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 (the “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. Business 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 customers. The Company’s leading product, Zofin™ (also known as Organicell™ 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. To date, the Company has obtained certain Investigation New Drug (“IND”), and eighteen 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 its already approved clinical studies (see below) 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. The ability of the Company to succeed in these efforts is subject to among other things, the Company having sufficient available working capital to fund the substantial costs of completing clinical trials, which the Company currently does not have, and ultimately, obtaining approval from the FDA. 21 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) requires 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. In June 2021, the Company announced that it was launching a service platform for its first autologous product called Patient Pure X™ (PPX™). PPX™ is a non-manipulated biologic containing the nanoparticle fraction from a patient’s own peripheral blood. The Company began to accept minimal orders for this service since October 2021. In November 2020, the Company formed Livin’ Again Inc., a wholly owned subsidiary, for the purpose of among other things, providing independent education, advertising and marketing services, to Providers that provide medical and other healthcare, anti-aging and regenerative services. including FDA-approved IV vitamin and mineral liquid infusions (“IV Drip Therapies”). To date, there has been no significant activity and the Company has no timetable, if any, as to when IV Drip Therapies revenues will commence. COVID-19 impact on Economy and Business Environment The adverse public health developments and economic effects of the ongoing 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. 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. 22 Results of Operations Three months ended January 31, 2022 as compared to three months ended January 31, 2021 Revenues . Our revenues for the three months ended January 31, 2022 were $1,599,147, compared to revenues of $1,368,440 for the three months ended January 31, 2021. The increase in revenues during the three months ended January 31, 2022 of $230,707 or 16.9% was primarily the result of the Company being able to realize an increase of approximately 22.3% (approximately $305,600) in the average sales prices for the products sold during the three months ended January 31, 2022 compared with the average sales prices realized on products sold during the three months ended January 31, 2021 and the Company’s ability to generate approximately $48,500 of new revenues associated with its recently launched PPX TM service platform during the three months ended January 31, 2022, partially offset from a decrease of approximately 7.4% (approximately $123,500) in the overall unit sales of its products during the three months ended January 31, 2022 compared with the three months ended January 31, 2021. The increase in the average sales prices realized on products sold during the three months ended January 31, 2022 compared with the three months ended January 31, 2021 was due to increases in sales of higher priced medical grade product, the reduction in volume pricing discounts granted to distributors for large orders of the Company’s medical grade product offerings and the reduction 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 January 31, 2022 were $149,120, compared with cost of revenues of $168,171 for the three months ended January 31, 2021. The decrease in the cost of revenues during the three months ended January 31, 2022 of $19,051 or 11.3% compared with the three months ended January 31, 2021 was due to a decrease in the amount of units sold of 7.37% (approximately $11,900) during the three months ended January 31, 2022 compared with the three months ended January 31, 2021 and the reduction in the cost of units sold of 4.3% (approximately ($7,200) during the three months ended January 31, 2022 compared to costs of units sold during the three months ended January 31, 2021. The decrease in the cost of units sold was primarily the result of the Company’s ability to obtain lower cost of raw materials used in the processing of the units that were sold during the three months ended January 31, 2022 compared with the three months ended January 31, 2021. Gross Profit . Our gross profit for the three months ended January 31, 2022 was $1,450,027 (90.7% of revenues), compared with gross profit of $1,200,269 (87.7% of revenues) for the three months ended January 31, 2021. The increase in gross profit during the three months ended January 31, 2022 of $249,758 was the result of increase in average sales prices for the products sold, lower number of units and costs associated with units sold and the new revenues associated with its recently launched PPX™ service platform during the three months ended January 31, 2022 compared to the three months ended January 31, 2021. General and Administrative Expenses . General and administrative expenses for the three months ended January 31, 2022 were $3,091,459, compared with $9,365,360 for the three months ended January 31, 2021, a decrease of $6,273,901 or 67.0%. The decrease in the general and administrative expenses for the three months ended January 31, 2022 compared with the three months ended January 31, 2021 was primarily the result of a decrease in stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $6,094,815, reduced research and development costs of approximately $385,600 and reduced consulting fees of approximately $105,000, partially offset by increases in commissions due from sales of the Company’s products of approximately $160,000 and increased professional fees of approximately $187,000. The decrease in stock-based compensation costs was the result of a reduction in the amount of shares issued as stock-based compensation during the three months ended January 31, 2022 compared with the three months ended 2020 and decreases in the costs attributable to the shares issued as stock-based compensation based on decreases in the Company’s share price during periods that the stock-based compensation was granted. Other Income (Expense) Other (expense), net, for the three months ended January 31, 2022 was ($52,304), compared with other income, net, of $15,356 for the three months ended January 31, 2021. The increase in other (expense), net, of $67,660 during the three months ended January 31, 2022 compared to the three months ended January 31, 2021 was principally the result of increased costs from the amortization of the discounts associated with the Promissory Note of approximately $32,000, the increase in the Commitment Fee Shortfall Obligation of $12,000 and the reduction in other income of $21,565 from settlements received during the three months ended January 31, 2022 compared with the three months ended 2020. 23 Liquidity and Capital Resources 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 Three Months Ended January 31, 2022 2021 Cash, beginning of year $ 108,570 $ 590,797 Net cash used in operating activities (559,994 ) (482,765 ) Net cash used in investing activities (155,134 ) (46,264 ) Net cash provided by financing activities 756,878 5,046 Cash, end of period $ 150,320 $ 66,814 During the three months January 31, 2022, the Company used cash in operating activities of $559,994, compared to $482,765 for the three months January 31, 2021, an increase in cash used of $77,229. The increase in cash used in operating activities was due to the Company’s use of cash to pay increasing operating expenses on a current basis associated with professional fees, payroll, consulting costs and laboratory related expenses in connection with the Company’s expansion of its research and development activities as well as payment of past due accounts payable and accrued expenses during the three months January 31, 2022 as compared to the three months January 31, 2021, partially offset from the increase in revenues and gross profit during the three months January 31, 2022 as compared to the three months January 31, 2021. During the three months January 31, 2022, the Company had cash used in investing activities of $155,134, compared to cash used in investing activities of $46,264 for the three months January 31, 2021. The increase in cash used in investing activities of $108,870 was due primarily due the Company’s leasehold improvements associated with the new lab facility in Basalt, CO of $101,769 and increased capital expenditures for the acquisition of additional fixed assets required in connection with the Company’s laboratory operations during the three months January 31, 2022 as compared to the three months January 31, 2021. During the three months January 31, 2022, the Company had cash provided by financing activities of $756,878 compared to cash provided by financing activities of $5,046 for the three months January 31, 2021. The increase in cash provided by financing activities of $751,832 was due to increases in proceeds from the sale of equity securities of approximately $360,000 and the increase in proceeds from the issuance of the Promissory Note of $540,000, partially offset from increases in repayments of outstanding debt obligations of approximately $143,693, increased payments on finance leases of approximately $4,500 during the three months January 31, 2022 as compared to the three months January 31, 2021. Capital Resources The Company has historically 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. During the three months ended January 31, 2022 and through the date of this report, the Company completed the following private sales of its securities: 1. In November 2021, the Company sold an aggregate of 8,000,000 shares of common stock to one “accredited investor” at $0.05 per share for an aggregate purchase price of $400,000. The proceeds were used for working capital. 2. In January 2022, the Company sold an aggregate of 666,667 shares of common stock to one “accredited investor” at $0.03 per share for an aggregate purchase price of $20,000. The purchase price was paid through an offset of an outstanding balance owed by the Company to the investor at the time of the sale of $20,000. 3. On January 11, 2022, the Company entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (the “Purchaser”) pursuant to which we sold a Promissory Note in the principal amount of $600,000 to the Purchaser in a private transaction for a purchase price of $540,000 (giving effect to original issue discount of $60,000). The proceeds were used for working capital. 4. In February 2022, the Company sold an aggregate of 8,333,333 shares of common stock to one “accredited investor” at $0.03 per share for an aggregate purchase price of $250,000. The proceeds were used for working capital. 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. 24 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 $1,641,432 for the three months ended January 31, 2022. In addition, the Company had an accumulated deficit of $43,318,485 at January 31, 2022. The Company had a negative working capital position of $4,400,806 at January 31, 2022. New United States Food and Drug Administration (“FDA”) regulations which were announced in November 2017 and which became effective beginning in May 2021 (postponed from November 2020 due to the COVID-19 pandemic) require that the sale of products that fall under Section 351 of the Public Health Services Act pertaining to marketing traditional biologics and human cells, tissues and cellular and tissue based products (“HCT/Ps”) can only be sold pursuant to an approved biologics license application (“BLA”). The Company has not obtained any opinion or ruling regarding the Company’s operations and whether the processing, sales and distribution of the products it currently produces would be subject to the FDA’s previously announced intended enforcement policies regarding HCT/P’s. In addition to the above, the adverse public health developments and economic effects of the ongoing COVID-19 pandemic 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. 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. 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 United States and World economies. 25 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 January 31, 2022, based on the factors described above, the Company concluded that there was substantial doubt about its ability to continue to operate as a going concern for the 12 months following the issuance of these financial statements. 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 January 31, 2022 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, 2021, “Summary of Significant Accounting Policies”. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.