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Item 1. Financial Statements

2024-06-14 compared with 2024-03-18 · 144 added, 78 removed, 294 unchanged (43% of the section changed)

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Zeo ScientifiX, Inc.

(Formerly Organicell Regenerative Medicine Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS

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Zeo ScientifiX, Inc.

(Formerly Organicell Regenerative Medicine Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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Three Months Ended

Six Months Ended

Revenues (includes sales to related parties of approximately $ 52,000 , $ 84,000 , $ 82,000 , and $ 109,000 , respectively

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Zeo ScientifiX, Inc.

(Formerly Organicell Regenerative Medicine Inc.)

CONDENSED CONSOLIDATED CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the Three Months Ended January 31, 2024 and 2023 (Amounts rounded to the nearest thousand except share amounts)

For the Three Months And Six Months Ended April 30, 2024 and 2023

(Amounts rounded to the nearest thousand except share amounts)

Three Months Ended April 30,

Stockholders’

Balance February 1, 2023

Sale of common stock

Stock-based compensation

Issuance of Common stock and Warrants as commitment fee for SPA 23 Note

Stock issued in satisfaction of Commitment Fee Shortfall Obligation

Cancellation of shares repurchased in connection with litigation

Balance April 30, 2023

Balance February 1, 2024

Reverse split round-up adjustment

Cancellation of shares in connection with litigation

Exchange of accounts payable for stock

Stock-based compensation

Balance April 30, 2024

Six Months Ended April 30,

Stockholders’

Balance October 31, 2022

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Stock-based compensation

Balance January 31, 2023

Issuance of Common stock and Warrants as commitment fee for SPA 23 Note

Stock issued in satisfaction of Commitment Fee Shortfall Obligation

Cancellation of shares repurchased in connection with litigation

Balance April 30, 2023

Balance October 31, 2023

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Cancellation of shares in connection with litigation

Exchange of accounts payable for stock

Stock-based compensation

Balance January 31, 2024

Balance April 30, 2024

The accompanying notes are an integral part of these condensed consolidated financial statements.

Zeo ScientifiX, Inc.

(Formerly Organicell Regenerative Medicine Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts rounded to the nearest thousand except share amounts)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

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Depreciation and amortization expense

Amortization of OID – Promissory notes

Amortization of OID and commitment fee discount – Promissory notes

Change in Commitment Fee Shortfall Obligation

Write-off of fixed assets

Write-off of receivables from officer

Stock-based compensation

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Purchase of fixed assets

Investment in non-marketable equity securities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Funds held in escrow for share repurchase

Proceeds from issuance of Promissory Note

Shares repurchased in connection with litigation

Payments on finance lease

1 unchanged sentence

Proceeds from sale of common stock

Net cash used in by financing activities

Net cash used in financing activities

Decrease in cash

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Reduction in accounts payable for equipment returned to vendor

Exchange of shares for payables

OID discount on proceeds received from promissory notes

Common stock and warrants issued as commitment fee for promissory notes

Common stock issued in satisfaction of Commitment Fee Shortfall Obligation

The accompanying notes are an integral part of these condensed consolidated financial statements.

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The Name Change and Ticker Change were effectuated in the marketplace by FINRA on March 5, 2024.

For the three months ended January 31, 2024 and 2023, the Company principally operated through General Surgical of Florida, Inc., a Florida corporation and wholly owned subsidiary, which was formed to sell the Company’s therapeutic products to Providers.

For the six months ended April 30, 2024 and 2023, the Company principally operated through General Surgical of Florida, Inc., a Florida corporation and wholly owned subsidiary, which was formed to sell the Company’s therapeutic products to Providers.

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.

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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.

The Company is currently exploring the use of its proprietary products in future formulations for a variety of topical use applications in the skin-care industry.

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”).

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All share and per share amounts referenced herein give effect to the Reverse Split as of the earliest period presented.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the condensed unaudited consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of January 31, 2024, the results of its operations for the three months ended January 31, 2024 and 2023 and the cash flows for the three months ended January 31, 2024 and 2023.

In the opinion of management, the condensed unaudited consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of April 30, 2024, the results of its operations for the three months and six months ended April 30, 2024 and 2023 and the cash flows for the six months ended April 30, 2024 and 2023.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities Exchange Commission, although we believe that the disclosures made are adequate to make the information not misleading.

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Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $ 250,000 per institution.

At January 31, 2024, the Company held a total of approximately $ 712,000 of cash balances in one financial institution in excess of FDIC insurance coverage limits.

At April 30, 2024, the Company held a total of approximately $ 165,000 of cash balances in one financial institution in excess of FDIC insurance coverage limits.

Major Customer

During the three months ended January 31, 2024, the Company sold products and services totaling approximately $ 297,000 ( 25.7 % ) to a large distributor, approximately $ 125,000 ( 10.8 % ) to another large distributor and approximately $ 201,000 ( 17.4 % ) to an individual medical practice.

During the three months ended January 31, 2023, the Company sold a total of approximately $ 303,000 ( 28.4 % ) to a large distributor and approximately $ 295,000 ( 27.6 % ) to another large distributor.

During the six months ended April 30, 2024, the Company sold products and services totaling approximately $ 477,000 ( 20.9 % ) to a large distributor, approximately $ 237,000 ( 10.4 % ) to another large distributor and approximately $ 311,000 ( 13.6 % ) to an individual medical practice.

During the six months ended April 30, 2023, the Company sold a total of approximately $ 437,000 ( 22.8 % ) to a large distributor and approximately $ 412,000 ( 21.5 % ) to another large distributor.

The Company’s sales agreements are non-exclusive and the Company does not believe it has any exposure based on the customers of its products.

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Those estimates and assumptions include estimates for credit loss reserves for accounts receivable, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing equity instruments issued for services, and assumptions used in the determination of the Company’s liquidity.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

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The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity instruments.

At January 31, 2024, the Company had 2,571,656 common shares issuable upon the exercise of warrants that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months ended January 31, 2024.

At January 31, 2023, the Company had 2,044,000 common shares issuable upon the exercise of warrants and 429,232 unvested restricted stock that were no t included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months ended January 31, 2023.

At April 30, 2024, the Company had 2,644,194 common shares issuable upon the exercise of options and warrants and 167,500 unvested shares of restricted stock that were no t included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months and six months ended April 30, 2024

At April 30, 2023, the Company had 2,094,000 common shares issuable upon the exercise of options and warrants and 329,232 unvested shares of restricted stock that were no t included in the computation of dilutive loss per share because their inclusion is anti-dilutive for the three months and six months ended April 30, 2023.

Stock-Based Compensation

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These costs are expensed as incurred.

Our research and development expenses were approximately $ 27,000 and $ 195,000 for the three months ended January 31, 2024 and 2023, respectively.

Our research and development expenses were approximately $ 5,000 and $ 406,000 for the three months ended April 30, 2024 and 2023, respectively.

Our research and development expenses were approximately $ 33,000 and $ 602,000 for the six months ended April 30, 2024 and 2023, respectively.

The research and development costs primarily relate to the filing and approval of IND applications and the performance of clinical trials.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company files a consolidated tax return that includes all of its subsidiaries.

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The interpretation also provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

For the three months ended January 31, 2024 and 2023 the Company incurred operating losses, and therefore, there was not any income tax expense amount recorded during those periods.

There is a full valuation allowance established for the tax benefit associated with the net losses for the three months ended January 31, 2024 and 2023.

For the three months and six months ended April 30, 2024 and 2023 the Company incurred operating losses, and therefore, there was not any income tax expense amount recorded during those periods.

There is a full valuation allowance established for the tax benefit associated with the net losses for the six months ended April 30, 2024 and 2023.

Fair Value of Financial Instruments

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Level three — Unobservable inputs that are supported by little or no market activity and developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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The Company evaluates its hierarchy disclosures each quarter.

Segment Information

For the three months and six months ended April 30, 2024 and 2023, the Company operated only one operating segment.

Subsequent Events

The Company has evaluated subsequent events that occurred after January 31, 2024 through the financial statement issuance date for subsequent event disclosure consideration.

The Company has evaluated subsequent events that occurred after April 30, 2024 through the financial statement issuance date for subsequent event disclosure consideration.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosure , which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss.

The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280, Segment Reporting , including the significant segment expense disclosures.

This standard will be effective for the Company on November 1, 2024 and interim periods beginning in fiscal year 2025, with early adoption permitted.

The updates required by this standard should be applied retrospectively to all periods presented in the financial statements.

The Company does not expect this standard to have a material impact on its results of operations, financial position or cash flows.

Other recent accounting pronouncements and guidance issued by FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 3 – GOING CONCERN

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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.

The Company incurred net losses of $ 2,439,000 for the six months ended April 30, 2024 and used $ 990,000 of cash from operating activities during that period.

In addition, the Company had a stockholders’ deficit of $ 1,700,000 at April 30, 2024.

The Company had a working capital deficit of $ 2,203,000 at April 30, 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”).

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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.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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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.

The independent auditor’s report dated January 29, 2024 included in our Annual Report on Form 10-K for the year ended October 31, 2023 included an explanatory paragraph as to the Company’s ability to continue as a going concern.

As of April 30, 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.

NOTE 4 – INVENTORIES

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Total property and equipment, net

Depreciation expense totaled $ 19,000 and $ 29,000 for the three months ended January 31, 2024 and 2023, respectively.

Amortization expense totaled $ 0 and $ 127,000 for the three months ended January 31, 2024 and 2023, respectively.

During February 2024, in connection with the expiration of the lease for certain lab equipment originally valued at $ 240,000 , the Company exercised its buyout option for the equipment for a total cost of $ 1 (see Note 6).

Depreciation expense totaled $ 19,000 and $ 29,000 for the three months ended April 30, 2024 and 2023, respectively.

Depreciation expense totaled $ 38,000 and $ 59,000 for the six months ended April 30, 2024 and 2023, respectively.

Amortization expense totaled $ 0 and $ 127,000 for the three months ended April 30, 2024 and 2023, respectively.

Amortization expense totaled $ 0 and $ 253,000 for the six months ended April 30, 2024 and 2023, respectively.

NOTE 6 – LEASE OBLIGATIONS

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On August 7, 2023, certain equipment under the second lease agreement were assigned to a third party resulting in the reduction of the Company’s remaining obligations under the second lease agreement from $ 6,000 per month to $ 1,000 per month.

As of January 31, 2024, finance lease obligations were $ 27,000 , of which $ 10,000 were current.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of April 30, 2024, finance lease obligations were $ 16,000 , of which $ 5,000 were current.

NOTE 7 – RELATED PARTY TRANSACTIONS

For the three months ended January 31, 2024, the Company sold a total of approximately $ 30,000 of product to a management services organization (“MSO”) that provides administrative services and contracts for medical supplies for several medical practices, of which approximately $ 30,000 of such products that were purchased from the Company were attributable to the medical practice owned by Dr.

George Shapiro the Company’s Chief Medical Officer and a member of the board of directors.

Shapiro also has an indirect economic interest in the parent company that owns the MSO.

For the three months ended January 31, 2023, the Company sold a total of approximately $ 25,000 of product to a management services organization (“MSO”) that provides administrative services and contracts for medical supplies for several medical practices, of which approximately $ 25,000 of such products that were purchased from the Company were attributable to the medical practice owned by Dr.

George Shapiro the Company’s Chief Medical Officer and a member of the board of directors.

Shapiro also has an indirect economic interest in the parent company that owns the MSO.

At January 31, 2024 and October 31, 2023, advances payable to an affiliate of a former executive were $ 220,897 .

For the three months and six months ended April 30, 2024, the Company sold a total of approximately $ 52,000 and $ 82,000 of product to a management services organization (“MSO”) that provides administrative services and contracts for medical supplies for several medical practices, of which Dr.

George Shapiro, the Company’s Chief Medical Officer and a member of the board of directors has an indirect economic interest in the parent company that owns the MSO.

For the three months and six months ended April 30, 2023, the Company sold a total of approximately $ 84,000 and $ 109,000 of product to a management services organization (“MSO”) that provides administrative services and contracts for medical supplies for several medical practices, of which Dr.

George Shapiro, the Company’s Chief Medical Officer and a member of the board of directors has an indirect economic interest in the parent company that owns the MSO.

At April 30, 2024 and October 31, 2023, advances payable to an affiliate of a former executive were $ 220,897 .

The advances are non-interest bearing and there are no formal arrangements regarding the repayment of the advances.

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Other professional fees payables

Accrued IRS penalty (Note 14)

Accrued IRS penalty

Accrued commissions payable

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Total Accounts Payable and Accrued Expenses

During February 2024, the Internal Revenue Service (“IRS”) notified the Company that the Company’s appeal for full abatement of penalties and interest ($ 92,000 as of February 2024) associated with delinquent filed returns for the tax years ended 2012 – 2015 was granted.

The Company recorded the abatement as other income for the three months and six months ended April 30, 2024.

NOTE 9 – NOTES PAYABLE

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The Convertible Promissory Notes may be prepaid by the Company, in whole, but not in part, at any time prior to the Maturity Date, subject to payment of a premium of 10%, provided that the Company gives the holders fifteen (15) business notice prior to prepayment, during which period, Investors may elect to convert the Notes and accrued but unpaid interest thereon into Shares at a conversion price equal to 80% of the average of the daily VWAP of the Shares (as defined in the Note) for twenty consecutive ( 20 ) trading days ending on the date the Company gives the holders of the Convertible Promissory Notes notice of prepayment.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Holders of the Convertible Promissory Notes will have the right, at any time during the period commencing on April 1, 2024 and ending on the earliest to occur of the Maturity Date, the date of a Prepayment or the date of an automatic conversion, to convert the Convertible Promissory Note in whole, but not in part, and accrued interest thereon into shares of common stock (“Shares”) at a conversion price equal to 80% of the average of the daily VWAP of the Shares (as defined in the Convertible Promissory Note) for twenty consecutive (20) trading days ending on the date the investor gives the Company a notice of conversion, subject to a minimum conversion price of $ 6.00 per Share.

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The discount is being amortized over the term of Convertible Promissory Notes.

For the three months ended January 31, 2024, $ 6,000 of the discounts recorded in connection with the issuance of the Convertible Promissory Notes have been amortized, resulting to unamortized debt discount of $ 62,000 as of January 31, 2024.

For the three months and six months ended April 30, 2024, $ 6,000 and $ 12,000 , respectively, of the discounts recorded in connection with the issuance of the Convertible Promissory Notes have been amortized, resulting in unamortized debt discount of $ 56,000 as of April 30, 2024.

NOTE 10 – CAPITAL STOCK

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The par value of the Company’s common stock was unchanged at $ 0.001 per share after the Reverse Split.

Stock Based Compensation:

On April 1, 2024, pursuant to the Company’s 2021 Incentive Stock Plan (“Incentive Plan”), the Company’s Board of Directors (“Board”) awarded 125,000 and 62,500 shares of Zeo common stock to Jerry Glauser and Leatham Stern or their nominees, respectively (“Stock Grants”), both members of the Board, valued at $ 2.00 per share, the closing price of the common stock of the Company on the grant date.

The Stock Grants vest in full as of the date of the grant.

The Company recorded a total of $ 375,000 of stock-based compensation expense during the three months and six months ended April 30, 2024 in connection with the Stock Grants.

Effective April 1, 2024, the Company entered into sales distribution agreement with a sales and marketing company (“Salesco”).

Salesco will be entitled to receive commissions on sales of the Company’s products to customers introduced by Salesco in the form of cash and common stock of the Company based on sales milestones.

In connection with the agreement, the Company agreed to pay Salesco a monthly advance of $ 15,000 for 6 months, which is to be repaid from commissions earned by Salesco on sales of the Company’s products that are generated through Salesco.

In addition, the Salesco was granted 30,000 shares of the Company’s common stock which vests over 2 years, quarterly, except the first quarterly vesting period will “cliff vest” on the earlier of (a) 6-month anniversary of the agreement or (b) upon the Company receiving $ 300,000 in cumulative sales from customers introduced by Salesco.

The agreement may be terminated by the Company upon the six-month anniversary of the agreement.

The 30,000 grant of shares were valued at $ 2.00 per share, the closing price of the common stock of the Company on the effective date of the agreement.

The Company will record $ 60,000 of stock-based compensation expense based on the grant date fair value of the 2 -year vesting terms.

The Company recorded $3,000 of stock-based compensation expense during the three months and six months April 30, 2024.

During the period ended April 30, 2024, the Company granted 137,500 shares of the Company’s common stock to various consultants.

The shares vest over 3 years.

The shares were valued at prices ranging from $ 1.70 to $ 2.75 per share, the closing price of the common stock of the Company on the effective date of the agreements or an aggregate fair value of $ 250,000 .

The Company recorded $ 9,000 of stock-based compensation expense during the three months and six months April 30, 2024 pertaining to the shares granted.

There was approximately $ 298,000 of unamortized compensation associated with unvested stock grants outstanding as of April 30, 2024 that will be amortized over their respective remaining service periods.

Issuances of Common Stock – Exchange of balances due on accounts payable for stock:

Effective January 31, 2024, the Company and a legal firm performing services to the Company agreed to exchange $ 20,000 of legal fees payable due to the legal firm for 20,000 shares of newly issued common stock valued at $1.25 per share ($ 25,000 ), the closing price of the common stock of the Company on the date the arrangement was agreed to by both the Company and the legal firm.

The shares were issued to the legal firm in April 2024.

Shares Repurchased – Settlement of Litigation:

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Unvested Equity Instruments :

A summary of unvested equity instruments outstanding for the three months ended January 31, 2024 are presented below:

A summary of unvested equity instruments outstanding for the six months ended April 30, 2024 are presented below:

Schedule of non vested share activity

Weighted- Average

Outstanding at October 31, 2023

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Expired/Forfeited

Outstanding at January 31, 2024

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – WARRANTS

A summary of warrant activity for the three months ended January 31, 2024 are presented below:

Schedule of warrant activity

Outstanding at April 30, 2024

NOTE 11 – STOCK OPTIONS

The Company has issued option securities under its Incentive Plan and warrants entitling the holder to purchase shares of its common stock at specified prices and for specified exercise periods.

A summary of the Company’s option and warrant activity for the six months ended April 30, 2024 are presented below:

Schedule of stock options

Weighted-average

Exercise Price

Outstanding at October 31, 2023

Expired/Forfeited

Outstanding at January 31, 2024

Exercisable at January 31, 2024

During the three months ended January 31, 2024 and 2023, the Company amortized $ 773,000 and $ 631,000 , respectively, of stock compensation costs associated with warrants issued.

There was approximately $ 4,108,000 of unamortized compensation associated with warrants outstanding as of January 31, 2024 that will be amortized over their respective remaining service periods.

Outstanding at April 30, 2024

Exercisable at April 30, 2024

During February 2024, pursuant to the Incentive Plan, the Company granted to each of its four non-employee directors, a non-qualified option to purchase 5,000 shares of Zeo common stock (“Director Options”).

The Director Options shall (a) vest as to 50% on the grant date and as the balance of 50% on September 23, 2024.

The Director Options are exercisable for $2.00 per share (the closing price of the Company’s common stock on the date of grant), until the fifth anniversary date of the date of issuance.

The Company valued the Director Options on the dates of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

(1) risk free interest rate 4.34 % , (2) term of 5 years, (3) expected stock volatility of 156 % , and (4) expected dividend rate of 0 % .

The grant date fair value of the total 20,000 Director Options granted was $ 40,000 .

The Company recorded a total of $ 23,000 of stock-based compensation expense in connection with the Director Options granted for the three months and six months ended April 30, 2024 based on the fair value of these options on the grant date.

On April 1, 2024, pursuant to the Company’s Incentive Plan, the Company approved an employee stock option plan for its laboratory and administrative staff (“Employee Plan”).

Under the Employee Plan, beginning January 31, 2025 and on each January 31 thereafter (each January 31 being a “Grant Date”), if employed by the Company for a minimum of one year as of each Grant Date, each laboratory employee and administrative employee are entitled to receive options to purchase shares of common stock of the Company based on 6% of the employees’ current base salary as of the Grant Date and a conversion price equal to $4.50 or 150% of the trading price of the Company’s stock on the Grant Date, whichever is higher.

The stock options will (a) vest in three equal annual installments commencing one year from the Grant Date;

(b) be exercisable for a period of five (5) years from the Grant Date.

All vested stock options must be exercised on before 90 days from the date the employee is no longer employed by the Company (for whatever reason), or they will be forfeited.

In addition to the above, the Company agreed to provide all current employees with at least one year of service with the Company (total of seven employees), a one-time grant of stock options based on the employees’ tenure with the Company totaling 52,538 shares (“One-time Options”).

The One-time Options will (a) vest in three equal annual installments commencing one year from the Grant Date;

(b) be exercisable for a period of five ( 5 ) years from the Grant Date.

All vested stock options must be exercised on before 90 days from the date the employee is no longer employed by the Company (for whatever reason), or they will be forfeited.

The Company valued the One-Time options on the dates of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

(1) risk free interest rate 4.34 % , (2) term of 5 years, (3) expected stock volatility of 156 % , and (4) expected dividend rate of 0 % .

The grant date fair value of the total 52,538 One-time Options granted was $ 105,000 .

The Company recorded a total of $ 3,000 of stock-based compensation expense in connection with the One-time Options granted for the three months and six months ended April 30, 2024 based on the fair value of these options on the grant date.

During the three months ended April 30, 2024 and 2023, the Company amortized $ 800,000 and $ 592,000 , respectively, of stock compensation costs associated with options issued.

During the six months ended April 30, 2024 and 2023, the Company amortized $ 1,573,000 and $ 1,223,000 , respectively, of stock compensation costs associated with options issued.

There was approximately $ 3,453,000 of unamortized compensation associated with options and warrants outstanding as of April 30, 2024 that will be amortized over their respective remaining service periods.

Included in this amount was unamortized compensation of $ 437,000 relating to 190,000 unvested options that were cancelled as a result of the non-renewal of an executive’s employment agreement on May 31, 2024 (see Note 12).

All stock compensation expense is classified under general and administrative expenses in the consolidated statements of operations.

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Both the Company and the Formulator have yet to deliver the Ingredient or the Moisturizer to the Supplier.

As of January 31, 2024, the Company has recorded deferred revenues of $ 403,000 and prepaid expenses of $ 235,000 for payments received and paid, respectively, in connection with the Amended Skincare Agreement.

Zeo ScientifiX, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of April 30, 2024, the Company has recorded deferred revenues of $ 403,000 and prepaid expenses of $ 235,000 for payments received and paid, respectively, in connection with the Amended Skincare Agreement.

Deferred Revenue

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As of October 31, 2023, $101,000 of product inventory was invoiced and delivered reducing the deferred revenue amount to $399,000.

During the period ended January 31, 2024, $81,000 of product inventory was invoiced and delivered, further reducing the deferred revenue balance to $318,000 as of that date.

Amounts received by the Company for products that have yet to be delivered to the customers as of January 31, 2024 and October 31, 2023 are reflected in the Company’s balance sheet as deferred revenues and were comprised of the following:

During the six months ended April 30, 2024, $229,000 of product inventory was invoiced and delivered, further reducing the deferred revenue balance to $170,000 as of that date.

Amounts received by the Company for products that have yet to be delivered to the customers as of April 30, 2024 and October 31, 2023 are reflected in the Company’s balance sheet as deferred revenues and were comprised of the following:

Schedule of deferred revenue

7 unchanged sentences

Effective November 13, 2023, the Company entered into a settlement agreement with Albert Mitrani and Dr.

Maria Ines Mitrani, pursuant to which it resolved various claims against the Mitranis, including those set forth in the previously reported Florida state action the Company had filed against the Mitranis.

Maria Ines Mitrani (former executives of the Company), pursuant to which it resolved various claims against the Mitranis, including those set forth in the previously reported Florida state action the Company had filed against the Mitranis.

As part of the settlement, Albert Mitrani and Dr.

Maria Ines Mitrani returned to the Company 682,161 and 481,831 shares of ZEO common stock held by them respectively and the parties exchanged mutual releases.

The Company’s employment agreements with Dr.

Harry Leider, its Chief Executive Officer and Dr.

Howard Golub, its Chief Science Officer (“Employment Agreements”) had an initial term that ended May 31, 2024.

The Employment Agreements were not renewed and accordingly, the Employment Agreements expired and the employment of Drs.

Leider and Golub by the Company ended on May 31, 2024.

Leider has advised that he may seek severance from the Company.

The Company believes that he is not entitled to severance, as it is not provided for in the case of a non-renewal of the term of the employment agreement.

In addition to the foregoing, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business.

NOTE 13 – SEGMENT INFORMATION

For the three months ended January 31, 2024

and 2023, the Company operated only one 1 operating segment.

NOTE 14 – SUBSEQUENT EVENTS

IRS Penalties

During February 2024, the Internal Revenue Service (“IRS”) notified the Company that the Company’s appeal for full abatement of penalties and interest ($ 92,000 as of January 31, 2024) associated with delinquent filed returns for the tax years ended 2012 – 2015 was granted.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements