Zeo ScientifiX, Inc. 10-Q

Item 2 . Management's Discussion and Analysis of Financial Condition and Results of Operations. Unless stated otherwise, the words “we,” “us,” “our,” the “Company” or “Organicell” in this Quarterly Report on Form 10-Q refer to Organicell Regenerative Medicine, Inc., a Nevada corporation, and its subsidiaries. Cautionary Note Regarding Forward- Looking Statements The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “may,” “could,” “should,” “expect,” “plan,” “project,” “strategy,” “forecast,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” or similar expressions help identify forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and management cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will in fact occur. The Company’s actual results may differ materially from those anticipated, estimated, projected or expected by management. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. Overview We are a clinical-stage biopharmaceutical company principally focusing on the development of innovative biological therapeutics for the treatment of degenerative diseases and to provide other related services. Our proprietary products are derived from perinatal sources and manufactured to retain the naturally occurring microRNAs, without the addition or combination of any other substance or diluent (“RAAM Products”). Our RAAM Products and related services are principally used in the health care industry administered through doctors and clinics (“Providers”). Since May 2019, Organicell has operated a placental tissue bank processing laboratory in Miami, Florida for the purpose of performing research and development and the manufacturing and processing of the anti-aging and cellular therapy derived products that we sell and distribute to our to its customers. The Company’s leading product, Zofin™ (also known as Organicell TM 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. This product contains over 300 growth factors, cytokines, chemokines, and 102 unique microRNAs as well as other exosomes/nanoparticles derived from perinatal tissues. Zofin™ is currently being tested in an U.S. Food and Drug Administration (“FDA”) authorized phase I/II randomized, double blinded, placebo trial to evaluate the safety and potential efficacy of intravenous infusion of Zofin™ for the treatment of moderate to severe SARS related to COVID-19 infection. To date, the Company has obtained certain Investigation New Drug (“IND”), and emergency IND (“eIND”) approvals from the FDA, including applicable Institutional Review Board (“IRB”) approvals which authorized the Company to commence clinical trials or treatments in connection with the use of Zofin™ and related treatment protocols. The Company is pursuing efforts to complete ongoing clinical studies as well as obtaining approval to commence additional studies for other specific indications it has identified that the use of its products will provide more favorable and desired health related benefits for patients seeking alternative treatment options than are currently available. 27 New FDA guidance which was announced in November 2017 and which became effective 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”). We have not obtained any opinion or ruling regarding the Company’s operations and whether the processing, sales and distribution of the products we currently produce would be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s. However, we do not believe that our products fall within these guidelines and intend to vigorously defend against any adverse interpretation by the FDA on the classification of our products that may be deemed as falling under this defined regulation, if any. Notwithstanding the foregoing, we are undertaking efforts on an ongoing basis to mitigate any potential risks associated with an adverse ruling by the FDA and the subsequent limitations on our ability to continue to generate revenues from the sale of our products in the United States until the Company obtains the required licenses. The efforts include continuing with clinical trials, expanding sales internationally and developing new product offerings and/or designations of products that would not fall under these regulations. The Company recently formed Livin’ Again Inc., a wholly owned subsidiary (“Livin”), for the purpose of among other things, providing independent education, advertising and marketing services, to Providers that provide medical and other healthcare, anti-aging and regenerative services. including FDA-approved IV vitamin and mineral liquid infusions. The Company intends to initially market such services by coordinating turnkey opportunities for Providers to provide IV Drip Therapies at select properties and locations. As of July 31, 2021, Livin did not have any significant activity. COVID-19 impact on 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. 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. 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. The following discussion of the Company's results of operations and liquidity and capital resources should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing in Item 1 . of this Quarterly Report on Form 10-Q. 28 Results of Operations Three months ended July 31, 2021 compared to three months ended July 31, 2020 Revenues Our revenues for the three months ended July 31, 2021 were $1,367,895, compared to revenues of $767,333 for the three months ended July 31, 2020. The increase in revenues during the three months ended July 31, 2021 of $600,562 (78.3%) was primarily the result of the Company being able to realize an increase of approximately 103.1% (approximately $694,500) in unit sales of its products during the three months ended July 31, 2021 compared with the three months ended July 31, 2020, partially offset from a decrease of approximately 12.2% (approximately $93,940) in the average sales prices for the products sold during the three months ended July 31, 2021 compared with the average sales prices realized on products sold during the three months ended July 31, 2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness, 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, 2021 compared with the three months ended July 31, 2020 was due to volume pricing discounts for large orders of the Company’s medical grade product offerings and the 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, 2021 were $136,044, compared with cost of revenues of $100,907 for the three months ended July 31, 2020. The increase in the cost of revenues during the three months ended July 31, 2021 of $35,137 (34.8%) compared with the three months ended July 31, 2020 was due to an increase in the amount of units sold of 103.1% (approximately $69,070) during the three months ended July 31, 2021 compared with the three months ended July 31, 2020, partially offset from the reduction in the cost of units sold of 33.6% (approximately $33,930) during the three months ended July 31, 2021 compared to costs of units sold during the three months ended July 31, 2020, 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, 2021 compared to the three months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings. Gross Profit Our gross profit for the three months ended July 31, 2021 was $1,231,851 (90.0% of revenues), compared with gross profit of $666,426 (86.9% of revenues) for the three months ended July 31, 2020. The increase in gross profit during the three months ended July 31, 2021 was the result of higher amount of units sold and lower cost of units sold during the three months ended July 31, 2021 compared to the three months ended July 31, 2020. 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, 2021 compared to the three months ended July 31, 2020 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, 2021 were $2,624,808, compared with $5,913,107 for the three months ended July 31, 2020, a decrease of $3,288,299. The decrease in the general and administrative expenses for the three months ended July 31, 2021 compared with the three months ended July 31, 2020 was primarily the result of reduced stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $4,180,000, partially offset from increased research and development costs of approximately $203,000, increased commissions due from sales of the Company’s products of approximately $275,000, increased payroll and consulting costs of approximately $178,000 and approximately $163,000 of increased professional fees. The increase in research and development costs, payroll and consulting costs and professional fees 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 and public company compliance related costs. Other Income (Expense) Other expense, net, for the three months ended July 31, 2021 was $15,951, compared with other expense, net, of $12,079 for the three months ended July 31, 2020. The net increase in other expense, net, of $3,872 was principally the result of increased interest costs of approximately $7,094, partially offset from reduced income associated with settlements of amounts due for accounts payable. 29 Nine months ended July 31, 2021 compared to nine months ended July 31, 2020 Revenues Our revenues for the nine months ended July 31, 2021 were $3,931,411, compared to revenues of $2,072,511 for the nine months ended July 31, 2020. The increase in revenues during the nine months ended July 31, 2021 of $1,858,900 (89.7%) was primarily the result of the Company being able to realize an increase of approximately 116.6% (approximately $2,116,060) in unit sales of its products during the nine months ended July 31, 2021 compared with the nine months ended July 31, 2020, partially offset from a decrease of approximately 12.4% (approximately $257,160) in the average sales prices for the products sold during the nine months ended July 31, 2021 compared with the average sales prices realized on products sold during the nine months ended July 31, 2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts establishing greater market awareness, 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, 2021 compared with the three months ended July 31, 2020 was due to volume pricing discounts for large orders of the Company’s medical grade product offerings and the 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, 2021 were $440,536, compared with cost of revenues of $297,905 for the nine months ended July 31, 2020. The increase in the cost of revenues during the nine months ended July 31, 2021 of $142,631 (47.9%) compared with the nine months ended July 31, 2020 was due to an increase in the amount of units sold of 116.6% (approximately $237,120) during the nine months ended July 31, 2021 compared with the nine months ended July 31, 2020, partially offset from the reduction in the cost of units sold of 31.7% (approximately ($94,490) during the nine months ended July 31, 2021 compared to costs of units sold during the nine months ended July 31, 2020, 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, 2021 compared to the nine months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings. Gross Profit Our gross profit for the nine months ended July 31, 2021 was $3,490,875 (88.8% of revenues), compared with gross profit of $1,774,606 (85.6% of revenues) for the nine months ended July 31, 2020. The increase in gross profit during the nine months ended July 31, 2021 was the result of higher amount of units sold and lower cost of units sold during the nine months ended July 31, 2021 compared to the nine months ended July 31, 2020. 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 nine months ended July 31, 2021 compared to the nine months ended July 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings. 30 General and Administrative Expenses General and administrative expenses for the nine months ended July 31, 2021 were $15,282,596, compared with $9,065,950 for the nine months ended July 31, 2020, an increase of $6,216,646. The increase in the general and administrative expenses for the nine months ended July 31, 2021 compared with the nine months ended July 31, 2020 was primarily the result of increased stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $2,877,000, increased research and development costs of approximately $994,000, increased commissions due from sales of the Company’s products of approximately $699,000, increased payroll and consulting costs of approximately $1,029,000, increased professional fees of approximately $270,000, increased office related costs of approximately $116,000 and approximately $214,000 of increased laboratory related expenses. The increase in research and development costs, payroll and consulting costs, professional fees 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 and public company compliance related costs. Other Income (Expense) Other expense, net, for the nine months ended July 31, 2021 was $6,687, compared with other (expense), net, of ($126,820) for the nine months ended July 31, 2020. The net decrease in other expense, net, of $120,133 was principally the result of reduced interest costs of approximately $94,000 recorded in connection with the amount of the discount to the fair value of common stock associated with the conversion of a funding facility into equity and the reduction in interest expense associated with such funding facility of approximately $25,000 during the nine months ended July 31, 2020. Liquidity and Capital Resources During the fiscal nine months ended July 31, 2021 and through the date of this Quarterly Report on 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. 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. 2. 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. 3. 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. 4. 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. 5. During May 2021, the Company sold an aggregate of 2,087,822 shares of common stock to eight “accredited investors” at $0.13 per share for an aggregate purchase price of $286,250. The proceeds were used for working capital. 6. 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. 7. 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. 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. 31 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, 2021 2020 Cash, beginning of year $ 590,797 $ 132,557 Net cash used in operating activities (2,120,925 ) (973,592 ) Net cash used in investing activities (224,809 ) (138,694 ) Net cash provided by financing activities 1,784,844 1,296,674 Cash, end of period $ 29,207 $ 319,945 During the nine months ended July 31, 2021, the Company used cash in operating activities of $2,120,925, compared to $973,592 for the nine months ended July 31, 2020, an increase in cash used of $1,147,333. The increase in cash used in operating activities was due to the increase in the general and administrative expenses during the nine months ended July 31, 2021 after adjusting for non-cash charges (mostly related to stock-based compensation), 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, 2021, partially offset from the increase in revenues and gross profit during the nine months ended July 31, 2021. During the nine months ended July 31, 2021, the Company had cash used in investing activities of $224,809, compared to cash used in investing activities of $138,694 for the nine months ended July 31, 2020. The increase in cash used in investing activities of $86,115 was due primarily due the Company’s construction of the new lab facility in Basalt, CO partially offset from lower capital expenditures for the acquisition of additional fixed assets required in connection with the Company’s laboratory operations during the nine months ended July 31, 2021 as compared to the nine months ended July 31, 2020. During the nine months ended July 31, 2021, the Company had cash provided by financing activities of $1,784,844 compared to cash provided by financing activities of $1,296,674 for the nine months ended July 31, 2020. The increase in cash provided by financing activities was due to increases in proceeds from the sale of equity securities and convertible notes of approximately $431,000, decreases in repayments of outstanding debt obligations of approximately $48,000 and reduced payments on finance leases of approximately $9,000. 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 $11,791,721 for the nine months ended July 31, 2021. In addition, the Company had an accumulated deficit of $40,666,597 at July 31, 2021. The Company had a negative working capital position of $3,095,005 at July 31, 2021. 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 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. As a result of the above, the Company’s efforts to establish a stabilized source of sufficient revenues to cover operating costs has yet to be achieved and ultimately may prove to be unsuccessful unless (a) the Company’s ability to process, sell and distribute the products currently being produced or developed in the future are not restricted, (b) the United States economy resumes to pre-COVID-19 conditions and/or (c) additional sources of working capital through operations or debt and/or equity financings are realized. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 32 Management anticipates that the Company will remain dependent, for the near future, on additional investment capital to fund ongoing operating expenses and research and development costs related to development of new products and to perform required clinical studies in connection with the sale of its products. The Company does not have any assets to pledge for the purpose of borrowing additional capital. In addition, the Company relies on its ability to produce and sell products it manufactures that are subject to changing technology and regulations that it currently sells and distributes to its customers. The Company’s current market capitalization, common stock liquidity and available authorized shares may hinder its ability to raise equity proceeds. The Company anticipates that future sources of funding, if any, will therefore be costly and dilutive, if available at all. In view of the matters described in the preceding paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that (1) the Company is able to continue to produce products or obtain products under supply arrangements which are in compliance with current and future regulatory guidelines, (2) the effects of the COVID-19 crisis resume to pre-COVID-19 market conditions, (3) the Company will be able to establish a stabilized source of revenues, including efforts to expand sales internationally and the development of new product offerings and/or designations of products, (4) obligations to the Company’s creditors are not accelerated, (5) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations, (6) the Company is able to continue its research and development activities, particularly in regards to remaining compliant with the FDA and ongoing safety and efficacy of its products, and/or (7) the Company obtains additional working capital to meet its contractual commitments and maintain the current level of Company operations through debt or equity sources. There is no assurance as to when the adverse impact to the United States and worldwide economies resulting from the COVID-19 outbreak will be eliminated, if at all, and whether any new or recurring pandemic outbreaks will occur again in the future causing similar or worse devastating impact to the United States and worldwide economies and our business. In addition, there is no assurance that the products we currently produce will not be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s and/or the Company will be able to complete its revenue growth strategy. There is no assurance that the Company’s research and development activities will be successful or that the Company will be able to timely fund the required costs of those activities. Without sufficient cash reserves, the Company’s ability to pursue growth objectives will be adversely impacted. Furthermore, despite significant effort since July 2015, the Company has thus far been unsuccessful in achieving a stabilized source of revenues. As described above, the COVID-19 crisis has significantly impaired the Company and the overall Unites States and World economies. If revenues do not increase and stabilize, if the COVID-19 crisis is not satisfactorily managed and/or resolved, if the Company’s ability to process, sell and/or distribute the products currently being produced or developed in the future are restricted, and/or if additional funds cannot otherwise be raised, the Company might be required to seek other alternatives which could include the sale of assets, closure of operations and/or protection under the U.S. bankruptcy laws. As of July 31, 2021, 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. 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, 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, 2020, “Summary of Significant Accounting Policies”. 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.