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 “ZEO” in this Quarterly Report on Form 10-Q (this “Report”) refer to Zeo ScientifiX, Inc. (f/k/a Organicell Regenerative Medicine, Inc.), a Nevada corporation, and its subsidiaries. Cautionary Note Regarding Forward- Looking Statements The statements contained in this Report 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 Report 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 Report 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 Report. 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 and an autologous non-manipulated biologic containing the nanoparticle fraction from a patient’s own peripheral blood (“RAAM Products”). Our RAAM Products and related services are principally used in the health care industry administered through doctors and clinics (“Providers”). On December 8, 2023, our board of directors and our stockholders holding a majority of the Company’s voting power, approved resolutions authorizing the Company to amend its Articles of Incorporation to change the name (the “Name Change”) of the Company from Organicell Regenerative Medicine, Inc. to “Zeo ScientifiX, Inc.” On February 16, 2024, the Company filed a Certificate of Amendment with the Secretary of State of Nevada to change the Company’s name from Organicell Regenerative Medicine, Inc. to Zeo ScientifiX Inc., effective February 20, 2024. In connection with the Name Change, the Company filed a Notification Form with the Financial Industry Regulatory Agency (“FINRA”) to effectuate the Name Change and to change the Company’s ticker symbol to “ZEOX” (the “Ticker Change”). The Name Change and Ticker Change were effectuated in the marketplace by FINRA on March 5, 2024. ZEO operates an extracellular vesicle processing laboratory in Davie, 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. 15 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. The Company recently launched 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. To date, revenues from PPX™ continue to be minimal. The Company has recently began to expand the use of its proprietary products in future formulations for a variety of topical use applications in the skin-care industry. 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. Current FDA guidance 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. On November 7, 2023, the Company filed a certificate of amendment to its Articles of Incorporation to implement a reverse split of our issued and outstanding common stock on a one-for-200 basis (the “Reverse Split”). The Reverse Split was effective on November 28, 2023. The par value of the Company’s common stock was unchanged at $0.001 per share after the Reverse Split. As a result, on the effective date of the Reverse Split, the stated capital on the Company’s balance sheet attributable to the Company’s common stock was reduced proportionately based on the Reverse Split ratio of one-for-200 and the additional paid-in capital account was credited with the amount by which the stated capital was reduced. All share and per share amounts referenced herein give effect to the Reverse Split. The following discussion of the Company’s results of operations and liquidity and capital resources should be read in conjunction with our condensed unaudited financial statements and related notes thereto appearing in Item 1 . of this Report. 16 Results of Operations Three months ended January 31, 2024 as compared to three months ended January 31, 2023 Revenues . Our revenues for the three months ended January 31, 2024 were $1,154,000, compared to revenues of $1,070,000 for the three months ended January 31, 2023. The increase in revenues during the three months ended January 31, 2024 of $84,000 or 7.9%, was primarily the result of an increase of approximately 10.5% (approximately $104,000) in the overall unit sales of its high concentration biologic products during the three months ended January 31, 2024 and an increase of approximately $34,000 of revenues associated with its recently launched PPX™ service platform during the three months ended January 31, 2024, compared with the three months ended January 31, 2023, partially offset by a decrease of approximately 5.2% (approximately $54,000) in the average sales prices for the high concentration biologic products sold during the three months ended January 31, 2024, compared with the three months ended January 31, 2023. The decrease in the average sales prices realized on high concentration biologic products sold during the three months ended January 31, 2024, compared with the three months ended January 31, 2023, was due to the sales of a newly introduced lower priced medical grade product during the three months ended January 31, 2024 that was not offered during the three months ended January 31, 2023. The percentage of overall unit sales of the Company’s high concentration medical grade biologic product offerings increased to 62.4% from 49.4% and decreased to 37.6% from 50.6% for the Company’s high concentration aesthetic biologics product offerings, respectively, for the three months ended January 31, 2024, compared to the three months ended January 31, 2023. Cost of Revenues . Our cost of revenues for the three months ended January 31, 2024 were $159,000, compared with cost of revenues of $104,000 for the three months ended January 31, 2023. The increase in the cost of revenues for the three months ended January 31, 2024 of $55,000 or 52.6%, from the three months ended January 31, 2023, was due the increase of approximately 10.5% (approximately $11,000) in the overall unit sales of its high concentration biologic products, an increase of approximately 11.6% (approximately $11,000) in the average cost of revenues for the high concentration biologic products, and an increase of approximately $33,000 of cost of revenues associated with its recently launched PPX™ service platform during the three months ended January 31, 2024, compared with the three months ended January 31, 2023. Gross Profit . Our gross profit for the three months ended January 31, 2024 was $995,000 (86.3% of revenues), compared with gross profit of $966,000 (90.3% of revenues) for the three months ended January 31, 2023. The increase in gross profit during the three months ended January 31, 2024 of $29,000 was the result of increases in the amount of high concentration biologic products sold and increases in the sales of its recently launched PPX™ service platform, partially offset from the increase in costs of revenues associated with those product sales during the three months ended January 31, 2024, compared to the three months ended January 31, 2023. General and Administrative Expenses . General and administrative expenses for the three months ended January 31, 2024 were $2,157,000, compared with $3,142,000 for the three months ended January 31, 2023, a decrease of $985,000 or 31.3%. The decrease in the general and administrative expenses for the three months ended January 31, 2024, from the three months ended January 31, 2023, was primarily the result of decreased research and development costs of approximately $169,000, decreases in insurance costs of approximately $97,000, decreased marketing and investor relations costs of approximately $151,000, decreases in commissions from sales of the Company’s products and travel and entertainment costs of approximately $105,000, decreases in stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $202,000, decreased office related expenses of approximately $55,000, decreased laboratory related costs of approximately $242,000 and decreased professional fees of approximately $171,000, which were partially offset by increased payroll and consulting fees of approximately $207,000. 17 The decrease in stock-based compensation costs during the three months ended January 31, 2024 compared with the three months ended January 31, 2023 was principally the result of reduced amortization of costs from warrants issued as stock-based compensation to consultants in connection with the August 2022 change of control and restructuring of the company, stock issued as payment for services, and warrants issued to outside directors. The decrease in laboratory related costs was principally the result of the Company’s sale of the Basalt laboratory facility in August 2023 and as a result, there were no associated costs associated with operating that facility during the three months ended January 31, 2024 compared with the three months ended January 31, 2023. The decrease in research and development costs during the three months ended January 31, 2024, compared with the three months ended January 31, 2023 was principally the result of the Company’s completion of its Phase 1 trials during July 2023, and there being no other significant ongoing clinical trial costs incurred since that time. The decrease in professional fees was principally the result of reduced audit fees, tax preparation fees and legal fees during the three months ended January 31, 2024, compared with the three months ended January 31, 2023. Other income (expense). Other income for the three months ended January 31, 2024 was $149,000, compared with other income of $0 for the three months ended January 31, 2023. The increase in other income was due to the settlement of insurance claims of $89,000, increases in commissions received from sales of Formulator products of $34,000 and increases in income from the settlement of liabilities of approximately $26,000 during the three months ended January 31, 2024, compared to the three months ended January 31, 2023. Other expense for the three months ended January 31, 2024 was $27,000, compared with other expense of $111,000 for the three months ended January 31, 2023. The decrease in other expense of $84,000 during the three months ended January 31, 2024, compared to the three months ended January 31, 2023, was principally the result of reduced interest and amortization of loan discounts of approximately $35,000 and reduced costs associated with changes in the fair value of the Commitment Fee of $49,000 during the three months ended January 31, 2024, compared to the three months ended January 31, 2023. 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, 2024 2023 Cash, beginning of year $ 1,756,000 $ 3,753,000 Net cash used in operating activities (575,000 ) (1,283,000 ) Net cash used in investing activities - (16,000 ) Net cash (used in) provided by financing activities (9,000 ) (1,032,000 ) Cash, end of year $ 1,172,000 $ 1,422,000 During the three months ended January 31, 2024, the Company used cash in operating activities of $575,000, compared to $1,283,000 for the three months ended January 31, 2023, a decrease in cash used of $708,000. The decrease in cash used was primarily the result of a reduction in general and administrative expenses and other income (expense) after adjusting for non-cash related activities of $813,000 and increases in gross profit of $16,000 for the three months ended January 31, 2024, compared to the three months ended January 31, 2023, partially offset by reductions in cash provided from changes in operating assets and liabilities of $121,000 for the three months ended January 31, 2024, compared to the three months ended January 31, 2023. 18 The decrease in cash provided from changes in operating assets and liabilities was due to decreases in accounts payable and accrued expenses and prepaid expenses, partially offset from increases in deferred revenues during the three months ended January 31, 2024, as compared to the three months ended January 31, 2023. The reduction in general and administrative expenses and other oncome (expense) after adjusting for non-cash related activities was the result of reduced operating expenses associated with professional fees, payroll, consulting costs, research and laboratory related expenses during the three months ended January 31, 2024, as compared to the three months ended January 31, 2023. During the three months ended January 31, 2024, the Company did not have any investing activities, compared to cash used in investing activities of $16,000 for the three months ended January 31, 2023 a decrease in cash used from investing activities of $16,000. The decrease in cash used by investing activities was primarily due to the reduction of payments made in connection with the Company’s purchase of laboratory equipment. During the three months ended January 31, 2024, the Company had cash used in financing activities of $9,000, compared to cash used in financing activities of $1,032,000 for the three months ended January 31, 2023. The decrease in cash used in financing activities of $1,023,000 was due to the reduction in repayment of notes payable of $600,000, reductions in funds held in escrow for shares to be repurchased in connection with litigation of $500,000 and decreases in payments on finance leases of approximately $22,000, partially offset from decreases in proceeds from the sale of equity securities of $100,000. 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. 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 $1,040,000 for the three months ended January 31, 2024 and used $575,000 of cash from operating activities during that period. In addition, the Company had a stockholders’ deficit of $1,508,000 at January 31, 2024. The Company had a working capital deficit of $2,031,000 at January 31, 2024. United States Food and Drug Administration (“FDA”) regulations which were announced in November 2017 and which became effective in May 2021 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. 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. 19 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. As of January 31, 2024, 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, 2024 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, 2023, “Summary of Significant Accounting Policies”. 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.