The following discussion of the Company's liquidity and capital resources should
be read in conjunction with our unaudited consolidated financial statements and
related notes thereto appearing elsewhere herein. Unless stated otherwise, the
words "we," "us," "our," the "Company" or "Organicell" in this section
collectively refer to Organicell Regenerative Medicine, Inc., a Nevada
corporation, and its subsidiaries.
COVID-19 Impact To Economy And Business Environment
The current outbreak of the novel coronavirus ("COVID-19") and resulting impact
to the United States economic environments began to take hold during March 2020.
The adverse public health developments and economic effects of the COVID-19
outbreak in the United States, have adversely affected the demand for our
products and services by our customers and from patients of our customers as a
result of quarantines, facility closures and social distancing measures put into
effect in connection with the COVID-19 outbreak and which currently still
continue to have a negative impact to our business and the economy. These
restrictions have adversely affected the Company's sales, results of operations
and financial condition.
There is no assurance as to when the adverse impact to the United States and
worldwide economies resulting from the COVID-19 outbreak will be eliminated, if
at all, and whether any new or recurring pandemic outbreaks will occur again in
the future causing a similar or worse devastating impact to the United States
and worldwide economies or our business.
Results of Operations
For the Three Months Ended July 31, 2019 and July 31, 2018
Revenues
Our revenues for the three months ended July 31, 2019 were $578,705, compared
with revenues of $206,204 for the three months ended July 31, 2018. The increase
in revenues during the three months ended July 31, 2019 of $372,501 (180.7%) was
primarily the result of the Company being able to realize an increase of
approximately 191.1% (approximately $379,920) in unit sales of its products
during the three months ended July 31, 2019 compared with the three months ended
July 31, 2018, partially offset from a decrease of approximately 3.6%
(approximately $7,419) in the average sales prices for the products sold during
the three months ended July 31, 2019 compared with the average sales prices
realized on products sold during the three months ended July 31, 2018. The
increase in the units sold was partly attributable to favorable responses to the
Company's sales and marketing efforts establishing greater market awareness,
less discounting of product prices to new customers, the introduction of new and
more advanced product offerings and increased research and development efforts
which provided customers with greater comfort in the company's products and
ability to better address potential market uncertainty regarding anticipated FDA
regulations.
Cost of Revenues
Our cost of revenues for the three months ended July 31, 2019 were $80,630,
compared with cost of revenues of $38,971 for the three months ended July 31,
2018. The increase in cost of revenues during the three months ended July 31,
2019 compared with the three months ended July 31, 2018 was due to an increase
in the amount of units sold of 191.1% (approximately $52,934) during the three
months ended July 31, 2019 compared with the three months ended July 31, 2018,
partially offset from the reduction in the cost of units sold of 28.9%
(approximately ($11,275) during the three months ended July 31, 2019 compared to
costs of units sold during the three months ended July 31, 2018, which as
described above, was primarily the result of the Company manufacturing lower
costing inventory for the three months ended July 31, 2019 compared with having
to source its supply of inventory through third party manufacturers for the
three months ended July 31, 2018 which were more costly.
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Gross Profit
Our gross profit for the three months ended July 31, 2019 was $498,075, compared
with gross profit of $167,233 for the three months ended July 31, 2018. The
increase in gross profit during the three months ended July 31, 2019 was the
result of higher amount of units sold and lower the cost of units sold during
the three months ended July 31, 2019 compared to the three months ended July 31,
2018. The increase in the units sold was partly attributable to favorable
responses to the Company's sales and marketing efforts establishing greater
market awareness and the introduction of new and more advanced product
offerings. The lower cost of units sold was due to the Company once again
manufacturing its products during the three months ended July 31, 2019 compared
with having to source more costly supply of inventory through third party
manufacturers for the three months ended July 31, 2018.
General and Administrative Expenses
General and administrative expenses for the three months ended July 31, 2019
were $837,219, compared with $468,683 for the three months ended July 31, 2018,
an increase of $368,536 (78.6%). The increase in the general and administrative
expenses for the three months ended July 31, 2019 was primarily the result of
increased stock-based compensation costs to advisors, consultants and
administrative staff during the three months ended July 31, 2019 totaling
$106,011, increased payroll costs of approximately $90,000, increased
commissions paid on sales of products of $68,012, increased marketing related
costs of $62,639 and $48,355 of increase laboratory related expenses during the
three months ended July 31, 2019 in connection with the new lab operations that
began manufacturing products in May 2019.
Other Income (Expense)
Other expense, net, for the three months ended July 31, 2019 was $11,449,
compared with other expense, net, of $5,838 for the three months ended July 31,
2018, an increase of $5,611. The net increase in other expense was principally
the result of increased interest costs associated with outstanding debt
obligations during the three months ended July 31, 2019 compared with the three
months ended July 31, 2018.
For the Nine Months Ended July 31, 2019 and July 31, 2018
Revenues
Our revenues for the nine months ended July 31, 2019 were $1,116,627, compared
with revenues of $716,394 for the nine months ended July 31, 2018. The increase
in revenues during the nine months ended July 31, 2019 of $400,233 (55.9%) was
primarily the result of the Company being able to realize an increase of
approximately 53.4% (approximately $382,656) in the average sales prices for the
products sold during the nine months ended July 31, 2019 compared with the
average sales prices realized on products sold during the nine months ended July
31, 2018 and the Company's ability to increase unit sales of its products by
1.6% (approximately $17,577) during the nine months ended July 31, 2019 compared
with the nine months ended July 31, 2018. The increase in the prices realized on
product sold and units sold was partly attributable to favorable responses to
the Company's sales and marketing efforts establishing greater market awareness,
less discounting of product prices to new customers, the introduction of new and
more advanced product offerings and increased research and development efforts
which provided customers with greater comfort in the company's products and
ability to better address potential market uncertainty regarding anticipated FDA
regulations.
Cost of Revenues
Our cost of revenues for the nine months ended July 31, 2019 were $194,640,
compared with cost of revenues of $138,271 for the nine months ended July 31,
2018. The increase in the cost of revenues during the nine months ended July 31,
2019 compared with the nine months ended July 31, 2018 was due to the increase
in the cost of units sold of 38.6% (approximately $53,305) during the nine
months ended July 31, 2019 compared to the cost of units sold during the nine
months ended July 31, 2018, primarily the result of the Company having to source
its supply of inventory through third party manufacturers for the period
February 6, 2018 through April 30, 2019 which were more costly than the cost of
revenues for products manufactured by the Company during the periods November 1,
2017 to February 5, 2018 and from May 1, 2019 through July 31, 2019. In
addition, the increase in cost of revenues during the nine months ended July 31,
2019 compared with the nine months ended July 31, 2018 was also due to an
increase of 1.6% (approximately $3,064) in the amount of units sold during the
nine months ended July 31, 2019 compared with the nine months ended July 31,
2018.
46
Gross Profit
Our gross profit for the nine months ended July 31, 2019 was $921,987, compared
with gross profit of $578,123 for the nine months ended July 31, 2018. The
increase in gross profit during the nine months ended July 31, 2019 of $343,864
(59.5%) was the result of the increase in the amount of units sold during the
nine months ended July 31, 2019 compared to the nine months ended July 31, 2018,
partially offset by higher costs of units sold during the nine months ended July
31, 2019 compared to the nine months ended July 31, 2018. The increase in the
units sold was attributable to favorable responses to the Company's sales and
marketing efforts establishing greater market awareness and the introduction of
new and more advanced product offerings. The higher cost of units sold was due
to the Company relying on more costly inventory supplied through third party
manufacturers than from the Company's internally manufactured supply during
certain periods during the nine months ended July 31, 2019 compared with the
allocation of product supply sources for units sold during the nine months ended
July 31, 2018.
General and Administrative Expenses
General and administrative expenses for the nine months ended July 31, 2019 were
$1,987,737, compared with $3,649,797 for the nine months ended July 31, 2018, a
decrease of $1,662,060 (45.5%). The decrease in the general and administrative
expenses for the nine months ended July 31, 2019 was primarily the result of
reduced stock-based compensation costs to executives during the nine months
ended July 31, 2019 totaling $3,660,917, decreases in bad debt reserves of
$36,090 and reduced salaries of approximately $254,000 attributable to the
resignation of certain executives in connection with the Sale and Taddeo
settlement, partially offset from non-recurring reductions in payroll costs
totaling approximately $1,063,083 resulting from the termination and/or
restructuring of executive employments agreements in connection with the Sale
and the Taddeo settlement and gains realized on the sale of the Anu assets of
$824,798 during the nine months ended July 31, 2018 and increased commissions
paid on sales of products of $75,374, increased marketing related costs of
$191,153, $54,656 of increase laboratory related expenses and $83,759 of
increased professional fees and office expenses during the nine months ended
July 31, 2019 compared with the nine months ended July 31, 2018.
Other Income (Expense)
Other income, net, for the nine months ended July 31, 2019 was $49,530, compared
with other income, net, of $66,246 for the nine months ended July 31, 2018, a
decrease of $16,716. The net decrease in the other income was the result of
reduced income realized on the reduction of derivative liabilities of $265,597,
partially offset by increased income from the settlement of obligations of
$61,006 and reduced interest costs and amortization of discounts associated with
the SPA and other interest-bearing obligations totaling $187,875.
47
Liquidity and Capital Resources
Liquidity and Capital Resources
During the fiscal nine months ended July 31, 2019 and through the date of the
filing of this Form 10-Q, the Company has relied on the sale of debt or equity
securities, the restructuring of debt obligations and/or the issuance and/or
exchange of equity securities to meet the shortfall in cash to fund its
operations.
1. 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 agreed to accept payment in kind consisting of
certain products of the Company in lieu of cash interest.
2. On March 7, 2019, the Company sold an aggregate of 7,500,000 shares of common
stock and granted warrants to purchase an aggregate 2,000,000 common shares to
three "accredited investors" investors. The warrants had exercise prices of
$0.08 and had a one -year term. The aggregate grant date fair value of the
warrants issued in connection with these issuances were $6,600. The warrants
expired on March 7, 2020. The proceeds were used for working capital.
3. During March 2019, the Company issued a $30,000 of convertible 6% debentures
("30,000 Debenture") to one accredited investor. The principal amount of the
$30,000 Debenture, plus accrued and unpaid interest through June 30, 2020
were payable on the 10th business day subsequent to June 30, 2020, unless the
payment of the $30,000 Debenture was prepaid at the sole option of the
Company, or was converted as provided for under the terms of the $30,000
Debenture, and/or accelerated due to an event of default in accordance with
the terms of the $30,000 Debenture.
During June 2019, the Company and the holder of the $30,000 Debenture agreed
to convert the principal amount of the $30,000 Debentures plus interest
accrued and unpaid through the date of the conversion totaling $30,478 into
1,111,111 shares of common stock of the Company (approximately $0.0274 per
share representing a premium to the trading price of $0.0253 as of the
effective date of the transaction).
4. During April 2019, the Company sold 5,102,000 shares of common stock to seven
"accredited investors" at $0.03 per share for an aggregate purchase price of
$154,500. The proceeds were used for working capital.
5. During May 2019, the Company and holders of the $100,000 Debentures agreed to
convert the principal amount of the $100,000 Debentures plus interest accrued
and unpaid through the date of the conversion totaling $100,622 into 3,773,584
shares of common stock of the Company (approximately $0.0267 per share
representing a discount to the trading price of $0.0285 as of the effective
date of the transaction).
6. On May 1, 2019, the Company, Mint Organics and the holder of a promissory note
issued by Mint Organics agreed to a settlement of the outstanding loan whereby
the Company agreed to issue the holder of the note 2,735,000 shares of newly
issued common stock of the Company. At the time of the settlement, the
outstanding obligation under the note, including late fees and penalties was
approximately $72,568. The common stock issued was priced at $0.0265 per share
representing a discount to the trading price of $0.049 as of the effective
date of the transaction.
7. On May 1, 2019, the Company and Mint Organics entered into an exchange
agreement whereby the Company agreed to acquire the 150 shares of Mint Series
A Preferred Stock and the 150,000 warrants to purchase shares of common stock
of the Company originally issued to Mr. Wayne Rohrbaugh in connection with the
initial capitalization of Mint Organics (see note 15) in exchange for
4,400,000 shares of common stock of the Company (approximately $0.034 per
share representing a discount to the trading price of $0.049 as of the
effective date of the transaction).
48
8. On May 1, 2019, the Company and Mint Organics Florida entered into an exchange
agreement whereby the Company agreed to acquire the 21.25 units from the
minority equity holder of Mint Organics Florida (see note 15) in exchange for
2,400,000 shares of common stock of the Company (approximately $0.042 per
share representing a discount to the trading price of $0.049 as of the
effective date of the transaction).
9. During July 2019, the Company sold 2,500,000 shares of common stock to one
"accredited investor" at $0.02 per share for an aggregate purchase price of
$50,000. The proceeds were used for working capital.
10. During August 2019 through September 2019, the Company sold 5,250,000 shares
of common stock to four "accredited investors" at $0.02 per share for an
aggregate purchase price of $105,000. The proceeds were used for working
capital.
11. 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 matures in one-year and the
Company is required to make 52 weekly payments of $2,403 (payments totaling
$125,000). The Credit Facility can be prepaid at any time by the Company. The
effective annual interest rate of the facility based on 52 equal monthly
payments is 45.67% Proceeds received from the Credit Facility were used for
working capital.
12. On October 10, 2019, the Company and an investor ("Noteholder") agreed to a
funding facility arrangement ("Funding Facility") whereby the Noteholder was
required to fund the Company an initial tranche of $100,000 on October 15,
2019 ("Initial Funding Date") and had the option to fund the Company up to
an aggregate of $500,000 ("Funding Facility Limit") in minimum $100,000
monthly tranches by no later than February 15, 2020 ("Funding Expiration
Date"). The Funding Facility matures on February 15, 2021 ("Maturity Date")
and accrues interest at 6.0% per annum. The Funding Facility, plus all
accrued interest, automatically converts into 40,000,000 shares of newly
issued common stock of the Company if the Noteholder funds the full $500,000
by the Funding Expiration Date. The Noteholder fully funded the Funding
Facility as prescribed on February 12, 2020 and the Company converted the
Funding Facility into 40,000,000 shares of common stock of the Company that
were issued to the Noteholders designated entity, Republic Asset Holdings
LLC.
On April 27, 2020, the Company sold 5,000,000 shares of common stock to
Republic Asset Holdings LLC., a Company controlled by Michael Carbonara, a
director of the Company, at $0.02 per share for an aggregate purchase price
of $100,000. The proceeds were used for working capital.
13. During November 2019 through January 2020, the Company sold 3,250,000 shares
of common stock to three "accredited investors" at $0.02 per share for an
aggregate purchase price of $65,000. The proceeds were used for working
capital.
14. During February 2020 through April 2020, the Company sold 11,050,000 shares
of common stock to five "accredited investors" at $0.02 per share for an
aggregate purchase price of $221,000. The proceeds were used for working
capital.
15. During April 2020 through May 2020, the Company sold 11,000,000 shares of
common stock to Dr. Allen Meglin, a director of the Company at $0.02 per
share for an aggregate purchase price of $220,000. During July and August
2020, the Company sold an additional 1,166,666 shares and 422,514 shares of
common stock to Dr. Allen Meglin at $0.03 per share and $0.10 per share,
respectively, for an aggregate purchase price of $77,251. The proceeds from
all of the above sales were used for working capital.
16. During May 2020, the Company sold 3,000,000 shares of common stock to two
"accredited investors" at $0.02 per share for an aggregate purchase price of
$60,000. The proceeds were used for working capital.
49
17. During July and August 2020, the Company completed the private placement to
19 accredited investors for the sale of 13,499,992 shares of Common stock of
the Company at a selling price of $0.03 per share for an aggregate amount of
$405,000 ("Sale"). The proceeds are being used to fund the Company's public
company financial reporting requirements.
18. During the period July 2020, the Company sold 1,000,000 shares of common
stock to two "accredited investors", at $0.02 per share and $0.03 per share,
respectively for an aggregate purchase price of $25,000. The proceeds were
used for working capital.
19. During the period August 2020, the Company sold 8,606,665 shares of common
stock to nine "accredited investors", at prices ranging from $0.03 per share
and $0.06 per share, for an aggregate purchase price of $392,100. The
proceeds were used for working capital.
20. During the period September 2020, the Company sold 4,800,000 shares of common
stock to five "accredited investors", at prices ranging from $0.06 per share
and $0.10 per share, for an aggregate purchase price of $410,000. The
proceeds were used for working capital.
The Company issued the foregoing securities pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 4(a)(2) of
the Securities Act and/or Regulation D promulgated thereunder.
Going Concern Consideration
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has had limited
revenues since its inception. The Company incurred operating losses of
$1,065,750 for the nine months ended July 31, 2019. In addition, the Company had
an accumulated deficit of $15,563,143 at July 31, 2019. The Company had a
negative working capital position of $1,452,761 at July 31, 2019.
In addition to the above, the outbreak of the novel coronavirus ("COVID-19")
during March 2020 and the resulting adverse public health developments and
economic effects to the United States business environments have adversely
affected the demand for our products and services by our customers and from
patients of our customers as a result of quarantines, facility closures and
social distancing measures put into effect in connection with the COVID-19
outbreak and which currently still continue to have a negative impact to our
business and the economy. These restrictions have adversely affected the
Company's sales, results of operations and financial condition. In response to
the COVID-19 outbreak, the Company (a) has accelerated its research and
development activities, particularly in regards to potential health benefits of
the Company's products in addressing various health concerns associated with
COVID-19 and (b) is aggressively seeking to raise additional debt and/or equity
financing to support working capital requirements until sale for its products to
providers resumes to levels pre COVID-19.
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 United States economy
resumes to pre-COVID-19 conditions and (b) additional sources of working capital
through operations or debt and/or equity financings are realized. These
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
Management anticipates that the Company will remain dependent, for the near
future, on additional investment capital to fund ongoing operating expenses and
the costs 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 and common stock
liquidity will 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.
50
In view of the matters described in the preceding paragraphs, recoverability of
the recorded asset amounts shown in the accompanying consolidated balance sheet
assumes that (1) the effects of the COVID-19 crisis resume to pre-COVID 19
market conditions, (2) the Company will be able to establish a stabilized source
of revenues, (3) obligations to the Company's creditors are not accelerated, (4)
the Company's operating expenses remain at current levels and/or the Company is
successful in restructuring and/or deferring ongoing obligations, (5) 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, (6) the Company is able to continue its research and development
activities, particularly in regards to remaining compliant with the FDA and the
safety and efficacy of its products, and (7) the Company obtains additional
working capital to meet its contractual commitments and maintain the current
level of Company operations through debt or equity sources.
There is no assurance as to when the adverse impact to the United States and
worldwide economies resulting from the COVID-19 outbreak will be eliminated, if
at all, and whether any new or recurring pandemic outbreaks will occur again in
the future causing similar or worse devastating impact to the United States and
worldwide economies and our business. In addition, there is no assurance that
the Company will be able to complete its revenue growth strategy, its expected
required research and development activities or otherwise obtain sufficient
working capital to cover ongoing cash requirements. Without sufficient cash
reserves, the Company's ability to pursue growth objectives will be adversely
impacted. Furthermore, despite significant effort since July 2015, the Company
has thus far been unsuccessful in achieving a stabilized source of revenues. As
described above, the COVID-19 crisis has significantly impaired the Company and
the overall Unites States and World economies. If revenues do not increase and
stabilize, if the COVID-19 crisis is not satisfactorily managed and/or resolved
or if additional funds cannot otherwise be raised, the Company might be required
to seek other alternatives which could include the sale of assets, closure of
operations and/or protection under the U.S. bankruptcy laws. As of July 31,
2019, 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.
Cash and Cash Equivalents
The following table summarizes the sources and uses of cash for the periods
stated. The Company held no cash equivalents for any of the periods presented.
For the Nine Months Ended July 31,
2019 2018
Cash, beginning of year $ 43,016 $ 39,560
Net cash used in operating activities (372,568 ) (364,888 )
Net cash provided by (used in) investing activities (32,736 ) 95,453
Net cash provided by financing activities 398,866 250,000
Cash, end of year $ 36,578 $ 20,125
During the nine months ended July 31, 2019, the Company used cash in operating
activities of $372,568, compared to $364,888 for the nine months ended July 31,
2018, a reduction in cash used of $7,680. The change in cash used in operating
activities was due to a decrease in the net loss during the nine months ended
July 31, 2019 resulting from increased revenues and gross margins combined with
lower general and administrative expenses after adjusting for non-cash charges
(mostly related to stock based compensation, bad debt expense, settlement of
executive employment obligations, reduction in derivative liabilities and the
gain from the sale of the Anu assets) and liabilities owed to executive
management.
During the nine months ended July 31, 2019, the Company had cash used in
investing activities of ($32,736), compared to cash provided by investing
activities of $95,453 for the nine months ended July 31, 2018. The increase in
the change in cash used in investing activities was due primarily to increased
costs associated with acquisition of fixed assets in connection with the new lab
operations that commenced during May 2019 and reduced proceeds received from the
sale of the Anu assets of $140,022, and reduced expenditures associated with the
purchase of minority interests in Mint Organics of $40,000 that occurred during
the nine months ended July 31, 2018.
51
During the nine months ended July 31, 2019, the Company had cash provided by
financing activities of $398,866, compared to cash provided by financing
activities of $250,000 for the nine months ended July 31, 2018, an overall
increase of $148,866. The increase in cash provided by financing activities was
due to increases in proceeds from the sale of equity securities of $254,500,
partially offset from decreases in proceeds received in connection with
issuances of notes payable of $95,000 increased payments on capital leases of
$10,634.
Off-Balance Sheet Arrangements
Our liquidity is not dependent on the use of off-balance sheet financing
arrangements (as that term is defined in Item 303(a) (4) (ii) of Regulation S-K)
and as of July 31, 2019 and through the date of this report, we had no such
arrangements.
Recently Issued Financial Accounting Standards
In February 2016, a pronouncement was issued by the FASB that creates new
accounting and reporting guidelines for leasing arrangements. The new guidance
requires organizations that lease assets to recognize assets and liabilities on
the balance sheet related to the rights and obligations created by those leases,
regardless of whether they are classified as finance or operating leases.
Consistent with current guidance, the recognition, measurement, and presentation
of expenses and cash flows arising from a lease primarily will depend on its
classification as a finance or operating lease. The guidance also requires new
disclosures to help financial statement users better understand the amount,
timing, and uncertainty of cash flows arising from leases. The new standard is
effective for annual reporting periods beginning after December 15, 2018,
including interim periods within that reporting period, with early application
permitted. The new standard is to be applied using a modified retrospective
approach. The Company does not expect that implementation of the new
pronouncement will have a material impact to its financial statements.
Critical Accounting Policies
Our unaudited consolidated financial statements reflect the selection and
application of accounting policies which require us to make significant
estimates and judgments. See Note 2 to our audited consolidated financial
statements included in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2018, "Summary of Significant Accounting Policies".
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