Zeo ScientifiX, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information The symbol for our common stock is BPSR. Due to the late filing of this Form 10-K and other Exchange Act Reports, our common stock is currently quoted on the OTCPink tier of the over-the counter market operated by OTC Markets Group, Inc. Common Stock As of January 28, 2021, 992,207,783 shares of our common stock were outstanding. Holders of Our Common Stock As of January 28, 2021, we had approximately 200 record holders of our common stock. One of these holders is CEDE and Company which is the mechanism used for brokerage firms to hold securities in book entry form on behalf of their clients and as of January 28, 2021, they held 51,733,743 shares of common stock for these shareholders. Accordingly, we believe that we have significantly in excess of 1,000 beneficial shareholders as of the date of this report. Dividend Policy We have never paid or declared dividends on our securities. The payment of cash dividends, if any, in the future is within the discretion of our Board and will depend upon our earnings, our capital requirements, financial condition and other relevant factors. We do not expect to pay dividends for the foreseeable future, and intend to retain future earnings, if any, towards the use in our business and growth strategies. Securities Authorized for Issuance under Equity Compensation Plans Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 2020 Plan -0- -0- 50,000,000 Board Stock Compensation Plan -0- -0- 4,513,192 Management And Consultants Performance Stock Plan -0- -0- 582,500,000 37 Recent Sales of Unregistered Securities 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. 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. None of the above issuances involved any underwriters, underwriting discounts or commissions, or any public offering and we believe were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) and Regulation D promulgated thereunder due to the fact that there was no solicitation or advertising and the did not involve a public offering of securities. 38 ITEM 6. SELECTED FINANCIAL DATA. As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item of Form 10-K. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from those we currently anticipate as a result of many factors, including the factors we describe under “Risk Factors” and elsewhere in this report. Forward Looking Statements Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they: ● discuss our future expectations; ● contain projections of our future results of operations or of our financial condition; and ● state other “forward-looking” information. We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Item 1. Business,” “Item 1A Risk Factors,” “Business” and elsewhere in this report. 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. 39 Results of Operations Fiscal year ended October 31, 2020 as compared to fiscal year ended October 31, 2019 Revenues Our revenues for the year ended October 31, 2020 were $3,055,776, compared with revenues of $1,702,271 for the year ended October 31, 2019. The increase in revenues during the year ended October 31, 2020 of $1,353,505 (79.5%) was primarily the result of the Company’s ability to increase unit sales of its products by 125.0% (approximately $1,697,898) during the year ended October 31, 2020 compared with the year ended October 31, 2019, partially offset from the reduction of approximately 20.2% (approximately $344,393) in the average sales prices for the products sold during the year ended October 31, 2020 compared with the average sales prices realized on products sold during the year ended October 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 year ended October 31, 2020 compared with the year ended October 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 year ended October 31, 2020 were $398,606, compared with cost of revenues of $300,837 for the year ended October 31, 2019. The increase in the cost of revenues during the year ended October 31, 2020 compared with the year ended October 31, 2019 was due to an increase in the amount of units sold of 125.0% (approximately $221,480) during the year ended October 31, 2020 compared with the year ended October 31, 2019, partially offset from the reduction in the cost of units sold of 40.7% (approximately ($123,711) during the year ended October 31, 2020 compared to costs of units sold during the year ended October 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 year ended October 31, 2020 compared to the year ended October 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. Gross Profit Our gross profit for the year ended October 31, 2020 was $2,657,170, compared with gross profit of $1,401,434 for the year ended October 31, 2019. The increase in gross profit during the year ended October 31, 2020 of $1,255,736 (89.6%) was the result of the increase in the amount of units sold during the year ended October 31, 2020 compared to the year ended October 31, 2019 and the lower costs of units sold during the year ended October 31, 2020 compared to the year ended October 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 year ended October 31, 2020 compared to the year ended October 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 year ended October 31, 2020 were $15,095,111, compared with $3,177,924 for the year ended October 31, 2019, an increase of $11,917,187. The increase in the general and administrative expenses for the year ended October 31, 2020 compared to the year ended October 31, 2019 was primarily the result of increased stock-based compensation costs to advisors, consultants and administrative staff totaling $9,187,087, increased payroll and consulting costs of approximately $2,171,000, approximately $308,000 of increased laboratory related expenses and approximately $260,000 of increased professional fees and administrative 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 year ended October 31, 2020 was ($145,027), compared with other income, net, of $38,191 for the year ended October 31, 2019, a decrease of $183,218. The net decrease in the other income was the result of reduced income realized from the settlement of obligations of $52,074 and increased interest costs associated with interest-bearing obligations totaling $13,394 and $118,350 in connection with the amount of the discount to the fair value of the Converted Stock associated with the conversion of the debt. 40 Liquidity and Capital Resources During the fiscal year ended October 31, 2020 and through the date of the filing of this Form 10-K, 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. 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. 41 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. 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 Fiscal Year Ended October 31, 2020 2019 Cash, beginning of year $ 132,557 $ 43,016 Net cash used in operating activities (1,812,499 ) (565,454 ) Net cash used in investing activities (138,694 ) (32,736 ) Net cash provided by financing activities 2,409,433 687,731 Cash, end of year $ 590,797 $ 132,557 During the year ended October 31, 2020, the Company used cash in operating activities of $1,812,499, compared to $565,454 for the year ended October 31, 2019, an increase in cash used of $1,247,045. The change in cash used in operating activities was due to the increase in the general and administrative expenses during the year ended October 31, 2020 after adjusting for non-cash charges (mostly related to stock-based compensation and interest expense on conversion of debt), 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 year ended October 31, 2020, partially offset from the increase in revenues and gross profit during the year ended October 31, 2020. During the year ended October 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 year ended October 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 year ended October 31, 2020, the Company had cash provided by financing activities of $2,409,433, compared to cash provided by financing activities of $687,731 for the year ended October 31, 2019, an overall increase of $1,721,702. The increase in cash provided by financing activities was due to increases in proceeds from the sale of equity securities and notes payable of $1,735,821 and $145,000, respectively, partially offset from increased payments on outstanding debt obligations and finance and operating leases. Going Concern Consideration 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 operating losses of $12,437,941 for the year ended October 31, 2020. In addition, the Company had an accumulated deficit of $28,868,189 at October 31, 2020. The Company had a negative working capital position of $1,693,741 at October 31, 2020. 42 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 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. 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 October 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. 43 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 October 31, 2019 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 audited 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 this Annual Report on Form 10-K, “Summary of Significant Accounting Policies”. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item of Form 10-K. 44