Zeo ScientifiX, Inc. 10-Q

Item 2 . Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2020 and July 31, 2019 Revenues Our revenues for the three months ended July 31, 2020 were $767,333, compared with revenues of $578,705 for the three months ended July 31, 2019. The increase in revenues during the three months ended July 31, 2020 of $188,628 (32.6%) was primarily the result of the Company being able to realize an increase of approximately 84.4% (approximately $351,277) in unit sales of its products during the three months ended July 31, 2020 compared with the three months ended July 31, 2019, partially offset from a decrease of approximately 28.1% (approximately $162,649) in the average sales prices for the products sold during the three months ended July 31, 2020 compared with the average sales prices realized on products sold during the three months ended July 31, 2019. 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. The decrease in the average sales prices realized on products sold during the three months ended July 31, 2020 compared with the three months ended July 31, 2019 was due to an increase in the sales of the Company’s aesthetic product offerings which are sold at lower prices than the Company’s medical grade product offerings. Cost of Revenues Our cost of revenues for the three months ended July 31, 2020 were $100,907, compared with cost of revenues of $80,630 for the three months ended July 31, 2019. The increase in the cost of revenues during the three months ended July 31, 2020 compared with the three months ended July 31, 2019 was due to an increase in the amount of units sold of 84.4% (approximately $46,194) during the three months ended July 31, 2020 compared with the three months ended July 31, 2019, partially offset from the reduction in the cost of units sold of 32.1% (approximately ($25,917) during the three months ended July 31, 2020 compared to costs of units sold during the three months ended July 31, 2019, which as described above was primarily the result of the Company’s increase in the sales of the Company’s aesthetic product offerings during the three months ended July 31, 2020 compared to the three months ended July 31, 2019 which have a lower cost of revenue than the Company’s medical grade product offerings. 30 Gross Profit Our gross profit for the three months ended July 31, 2020 was $666,426, compared with gross profit of $498,075 for the three months ended July 31, 2019. The increase in gross profit during the three months ended July 31, 2020 was the result of higher amount of units sold and lower cost of units sold during the three months ended July 31, 2020 compared to the three months ended July 31, 2019. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness and the introduction of new and more advanced product offerings. The lower cost of units sold was due to the Company’s increase in the sales of the Company’s aesthetic product offerings during the three months ended July 31, 2020 compared to the three months ended July 31, 2019 which have a lower cost of revenue than the Company’s medical grade product offerings. General and Administrative Expenses General and administrative expenses for the three months ended July 31, 2020 were $5,913,107, compared with $837,219 for the three months ended July 31, 2019, an increase of $5,075,888. The increase in the general and administrative expenses for the three months ended July 31, 2020 compared with the three months ended July 31, 2019 was primarily the result of increased stock-based compensation costs to advisors, consultants and administrative staff totaling $4,524,517, increased payroll costs of approximately $490,000 and approximately $40,000 of increased laboratory related expenses. Other Income (Expense) Other expense, net, for the three months ended July 31, 2020 was $12,079, compared with other expense, net, of $11,449 for the three months ended July 31, 2019, an insignificant increase of $630. For the Nine Months Ended July 31, 2020 and July 31, 2019 Revenues Our revenues for the nine months ended July 31, 2020 were $2,072,511, compared with revenues of $1,116,627 for the nine months ended July 31, 2019. The increase in revenues during the nine months ended July 31, 2020 of $955,884 (85.6%) was primarily the result of the Company’s ability to increase unit sales of its products by 130.6% (approximately $1,173,653) during the nine months ended July 31, 2020 compared with the nine months ended July 31, 2019, partially offset from the reduction of approximately 19.5% (approximately $217,769) in the average sales prices for the products sold during the nine months ended July 31, 2020 compared with the average sales prices realized on products sold during the nine months ended July 31, 2019. 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. The decrease in the average sales prices realized on products sold during the nine months ended July 31, 2020 compared with the nine months ended July 31, 2019 was due to an increase in the sales of the Company’s aesthetic product offerings which are sold at lower prices than the Company’s medical grade product offerings. Cost of Revenues Our cost of revenues for the nine months ended July 31, 2020 were $297,905, compared with cost of revenues of $194,640 for the nine months ended July 31, 2019. The increase in the cost of revenues during the nine months ended July 31, 2020 compared with the nine months ended July 31, 2019 was due to an increase in the amount of units sold of 130.6% (approximately $168,702) during the nine months ended July 31, 2020 compared with the nine months ended July 31, 2019, partially offset from the reduction in the cost of units sold of 33.6% (approximately ($65,437) during the nine months ended July 31, 2020 compared to costs of units sold during the nine months ended July 31, 2019, which as described above was primarily the result of the Company’s increase in the sales of the Company’s aesthetic product offerings during the nine months ended July 31, 2020 compared to the nine months ended July 31, 2019 which have a lower cost of revenue than the Company’s medical grade product offerings and also from the Company’s ability to supply inventory through lower costing inventory manufactured by the Company beginning in May 2019 rather than from more costly third party manufacturers for the six months ended April 30, 2019. 31 Gross Profit Our gross profit for the nine months ended July 31, 2020 was $1,774,606, compared with gross profit of $921,987 for the nine months ended July 31, 2019. The increase in gross profit during the nine months ended July 31, 2020 of $852,619 (92.5%) was the result of the increase in the amount of units sold during the nine months ended July 31, 2020 compared to the nine months ended July 31, 2019 and the lower costs of units sold during the nine months ended July 31, 2020 compared to the nine months ended July 31, 2019. 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 lower cost of units sold was due to the Company’s increase in the sales of the Company’s aesthetic product offerings during the nine months ended July 31, 2020 compared to the nine months ended July 31, 2019 which have a lower cost of revenue than the Company’s medical grade product offerings and also from the Company’s ability to supply inventory through lower costing inventory manufactured by the Company beginning in May 2019 rather than from more costly third party manufacturers for the six months ended April 30, 2019. General and Administrative Expenses General and administrative expenses for the nine months ended July 31, 2020 were $9,065,950, compared with $1,987,737 for the nine months ended July 31, 2019, an increase of $7,078,213. The increase in the general and administrative expenses for the nine months ended July 31, 2020 compared to the nine months ended July 31, 2019 was primarily the result of increased stock-based compensation costs to advisors, consultants and administrative staff totaling $5,140,389, increased payroll and consulting costs of approximately $1,603,000 and approximately $217,000 of increased laboratory related expenses. The increase in payroll and consulting costs and laboratory related expenses was the result of the Company’s expansion of its research and development activities primarily relating to the filing and approval of IND applications and the performance of clinical trials. Other Income (Expense) Other (expense), net, for the nine months ended July 31, 2020 was ($126,820), compared with other income, net, of $49,530 for the nine months ended July 31, 2019, a decrease of $176,350. The net decrease in the other income was the result of reduced income realized from the settlement of obligations of $64,107 and increased interest costs associated with interest-bearing obligations totaling $18,073 and $94,170 in connection with the amount of the discount to the fair value of the Converted Stock associated with the conversion of the Funding Facility. Liquidity and Capital Resources Liquidity and Capital Resources During the fiscal nine months ended July 31, 2020 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 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. 32 2. 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. 3. 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. 4. 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, August and October 2020, the Company sold an additional 1,166,666 shares, 422,514 shares, and 625,000 shares of common stock to Dr. Allen Meglin at $0.03 per share, $0.10 per share and $0.08 per share, respectively, for an aggregate purchase price of $127,251. The proceeds from all of the above sales were used for working capital. 5. 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. 6. 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. 7. During 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. 8. During 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. 9. During 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. 10. During October 2020, the Company sold 2,033,333 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 $170,000. The proceeds were used for working capital. 11. During October 2020, the Company and the holder of the $20,000 debenture agreed to convert the principal amount of the $20,000 debenture plus interest accrued and unpaid through the date of the conversion totaling approximately $20,300 into 160,000 shares of common stock of the Company. 12. 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. 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 unaudited accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has had limited revenues since its inception. The Company incurred operating losses of $7,291,344 for the nine months ended July 31, 2020. In addition, the Company had an accumulated deficit of $23,703,386 at July 31, 2020. The Company had a negative working capital position of $2,175,767 at July 31, 2020. 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, (b) is aggressively seeking to raise additional debt and/or equity financing to support working capital requirements, and (c) continues to take steps to stabilize and increase revenues from the sale of its products. 33 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, common stock liquidity and available authorized shares may hinder its ability to raise equity proceeds. The Company anticipates that future sources of funding, if any, will therefore be costly and dilutive, if available at all. In view of the matters described in the preceding paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that (1) the 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, 2020, 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, 2020 2019 Cash, beginning of year $ 132,557 $ 43,016 Net cash used in operating activities (973,592 ) (372,568 ) Net cash used in investing activities (138,694 ) (32,736 ) Net cash provided by financing activities 1,296,674 398,866 Cash, end of year $ 316,945 $ 36,578 During the nine months ended July 31, 2020, the Company used cash in operating activities of $973,592, compared to $372,568 for the nine months ended July 31, 2019, an increase in cash used of $601,024. The change in cash used in operating activities was due to the increase in the general and administrative expenses during the nine months ended July 31, 2020 after adjusting for non-cash charges (mostly related to stock-based compensation and interest expense on conversion of Funding Facility), resulting from increased payroll and consulting costs and laboratory related expenses in connection with the Company’s expansion of its research and development activities during the nine months ended July 31, 2020, partially offset from the increase in revenues and gross profit during the nine months ended July 31, 2020. 34 During the nine months ended July 31, 2020, the Company had cash used in investing activities of $138,694, compared to cash used in investing activities of $32,736 for the nine months ended July 31, 2019. The increase in the cash used in investing activities was due primarily due the acquisition of additional fixed assets required in connection with the expansion of the Company’s laboratory operations. During the nine months ended July 31, 2020, the Company had cash provided by financing activities of $1,296,674, compared to cash provided by financing activities of $398,866 for the nine months ended July 31, 2019, an overall increase of $897,808. The increase in cash provided by financing activities was due to increases in proceeds from the sale of equity securities and notes payable of $671,500 and $345,000, respectively, partially offset from increased payments on outstanding debt obligations and finance and operating leases. 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, 2020 and through the date of this report, we had no such arrangements. Recently Issued Financial Accounting Standards There were no recently issued financial accounting standards that would have an impact on the Company’s financial statements. Critical Accounting Policies Our unaudited consolidated financial statements reflect the selection and application of accounting policies which require us to make significant estimates and judgments. See Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019, “Summary of Significant Accounting Policies”. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.