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 regenerative medicine. The Company’s proprietary products are derived from perinatal sources and manufactured to retain the naturally occurring extracellular vesicles, hyaluronic acid, and proteins 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”). Organicell operates an extracellular vesicle processing laboratory in Davie, Florida, and Basalt, Colorado each 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 Investigational New Drug (“IND”), and 18 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 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. 25 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 in October 2021 and to date revenues from PPX™ continue to be immaterial. 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. Results of Operations Three months ended April 30, 2023 as compared to three months ended April 30, 2022 Revenues . Our revenues for the three months ended April 30, 2023 were $845,501, compared to revenues of $1,735,173 for the three months ended April 30, 2022. The decrease in revenues during the three months ended April 30, 2023 of $889,672 or 51.3%, was primarily the result of a decrease of approximately 29.4% (approximately $340,500) in the overall unit sales of its products during the three months ended April 30, 2023 compared with the three months ended April 30, 2022, a decrease of approximately 32.0% (approximately $545,900) in the average sales prices for the products sold during the three months ended April 30, 2023 compared with the average sales prices realized on products sold during the three months ended April 30, 2023 and a decrease of approximately $3,200 of new revenues associated with its recently launched PPX™ service platform during the three months ended April 30, 2023 compared with the three months ended April 30, 2022. The decrease in the average sales prices realized on products sold during the three months ended April 30, 2023 compared with the three months ended April 30, 2022, was due to decreases in the average prices of higher priced medical grade products and the reduction in sales of higher priced medical grade products as compared to the Company’s aesthetic product offerings. The percentage of overall unit sales among the Company’s medical grade products and the Company’s aesthetic product offerings fell from 68.5% and 31.5%, respectively for the three months ended April 30, 2022 to 41.5% and 58.5%, respectively, during the three months ended April 30, 2023. Cost of Revenues . Our cost of revenues for the three months ended April 30, 2023 were $108,076, compared with cost of revenues of $126,418 for the three months ended April 30, 2022. The decrease in the cost of revenues during the three months ended April 30, 2023 of $18,342 or 14.5%, compared with the three months ended April 30, 2022, was due to a decrease in the amount of units sold of 29.4% (approximately $44,950) during the three months ended April 30, 2023, compared with the three months ended April 30, 2022, partially offset from an increase in the cost of units sold of 21.0% (approximately ($26,600) during the three months ended April 30, 2023, compared to costs of units sold during the three months ended April 30, 2022. The decrease in the cost of units sold was primarily the result of the Company’s decrease in sales of its medical grade product offerings partially offset from the increases in costs associated with its recently launched PPX™ service platform during the three months ended April 30, 2023 as compared to the three months ended April 30, 2022. Gross Profit . Our gross profit for the three months ended April 30, 2023 was $737,425 (87.2% of revenues), compared with gross profit of $1,608,755 (92.7% of revenues) for the three months ended April 30, 2022. The decrease in gross profit during the three months ended April 30, 2023 of $871,330 was the result of decreases in the average sales prices for the products sold during the three months ended April 30, 2023 and decreases in overall unit sales of its products during the three months ended April 30, 2023 compared to the three months ended April 30, 2022. 26 General and Administrative Expenses . General and administrative expenses for the three months ended April 30, 2023 were $2,650,124, compared with $2,867,017 for the three months ended April 30, 2022, a decrease of $216,893 or 7.6%. The decrease in the general and administrative expenses for the three months ended April 30, 2023 compared with the three months ended April 30, 2022, was primarily the result of decreased payroll and consulting fees of approximately $508,000, decreases in commissions from sales of the Company’s products and travel and entertainment costs of approximately $526,400, and reduced office related expenses of approximately $193,600, partially offset by an increase in stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $439,900 increased professional fees of approximately $197,800, increased research and development costs of approximately $131,100, increases in insurance costs of approximately $60,400, and increased laboratory related costs of approximately $86,700. The reduction in payroll and consulting fees was primarily the result of the Executives’ agreement to a reduction in salary and other compensation in connection with the Restructuring and reductions in fees paid to consultants during the three months ended April 30, 2023 compared to 2022. The decreases in commissions on from sales of the Company’s products and travel and entertainment costs was principally the result of lower unit sales and overall revenues from the sale of the Company’s products during the three months ended April 30, 2023 compared with the three months ended April 30, 2022. The increase in stock-based compensation costs during the three months ended April 30, 2023 compared with the three months ended April 30, 2022 was principally the result of the amortization of costs from warrants issued as stock-based compensation to consultants in connection with the Restructuring in August 2022, stock issued as payment for services, and warrants issued to outside directors. Other Expense. Other expense for the three months ended April 30, 2023 was $78,599, compared with other expense of $197,781 for the three months ended April 30, 2022. The decrease in other expense of $119,182 during the three months ended April 30, 2023 compared to the three months ended April 30, 2022, was principally the result of the decrease in additional Commitment Fee Shortfall Obligations of approximately $79,000 under our Securities Purchase Agreement (“SPA 22”) with AJB Capital Investments, LLC (“AJB”), decreased interest costs of approximately $10,800 in connection with the $600,000 promissory note (“$600,000 Note”) issued and sold by the Company to AJB in January 2022 and repaid during January 2023 and a decrease of approximately $37,900 in amortization of discounts in connection with the $600,000 Note during the three months ended April 30, 2023 compared with the three months ended April 30, 2022. Six months ended April 30, 2023 as compared to six months ended April 30, 2022 Revenues . Our revenues for the six months ended April 30, 2023 were $1,915,720, compared to revenues of $3,334,321 for the six months ended April 30, 2022. The decrease in revenues during the six months ended April 30, 2023 of $1,418,601 or 42.6%, was primarily the result of a decrease of approximately 25.2% (approximately $628,000) in the overall unit sales of its products during the six months ended April 30, 2023 compared with the six months ended April 30, 2022, a decrease of approximately 23.5% (approximately $765,100) in the average sales prices for the products sold during the six months ended April 30, 2023 compared with the average sales prices realized on products sold during the six months ended April 30, 2022 and a decrease of approximately $25,300 of new revenues associated with its recently launched PPX™ service platform during the six months ended April 30, 2023 compared with the six months ended April 30, 2022. The decrease in the average sales prices realized on products sold during the six months ended April 30, 2023 compared with the six months ended April 30, 2022, was due to decreases in the average prices of Company’s aesthetic product offerings and the reduction in sales of higher priced medical grade products, partially offset by an increase in sales of the Company’s aesthetic product offerings. The percentage of overall unit sales among the Company’s medical grade products and the Company’s aesthetic product offerings fell from 71.5% and 28.5%, respectively for the six months ended April 30, 2022 to 45.6% and 54.4%, respectively, during the six months ended April 30, 2023. Cost of Revenues . Our cost of revenues for the six months ended April 30, 2023 were $212,389, compared with cost of revenues of $275,539 for the six months ended April 30, 2022. The decrease in the cost of revenues during the six months ended April 30, 2023 of $63,150 or 22.9%, compared with the six months ended April 30, 2022, was due to a decrease in the amount of units sold of 25.2% (approximately $71,600) during the six months ended April 30, 2023, compared with the six months ended April 30, 2022, partially offset from an increase in the cost of units sold of 3.1% (approximately ($8,500) during the six months ended April 30, 2023, compared to costs of units sold during the six months ended April 30, 2022. The decrease in the cost of units sold was primarily the result of the Company’s decrease in sales of its medical grade product offerings partially offset from the increases in costs associated with its recently launched PPX™ service platform during the six months ended April 30, 2023 as compared to the six months ended April 30, 2022. 27 Gross Profit . Our gross profit for the six months ended April 30, 2023 was $1,703,331 (88.9% of revenues), compared with gross profit of $3,058,781 (91.7% of revenues) for the six months ended April 30, 2022. The decrease in gross profit during the six months ended April 30, 2023 of $1,355,451 was the result of decreases in the average sales prices for the products sold during the six months ended April 30, 2023 and decreases in overall unit sales of its products during the six months ended April 30, 2023 compared to the six months ended April 30, 2022. General and Administrative Expenses . General and administrative expenses for the six months ended April 30, 2023 were $5,792,335, compared with $5,958,477 for the six months ended April 30, 2022, a decrease of $166,142 or 2.8%. The decrease in the general and administrative expenses for the six months ended April 30, 2023 compared with the six months ended April 30, 2022, was primarily the result of decreased payroll and consulting fees of approximately $885,700, decreases in commissions from sales of the Company’s products and travel and entertainment costs of approximately $792,600, and reduced office related expenses of approximately $204,900, partially offset by an increase in stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $792,600 increased professional fees of approximately $100,600, increased research and development costs of approximately $49,500, increases in insurance costs of approximately $178,200, increased investor relations costs of approximately $175,400 and increased laboratory related costs of approximately $219,100. The reduction in payroll and consulting fees was primarily the result of the Executives’ agreement to a reduction in salary and other compensation in connection with the Restructuring and reductions in fees paid to consultants during the six months ended April 30, 2023 compared to 2022. The decreases in commissions on from sales of the Company’s products and travel and entertainment costs was principally the result of lower unit sales and overall revenues from the sale of the Company’s products during the six months ended April 30, 2023 compared with the six months ended April 30, 2022. The increase in stock-based compensation costs during the six months ended April 30, 2023 compared with the six months ended April 30, 2022 was principally the result of the amortization of costs from warrants issued as stock-based compensation to consultants in connection with the Restructuring in August 2022, stock issued as payment for services, and warrants issued to outside directors. Other Expense. Other expense for the six months ended April 30, 2023 was $188,950, compared with other expense of $250,084 for the six months ended April 30, 2022. The decrease in other expense of $61,134 during the six months ended April 30, 2023 compared to the six months ended April 30, 2022, was principally the result of the decrease in additional Commitment Fee Shortfall Obligations of approximately $41,600 under the SPA 22 with AJB and a decrease of approximately $32,800 in amortization of discounts in connection with the $600,000 Note, partially offset from an increase in other interest costs of approximately $13,000 during the six months ended April 30, 2023 compared with the six months ended April 30, 2022. 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 Six Months Ended April 30, 2023 2022 Cash, beginning of year $ 3,753,097 $ 108,570 Net cash used in operating activities (1,953,576 ) (623,943 ) Net cash used in investing activities (116,116 ) (385,036 ) Net cash (used in) provided by financing activities (552,468 ) 966,411 Cash, end of period $ 1,130,937 $ 66,002 During the six months ended April 30, 2023, the Company used cash in operating activities of $1,953,576, compared to $623,943 for the six months ended April 30, 2022, an increase in cash used of $1,329,633. The increase in cash used in operating activities was due to the decrease in revenues and gross profit, payment of past due accounts payable and accrued expenses, the decrease in accrued liabilities to management and the increase in inventory balances during the six months ended April 30, 2023 as compared to the six months ended April 30, 2022. 28 During the six months ended April 30, 2023, the Company had cash used in investing activities of $116,116, compared to cash used in investing activities of $385,036 for the six months ended April 30, 2022, a decrease in cash used of $268,920. The decrease in cash used in investing activities was primarily due to the reduction in payments made for leasehold improvements associated with the new lab facility in Basalt, CO of approximately $308,238 and a decrease in laboratory equipment purchased for the Company’s laboratory facilities of approximately $60,682, partially offset from the increase in investments from non-marketable securities of $100,000 during the six months ended April 30, 2023 as compared to the six months ended April 30, 2022. During the six months ended April 30, 2023, the Company had cash used in financing activities of $552,468 compared to cash provided by financing activities of $966,411 for the six months ended April 30, 2022. The decrease in cash provided by financing activities of $1,518,879 was due to decreases in proceeds of $35,600 from the issuance of Notes to AJB, increases in repayment of notes payable of $400,800, increases in payments on finance leases of approximately $32,500, increases in the shares repurchased in connection with litigation of $500,000 and the reduction in the sale of equity securities of approximately $550,000 during the six months ended April 30, 2023 as compared to the six months ended April 30, 2022. 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. Put Request Pursuant to the Purchase Agreement entered into with Tysadco Partners LLC, on December 2, 2022, the Company submitted a put request to Tysadco to purchase 4,456,326 registered shares at a purchase price (as calculated pursuant to the Purchase Agreement) of $0.02244, for a total of $100,000 (“Put Request”). On December 5, 2022, Tysadco funded the Put Request and the Company issued 4,456,326 shares to Tysadco. The proceeds from the share sale are being used for working capital and general corporate purposes. SPA 23 On March 6, 2023, the Company entered into a Securities Purchase Agreement (“SPA 23”) with AJB Capital, pursuant to which we sold a Promissory Note in the principal amount of $530,000 (“$530,000 Note”) to AJB in a private transaction for a purchase price of $519,400 (giving effect to original issue discount of $10,600). In connection with the sale of the $530,000 Note, the Company also paid AJB Capital’s legal fees and due diligence costs of $15,000, resulting in net proceeds to the Company of $504,400, which will be used for working capital and other general corporate purposes. The $530,000 Note matures on September 6, 2023, bears interest at the rate of 12% per annum and only following an event of default (as defined in the $530,000 Note), is convertible into shares of the Company’s common stock at a conversion price equal to the lower of the “VWAP” (as defined in the $530,000 Note) of the common stock during (i) the ten (10) trading day period preceding the issuance date of the $530,000 Note; or (ii) the ten (10) trading day period preceding the date of conversion of the $530,000 Note. 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 net losses of $4,277,954 for the six months ended April 30, 2023. In addition, the Company had an accumulated deficit and a stockholders’ deficit of $54,799,260 and $138,908, respectively, at April 30, 2023. The Company had a working capital deficit of $1,509,799 at April 30, 2023. 29 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 associated with the ongoing COVID-19 pandemic combined with the downturn in the overall United States and global economies have adversely affected the demand for our products and services by our customers and from patients of our customers 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; and/or (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 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 (a) 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; (b) 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; (c) obligations to the Company’s creditors are not accelerated; (d) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations; (e) 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 (f) 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 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. If revenues do not increase and stabilize, 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. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s October 31, 2022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. As of April 30, 2023, 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. 30 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 April 30, 2023 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, 2022, “Summary of Significant Accounting Policies”. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.