an aggregate of 65,500,000 shares of common stock to four “accredited investors” at $0.04 per share for an aggregate purchase price of $2,620,000. The proceeds are being used for working capital.
Issuances of Common Stock – Stock Based Compensation:
In connection with the VP Agreements, each of the Sales Executives were granted 1,000,000 shares of unregistered common stock of the Company (“Execution Shares”) valued at $0.035 per share, the closing price of the common stock of the Company on the grant date. The Company recorded $35,000 of stock-based compensation expense on the grant date for each issuance. In addition, the VP Agreements provided each Sales Executives the right to receive a minimum of 750,000 shares of common stock at the end of each quarterly anniversary of the VP Agreements throughout the Initial Term (maximum 9,000,000 shares) (“Performance Shares”). For the year ended October 31, 2022 and 2021, each Sales Executive had been issued an additional 450,000 and 6,300,000 Performance Shares (cumulative aggregate total 18,000,000 Performance Shares issued). On June 30, 2022, the VP Agreements were terminated (see Note 14). The Company recorded stock-based compensation expense for the years ended October 31, 2022 and 2021 of $149,100 and $323,400, respectively.
Effective March 29, 2021, the Company and Assure Immune L.L.C (“Consultant”) executed an amendment of the Consultant’s Agreement, whereby the Company issued to the Consultants 20,000,000 shares of unregistered common stock (“Shares”) valued at $0.0614 per share, the closing price of the common stock of the Company on the grant date. The Company will amortize the costs associated with this issuance of $1,228,000 over the remaining term of the Consultant’s Agreement expiring March 30, 2023. The shares issued vest 50% as of the date of the Amendment and the remaining 50% will vest on December 31, 2021 or upon the date that the Company obtains approval for certain IND’s submitted, whichever is sooner. The Company recorded a total of $614,000 and $358,167 of stock-based compensation expense during the years ended October 31, 2022 and 2021, respectively (see note 12).
During November 2020, the Company entered into an additional consulting agreement with a third party to provide consulting services in connection with the development of international research and development, sales and distribution and financing opportunities for a period of six months. As consideration for agreeing to provide the consulting services to the Company, the Company issued the consultant 2,000,000 shares of fully vested unregistered common stock valued at $0.151 per share, the closing price of the common stock of the Company on the effective date of the agreement. The Company recorded $302,000 of stock-based compensation expense during the year ended October 31, 2021. On August 9, 2021, the Company and the third party entered into another consulting agreement with substantially the same terms and condition as provided for in the original agreement. The 2,000,000 shares of fully vested unregistered common stock issued to the consultant under the new agreement were valued at $185,400 (valued at $0.093 per share, the closing price of the common stock of the Company on the effective date of the agreement). The Company recorded $92,700 and $92,700 of stock-based compensation expense during the years ended October 31, 2022 and 2021, respectively, based on the grant date fair value of these shares amortized over the term of the agreement.
During November 2020, in consideration for agreeing to provide medical consulting and advisory services to the Company, the Board approved the issuance to one individual an aggregate of 250,000 shares of unregistered common stock valued at $0.145 per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded $36,225 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2021.
During December 2020, the Board approved the bonus of 47,675,000 shares of newly issued common stock to executive management (consisting of Mr. Mitrani, Dr. Mitrani and Mr. Bothwell) totaling 45,000,000 shares; non-executive Board members (consisting of Mr. Carbonara and Dr. Meglin) totaling 2,000,000 shares; administrative staff totaling 550,000; and to several medical advisors totaling 125,000 shares valued at $0.12 per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded a total of $5,721,000 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2021.
During April 2021, the Board approved the bonus of 500,000 shares of newly issued common stock to an employee valued at $0.055 per share, the closing price of the common stock of the Company on the grant date. The Company recorded a total of $27,450 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2021.
During December 2020, January 2021 and February 2021, the Company issued to various employees and consultants 25,000, 240,000 and 50,000 shares of unregistered common stock, respectively, valued at prices ranging from $0.035 to $0.17 per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded a total of $19,855 of stock-based compensation expense during the year ended October 31, 2021 based on the grant date fair value of these shares.
During February 2021, the Company entered into a consulting agreement with a third party to provide consulting services for a one-year period. As consideration for agreeing to provide consulting services to the Company, the Company agreed to issue the consultant 500,000 shares of unregistered common stock upon completion of the three-month anniversary of the agreement. In addition, the Company has agreed to provide an additional 250,000 shares of newly issued common stock for each celebrity and/or athlete which the consultant arranges to provide marketing services to the Company and that is responsible for bringing a minimum of $75,000 of monthly revenues in connection with sales of the Company’s products, up to a maximum of 1,500,000 shares. The shares issued were valued at $0.095 per share, the closing price of the common stock of the Company on the effective date of the agreement, totaling $47,500. The Company will amortize the costs associated with the issuance over the term of the agreement. The Company amortized $11,875 and $35,625 of stock-based compensation expense during the years ended October 31, 2022 and 2021, respectively.
During April 2021, the Company entered into a consulting agreement with a third party to provide investor relation services. The term of the agreement is month to month and may be terminated with or without cause. As consideration for agreeing to provide the consulting services to the Company, the Company has agreed to pay the consultants a minimum of $15,000 per month and to issue 500,000 shares of restricted common stock which vested fully on May 21, 2021 (valued at $0.057 per share, the closing price of the common stock of the Company on the grant date). The Company recorded a total of $28,500 of stock-based compensation expense during the year ended October 31, 2021.
During March 2021, April 2021 and May 2021, the Company granted a total of 750,000 shares of common stock to various consultants valued at prices ranging from $0.049 per share to $0.40 per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded $85,075 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2021.
On June 4, 2021, the Company and an employee agreed to amendment of the employee’s employment agreement. Under the terms of the amendment, the employee agreed to extend the term of the agreement through December 31, 2022 and the Company agreed to grant the employee 1,000,000 shares of common stock of the Company to vest upon execution of the amendment (valued at $0.136 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 of $136,000 will be amortized beginning June 4, 2021 over the remaining term of the agreement. On October 31, 2022, the parties mutually agreed to terminate the employee’s employment agreement. The Company recorded $100,211 and $35,789 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2022 and 2021, respectively.
During June 2021, the Company granted a total of 1,100,000 shares of common stock to various consultants and service providers valued at prices ranging from $0.14 per share to $0.148 per share, the closing price of the common stock of the Company on the respective grant dates. The Company recorded $154,740 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2021.
On June 10, 2021, the Company agreed to issue 60,000 shares of common stock to a service provider as a prepayment for future services to be provided to the Company valued at $10,000 (valued at $0.167 per share, the closing price of the common stock of the Company on the date of the agreement).
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 $22,958 of stock-based compensation during the year ended October 31, 2022 in connection with these shares.
On March 17, 2022, the Company entered into a consulting agreement with a third party to assist the Company with certain services associated with the implementation of the PPXTM service platform as well as other customary day to day activities as reasonably requested. The term of the agreement expired on September 30, 2022 (“Initial Term”). As consideration for agreeing to provide consulting services to the Company during the Initial Term, the Company agreed to issue the consultant 7,000,000 shares of unregistered common stock. The shares issued were valued at $0.018 per share, the closing price of the common stock of the Company on the effective date of the agreement, totaling $126,000. The Company will amortize the costs associated with the issuance over the Initial Term of the agreement. The Company amortized $126,000 of stock-based compensation expense during the year ended October 31, 2022.
On June 9, 2022, the Company entered into a consulting agreement with a company affiliated with Mr. Sinnreich in connection with past and future consulting and advisory services to be provided to the Company. In connection with the consulting agreement, for the months of June 2022 and July 2022, the Company issued the consultant 1,700,000 shares and 2,000,000 shares of unregistered common stock valued at $0.019 per share and $0.0135 per share, the closing price of the common stock of the Company on June 9, 2022 and July 1, 2022, respectively. All of the shares granted vested immediately on the date of grant. The Company recorded $59,300 of stock-based compensation expense based on the grant date fair value of these shares during the year ended October 31, 2022.
On July 21, 2022, in connection with the Term Sheet, Mr. Sinnreich was issued 10,000,000 shares of restricted common stock that vested immediately upon issuance. The shares issued were valued at $0.0343 per share, the closing price of the common stock of the Company on the effective date of the Term Sheet, totaling $343,000. The Company recorded $343,000 of stock-based compensation expense during year ended October 31, 2022.
On July 21, 2022, in connection with the Term Sheet, during the first year of the Initial Term, Mr. Sinnreich will be compensated by the issuance of 24,000,000 shares of Organicell’s common stock upon execution of the Term Sheet, which shall vest pro-rata in equal monthly installments of 2,000,000 shares each. The shares issued were valued at $0.0343 per share, the closing price of the common stock of the Company on the effective date of the Term Sheet, totaling $823,200. On November 22, 2022, Mr. Sinnreich resigned from the Company. The Company will amortize the costs associated with the issuance through the date of Mr. Sinnreich’s termination. For the year ended October 31, 2022, a total of 6,706,849 shares had vested and the Company recorded $228,353 of stock-based compensation expense during the year ended October 31, 2022.
On August 18, 2022, the Company entered into a consulting agreement with a third party to provide strategic marketing and digital marketing services for a minimum period of six months. As consideration for agreeing to provide consulting services to the Company, the Company will pay the consultant $15,000 per month and issued the consultant 2,500,000 shares of unregistered common stock valued at $0.0241 per share, the closing price of the common stock of the Company on the effective date of the agreement. All of the shares granted vested immediately on the date of issuance. The Company will record $60,250 of stock-based compensation expense based on the grant date fair value of these shares during the term of the consulting agreement. The consulting agreement may be renewed for additional six-month periods under the same terms unless either party provides 30 days written notice to terminate. The Company recorded $25,104 of stock-based compensation expense during the year ended October 31, 2022.
On December 1, 2022, the Company granted 150,000 shares of common stock to an employee as provided for in the employment agreement valued at $0.03 per share, the closing price of the common stock of the Company on the grant date. The Company will record $4,500 of stock-based compensation expense based on the grant date fair value of these shares during the three months ended January 31, 2023.
On December 29, 2022, the Company agreed to issue 5,000,000 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 $100,000 based on the closing price of the common stock of the Company on the date of the agreement of $0.02 per share.
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 $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 was not obligated to proceed with the ELOC or file a registration statement for the ELOC. In connection with the above, Tysadco 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 year ended October 31, 2022.
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 Issued – Promissory Note:
As described in Note 10, 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. In addition, in connection with the Extension on July 11, 2022, the Company issued the Purchaser an additional 1,538,462 commitment shares valued at $33,231.
Shares Issued – Amendment of consulting agreement:
On August 19, 2022 the Company and a consultant (“Consultant”) agreed to an amendment to the consulting agreement whereby the Consultant was issued 5,000,000 shares of common stock of the Company and received a $20,000 cash payment in exchange for satisfaction of approximately $210,000 in outstanding consulting fees due to the Consultant up through August 31, 2022. The parties also agreed to the reduction of future fees payable to the Consultant from $40,000 per month to $15,000 per month for the period September 2022 through March 2023.
The shares issued were valued at $0.0235 per share, the closing price of the common stock of the Company on the effective date of the settlement, totaling $117,500. The Company recorded a gain of $72,500 for the year ended October 31, 2022 in connection with the settlement, representing the difference in the fair value of the shares issued and the amount of obligations settled.
Shares Issued – Settlement of Litigation:
As described in Note 14, during April 2022 the Company settled a lawsuit whereby the Company paid LAE $45,000 in cash and 2,000,000 shares of restricted common stock of the Company. The shares issued were valued at $0.0219 per share, the closing price of the common stock of the Company on the effective date of the settlement, totaling $43,800.
Shares Repurchased – Settlement of Litigation:
As described in Note 14, during January 2023, the Company settled a lawsuit by repurchasing 24,800,001 shares of common stock for $500,000. The shares repurchased were transferred to the Company and redeposited back into the Company’s treasury of authorized and unissued shares. At October 31, 2022, the Company has recorded the obligation to repurchase the shares in connection with the settlement of the litigation in the amount of $500,000 in the consolidated balance sheet.
Issuances of Common Stock – Exchange of balances due on accounts payable for stock:
During
February 2021, the consulting arrangement was amended whereby the CMO’s accrued and unpaid consulting fees of $82,250
were fully satisfied though the issuance of 500,000 shares of newly issued common stock of the Company (share price was $0.084 per
share on the date of the exchange). Furthermore, until the CMO becomes a full-time employee of the Company and provided the CMO
continues to serve in his current position, the CMO shall receive compensation equal to $27,000 per quarter beginning May 1,
2021, payable in cash or in stock (based on the average monthly trading price of the common stock during the applicable quarter) at
the option of the Company. In connection with the Closing, the CMO terminated his consulting arrangement with the Company and agreed
to receive ten-year warrants to purchase 3,150,000 Shares at an exercise price of $0.02 per Share, exercisable on a “cashless
basis as full satisfactory for all unpaid consulting fee obligations totaling $139,500.
During May 2021, the Company and two employees agreed to exchange $30,973 of commission payables due to the employees for 176,989 shares of newly issued common stock valued at $0.175 per share, the closing price of the common stock of the Company on the date of the exchange.
Management and Consultants Performance Stock Plan
On April 25, 2020, the Company approved the adoption of the Management and Consultants Performance Stock Plan (“MCPP”) providing for the grant to current senior executive members of management and third-party consultants shares of common stock of the Company (“Shares”) based on the achievement of certain defined operational performance milestones (“Milestones”).
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 |
|
|
|
|
|
|
MCPP Shares |
|
Name |
|
Issued |
|
Albert Mitrani |
|
|
80,000,000 |
|
Ian Bothwell |
|
|
80,000,000 |
|
Dr. Maria Mitrani |
|
|
80,000,000 |
|
Dr. George Shapiro |
|
|
69,500,000 |
|
Dr. Allen Meglin |
|
|
- |
|
Michael Carbonara |
|
|
- |
|
Consultants |
|
|
33,000,000 |
|
Total |
|
|
342,500,000 |
|
In connection with the MCPP Shares that have been awarded to date, all such shares were issued in connection with the MCPP Shares approved on April 25, 2020 and accordingly were valued $0.027 per share, the closing price of the common stock of the Company on the date that those respective MCPP Shares were approved.
During the years ended October 31, 2022 and 2021, a total 0 shares and 49,500,000 shares, respectively, were issued in connection with certain Milestones achieved. The Company recorded a total of $0 and $1,336,500 of stock-based compensation expense during the years ended October 31, 2022 and 2021, respectively.
Upon completion of the Share Exchange on October 29, 2021, the MCPP (but not Awards of unexchanged shares of our common stock) was terminated.
In connection with the Closing, the Company and each of the grantees of awards authorized but not yet issued under the MCPP (“Awards”) agreed to waive and terminate their respective Awards.
2021 Plan and Share Exchange Agreement
In September 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”). The 2021 Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares (an “Award”) to any person who is an employee or director of, or consultant to the Company. The maximum aggregate number of shares that may be issued pursuant to all Awards is 250,000,000 shares.
The 2021 Plan is administered by (a) the board of the directors of the Company; or (b) a committee designated by the board, which Committee shall be constituted in such a manner as to satisfy the applicable laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such committee shall continue to serve in its designated capacity until otherwise directed by the board. The board of directors may at any time amend, suspend, or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s shareholders to the extent such approval is required by applicable laws.
On October 29, 2021, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with shareholders (including executive officers) who were issued shares under (i) various consulting and employment agreements during 2021 (the “Service Providers”), and (ii) those shareholders who were issued shares of common stock pursuant to the MCPP (the “MCPP Holders”).
The Service Providers who executed the Exchange Agreement were issued a total of 30,300,000 shares under their respective consulting or employment agreements (the “Service Provider Shares”), and the MCPP Holders who executed the Exchange Agreement received a total of 49,500,000 shares under the MCPP, for an aggregate of 79,800,000 shares of common stock. As of the effective date of the Exchange Agreement, the Service Providers and MCPP Holders who executed the Exchange Agreement agreed to exchange their respective Service Provider Shares or the shares issued under the MCPP for newly issued shares pursuant to the 2021 Plan (on a 1:1 basis, resulting in the issuance of 79,800,000 shares of common stock under the 2021 Plan (the “Exchange Shares”). Upon completion of the Share Exchange, the 2020 Plan and the MCPP (but not Awards of unexchanged shares of our common stock) were terminated.
The shares received in connection with the Exchange Agreement were treated as a modification to the original awards granted. The Company determined that there was not any incremental value resulting from the exchange and as a result there was no additional compensation costs recorded.
As of October 31, 2022, a total of 83,400,000 shares of our common stock, including the Exchange Shares have been awarded under the 2021 Plan.
Unvested Equity Instruments:
A summary of unvested equity instruments outstanding for the years ended October 31, 2022 and 2021 are presented below:
Schedule of non vested share activity |
|
|
|
|
|
|
|
|
|
|
Number of Nonvested Shares |
|
|
Weighted- Average Grant Date Value |
|
Outstanding at October 31, 2021 |
|
|
83,844,445 |
|
|
$ |
0.062 |
|
Non-Vested Shares Granted |
|
|
25,900,000 |
|
|
$ |
0.034 |
|
Vested |
|
|
9,901,294 |
|
|
$ |
0.040 |
|
Expired/Forfeited |
|
|
- |
|
|
$ |
- |
|
Outstanding at October 31, 2022 |
|
|
99,843,151 |
|
|
$ |
0.057 |
|
|
|
Number of Nonvested Shares |
|
|
Weighted- Average Grant Date Value |
|
Outstanding at October 31, 2020 |
|
|
1,111,111 |
|
|
$ |
0.029 |
|
Non-Vested Shares Granted |
|
|
83,400,000 |
|
|
$ |
0.062 |
|
Vested |
|
|
666,666 |
|
|
$ |
0.029 |
|
Expired/Forfeited |
|
|
- |
|
|
$ |
- |
|
Outstanding at October 31, 2021 |
|
|
83,844,445 |
|
|
$ |
0.062 |
|
As of October 31, 2022, the total compensation cost related to nonvested awards not yet recognized and the weighted-average period over which such costs are expected to be recognized was $855,030 and 7.0 months, respectively.
As of October 31, 2021, the total compensation cost related to nonvested awards not yet recognized and the weighted-average period over which such costs are expected to be recognized was $1,093,022 and 14.3 months, respectively.
NOTE 13 – WARRANTS
A summary of warrant activity for the years ended October 31, 2022 and 2021 are presented below:
Schedule 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 |
|
|
420,300,000 |
|
|
$ |
0.02 |
|
|
|
10.0 |
|
|
$ |
- |
|
Exercised |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Expired/Forfeited |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Outstanding at October 31, 2022 |
|
|
429,800,000 |
|
|
$ |
0.02 |
|
|
|
9.63 |
|
|
$ |
2,440,110 |
|
Exercisable at October 31, 2022 |
|
|
388,048,326 |
|
|
$ |
0.02 |
|
|
|
9.62 |
|
|
$ |
2,403,058 |
|
|
|
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 October 31, 2021 |
|
|
9,500,000 |
|
|
$ |
0.03 |
|
|
|
6.90 |
|
|
$ |
289,500 |
|
On July 21, 2022, the Company issued Mr. Sinnreich a cashless warrant to purchase an aggregate of 40,000,000 shares of common stock in connection with the Mr. Sinnreich’s employment agreement. The warrant is exercisable for $0.034 per share (the closing price of the Company’s common stock on the date of grant), until the tenth 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 2.91%, (2) term of 10 years, (3) expected stock volatility of 144%, and (4) expected dividend rate of 0%. All of the warrants vested immediately. The grant date fair value of the warrants issued was $1,332,000. The Company recorded $1,332,000 of stock-based compensation expense for the year ended October 31, 2022 based on the fair value of these warrants on the grant date.
At Closing, the Company also entered into 36-month consulting agreements with each of Skycrest and Greyt (each, a “Consulting Agreement,” and collectively, the “Consulting Agreements”), pursuant to which (a) Skycrest and Greyt will provide certain advisory services to the Company as more fully set forth therein; and (b) Skycrest and Greyt are being compensated for their services by the Company issuing to each of them at closing ten (10) year-warrants to purchase 150,000,000 Shares at an exercise price of $0.02 per Share (the “Consulting Agreement Warrants”), which Warrants are exercisable on a “cashless” basis. 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 2.91%, (2) term of 10 years, (3) expected stock volatility of 144%, and (4) expected dividend rate of 0%. All of the warrants vested immediately. The grant date fair value of the warrants issued to Skycrest and Greyt was $2,940,000 and $2,940,000, respectively. The Company will amortize the costs associated with warrants issued over the term of the Consulting Agreement. The Company recorded $408,333 of stock-based compensation expense for the year ended October 31, 2022 based on the fair value of these warrants on the grant date.
At Closing, Ian Bothwell waived all unpaid and accrued compensation except for four unpaid base salary payments outstanding as of July 31, 2022, in exchange for ten-year warrants to purchase 30,000,000 Shares at an exercise price of $0.02 per Share, exercisable on a “cashless basis” and a cash payment of $50,000 at Closing. All of the warrants vested immediately. 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 2.91%, (2) term of 10 years, (3) expected stock volatility of 144%, and (4) expected dividend rate of 0%. All of the warrants vested immediately. The grant date fair value of the warrants issued to Mr. Bothwell was $588,000 which amount was applied towards the amount of unpaid and accrued compensation, The remaining balance of unpaid and accrued compensation that was forgiven by Mr. Bothwell totaling $455,478 was recorded as additional paid in capital as of October 31, 2022 (see Note 14).
At Closing, Dr. George Shapiro terminated his consulting arrangement with the Company and waived all unpaid consulting fee obligations in exchange for ten-year warrants to purchase 3,150,000 Shares at an exercise price of $0.02 per Share, exercisable on a “cashless basis.” All of the warrants vested immediately. 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 2.91%, (2) term of 10 years, (3) expected stock volatility of 144%, and (4) expected dividend rate of 0%. All of the warrants vested immediately. The grant date fair value of the warrants issued to Dr. Shapiro was $61,740 which amount was applied towards the amount of unpaid and accrued compensation, The remaining balance of unpaid and accrued compensation that was forgiven by Dr. Shapiro totaling $77,760 was recorded as additional paid in capital as of October 31, 2022 (see Note 14).
During August 2022, the Company entered into five separate consulting and employment agreements providing for the issuance of ten-year warrants to purchase an aggregate of 41,150,000 Shares at exercise prices ranging from $0.024 to $0.03 per Share, exercisable on a “cashless basis”. The warrants vest over the term of the agreements that range for 6 months to 2 years. 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 rates between 2.60% - 3.05%, (2) term of 10 years, (3) expected stock volatility of 143%, and (4) expected dividend rate of 0%. The grant date aggregate fair value of all the warrants issued was $1,122,075. The Company recorded an aggregate of $133,363 of stock-based compensation expense for the year ended October 31, 2022 based on the fair value of these warrants on the grant date.
During September 2022, each of the five non-executive directors (other than the Chairman) were granted the right to be party to a Director’s Service Agreement. Pursuant to that agreement, non-employee directors will be compensated for their services by the annual issuance of warrants to acquire up to shares of the Company’s common stock at an exercise price of $ (the fair market value of the common stock as of the date of grant, exercisable for a period of ten (10) years from the date of grant (“Director Warrants”). The Director Warrants shall be and shall vest in equal monthly installments of 83,333.33 shares, subject to continued service by the director as a member of the board of directors. The agreement will also provide for indemnification of directors to the fullest extent permitted by Nevada law. 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 grant date fair value of each warrant issued was $ (aggregate total of $216,000). The Company recorded an aggregate of $ of stock-based compensation expense for the year ended October 31, 2022 based on the fair value of these warrants on the grant date.
Effective August 1, 2022, the Company entered into a one-year consulting agreement with a third party to provide strategic advice, assistance with implementation of new business strategies and overall advice concerning the Company’s business goals and objectives. The consultant shall receive compensation in the form of a warrant to acquire up to 1,000,000 shares of the Company’s common stock at an exercise price of $0.033 (the fair market value of the common stock as of the date of grant, exercisable for a period of ten (10) years from the date of grant and exercisable on a “cashless basis.” The warrant shall vest in equal monthly installments. 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 2.60%, (2) term of 10 years, (3) expected stock volatility of 143%, and (4) expected dividend rate of 0%. The grant date fair value of the warrant issued was $32,700. The Company will record stock-based compensation expense during the term of the agreement based on the fair value of these warrants on the grant date. The Company recorded $8,175 of stock-based compensation expense for the year ended October 31, 2022.
All stock compensation expense is classified under general and administrative expenses in the consolidated statements of operations
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
The Company is party to executive employment agreements
with each of Ian T. Bothwell (our Interim Chief Executive Officer and Chief Financial Officer), Dr. Maria Ines Mitrani (our Chief Science
Officer) and Albert Mitrani, our Executive Vice President of Sales), 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 $300,000 and specified expense reimbursement allowances. They also contain customary
confidentiality and non-competition provisions.
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 $300,000 per annum; (b) limits on cell phone, automobile and other monthly
allowances; (b) elimination of any compensation associated with commissions, fixed bonus, increases to base salary (based on revenue milestones),
and/or tax make-whole provisions associated with equity grants; and (c) deletion of change in control provisions. |
In addition, each of Albert Mitrani, Dr. Maria Ines Mitrani and Ian
Bothwell agreed to a reduction in each executive’s annual salary to $150,000 per year effective December 15, 2022 in the case of
Dr. Mari Mitrani and Albert Mitrani and November 30, 2022 in the case of Mr. Bothwell. The reduction will remain in effect through such
time that net revenues from operations are breakeven when calculating the salaries of all three executives without the agreed upon reductions
(“Salary Reduction Period”). There is no obligation of the Company to repay that portion of Base Salary that has been reduced
during the Salary Reduction Period.
| 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 $430,200 and $563,455 (reduced for $22,500 of security deposits that were retained
by Mariluna LLC upon termination of leases), respectively, was recorded as additional paid in capital as of October 31, 2022. |
| 3. | Ian Bothwell waived all unpaid and accrued compensation outstanding as of July 31, 2022, in exchange for
ten-year warrants to purchase 30,000,000 Shares at an exercise price of $0.02 per Share, exercisable on a “cashless basis”
and a cash payment of $50,000 at Closing. The Company and Mr. Bothwell also agreed that rental and other office costs associated with
the California office currently used by him will not be reimbursed after October 31, 2022. The balance of unpaid and accrued compensation
that was forgiven by Mr. Bothwell totaling $455,478, was recorded as additional paid in capital as of October 31, 2022. |
| 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 $44,600 and $84,300, respectively,
of previously reimbursed expenses to the Company and the Company and the executives exchanged mutual releases.
Bonuses
Effective December 21, 2020, the Company granted a bonus of $50,000 and 15,000,000 shares of common stock of the Company each to Mr. Mitrani, Dr. Mitrani and Mr. Bothwell (see Note 12).
Term Sheet – Acting CEO
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. Except with respect to the signing bonus described below, the Term Sheet is 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.
The Term Sheet provides that as an inducement for Mr. Sinnreich to join the Company, within five (5) days of the Effective Date, he will be issued 10,000,000 shares of restricted common stock and ten-year warrants to purchase 40,000,000 shares at a price of $0.034 per share, exercisable on a “cashless” basis. The foregoing shares and warrants vest immediately upon issuance and were valued at $343,000 and $1,332,000, respectively (see Notes 11 and 12).
The Employment Agreement will provide for an initial two-year term commencing on the Effective Date (the “Initial Term”), which will automatically renew for successive one-year terms (each a “Renewal Term,” and together with the Initial Term, the “Term”), unless terminated by either party upon not less than ninety (90) days’ prior written notice given before the expiration of the Initial Term or a Renewal Term, or earlier terminated as provided for therein.
During the first year of the Initial Term, Mr. Sinnreich will be compensated by the issuance of 24,000,000 shares of Organicell’s common stock, which shall vest in equal monthly installments of 2,000,000 shares each. During the second year of the Initial Term, Mr. Sinnreich will be entitled to receive a base salary of $25,000 per month, payable in cash or shares of Organicell’s common stock, at his election.
The Employment Agreement will provide that Mr. Sinnreich will be entitled to receive a bonus payment of $150,000, if and when during the Term, the Company generates $10,000,000 in funding from an equity line of credit arrangement that may be implemented by the Company in the future. In addition, Mr. Sinnreich will be entitled to receive an award of 15,000,000 shares of common stock if any of the following milestones are achieved during the Term and the twelve-month period thereafter (provided the Employment Agreement and Mr. Sinnreich’s employment thereunder is terminated by the Company without cause).
|
1. |
The Company first obtains market capitalization of $1.0 billion for a three-month consecutive period. |
|
2. |
The Company first obtains market capitalization of $2.0 billion for a three-month consecutive period. |
|
3. |
The Company first obtains market capitalization of $5.0 billion for a three-month consecutive period. |
|
4. |
The Company first obtains market capitalization of $10.0 billion for a three-month consecutive period |
The offer and sale of the above referenced securities were and will be issued in private transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance on exemptions afforded by Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder.
As the Employment Agreement does not provide for cash compensation and in light of Mr. Sinnreich’s efforts in implementing the Company’s recent corporate restructuring and advancing its clinical trials, on September 7, 2022, the board of directors of the Company awarded Mr. Sinnreich a one-time payment of $200,000 and agreed to reimburse him for up to $100,000 in out-of-pocket expenses incurred by him in connection with services rendered to the Company, subject to submission of documentation for such expenses in accordance with the Company’s expense reimbursement policies.
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. The Company is currently reviewing its rights to rescind previously issued shares and payments to Mr. Sinnreich in light of the resignation.
VP Agreements - Sales Executives
On January 6, 2020, the Company entered into employment agreements with two individuals (“Sales Executives”), each to serve as a Vice President – Global Sales and Marketing. The terms of each Sales Executive employment agreement are identical (“VP Agreements”). The initial term of the VP agreements are for three years and provide for automatic annual renewals thereafter, unless either party provides 90-day written notice prior to expiration of the then current term. The VP Agreements may also be terminated by the Company beginning June 30, 2020 in the event the Sales Executive fails to meet certain defined minimum revenue growth milestones. The Sales Executives will receive compensation in the form of monthly salary of $18,000 and a quarterly override during the calendar year 2020 based on revenues earned by the Company during each quarterly period that exceed $600,000 (“Override Threshold”) beginning for the quarter ended June 30, 2020. The VP Agreements also require the Sales Executives and the Company to mutually agree on the Override Threshold for calendar years 2021 and 2022 to be eligible for the Override Threshold for those years, which has yet to be agreed to.
Upon execution of the VP Agreements, each of the Sales Executives were granted 1,000,000 shares of unregistered common stock of the Company valued at $0.035 per share, the closing price of the common stock of the Company on the grant date. The VP Agreements also provide each Sales Executives the right to receive a minimum of 750,000 shares of common stock at the end of each quarterly anniversary of the VP Agreements throughout the Initial Term (maximum 9,000,000 shares) (“Performance Shares”). As of December 31, 2021, the Sales executives had been issued all of the Performance Shares. The VP Agreements were terminated on June 30, 2022 (see Legal Matters below).
Consultant Agreements
Assure Immune LLC
Effective March 29, 2021, the Company and Assure Immune L.L.C (“Consultant”) entered into an amendment (“Amendment”) to the consulting agreement between the parties dated March 30, 2020 (“Agreement”). Under the terms of the Amendment, the initial term of the Agreement was extended for an additional 2 years (until March 30, 2023) and the terms for eligibility of the Consultants to receive future grants of stock above those stock issuances granted as of the date of the Amendment based on achievement of certain future milestones previously provided for in the Agreement were eliminated. In addition, the Amendment provided additional terms in connection with termination of the Agreement. Under the terms of the Amendment, the Consultant received an additional 20,000,000 shares of common stock that vest 50% upon execution of the Amendment and 50% on the sooner of (1) December 31, 2021 or (2) upon the approval of both of the Company’s IND’s to be submitted for Osteoarthritis and COVID 19 “Long Hauler”.
On August 19, 2022 the Company and Consultant agreed to an amendment to the consulting agreement whereby the Consultant was issued 5,000,000 shares of common stock of the Company and received a $20,000 cash payment in exchange for satisfaction of approximately $200,000 in outstanding consulting fees due to the Consultant up through August 31, 2022. The parties also agreed to the reduction of future fees payable to the Consultant from $40,000 per month to $15,000 per month for the period September 2022 through March 2023.
LAE International Consulting, LLC
During October 2020, the Company entered into a consulting agreement with LAE International Consulting, LLC (“LAE”) to provide consulting services in connection with the development of international research and development, sales and distribution and investment opportunities. As consideration for agreeing to provide the consulting services to the Company, the Company has agreed to pay LAE a minimum of $12,500 per month for the first three months of the agreement and to issue up to 5,000,000 shares of restricted common stock (valued at $0.175 per share, the closing price of the common stock of the Company on the grant date), based on successful performance of defined milestones. The agreement could be terminated on the third month anniversary of the agreement or later with or without cause. The Company notified LAE prior to the third month anniversary that it was going to terminate the agreement on third month anniversary unless mutually agreed upon amendments to the agreement were completed. The parties never formally reached any arrangement regarding the future amendments (see Legal Matters below).
Preparation of IRB, Pre-IND, IND Protocols for Clinical Applications and Clinical Trial Initiation and Monitoring:
In connection with the Company’s ongoing research and development efforts and the Company’s efforts to meet compliance with current and anticipated United States Food and Drug Administration (“FDA”) regulations expected to be enforced beginning in May 2021 pertaining to marketing traditional biologics and human cells, tissues and cellular and tissue based products that fall under Section 351 of the Public Health Services Act (“HCT/Ps”), the Company has applied for and received Investigation New Drug (“IND”) approval from the FDA to commence clinical trials in connection with the use of the Company’s products and related treatment protocols for specific indications. The ability to successfully complete the above efforts will be dependent on the actual outcomes in connection with the use of the Company’s products and related treatment protocols for each clinical trial, the Company’s ability to timely enroll patients and fund the required payments and complete the applicable clinical trials, which is subject to available working capital generated from operations, financing arrangements with the third-party vendors involved in the studies and/or from additional debt and/or equity financings as well as the ultimate approval from the FDA.
CRO Agreement 1 and CRO Agreement 2
During November 2020, the Company entered into an agreement with a third-party contract research organization (“CRO”) to provide ongoing clinical research related services in connection with a planned future clinical trial (“CRO Agreement 1”). In connection with the CRO Agreement 1, the Company was obligated to make payments of approximately $778,000 plus pass through costs and other third-party direct costs during the term of clinical trial expected to run until September 2021. In connection with the CRO Agreement 1, the Company was obligated to pay in accordance with defined completed milestones, beginning with approximately $195,524 upon work order execution.
During January 2021, the Company entered into an additional agreement with the CRO to provide ongoing clinical research related services in connection with a planned future clinical trial (“CRO Agreement 2”). In connection with the CRO Agreement 2, the Company was obligated to payments of approximately $477,000 plus pass through costs and other third-party direct costs during the term of clinical trial expected to run until August 2021. In connection with the CRO Agreement 2, the Company was obligated to pay in accordance with defined completed milestones, beginning with approximately $147,000 upon work order execution.
During February 2021, the Company provided notice to the CRO that it was terminating the engagement of the CRO in connection with the two above-described projects as a result of the significant increases in projected trial costs over the originally contracted amounts. On July 29, 2021, the parties reached a settlement agreement and general release in connection with termination of both of the agreements and all remaining past due amounts of $265,000 whereby the Company paid the CRO $100,000 and the Company was fully released from paying the remaining unpaid invoiced amounts of $145,000. For the year ended October 31, 2021, the Company has recorded approximately $390,000, net of expenses in connection with services performed by the CRO up through the date the projects were terminated.
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 $1,433,000 plus estimated aggregate pass-through costs and other third-party direct costs of approximately $495,000 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 October 31, 2022, the Company has been billed a total of approximately $680,000 in connection with the New CRO Agreements, including $18,400 of escrow related payments, of which approximately $244,900 was outstanding as of October 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.
As of October 31, 2021, there was approximately $721,000 of unpaid Original Base Salary and Incremental Salary related to the period prior to December 31, 2019 and approximately $760,000 of unpaid Original Base Salary and Incremental Salary related to the period January 1, 2020 through October 31, 2021, that could be converted in the future into approximately 35,685,000 shares of common stock (weighted average conversion price of $0.042 per share).
As of July 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 $1,388,000 of unpaid Original Base Salary and Incremental Salary related to the period January 1, 2020 through July 31, 2022. In connection with the Closing, the Company and each of the Executives agreed to forego their unpaid Original Base Salary and Incremental Salary (see “Changes in Management Compensation” above).
Leases
Ethan NY
On September 3, 2015, Ethan NY entered into a five-year lease agreement (“Ethan Lease”) for a store located in New York City, New York. The Ethan Lease commenced on October 1, 2015. Under the terms of the Ethan Lease, minimum monthly lease payments of $9,500 per month were to commence in December 2015 through October 2020. During June 2016, Ethan NY exited from its leased premises. Ethan NY did not make any of the required minimum monthly lease payments as required. The total amount of minimum lease payments that Ethan NY is obligated to pay pursuant to this 5-year lease is $586,242 (excluding late fees and interest provided for under the Ethan Lease).
All of Ethan NY’s obligations under the Ethan Lease are recourse only to the assets at Ethan NY, except for certain obligations under the Ethan Lease that were guaranteed by a former employee. Under the terms of the Ethan Lease, the obligations of Ethan NY for future rents are to be mitigated based on the amount of any future rents that are received for the rental of the leased premises to other tenants during the initial term. During August 2016, Ethan NY received confirmation that the leased premises had been leased to another tenant. Ethan NY is not aware of any claim pending or threatened in connection with the Ethan Lease. At October 31, 2021, Ethan NY recorded in liabilities of discontinued operations the amount of rent obligations through June 30, 2016 and a reserve for estimated losses in connection with termination of the Ethan Lease of $101,905. In New York State, the statute of limitations for filing a breach of contract claim is 6 years. As a result, during the year ended October 31, 2022, the Company recorded a gain from the write-off of liabilities attributable to discontinued operations that were no longer enforceable due to the statute of limitations.
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.
LAE International Consulting
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”) were 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. During April 2022 the Lawsuit was settled whereby the Company agreed to pay LAE $45,000 in cash and 2,000,000 shares of restricted common stock of the Company.
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.
Count I alleges a claim for “Breach of Employment Agreement, including Violation of the Pennsylvania Wage Payment and Collection Law.” Mr. Pepock alleges that Organicell (i) failed to pay him certain wages in timely manner; (ii) failed to pay him commissions allegedly due; (iii) failed to pay him a severance benefit allegedly due; and (iv) improperly paid him as a 1099 “independent contractor” rather than a W-2 employee for the time period of January 1, 2020 through July 31, 2021. Mr. Pepock sought damages of $235,000 in compensation, plus compensation for alleged increased tax rates and decreased Social Security contributions, liquidated damages, costs of litigation including reasonable attorney fees and witness fees, interest on the judgment, plus any other relief the Court deems proper.
Count II alleges a claim for “Fair Labor Standards Act Retaliatory Discharge”. Mr. Pepock alleged that he was unlawfully terminated in retaliation for filing a complaint about unpaid wages and sought damages in an unidentified amount of lost wage compensation, back pay, front pay, liquidated damages, compensation for pain and suffering and other non-economic damages, punitive damages, costs of litigation including reasonable attorney fees and witness fees, interest on the judgment, plus any other relief the Court deems proper.
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.
Counts I and II alleged claims for “Breach of Employment Agreement and Violation of Michigan Sales Representative Commission Act”. Ms. Yourke alleged that Organicell (i) failed to pay her certain wages in timely manner; (ii) failed to pay her commissions allegedly due; (iii) failed to pay her a severance benefit allegedly due; and (iv) improperly treated her as a 1099 “independent contractor” rather than a W-2 employee for the time period of January 1, 2020 through July 31, 2021, April 16-30, 2022, and May 1, 2022 through June 30, 2022. Ms. Yourke sought an unidentified amount of damages in the form of compensation, commissions, treble damages, plus compensation for an alleged increased tax rates and increased Social Security contributions, costs of litigation, including actual attorney fees and witness fees, interest on the judgment, plus any other legal and equitable relief that the Court deems proper.
Count III alleged a claim for “Fair Labor Standards Act Retaliatory Discharge”. Ms. Yourke alleged that she was unlawfully terminated in retaliation for filing a complaint about unpaid wages and sought damages in an unidentified amount of lost wage compensation, back pay, front pay, liquidated damages, compensation for pain and suffering and other non-economic damages, punitive damages, costs of litigation including reasonable attorney fees and witness fees, interest on the judgment, plus any other relief the Court deems proper.
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. On January 31, 2023, 24,800,001 shares were transferred to the Company and the Company paid the Purchase Price. The shares received by the Company were immediately cancelled and returned to the Company’s treasury of authorized and unissued shares. 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.
At October 31, 2022, the Company has recorded the obligation to repurchase the shares in connection with settlement of the litigation in the amount of $500,000 in the consolidated balance sheet.
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 15 – LIABILITIES ATTRIBUTABLE TO DISCONTINUED OPERATIONS
During September 2015, the Company formed Ethan NY for the purpose of selling clothing and accessories through a retail store. During June 2016, the Ethan NY operations were closed.
The following summarizes the carrying amounts of the assets and liabilities of Ethan NY at October 31, 2022 and 2021:
Schedule of assets and liabilities |
|
|
|
|
|
|
|
|
|
|
October 31, |
|
|
|
2022 |
|
|
2021 |
|
Assets |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts Payable |
|
$ |
- |
|
|
$ |
94,835 |
|
Accrued Expenses |
|
|
- |
|
|
|
31,016 |
|
Total liabilities |
|
$ |
- |
|
|
$ |
125,851 |
|
In New York State, the statute of limitations for filing a breach of contract claim is 6 years. As a result, during the year ended October 31, 2022, the Company recorded a gain from the write-off of liabilities attributable to discontinued operations that were no longer enforceable due to the statute of limitations.
NOTE 16 – SEGMENT INFORMATION
For
the years ended October 31, 2022 and 2021, the Company operated only one 1 operating segment.
NOTE 17 – 401(K) PLAN
The Company sponsors a pooled defined contribution retirement plan (“401(k) Plan”) covering all eligible employees effective January 25, 2023. The 401(k) Plan allows eligible employees to contribute, subject to Internal Revenue Service limitations on total annual contributions, up to 92% of their compensation as defined in the 401(k) Plan, to various investment funds. Under the 401(k) Plan, the Company may, but is not obligated to, make any contributions to the 401(K) Plan for any eligible employees. The Company has not yet made any contributions to the 401(K) Plan.
NOTE 18 – SUBSEQUENT EVENTS
Several subsequent events are disclosed in Notes 8, 10, 12, 13, 14 and 17. There were no other subsequent events for disclosure purposes.